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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1993
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RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10215 13-3490602
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-6388 56-0950247
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 258-5600
(Address, including zip code, and telephone number, including area code,
of the principal executive offices of RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc.)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH NAME OF EACH
EXCHANGE ON EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED TITLE OF EACH CLASS WHICH REGISTERED
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RJR NABISCO HOLDINGS CORP. 7 3/8% Sinking Fund Debentures, Due
Common Stock, par value $.01 per share New York February 1, 2001 New York
$.835 Depositary Shares New York 7 5/8% Notes due September 15, 2003 New York
Series B Depositary Shares New York 8 5/8% Notes due 2002 New York
RJR NABISCO, INC. 8% Notes due 2000 New York
Subordinated Discount Debentures due 9 1/4% Debentures due 2013 New York
May 15, 2001 New York 8 3/4% Notes due 2005 New York
15% Payment-in-Kind Subordinated Debentures due
May 15, 2001 New York SUBSIDIARIES OF THE REGISTRANTS
13 1/2% Subordinated Debentures due May 15, 2001 New York Nabisco, Inc.
10 1/2% Senior Notes due 1998 New York 7 3/4% Sinking Fund Debentures Due May 1, 2001 New York
8.30% Senior Notes due April 15, 1999 New York 7 3/4% Sinking Fund Debentures Due
8.75% Senior Notes due April 15, 2004 New York November 1, 2003 New York
Standard Brands Incorporated
7 3/4% Sinking Fund Debentures, due May 1, 2001 New York
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE 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
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE 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 REGISTRANTS' 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. [ ]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF RJR
NABISCO HOLDINGS CORP. ON JANUARY 31, 1994 WAS APPROXIMATELY $4.9 BILLION.
CERTAIN AFFILIATES OF KKR ASSOCIATES AND DIRECTORS OF RJR NABISCO HOLDINGS CORP.
ARE CONSIDERED AFFILIATES FOR PURPOSES OF THIS CALCULATION BUT SHOULD NOT
NECESSARILY BE DEEMED AFFILIATES FOR ANY OTHER PURPOSE. NONE OF THE VOTING STOCK
OF RJR NABISCO, INC. IS HELD BY ANY NON-AFFILIATE.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: JANUARY 31, 1994:
RJR NABISCO HOLDINGS CORP.: 1,138,110,712 SHARES OF COMMON STOCK, PAR VALUE,
$.01 PER SHARE
RJR NABISCO, INC.:2,566.07515 SHARES OF COMMON STOCK, PAR VALUE $1,000 PER SHARE
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RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF RJR NABISCO HOLDINGS CORP. TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF
THE SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1994 ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
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INDEX
PAGE
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PART I
Item 1. Business....................................................................................... 1
(a) General Development of Business....................................................... 1
(b) Financial Information about Industry Segments......................................... 2
(c) Narrative Description of Business..................................................... 2
Tobacco........................................................................... 2
Food.............................................................................. 8
Other Matters..................................................................... 11
(d) Financial Information about Foreign and Domestic Operations 13
and Export Sales..................................................................
Item 2. Properties..................................................................................... 13
Item 3. Legal Proceedings.............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............................................ 13
Executive Officers of the Registrants.......................................................... 14
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters.......................... 16
Item 6. Selected Financial Data........................................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and 19
Results of Operations........................................................................
Item 8. Financial Statements and Supplementary Data.................................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and 29
Financial Disclosure.........................................................................
PART III
Item 10. Directors and Executive Officers of the Registrants............................................ 30
Item 11. Executive Compensation......................................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 30
Item 13. Certain Relationships and Related Transactions................................................. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 31
PART I
ITEM 1. BUSINESS
(a) General Development of Business
RJR Nabisco Holdings Corp. ("Holdings") was organized as a Delaware
corporation in 1988 at the direction of Kohlberg Kravis Roberts & Co., L.P.
("KKR"), a Delaware limited partnership, to effect the acquisition of RJR
Nabisco, Inc. ("RJRN"), which was completed on April 28, 1989 (the
"Acquisition"). As a result of the Acquisition, RJRN became an indirect, wholly
owned subsidiary of Holdings. After a series of holding company mergers
completed on December 17, 1992, RJRN became a direct, wholly owned subsidiary of
Holdings. The business of Holdings is conducted through RJRN. Holdings and RJRN
are referred to herein collectively as the "Registrants".
RJRN's operating subsidiaries comprise one of the largest tobacco and food
companies in the world. In the United States, the tobacco business is conducted
by R. J. Reynolds Tobacco Company ("RJRT"), the second largest manufacturer of
cigarettes, and the packaged food business is conducted by the Nabisco Foods
Group ("NFG"), the largest manufacturer and marketer of cookies and crackers.
Tobacco operations outside the United States are conducted by R. J. Reynolds
Tobacco International, Inc. ("Tobacco International") and food operations
outside the United States and Canada are conducted by Nabisco International,
Inc. ("Nabisco International"). NFG and Nabisco International are sometimes
referred to herein collectively as "Nabisco". Together, RJRT's and Tobacco
International's tobacco products are sold around the world under a variety of
brand names. Nabisco's food products are sold in the United States, Canada,
Latin America and certain other international markets. For financial information
with respect to RJRN's industry segments, lines of business and operations in
various geographic locations, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 15 to the
consolidated financial statements, and the related notes thereto, of Holdings
and RJRN as of December 31, 1993 and 1992 and for each of the years in the
three-year period ended December 31, 1993 (the "Consolidated Financial
Statements").
RJRN was incorporated in 1970 and can trace its origins back to the
formation of R. J. Reynolds Tobacco Company in 1875. Activities were confined to
the tobacco industry until the 1960's, when diversification led to investments
in transportation, energy and food. With the acquisition of Del Monte
Corporation ("Del Monte") in 1979, RJRN began to concentrate its focus on
consumer products. This strategy led to the acquisition of Nabisco Brands, Inc.
in 1985. RJRN today conducts its tobacco line of business through RJRT and
Tobacco International and its food line of business through NFG and Nabisco
International.
In recent years the Registrants have completed a number of acquisitions
within these lines of business. These included the 1992 acquisitions of (i) the
assets of New York Style Bagel Chip Company, Inc., the country's leading
producer and marketer of bagel chips and pita chips; (ii) Plush Pippin
Corporation, a leading regional supplier of frozen pies to in-store supermarket
bakeries; (iii) Stella D'oro Biscuit Co., Inc., a New York based specialty
bakery ("Stella D'oro") which manufactures breadsticks, breakfast biscuits,
specialty cakes, pastries and snacks; and (iv) the Now & Later confection brand,
a fruit chewy taffy product. In 1992, the Registrants also acquired Industrias
Alimenticias Maguary S.A., Brazil's largest producer and marketer of packaged
fruit-based beverages, Lance S.A. de C.V., one of Mexico's leading biscuit and
pasta manufacturers, and six food and pet food businesses in Mexico in exchange
for Nabisco International's previous minority interest in a joint venture
operating those and other businesses in Mexico. During 1993, Nabisco
International acquired a 50% interest in both Royal Brands, S.A. in Spain and
Royal Brands Portugal, acquired approximately 95% of Cia. Arturo Field y la
Estrella Ltda., S.A. in Peru and increased its equity interest in a partially
owned business in Venezuela to 100%. In addition, Tobacco International acquired
a 52% interest in a cigarette factory in St. Petersburg, Russia in 1992, and
constructed a factory in Turkey and acquired a 70% interest in two cigarette
factories in the Ukraine in 1993.
1
On January 4, 1993, the Registrants completed the sale of NFG's
ready-to-eat cold cereal business to Kraft General Foods, Inc. and one of its
affiliates, for an aggregate cash purchase price of approximately $456 million
in cash, prior to post-closing adjustments.
NFG acquired the Knox gelatin brand in January 1994 and has contractual
arrangements pursuant to which it expects to acquire the remaining 50% of Royal
Brands, S.A. and Royal Brands Portugal during 1994.
RJRN will continue to assess its businesses to evaluate their consistency
with strategic objectives. Although RJRN may acquire and/or divest additional
businesses in the future, no decisions have been made with respect to any such
acquisitions or divestitures. The Registrants' credit agreement, dated as of
December 1, 1991, as amended (the "1991 Credit Agreement") and credit agreement,
dated as of April 5, 1993, as amended (the "1993 Credit Agreement", and together
with the 1991 Credit Agreement, the "Credit Agreements"), prohibit the sale of
all or substantially all or any substantial portion of the businesses of certain
subsidiaries of RJRN.
(b) Financial Information about Industry Segments
During 1993, the Registrants' industry segments were tobacco and food.
For information relating to industry segments for the years ended December
31, 1993, 1992 and 1991, see Note 15 to the Consolidated Financial Statements.
(c) Narrative Description of Business
TOBACCO
The tobacco line of business is conducted by RJRT and Tobacco
International, which manufacture, distribute and sell cigarettes. Cigarettes are
manufactured in the United States by RJRT and in over 30 foreign countries and
territories by Tobacco International and subsidiaries or licensees of RJRT and
are sold throughout the United States and in more than 160 markets around the
world. In 1993, approximately 61% of total tobacco segment net sales (after
deducting excise taxes) and approximately 65% of total tobacco segment operating
income (before amortization of trademarks and goodwill and the effects of a
restructuring expense) were attributable to domestic tobacco operations.
DOMESTIC TOBACCO OPERATIONS
The domestic tobacco business is conducted by RJRT, which is the second
largest cigarette manufacturer in the United States. RJRT's largest selling
cigarette brands in the United States include WINSTON, DORAL, SALEM, CAMEL,
MONARCH and BEST VALUE. RJRT's other cigarette brands, including VANTAGE, MORE,
NOW, STERLING, MAGNA and CENTURY, are marketed to meet a variety of smoker
preferences. All RJRT brands are marketed in a variety of styles. Based on data
collected for RJRT by an independent market research firm, RJRT had an overall
share of retail consumer cigarette sales during 1993 of 29.8%, an increase of
approximately one share point from 1992. During 1993, RJRT and the largest
domestic cigarette manufacturer, Philip Morris U.S.A., together sold
approximately 73% of all cigarettes sold in the United States.
A primary long-term objective of RJRT is to increase earnings and cash flow
through selective marketing investments in its key brands and continual
improvements in its cost structure and operating efficiency. Marketing programs
for full-price brands are designed to build brand awareness and add value to the
brands in order to retain current adult smokers and attract adult smokers of
competitive brands. In 1993, these efforts included expansion of continuity and
relationship-building programs such as CAMEL Cash and the WINSTON Winners Club,
and the introduction of line extensions such as CAMEL Special Lights and WINSTON
Select Lights. RJRT believes it is essential to compete in all segments of the
cigarette market, and accordingly offers a range of lower-priced brands
including DORAL, MONARCH and BEST VALUE intended to appeal to more
cost-conscious adult smokers.
2
For a discussion on competition in the tobacco business, see "Other
Matters--Competition" in this Item 1 and "1993 Competitive Activity" under Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
RJRT's domestic manufacturing facilities, consisting principally of
factories and leaf storage facilities, are located in or near Winston-Salem,
North Carolina and are owned by RJRT. Cigarette production is conducted at the
Tobaccoville cigarette manufacturing plant (approximately two million square
feet) and the Whitaker Park cigarette manufacturing complex (approximately one
and one-half million square feet). RJRT believes that its cigarette
manufacturing facilities are among the most technologically advanced in the
United States. RJRT also has significant research and development facilities in
Winston-Salem, North Carolina.
RJRT's cigarettes are sold in the United States primarily to chain stores,
other large retail outlets and through distributors to other retail and
wholesale outlets. Except for McLane Company, Inc., which represented
approximately 10.9% of RJRT's sales, no RJRT customers accounted for more than
10% of sales for 1993. RJRT distributes its cigarettes primarily to public
warehouses located throughout the United States that serve as local distribution
centers for RJRT's customers.
RJRT's products are sold to adult smokers primarily through retail outlets.
RJRT employs a decentralized marketing strategy that permits RJRT's sales force
to be more flexible in responding to local market dynamics by designing
individual in-store programs to fit varying consumption patterns. RJRT utilizes
print media, billboards, point-of-sale displays and other methods of
advertising. Since 1971, television and radio advertising of cigarettes has been
prohibited in the United States.
INTERNATIONAL TOBACCO OPERATIONS
Tobacco International operates in over 160 markets around the world.
Although overall foreign cigarette sales (excluding China, in which production
data indicates an approximate 2% per annum growth rate) have increased at a rate
of only 1% per annum in recent years, Tobacco International believes that the
American Blend segment, in which Tobacco International primarily competes is
growing significantly faster. Although Tobacco International is the second
largest of two international cigarette producers that have significant positions
in the American Blend segment, its share of sales of this segment is
approximately one-third of the share of Philip Morris International Inc., the
largest American Blend producer.
Tobacco International has strong brand presence in Western Europe and is
well established in its other key markets in the Middle East/Africa, Asia and
Canada. Tobacco International is aggressively pursuing development opportunities
in Eastern Europe and the former Soviet Union.
Tobacco International markets over 55 brands of which WINSTON, CAMEL and
SALEM, all American Blend cigarettes, are its international leaders. WINSTON,
Tobacco International's largest selling international brand, has a significant
presence in Puerto Rico and has particular strength in the Western Europe and
Middle East/Africa regions. CAMEL is sold in approximately 135 markets worldwide
and is Tobacco International's second largest selling international brand. SALEM
is the world's largest selling menthol cigarette and has particular strength in
Far East markets. Tobacco International also markets a number of local brands in
various foreign markets. None of Tobacco International's customers accounted for
more than 10% of sales for 1993.
Approximately 30% of Tobacco International's cigarette volume for 1993 was
manufactured by RJRT in the United States for sale in foreign markets. The
remainder was manufactured overseas, principally in owned manufacturing
facilities or by licensees or joint ventures. Tobacco International operates two
tobacco manufacturing facilities in Germany and one located in each of Canada,
Hong Kong, Hungary, Malaysia, Poland, Puerto Rico and Switzerland. Tobacco
International opened a factory in the People's Republic of China in 1988 as a
part of the first cigarette manufacturing joint venture in that country, and in
1993 constructed a factory in Turkey and acquired a 70% interest in two
3
cigarette factories in the Ukraine. In addition, in 1992, Tobacco International
acquired a 52% interest in a cigarette factory in St. Petersburg, Russia.
Certain of Tobacco International's foreign operations are subject to local
regulations that set import quotas, restrict financing flexibility and affect
repatriation of earnings or assets. In recent years, certain trade barriers for
cigarettes, particularly in Asia and Eastern Europe, have been liberalized. This
may provide opportunities for all international cigarette manufacturers,
including Tobacco International, to expand operations in such markets; however,
there can be no assurance that the liberalizing trends will be maintained or
extended or that Tobacco International will be successful in pursuing such
opportunities.
RAW MATERIALS
In its domestic production of cigarettes, RJRT primarily uses domestic
burley and flue cured leaf tobaccos purchased at domestic auction. RJRT also
purchases oriental tobaccos, grown primarily in Turkey and Greece, and certain
other non-domestic tobaccos. Tobacco International uses a variety of tobacco
leaf from both United States and international sources. Tobacco leaf is an
agricultural commodity subject in the United States to government production
controls and price supports that can affect market prices substantially. The
tobacco leaf price support program is subject to Congressional review and may be
changed at any time in the future. In addition, Congress enacted legislation
during 1993 (the Omnibus Budget Reconciliation Act of 1993), which stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) domestically grown flue cured and burley tobaccos.
Currently RJRT expects that compliance with the content regulation will increase
its future raw material costs. RJRT and Tobacco International believe there is a
sufficient supply of tobacco in the worldwide tobacco market to satisfy their
current production requirements.
LEGISLATION AND OTHER MATTERS AFFECTING THE CIGARETTE INDUSTRY
The advertising, sale and use of cigarettes has been under attack by
government and health officials in the United States and in other countries for
many years, principally due to claims that cigarette smoking is harmful to
health. This attack has resulted in a number of substantial restrictions on the
marketing, advertising and use of cigarettes, diminishing social acceptability
of smoking and activities by anti-smoking groups designed to inhibit cigarette
sales, the form and content of cigarette advertising and the testing and
introduction of new cigarette products. Together with manufacturers' price
increases in recent years and substantial increases in state and federal excise
taxes on cigarettes, this has had and will likely continue to have an adverse
effect on cigarette sales.
Cigarettes are subject to substantial excise taxes in the United States and
to similar taxes in many foreign markets. In 1990, Congress enacted legislation
to increase the federal excise tax per pack of 20 cigarettes to 20 cents from 16
cents on January 1, 1991 and provide for an increase in the federal excise tax
on January 1, 1993 to 24 cents. In addition, all states and the District of
Columbia impose excise taxes of levels ranging from a low of 2.5 cents to a high
of 65 cents per pack on cigarettes, and increases in these state excise taxes
could also have an adverse effect on cigarette sales. In 1993, thirteen states
and the District of Columbia enacted excise tax increases ranging from less than
2 cents per pack to 41 cents per pack.
In addition, the Clinton Administration and members of Congress have
introduced bills in Congress that would significantly increase the federal
excise tax on cigarettes, eliminate the deductibility of a portion of the cost
of tobacco advertising, ban smoking in public buildings and workplaces, add
additional health warnings on cigarette packaging and advertising and further
restrict the marketing of tobacco products.
In January 1993, the U.S. Environmental Protection Agency (the "EPA")
released a report on the respiratory effects of environmental tobacco smoke
("ETS") which concludes that ETS is a known
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human lung carcinogen in adults; and in children causes increased respiratory
tract disease and middle ear disorders and increases the severity and frequency
of asthma. RJRT has joined other segments of the tobacco and distribution
industries in a lawsuit against the EPA seeking a determination that the EPA did
not have the statutory authority to regulate ETS, and that, given the current
body of scientific evidence and the EPA's failure to follow its own guidelines
in making the determination, the EPA's classification of ETS was arbitrary and
capricious.
In September 1991, the U.S. Occupational Safety and Health Administration
("OSHA") issued a Request for Information relating to indoor air quality,
including ETS, in occupational settings. OSHA has announced that it will
commence formal rulemaking in 1994. While the Registrants cannot predict the
outcome, some form of regulation of smoking in workplaces may result.
Legislation imposing various restrictions on public smoking has also been
enacted in nineteen states and many local jurisdictions, many employers have
initiated programs restricting or eliminating smoking in the workplace and nine
states have enacted legislation designating a portion of increased cigarette
excise taxes to fund either anti-smoking programs, health care programs or
cancer research. Federal law prohibits smoking on all domestic airline flights
of six hours duration or less and the U.S. Interstate Commerce Commission has
banned smoking on buses transporting passengers inter-state.
A number of foreign countries have also taken steps to discourage cigarette
smoking, to restrict or prohibit cigarette advertising and promotion and to
increase taxes on cigarettes. Such restrictions are, in some cases, more onerous
than restrictions imposed in the United States. In June 1988, Canada enacted a
ban on cigarette advertising, the constitutionality of which is before the
Supreme Court of Canada.
On December 11, 1990, RJRN and other U.S. cigarette manufacturers, through
The Tobacco Institute, announced a tobacco industry initiative to assist
retailers in enforcing minimum age laws on the sale of cigarettes, to support
the enactment of state laws requiring the adult supervision of cigarette vending
machines in places frequented by minors, to seek the uniform establishment of 18
as the minimum age for the purchase of cigarettes in all states, to distribute
informational materials to assist parents in combatting peer pressure on their
children to smoke and to limit voluntarily certain cigarette advertising and
promotional practices. In 1992, the Alcohol, Drug and Mental Health Act was
signed into law. This Act contains a provision, effective January 1, 1994, that
requires states to adopt a minimum age of 18 for purchase of tobacco products to
receive federal funding for mental health and drug abuse programs.
In 1964, the Report of the Advisory Committee to the Surgeon General of the
U.S. Public Health Service concluded that cigarette smoking was a health hazard
of sufficient importance to warrant appropriate remedial action. Since 1966,
federal law has required a warning statement on cigarette packaging. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States. Cigarette advertising in other media in the United States is required to
include information with respect to the "tar" and nicotine content of
cigarettes, as well as a warning statement.
During the past three decades, various legislation affecting the cigarette
industry has been enacted. In 1984, Congress enacted the Comprehensive Smoking
Education Act (the "Smoking Education Act"). Among other things, the Smoking
Education Act: (i) establishes an interagency committee on smoking and health
that is charged with carrying out a program to inform the public of any dangers
to human health presented by cigarette smoking; (ii) requires a series of four
new health warnings to be printed on cigarette packages and advertising on a
rotating basis; (iii) increases type size and area of the warning on cigarette
advertisements; and (iv) requires that cigarette manufacturers provide annually,
on a confidential basis, a list of ingredients used in the manufacture of
cigarettes to the Secretary of Health and Human Services. The warnings currently
required on cigarette packages and advertisements (other than billboards) are as
follows: (i) "Surgeon General's Warning: Smoking Causes Lung Cancer, Heart
Disease, Emphysema, And May Complicate Pregnancy"; (ii) "Surgeon General's
Warning: Quitting Smoking Now Greatly Reduces Serious Risks To Your Health";
(iii) "Surgeon General's Warning: Smoking By Pregnant Women May Result in Fetal
Injury, Premature Birth, and
5
Low Birth Weight"; and (iv) "Surgeon General's Warning: Cigarette Smoke Contains
Carbon Monoxide." Similar warnings are required on outdoor billboards. In August
1990, the Fire Safe Cigarette Act of 1990 was enacted, which directed the
Consumer Product Safety Commission to conduct and oversee research begun under
direction of the Cigarette and Little Cigar Fire Safety Act of 1984 and to
assess the practicability of developing a performance standard to reduce
cigarette ignition propensity. The Commission presented a final report to
Congress in August 1993 describing the results of the research. The Commission
concluded that while "it is practicable to develop a performance standard to
reduce cigarette ignition propensity, it is unclear that such a standard would
effectively address the number of cigarette-ignited fires." The Commission
further found that additional work would be required before the actual
development of a performance standard. Nevertheless, the Commission reported
that a test method developed by the National Institute of Standards and
Technology was valid and reliable within reasonable limits and could be suitable
for use in a performance standard. Although the Registrants cannot predict
whether further legislation on this subject may be enacted, some form of
regulation of cigarettes based on their propensity to ignite soft furnishings
may result.
Since the initial report in 1964, the Secretary of Health, Education and
Welfare and the Surgeon General have issued a number of other reports which
purport to link cigarette smoking with certain health hazards, including various
types of cancer, coronary heart disease and chronic obstructive lung disease.
These reports have recommended various governmental measures to reduce the
incidence of smoking.
In addition to the foregoing, legislation and regulations potentially
detrimental to the cigarette industry, generally relating to the taxation of
cigarettes and regulation of advertising, labeling, promotion, sale and smoking
of cigarettes, have been proposed from time to time at various levels of the
federal government. Various Congressional committees and subcommittees have
approved legislation in recent years that (i) would subject cigarettes to
regulation in various ways under the U.S. Department of Health and Human
Services, (ii) would subject cigarettes generally to regulation under the
Consumer Products Safety Act, (iii) could increase manufacturers' costs, (iv)
would mandate anti-smoking education campaigns or establish anti-smoking
programs, (v) would provide additional funding for federal and state
anti-smoking activities, (vi) would require a new list of six health warnings on
cigarette packages and advertising, expand the number or required size of the
warnings and restrict the contents of cigarette advertising and promotional
activities, (vii) would provide that neither the provisions of the Federal
Cigarette Labeling and Advertising Act, as amended (the "Cigarette Act"), nor
the Smoking Education Act should be interpreted to relieve any person from
liability under common law or state statutory law and (viii) would permit state
and local governments to restrict the sale and distribution of cigarettes and
the placement of billboard and transit advertising of tobacco products.
It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, Tobacco International or the
cigarette industry generally but such legislation or regulations could have an
adverse effect on RJRT, Tobacco International or the cigarette industry
generally.
LITIGATION AFFECTING THE CIGARETTE INDUSTRY
Various legal actions, proceedings and claims are pending or may be
instituted against RJRT or its affiliates or indemnitees, including those
claiming that lung cancer and other diseases have resulted from the use of or
exposure to RJRT's tobacco products. During 1993, 16 new actions were filed or
served against RJRT and/or its affiliates or indemnitees and 18 such actions
were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or
indemnitees without trial. A total of 35 such actions in the United States, one
in Puerto Rico and one against RJRT's Canadian subsidiary were pending on
December 31, 1993. As of February 7, 1994, 35 active cases were pending against
RJRT and/or its affiliates or indemnitees, 33 in the United States, one in
Puerto Rico and one in Canada. Four of the 33 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. One of such cases is currently scheduled for trial
on
6
September 5, 1994 and if tried, will be the first such case to reach trial. The
United States cases are in 15 states and are distributed as follows: eight in
Louisiana, eight in Texas, three in Mississippi, two in Indiana, two in New
Jersey and one each in Alabama, Florida, Illinois, Kentucky, Maryland,
Massachusetts, Minnesota, New York, Oregon and West Virginia. Of the 33 active
cases in the United States, 24 are pending in state court and 9 in federal
court. One of the active cases is alleged to be a class action on behalf of a
purported class of 60,000 individuals.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive
damages, often in amounts totalling many millions of dollars, are specifically
pleaded in 20 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Cigarette Act of some or all such claims arising after 1969; the lack of any
defect in the product; assumption of the risk; comparative fault; lack of
proximate cause; and statutes of limitations or repose. Juries have found for
plaintiffs in two smoking and health cases, but in one such case, which has been
appealed by both parties, no damages were awarded. The jury awarded $400,000 in
the other case, Cipollone v. Liggett Group, Inc., et al., which award was
overturned on appeal and the case was subsequently dismissed.
On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.
Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted, if so, in what form, or whether such legislation would be intended
by Congress to apply retroactively. The Supreme Court's Cipollone decision
itself, or the passage of such legislation, could increase the number of cases
filed against cigarette manufacturers, including RJRT.
RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
RJRT recently received a civil investigative demand from the U.S.
Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
Litigation is subject to many uncertainties, and it is possible that some
of the legal actions, proceedings or claims could be decided against RJRT or its
affiliates or indemnitees. Determinations of liability or adverse rulings
against other cigarette manufacturers that are defendants in similar actions,
even if such rulings are not final, could adversely affect the litigation
against RJRT and its affiliates or indemnitees and increase the number of such
claims. Although it is impossible to predict the outcome of such events or their
effect on RJRT, a significant increase in litigation activities could have an
adverse effect on RJRT. RJRT believes that it has a number of valid defenses to
any such actions, including but not limited to those defenses based on
preemption under the Cipollone decision, and RJRT intends to defend vigorously
all such actions.
7
FOOD
The food line of business conducted by NFG, which comprises the Nabisco
Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty
Products Company, the Fleischmann's Division, the Food Service Division and
Nabisco Brands Ltd, and by Nabisco International.
Food products are sold under trademarks owned or licensed by Nabisco and
brand recognition is considered essential to their successful marketing. None of
Nabisco's customers accounted for more than 10% of sales for 1993.
NABISCO FOODS GROUP OPERATIONS
Nabisco Biscuit Company. Nabisco Biscuit is the largest manufacturer and
marketer in the United States cookie and cracker industry with the nine top
selling brands, each of which had annual sales of over $100 million in 1993.
Overall, in 1993, Nabisco Biscuit had a 39% share of the domestic cookie
industry sales, more than double the share of its closest competitor, and a 55%
share of the domestic cracker industry sales, more than three times the share of
its closest competitor. Leading Nabisco Biscuit cookie brands include OREO,
CHIPS AHOY! and NEWTONS. Leading Nabisco Biscuit cracker brands include RITZ,
PREMIUM, WHEAT THINS, NABISCO GRAHAMS and TRISCUIT.
OREO and CHIPS AHOY! are the two largest selling cookies in the United
States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling
cookie brand. CHIPS AHOY! is the leader in the chocolate chip cookie segment
with recent line extensions such as CHUNKY CHIPS AHOY! broadening its appeal and
adding incremental sales.
NEWTONS, the oldest Nabisco Biscuit cookie brand, is the third leading
cookie brand in the United States. The introduction of FAT FREE FIG and APPLE
NEWTONS in 1992 and the addition of the FAT FREE CRANBERRY, RASPBERRY and
STRAWBERRY NEWTONS in 1993 has expanded the appeal of NEWTONS and brought
incremental sales to the franchise.
Nabisco Biscuit's cracker division is led by RITZ, the largest selling
cracker brand in the United States, which accounted for 12% of cracker sales in
the United States in 1993. In addition, PREMIUM, the oldest Nabisco Biscuit
cracker brand and the leader in the saltine cracker segment, is joined by WHEAT
THINS, NABISCO GRAHAMS and TRISCUIT to comprise, along with RITZ, the five
largest selling cracker brands in the United States.
In 1991, Nabisco Biscuit introduced MR. PHIPPS PRETZEL CHIPS, the first
such product of its kind. Nabisco Biscuit expanded the MR. PHIPPS franchise with
the introduction of MR. PHIPPS TATER CRISPS in 1992, which deliver salty snack
taste with only half the fat of potato chips, and the introduction of MR. PHIPPS
TORTILLA CRISPS in 1993.
In 1992, Nabisco Biscuit became the leading manufacturer and marketer of no
fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S
line. In 1993, the SNACKWELL'S brand recorded over $200 million in sales to
become the sixth largest cookie/cracker brand in the United States.
In October 1992, Nabisco Biscuit acquired STELLA D'ORO, a leading producer
of breadsticks, breakfast biscuits, specialty cakes, pastries and snacks. This
line of specialty items gives Nabisco Biscuit an entry to new users and usage
occasions, further broadening NFG's cookie and cracker portfolio.
Nabisco Biscuit's other cookie and cracker brands, which include NUTTER
BUTTER, NILLA WAFERS, BARNUM'S ANIMALS CRACKERS, BETTER CHEDDARS, HARVEST
CRISPS, CHICKEN IN A BISKIT, CHEESE NIPS and NEW YORK STYLE BAGEL and PITA
CHIPS,
8
compete in consumer niche segments. Many are the first or second largest selling
brands in their respective segments.
Nabisco Biscuit's products are manufactured in 13 Nabisco Biscuit-owned
bakeries and in 16 facilities with which Nabisco Biscuit has production
agreements. These facilities are located throughout the United States. Nabisco
Biscuit is in the process of implementing plans to modernize certain of its
facilities. Nabisco Biscuit also operates a flour mill in Toledo, Ohio, which
supplies 85% of its flour needs.
Nabisco Biscuit's products are sold to major grocery and other large retail
chains through Nabisco Biscuit's direct store delivery system. The system is
supported by a distribution network utilizing ten major distribution warehouses
and 130 shipping branches where shipments are consolidated for delivery to
approximately 111,000 separate delivery points. NFG believes this sophisticated
distribution and delivery system provides it with a significant service
advantage over its competitors.
LifeSavers Division. The LifeSavers Division manufactures and markets hard
roll and bite-size candy and gum primarily for sale in the United States.
LifeSavers' well-known brands include LIFE SAVERS hard roll and bite-size candy,
BREATH SAVERS sugar free mints, BUBBLE YUM bubble gum, CARE*FREE sugarless gum,
NOW & LATER fruit chewy taffy and LIFE SAVERS GUMMI SAVERS fruit chewy candy. On
the basis of the most recent data available, LIFE SAVERS is the largest selling
hard roll candy in the United States, with an approximately 25% share of the
hard roll candy category, BREATH SAVERS is the largest selling sugar free breath
mint in the United States and BUBBLE YUM is the largest selling chunk bubble gum
in the United States. LifeSavers' confectionery products are seasonally
strongest during the third and fourth quarters.
LifeSavers sells its products in the United States primarily to large
retail outlets, chain accounts and to other retail and wholesale outlets. These
include grocery stores, drug/mass merchandisers, convenience stores, and food
service and military suppliers. The products are distributed from 13
distribution centers located throughout the United States. LifeSavers currently
owns and operates three manufacturing facilities for its products, one in
Holland, Michigan, one in Brooklyn, New York and the other in Las Piedras,
Puerto Rico. Sales, for the LifeSavers Division, as well as the Planters,
Specialty Products and Fleischmann's Divisions, are handled through NFG's Sales
and Integrated Logistics group, which utilize both direct sales and broker sales
organizations.
Planters Division. The Planters Division produces and/or markets nuts and
snacks largely for sale in the United States, primarily under the PLANTERS
trademark. On the basis of the most recent data available, PLANTERS nuts are the
clear leader in the packaged nut category, with a market share of more than five
times that of its nearest competitor. Planters' products are commodity oriented
and are seasonally strongest in the fourth quarter.
Planters sells its products in the United States primarily to large retail
outlets, chain accounts and to other retail and wholesale outlets. These include
grocery stores, drug/mass merchandisers, convenience stores, and food service
and military suppliers. The products are distributed from the same 13
distribution centers utilized by the LifeSavers Division. Planters currently
owns and operates three manufacturing facilities for its products, all located
in the United States.
Specialty Products Company. NFG's Specialty Products Company manufacturers
and markets a broad range of food products, with sauces and condiments, pet
snacks, ethnic foods and hot cereals representing the largest categories. Many
of its products are first or second in their product categories. Well-known
brand names include A.1. steak sauces, GREY POUPON mustards, MILK-BONE pet
snacks, ORTEGA Mexican foods and CREAM OF WHEAT hot cereals.
Specialty Products' primary entries in the sauce and condiment segments are
A.1. steak sauces, the leading steak sauces, and GREY POUPON mustards, which
include the leading Dijon mustard.
9
Specialty Products also markets REGINA wine vinegar, the leader in its segment
of the vinegar market. A.1., GREY POUPON and REGINA products are manufactured in
one facility.
Specialty Products is the leading manufacturer of pet snacks in the United
States with MILK-BONE dog biscuits. MILK-BONE products include MILK-BONE
ORIGINAL BISCUITS, FLAVOR SNACKS, DOG TREATS, BUTCHER BONES and BUTCHER'S
CHOICE. Pet snacks are produced at a single manufacturing facility.
Specialty Products produces shelf-stable Mexican foods under its ORTEGA
brand name. Specialty Products also participates in the dry mix dessert category
with ROYAL gelatins and puddings and the non-dessert gelatin category with KNOX
unflavored gelatins and has lines of regional products including COLLEGE INN
broths, VERMONT MAID syrup, MY-T-FINE puddings, DAVIS baking powder and BRER
RABBIT molasses and syrup.
NFG, through its Specialty Products Company, is the second largest
manufacturer in the hot cereal category, participating in both the cook-on-stove
and mix-in-bowl segments of the category. The Quaker Oats Company, with over 60%
of the hot cereal category volume sales, is the most significant participant in
the hot cereal category. CREAM OF WHEAT, the leading wheat-based hot cereal, and
CREAM OF RICE, participate in the cook-on-stove segment and at least seven
varieties of INSTANT CREAM OF WHEAT participate in the mix-in-bowl segment. Hot
cereals are manufactured in one facility.
Specialty Products sells its products to retail grocery chains through
independent brokers and to drug/mass merchandisers and other major retail
outlets through a direct salesforce. The products are distributed from the same
13 distribution centers utilized by the LifeSavers Division.
Fleischmann's Division. The Fleischmann's Division manufactures and markets
various margarines and spreads as well as an egg substitute.
Fleischmann's margarine business is the second largest margarine producer
in the United States. Fleischmann's currently participates in all three segments
of the margarine category, with FLEISCHMANN'S in the premium health segment,
BLUE BONNET in the volume segment and MOVE OVER BUTTER in the premium blend
segment. Fleischmann's margarines are currently manufactured in three
facilities. Fleischmann's is also the market leader in the egg substitute
category with EGG BEATERS. Distribution for the Fleischmann's Division is
principally direct from plant to stores.
Food Service Division. The Food Service Division of NFG sells a variety of
specially packaged food products of the other groups of NFG through non-grocery
channels, including cookies, crackers, cereals, sauces and condiments for the
food service and vending machine industry. The Food Service Division is a
leading regional supplier of premium frozen pies to in-store supermarket
bakeries, wholesale clubs and food service accounts through the Plush Pippin
Corporation. The Food Service Division provides NFG with an additional
distribution method for its products.
Nabisco Brands Ltd. Nabisco Brands Ltd conducts NFG's Canadian operations
through a biscuit division, a grocery division and a food service division. The
biscuit division produced nine of the top ten cookies and nine of the top ten
crackers in Canada in 1993. Nabisco Brands Ltd's cookie and cracker brands in
Canada include OREO, CHIPS AHOY!, FUDGEE-O, PEEK FREANS, DAD'S, DAVID, PREMIUM
PLUS, RITZ, TRISCUIT and STONED WHEAT THINS. These products are manufactured in
five bakeries in Canada and are sold through a direct store delivery system,
utilizing 11 sales offices and distribution centers and a combination of public
and private carriers.
Nabisco Brands Ltd's grocery division produces and markets canned fruits
and vegetables, fruit drinks and pet snacks. The grocery division is the leading
canned fruit producer in Canada and is the second largest canned vegetable
producer in Canada. Canned fruits and vegetables and fruit drinks are marketed
under the DEL MONTE trademark, pursuant to a license from Del Monte, and under
the AYLMER trademark. The grocery division also markets MILK-BONE pet snacks and
MAGIC
10
baking powder, each leading brands in Canada. Excluding the facility sold in
connection with the sale of Nabisco's ready-to eat cold cereal business, the
division operated six manufacturing facilities in 1993, five of which are
devoted to canned products, principally fruits and vegetables, and one of which
produced pet snacks. The grocery division's products are sold directly to retail
chains and are distributed through six regional warehouses.
Nabisco Brands Ltd's food service division sells a variety of specially
packaged food products including cookies, crackers, canned fruits and vegetables
as well as condiments to non-grocery outlets. The food service division has its
own sales and marketing organization and sources product from Nabisco Brands
Ltd's other divisions.
NABISCO INTERNATIONAL OPERATIONS
Nabisco International is a leading producer of powdered dessert and drink
mixes, biscuits, baking powder and other grocery items, industrial yeast and
bakery ingredients in many of the 17 Latin American countries in which it has
operations. Nabisco International also exports a variety of NFG products to
markets in Europe and Asia from the United States. Nabisco International is one
of the largest multinational packaged food businesses in Latin America.
Nabisco International manufactures and markets yeast, baking powder and
bakery ingredients under the FLEISCHMANN'S and ROYAL brands, biscuits and
crackers under the NABISCO brand, dessert and drink mixes under the ROYAL brand,
processed milk products under the GLORIA brand, and canned fruits and vegetables
under the DEL MONTE brand pursuant to a license from Del Monte. Nabisco
International's largest market is Brazil, where it operates 15 plants. Nabisco
International is the market leader in powdered desserts in most of Latin
America, the yeast category in Brazil, biscuits in Peru, Spain, Venezuela and
Uruguay, and canned vegetables in Venezuela. Nabisco International also
maintains a strong position in the processed milk category in Brazil.
During 1993, Nabisco International significantly increased its presence in
Europe through the acquisition of a 50% interest in each of Royal Brands S.A. in
Spain and Royal Brands Portugal. Nabisco International has contractual
arrangements pursuant to which it expects to acquire the remaining 50% of such
businesses in 1994. Nabisco International's products in Spain now include
biscuits marketed under the ARTIACH and MARBU trademarks, powder dessert mixes
marketed under the ROYAL trademark and various other foods, including canned
meats and juices.
Nabisco International's grocery products are sold to retail outlets through
its own sales forces and independent wholesalers and distributors. Industrial
yeast and bakery products are sold to the bakery trade through Nabisco
International's own sales forces and independent distributors.
RAW MATERIALS
Various agricultural commodities constitute the principal raw materials
used by Nabisco in its food businesses. Other raw materials used by Nabisco are
purchased on the commodities market and through supplier contracts. Prices of
agricultural commodities tend to fluctuate due to various seasonal, climatic and
economic factors, which factors generally also affect Nabisco's competitors.
Nabisco believes that the raw materials for its products are in plentiful
supply and all are readily available from a variety of independent suppliers.
OTHER MATTERS
COMPETITION
Generally, the markets in which RJRN conducts its businesses are highly
competitive, with a number of large participants. Competition is conducted on
the basis of brand recognition, brand loyalty and price. For most of RJRN's
brands substantial advertising and promotional expenditures are
11
required to maintain or improve a brand's position or to introduce a new brand.
With respect to the tobacco industry, anti-smoking groups have undertaken
activities designed to inhibit cigarette sales, the form and content of
cigarette advertising and the testing and introduction of new cigarette
products.
Because television and radio advertising for cigarettes is prohibited in
the United States and brand loyalty has tended to be higher in the cigarette
industry than in other consumer product industries, established cigarette brands
in the United States have a competitive advantage. RJRT has repositioned or
introduced brands designed to appeal to adult smokers of the largest selling
cigarette brand in the United States, but there can be no assurance that such
efforts will be successful.
In addition, increased selling prices and taxes on cigarettes have resulted
in additional price sensitivity of cigarettes at the consumer level and in a
proliferation of discounted brands in the growing savings segment of the market.
Generally, sales of cigarettes in the savings segment are not as profitable as
those in other segments.
In April 1993, RJRT's largest competitor announced a shift in strategy
designed to gain share of market while sacrificing short-term profits. The
competitor's tactics included increased promotional spending and temporary price
reductions on its largest cigarette brand, followed several months later by list
price reductions on all its full-price and mid-price brands. RJRT defended its
major full-price brands during the period of temporary price reductions and, to
remain competitive in the marketplace, also reduced list prices on all its
full-price and mid-price brands in August 1993. The cost of defensive price
promotions and the impact of lower list prices were primarily responsible for
the sharp drop in RJRT's 1993 operating company contribution.
Although some improvement to the stability of the competitive environment
has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any
further improvement to the competitive environment will occur or whether such
stability will continue. In addition, growth in lower price brands was slowed in
the second half of 1993 due to net price reductions on full price brands. RJRT
is unable to predict whether this trend will continue.
ENVIRONMENTAL MATTERS
The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the EPA and other governmental agencies under various
statutes have resulted in, and will likely continue to result in, substantial
expenditures for pollution control, waste treatment, plant modification and
similar activities.
Certain subsidiaries of the Registrants have been named "potentially
responsible parties" with third parties under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to
approximately fifteen sites.
RJRN has been engaged in a continuing program to assure compliance with
such laws and regulations. Although it is difficult to identify precisely the
portion of capital expenditures or other costs attributable to compliance with
environmental laws and the Registrants can not reasonably estimate the cost of
resolving the above mentioned CERCLA matters, the Registrants do not expect
such expenditures or costs to have a material adverse effect on the financial
condition of either of the Registrants.
EMPLOYEES
At December 31, 1993, the Registrants together with their subsidiaries had
approximately 66,500 full time employees. None of RJRT's operations are
unionized. Most of the unionized workers at Nabisco's operations are represented
under a national contract with the Bakery, Confectionery and Tobacco Workers
International Union, which was ratified in August 1992 and which will expire
in August 1996. Other unions represent the employees of a number of Nabisco's
operations. In addition, several of Tobacco International's operations are
unionized. RJRN believes that its relations with its employees and with the
unions in which its employees are members are good.
12
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
For information about foreign and domestic operations and export sales for
the years 1991 through 1993, see "Geographic Data" in Note 15 to the
Consolidated Financial Statements.
ITEM 2. PROPERTIES
For information pertaining to the Registrants' assets by lines of business
and geographic areas as of December 31, 1993 and 1992, see Note 15 to the
Consolidated Financial Statements.
For information on properties, see Item 1.
ITEM 3. LEGAL PROCEEDINGS
For information relating to litigation and legal proceedings, see "Other
Matters-Environmental Matters" and "Litigation Affecting the Cigarette Industry"
contained in Item 1 hereof.
------------------------------
The Registrants believe that the ultimate outcome of all pending litigation
and legal proceedings should not have a material adverse effect on either of the
Registrants' financial position; however, it is possible that the results of
operations or cash flows of the Registrants in a particular quarterly or annual
period could be materially affected by the ultimate outcome of certain pending
litigation matters. Management is unable to derive a meaningful estimate of the
amount or range of such possible loss in any particular quarterly or annual
period or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
EXECUTIVE OFFICERS OF THE REGISTRANTS
EXECUTIVE OFFICERS OF HOLDINGS
The executive officers of Holdings are Charles M. Harper (Chairman of the
Board and Chief Executive Officer), Lawrence R. Ricciardi (President and General
Counsel), Eugene R. Croisant (Executive Vice President), Stephen R. Wilson
(Executive Vice President and Chief Financial Officer), Robert S. Roath (Senior
Vice President and Controller) and John J. Delucca (Senior Vice President and
Treasurer). The following table sets forth certain information regarding such
officers.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- -------------------------- --------- ------------------------------------------------------------------------------
Charles M. Harper 66 May 1993-Present, Chairman and Chief Executive Officer; prior thereto,
Chairman and Chief Executive Officer, ConAgra, Inc., 1981-1993.
Lawrence R. Ricciardi 53 May 1993-Present, President and General Counsel; prior thereto, Co-Chairman
and Chief Executive Officer and General Counsel, March, 1993-May, 1993;
Executive Vice President and General Counsel, 1989-1993; Executive Vice
President and General Counsel, American Express Travel Related Services Co.,
Inc., 1985-1989.
Eugene R. Croisant 56 1989-Present, Executive Vice President of Human Resources and Administration;
prior thereto, Chief Operations Officer, Continental Bank Corporation,
1988-1989.
Stephen R. Wilson 47 May 1993-Present, Executive Vice President and Chief Financial Officer; prior
thereto, Senior Vice President, Corporate Development, 1990-1993; General
Manager, North America, Franklin Mint, 1989-1990; President, Cadbury
Beverages North America, 1987-1989.
Robert S. Roath 51 1991-Present, Senior Vice President and Controller; prior thereto, Vice
President and Controller, 1990-1991; Vice President and Corporate
Controller, Colgate-Palmolive Company, 1988-1990.
John J. Delucca 50 September 1993-Present, Senior Vice President and Treasurer; prior thereto,
Managing Director and Chief Financial Officer, Hascoe Associates, 1991-1993;
President and Chief Financial Officer, Lexington Group, 1990-1991; Senior
Vice President, Finance and Managing Director, Trump Group, 1988-1990.
14
EXECUTIVE OFFICERS OF RJRN NOT LISTED ABOVE
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience during the past five years of each executive
officer of RJRN, other than those listed above.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- ------------------------------ ----------- ---------------------------------------------------------------------------
H. John Greeniaus 49 May 1993-Present, Chairman and Chief Executive Officer, NFG; prior thereto,
President, NFG, 1992-1993; President and Chief Executive Officer of
Nabisco Brands, Inc., 1987-1991. Director since 1989.
James W. Johnston 47 1989-Present, Chairman and Chief Executive Officer, R. J. Reynolds Tobacco
Company; Chairman, R. J. Reynolds Tobacco International, Inc. since
October 1993; prior thereto, Division Executive, Citibank, N.A.,
1984-1989. Director since 1989.
Anthony J. Butterworth 56 October 1993-Present, President and Chief Executive Officer, R.J. Reynolds
Tobacco International, Inc.; prior thereto, Managing Director and Chief
Executive Officer, London International Group plc, 1991-1993; Chief
Operating Officer, London International Group plc, 1989-1991.
H.F. Powell 61 January 1994-Present, Chairman and Chief Executive Officer, Nabisco
International, Inc.; prior thereto, President, Nabisco International,
Inc., 1993-1994; Executive Vice President, Nabisco International, Inc.,
1989-1993.
M.B. Oglesby, Jr. 51 1989-Present, Senior Vice President, Government Affairs; prior thereto,
Deputy Chief of Staff to President Ronald Reagan, 1988-1989.
J. Thomas Pearson 52 1988-Present, Senior Vice President, Taxation.
Jeffrey A. Kuchar 39 November 1993-Present, Vice President and General Auditor; prior thereto,
Director of Finance and Business Development, Specialty Products Company
of NFG, 1993; Director of Financial Planning, Specialty Products Company
of NFG, 1992-1993; Assistant Corporate Controller, 1987-1991.
Robert F. Sharpe, Jr. 41 1989-Present, Vice President, Assistant General Counsel and Secretary;
prior thereto, Assistant General Counsel, 1988-1989.
Jason H. Wright 33 March 1993-Present, Vice President of Worldwide Communications; prior
thereto, Vice President of Financial Communications, 1990-1993; Director
of Corporate Communications, Aetna Life & Casualty, 1988-1990.
15
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Holdings, par value $.01 per share (the "Common
Stock"), is listed and traded on the New York Stock Exchange (the "NYSE"). Since
completion of the Acquisition there has been no public trading market for the
common stock of RJRN.
As of January 31, 1994, there were approximately 51,000 record holders of
the Common Stock. All of the common stock of RJRN is owned by Holdings. The
Common Stock closing price on the NYSE for February 22, 1994 was $7 1/2.
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per share for the Common Stock on the NYSE Composite
Tape, as reported in the Wall Street Journal:
HIGH LOW
--------- ---------
1993:
First Quarter................................................... $ 9 1/4 $ 7 5/8
Second Quarter.................................................. 8 1/8 5 1/8
Third Quarter................................................... 5 7/8 4 1/2
Fourth Quarter.................................................. 7 3/8 4 3/8
HIGH LOW
--------- ---------
1992:
First Quarter................................................... $ 11 3/4 $ 8 3/4
Second Quarter.................................................. 10 3/8 8 3/8
Third Quarter................................................... 9 7/8 8
Fourth Quarter.................................................. 9 1/4 7 7/8
Holdings has never paid any cash dividends on shares of the Common Stock.
Cash dividends paid by RJRN to Holdings are set forth in the Consolidated
Statements of Cash Flows in the Consolidated Financial Statements.
The operations of the Registrants are conducted through RJRN's subsidiaries
and, therefore, the Registrants are dependent on the earnings and cash flow of
RJRN's subsidiaries to satisfy their respective debt obligations and other cash
needs. The Credit Agreements, which contain restrictions on the payment of cash
dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law.
16
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1993 and 1992 and for each of the years in the three-year period ended December
31, 1993 for Holdings was derived from the Consolidated Financial Statements,
which have been audited by Deloitte & Touche, independent auditors. In addition,
the consolidated financial data as of December 31, 1991, 1990 and 1989, for the
year ended December 31, 1990 and for the period from February 9, 1989 through
December 31, 1989 for Holdings and for the period from January 1, 1989 through
February 8, 1989 for RJRN was derived from the consolidated financial statements
of Holdings and RJRN as of December 31, 1991, 1990 and 1989, for the year ended
December 31, 1990 and for each of the periods within the one-year period ended
December 31, 1989, not presented herein, which has been audited by Deloitte &
Touche, independent auditors. The data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
HOLDINGS RJRN
-------------------------------------------------------- -----------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE
AMOUNTS) 1993 1992 1991 1990 1989
--------- --------- --------- --------- -------------------------
2/9 TO 12/31 1/1 TO 2/8
------------ -----------
RESULTS OF OPERATIONS
Net sales.................................. $ 15,104 $ 15,734 $ 14,989 $ 13,879 $ 12,114 $ 650
--------- --------- --------- --------- ------------ -----------
Cost of products sold...................... 6,640 6,326 6,088 5,652 5,241 332
Selling, advertising, administrative and
general expenses......................... 5,731 5,788 5,358 4,801 4,276 295
Amortization of trademarks and goodwill.... 625 616 609 608 557 10
Restructuring expense...................... 730 106 -- -- -- --
--------- --------- --------- --------- ------------ -----------
Operating income(1)...................... 1,378 2,898 2,934 2,818 2,040 13
Interest expense........................... (1,190) (1,429) (2,113) (3,000) (2,893) (44)
Amortization of debt issuance costs........ (19) (20) (104) (176) (447) --
Change in control costs.................... -- -- -- -- -- (247)
Other income (expense), net................ (58) 7 (69) (44) 169 15
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing operations
before income taxes.................... 111 1,456 648 (402) (1,131) (263)
Provision (benefit) for income taxes....... 114 680 280 60 (156) (66)
--------- --------- --------- --------- ------------ -----------
Income (loss) from continuing
operations............................. (3) 776 368 (462) (975) (197)
Income (loss) from operations of
discontinued businesses, net of income
taxes(2)................................. -- -- -- -- (1) 24
Extraordinary item--(loss) gain on early
extinguishments of debt, net of income
taxes.................................... (142) (477) -- 33 -- --
--------- --------- --------- --------- ------------ -----------
Net income (loss).......................... (145) 299 368 (429) (976) (173)
Preferred stock dividends.................. 68 31 173 50 -- 4
--------- --------- --------- --------- ------------ -----------
Net income (loss) applicable to common
stock.................................... $ (213) $ 268 $ 195 $ (479) $ (976) $ (177)
--------- --------- --------- --------- ------------ -----------
--------- --------- --------- --------- ------------ -----------
PER SHARE DATA
Income (loss) from continuing operations
per common and common equivalent share... $ (0.05) $ 0.55 $ 0.22 $ (1.19) $ (3.21) $ (0.89)
Dividends per share of Series A Preferred
Stock(3)................................. 3.34 3.34 0.49 -- -- --
BALANCE SHEET DATA
(AT END OF PERIODS)
Working capital............................ $ 202 $ 730 $ 165 $ (1,089) $ 106
Total assets............................... 31,295 32,041 32,131 32,915 36,412
Total debt................................. 12,448 14,218 14,531 18,918 25,159
Redeemable preferred stock(4).............. -- -- -- 1,795 --
Stockholders' equity(5).................... 9,070 8,376 8,419 2,494 1,237
(Footnotes on following page)
17
(Footnotes for preceding page)
- ---------------
(1) The 1992 amount includes a gain of $98 million on the sale of Holdings'
ready-to-eat cold cereal business.
