EXHIBIT 99.1
REPORTS OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
Nabisco Holdings Corp.:
Nabisco, Inc.:
We have audited the accompanying consolidated balance sheets of Nabisco
Holdings Corp. ("Nabisco Holdings") and Nabisco, Inc. ("Nabisco") as of December
31, 1999 and 1998, and the related consolidated statements of income,
comprehensive income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these financial statements 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
misstatement. 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 Nabisco
Holdings and Nabisco at December 31, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 2, 2000
Nabisco Holdings Corp.:
Nabisco, Inc.:
We have audited the consolidated balance sheets of Nabisco Holdings
Corp. ("Nabisco Holdings") and Nabisco, Inc. ("Nabisco") as of December 31, 1999
and 1998, and the related consolidated statements of income, comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999, and have issued our report thereon dated
February 2, 2000; such report has previously been filed as part of the
companies' Annual Report on Form 10-K for the year ended December 31, 1999. Our
audits also included the financial statement schedule of Nabisco Holdings and
Nabisco for each of the three years in the period ended December 31, 1999 as
listed in the accompanying index to the financial statements. This financial
statement schedule is the responsibility of the companies' management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Parsippany, New Jersey
February 2, 2000
F-2
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions, Except Per Share Amounts)
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- ---------------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Net sales............................................ $ 8,268 $8,268 $ 8,400 $8,400 $ 8,734 $8,734
------- ------ ------- ------ ------- ------
Costs and expenses:
Cost of products sold............................. 4,502 4,502 4,683 4,683 4,950 4,950
Selling, advertising, administrative and general
expenses....................................... 2,747 2,747 2,672 2,672 2,476 2,476
Amortization of trademarks and goodwill........... 213 213 221 221 226 226
Restructuring charges (credits) (Note 3).......... (67) (67) 530 530 -- --
------- ------ ------- ------ ------- ------
Operating income............................. 873 873 294 294 1,082 1,082
Interest and debt expense............................ (260) (260) (296) (296) (326) (326)
Other income (expense), net.......................... (31) (31) (29) (29) (32) (32)
------- ------ ------- ------ ------- ------
Income (loss) before income taxes............ 582 582 (31) (31) 724 724
Provision for income taxes........................... 222 222 40 40 293 293
------- ------ ------- ------ ------- ------
Income (loss) before extraordinary item...... 360 360 (71) (71) 431 431
Extraordinary item - loss on early extinguishment of
debt, net of income taxes (Note 10)............... (3) (3) -- -- (26) (26)
------- ------ ------- ------ ------- ------
Net income (loss)............................ $ 357 $ 357 $ (71) $ (71) $ 405 $ 405
======= ====== ======= ====== ======= ======
Net income (loss) per common share - basic:
Income (loss) before extraordinary item........... $ 1.36 $ (.27) $ 1.63
Extraordinary item................................ (.01) -- (.10)
------- ------- -------
Net income (loss)............................ $ 1.35 $ (.27) $ 1.53
======= ======= =======
Net income (loss) per common share - diluted:
Income (loss) before extraordinary item........... $ 1.35 $ (.27) $ 1.61
Extraordinary item................................ (.01) -- (.10)
------- ------- -------
Net income (loss)............................ $ 1.34 $ (.27) $ 1.51
======= ======= =======
Dividends declared per common share.................. $ .75 $ .70 $ .68
======= ======= =======
Average number of common shares outstanding
(in thousands):
Basic............................................. 264,670 264,547 265,057
======= ======= =======
Diluted........................................... 266,757 264,547 267,374
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars In Millions)
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Net income (loss).................................... $ 357 $ 357 $ (71) $ (71) $ 405 $ 405
----- ----- ----- ----- ----- -----
Other comprehensive income (loss):
Cumulative translation adjustment................. (111) (111) (57) (57) (73) (73)
Minimum pension liability adjustment.............. 3 3 3 3 (6) (6)
----- ----- ----- ----- ---- ----
Other comprehensive income (loss) before
income taxes...................................... (108) (108) (54) (54) (79) (79)
Provision (benefit) for income taxes.............. 1 1 1 1 (2) (2)
----- ----- ----- ----- ---- ----
Other comprehensive income (loss) net of
income tax........................................ (109) (109) (55) (55) (77) (77)
----- ----- ----- ----- ---- ----
Comprehensive income (loss).......................... $ 248 $ 248 $(126) $(126) $ 328 $ 328
===== ===== ===== ===== ===== =====
See Notes to Consolidated Financial Statements.
F-4
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Years Ended December 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Cash flows from (used in) operating activities:
Net income (loss).................................... $ 357 $ 357 $ (71) $ (71) $ 405 $ 405
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation of property, plant and equipment... 265 265 273 273 277 277
Amortization of intangibles..................... 213 213 221 221 226 226
Deferred income tax provision (benefit)......... 48 48 (188) (188) 11 11
Restructuring items, net of cash payments....... (157) (157) 491 491 (135) (135)
Accounts receivable............................. (139) (139) -- -- 14 14
Inventories..................................... (102) (102) 44 44 (12) (12)
Prepaid expenses and other current assets....... 3 3 (10) (10) (6) (6)
Accounts payable................................ 174 174 (49) (49) 10 10
Accrued liabilities............................. 77 73 (32) (45) (192) (214)
Income taxes accrued............................ (15) (15) (3) (3) 19 19
Other, net...................................... (1) (1) (12) (12) (55) (55)
Extraordinary loss.............................. 3 3 -- -- 43 43
Gain on divestitures, net....................... -- -- (14) (14) (32) (32)
----- ----- ----- ----- ----- -----
Net cash flows from operating activities.......... 726 722 650 637 573 551
----- ----- ----- ----- ----- -----
Cash flows from (used in) investing activities:
Capital expenditures................................. (241) (241) (340) (340) (392) (392)
Acquisition of businesses............................ (578) (578) (9) (9) (46) (46)
Other, net........................................... 36 36 13 13 15 15
Proceeds from sale of businesses..................... -- -- 550 550 50 50
----- ----- ----- ----- ----- -----
Net cash flows from (used in) investing
activities...................................... (783) (783) 214 214 (373) (373)
----- ----- ----- ----- ----- -----
Cash flows from (used in) financing activities:
Net proceeds from the issuance of long-term
debt............................................ 777 777 1,279 1,279 1,229 1,229
Repayments of long-term debt......................... (491) (491) (1,893) (1,893) (1,145) (1,145)
Decrease in notes payable............................ (23) (23) (103) (103) (45) (45)
Dividends paid on common stock....................... (195) (195) (185) (185) (175) (175)
Repurchase of Class A common stock................... (12) -- (38) -- (22) --
Net proceeds from issuance of Class A
common stock.................................... 8 -- 25 -- -- --
Proceeds from the sale of call options on
long-term debt.................................. -- -- 41 41 -- --
----- ----- ----- ----- ----- -----
Net cash flows from (used in) financing
activities...................................... 64 68 (874) (861) (158) (136)
----- ----- ----- ----- ----- -----
Effect of exchange rate changes on cash and cash
equivalents..................................... (8) (8) (6) (6) (8) (8)
----- ----- ----- ----- ----- -----
Net change in cash and cash equivalents........... (1) (1) (16) (16) 34 34
Cash and cash equivalents at beginning of period........ 111 111 127 127 93 93
----- ----- ----- ----- ----- -----
Cash and cash equivalents at end of period.............. $ 110 $ 110 $ 111 $ 111 $ 127 $ 127
===== ===== ===== ===== ===== =====
Income taxes paid, net of refunds....................... $ 190 $ 190 $ 231 $ 231 $ 247 $ 247
Interest paid........................................... $ 261 $ 261 $ 276 $ 276 $ 358 $ 358
See Notes to Consolidated Financial Statements.