(2) The 1989 amount for Holdings included $237 million of interest expense
allocated to discontinued operations.
(3) On November 8, 1991, Holdings issued 52,500,000 shares of Series A
Conversion Preferred Stock, par value $.01 per share ("Series A Preferred
Stock") and sold 210,000,000 $.835 depositary shares (the "Series A
Depositary Shares"). Each Series A Depositary Share represents a one-quarter
ownership interest in a share of Series A Preferred Stock. Each share of
Series A Preferred Stock bears cumulative cash dividends at a rate of $3.34
per annum and is payable quarterly in arrears on the 15th day of each
February, May, August and November. Because Series A Preferred Stock
mandatorily converts into Common Stock by November 15, 1994, dividends on
shares of Series A Preferred Stock are reported similar to common equity
dividends.
(4) On December 16, 1991, an amendment to the Amended and Restated Certificate
of Incorporation of Holdings was filed which deleted the provisions
providing for the mandatory redemption of the redeemable preferred stock of
Holdings on November 1, 2015. Accordingly, such securities were presented as
a component of Holdings' stockholders' equity as of December 31, 1992 and
1991. Such securities were redeemed on December 6, 1993 (see Note 12 to the
Consolidated Financial Statements).
(5) Holdings' stockholders' equity at December 31 of each year from 1993 to 1989
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.015 billion, $2.390 billion, $1.774 billion, $1.165
billion and $557 million, respectively. (See Note 13 to the Consolidated
Financial Statements.)
See Notes to Consolidated Financial Statements.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RJR Nabisco, Inc.'s ("RJRN") operating subsidiaries comprise one of the
largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the
second largest manufacturer of cigarettes, and the packaged food business is
conducted by the Nabisco Foods Group ("NFG"), the largest manufacturer and
marketer of cookies and crackers. Tobacco operations outside the United States
are conducted by R.J. Reynolds Tobacco International, Inc. ("Tobacco
International") and food operations outside the United States and Canada are
conducted by Nabisco International, Inc. ("Nabisco International").
The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJR Nabisco Holdings Corp. ("Holdings"),
the parent company of RJRN. The discussion and analysis should be read in
connection with the historical financial information included in the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
Summarized financial data for Holdings is as follows:
% CHANGE FROM
PRIOR YEAR
------------------------
1993 1992 1991 1993 1992
--------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS)
Net Sales:
RJRT..................................................... $ 4,949 $ 6,165 $ 5,861 (20)% 5%
Tobacco International.................................... 3,130 2,862 2,679 9% 7%
--------- --------- ---------
Total Tobacco............................................ 8,079 9,027 8,540 (11)% 6%
Total Food............................................... 7,025 6,707 6,449 5% 4%
--------- --------- ---------
$ 15,104 $ 15,734 $ 14,989 (4)% 5%
--------- --------- ---------
--------- --------- ---------
Operating Company Contribution(1):
RJRT..................................................... $ 1,200 $ 2,112 $ 2,226 (43)% (5)%
Tobacco International.................................... 644 575 500 12% 15%
--------- --------- ---------
Total Tobacco............................................ 1,844 2,687 2,726 (31)% (1)%
Total Food............................................... 995 947 920 5% 3%
Headquarters............................................. (106) (112) (103) 5% (9)%
--------- --------- ---------
$ 2,733 $ 3,522 $ 3,543 (22)% (1)%
--------- --------- ---------
--------- --------- ---------
Operating Income:
RJRT..................................................... $ 480 $ 1,704 $ 1,860 (72)% (8)%
Tobacco International.................................... 413 537 462 (23)% 16%
--------- --------- ---------
Total Tobacco............................................ 893 2,241 2,322 (60)% (3)%
Total Food............................................... 624 769 715 (19)% 8%
Headquarters............................................. (139) (112) (103) (24)% (9)%
--------- --------- ---------
$ 1,378 $ 2,898 $ 2,934 (52)% (1)%
--------- --------- ---------
--------- --------- ---------
(Footnotes on following page)
19
INDUSTRY SEGMENTS
The percentage contributions of each of Holdings' industry segments to net
sales and operating company contribution during the last five years were as
follows:
1993 1992 1991 1990 1989(3)
----------- ----------- ----------- ----------- -----------
Net Sales:
Total Tobacco.......................................... 53% 57% 57% 58% 55%
Total Food............................................. 47 43 43 42 45
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Operating Company Contribution(1)(2):
Total Tobacco.......................................... 65% 74% 75% 77% 73%
Total Food............................................. 35 26 25 23 27
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
- ---------------
(1) Operating income before amortization of trademarks and goodwill and
exclusive of restructuring expenses (RJRT: 1993-$355 million, 1992-$43
million; Tobacco International: 1993-$189 million, 1992-$0; Total Food:
1993-$153 million, 1992-$63 million; Headquarters: 1993-$33 million, 1992-
$0) and a 1992 gain ($98 million) on the sale of Holdings' ready-to-eat cold
cereal business as discussed below.
(2) Contributions by industry segments were computed without effects of
Headquarters' expenses.
(3) Includes predecessor period January 1, 1989 through February 8, 1989.
TOBACCO
Holdings' tobacco business is conducted by RJRT and Tobacco International.
1993 vs. 1992. Holdings' worldwide tobacco business experienced continued
net sales growth in its international business that was more than offset by a
significant sales decline in the domestic business, resulting in reported net
sales of $8.08 billion in 1993, a decline of 11% from the 1992 level of $9.03
billion. Operating company contribution for the worldwide tobacco business of
$1.84 billion in 1993 declined 31% from the 1992 level of $2.69 billion,
reflecting sharp reductions for the domestic business which were partially
offset by gains in the international business. Operating income for the
worldwide tobacco business in 1993 of $893 million declined 60% from $2.24
billion in 1992, reflecting the lower operating company contribution and a $544
million restructuring expense in 1993 versus a restructuring expense of $43
million in 1992. The 1993 restructuring expense includes expenses to streamline
both the domestic and international operations by the reduction of personnel in
administration, manufacturing and sales functions, as well as rationalization of
manufacturing and office facilities.
Net sales for RJRT amounted to $4.95 billion in 1993, a decline of 20% from
the 1992 level, reflecting the impact of industry-wide price reductions and
price discounting on higher price brands, a higher proportion of sales from
lower price brands and an overall volume decline of approximately 3.6%. The 1993
decrease in overall volume resulted from a decline in the full-price segment
that more than offset growth in the lower price segment. The growth in lower
price brands was slowed in the second half of 1993 by net price reductions on
full-price brands. RJRT's operating company contribution was $1.20 billion in
1993, a 43% decline from the 1992 level of $2.11 billion, primarily due to the
lower net sales and a higher proportion of sales from the lower margin segment,
offset in part by lower operating expenses. RJRT's operating income was $480
million in 1993, a decline of 72% from $1.7 billion in 1992. The decline in
operating income reflected the lower RJRT operating company contribution as well
as a restructuring expense of $355 million in 1993 which is significantly higher
than the $43 million restructuring expense recorded in 1992.
Tobacco International recorded net sales of $3.13 billion in 1993, an
increase of 9% from the 1992 level, due to higher volume in all regions of
business, the expansion of markets through ventures in Eastern Europe and
Turkey, contract sales to the Russian Republic, favorable pricing in certain
regions
20
and a change in fiscal year end, which more than offset unfavorable currency
developments in Western Europe. Tobacco International's operating company
contribution rose to $644 million in 1993, an increase of 12% compared to the
prior year due to higher volume and pricing which was offset in part by higher
operating expenses and to a lesser extent foreign currency developments. Tobacco
International's operating income was $413 million for 1993, a decline of 23%
from the 1992 level. The decline in operating income reflects a restructuring
expense of $189 million in 1993 that more than offset the increase in operating
company contribution.
1993 Competitive Activity. During recent years, the lower price segment of
the domestic cigarette market has grown significantly and the full price segment
has declined. The shifting of smokers of full price brands to lower price brands
adversely affects RJRT's earnings since lower price brands are generally less
profitable than full price brands. Although the difference in profitability is
often substantial, it varies greatly depending on marketing and promotion levels
and the terms of sale. Accordingly, RJRT has in recent years experienced
substantial increased volume in the lower price segment, but the earnings
attributable to these sales have not been sufficient to offset decreased
earnings from declining sales of RJRT's full price brands.
In April 1993, RJRT's largest competitor announced a shift in strategy
designed to gain share of market while sacrificing short-term profits. The
competitor's tactics included increased promotional spending and temporary price
reductions on its largest cigarette brand, followed several months later by list
price reductions on all its full-price and mid-price brands. RJRT defended its
major full-price brands during the period of temporary price reductions and, to
remain competitive in the marketplace, also reduced list prices on all its
full-price and mid-price brands in August 1993. The cost of defensive price
promotions and the impact of lower list prices were primarily responsible for
the sharp drop in RJRT's 1993 operating company contribution.
Currently, the domestic cigarette market has consolidated list prices for
cigarettes from four or more tiers into two tiers, with price competition being
conducted principally through trade and retail promotion on a brand-by-brand
basis. The resulting effects from increased list prices on lower price brands
and reduced promotional spending by RJRT on its full price brands have not been
sufficient to offset the effect of decreased list prices on RJRT's full price
brands. This has resulted in lower aggregate profit margins for RJRT. These
depressed margins are expected to continue until such time as the competitive
environment improves and operating costs are further reduced.
Although some improvement to the stability of the competitive environment
has occurred in the fourth quarter of 1993, RJRT cannot predict if or when any
further improvement to the competitive environment will occur or whether such
stability will continue. In addition, growth in lower price brands was slowed in
the second half of 1993 due to net price reductions on full price brands. RJRT
is unable to predict whether this trend will continue. RJRT's domestic cigarette
volume of non-full price brands as a percentage of total domestic volume was 44%
in 1993, 35% in 1992 and 25% in 1991 versus 37%, 30% and 25%, respectively, for
the domestic cigarette market.
1993 Governmental Activity. Legislation recently enacted restricts the use
of imported tobacco in cigarettes manufactured in the United States and is
expected to increase RJRT's future raw material cost. In addition, the Clinton
Administration and members of Congress have introduced bills in Congress that
would significantly increase the federal excise tax on cigarettes, eliminate the
deductibility of a portion of the cost of tobacco advertising, ban smoking in
public buildings and workplaces, add additional health warnings on cigarette
packaging and advertising and further restrict the marketing of tobacco
products. It is not possible to determine what additional federal, state or
local legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on RJRT, Tobacco
International or the cigarette industry generally but such legislation or
regulations could have an adverse effect on RJRT, Tobacco International or the
cigarette industry generally.
21
1992 vs. 1991. Net sales for RJRT rose 5% from 1991 to $6.17 billion in
1992 as higher unit selling prices and volume were offset in part by a higher
proportion of sales from lower price brands. Overall volume for the 1992 year
increased 3% from the prior year as a result of gains in the lower price segment
more than offsetting a decline in the full price segment. RJRT's operating
company contribution in 1992 was $2.11 billion, a 5% decline from the prior
year. The decline in operating company contribution was primarily due to the
higher proportion of sales of lower margin brands and higher marketing and
selling expenditures, which when combined more than offset the effect of higher
unit selling prices and volume. RJRT's operating income of $1.70 billion in 1992
declined 8% from the prior year as a result of the decline in operating company
contribution as well as a $43 million charge incurred in connection with a
restructuring plan, the purpose of which was to improve productivity by
realigning operations in the sales, manufacturing, research and development, and
administrative areas.
Tobacco International recorded net sales of $2.86 billion in 1992, an
increase of 7% from 1991. Excluding contract sales to the Russian Republic, for
which there were major shipments in 1991, Tobacco International would have
reported an increase in net sales in 1992 of 10%. The sales increase is a result
of volume gains in Eastern Europe (where the company made several acquisitions),
Asia and the Middle East, favorable currency developments and higher selling
prices that more than offset lower volume in Western Europe. Operating company
contribution and operating income for 1992 rose 15% and 16%, respectively, from
the prior year to $575 million and $537 million. The increase in operating
company contribution and operating income was due to higher volume, favorable
currency developments and higher selling prices offset in part by a higher
proportion of sales in the lower margin segment.
For a description of certain litigation affecting RJRT and its affiliates,
see Note 11 to the Consolidated Financial Statements.
FOOD
Holdings' food business is conducted by NFG, which comprises the Nabisco
Biscuit Company, the LifeSavers Division, the Planters Division, the Specialty
Products Company, the Fleischmann's Division, the Food Service Division and
Nabisco Brands Ltd, (collectively the "North American Group") and Nabisco
International.
1993 vs. 1992. NFG reported net sales of $7.03 billion in 1993, an increase
of 5% from 1992. Excluding the 1992 operating results of the ready-to-eat cold
cereal business, which was sold at the end of that year, net sales in 1993
increased 9% from 1992, resulting from higher volume, sales from recently
acquired businesses and modest price increases in both the North American Group
and Nabisco International. The North American Group volume increase was
primarily attributable to the success of new product introductions in the U.S.,
including the Snackwell's line of low fat/fat free cookies and crackers, Fat
Free Newtons, Life Savers Gummi Savers candy and Planters' stand-up bag line of
peanuts and snacks. Nabisco International's net sales increased as a result of
the 1993 acquisitions in Spain and Peru and higher volume and prices from its
Latin American businesses.
NFG's operating company contribution of $995 million in 1993 was 5% higher
than the 1992 amount. Excluding the 1992 operating results of the ready-to-eat
cold cereal business, operating company contribution increased 14%, with the
North American Group up 13% and Nabisco International up 18%. The North American
Group increase was primarily due to the gain in net sales, savings from
productivity programs, and contributions from the recently acquired businesses,
offset in part by higher expenses for consumer marketing programs. Nabisco
International increased operating company contribution through acquisitions and
gains in net sales.
22
NFG's operating income was $624 million in 1993, a decrease of 19% from
1992, as a result of the $153 million restructuring expense in 1993, which was
significantly higher than the restructuring expense of $63 million recorded in
1992, that more than offset the gain in operating company contribution.
Excluding the 1992 operating results of the ready-to-eat cold cereal business
and the related gain on its sale, as well as the restructuring expenses in both
1993 and 1992, NFG's operating income was up 16% as a result of the increase in
operating company contribution. The 1993 restructuring expense primarily
consists of expenses related to the reorganization and downsizing of
manufacturing and sales functions which will reduce personnel costs, both
domestically and internationally, in order to improve productivity and, to a
lesser extent, the rationalization of facilities.
1992 vs. 1991. NFG reported net sales of $6.71 billion in 1992, an increase
of 4% from 1991. The increase primarily results from higher volume and pricing
in the Latin American subsidiaries and the addition of recently acquired
businesses in Mexico and Brazil. Net sales for the North American Group were
relatively flat, as higher unit selling prices and volume in U.S. cookie and
selected grocery products, including new products and product varieties, were
offset by lower sales in the balance of the food lines as a result of restrained
consumer spending. NFG's operating company contribution increased 3% from 1991
to $947 million in 1992 as a result of the increase in net sales in Latin
America. Operating company contribution in the North American Group was about
even with last year reflecting the modest net sales performance in 1992. Margins
in the North America Group were maintained in 1992 as a result of productivity
gains offsetting the industry trends toward higher trade promotion spending.
NFG's 1992 operating income, which included a restructuring expense of $63
million, as well as a gain of $98 million on the sale of the ready-to-eat cold
cereal business, rose 8% from 1991 to $769 million as a result of the increase
in 1992 operating company contribution. The $63 million charge was incurred in
connection with a restructuring plan, the purpose of which was to reduce costs
and improve productivity by realigning sales operations and implementing a
voluntary separation program.
RESTRUCTURING EXPENSE
Holdings recorded a pre-tax restructuring expense of $730 million in the
fourth quarter of 1993 ($467 million after-tax) related to a program announced
on December 7, 1993. Such restructuring program was undertaken in response to a
changing consumer product business environment and is expected to streamline
operations and improve profitability. Implementation of the program, although
begun in the latter part of 1993, will primarily occur in 1994. Approximately
75% of the restructuring program will require cash outlays which will occur
primarily in 1994 and early 1995. As an offset to the cash outlays, Holdings
expects annual after-tax cash savings of approximately $250 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993
stipulates that, effective January 1, 1994, financial penalties will be assessed
against manufacturers if cigarettes produced in the United States do not contain
at least 75% (by weight) of domestically grown flue cured and burly tobaccos. As
a result, the domestic and international tobacco businesses accrued
approximately $70 million of related restructuring charges resulting from a
reassessment of raw material sourcing and production arrangements. In addition,
a shift in pricing strategy designed to gain share of market by RJRT's largest
competitor has resulted in a redeployment of spending and changes in sales and
distribution strategies resulting in a restructuring charge of approximately
$80 million primarily related to contract termination costs. Abandonment of
leases related to the above changes in the businesses results in approximately
$60 million of restructuring charges. The remainder of the charge,
approximately $120 million, represents
23
non-cash costs to rationalize and close manufacturing and sales facilities in
both the tobacco and food businesses to facilitate cost improvements.
INTEREST EXPENSE
1993 vs. 1992. Consolidated interest expense of $1.19 billion in 1993
decreased 17% from 1992, primarily as a result of the refinancings of debt that
were completed during 1992 and 1993, lower debt levels from the application of
net proceeds from the issuance of preferred stock in 1993 and lower effective
interest rates and the impact of declining market interest rates in 1993.
1992 vs. 1991. Consolidated interest expense of $1.43 billion in 1992
decreased 32% from 1991, primarily due to the refinancings completed during 1991
and 1992, lower effective interest rates and the impact of declining market
interest rates in 1992.
INCOME TAXES
Effective January 1, 1993, Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. SFAS
No. 109 superseded Statement of Financial Accounting Standards No. 96, the
method of accounting for income taxes previously followed by the Registrants.
The adoption of SFAS No. 109 did not have a material impact on the financial
statements of either Holdings or RJRN.
Holdings' provision for income taxes for 1993 was increased by $96 million
as a result of the enactment of certain federal tax legislation during the third
quarter of 1993 which increased federal corporate income tax rates to 35% from
34%, retroactively to January 1, 1993. The components of this increase to
Holdings' provision for income taxes included an $86 million non-cash charge
resulting primarily from the remeasurement of the balance of deferred federal
income taxes at the date of enactment of the new federal tax legislation for the
change in the income tax rates, and a $10 million charge resulting from the
increase in current federal income taxes accrued for the change in the income
tax rates and other effects of the new tax legislation. Also during 1993,
Holdings' provision for income taxes was decreased by a $108 million credit
resulting from a remeasurement of the balance of deferred income taxes for a
change in estimate of the basis of certain deferred tax amounts relating
primarily to international operations.
NET INCOME
1993 vs. 1992. Holdings reported a net loss of $145 million in 1993, a
decrease of $444 million from 1992. Included in Holdings' 1993 net loss is an
after-tax extraordinary loss of $142 million related to the repurchases of high
cost debt during 1993 and an after-tax restructuring expense of $467 million.
Excluding the extraordinary loss and restructuring expense recorded in 1993,
Holdings would have reported net income of $464 million in 1993. Excluding a
similar after-tax extraordinary loss and an after-tax restructuring expense of
$477 million and $66 million, respectively, in 1992, as well as a 1992 after-tax
gain on the sale of Holdings' ready-to-eat cold cereal business of $30 million,
Holdings would have reported net income of $812 million in 1992. The decrease in
net income in 1993 from 1992, after such exclusions, is due to the lower
operating income offset in part by lower interest expense.
1992 vs. 1991. Holdings' net income of $299 million in 1992 includes an
after-tax extraordinary loss of $477 million related to the repurchases of high
cost debt during 1992. However, after excluding the extraordinary loss, Holdings
would have reported net income of $776 million for 1992, an increase of $408
million over last year, primarily as a result of significantly lower interest
expense. Net income in 1991 was reduced by $28 million of net charges included
in "Other income (expense), net" as a result of the write-off of $109 million of
unamortized debt issuance costs and the recognition of $144 million of
24
unrealized losses from interest rate hedges related to the refinancing of
existing credit lines, partially offset by a $225 million credit for a change in
estimated postretirement health care liabilities.
Holdings' net income (loss) applicable to its common stock for 1993, 1992
and 1991 of $(213) million, $268 million and $195 million, respectively,
includes a deduction for preferred stock dividends of $68 million, $31 million
and $173 million, respectively.
Effective January 1, 1993, RJRN adopted Statement of Financial Accounting
Standards No. 112 ("SFAS No. 112"), Employers' Accounting for Postemployment
Benefits. Under SFAS No. 112, RJRN is required to accrue the costs for
preretirement postemployment benefits provided to former or inactive employees
and recognize an obligation for these benefits. The adoption of SFAS No. 112 did
not have a material impact on the financial statements of either Holdings or
RJRN.
25
LIQUIDITY AND FINANCIAL CONDITION
DECEMBER 31, 1993
Holdings continued to generate significant free cash flow in 1993, although
at a lower level than in 1992. Free cash flow, which represents cash available
for the repayment of debt and certain other corporate purposes before the
consideration of any debt and equity financing transactions, acquisition
expenditures and divestiture proceeds, was $1.0 billion for 1993 and $1.6
billion for 1992. The lower level of free cash flow for 1993 primarily reflects
lower operating company contribution in the domestic tobacco business, higher
capital expenditures for tobacco manufacturing facilities in Eastern Europe and
Turkey and for Nabisco Biscuit facilities and higher taxes paid, offset in part
by lower inventory levels in the domestic tobacco business, higher sales of
receivables, and a decrease in interest paid.
The components of free cash flow are as follows:
YEAR ENDED
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(DOLLARS IN MILLIONS)
OPERATING INCOME........................................................................... $ 1,378 $ 2,898
Amortization of intangibles.............................................................. 625 616
Restructuring expense, net of a 1992 gain from the sale of the ready-to-eat cold cereal
business............................................................................... 730 8
--------- ---------
OPERATING COMPANY CONTRIBUTION............................................................. 2,733 3,522
Depreciation and other amortization...................................................... 524 530
Increase in operating working capital.................................................... (121) (196)
Capital expenditures..................................................................... (615) (519)
Change in other assets and liabilities................................................... (21) (298)
--------- ---------
OPERATING CASH FLOW*....................................................................... 2,500 3,039
Taxes paid............................................................................... (332) (116)
Interest paid............................................................................ (912) (1,102)
Dividends paid........................................................................... (241) (214)
Other, net............................................................................... 19 31
--------- ---------
FREE CASH FLOW............................................................................. $ 1,034 $ 1,638
--------- ---------
--------- ---------
- ---------------
* Operating cash flow, which is used as an internal measurement for evaluating
business performance, includes, in addition to net cash flow from (used in)
operating activities as recorded in the Consolidated Statement of Cash Flows,
proceeds from the sale of capital assets less capital expenditures, and is
adjusted to exclude income taxes paid and items of a financial nature (such as
interest paid, interest income, and other miscellaneous financial income or
expense items).
---------------
In 1993, Holdings and RJRN continued to enter into a series of transactions
designed to refinance long-term debt, lower debt levels and lower interest
costs, thereby improving the consolidated debt cost and maturity structure.
These transactions included the issuance of preferred stock and the repurchase
and redemption of certain debt obligations with funds provided from the issuance
of debt securities (including medium-term notes), borrowings under Holdings' and
RJRN's credit agreement, dated as of December 1, 1991, as amended (the "1991
Credit Agreement"), and free cash flow, as well as RJRN's management of interest
rate exposure through swaps, options, caps and other interest rate arrangements.
As a result of these transactions and lower market interest rates during 1993,
Holdings reduced the effective interest rate on its consolidated long-term debt
from 8.7% at December 31, 1992 to 8.4% at December 31, 1993. Future effective
interest rates may vary as a result of RJRN's ongoing management of interest
rate exposure and changing market interest rates as well as refinancing
activities and changes in the ratings assigned to RJRN's debt securities by
independent rating agencies.
One of Holdings' current financial objectives is to achieve a
capitalization ratio of 43% over time. Holdings' capitalization ratio was 44.5%
at December 31, 1993. The capitalization ratio, which is
26
intended to measure Holdings' long-term debt (including current maturities) as a
percentage of total capital, is calculated by dividing (i) Holdings' long-term
debt by (ii) the sum of Holdings' total equity, consolidated long-term debt,
deferred income taxes and certain other long-term liabilities.
Certain of Holdings' other current financial objectives, which are all
based on income before extraordinary items excluding after-tax amortization of
trademarks and goodwill and referred to below as cash net income, are to achieve
a 20% return on year beginning common stockholders' equity, a 2.7 interest and
preferred stock dividend coverage ratio and a trendline average annual earnings
per share growth of 15% over time.