F-5
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
December 31, 1999 December 31, 1998
------------------ ------------------
Nabisco Nabisco
Holdings Nabisco Holdings Nabisco
-------- ------- -------- -------
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 110 $ 110 $ 111 $ 111
Accounts receivable, net of allowance for doubtful accounts
of $52 and $29, respectively....................................... 681 681 506 506
Deferred income taxes................................................. 116 116 98 98
Inventories........................................................... 898 898 753 753
Prepaid expenses and other current assets............................. 79 79 70 69
------- ------- ------- -------
Total current assets............................................. 1,884 1,884 1,538 1,537
------- ------- ------- -------
Property, plant and equipment--at cost................................... 5,053 5,053 4,806 4,806
Less accumulated depreciation............................................ (1,966) (1,966) (1,859) (1,859)
------- ------- ------- -------
Net property, plant and equipment..................................... 3,087 3,087 2,947 2,947
------- ------- ------- -------
Trademarks, net of accumulated amortization of $1,214 and
$1,102, respectively.................................................. 3,443 3,443 3,368 3,368
Goodwill, net of accumulated amortization of $1,007 and
$910, respectively.................................................... 3,159 3,159 3,182 3,182
Other assets and deferred charges........................................ 134 134 82 82
------- ------- ------- -------
$11,707 $11,707 $11,117 $11,116
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................................... $ 39 $ 39 $ 68 $ 68
Accounts payable...................................................... 642 642 407 407
Accrued liabilities................................................... 1,020 970 1,043 997
Intercompany payable to Nabisco Holdings.............................. -- 7 -- 5
Current maturities of long-term debt.................................. 158 158 118 118
Income taxes accrued.................................................. 104 104 111 111
------- ------- ------- -------
Total current liabilities........................................ 1,963 1,920 1,747 1,706
------- ------- ------- -------
Long-term debt (less current maturities)................................. 3,892 3,892 3,619 3,619
Other noncurrent liabilities............................................. 744 744 704 704
Deferred income taxes.................................................... 1,176 1,176 1,162 1,162
Contingencies (Note 11)..................................................
Stockholders' equity:
Class A common stock (51,412,707 and 51,434,872 shares issued and
outstanding at December 31, 1999 and 1998, respectively)........... 1 -- 1 --
Class B common stock (213,250,000 shares issued and outstanding at
December 31, 1999 and 1998)........................................ 2 -- 2 --
Paid-in capital....................................................... 4,093 4,141 4,092 4,141
Retained earnings (deficit)........................................... 148 127 (5) (31)
Treasury stock, at cost............................................... (17) -- (18) --
Accumulated other comprehensive income (loss)......................... (293) (293) (185) (185)
Notes receivable on common stock purchases............................ (2) -- (2) --
------- ------- ------- -------
Total stockholders' equity....................................... 3,932 3,975 3,885 3,925
------- ------- ------- -------
$11,707 $11,707 $11,117 $11,116
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
F-6
NABISCO HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Millions and Shares in Thousands)
Accumulated
Common Stock Other
---------------- Paid-in Retained Comprehensive Treasury Notes
Shares Amount Capital Earnings Income Stock Receivable Total
------- ------ ------- -------- ------------ --------- ---------- ------
Balance at January 1,
1997................... 265,070 $3 $4,093 $ 43 $ (53) $-- $(2) $4,084
Net income................ 405 405
Cumulative translation
adjustment............. (73) (73)
Minimum pension liability,
net of tax benefit of $1 (4) (4)
Dividends declared........ (180) (180)
Repurchase of Class A
shares................. (682) (32) (32)
Other..................... 4 4
------- -- ------ ----- ----- ---- --- ------
Balance at December
31, 1997............... 264,388 3 4,097 268 (130) (32) (2) 4,204
Net income................ (71) (71)
Cumulative translation
adjustment.............. (57) (57)
Minimum pension liability,
net of tax expense of $2 2 2
Dividends declared........ (185) (185)
Repurchase of Class A
shares................. (568) (27) (27)
Class A treasury
shares issued.......... 865 5 (17) 41 29
Other..................... (10) (10)
------- -- ------ ----- ----- ---- --- ------
Balance at December
31, 1998............... 264,685 3 4,092 (5) (185) (18) (2) 3,885
Net income................ 357 357
Cumulative translation
adjustment............. (111) (111)
Minimum pension liability,
net of tax expense of $1 2 2
Dividends declared........ (198) (198)
Repurchase of Class A
shares................. (300) (12) (12)
Class A treasury
shares issued.......... 278 (5) 13 8
Other..................... 1 (1) 1 1
------- -- ------ ----- ----- ---- --- ------
Balance at December
31, 1999............... 264,663 $3 $4,093 $ 148 $(293) $(17) $(2) $3,932
======= == ====== ===== ===== ==== === ======
See Notes to Consolidated Financial Statements.