The 20% return on year beginning common stockholders' equity objective,
which is intended to measure the return to Holdings' common equity holders on
the net assets employed in the business, is calculated by dividing (i) cash net
income (after deducting preferred stock dividends) by (ii) total stockholders'
equity at the beginning of the year exclusive of preferred stockholders' equity
interest. For purposes of calculating the return on year beginning common
stockholders' equity, Series A Preferred Stock and similar convertible preferred
stock securities, if any, are considered common equity and the related dividends
thereon are considered common dividends. The 2.7 interest and preferred stock
dividend coverage ratio objective, which is intended to measure Holdings'
ability to service its annual interest and preferred stock dividend payments, is
calculated by dividing (i) operating income before amortization of trademarks
and goodwill and depreciation by (ii) the sum of cash interest expense and
preferred stock dividends. The trendline average annual earnings per share
growth of 15% as adjusted for after-tax amortization of trademarks and goodwill,
is intended to measure Holdings' ability to achieve a certain level of earnings
per share growth over time.
At December 31, 1993, Holdings had an outstanding total debt level (notes
payable and long-term debt, including current maturities) and a total capital
level (total debt and total stockholders' equity) of approximately $12.4 billion
and $21.5 billion, respectively, each of which is lower than the corresponding
amounts at December 31, 1992. Holdings' ratio of total debt to total
stockholders' equity at December 31, 1993 improved to 1.4-to-1 versus 1.7-to-1
at December 31, 1992. RJRN's ratio of total debt to common equity at
December 31, 1993 was 1.3-to-1, compared with 1.6-to-1 at December 31, 1992.
Total current liabilities and long-term debt of RJRN's subsidiaries was
approximately $3.4 billion at December 31, 1993 and 1992.
Management believes that the improvement to Holdings' and its subsidiaries'
financial structure since 1991 has enhanced its ability to take advantage of
opportunities to further improve its capital and/or cost structure. Management
expects that it will continue to consider opportunities as they arise. Such
opportunities, if pursued, could involve further acquisitions from time to time
of substantial amounts of securities of Holdings or its subsidiaries through
open market purchases, redemptions, privately negotiated transactions, tender or
exchange offers or otherwise and/or the issuance from time to time of additional
securities by Holdings or its subsidiaries. Acquisitions of securities at prices
above their book value, together with the accelerated amortization of deferred
financing fees attributable to the acquired securities, would reduce reported
net income, depending upon the extent of such acquisitions. Nonetheless,
Holdings' and its subsidiaries' ability to take advantage of such opportunities
is subject to restrictions in the 1991 Credit Agreements and Holdings' and
RJRN's credit agreement, dated as of April 5, 1993, as amended (the "1993 Credit
Agreement", and together with the 1991 Credit Agreement, the "Credit
Agreements"), and in certain of their debt indentures. For a discussion of
recent developments affecting the tobacco business and the potential effect on
RJRT's cash flow, see "Results of Operations--Tobacco."
In addition, management currently is reviewing and expects to continue to
review various corporate transactions, including, but not limited to, joint
ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and
recapitalizations. Although Holdings has discussed and continues to discuss
various transactions with third parties, no assurance may be given that any
transaction will be announced or completed. It is likely that Holdings' tobacco
and food businesses would be separated should certain of the foregoing
transactions be consummated.
27
During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the sale of 50,000,000 depositary shares at $25 per share
issued in connection with the issuance of Series B Cumulative Preferred Stock
have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.
A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 at a
price of $1,065.63 for each $1,000 principal amount of such debentures, plus
accrued and unpaid interest thereon.
The 1991 Credit Agreement is a $6.5 billion revolving bank credit facility
that provides for the issuance of up to $800 million of irrevocable letters of
credit. Availability under the 1991 Credit Agreement is reduced by an amount
equal to the stated amount of such letters of credit outstanding, by commercial
paper borrowings in excess of $1 billion and by amounts borrowed under such
facility. At December 31, 1993, approximately $456 million stated amount of
letters of credit was outstanding and $328 million was borrowed under the 1991
Credit Agreement. Accordingly, the amount available under the 1991 Credit
Agreement at December 31, 1993 was $5.72 billion.
On April 5, 1993, Holdings and RJRN entered into the 1993 Credit Agreement,
which matures on April 4, 1994 and provides a back-up line of credit to support
commercial paper issuances of up to $1 billion. Availability thereunder is
reduced by an amount equal to the aggregate amount of commercial paper
outstanding. At December 31, 1993, approximately $913 million of commercial
paper was outstanding. Accordingly, $87 million was available under the 1993
Credit Agreement at December 31, 1993. Holdings and RJRN expect to obtain bank
consent to extend the maturity date of the 1993 Credit Agreement for an
additional 364 days.
The aggregate of consolidated indebtedness and interest rate arrangements
subject to fluctuating interest rates approximated $5.5 billion at December 31,
1993. This represents an increase of $800 million from the year end 1992 level
of $4.7 billion, primarily due to Holdings' on-going management of its interest
rate exposure.
As a result of the general decline in market interest rates compared with
the high interest cost on certain of Holdings' consolidated debt obligations,
the estimated fair value amount of Holdings' long-term debt reflected in its
Consolidated Balance Sheets at December 31, 1993 and 1992 exceeded the carrying
amount (book value) of such debt by approximately $400 million and $1.1 billion,
respectively. For additional disclosures concerning the fair value of Holdings'
consolidated indebtedness as well as the fair value of its interest rate
arrangements at December 31, 1993 and 1992, see Notes 10 and 11 to the
Consolidated Financial Statements.
Capital expenditures were $615 million, $519 million and $459 million for
1993, 1992 and 1991, respectively. The current level of expenditures planned for
1994 is expected to be approximately $600 million (approximately 60% Food and
40% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
Holdings' businesses.
Holdings has operations in many countries, utilizing 35 functional
currencies in its foreign subsidiaries and branches. Significant foreign
currency net investments are located in Germany, Canada, Hong Kong, Brazil and
Spain. Changes in the strength of these countries' currencies relative to the
U.S. dollar result in direct charges or credits to equity for
non-hyperinflationary countries and direct charges or credits to the income
statement for hyperinflationary countries. Translation gains or losses,
resulting from foreign-denominated borrowings that are accounted for as hedges
of certain
28
foreign currency net investments, also result in charges or credits to equity.
Holdings also has significant exposure to foreign exchange sale and purchase
transactions in currencies other than its functional currency. The exposures
include the U.S. dollar, German mark, Japanese yen, Swiss franc, Hong Kong
dollar, Singapore dollar and cross-rate exposure among the French franc, British
pound, Italian lira and the German mark. Holdings manages these exposures to
minimize the effects of foreign currency transactions on its cash flows.
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries. As a result of
the increased competitive conditions in the domestic cigarette market and in
order to provide Holdings with additional flexibility under certain financial
ratios contained in the Credit Agreements, Holdings obtained an amendment to
such Credit Agreements during October 1993. Holdings and RJRN believe that they
are currently in compliance with all covenants and restrictions in the Credit
Agreements and their other indebtedness.
On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each representing a
one-tenth ownership interest in a share of a newly created series
of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share
would mandatorily convert in three years into one share of Common Stock, subject
to adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.
ENVIRONMENTAL MATTERS
RJRN has been engaged in a continuing program to assure compliance with
U.S. Government and various state and local government laws and regulations
concerning the protection of the environment. Certain subsidiaries of the
Registrants have been named "potentially responsible parties" with third parties
under the Comprehensive Environmental Response, Compensation and Liability Act,
("CERCLA") with respect to approximately fifteen sites. Although it is
difficult to identify precisely the portion of capital expenditures or other
costs attributable to compliance with environmental laws and the Registrants
can not reasonably estimate the cost of resolving the above-mentioned CERCLA
matters, the Registrants do not expect such expenditures or costs to have a
material adverse effect on the financial condition of either of the
Registrants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Index to Financial Statements and Financial Statement
Schedules on page 34, for the required information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Item 10 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994. Reference is also made regarding the executive officers of the
Registrants to "Executive Officers of the Registrants" following Item 4 of Part
I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Item 11 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is hereby incorporated by reference to Holdings' Definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1994.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed in the accompanying Index to Financial Statements and Financial
Statement Schedules are filed as part of this report.
2. The financial statement schedules listed in the accompanying Index to Financial Statements and
Financial Statement Schedules are filed as part of this report.
3. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.
(b) Reports on Form 8-K filed in Fourth Quarter 1993
None.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement Schedules.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 24, 1994.
RJR NABISCO HOLDINGS CORP.
By: /s/ CHARLES M. HARPER
....................................
(Charles M. Harper)
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 24, 1994.
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------
/s/ CHARLES M. HARPER Chairman of the Board and Chief
........................................ Executive Officer (principal executive
(Charles M. Harper) officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and Chief
........................................ Financial Officer (principal financial
(Stephen R. Wilson) officer)
/s/ ROBERT S. ROATH Senior Vice President and Controller
........................................ (principal accounting officer)
(Robert S. Roath)
* Director
........................................
(John T. Chain, Jr.)
* Director
........................................
(Saul A. Fox)
* Director
........................................
(Louis V. Gerstner, Jr.)
* Director
........................................
(James H. Greene, Jr.)
* Director
........................................
(H. John Greeniaus)
* Director
........................................
(James W. Johnston)
* Director
........................................
(Vernon E. Jordan, Jr.)
* Director
........................................
(Henry R. Kravis)
* Director
........................................
(John G. Medlin, Jr.)
* Director
........................................
(Paul E. Raether)
* Director
........................................
(Lawrence R. Ricciardi)
* Director
........................................
(Rozanne L. Ridgway)
* Director
........................................
(Clifton S. Robbins)
* Director
........................................
(George R. Roberts)
* Director
........................................
(Scott M. Stuart)
* Director
........................................
(Michael T. Tokarz)
*By: /s/ ROBERT F. SHARPE, JR.
......................................
(Robert F. Sharpe, Jr.)
Attorney-in-Fact
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 24, 1994.
RJR NABISCO, INC.
By: /s/ CHARLES M. HARPER
......................................
(Charles M. Harper)
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 24, 1994.
SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------
/s/ CHARLES M. HARPER Chairman of the Board and Chief
........................................ Executive Officer (principal executive
(Charles M. Harper) officer) and Director
/s/ STEPHEN R. WILSON Executive Vice President and Chief
........................................ Financial Officer (principal financial
(Stephen R. Wilson) officer)
/s/ ROBERT S. ROATH Senior Vice President and Controller
........................................ (principal accounting officer)
(Robert S. Roath)
* Director
........................................
(John T. Chain, Jr.)
* Director
........................................
(Saul A. Fox)
* Director
........................................
(Louis V. Gerstner, Jr.)
* Director
........................................
(James H. Greene, Jr.)
* Director
........................................
(H. John Greeniaus)
* Director
........................................
(James W. Johnston)
* Director
........................................
(Vernon E. Jordan, Jr.)
* Director
........................................
(Henry R. Kravis)
* Director
........................................
(John G. Medlin, Jr.)
* Director
........................................
(Paul E. Raether)
* Director
........................................
(Lawrence R. Ricciardi)
* Director
........................................
(Rozanne L. Ridgway)
* Director
........................................
(Clifton S. Robbins)
* Director
........................................
(George R. Roberts)
* Director
........................................
(Scott M. Stuart)
* Director
........................................
(Michael T. Tokarz)
*By: /s/ ROBERT F. SHARPE, JR.
.......................................
(Robert F. Sharpe, Jr.)
Attorney-in-Fact
33
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
--------------
FINANCIAL STATEMENTS
Report of Deloitte & Touche, Independent Auditors............................................... F-1
Summary of Significant Accounting Policies...................................................... F-2
Consolidated Statements of Income and Retained Earnings--Years Ended December 31, 1993, 1992 and
1991......................................................................................... F-3
Consolidated Statements of Cash Flows--Years Ended December 31, 1993,
1992 and 1991................................................................................ F-4
Consolidated Balance Sheets--December 31, 1993 and 1992......................................... F-5
Notes to Consolidated Financial Statements...................................................... F-6-F-32
FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 1993, 1992 and 1991:
Schedule II --Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties......................................... S-1-S-2
Schedule III --Condensed Financial Information of Registrant................................ S-3-S-6
Schedule V --Property, Plant and Equipment................................................ S-7
Schedule VI --Accumulated Depreciation, Depletion, and Amortization of Property, Plant and
Equipment.................................................................... S-8
Schedule VIII --Valuation and Qualifying Accounts............................................ S-9
Schedule IX --Short-Term Borrowings........................................................ S-10
Schedule X --Supplementary Income Statement Information................................... S-11
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are omitted because they
are not required under the related instructions or are not applicable or the
required information is shown in the financial statements or notes thereto.
34
REPORT OF DELOITTE & TOUCHE, INDEPENDENT AUDITORS
RJR Nabisco Holdings Corp.:
RJR Nabisco, Inc.:
We have audited the accompanying consolidated balance sheets of RJR Nabisco
Holdings Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN") as of December 31,
1993 and 1992, and the related consolidated statements of income and retained
earnings and cash flows for each of the three years in the period ended December
31, 1993. Our audits also included the financial statement schedules of Holdings
and RJRN as of December 31, 1993 and 1992, and for each of the three years in
the period ended December 31, 1993 as listed in the accompanying Index to
Financial Statements and Financial Statement Schedules. These financial
statements and financial statement schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Holdings and RJRN
at December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE
New York, New York
February 1, 1994
(except with respect to the subsequent
event discussed in Note 17, as to
which the date is February 24, 1994)
F-1
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED FINANCIAL STATEMENTS
The Summary of Significant Accounting Policies below and the notes to
consolidated financial statements on pages F-6 through F-32 are integral parts
of the accompanying consolidated financial statements of RJR Nabisco Holdings
Corp. ("Holdings") and RJR Nabisco, Inc. ("RJRN" and, collectively with
Holdings, the "Registrants") (the "Consolidated Financial Statements").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This Summary of Significant Accounting Policies is presented to assist in
understanding the Consolidated Financial Statements included in this report.
These policies conform to generally accepted accounting principles.
Consolidation
Consolidated Financial Statements include the accounts of each Registrant
and its subsidiaries.
Cash Equivalents
Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and so near maturity that they
present an insignificant risk of changes in value because of changes in interest
rates.
Inventories
Inventories are stated at the lower of cost or market. Various methods are
used for determining cost. The cost of U.S. tobacco inventories is determined
principally under the LIFO method. The cost of remaining inventories is
determined under the FIFO, specific lot and weighted average methods. In
accordance with recognized trade practice, stocks of tobacco, which must be
cured for more than one year, are classified as current assets.
Depreciation
Property, plant and equipment are depreciated principally by the
straight-line method.
Trademarks and Goodwill
Values assigned to trademarks are based on appraisal reports and are
amortized on the straight-line method over a 40 year period. Goodwill is also
amortized on the straight-line method over a 40 year period.
Other Income (Expense), Net
Interest income, gains and losses on foreign currency transactions and
other financial items are included in "Other income (expense), net".
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income
Taxes, and are calculated for each Registrant on a separate return basis.
Postretirement Benefits Other Than Pensions
Postretirement benefits other than pensions are accounted for under the
provisions of Statement of Financial Accounting Standards No. 106 ("SFAS No.
106"), Employers' Accounting for Postretirement Benefits Other Than Pensions.
Postemployment Preretirement Benefits
Postemployment preretirement benefits are accounted for under the
provisions of Statement of Financial Accounting Standards No. 112 ("SFAS No.
112"), Employers' Accounting for Postemployment Benefits.
Excise Taxes
Excise taxes are excluded from "Net sales" and "Cost of products sold".
Reclassifications and Restatements
Certain reclassifications have been made to prior years' amounts to conform
to the 1993 presentation.
F-2
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
----------------------- ----------------------- ---------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
------------ --------- ------------ --------- ---------- ---------
NET SALES (NOTE 1)............................... $ 15,104 $ 15,104 $ 15,734 $ 15,734 $ 14,989 $ 14,989
------------ --------- ------------ --------- ---------- ---------
Costs and expenses (Note 1):
Cost of products sold.......................... 6,640 6,640 6,326 6,326 6,088 6,088
Selling, advertising, administrative and
general expenses............................. 5,731 5,723 5,788 5,776 5,358 5,345
Amortization of trademarks and goodwill........ 625 625 616 616 609 609
Restructuring expense.......................... 730 730 106 106 -- --
------------ --------- ------------ --------- ---------- ---------
OPERATING INCOME.......................... 1,378 1,386 2,898 2,910 2,934 2,947
Interest expense (Notes 8 and 10)................ (1,190) (1,167) (1,429) (1,340) (2,113) (2,030)
Amortization of debt issuance costs.............. (19) (19) (20) (19) (104) (110)
Other income (expense), net (Note 1)............. (58) (88) 7 (75) (69) (157)
------------ --------- ------------ --------- ---------- ---------
Income before income taxes................ 111 112 1,456 1,476 648 650
Provision for income taxes (Note 3).............. 114 116 680 693 280 301
------------ --------- ------------ --------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... (3) (4) 776 783 368 349
Extraordinary item--loss on early extinguishments
of debt, net of income taxes (Note 4).......... (142) (135) (477) (464) -- --
------------ --------- ------------ --------- ---------- ---------
NET INCOME (LOSS)......................... (145) (139) 299 319 368 349
Less preferred stock dividends................... 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
Net income (loss) applicable to common
stock................................. (213) (139) 268 319 195 349
Retained earnings (accumulated deficit) at
beginning of period............................ (738) (320) (1,037) (639) (1,405) (988)
Add preferred stock dividends charged to paid-in
capital........................................ 68 -- 31 -- 173 --
------------ --------- ------------ --------- ---------- ---------
RETAINED EARNINGS (ACCUMULATED DEFICIT) AT END OF
PERIOD (NOTE 13)............................... $ (883) $ (459) $ (738) $ (320) $ (1,037) $ (639)
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Net income (loss) per common and common
equivalent share:
Income (loss) before extraordinary item........ $ (.05) -- $ 0.55 -- $ 0.22 --
Extraordinary item............................. (.10) -- (0.35) -- -- --
------------ --------- ------------ --------- ---------- ---------
Net income (loss)......................... $ (.15) -- $ 0.20 -- $ 0.22 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
Dividends per share of Series A Preferred Stock
(Note 12)...................................... $ 3.34 -- $ 3.34 -- $ 0.49 --
Average number of common and common equivalent
shares outstanding (in thousands)(Note 2)...... 1,349,196 -- 1,363,549 -- 887,622 --
------------ --------- ------------ --------- ---------- ---------
------------ --------- ------------ --------- ---------- ---------
See Notes to Consolidated Financial Statements.
F-3
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
-------------------- -------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- --------- --------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES (NOTE 5).. $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures............................. (615) (615) (519) (519) (459) (459)
Proceeds from dispositions of businesses......... 450 450 -- -- 98 98
Acquisition of businesses........................ (128) (128) (385) (385) -- --
Other, net....................................... 32 32 11 11 20 20
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) investing
activities................................... (261) (261) (893) (893) (341) (341)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt......... 25,747 25,747 19,179 19,179 7,079 7,079
Repayments of long-term debt..................... (28,031) (27,483) (20,622) (20,371) (11,597) (11,597)
Increase (decrease) in notes payable............. (24) (24) (25) (25) 46 46
Proceeds from issuance of common stock and
exercise of warrants........................... 9 -- 1 -- 1,300 --
Proceeds from issuance of Series A Preferred
Stock.......................................... -- -- -- -- 2,126 --
Proceeds from issuance of Series B Preferred
Stock.......................................... 1,250 -- -- -- -- --
Financing and advisory fees paid................. (48) (9) (35) (33) (227) (81)
Capital contributions from/issuance of common
stock to parent................................ -- 1,214 -- -- -- 3,454
Dividends paid to parent......................... -- (48) -- (278) -- --
Preferred stock dividends paid................... (241) -- (214) -- (205) --
Repurchase of Preferred Stock.................... (105) -- -- -- -- --
Repurchases and cancellations of common stock,
stock options and warrants..................... (1) -- (89) -- (4) --
Other, net--including intercompany transfers..... 62 (621) 62 (363) (12) (191)
--------- --------- --------- --------- --------- ---------
Net cash flows from (used in) financing
activities................................... (1,382) (1,224) (1,743) (1,891) (1,494) (1,290)
--------- --------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents.................................. (10) (10) (6) (6) (25) (25)
--------- --------- --------- --------- --------- ---------
Net change in cash and cash equivalents........ 116 109 (335) (335) 111 325
Cash and cash equivalents at beginning of period... 99 96 434 431 323 106
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period......... $ 215 $ 205 $ 99 $ 96 $ 434 $ 431
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
F-4
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
DECEMBER 31, DECEMBER 31,
1993 1992
-------------------- --------------------
HOLDINGS RJRN HOLDINGS RJRN
--------- --------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents (Note 5)....................................... $ 215 $ 205 $ 99 $ 96
Accounts and notes receivable, net (Notes 1 and 5)....................... 856 847 1,356 1,333
Inventories (Note 6)..................................................... 2,700 2,700 2,776 2,776
Prepaid expenses and excise taxes........................................ 374 374 345 345
--------- --------- --------- ---------
TOTAL CURRENT ASSETS................................................ 4,145 4,126 4,576 4,550
--------- --------- --------- ---------
Property, plant and equipment--at cost..................................... 7,166 7,166 6,515 6,515
Less accumulated depreciation.............................................. (1,998) (1,998) (1,657) (1,657)
--------- --------- --------- ---------
Net property, plant and equipment (Note 7)............................... 5,168 5,168 4,858 4,858
--------- --------- --------- ---------
Trademarks, net of accumulated amortization of $1,223 and $972,
respectively............................................................. 8,727 8,727 8,959 8,959
Goodwill, net of accumulated amortization of $1,767 and $1,395,
respectively............................................................. 12,851 12,851 13,062 13,062
Other assets and deferred charges.......................................... 404 400 586 581
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 8)................................................... $ 301 $ 301 $ 298 $ 298
Accounts payable......................................................... 515 515 401 401
Accrued liabilities (Note 9)............................................. 2,751 2,705 2,468 2,425
Current maturities of long-term debt (Note 10)........................... 142 142 379 351
Income taxes accrued (Note 3)............................................ 234 234 300 300
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES........................................... 3,943 3,897 3,846 3,775
--------- --------- --------- ---------
Long-term debt (less current maturities) (Note 10)......................... 12,005 12,005 13,541 13,054
Other noncurrent liabilities............................................... 2,503 2,353 2,203 2,859
Deferred income taxes (Note 3)............................................. 3,774 3,701 4,075 3,978
Commitments and contingencies (Note 11)....................................
Stockholders' equity (Notes 12, 13 and 17):
Redeemable convertible preferred stock--4,032,968 shares issued and
outstanding at December 31, 1992....................................... -- -- 101 --
ESOP convertible preferred stock--15,573,973 and 15,625,000 shares issued
and outstanding at December 31, 1993 and 1992, respectively........... 249 -- 250 --
Series A convertible preferred stock--52,500,000 shares issued and
outstanding at December 31, 1993 and 1992.............................. 2 -- 2 --
Series B preferred stock--50,000 shares issued and outstanding at
December 31, 1993...................................................... 1,250 -- -- --
Common stock--1,138,011,292 and 1,134,648,542 shares issued and
outstanding at December 31, 1993 and 1992, respectively............... 11 -- 11 --
Paid-in capital.......................................................... 8,778 9,877 9,048 8,711
Cumulative translation adjustments....................................... (102) (102) (47) (47)
Retained earnings (accumulated deficit).................................. (883) (459) (738) (320)
Receivable from ESOP..................................................... (211) -- (227) --
Loans receivable from employees.......................................... (18) -- (24) --
Unamortized value of restricted stock.................................... (6) -- -- --
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY.......................................... 9,070 9,316 8,376 8,344
--------- --------- --------- ---------
$ 31,295 $ 31,272 $ 32,041 $ 32,010
--------- --------- --------- ---------
--------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
F-5
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS
Net sales and cost of products sold exclude excise taxes of $3.757 billion,
$3.560 billion and $3.715 billion for 1993, 1992 and 1991, respectively.
Operating income in the fourth quarter of 1993 was reduced by a $730
million restructuring expense for a program initiated at the domestic tobacco
operations ($355 million), the international tobacco operations ($189 million),
the food operations ($153 million) and Headquarters ($33 million). Such
restructuring program was undertaken in response to a changing consumer product
business environment and is expected to streamline operations and improve
profitability. Implementation of the program, although begun in the latter part
of 1993, will primarily occur in 1994. Approximately 75% of the restructuring
program will require cash outlays which will occur primarily in 1994 and early
1995. As an offset to the cash outlays, Holdings expects annual after-tax cash
savings of approximately $250 million.
The cost of providing severance pay and benefits for the reduction of
approximately 6,000 employees throughout the domestic and international food and
tobacco businesses is approximately $400 million of the charge and is primarily
a cash expense. The workforce reduction was undertaken in order to establish
fundamental changes to the cost structure of the domestic tobacco business in
the face of acute competitive activity in that business and to take advantage of
cost savings opportunities in other businesses through process efficiency
improvements. Legislation enacted during the third quarter of 1993 stipulates
that, effective January 1, 1994, financial penalties will be assessed against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) of domestically grown flue cured and burly tobaccos. As a
result, the domestic and international tobacco businesses accrued approximately
$70 million of related restructuring charges resulting from a reassessment of
raw material sourcing and production arrangements. In addition, a shift in
pricing strategy designed to gain share of market by RJRT's largest competitor
has resulted in a redeployment of spending and changes in sales and
distribution strategies resulting in a restructuring charge of approximately
$80 million primarily related to contract termination costs. Abandonment of
leases related to the above changes in the businesses results in approximately
$60 million of restructuring charges. The remainder of the charge, approximately
$120 million, represents non-cash costs to rationalize and close manufacturing
and sales facilities in both the tobacco and food businesses to facilitate cost
improvements.
During the fourth quarter of 1992, operating income was reduced by a net
charge of $8 million as a result of a $106 million restructuring expense
recorded at the tobacco operations ($43 million) and the food operations ($63
million), partially offset by a $98 million gain recognized from the sale of
Holdings' ready-to-eat cold cereal business for $456 million in cash, prior to
post-closing adjustments. The restructuring expense was incurred in connection
with a restructuring plan at the tobacco operations, the purpose of which was to
improve productivity by realigning operations in the sales, manufacturing,
research and development, and administrative areas and a restructuring plan at
the food operations, the purpose of which was to reduce costs and improve
productivity by realigning sales operations and implementing a previously
announced voluntary separation program. The receivable established at December
31, 1992 for the sale of the ready-to-eat cold cereal business was collected on
January 4, 1993, except for certain escrow amounts which were subsequently
collected.
During the fourth quarter of 1991, net income was reduced by $28 million of
net charges included in "Other income (expense), net" as a result of the
write-off of $109 million of unamortized debt issuance costs and the recognition
of $144 million of unrealized losses from interest rate hedges related
F-6
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--OPERATIONS--(CONTINUED)
to the refinancing of the bank credit agreement of RJR Nabisco Capital Corp.
("Capital") dated as of January 31, 1989 (as amended, the "1989 Credit
Agreement") and the repayment of the $2.25 billion bank credit facility (as
amended, the "1990 Credit Agreement"), partially offset by a $225 million credit
for a change in estimated postretirement health care liabilities.
NOTE 2--EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and Series A Depositary Shares (hereinafter defined) outstanding
during the period and common stock assumed to be outstanding to reflect the
effect of dilutive warrants and options. Holdings' other potentially dilutive
securities are not included in the earnings per share calculation because the
effect of excluding interest and dividends on such securities for the period
would exceed the earnings allocable to the common stock into which such
securities would be converted. Accordingly, Holdings' earnings per share and
fully diluted earnings per share are the same.
NOTE 3--INCOME TAXES
The provision for income taxes consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------------ ------------------------ ------------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- ----------- ----------- ----------- ----------- -----------
Current:
Federal.......................................... $ 295 $ 366 $ 165 $ 115 $ 53 $ 20
Foreign and other................................ 169 169 216 216 206 202
----------- ----------- ----------- ----------- ----------- -----------
464 535 381 331 259 222
----------- ----------- ----------- ----------- ----------- -----------
Deferred:
Federal.......................................... (298) (367) 300 363 17 75
Foreign and other................................ (52) (52) (1) (1) 4 4
----------- ----------- ----------- ----------- ----------- -----------
(350) (419) 299 362 21 79
----------- ----------- ----------- ----------- ----------- -----------
Provision for income taxes......................... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
F-7
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
The components of the deferred income tax liability disclosed on the
Consolidated Balance Sheet at December 31, 1993 included the following:
DECEMBER 31, 1993
----------------------
HOLDINGS RJRN
----------- ---------
Deferred tax assets:
Pension liabilities.............................................................. $ (123) $ (123)
Other postretirement liabilities................................................. (342) (342)
Restructure and other accrued liabilities........................................ (325) (325)
----------- ---------
Total deferred tax assets................................................ (790) (790)
----------- ---------
Deferred tax liabilities:
Property and equipment........................................................... 1,154 1,154
Trademarks....................................................................... 2,913 2,913
Other............................................................................ 465 392
----------- ---------
Total deferred tax liabilities........................................... 4,532 4,459
----------- ---------
Net deferred tax liabilities before valuation allowance............... 3,742 3,669
Valuation allowance.............................................................. 32 32
----------- ---------
Net deferred income taxes........................................................ $ 3,774 $ 3,701
----------- ---------
----------- ---------
Pre-tax income (loss) before extraordinary item for domestic and foreign
operations is shown in the following table:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
Domestic (includes U.S. exports)................... $ (169) $ (168) $ 1,052 $ 1,072 $ 285 $ 287
Foreign............................................ 280 280 404 404 363 363
----------- --------- ----------- --------- ----------- ---------
Pre-tax income..................................... $ 111 $ 112 $ 1,456 $ 1,476 $ 648 $ 650
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
F-8
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
The differences between the provision for income taxes and income taxes
computed at statutory U.S. federal income tax rates are explained as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
Income taxes computed at statutory
U.S. federal income tax rates...... $ 39 $ 39 $ 495 $ 502 $ 220 $ 221
State taxes, net of federal ben-
efit............................... 23 23 54 54 60 57
Goodwill amortization................ 125 125 122 122 121 121
March 1991 Exchange Offer............ -- -- -- -- (104) (104)
Asset sale........................... -- -- 33 33 -- --
Federal rate change impact on
deferred income taxes.............. 86 86 -- -- -- --
Change in estimate of the basis of
certain deferred tax amounts....... (108) (108) -- -- -- --
Taxes on foreign operations at rates
different than statutory U.S.
federal rate....................... (14) (14) 15 15 7 7
FSC income exclusion................. (14) (14) (10) (10) (5) (5)
Other items, net..................... (23) (21) (29) (23) (19) 4
----------- --------- ----------- --------- ----------- ---------
Provision for income taxes........... $ 114 $ 116 $ 680 $ 693 $ 280 $ 301
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
Effective tax rate................... 102.7% 103.8% 46.7% 47.0% 43.2% 46.3%
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
At December 31, 1993, there was $1.242 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings are intended by
management to be reinvested abroad indefinitely. Accordingly, no applicable U.S.
federal deferred income taxes or foreign withholding taxes have been provided
nor is a determination of the amount of unrecognized U.S. federal deferred
income taxes practicable.
At December 31, 1993, Holdings had cumulative minimum tax credit
carryforwards for U.S. federal tax purposes of $64 million.
Effective January 1, 1993, Holdings and RJRN adopted SFAS No. 109. SFAS No.
109 superseded Statement of Financial Accounting Standards No. 96, the method of
accounting for income taxes previously followed by the Registrants. The adoption
of SFAS No. 109 did not have a material impact on the financial statements of
either Holdings or RJRN.
Holdings' provision for income taxes for 1993 was increased by $96 million
as a result of the enactment of certain federal tax legislation during the third
quarter of 1993 which increased federal corporate income tax rates to 35% from
34%, retroactively to January 1, 1993. The components of this
F-9
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INCOME TAXES--(CONTINUED)
increase to Holdings' provision for income taxes included an $86 million
non-cash charge resulting primarily from the remeasurement of the balance of
deferred federal income taxes at the date of enactment of the new federal tax
legislation for the change in the income tax rates, and a $10 million charge
resulting from the increase in current federal income taxes accrued for the
change in the income tax rates and other effects of the new tax legislation.
Also during 1993, Holdings' provision for income taxes was decreased by a $108
million credit resulting from a remeasurement of the balance of deferred income
taxes for a change in estimate of the basis of certain deferred tax amounts
relating primarily to international operations.
During 1993, $101 million of previously recognized deferred income tax benefits
for operating loss carryforwards ($36 million), minimum tax credit carryforwards
($44 million) and other carryforward items ($21 million) were realized for U.S.
federal tax purposes.
NOTE 4--EXTRAORDINARY ITEM
The extinguishments of debt of Holdings and RJRN resulted in the following
extraordinary losses:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- ---------
Cash paid in excess of net carrying amount (book value) of debentures
extinguished........................................................... $ (206) $ (196) $ (636) $ (616)
Write-off of debt issuance costs......................................... (12) (12) (40) (40)
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt before income
taxes.................................................................. (218) (208) (676) (656)
Benefit for income taxes................................................. 76 73 199 192
----------- --------- ----------- ---------
Extraordinary item--loss on early extinguishments of debt, net of income
taxes.................................................................. $ (142) $ (135) $ (477) $ (464)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
F-10
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION
A reconciliation of net income (loss) to net cash flows from operating
activities follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- --------- ----------- --------- ----------- ---------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)............................... $ (145) $ (139) $ 299 $ 319 $ 368 $ 349
----------- --------- ----------- --------- ----------- ---------
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation of property, plant and
equipment.................................... 448 448 455 455 441 441
Amortization (principally intangibles)....... 701 701 691 691 683 683
Deferred income tax provision (benefit)...... (350) (419) 299 362 21 79
Non-cash interest expense.................... 276 254 434 356 787 703
Amortization of debt issuance costs.......... 19 19 20 19 104 110
Extraordinary item--loss on early
extinguishments of debt.................... 218 208 676 656 -- --
Gain on sale of ready-to-eat cold cereal
business................................... -- -- (98) (98) -- --
(Increase) decrease in accounts and notes
receivable................................. 75 84 (180) (180) (161) (139)
(Increase) decrease in inventories........... 80 80 (102) (102) (23) (23)
(Increase) decrease in prepaid expenses and
excise taxes............................... (37) (37) (53) (53) 5 5
(Increase) decrease in other assets and
deferred charges........................... (4) 43 (186) (185) 54 57
Increase (decrease) in accounts payable and
accrued liabilities........................ 308 312 70 84 (279) (290)
Increase (decrease) in income taxes
accrued.................................... (53) 54 38 128 (90) (125)
Increase (decrease) in other noncurrent
liabilities................................ 215 24 (110) (96) 10 15
Other, net................................... 18 (28) 54 99 51 116
----------- --------- ----------- --------- ----------- ---------
Total adjustments....................... 1,914 1,743 2,008 2,136 1,603 1,632
----------- --------- ----------- --------- ----------- ---------
Net cash flows from operating activities..... $ 1,769 $ 1,604 $ 2,307 $ 2,455 $ 1,971 $ 1,981
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
Cash payments for income taxes and interest were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------------ ---------------------- ----------------------
HOLDINGS RJRN HOLDINGS RJRN HOLDINGS RJRN
----------- ----------- ----------- --------- ----------- ---------
Income taxes paid, net of refunds................... $ 408 $ 408 $ 116 $ 116 $ 368 $ 368
Interest paid....................................... $ 912 $ 912 $ 1,102 $ 1,102 $ 1,397 $ 1,397
F-11
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED)
Cash equivalents at December 31, 1993 and 1992, valued at cost (which
approximates market value), totaled $215 million and $99 million, respectively,
and consisted principally of domestic and Eurodollar time deposits and
certificates of deposit.
At December 31, 1993 and 1992, cash of $62 million and $63 million,
respectively, was held in escrow as collateral for letters of credit issued in
connection with certain foreign currency debt.
On February 7, 1990, RJRN entered into an arrangement in which it agreed to
sell for cash substantially all of its domestic trade accounts receivable
generated during a five-year period to a financial institution. Pursuant to
amendments entered into in 1992, the length of the receivable program was
extended an additional year. The accounts receivable have been and will continue
to be sold with limited recourse at purchase prices reflecting the rate
applicable to the cost to the financial institution of funding its purchases of
accounts receivable and certain administrative costs. During 1993, 1992 and
1991, total proceeds of approximately $8.2 billion, $8.5 billion and $8.7
billion, respectively, were received by RJRN in connection with this
arrangement. At December 31, 1993 and 1992, the accounts receivable balance has
been reduced by approximately $437 million and $352 million, respectively, due
to the receivables sold.
For information regarding certain non-cash financing activities, see Notes
10 and 12 to the Consolidated Financial Statements.
NOTE 6--INVENTORIES
The major classes of inventory are shown in the table below:
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
Finished products....................................................... $ 771 $ 730
Leaf tobacco............................................................ 1,458 1,501
Raw materials........................................................... 208 222
Other................................................................... 263 323
------------- -------------
$ 2,700 $ 2,776
------------- -------------
------------- -------------
At December 31, 1993 and 1992, approximately $1.4 billion of inventory was
valued under the LIFO method. The current cost of LIFO inventories at December
31, 1993 and 1992 was greater than the amount at which these inventories were
carried on the Consolidated Balance Sheets by $284 million and $277 million,
respectively.
For the years ended December 31, 1993, 1992 and 1991, net income was
increased by $6 million, $4 million, and $9 million, respectively, as a result
of LIFO inventory liquidations. The LIFO liquidations resulted from programs to
reduce leaf durations consistent with forecasts of future operating
requirements.
F-12
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
Land and land improvements.............................................. $ 308 $ 277
Buildings and leasehold improvements.................................... 1,771 1,682
Machinery and equipment................................................. 4,624 4,086
Construction-in-process................................................. 463 470
------------- -------------
7,166 6,515
Less accumulated depreciation........................................... (1,998) (1,657)
------------- -------------
Net property, plant and equipment.................................. $ 5,168 $ 4,858
------------- -------------
------------- -------------
NOTE 8--NOTES PAYABLE
Notes payable consisted of the following:
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
Notes payable to foreign banks.......................................... $ 301 $ 280
Foreign commercial paper................................................ -- 18
--------- ---------
$ 301 $ 298
--------- ---------
--------- ---------
NOTE 9--ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
DECEMBER 31, DECEMBER 31,
1993 1992
------------- -------------
Marketing and advertising............................................... $ 643 $ 645
Payroll and employee benefits........................................... 325 291
Excise taxes............................................................ 226 322
Accrued interest........................................................ 260 236
Restructuring........................................................... 377 124
Other................................................................... 920 850
------------- -------------
$ 2,751 $ 2,468
------------- -------------
------------- -------------
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE
Interest expense consisted of the following:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Cash interest................................................. $ 914 $ 995 $ 1,326
Non-cash interest............................................. 276 434 787
------------- ------------- -------------
$ 1,190 $ 1,429 $ 2,113
------------- ------------- -------------
------------- ------------- -------------
F-13
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Long-term debt consisted of the following:
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
RJRN Debt:
7 3/8-9 3/8% Debentures with annual sinking fund payments through
2017 (net of $160 million and $162 million of such debentures
held by RJRN on December 31, 1993 and 1992, respectively, for
future sinking fund requirements, and $137 million of such
debentures held by Holdings on December 31, 1992)............... $ -- $ 1,464 $ 216 $ 1,572
5.09-10.5% Notes, due 1995 through 2013............................ -- 6,631 100 4,655
5.375-10%, Foreign Currency Debt, due 1994 to 2001................. 123 472 -- 605
1991 Credit Agreement, variable interest (varies with prime rate
and LIBOR--weighted average interest rate of 3.94% at December
31, 1993), due December 31, 1996(2)............................. -- 328 -- 2,831
Commercial paper(3)................................................ -- 913 -- 571
Other indebtedness................................................. 19 247 35 239
Subordinated Debentures:
15% Subordinated Debentures, net of discount of $18 million and $27
million at December 31, 1993 and 1992, respectively, effective
interest rate of 15.88%, interest payable-in-kind or cash, at
the option of RJRN, until May 15, 1994, cash payment thereafter,
sinking fund requirements beginning 1999, due 2001.............. -- 280 -- 423
Subordinated Discount Debentures, net of discount of $133 million
and $495 million at December 31, 1993 and 1992, respectively,
effective interest rate of 15.88%, interest payable-in-kind
until May 15, 1994, cash payment thereafter, sinking fund
requirements beginning 1999, due 2001........................... -- 1,393 -- 1,799
Other Subordinated Debentures, fixed rate of 13 1/2%, due 2001..... -- 277 -- 359
----------- ----------- ----------- ---------
RJRN(4)....................................................... 142 12,005 351 13,054
F-14
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------ ----------------------
DUE DUE DUE DUE
WITHIN AFTER WITHIN AFTER
ONE YEAR ONE YEAR(1) ONE YEAR ONE YEAR
----------- ----------- ----------- ---------
Holdings Debt:
Converting Debentures, fixed rate of 17 3/8%, interest
payable-in-kind or cash at Holdings' option through May 1, 1999,
cash payment thereafter, convertible into Holdings' Common Stock
on April 30, 1993, otherwise due 2009........................... -- -- -- 413
11.68% ESOP participation.......................................... -- -- 28 74
----------- ----------- ----------- ---------
Holdings...................................................... $ 142 $ 12,005 $ 379 $ 13,541
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
- ---------------
(1) The payment of debt through December 31, 1998 is due as follows (in
millions): 1995--$617; 1996--$465; 1997--$70 and 1998--$1,714.
(2) RJRN maintains a revolving credit facility of $6.5 billion of which $6.2
billion was unused at December 31, 1993. At December 31, 1993, availability
of the unused portion is reduced by $456 million for the extension of
irrevocable letters of credit which support the principal and interest on
certain existing foreign debt of RJRN and its subsidiaries. A commitment fee
of 1/4% per annum is payable on the unused portion of the facility.
(3) RJRN maintains a back-up line of credit to support commercial paper
issuances of up to $1 billion. Commercial paper outstanding in excess of $1
billion is supported by the 1991 Credit Agreement.
(4) As a result of RJRN's management of its interest rate exposure through
swaps, options, caps, and other interest rate arrangements, the effective
interest rate on certain debt may differ from that disclosed in the table.
------------------------
During 1991, Holdings entered into the following refinancing transactions:
(i) the repayment on March 11, 1991 of the aggregate principal amount
outstanding of a subordinated promissory note held by a limited partnership
affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR") plus accrued and
unpaid interest thereon for a total of approximately $468 million in cash from
borrowings under the revolving credit portion of the 1989 Credit Agreement, (ii)
the issuance by Capital on April 25, 1991 of $1.5 billion principal amount of 10
1/2% Senior Notes due 1998 (the "10 1/2% Senior Notes") (the "Senior Note
Offering") and the repayment of a portion of the amount outstanding under the
1990 Credit Agreement with a portion of the net proceeds from the Senior Note
Offering equal to approximately $731 million in cash, (iii) the redemption on
June 3, 1991 of 100% of the aggregate principal amount of all outstanding
Subordinated Exchange Debentures Due 2007 of RJR Nabisco Holdings Group, Inc.
("Group") equal to approximately $1.86 billion plus accrued and unpaid interest
thereon to the redemption date with (a) an additional portion of the net
proceeds from the Senior Note Offering and (b) the entire net proceeds from the
issuance by Holdings on April 18, 1991 of 115,000,000 shares of common stock of
Holdings, par value $.01 per share (the "Common Stock") at $11.25 per share,
(iv) open market purchases of certain of Capital's debentures totalling
approximately $128 million with the remaining net proceeds from the Senior Note
Offering, (v) the exchange by Holdings of 3.8 shares of Common Stock for each of
the 67,997,769 shares of Cumulative Convertible Preferred Stock (the "Preferred
Stock") exchanged pursuant to an exchange offer commenced on November 7, 1991
and completed on December 7, 1991, (vi) the issuance by Holdings on November 8,
1991 of 52,500,000 shares of Series A Conversion Preferred Stock, par value .01
per share ("Series A Preferred Stock") of Holdings and the sale of 210,000,000
$.835 depositary shares ("Series A Depositary
F-15
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Shares") at $10.125 per Series A Depositary Share in connection with such
issuance (the "Series A Preferred Stock Offering"), (vii) the repayment of the
aggregate amount outstanding under the 1990 Credit Agreement, the repayment of a
portion of the amount outstanding under the 1989 Credit Agreement and the
redemption of certain notes of RJRN with the net proceeds from the Series A
Preferred Stock Offering equal to approximately $2.1 billion and (viii) the
repayment by Capital on December 19, 1991 of the aggregate amount outstanding
under the working capital facility, revolving credit facility and term loan
portions of the 1989 Credit Agreement with approximately $3.3 billion in cash
from borrowings under a $6.5 billion bank credit facility (as amended, the "1991
Credit Agreement").
On May 15, 1992, Capital merged with and into its wholly-owned subsidiary,
RJRN. As a result of the merger, Group became the direct parent of RJRN and RJRN
assumed all of the obligations of Capital under the 1991 Credit Agreement and
with respect to the following debt securities: Subordinated Discount Debentures
due May 15, 2001 (the "Subordinated Discount Debentures"); 15% Payment-in-Kind
Subordinated Debentures due May 15, 2001 (the "15% Subordinated Debentures"); 13
1/2% Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated
Debentures" and, collectively with the Subordinated Discount Debentures and the
15% Subordinated Debentures, the "Subordinated Debentures"); 10 1/2% Senior
Notes; 8.30% Senior Notes due April 15, 1999 (the "8.30% Senior Notes"); and
8.75% Senior Notes due April 15, 2004 (the "8.75% Senior Notes" and,
collectively with the 8.30% Senior Notes, the "1992 Senior Notes"). Prior to
this merger, RJRN had guaranteed all of Capital's obligations with respect to
such indebtedness, and the financial statements of RJRN had reflected such
indebtedness and all debt related costs.
On December 17, 1992, Group merged with and into its wholly-owned
subsidiary, RJRN.
Also during 1992, Holdings entered into the following refinancing
transactions: (i) the redemption on February 15, 1992 of $250 million principal
amount of Capital's Subordinated Floating Rate Notes due 1999 (the "Subordinated
Floating Rate Notes") at a price of $1,005 for each $1,000 principal amount of
Subordinated Floating Rate Notes plus accrued and unpaid interest thereon, (ii)
the early extinguishments by Capital of approximately $1 billion aggregate
principal amount of certain of Capital's subordinated debentures in a privately
negotiated transaction (the "1992 Capital Debenture Repurchase") for
approximately $995 million in cash, consisting of $165 million aggregate
principal amount of its 15% Subordinated Debentures, $85 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $750 million
aggregate principal amount (approximately $550 million accreted amount) of its
Subordinated Discount Debentures, (iii) the issuance by Capital on April 9, 1992
of $600 million principal amount of 8.30% Senior Notes and $600 million
principal amount of 8.75% Senior Notes and the application of substantially all
of the net proceeds from the issuance of the 1992 Senior Notes to repay a
portion of the funds temporarily drawn under the 1991 Credit Agreement for the
redemption of the Subordinated Floating Rate Notes and for the 1992 Capital
Debenture Repurchase, (iv) the retirement on May 15, 1992 of $225 million
aggregate principal amount of Capital's Subordinated Extendible Reset Debentures
due May 15, 1991 (the "Subordinated Reset Debentures") at a price of $1,010 for
each $1,000 principal amount of Subordinated Reset Debentures plus accrued and
unpaid interest thereon with the remaining proceeds available from the 1992
Senior Notes plus temporary borrowings under the 1991 Credit Agreement, which
were repaid with proceeds of medium-term notes and (v) the additional
repurchases during 1992 for approximately $1.822 billion in cash of certain of
RJRN's subordinated debentures consisting of $690 million aggregate principal
amount of its 15% Subordinated Debentures, $81 million aggregate principal
amount of its 13 1/2%
F-16
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
Subordinated Debentures and $941 million aggregate principal amount
(approximately $728 million accreted amount) of its Subordinated Discount
Debentures. The principal or accreted amount of the debentures in item (v) was
refinanced with proceeds of debt securities maturing in the years 1999-2004. The
purchase of most of such amount had been temporarily funded with borrowings
under the 1991 Credit Agreement. Also during 1992, Holdings repurchased $126
million aggregate principal amount (approximately $209 million including accrued
interest) of its Senior Converting Debentures due 2009 (the "Converting
Debentures") for $229 million in cash, and RJRN repurchased $229 million
aggregate principal amount of various other debentures for $240 million in cash.
The funds for the repurchase of Converting Debentures and various other
debentures of RJRN and for a portion of the purchase price of the Subordinated
Debentures in item (v) were provided from the issuance of medium-term notes
maturing in the years 1995-1997, borrowings under the 1991 Credit Agreement and
cash flow from operations.
During 1993, RJRN repurchased for approximately $1.0 billion in cash
certain of its subordinated debentures consisting of $153 million aggregate
principal amount of its 15% Subordinated Debentures, $82 million aggregate
principal amount of its 13 1/2% Subordinated Debentures and $768 million
aggregate principal amount (approximately $671 million accreted amount) of its
Subordinated Discount Debentures. The principal or accreted amounts of such
debentures was refinanced from proceeds of debt securities maturing after 1998,
including debt securities issued during 1993. The purchase of most of such
amount had been temporarily funded with borrowings under the 1991 Credit
Agreement.
The remaining portion of the ESOP participation was repurchased on January
15, 1993 for cash, plus accrued and unpaid interest thereon.
Holdings redeemed on May 1, 1993, 100% of the aggregate principal amount of
its outstanding Converting Debentures at a price of $1,000 for each $1,000
principal amount of Converting Debentures, plus accrued and unpaid interest
thereon, for the period from February 9, 1989 through April 30, 1993, of $937.54
for each $1,000 principal amount of Converting Debentures.
During 1993, RJRN issued $750 million principal amount of 8% Notes due
2000, $500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
debt securities and the Series B Preferred Stock Offering (as hereinafter
defined) have been or will be used for general corporate purposes, which include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases and redemptions of securities. Pending such uses,
proceeds may be used to repay indebtedness under RJRN's revolving credit
facilities or for short-term liquid investments.
A portion of the net proceeds collected from the sale of Holdings'
ready-to-eat cold cereal business was used on February 5, 1993 to redeem $216
million principal amount of RJRN's 9 3/8% Sinking Fund Debentures due 2016 (the
"9 3/8% Debenture") at a price of $1,065.63 for each $1,000 principal amount of
9 3/8% Debentures, plus accrued and unpaid interest thereon.
On April 5, 1993, the Registrants entered into a credit agreement (as
amended, the "1993 Credit Agreement" and together with the 1991 Credit
Agreement, the "Credit Agreements"), which matures on April 4, 1994 and provides
a back-up line of credit to support commercial paper issuances of up to $1
billion. Availability thereunder is reduced by an amount equal to the aggregate
amount of commercial
F-17
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT AND INTEREST EXPENSE--(CONTINUED)
paper outstanding. At December 31, 1993, approximately $913 million of
commercial paper was outstanding. Accordingly, $87 million was available under
the 1993 Credit Agreement at December 31, 1993. Holdings and RJRN expect to
obtain bank consent to extend the maturity date of the 1993 Credit Agreement for
an additional 364 days.
Based on RJRN's intention and ability to continue to refinance, for more
than one year, the amount of its commercial paper borrowings outstanding either
in the commercial paper market or with additional borrowings under the 1991
Credit Agreement, the commercial paper borrowings have been included under
"Long-term debt".
As permitted by the governing indenture, RJRN intends to pay in cash the
May 15, 1994 interest payment due on its 15% Subordinated Debentures.
Accordingly, the interest accrued thereon as of December 31, 1993 has been
included in "Accrued liabilities".
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries.