F-7
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
The Summary of Significant Accounting Policies below and the other
notes to the consolidated financial statements on the following pages are
integral parts of the accompanying consolidated financial statements of Nabisco
Holdings Corp. ("Nabisco Holdings") and Nabisco, Inc. ("Nabisco"), its direct
wholly-owned subsidiary (the "Consolidated Financial Statements"). Nabisco
Holdings and Nabisco are referred to collectively as the "Companies."
Consolidation and Use of Estimates
The Consolidated Financial Statements include the accounts of the
Companies and their subsidiaries. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the
1999 presentation.
Cash and Cash Equivalents
Cash equivalents include all short-term, highly liquid investments that
are readily convertible to known amounts of cash and that have original
maturities of three months or less. Cash equivalents at December 31, 1999 and
1998, valued at cost (which approximated market value), totaled $54 million and
$71 million, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally under the first-in, first-out method.
Commodity Contracts
Due to wide fluctuations in the market prices for various agricultural
commodities, Nabisco frequently enters into futures contracts to hedge the price
risk associated with anticipated purchases. Nabisco realizes changes in the
market value of futures contracts that qualify as hedges as an addition to, or
reduction from, the raw material inventory cost. Realized gains and losses are
recorded in cost of products sold when the related finished products are sold.
The amount of hedging losses deferred as of December 31, 1999 and 1998 was $7
million and $5 million, respectively. Any futures contracts that do not qualify
for hedge accounting treatment are marked-to-market each reporting period with
the resulting market change reflected in cost of products sold in the current
period.
Depreciation
For financial reporting purposes, depreciation expense is generally
provided on a straight-line basis, using estimated useful lives of up to 20
years for land improvements, 20 to 40 years for buildings and leasehold
improvements and 3 to 30 years for machinery and equipment.
F-9
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1--Summary of Significant Accounting Policies (Continued)
Trademarks and Goodwill
Values assigned to trademarks and goodwill are amortized on a
straight-line basis principally over a 40-year period.
Long-lived Assets
Long-lived assets are comprised of intangible assets and property,
plant and equipment. Long-lived assets, including certain identifiable
intangibles and goodwill related to those assets to be held and used, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. An estimate of
undiscounted future cash flows produced by the asset, or the appropriate
grouping of assets, is compared to the carrying value to determine whether an
impairment exists. If an asset is determined to be impaired, the loss is
measured based on quoted market prices in active markets, if available. If
quoted market prices are not available, the estimate of fair value is based on
various valuation techniques, including a discounted value of estimated future
cash flows and fundamental analysis. Assets to be disposed of are reported at
the lower of their carrying value or estimated net realizable value.
Revenue Recognition
Revenue is recognized when title to finished product passes to the
customer. Revenue is recognized as the net amount to be received after deducting
estimated amounts for discounts and product returns.
Other Income (Expense), Net
Other income (expense), net includes interest income, certain foreign
currency gains and losses, expenses related to the sales of accounts receivable,
and fees related to banking and borrowing programs.
Advertising
Advertising costs are generally expensed as incurred. Advertising
expense was $250 million, $226 million and $223 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
Research and Development
Research and development expenses, which are expensed as incurred, were
$96 million, $100 million and $95 million for the years ended December 31, 1999,
1998 and 1997, respectively.
Interest Rate Financial Instruments
Interest rate swaps and caps are used to effectively hedge certain
interest rate exposures. In both types of hedges, the differential to be paid or
received is accrued and recognized in interest expense and may change as market
interest rates change. Any premium paid or received is amortized over the
duration of the hedged instrument. If an arrangement is terminated or
effectively terminated prior to maturity, then the realized or unrealized gain
or loss is effectively recognized over the remaining
F-10
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1--Summary of Significant Accounting Policies (Continued)
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 or effectively 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 or cap is recognized
immediately.
Foreign Currency Financial Instruments
The forward foreign exchange contracts and other hedging arrangements
entered into by Nabisco 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.
Recently Issued Accounting Pronouncements
During the second quarter of 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, which was
required to be adopted by January 1, 2000, with early adoption permitted. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS No. 133, which
amended SFAS No. 133 to delay its effective date one year. SFAS No. 133 requires
that all derivative instruments be recorded on the consolidated balance sheet at
their fair value. Changes in the fair value of derivatives will be recorded each
period in earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Nabisco Holdings and Nabisco have not yet determined the
impact, if any, that adoption or subsequent application of SFAS No. 133 will
have on its financial position or results of operations.