The estimated fair value of Holdings' consolidated long-term debt as of
December 31, 1993 and 1992 was approximately $12.4 billion and $14.9 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate. The estimated fair value exceeded the carrying amount of
Holdings' long-term debt by approximately $400 million and $1.1 billion at
December 31, 1993 and 1992, respectively, as a result of the general decline in
market interest rates compared with the higher interest cost on certain of
Holdings' debt obligations. Considerable judgment was required in interpreting
market data to develop the estimates of fair value. In addition, the use of
different market assumptions and/or estimation methodologies may have had a
material effect on the estimated fair value amounts. Accordingly, the estimated
fair value of Holdings' consolidated long-term debt as of December 31, 1993 and
1992 is not necessarily indicative of the amounts that Holdings could realize in
a current market exchange.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Various legal actions, proceedings and claims are pending or may be
instituted against R. J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnities, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16
new actions were filed or served against RJRT and/or its affiliates or
indemnities and 18 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its
F-18
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
affiliates or indemnities. A total of 35 such actions in the United States, one
in Puerto Rico and one against RJRT's Canadian subsidiary were pending on
December 31, 1993. As of February 7, 1994, 35 active cases were pending against
RJRT and/or its affiliates or indemnities, 33 in the United States, one in
Puerto Rico and one in Canada. Four of the 33 active cases in the United States
involve alleged non-smokers claiming injuries resulting from exposure to
environmental tobacco smoke. One of such cases is currently scheduled for trial
on September 5, 1994 and if tried, will be the first such case to reach trial.
One of the active cases is alleged to be a class action on behalf of a purported
class of 60,000 individuals.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation and conspiracy. Punitive
damages, often in amounts totalling many millions of dollars, are specifically
pleaded in 20 cases in addition to compensatory and other damages. The defenses
raised by RJRT and/or its affiliates, where applicable, include preemption by
the Federal Cigarette Labeling and Advertising Act, as amended (the "Cigarette
Act") of some or all such claims arising after 1969; the lack of any defect in
the product; assumption of the risk; comparative fault; lack of proximate cause;
and statutes of limitations or repose. Juries have found for plaintiffs in two
smoking and health cases, but in one such case, which has been appealed by both
parties, no damages were awarded. The jury awarded plaintiffs $400,000 in the
other such case, Cipollone v. Liggett Group, Inc., et. al., which award was
overturned on appeal and the case was subsequently dismissed.
On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.
Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted, if so, in what form, or whether such legislation would be intended
by Congress to apply retroactively. The Supreme Court's Cipollone decision
itself, or the passage of such legislation, could increase the number of cases
filed against cigarette manufacturers, including RJRT.
RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
RJRT recently received a civil investigative demand from the U.S.
Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
Litigation is subject to many uncertainties, and it is possible that some
of the legal actions, proceedings or claims could be decided against RJRT or its
affiliates or indemnities. Determinations of
F-19
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
liability or adverse rulings against other cigarette manufacturers that are
defendants in similar actions, even if such rulings are not final, could
adversely affect the litigation against RJRT and its affiliates or indemnities
and increase the number of such claims. Although it is impossible to predict the
outcome of such events or their effect on RJRT, a significant increase in
litigation activities could have an adverse effect on RJRT. RJRT believes that
it has a number of valid defenses to any such actions, including but not limited
to those defenses based on preemption under the Cipollone decision, and RJRT
intends to defend vigorously all such actions.
The Registrants believe that the ultimate outcome of all pending litigation
matters should not have a material adverse effect on either of the Registrants'
financial position; however, it is possible that the results of operations or
cash flows of the Registrants in a particular quarterly or annual period could
be materially affected by the ultimate outcome of certain pending litigation
matters. Management is unable to derive a meaningful estimate of the amount or
range of such possible loss in any particular quarterly or annual period or in
the aggregate.
COMMITMENTS
At December 31, 1993, other commitments totalled approximately $556
million, principally for minimum operating lease commitments, the purchase of
machinery and equipment and other contractual arrangements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT CONCENTRATIONS
OF CREDIT RISK
Certain financial instruments with off-balance sheet risk have been entered
into by the RJRN to manage its interest rate and foreign currency exposures.
Interest Rate Arrangements
At December 31, 1993 and 1992, RJRN had outstanding interest rate swaps,
options, caps and other interest rate arrangements with financial institutions
having a total notional principal amount of $5.7 billion and $5.2 billion,
respectively. The arrangements at December 31, 1993 mature as follows:
1994--$2.7 billion; 1995--$1.1 billion; 1996--$1.1 billion; 1997--$450 million
and 1998 $350 million, respectively. The estimated fair value of these
arrangements as of December 31, 1993 and 1992 was favorable by approximately $37
million and unfavorable by approximately $1 million, respectively, based on
calculations from independent third parties for similar arrangements.
Because interest rate swaps and purchased options and other interest rate
arrangements effectively hedge interest rate exposures, the differential to be
paid or received is accrued and recognized in interest expense as market
interest rates change. If an arrangement is terminated prior to maturity, then
the realized gain or loss is recognized over the remaining original life of the
agreement if the hedged item remains outstanding, or immediately, if the
underlying hedged instrument does not remain outstanding. If the arrangement is
not terminated prior to maturity, but the underlying hedged instrument is no
longer outstanding, then the unrealized gain or loss on the related interest
rate swap, option, cap or other interest rate arrangement is recognized
immediately. In addition, for written options and other similar interest rate
arrangements that are entered into to manage interest rate exposure, changes in
market value of such instruments would result in the current recognition of any
related gains or losses.
F-20
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Foreign Currency Arrangements
At December 31, 1993 and 1992, RJRN had outstanding forward foreign
exchange contracts with banks to purchase or sell an aggregate notional
principal amount of $476 million and $566 million, respectively. The estimated
fair value of these arrangements as of December 31, 1993 and 1992 was favorable
by approximately $3 million and $4 million, respectively, based on calculations
from independent third parties for similar arrangements.
The forward foreign exchange contracts and other hedging arrangements
entered into by RJRN generally mature at the time the hedged foreign currency
transactions are settled. Gains or losses on forward foreign currency
transactions are determined by changes in market rates and are generally
included at settlement in the basis of the underlying hedged transaction. To the
extent that the foreign currency transaction does not occur, gains and losses
are recognized immediately.
The above interest rate and foreign currency arrangements entered into by
RJRN involve, to varying degrees, elements of market risk as a result of
potential changes in future interest and foreign currency exchange rates. To the
extent that the financial instruments entered into remain outstanding as
effective hedges of existing interest rate and foreign currency exposure, the
impact of such potential changes in future interest and foreign currency
exchange rates on the financial instruments entered into would offset the
related impact on the items being hedged. Also, RJRN may be exposed to credit
losses in the event of non-performance by the counterparties to these financial
instruments. However, RJRN continually monitors its positions and the credit
rating of its counterparties and therefore, does not anticipate any
non-performance.
There are no significant concentrations of credit risk with any individual
counterparties or groups of counterparties as a result of any financial
instruments entered into including those financial instruments discussed above.
F-21
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL
The changes in Common Stock and paid-in capital are shown as follows:
1993 1992
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ----------- -------------- -----------
(DOLLARS IN MILLIONS)
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 1,134,648,542 $ 11 1,121,658,569 $ 11
Shares issued during the period.................. 3,692,911 -- 13,117,248 --
Management shares repurchased and
cancelled...................................... (330,161) -- (127,275) --
-------------- ----------- -------------- -----------
Balance at end of year....................... 1,138,011,292 $ 11 1,134,648,542 $ 11
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 9,048 $ 9,352
Shares issued during the period, net of stock
issuance costs................................. (16) (8)
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 3 4
Issuance of Series A Preferred Stock............. -- --
Management shares and stock options repurchased
and cancelled.................................. (2) (6)
Preferred stock dividends........................ (246) (207)
Warrants repurchased and cancelled............... -- (87)
Other............................................ (9) --
----------- -----------
Balance at end of year....................... $ 8,778 $ 9,048
----------- -----------
----------- -----------
1991
---------------------------
SHARES AMOUNT
-------------- ----------
Common Stock--$0.01 par value--authorized
1,500,000,000 shares at December 31, 1993:
Balance at beginning of year..................... 580,023,513 $ 6
Shares issued during the period.................. 542,135,431 5
Management shares repurchased and
cancelled...................................... (500,375) --
------------- -----------
Balance at end of year....................... 1,121,658,569 $ 11
-------------- -----------
-------------- -----------
Paid-in capital:
Balance at beginning of year..................... $ 3,860
Shares issued during the period, net of stock
issuance costs................................. 3,630
Tax benefits recorded on shares issued to
management and ESOP shares allocated........... 4
Issuance of Series A Preferred Stock............. 2,060
Management shares and stock options repurchased
and cancelled.................................. (4)
Preferred stock dividends........................ (198)
Warrants repurchased and cancelled............... --
Other............................................ --
------------
Balance at end of year....................... $ 9,352
------------
------------
The changes in stock options are shown as follows:
1993 1992 1991
------------------------- -------------------------- -----------
OPTIONS PRICE OPTIONS PRICE OPTIONS
----------- ------------ ----------- ------------- -----------
Balance at beginning of year:
Stock Option Plan................................ 25,355,948 $ 5.00-10.45 25,814,648 $ 5.00- 5.75 25,638,520
Long Term Incentive Plan......................... 19,654,600 7.50-11.56 12,990,600 7.50-11.63
Options granted to management investors and
directors:
Stock Option Plan................................ 2,400 5.00 2,176,828
Long Term Incentive Plan......................... 49,213,100 4.52- 9.13 7,004,000 8.25-10.125 13,041,800
Management options exercised:
Stock Option Plan................................ (1,116,046) 5.00
Management options repurchased and cancelled:
Stock Option Plan................................ (999,790) 5.00- 8.55 (461,100) 5.00-10.45 (2,000,700)
Long Term Incentive Plan......................... (4,235,066) 5.56-10.00 (340,000) 7.50-11.63 (51,200)
----------- ----------- -----------
Balance at end of year:
Stock Option Plan................................ 23,240,112 5.00-10.45 25,355,948 5.00-10.45 25,814,648
Long Term Incentive Plan......................... 64,632,634 4.52-11.56 19,654,600 7.50-11.56 12,990,600
----------- ----------- -----------
87,872,746 4.52-11.56 45,010,548 5.00-11.56 38,805,248
----------- ----------- -----------
----------- ----------- -----------
PRICE
------------
Balance at beginning of year:
Stock Option Plan................................ $ 5.00
Long Term Incentive Plan.........................
Options granted to management investors and
directors:
Stock Option Plan................................ 5.75
Long Term Incentive Plan......................... 7.50-11.63
Management options exercised:
Stock Option Plan................................
Management options repurchased and cancelled:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50
Balance at end of year:
Stock Option Plan................................ 5.00- 5.75
Long Term Incentive Plan......................... 7.50-11.63
5.00-11.63
At December 31, 1993, options were exercisable as to 20,018,041 shares,
compared with 15,590,909 shares at December 31, 1992, and 11,310,162 shares at
December 31, 1991. As of December 31, 1993, options for 66,777,008 shares of
Common Stock were available for future grant.
F-22
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
To provide an incentive to attract and retain key employees responsible for
the management and administration of the business affairs of Holdings and its
subsidiaries, on June 15, 1989 the board of directors of Holdings adopted the
Stock Option Plan for Directors and Key Employees of RJR Holdings Corp.
and Subsidiaries (the "Stock Option Plan") pursuant to which options to
purchase Common Stock may be granted. On June 16, 1989, the Stock Option Plan
was approved by the written consent of the holders of a majority of the Common
Stock. Any director or key employee of Holdings or any subsidiary of Holdings is
eligible to be granted options under the Stock Option Plan. A maximum of
30,000,000 shares of Common Stock (which may be adjusted in the event of certain
capital changes) may be issued under the Stock Option Plan. The options to key
employees granted to key employees under the Stock Option Plan generally vest
over a five year period and the options granted to directors under the Stock
Option Plan are immediately fully vested. The exercise price of such options
is generally the fair market value of the Common Stock on the date of grant.
On August 1, 1990, the board of directors of Holdings adopted the 1990 Long
Term Incentive Plan (the "1990 LTIP") which was approved on such date by the
written consent of the holders of a majority of the Common Stock. The 1990 LTIP
authorizes grants of incentive awards ("Grants") in the form of "incentive stock
options" under Section 422 of the Code, other stock options, stock appreciation
rights, restricted stock, purchase stock, dividend equivalent rights,
performance units, performance shares or other stock-based grants. Awards under
the 1990 LTIP may be granted to key employees of, or other persons having a
unique relationship to, Holdings and its subsidiaries. Directors who are not
also employees of Holdings and its subsidiaries are ineligible for Grants. A
maximum of 105,000,000 shares of Common Stock (which may be adjusted in
the event of certain capital changes) may be issued under the 1990 LTIP pursuant
to Grants. The 1990 LTIP also limits the amount of shares which may be issued
pursuant to "incentive stock options" and the amount of shares subject to Grants
which may be issued to any one participant. As of December 31, 1993, purchase
stock, stock options other than incentive stock options, restricted stock,
performance shares and other stock-based grants have been granted under the 1990
LTIP. The options granted before 1993 under the 1990 LTIP generally will vest
over a three year period ending December 31, 1995. Prior to January 1, 1993,
such options had vested over a six to eight year period. Options granted in 1993
vest over a three year period beginning from the date of grant. The exercise
prices of such options are between $4.50 and $11.56 per share. In connection
with the purchase stock grants awarded during 1993, 1992 and 1991, 622,222
shares, 495,000 shares and 2,681,000 shares, respectively, of Common Stock were
purchased and options to purchase four shares were granted for every share of
such Common Stock purchased. In addition, arrangements were made enabling
purchasers to borrow on a secured basis from Holdings the price of the stock
purchased, as well as the taxes due on any taxable income recognized in
connection with such purchases. The current annual interest rate on such
arrangements, which was set in July 1993 at the then applicable federal rate
for long-term loans, is 6.37%. These borrowings plus accrued interest and taxes
must generally be repaid within two years following termination of active
employment. During 1993, 1,484,840 shares of Common Stock were awarded in
connection with restricted stock grants. These shares are subject to
restrictions that will lapse on December 31, 1994. Performance shares were
also granted under the 1990 LTIP during 1993, pursuant to which participants
are granted a designated number of performance shares that may be earned over
a three year performance period commencing January 1, 1993. Pay outs of awards
at the end of the performance period, which are denominated in shares of Common
Stock, but which may be paid at Holdings' option in either Common Stock or cash,
are currently based on Holdings' cumulative cash-earnings per share during such
performance period. During 1993, 3,307,500 performance shares were awarded. The
maximum aggregate number of shares of Common Stock that
F-23
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
may be paid at the end of the performance period is 4,961,250. Commitments to
make other stock-based awards were made in 1993 under the 1990 LTIP to
individuals who previously acquired certain purchase stock under the 1990 LTIP.
Under this program, such individuals may receive grants of Common Stock or cash
at the Company's election on either three or four annual grant dates beginning
July 1994 and ending either July 1, 1996 or July 1, 1997. The fair market value
of Common Stock to be awarded on each grant date is equal to the excess, if any,
of (i) 33% or 25%, respectively, of the maximum amount the individual could have
borrowed to acquire purchase stock, over (ii) the then fair market value of the
same percentage of such individual's purchase stock. The grant is increased by
the amount of presumed borrowing costs and the amount necessary to hold the
individual harmless from income taxes due as a result of the grant. No grant
will be made on a grant date if, on such grant date, the amount determined under
clause (ii) above equals or exceeds the amount determined in clause (i) above.
In addition to the shares purchased under the 1990 LTIP, approximately
550,000 shares of Common Stock were sold during 1991 to certain management
investors. No such sales occurred in 1992 or 1993. Unlike the shares sold under
the 1990 LTIP, a portion of these shares remain subject to significant
restrictions on transferability.
The Preferred Stock, together with the Series A Preferred Stock, Series B
Preferred Stock and ESOP Convertible Preferred Stock, stated value $16.00 per
share and par value $.01 per share, of Holdings (the "ESOP Preferred Stock")
(150,000,000 aggregate preferred shares authorized at December 31, 1993 and
1992) are senior to the Common Stock as to dividends and preferences in
liquidation.
On December 6, 1993, the outstanding Preferred Stock was redeemed at a
redemption price of $27.0125 per share plus accrued and unpaid dividends
thereon. Also during 1993, 123,523 shares of Preferred Stock were converted into
342,976 shares of Common Stock. During 1992, 379 shares of Preferred Stock were
converted into 1,051 shares of Common Stock. During 1991, 884 shares of
Preferred Stock were converted into 2,450 shares of Common Stock and 67,997,769
shares of Preferred Stock were exchanged for 258,391,523 shares of Common Stock
in connection with the December 1991 Exchange Offer. The Preferred Stock, stated
value $25 per share at par value $.01 per share, paid cash dividends at a rate
of 11.5% of stated value per annum, payable quarterly in arrears commencing
January 15, 1991. The Preferred Stock was convertible after May 1, 1991 into
shares of Common Stock at a conversion price of $9 of stated value per share of
Common Stock.
Each Series A Depositary Share represents a one-quarter ownership interest
in a share of Series A Preferred Stock of Holdings. Each share of Series A
Preferred Stock bears cumulative cash dividends at a rate of $3.34 per annum and
is payable quarterly in arrears commencing February 18, 1992. Each share of
Series A Preferred Stock will mandatorily convert into four shares of Common
Stock by November 15, 1994, subject to adjustment in certain events. In
addition, each share of Series A Preferred Stock may be convertible upon the
occurrence of certain other events, including the option by Holdings to redeem,
in whole or in part, at any time at an initial optional redemption price of
$64.82 per share, to be paid in shares of Common Stock, plus accrued and unpaid
dividends. The initial optional redemption price declines by $.009218 on each
day following the issuance of the Series A Preferred Stock to $55.36 on
September 15, 1994 and $54.80 thereafter. Holders of Series A Preferred Stock
have voting rights with respect to certain matters submitted to a vote of the
holders of the Common
F-24
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
Stock. Because Series A Preferred Stock mandatorily converts into Common Stock,
dividends on shares of Series A Preferred Stock are reported similar to common
equity dividends.
On August 18, 1993, Holdings issued 50,000 shares of Series B Cumulative
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), and sold
50,000,000 depositary shares ("Series B Depositary Shares") at $25 per Series B
Depositary Share ($1.250 billion) in connection with such issuance (the "Series
B Preferred Stock Offering"). Each share of Series B Preferred Stock bears
cumulative cash dividends at a rate of $2,312.50 per annum, or $2.3125 per
Series B Depositary Share, and is payable quarterly in arrears commencing
December 1, 1993. Each Series B Depositary Share represents .001 ownership
interest in a share of Series B Preferred Stock of Holdings. At Holdings'
option, on or after August 19, 1998, Holdings may redeem shares of the Series B
Preferred Stock (and the Depositary will redeem the number of Series B
Depositary Shares representing the shares of Series B Preferred Stock) at a
redemption price equivalent to $25 per Series B Depositary Share, plus accrued
and unpaid dividends thereon.
On August 1, 1991, Holdings issued 2,983,904 shares of Common Stock in
exchange for certain debentures of RJRN aggregating approximately $32.3 million
in principal amount.
On April 10, 1991, an employee stock ownership plan established by Holdings
borrowed $250 million from Holdings (the "ESOP Loan") to purchase 15,625,000
shares of ESOP Preferred Stock. The ESOP Loan, which was renegotiated in 1993,
has a final maturity in 2006 and bears interest at the rate of 8.2% per annum.
The ESOP Preferred Stock is convertible as of December 31, 1993 into 15,573,973
shares of Common Stock, subject to adjustment in certain events, and bears
cumulative dividends at a rate of 7.8125% of stated value per annum at least
until April 10, 1999, payable semi-annually in arrears commencing January 2,
1992, when, as and if declared by the board of directors of Holdings. The ESOP
Preferred Stock is redeemable at the option of Holdings, in whole or in part, at
any time on or after April 10, 1999, at an initial optional redemption price of
$16.250 per share. The initial optional redemption price declines thereafter on
an annual basis in the amount of $.125 a year to $16 per share on April 10,
2001, plus accrued and unpaid dividends. Holders of ESOP Preferred Stock have
voting rights with respect to certain matters submitted to a vote of the holders
of the Common Stock. Effective January 1, 1992, RJRN's matching contributions to
eligible employees under its Capital Investment Plan are being made in the form
of ESOP Preferred Stock. RJRN's matching contribution obligation in respect of
each participating employee is equal to $.50 for every pre-tax dollar
contributed by the employee, up to 6% of the employee's pay. The shares of ESOP
Preferred Stock are allocated at either the floor value of $16 a share or the
fair market value of Common Stock, whichever is higher. During 1993 and 1992,
approximately $29 million and $29 million, respectively, was contributed to the
ESOP by RJRN or Holdings and approximately $20 million and $24 million,
respectively, of ESOP dividends were used to service the ESOP's debt to
Holdings.
On February 9, 1989, 15,254,238 warrants were issued to purchase 15,254,238
shares of Common Stock. Such warrants were initially exercisable at an exercise
price of $5.00 per share, subject to adjustment in certain events, at any time
prior to February 9, 1999. On November 8, 1991, the exercise price for the
warrants and the number of shares of Common Stock issuable upon exercise thereof
were adjusted to $4.9164 and 1.017, respectively. During the third quarter of
1992, Holdings repurchased from a limited partnership of which KKR Associates,
an affiliate of KKR, is the sole general partner and certain affiliates of
Merrill Lynch & Co., Inc. 6,182,586 warrants of the 15,254,238 warrants issued
F-25
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
on February 9, 1989 for approximately $36 million in cash. During October 1992,
Holdings repurchased from the same parties the remaining 9,071,652 warrants for
approximately $51 million in cash. Each of these warrants allowed the holder to
purchase 1.017 shares of Common Stock for an exercise price of $4.9164 at any
time on or prior to February 8, 1999.
Warrants to purchase 45,529,024 shares of Common Stock were issued in
connection with the sale of the 15% Subordinated Debentures and the Subordinated
Discount Debentures. Such warrants were initially exercisable at an exercise
price of $0.07 per share, subject to adjustment in certain events, and expired
January 31, 1992. On November 8, 1991, the exercise price for the warrants and
the number of shares of Common Stock issuable upon exercise thereof were
adjusted to $0.0688 and 1.017, respectively. During 1992, 12,370,936 warrants
were exercised at $0.0688 per share. During 1991, 29,695,730 warrants were
exercised at $0.07 per share and 3,361,323 warrants were exercised at $0.0688
per share.
See Note 10 for transactions involving the exchange of capital stock for
long-term debt.
NOTE 13--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS
Retained earnings (accumulated deficit) at December 31, 1993, 1992 and 1991
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $3.015 billion, $2.390 billion and $1.774 billion, respectively.
The changes in cumulative translation adjustments are shown as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- --------------- ---------------
Balance at beginning of period...................................... $ (47) $ 11 $ 35
Translation and other adjustments................................. (55) (58) (24)
------------- -------------- ---------------
Balance at end of period............................................ $ (102) $ (47) $ 11
------------- -------------- ---------------
------------- -------------- ---------------
NOTE 14--RETIREMENT BENEFITS
RJRN sponsors a number of non-contributory defined benefit pension plans
covering most U.S. and certain foreign employees. Plans covering regular
full-time employees in the tobacco operations as well as the majority of
salaried employees in the corporate groups and food operations to provide
pension benefits that are based on credits, determined by age, earned throughout
an employee's service and final average compensation before retirement. Plan
benefits are offered as lump sum or annuity options. Plans covering hourly as
well as certain salaried employees in the corporate groups and food operations
provide pension benefits that are based on the employee's length of service and
final average compensation before retirement. RJRN's policy is to fund the cost
of current service benefits and past service cost over periods not exceeding 30
years to the extent that such costs are currently tax deductible. Additionally,
RJRN participates in several multi-employer and other defined contribution
plans, which provide benefits to certain of RJRN's union employees. Employees in
foreign countries who are not
F-26
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
U.S. citizens are covered by various post-employment benefit arrangements, some
of which are considered to be defined benefit plans for accounting purposes.
A summary of the components of pension expense for RJRN-sponsored plans
follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Defined benefit pension plans:
Service cost--benefits earned during the period........................ $ 76 $ 84 $ 71
Interest cost on projected benefit obligation.......................... 255 251 239
Less actual return on plan assets...................................... (262) (259) (504)
Net amortization and deferral.......................................... (4) (4) 252
------------- ------------- -------------
Total............................................................. 65 72 58
Multi-employer and other contribution plans.............................. 32 31 33
------------- ------------- -------------
Total pension expense............................................. $ 97 $ 103 $ 91
------------- ------------- -------------
------------- ------------- -------------
The principal plans used the following actuarial assumptions for accounting
purposes:
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
Weighted average discount rate............................ 7.5% 8.5%
Rate of increase in compensation levels................... 5.0% 5.0%
Expected long-term rate of return on assets............... 9.5% 10.0%
F-27
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1993 and 1992 for RJRN's defined
benefit pension plans.
U.S. PLANS FOREIGN PLANS
------------------------------------------------------------------------ ----------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1993
---------------------------------- ------------------------------------ ----------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS EXCEEDED ACCUMULATED BENEFITS
BENEFITS ASSETS(1) BENEFITS ASSETS(1) BENEFITS EXCEEDED ASSETS
--------------- ----------------- --------------- ------------------- ----------------- ---------------
Actuarial
present value
of:
Vested
benefits...... $ 2,252 $ 272 $ 2,133 $ 80 $ 148 $ 186
Non-vested
benefits.... 225 5 118 4 6 23
------ ----- ------ --- ----- -----
Accumulated
benefit
obligation.. 2,477 277 2,251 84 154 209
Effect of
future
salary
increases... 296 29 366 5 42 31
------ ----- ------ --- ----- -----
Projected
benefit
obligation.. 2,773 306 2,617 89 196 240
Plan assets at
fair market
value......... 2,529 204 2,449 35 172 109
------ ----- ------ --- ----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (244) (102) (168) (54) (24) (131)
Unrecognized net
(gain) loss... (68) 3 (121) (19) 17 26
Unrecognized
prior service
cost.......... (31) (10) (32) (13) (8) 14
------ ----- ------ --- ----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (343) $ (109) $ (321) $ (86) $ (15) $ (91)
------ ----- ------ --- ----- -----
------ ----- ------ --- ----- -----
DECEMBER 31, 1992
----------------------------------
PLANS WHOSE PLANS WHOSE
ASSETS EXCEEDED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEEDED ASSETS
----------------- ---------------
Actuarial
present value
of:
Vested
benefits...... $ 159 $ 155
Non-vested
benefits.... 6 21
----- -----
Accumulated
benefit
obligation.. 165 176
Effect of
future
salary
increases... 46 33
----- -----
Projected
benefit
obligation.. 211 209
Plan assets at
fair market
value......... 196 88
----- -----
Plan assets in
excess of
(less than)
projected
benefit
obligation.... (15) (121)
Unrecognized net
(gain) loss... 11 20
Unrecognized
prior service
cost.......... (11) 11
----- -----
Net pension
liabilities
recognized in
the
Consolidated
Balance Sheets.. $ (15) $ (90)
----- -----
----- -----
- ---------------
(1) Of the net pension liability amounts at December 31, 1993 and 1992,
$34 million and $12 million, respectively, were related to qualified plans.
At December 31, 1993, approximately 99 percent of the plans' assets were
invested in listed stocks and bonds and other highly liquid investments. The
balance consisted of various income producing investments.
In addition to providing pension benefits, RJRN provides certain health
care and life insurance benefits for retired employees and their dependents.
Substantially all of its regular full-time employees, including certain
employees in foreign countries, may become eligible for those benefits if they
reach retirement age while working for RJRN. Effective January 1, 1992, RJRN
adopted SFAS No. 106. Under SFAS No. 106, RJRN is required to accrue the costs
for retirees' health and other postretirement benefits other than pensions and
recognize the unfunded and unrecognized accumulated benefit obligation for these
benefits. RJRN had previously accrued a liability for postretirement benefits
other
F-28
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RETIREMENT BENEFITS--(CONTINUED)
than pensions and as a result, SFAS No. 106 did not have a material impact on
RJRN's financial statements.
Net postretirement health and life insurance benefit cost for 1993 consists
of the following:
1993 1992
----------- -----------
Service cost--benefits earned during the period..................................................... $ 16 $ 12
Interest cost on accumulated postretirement benefit obligation...................................... 60 58
----- -----
Net postretirement health care cost............................................................... $ 76 $ 70
----- -----
----- -----
Net postretirement health and life insurance benefit costs representing
accretion on the liability balance of $89 million was charged to operations for
the year ended December 31, 1991. The reduction in expense in 1992 reflects the
reduction of recorded liabilities by approximately $225 million at December 31,
1991 as disclosed in Note 1 to the Consolidated Financial Statements.
RJRN's postretirement health and life insurance benefit plans currently are
not funded. The status of the plans was as follows:
DECEMBER 31, DECEMBER 31,
1993 1992
--------------- ---------------
Actuarial present value of accumulated postretirement benefit obligation:
Retirees.......................................................................... $ 693 $ 598
Fully eligible active plan participants........................................... 88 135
Other active plan participants.................................................... 263 226
Unrecognized actuarial amounts...................................................... (58) --
------ ------
Accrued postretirement health care costs............................................ $ 986 $ 959
------ ------
------ ------
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1993, 9% in 1994 and 10.7% in
1995 gradually declining to 6.0% by the year 2002 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 and net postretirement health care cost by
approximately 7% and 8.5%, respectively.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 8.5% as of December 31, 1993 and
1992, respectively.
Effective January 1, 1993, RJRN adopted SFAS No. 112. Under SFAS No. 112,
RJRN is required to accrue the costs for preretirement postemployment benefits
provided to former or inactive employees and recognize an obligation for these
benefits. The adoption of SFAS No. 112 did not have a material impact on the
financial statements of either Holdings or RJRN.
F-29
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SEGMENT INFORMATION
Industry Segment Data
Holdings classifies its continuing operations into two industry segments
which are described in Management's Discussion and Analysis of Financial
Condition and Results of Operations, appearing elsewhere herein. Summarized
financial information for these operations is shown in the following tables.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
Tobacco........................................................... $ 8,079 $ 9,027 $ 8,540
Food.............................................................. 7,025 6,707 6,449
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:
Tobacco(1)(2)..................................................... $ 893 $ 2,241 $ 2,322
Food(1)(2)........................................................ 624 769 715
Headquarters (2).................................................. (139) (112) (103)
------------- ------------- -------------
Consolidated operating income.................................. $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
Capital expenditures:
Tobacco........................................................... $ 224 $ 189 $ 200
Food.............................................................. 391 330 254
Headquarters...................................................... -- -- 5
------------- ------------- -------------
Consolidated capital expenditures.............................. $ 615 $ 519 $ 459
------------- ------------- -------------
------------- ------------- -------------
Depreciation expense:
Tobacco........................................................... $ 237 $ 252 $ 242
Food.............................................................. 207 197 194
Headquarters...................................................... 4 6 5
------------- ------------- -------------
Consolidated depreciation expense.............................. $ 448 $ 455 $ 441
------------- ------------- -------------
------------- ------------- -------------
Assets: DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
Tobacco............................................................. $ 19,904 $ 20,592
Food................................................................ 11,270 11,165
Headquarters(3)..................................................... 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
- ---------------
(1) Includes amortization of trademarks and goodwill for Tobacco and Food,
respectively, for the year ended December 31, 1993, of $407 million and $218
million; for the year ended December 31, 1992, of $404 million and $212
million and for the year ended December 31, 1991, of $404 million and $205
million.
(2) The 1993 and 1992 amounts include the effects of the restructuring expense
at Tobacco (1993-- $544 million; 1992--$43 million), Food (1993--$153
million; 1992--$63 million) and Headquarters (1993--$33 million; 1992--$0),
as applicable, and the sale of Holdings' ready-to-eat cold cereal business
(See Note 1 to the Consolidated Financial Statements).
(3) Cash and cash equivalents for the domestic operating companies are included
in Headquarters' assets.
F-30
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SEGMENT INFORMATION--(CONTINUED)
Geographic Data
The following tables show certain financial information relating to
Holdings' continuing operations in various geographic areas.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Net sales:
United States (including U.S. export sales)....................... $ 11,570 $ 13,182 $ 12,548
Europe............................................................ 1,671 1,109 1,037
Other geographic areas............................................ 2,794 1,855 1,675
Less transfers between geographic areas(1)........................ (931) (412) (271)
------------- ------------- -------------
Consolidated net sales......................................... $ 15,104 $ 15,734 $ 14,989
------------- ------------- -------------
------------- ------------- -------------
Operating income:(2)
United States..................................................... $ 1,284 $ 2,634 $ 2,692
Europe............................................................ 40 138 117
Other geographic areas............................................ 193 238 228
Headquarters...................................................... (139) (112) (103)
------------- ------------- -------------
Consolidated operating income(3)............................... $ 1,378 $ 2,898 $ 2,934
------------- ------------- -------------
------------- ------------- -------------
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
Assets:
United States....................................................... $ 27,143 $ 28,553
Europe.............................................................. 1,820 1,360
Other geographic areas.............................................. 2,211 1,844
Headquarters........................................................ 121 284
---------- ----------
Consolidated assets.............................................. $ 31,295 $ 32,041
---------- ----------
---------- ----------
Liabilities of Holdings' continuing operations located in foreign
countries............................................................. $ 1,689 $ 1,352
---------- ----------
---------- ----------
- ---------------
(1) Transfers between geographic areas (which consist principally of tobacco
transferred principally from the United States to Europe) are generally made
at fair market value.
(2) The 1993 and 1992 amounts include the effects of the restructuring expense
of $730 million and $106 million, respectively, and a gain on the sale of
Holdings' ready-to-eat cold cereal business ($98 million) (see Note 1 to the
Consolidated Financial Statements).
(3) Includes amortization of trademarks and goodwill of $625 million, $616
million and $609 million for the 1993, 1992 and 1991 periods, respectively.
F-31
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
Holdings for the quarterly periods of 1993 and 1992:
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1993
Net sales................................................................ $ 3,736 $ 3,719 $ 3,598 $ 4,051
Operating income (loss).................................................. 683 582 431 (318)
Income (loss) before extraordinary item.................................. 210 142 74 (429)
Net income (loss)........................................................ 163 77 76 (461)
Income (loss) before extraordinary item per common share(1).............. 0.15 0.10 0.04 (0.34)
Net income (loss) per common share(1).................................... 0.12 0.05 0.04 (0.36)
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1992
Net sales................................................................ $ 3,643 $ 3,983 $ 4,021 $ 4,087
Operating income......................................................... 664 768 763 703
Income before extraordinary item......................................... 144 209 252 171
Net income (loss)........................................................ (15) 87 182 45
Income before extraordinary item per common share(1)..................... 0.10 0.15 0.18 0.12
Net income (loss) per common share(1).................................... (0.02) 0.06 0.13 0.03
- ---------------
(1) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year. In addition, assuming that
the transactions discussed in Notes 10 and 12 to the Consolidated Financial
Statements had occurred on January 1, 1993 or January 1, 1992, as
applicable, and the net proceeds thereof were used to redeem or to repay
outstanding indebtedness, the impact on earnings per share would be
anti-dilutive for the reported periods.
NOTE 17--SUBSEQUENT EVENT
On February 24, 1994, Holdings filed a Registration Statement on Form S-3
for a proposed offering of 300 million depositary shares, each
representing a one-tenth ownership interest in a share of a newly created series
of Preferred Equity Redemption Cumulative Stock ("PERCS"). Each depositary share
would mandatorily convert in three years into one share of Common Stock, subject
to adjustment and subject to earlier conversion or redemption under certain
circumstances. Any net proceeds of a PERCS offering may be used for general
corporate purposes which may include refinancings of indebtedness, working
capital, capital expenditures, acquisitions and repurchases or redemptions of
securities. In addition, such proceeds may be used to facilitate one or more
significant corporate transactions, such as a joint venture, merger,
acquisition, divestiture, asset swap, spin-off and/or recapitalization, that
would result in the separation of the tobacco and food businesses of Holdings.
As of February 24, 1994, the specific uses of proceeds have not been determined.
Pending such uses, any proceeds would be used to repay indebtedness under RJRN's
revolving credit facilities or for short-term liquid investments.
------------------------------------
F-32
SCHEDULE II
RJR NABISCO HOLDINGS CORP.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------- ---------------------------- -------------- ----------------------------- ----------------------------
BALANCE AT BALANCE AT
BEGINNING OF PERIOD DEDUCTIONS END OF PERIOD
---------------------------- ----------------------------- ----------------------------
NAME OF DEBTOR NOT AMOUNTS AMOUNTS NOT
(EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- ------------------------- ----------- --------------- -------------- -------------- ------------- ----------- ---------------
H. J. Greeniaus.......... $ -- $ 1,787,839.91 $ 203,218.59 $ 18,189.65 $ $ -- $ 1,972,868.85
G. R. Thoman............. -- 1,712,600.00 176,238.90 -- -- 1,888,838.90
J. W. Johnston........... -- 1,520,430.30 138,906.54 -- -- 1,659,336.84
L. R. Ricciardi.......... -- 1,182,556.90 108,038.42 -- -- 1,290,595.32
D. F. Sisel.............. -- 929,151.85 84,887.33 -- -- 1,014,039.18
E. R. Croisant........... -- 919,713.07 83,873.95 81,733.22 -- 921,853.80
J. C. Schroer............ -- 1,032,497.53 83,198.35 193,842.08 -- 921,853.80
D. J. Anderson........... -- 825,608.47 75,452.76 -- -- 901,061.23
A. J. Schindler.......... -- 790,359.86 71,094.44 -- -- 861,454.30
C. W. Ehmann............. -- 675,499.50 54,673.94 -- -- 730,173.44
J. W. Farrelly........... -- 637,500.00 49,524.12 -- -- 687,024.12
B. J. Wood............... -- 506,810.10 46,302.18 -- -- 553,112.28
K. D. Langner(A)......... -- 596,126.88 44,211.82 112,197.26 -- 528,141.44
M. B. Oglesby, Jr........ -- 475,858.69 43,489.11 -- -- 519,347.80
S. R. Wilson............. -- 416,113.74 38,029.29 -- -- 454,143.03
J. C. Mitchell........... -- 388,143.68 35,617.06 6,000.00 -- 417,760.74
T. C. Griscom............ -- 337,873.40 30,868.12 -- -- 368,741.52
D. Conant................ -- 327,687.43 26,536.71 -- -- 354,224.14
H. J. Lees............... -- 306,011.01 27,966.00 -- -- 333,977.01
Y. W. Ford, Jr........... -- 295,639.23 27,009.60 -- -- 322,648.83
R. R. Gordon, Jr......... -- 295,639.23 27,009.60 -- -- 322,648.83
C. M. Sayeau............. -- 295,639.23 27,009.60 -- -- 322,648.83
W. W. Juchatz............ -- 293,376.20 29,272.62 -- -- 322,648.82
J. R. Chambers........... -- 286,693.64 26,200.76 -- -- 312,894.40
J. F. Manfredi........... -- 285,786.57 26,117.74 -- -- 311,904.31
D.N. Iauco............... -- 253,405.05 23,151.09 -- -- 276,556.14
E. J. Lang(A)............ -- 270,445.18 21,673.94 33,208.57 -- 258,910.55
R. S. Roath.............. -- 337,506.73 27,508.47 110,000.00 -- 255,015.20
P. Brown................. -- 218,458.29 17,691.14 -- -- 236,149.43
J. Willard............... -- 211,170.88 19,292.58 -- -- 230,463.46
D. L. Clark.............. -- 388,068.18 33,416.97 202,325.00 -- 219,160.15
S. Heath................. -- 194,423.04 17,766.77 -- -- 212,189.81
T. G. McBrady............ -- 193,726.48 17,704.43 -- -- 211,430.91
R. F. Sharpe, Jr......... -- 159,987.36 15,164.87 -- -- 175,152.23
M. G. DiNapoli........... -- 146,224.48 13,363.77 -- -- 159,588.25
J. A. Kuchar............. -- 146,217.84 13,363.16 -- -- 159,581.00
N. G. Jungmann........... -- 145,242.47 13,273.88 -- -- 158,516.35
J. T. Pearson............ -- 310,638.41 19,059.78 182,225.00 -- 147,473.19
S. Brown................. -- 129,375.00 10,206.81 -- -- 139,581.81
R. J. Hall............... -- 123,750.00 10,159.83 -- -- 133,909.83
J. Ford.................. -- 218,458.29 13,550.37 100,000.00 -- 132,008.66
A. H. Newton............. -- 94,049.99 8,595.44 -- -- 102,645.43
R. J. Verdon(A).......... -- 93,824.92 7,225.42 14,737.57 -- 86,312.77
K. E. Glover............. -- 146,457.86 3,860.17 121,104.10 -- 29,213.93
C. E. Becker............. -- 198,583.45 7,254.66 189,784.88 -- 16,053.23
D. B. Kalis.............. -- 486,346.55 22,823.58 509,170.13 -- --
W. B. McKnight, Jr....... -- 457,875.65 7,880.45 465,756.10 -- --
B. Thomas................ -- 267,400.65 4,600.74 272,001.39 -- --
C. A. Bachelder.......... -- 258,976.54 5,200.50 264,177.04 -- --
L. H. Kleinberg.......... -- 210,000.00 10,233.30 220,233.30 -- --
T. A. McKiernan.......... -- 155,837.92 5,122.82 160,960.74 -- --
J. Condon................ -- 210,950.00 4,733.72 215,683.72 -- --
J. A. Kirkman III........ -- 193,591.27 4,528.05 198,119.32 -- --
E. R. Marram............. -- 844,683.50 38,122.55 882,806.05 -- --
K. M. von der Heyden..... -- 1,520,430.30 119,492.02 1,639,922.32 -- --
L. V. Gerstner, Jr....... -- 2,534,050.51 208,005.40 2,742,055.91 -- --
- ---------------
(A) Loan is denominated in a foreign currency. Rate fluctuations are included in
the "Amounts Collected" column.
The amounts presented represent loans to employees in connection with the
1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial
Statements.
S-1
SCHEDULE II
RJR NABISCO HOLDINGS CORP.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1992
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- --------------------------- -------------- ----------------------------- -----------
BALANCE AT
BALANCE AT END OF
BEGINNING OF PERIOD DEDUCTIONS PERIOD
--------------------------- ----------------------------- -----------
NAME OF DEBTOR NOT AMOUNTS AMOUNTS
(EMPLOYEES) CURRENT CURRENT ADDITIONS COLLECTED WRITTEN OFF CURRENT
- ----------------------------- ----------- -------------- -------------- ------------ --------------- -----------
L. V. Gerstner, Jr........... $ -- $ 2,341,287.00 $ 192,763.51 $ -- $ -- $ --
H. J. Greeniaus.............. -- 1,696,855.01 115,658.10 24,673.20 -- --
G. R. Thoman................. -- -- 1,712,600.00 -- -- --
J. W. Johnston............... -- 1,404,772.20 115,658.10 -- -- --
K. M. von der Heyden......... -- 1,404,772.20 115,658.10 -- -- --
L. R. Ricciardi.............. -- 1,343,278.61 100,401.51 261,123.22 -- --
J. C. Schroer................ -- 953,901.45 78,596.08 -- -- --
D. F. Sisel.................. -- 858,471.90 70,679.95 -- -- --
E. R. Croisant............... -- 966,388.85 68,324.22 115,000.00 -- --
E. R. Marram................. -- 780,429.00 64,254.50 -- -- --
D. J. Anderson............... -- 762,761.35 62,847.12 -- -- --
A. J. Schindler.............. -- 629,281.58 161,078.30 -- -- --
C. W. Ehmann................. -- -- 675,499.50 -- -- --
J. W. Farrelly............... -- -- 637,500.00 -- -- --
K. D. Langner................ -- 555,613.44 40,513.44 -- -- --
B. J. Wood................... -- 468,257.40 38,552.70 -- -- --
D. B. Kalis.................. -- 449,322.02 37,024.53 -- -- --
M. B. Oglesby, Jr............ -- 439,635.02 36,223.67 -- -- --
W. B. McKnight, Jr........... -- 423,022.71 34,852.94 -- -- --
S. R. Wilson................. -- 384,437.46 31,676.28 -- -- --
J. C. Mitchell............... -- 358,598.29 29,545.39 -- -- --
D. L. Clark.................. -- 358,528.56 29,539.62 -- -- --
T. C. Griscom................ -- 312,171.60 25,701.80 -- -- --
R. S. Roath.................. -- 384,515.70 28,632.89 75,641.86 -- --
D. Conant.................... -- -- 327,687.43 -- -- --
J. T. Pearson................ -- 286,991.69 23,646.72 -- -- --
H. J. Lees................... -- 282,717.64 23,293.37 -- -- --
Y. W. Ford, Jr............... -- 273,150.15 22,489.08 -- -- --
R. R. Gordon, Jr............. -- 273,150.15 22,489.08 -- -- --
C. M. Sayeau................. -- 273,150.15 22,489.08 -- -- --
W. W. Juchatz................ -- 333,992.36 22,489.08 63,105.24 -- --
J. R. Chambers............... -- 264,870.43 21,823.21 -- -- --
J. F. Manfredi............... -- 264,032.63 21,753.94 -- -- --
E. J. Lang................... -- 251,468.30 18,976.88 -- -- --
B. Thomas.................... -- 247,788.00 19,612.65 -- -- --
C. A. Bachelder.............. -- 239,262.45 19,714.09 -- -- --
D. N. Iauco.................. -- 234,128.70 19,276.35 -- -- --
J. Ford...................... -- -- 218,458.29 -- -- --
P. Brown..................... -- -- 218,458.29 -- -- --
J. Willard................... -- 195,107.25 16,063.63 -- -- --
J. Condon.................... -- -- 210,950.00 -- -- --
L. H. Kleinberg.............. -- 218,520.12 17,291.64 25,811.76 -- --
C. E. Becker................. -- 183,466.25 15,117.20 -- -- --
S. Heath..................... -- 179,625.99 14,797.05 -- -- --
T. G. McBrady................ -- 178,980.16 14,746.32 -- -- --
J. A. Kirkman III............ -- 178,855.27 14,736.00 -- -- --
R. F. Sharpe, Jr............. -- 182,905.47 13,611.18 36,529.29 -- --
T. A. McKiernan.............. -- 143,974.95 11,862.97 -- -- --
K. E. Glover................. -- 135,308.70 11,149.16 -- -- --
M. G. DiNapoli............... -- 135,093.14 11,131.34 -- -- --
J. A. Kuchar................. -- 135,087.00 11,130.84 -- -- --
N. G. Jungmann............... -- 134,186.11 11,056.36 -- -- --
S. Brown..................... -- -- 129,375.00 -- -- --
R. J. Hall................... -- -- 123,750.00 -- -- --
R. J. Verdon................. -- 217,284.30 3,454.24 126,913.62 -- --
F. W. Zuckerman.............. -- -- 200,000.00 200,000.00 -- --
COLUMN A
NAME OF DEBTOR NOT
(EMPLOYEES) CURRENT
- ----------------------------- --------------
L. V. Gerstner, Jr........... $ 2,534,050.51
H. J. Greeniaus.............. 1,787,839.91
G. R. Thoman................. 1,712,600.00
J. W. Johnston............... 1,520,430.30
K. M. von der Heyden......... 1,520,430.30
L. R. Ricciardi.............. 1,182.556.90
J. C. Schroer................ 1,032,497.53
D. F. Sisel.................. 929,151.85
E. R. Croisant............... 919,713.07
E. R. Marram................. 844,683.50
D. J. Anderson............... 825,608.47
A. J. Schindler.............. 790,359.86
C. W. Ehmann................. 675,499.50
J. W. Farrelly............... 637,500.00
K. D. Langner................ 596,126.88
B. J. Wood................... 506,810.10
D. B. Kalis.................. 486,346.55
M. B. Oglesby, Jr............ 475,858.69
W. B. McKnight, Jr........... 457,875.65
S. R. Wilson................. 416,113.74
J. C. Mitchell............... 388,143.68
D. L. Clark.................. 388,068.18
T. C. Griscom................ 337,873.40
R. S. Roath.................. 337,506.73
D. Conant.................... 327,687.43
J. T. Pearson................ 310,638.41
H. J. Lees................... 306,011.01
Y. W. Ford, Jr............... 295,639.23
R. R. Gordon, Jr............. 295,639.23
C. M. Sayeau................. 295,639.23
W. W. Juchatz................ 293,376.20
J. R. Chambers............... 286,693.64
J. F. Manfredi............... 285,786.57
E. J. Lang................... 270,445.18
B. Thomas.................... 267,400.65
C. A. Bachelder.............. 258,976.54
D. N. Iauco.................. 253,405.05
J. Ford...................... 218,458.29
P. Brown..................... 218,458.29
J. Willard................... 211,170.88
J. Condon.................... 210,950.00
L. H. Kleinberg.............. 210,000.00
C. E. Becker................. 198,583.45
S. Heath..................... 194,423.04
T. G. McBrady................ 193,726.48
J. A. Kirkman III............ 193,591.27
R. F. Sharpe, Jr............. 159,987.36
T. A. McKiernan.............. 155,837.92
K. E. Glover................. 146,457.86
M. G. DiNapoli............... 146,224.48
J. A. Kuchar................. 146,217.84
N. G. Jungmann............... 145,242.47
S. Brown..................... 129,375.00
R. J. Hall................... 123,750.00
R. J. Verdon................. 93,824.92
F. W. Zuckerman.............. --
- ----------------------------
The amounts presented represent loans to employees in connection with the
1990 Long Term Incentive Plan. See Note 12 to the Consolidated Financial
Statements.
S-2
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------- -------------
Administrative expenses............................................. $ (8) $ (12) $ (13)
Interest expense and amortization of debt issuance costs............ (23) (90) (77)
Other income (expense), net......................................... 30 82 88
------------- ------------- -------------
Income (loss) before income taxes............................ (1) (20) (2)
Provision (benefit) for income taxes................................ (2) (13) (21)
------------- ------------- -------------
1 (7) 19
Equity in income (loss) of subsidiary, net of income taxes.......... (4) 783 349
------------- ------------- -------------
Income (loss) before extraordinary item...................... (3) 776 368
Extraordinary item--loss on early extinguishments of debt, net of
income taxes (including extraordinary losses of $135 and $464 from
subsidiary for 1993 and 1992, respectively)....................... (142) (477) --
------------- ------------- -------------
Net income (loss)............................................ (145) 299 368
Less preferred stock dividends...................................... 68 31 173
------------- ------------- -------------
Net income (loss) applicable to common stock................. (213) 268 195
Retained earnings (accumulated deficit) at beginning of period...... (738) (1,037) (1,405)
Add preferred stock dividends charged to paid-in capital............ 68 31 173
------------- ------------- -------------
Retained earnings (accumulated deficit) at end of period............ $ (883) $ (738) $ (1,037)
------------- ------------- -------------
------------- ------------- -------------
See Notes to Condensed Financial Information.
S-3
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------------ ------------- -------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).............................................. $ (145) $ 299 $ 368
---------- ------------- -------------
Adjustments to reconcile net income (loss) to net cash flows
from (used in) operating activities:
Deferred income tax provision (benefit)..................... 69 (63) (58)
Non-cash interest expense and amortization of debt issuance
costs............................................................ 22 79 77
Extraordinary item--loss on early extinguishments of debt... 10 20 --
Equity in (income) loss of subsidiary,
net of income taxes....................................... 139 (319) (349)
Other, net.................................................. 70 (164) (48)
---------- ------------- -------------
Total adjustments...................................... 310 (447) (378)
---------- ------------- -------------
Net cash flows from (used in) operating activities.......... 165 (148) (10)
---------- ------------- -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Dividends received from subsidiary............................. 48 278 --
Investment in subsidiary....................................... (1,214) -- (3,454)
---------- ------------- -------------
Net cash flows from (used in) investing activities.......... (1,166) 278 (3,454)
---------- ------------- -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE A):
Repayments of long-term debt................................... (548) (251) --
Proceeds from issuance of common stock and exercised
warrants..................................................... 9 1 1,300
Proceeds from issuance of Series A Preferred Stock............. -- -- 2,126
Proceeds from issuance of Series B Preferred Stock............. 1,250 -- --
Preferred stock dividends paid................................. (241) (214) (205)
Financing and advisory fees paid............................... (39) (2) (146)
Repurchase of Preferred Stock.................................. (105) -- --
Repurchases and cancellations of common stock, stock options
and warrants................................................. (1) (89) (4)
Other, net--including intercompany transfers................... 683 425 179
---------- ------------- -------------
Net cash flows from (used in) financing activities.......... 1,008 (130) 3,250
---------- ------------- -------------
Net change in cash and cash equivalents..................... 7 -- (214)
Cash and cash equivalents at beginning of period................. 3 3 217
---------- ------------- -------------
Cash and cash equivalents at end of period....................... $ 10 $ 3 $ 3
---------- ------------- -------------
---------- ------------- -------------
See Notes to Condensed Financial Information.
S-4
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 10 $ 3
Accounts and notes receivable.......................................... 9 23
--------- ----------
TOTAL CURRENT ASSETS........................................... 19 26
--------- ----------
Intercompany receivable (payable), net................................... (150) 607
Investment in subsidiary................................................. 9,316 8,344
Other assets and deferred charges........................................ 4 54
--------- ----------
$ 9,189 $ 9,031
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................... $ 46 $ 43
Current maturities of long-term debt................................... -- 28
--------- ----------
TOTAL CURRENT LIABILITIES...................................... 46 71
--------- ----------
Long-term debt (less current maturities) (Note B)........................ -- 487
Deferred income taxes.................................................... 73 97
Commitments and contingencies (Note C)...................................
Stockholders' equity:
Redeemable convertible preferred stock--4,032,968 shares issued and
outstanding at December 31, 1992.................................... -- 101
ESOP convertible preferred stock--15,573,973 and 15,625,000 shares
issued and outstanding at December 31, 1993 and 1992,
respectively........................................................ 249 250
Series A convertible preferred stock--52,500,000 shares issued and
outstanding at December 31, 1993 and 1992........................... 2 2
Series B preferred stock--50,000 shares issued and outstanding at
December 31, 1993................................................... 1,250 --
Common stock--1,138,011,292 and 1,134,648,542 shares issued and
outstanding at December 31, 1993 and 1992, respectively............. 11 11
Paid-in capital........................................................ 8,778 9,048
Cumulative translation adjustments..................................... (102) (47)
Retained earnings (accumulated deficit)................................ (883) (738)
Receivable from ESOP................................................... (211) (227)
Loans receivable from employees........................................ (18) (24)
Unamortized value of restricted stock.................................. (6) --
--------- ----------
TOTAL STOCKHOLDERS' EQUITY..................................... 9,070 8,376
--------- ----------
$ 9,189 $ 9,031
--------- ----------
--------- ----------
See Notes to Condensed Financial Information.
S-5
SCHEDULE III
RJR NABISCO HOLDINGS CORP.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE A--SUPPLEMENTAL CASH FLOWS INFORMATION
For information regarding certain non-cash financing activities, see Notes
10 and 12 to the Consolidated Financial Statements.
NOTE B--LONG-TERM DEBT
See Note 10 to the Consolidated Financial Statements for information
relating to the Converting Debentures.
NOTE C--COMMITMENTS AND CONTINGENCIES
Holdings has guaranteed the indebtedness of RJRN under the Credit
Agreements and certain debentures. The guaranties are secured by a pledge of the
capital stock of RJRN owned by Holdings. For a discussion of certain restrictive
covenants associated with these debt obligations, see Note 10 to the
Consolidated Financial Statements.
For disclosure of additional contingent liabilities, see Note 11 to the
Consolidated Financial Statements.
S-6
SCHEDULE V
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT
BEGINNING ADDITIONS AT OTHER CHANGES END OF
CLASSIFICATION OF PERIOD COST RETIREMENTS ADD (DEDUCT) PERIOD
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
Land and land improvements............... $ 277 $ 6 $ (7) $ 32 $ 308
Buildings and leasehold
improvements.......................... 1,682 22 (46) 113 1,771
Machinery and equipment.................. 4,086 133 (110) 515 4,624
Construction-in-process.................. 470 462 (6) (463) 463
----------- ---------- ------------- ---------- -----------
$ 6,515 $ 623 $ (169) $ 197 $ 7,166
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
Year ended December 31, 1992:
Land and land improvements............... $ 270 $ 2 $ (1) $ 6 $ 277
Buildings and leasehold
improvements.......................... 1,644 4 (12) 46 1,682
Machinery and equipment.................. 3,781 64 (105) 346 4,086
Construction-in-process.................. 405 449 (1) (383) 470
----------- ---------- ------------- ---------- -----------
$ 6,100 $ 519 $ (119) $ 15 $ 6,515
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
Year ended December 31, 1991:
Land and land improvements............... $ 264 $ 1 $ (6) $ 11 $ 270
Buildings and leasehold improvements..... 1,604 8 (12) 44 1,644
Machinery and equipment.................. 3,510 76 (118) 313 3,781
Construction-in-process.................. 403 374 -- (372) 405
----------- ---------- ------------- ---------- -----------
$ 5,781 $ 459 $ (136) $ (4) $ 6,100
----------- ---------- ------------- ---------- -----------
----------- ---------- ------------- ---------- -----------
- ---------------
Property, plant and equipment are depreciated principally by the straight-line
method. Annual depreciation rates for new assets range principally from 5% to 7%
for land improvements; 2% to 33% for buildings and leasehold improvements;
and 5% to 33% for machinery and equipment. Correspondingly higher
depreciation rates are applicable with respect to assets in service at
February 9, 1989, the date of the acquisition by Holdings and its affiliates
of RJRN.
S-7
SCHEDULE VI
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER CHANGES ADD END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS (DEDUCT) PERIOD
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
Land and land improvements.............. $ 20 $ 5 $ -- $ -- $ 25
Buildings and leasehold improvements.... 269 68 (15) (3) 319
Machinery and equipment................. 1,368 375 (60) (29) 1,654
----------- ------------- ------------- ------------- -----------
$ 1,657 $ 448 $ (75) $ (32) $ 1,998
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
Year ended December 31, 1992:
Land and land improvements.............. $ 15 $ 5 $ -- $ -- $ 20
Buildings and leasehold
improvements......................... 205 73 (8) (1) 269
Machinery and equipment................. 1,064 377 (45) (28) 1,368
----------- ------------- ------------- ------------- -----------
$ 1,284 $ 455 $ (53) $ (29) $ 1,657
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
Year ended December 31, 1991:
Land and land improvements.............. $ 10 $ 5 $ -- $ -- $ 15
Buildings and leasehold improvements.... 142 64 (2) 1 205
Machinery and equipment................. 763 372 (53) (18) 1,064
----------- ------------- ------------- ------------- -----------
$ 915 $ 441 $ (55) $ (17) $ 1,284
----------- ------------- ------------- ------------- -----------
----------- ------------- ------------- ------------- -----------
S-8
SCHEDULE VIII
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (A) (B) PERIOD(C)
- ---------------------------------------------------------------------------------------------------------------------------------
Those valuation and qualifying accounts which are
deducted in the balance sheet from the assets to
which they apply:
Year ended December 31, 1993:
For discounts and doubtful accounts................. $ 84 $ 23 $ 8 $ (56) $ 59
Other assets........................................ 38 26 -- (18) 46
------------- ------------- ------------- -------------- ------------
$ 122 $ 49 $ 8 $ (74) $ 105
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
Year ended December 31, 1992:
For discounts and doubtful accounts................. $ 99 $ 15 $ 3 $ (33) $ 84
Other assets........................................ 30 25 -- (17) 38
------------- ------------- ------------- -------------- ------------
$ 129 $ 40 $ 3 $ (50) $ 122
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
Year ended December 31, 1991:
For discounts and doubtful accounts................. $ 70 $ 61 $ 2 $ (34) $ 99
Other assets........................................ 31 15 1 (17) 30
------------- ------------- ------------- -------------- ------------
$ 101 $ 76 $ 3 $ (51) $ 129
------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- -------------- ------------
- ---------------
(A) Miscellaneous adjustments.
(B) Principally charges against the accounts.
(C) Excludes valuation allowance accounts for deferred tax assets.
S-9
SCHEDULE IX
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE DURING
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE THE
SHORT-TERM BORROWINGS PERIOD(A) RATE(C) PERIOD PERIOD(B) PERIOD(C)
- ----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
Banks.................................... $ 301 6.11% $ 712 $ 365 8.37%
Commercial paper holders(D).............. -- --% 58 33 5.84%
Year ended December 31, 1992:
Banks.................................... $ 280 9.45% $ 632 $ 333 9.74%
Commercial paper holders(D).............. 18 6.90% 79 60 7.40%
Year ended December 31, 1991:
Banks.................................... $ 319 9.86% $ 639 $ 396 9.26%
Commercial paper holders(D).............. 50 9.54% 63 19 9.52%
- ---------------
(A) Varying maturity dates with no provision for extension at maturity.
(B) Primarily daily average balance of total short-term debt.
(C) Short-term interest expense as a percentage of the average balance of interest bearing short-term debt. The
weighted average interest rates include nominal borrowing rates in high inflationary countries, primarily
Latin America.
(D) Commercial paper interest rates reflect nominal Canadian borrowing costs.
S-10
SCHEDULE X
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
COLUMN A COLUMN B
- ---------------------------------------------------------------------------------------------------------------------
ITEM CHARGED TO COSTS AND EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
1993 1992 1991
--------- --------- ---------
Maintenance and repairs.............................................................. $ 316 $ 302 $ 291
--------- --------- ---------
--------- --------- ---------
Advertising costs.................................................................... $ 544 $ 564 $ 657
--------- --------- ---------
--------- --------- ---------
Amortization of trademarks........................................................... $ 253 $ 253 $ 252
--------- --------- ---------
--------- --------- ---------
Amortization of goodwill............................................................. $ 372 $ 363 $ 357
--------- --------- ---------
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S-11
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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3.1 Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp., filed
October 1, 1990 (incorporated by reference to Exhibit 3.1 to Amendment No. 4, filed on
October 2, 1990, to the Registration Statement on Form S-4 of RJR Nabisco Holdings
Corp., Registration No. 33-36070, filed on July 25, 1990, as amended (the "Form S-4,
Registration No. 33-36070")).
3.1(a) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed January 29, 1991 (incorporated by reference to Exhibit
3.1(a) to Amendment No. 3, filed on January 31, 1991, to the Registration Statement on
Form S-4 of RJR Nabisco Holdings Corp., Registration No. 33-38227).
3.1(b) Certificate of Designation of ESOP Convertible Preferred Stock, filed April 10, 1991
(incorporated by reference to Exhibit 3.1(b) to Amendment No. 2, filed on April 11,
1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp.,
Registration No. 33-39532, filed on March 20, 1991).
3.1(c) Certificate of Designation of Series A Conversion Preferred Stock, filed November 7,
1991 (incorporated by reference to Exhibit 3.1(c) to Amendment No. 3, filed on November
1, 1991, to the Registration Statement on Form S-1 of RJR Nabisco Holdings Corp.,
Registration No. 33-43137, filed October 2, 1991 (the "Form S-1, Registration No. 33-
43137")).
3.1(d) Certificate of Amendment to Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed December 16, 1991 (incorporated by reference to Exhibit
3.1(d) of the Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco
Holdings Group, Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the fiscal
year ended December 31, 1991, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1991
Form 10-K")).
3.1(e) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of RJR
Nabisco Holdings Corp., filed April 6, 1993 (incorporated by reference to Exhibit 3.3 of
the Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc.
for the fiscal quarter ended March 31, 1993, filed April 30, 1993 (the "March 1993 Form
10-Q")).
*3.1(f) Certificate of Designation of Series B Cumulative Preferred Stock.
*3.1(g) A composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco
Holdings Corp., as amended to August 16, 1993.
*3.2 Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended, effective
January 20, 1994.
3.3 Restated Certificate of Incorporation of RJR Nabisco, Inc. (incorporated by reference to
Exhibit 3.9 to Amendment No. 2, filed on May 12, 1989, to the Registration Statement on
Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc. and
RJR Nabisco, Inc., Registration No. 33-27891, filed on April 4, 1989 (the "Form S-1,
Registration No. 33-27891")).
3.3(a) Certificate of Amendment of the Certificate of Incorporation of RJR Nabisco, Inc., filed
September 22, 1989 (incorporated by reference to Exhibit 3.7(b) to the Registration
Statement on Form S-1 of RJR Holdings Capital Corp., RJR Holdings Corp., RJR Holdings
Group, Inc. and RJR Nabisco, Inc., Registration No. 33-31937, filed on November 3, 1989,
as amended (the "Form S-1, Registration No. 33-31937")).
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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3.3(b) Certificate of Change of Location of Registered Office and of Registered Agent of RJR
Nabisco, Inc., filed July 5, 1990 (incorporated by reference to Exhibit 3.7(b) of the
Annual Report on Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the year ended December 31,
1990, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1990 Form 10-K")).
3.3(c) A composite of the Certificate of Incorporation of RJR Nabisco, Inc., as amended to July
5, 1990 (incorporated by reference to Exhibit 3.7(c) of the 1990 Form 10-K).
*3.4 Amended and Restated By-laws of RJR Nabisco, Inc., as amended, effective January 20,
1994.
4.1 Credit Agreement dated as of December 1, 1991 among RJR Nabisco Holdings Corp., RJR
Nabisco Holdings Group, Inc., RJR Nabisco Capital Corp., RJR Nabisco, Inc. and the
lending institutions party thereto (the "Credit Agreement") (incorporated by reference
to Exhibit 4.1 of the 1991 Form 10-K).
4.1(a) Amendment No. 1 to Credit Agreement, dated as of October 21, 1992 (incorporated by
reference to Exhibit 4.1(a) of the Annual Report on Form 10-K of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. for the fiscal year ended December 31, 1992, File Nos.
1-10215 and 1-6388 (the "1992 Form 10-K")).
4.1(b) Second Amendment to Credit Agreement, dated as of March 4, 1993 (incorporated by
reference to Exhibit 4.2 of the March 1993 Form 10-Q).
4.1(c) Third Amendment to Credit Agreement, dated as of October 12, 1993 (incorporated by
reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of RJR Nabisco Holdings
Corp. and RJR Nabisco, Inc. for the fiscal quarter ended September 30, 1993, filed
October 29, 1993 (the "September 1993 Form 10-Q")).
4.2 Credit Agreement dated as of April 15, 1993 among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and the lending institutions party thereto (incorporated by reference to
Exhibit 4.3 of the March 1993 Form 10-Q).
4.2(a) First Amendment to Credit Agreement dated as of October 12, 1993 (incorporated by
reference to Exhibit 10.1 of the September 1993 Form 10-Q).
4.3 The Registrants agree to furnish copies of any instrument defining the rights of holders
of long-term debt of the Registrants and their consolidated subsidiaries that does not
exceed 10 percent of the total assets of the Registrants and their consolidated
subsidiaries to the Commission upon request.
10.1 Registration Rights Agreement, dated as of February 9, 1989, among RJR Holdings Corp.,
RJR Associates, L.P., KKR Partners II, L.P., Drexel Burnham Lambert Incorporated and
Merrill Lynch & Co. (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-1 of RJR Holdings Corp., Registration No. 33-29401, filed on June
20, 1989, as amended (the "Form S-1, Registration No. 33-29401")).
10.2 Retirement Plan for Directors of RJR Nabisco, Inc. as amended and restated on January 1,
1989 (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, file number 1-6388, filed on March 9, 1989, as
amended through April 14, 1989 (the "1988 Form 10-K")).
10.3 Retirement Trust Agreement, made as of October 12, 1988, between RJR Nabisco, Inc. and
Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4 of RJR Holdings Corp. and RJR Holdings Group, Inc.,
Registration No. 33-27894, filed April 5, 1989, as amended (the "Form S-4, Registration
No. 33-27894")).
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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10.4 Agreement Containing Consent Order to Cease and Desist, dated January 30, 1989, among
KKR Associates, the general partners of KKR Associates, Kohlberg Kravis Roberts & Co.,
L.P., the general partners of Kohlberg Kravis Roberts & Co., L.P., RJR Associates, L.P.,
RJR Holdings Corp., RJR Holdings Group, Inc., RJR Acquisition Corporation and the
Federal Trade Commission (incorporated by reference to Exhibit 10.2 to the Form S-4,
Registration No. 33-27894).
10.5 Form of Employment Agreement containing Change of Control provision (incorporated by
reference to Exhibit 10.8 to the Form S-4, Registration No. 33-27894).
10.6 Special Addendum to Form of Employment Agreement filed as Exhibit 10.22, dated December
20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K).
10.7 Form of Agreement containing Gross-Up provisions, dated January 27, 1989 (incorporated
by reference to Exhibit 10(d)(iii) to the 1988 Form 10-K).
10.8 Trust Agreement between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A.,
Trustee, dated January 27, 1989 (incorporated by reference to Exhibit 10(d)(iv) to the
1988 Form 10-K).
10.9 Form of Employment Agreement Without Change of Control provision (incorporated by
reference to Exhibit 10.16 to the Form S-4, Registration No. 33-27894).
10.10 Special Addendum, dated December 20, 1988 (incorporated by reference to Exhibit
10(d)(ii) to the 1988 Form 10-K).
10.11 Master Trust Agreement, as amended and restated as of October 12, 1988, between RJR
Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by reference to
Exhibit 10.18 to the Form S-4, Registration No. 33-27894).
10.11(a) Amendment No. 1 to Master Trust Agreement, dated January 27, 1989 (incorporated by
reference to Exhibit 10(g)(ii) to the 1988 Form 10-K).
10.11(b) Amendment No. 2 to Master Trust Agreement, dated January 27, 1989 (incorporated by
reference to Exhibit 10(g)(iii) to the 1988 Form 10-K).
10.12 Excess Benefit Master Trust Agreement, as amended and restated as of October 12, 1988,
between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated by
reference to Exhibit 10.21 to the Form S-4, Registration No. 33-27894).
10.12(a) Amendment No. 1 to Excess Benefit Master Trust Agreement, dated January 27, 1989
(incorporated by reference to Exhibit 10(h)(ii) to the 1988 Form 10-K).
10.13 Supplemental Benefits Plan of RJR Nabisco, Inc. and Participating Companies, as amended
on October 12, 1988 (incorporated by reference to Exhibit 10.25 to the Form S-4,
Registration No. 33-27894).
10.13(a) Amendment to Supplemental Benefits Plan, dated November 23, 1988 (incorporated by
reference to Exhibit 10(k)(ii) to the 1988 Form 10-K).
10.13(b) Amendment No. 2 to Supplemental Benefits Plan, dated January 27, 1989 (incorporated by
reference to Exhibit 10(k)(iii) to the 1988 Form 10-K).
10.14 Additional Benefits Plan of RJR Nabisco, Inc. and Participating Companies, effective
October 12, 1988 (incorporated by reference to Exhibit 10.28 to the Form S-4,
Registration No. 33-27894).
10.14(a) Amendment to Additional Benefits Plan, dated October 28, 1988 (incorporated by reference
to Exhibit 10(l)(ii) to the 1988 Form 10-K).
10.14(b) Amendment to Additional Benefits Plan, dated November 23, 1988 (incorporated by
reference to Exhibit 10(1)(iii) to the 1988 Form 10-K).
10.14(c) Amendment to Additional Benefits Plan No. 3, dated January 27, 1989 (incorporated by
reference to Exhibit 10(1)(iv) to the 1988 Form 10-K).
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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10.15 RJR Nabisco, Inc. Supplemental Executive Retirement Plan, as amended on July 21, 1988
(incorporated by reference to Exhibit 10.32 to the Form S-4, Registration No. 33-27894).
10.15(a) Amendment to Supplemental Executive Retirement Plan, dated November 23, 1988
(incorporated by reference to Exhibit 10(m)(ii) to the 1988 Form 10-K).
10.15(b) Amendment No. 2 to Supplemental Executive Retirement Plan, dated January 27, 1989
(incorporated by reference to Exhibit 10(m)(iii) to the 1988 Form 10-K).
*10.15(c) Amendment to Supplemental Executive Retirement Plan, dated April 10, 1993.
10.16 Stock Option Plan for Directors and Key Employees of RJR Holdings Corp. and
Subsidiaries, dated as of July 21, 1989 (incorporated by reference to Exhibit 10.71 to
the Form S-1, Registration No. 33-29401).
10.17 Form of Common Stock Subscription Agreement between RJR Holdings Corp. and the purchaser
named therein (incorporated by reference to Exhibit A to Post-Effective Amendment No. 2,
filed on August 21, 1989, to the Form S-1, Registration No. 33-29401 (the
"Post-Effective Amendment No. 2 to the Form S-1, Registration No. 33-29401")).
10.18 Form of Non-Qualified Stock Option Agreement between RJR Holdings Corp. and the optionee
named therein (incorporated by reference to Exhibit B to Post-Effective Amendment No. 2
to the Form S-1, Registration No. 33-29401).
*10.19 Form of Non-Qualified Stock Option Agreement, dated December 31, 1993, between RJR
Nabisco Holdings Corp. and Charles M. Harper.
10.20 Employment Agreement, dated May 27, 1993, by and among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and Charles M. Harper (incorporated by reference to Exhibit 10.1 of the
Quarterly Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for
the fiscal quarter ended June 30, 1993, filed August 3, 1993 (the "June 1993 Form
10-Q")).
10.21 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and
Charles M. Harper (incorporated by reference to Exhibit 10.2 of the June 1993 Form
10-Q).
10.22 Employment Agreement, dated July 19, 1993, by and among RJR Nabisco Holdings Corp., RJR
Nabisco, Inc. and Lawrence R. Ricciardi (incorporated by reference to Exhibit 10.3 of
the June 1993 Form 10-Q).
10.23 Letter Agreement, dated July 27, 1989, between RJR Holdings Corp. and Lawrence R.
Ricciardi (incorporated by reference to Exhibit 10.71 to the Form S-1, Registration No.
33-31937).
*10.24 Letter Agreement, dated Janaury 20, 1994, between RJR Nabisco Holdings Corp. and
Lawrence R. Ricciardi.
10.25 Amended and Restated Employment Agreement, dated as of September 1, 1993, by and among
R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., RJR Nabisco
Holdings Corp., RJR Nabisco, Inc. and Mr. James W. Johnston (incorporated by reference
to Exhibit 10.2 to the September 1993 Form 10-Q).
10.26 Letter Agreement, dated March 30, 1993, between RJR Nabisco, Inc. and Eugene R. Croisant
(incorporated by reference to Exhibit 10.4 to the March 1993 Form 10-Q).
10.27 Equity Securities Purchase Agreement dated as of July 15, 1990 between RJR Nabisco
Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.4
to the Form S-4, Registration No. 33-36070).
10.28 Registration Rights Agreement (Common Stock), dated as of July 15, 1990, between RJR
Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to
Exhibit 4.5 to the Form S-4, Registration No. 33-36070).
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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10.29 Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the March 1993 Form 10-Q).
10.30 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and purchaser named
therein (1991 Grant) (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-8 of RJR Nabisco Holdings Corp., Registration No. 33-39791, filed on
April 5, 1991 (the "Form S-8, Registration No. 33-39791").
10.31 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1991 Grant) (incorporated by reference to
Exhibit 4.4(a) to Form S-8, Registration No. 33-39791).
10.32 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
executive or management optionee named therein (1991 Grant) (incorporated by reference
to Exhibit 4.4(b) to Form S-8, Registration No. 33-39791).
10.33 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco
Holdings Corp. (1991 Grant) (incorporated by reference to Exhibit 4.5 to Form S-8,
Registration No. 33-39791).
*10.33(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1991 Grant).
10.34 Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and the purchaser
named therein (1992 Grant) (incorporated by reference to Exhibit 10.34 of the 1991 Form
10-K).
10.35 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1992 Grant/cycle) (incorporated by reference to
Exhibit 10.35 of the 1991 Form 10-K).
10.36 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
senior executive optionee named therein (1992 Grant/5-year) (incorporated by reference
to Exhibit 10.36 of the 1991 Form 10-K).
10.37 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
executive or management optionee named therein (1992 Grant) (incorporated by reference
to Exhibit 10.37 of the 1991 Form 10-K).
*10.38 Form of Restated Non-Qualified Stock Option Agreement under the 1990 Long Term Incentive
Plan, between RJR Nabisco Holdings Corp. and the optionee named therein.
10.39 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
optionee name therein (1993 Grant) (incorporated by reference to Exhibit 10.39 of the
1992 Form 10-K).
10.40 Performance Share Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.40 of the 1992 Form 10-K).
10.41 Form of Performance Share Agreement between RJR Nabisco Holdings Corp. and the grantee
named therein (1993 Grant) (incorporated by reference to Exhibit 10.41 of the 1992 Form
10-K).
*10.42 Restricted Stock Program under the 1990 Long Term Incentive Plan.
10.43 Form of Restricted Stock Agreement under the 1990 Long Term Incentive Plan between RJR
Nabisco Holdings Corp. and the grantee named therein (1993 Grant) (incorporated by
reference to Exhibit 10.1 the March 1993 Form 10-Q).
*10.44 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan,
between RJR Nabisco Holdings Corp. and the grantee named therein (3 year).
EXHIBIT SEQUENTIAL
NO. PAGE NO.
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*10.45 Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan,
between RJR Nabisco Holdings Corp. and the grantee named therein (4 year).
10.46 Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
Consultant named therein (1991 Grant) (incorporated by reference to Exhibit 10.42 of the
1992 Form 10-K).
10.47 Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco
Holdings Corp. (1992 Grant) (incorporated by reference to Exhibit 10.38 of the 1991 Form
10-K).
*10.47(a) Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992 Grant).
10.48 Registration Rights Agreement (Preferred Stock), dated as of July 15, 1990, between RJR
Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to
Exhibit 4.6 to the Form S-4, Registration No. 33-36070).
10.49 Preferred Stock Exchange Agreement dated as of October 1, 1990 between RJR Nabisco
Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.8
to the Form S-4, Registration No. 33-36070).
*11. RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended
December 31, 1993, 1992 and 1991.
*12. RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges/Deficiency in the
Coverage of Fixed Charges by Earnings before Fixed Charges for each of the periods
within the five year period ended December 31, 1993.
*21. Subsidiaries of the Registrants.
*23. Consent of Independent Auditors.
*24. Powers of Attorney.
- ---------------
*Filed herewith.