Net Income per Share
Per share data has been computed and presented pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, Earnings per
Share, which was adopted in the fourth quarter of 1997. Net income per common
share--basic is calculated by dividing net income by the weighted average number
of common shares outstanding during the period. Net income per common
share--diluted is calculated by dividing net income by the weighted average
number of common shares and common equivalent shares for stock options
outstanding during the period.
Income Taxes
During the second quarter of 1999, the former direct and indirect
parents of Nabisco Holdings, RJR Nabisco, Inc., which has been renamed R.J.
Reynolds Tobacco Holdings, Inc. ("RJR") and RJR Nabisco Holdings Corp., which
has been renamed Nabisco Group Holdings Corp. ("NGH"), completed a series of
reorganization transactions as described in Note 2 to the Consolidated Financial
Statements. As part of those transactions, NGH, Nabisco Holdings and RJR entered
into a tax sharing agreement that sets forth, among other things, each company's
rights and obligations relating to tax payments and refunds for periods before
and after those transactions, certain tax indemnification arrangements and other
tax matters such as the filing of tax returns and the handling of audits and
other tax proceedings.
F-11
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1--Summary of Significant Accounting Policies (Continued)
The Companies calculate their income taxes on a separate basis from
NGH; however, the following modifications were made to the Companies' income
taxes because federal income taxes are calculated and paid on a consolidated
basis by NGH. To the extent foreign tax credits of the Companies cannot be used
currently on a consolidated basis, no current credit is given to the Companies
under the tax sharing agreement with NGH, and other credits, losses or benefits
of the Companies not used separately are recognized by the Companies if they
could be used in filing a consolidated tax return. Deferred federal income taxes
are recorded on the Companies' books, and current federal income taxes payable
are remitted to NGH. Generally, any adjustments to federal and state income tax
liabilities for years after 1989 will be paid by NGH and charged or credited to
Nabisco Holdings, as applicable. Any adjustments to federal and state income tax
liabilities for 1989 or earlier are the obligation of RJR. NGH will generally
pay to Nabisco Holdings any tax refund received by NGH and attributable to the
Companies for years after 1989. Foreign income taxes generally are computed on a
separate company basis.
Note 2--Reorganization of Nabisco Holdings' Parents
During the second quarter of 1999, a series of reorganization
transactions was completed, as a result of which Nabisco Holdings, Nabisco and
their subsidiaries are no longer affiliated with RJR and its subsidiaries. The
principal transactions in this reorganization that affected Nabisco Holdings and
Nabisco are the following:
- On May 18, 1999, RJR transferred all of the outstanding Class
B Common Stock of Nabisco Holdings to NGH through a merger
transaction.
- On June 14, 1999, NGH distributed all of the outstanding
shares of RJR common stock to NGH common stockholders of
record as of May 27, 1999.
NGH owns 100% of the outstanding Class B Common Stock of Nabisco
Holdings, which represents approximately 80.6% of the economic interest and
97.6% of the combined voting power of all of the outstanding Common Stock as of
March 15, 2000.
Note 3--Operations
Acquisitions
In recent years, subsidiaries of Nabisco Holdings have completed a
number of acquisitions to expand the domestic and international food businesses,
all of which have been accounted for using the purchase method of accounting for
business combinations. In September 1999, a subsidiary of Nabisco acquired the
stock of Canale S.A., Argentina's fourth largest biscuit company for
approximately $134 million resulting in goodwill of $45 million. In November
1999, Nabisco also acquired certain assets and liabilities of Favorite Brands
International, Inc., the fourth largest non-chocolate candy company in the
United States for approximately $480 million. As of December 31, 1999, a
preliminary purchase price allocation was completed, resulting in goodwill of
approximately $68 million, subject to finalization of integration plans which
could result in an adjustment to goodwill in 2000. In 1998, a subsidiary of
Nabisco acquired the assets of the Jamaican biscuit and snacking company,
Butterkist, Ltd. for $9 million. The fair value of the assets acquired
approximated the purchase price. In December, 1997, Nabisco acquired the stock
of Cornnuts, Inc., a manufacturer of crispy corn kernel
F-12
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Operations (Continued)
snacks, for approximately $51 million. As of December 31, 1997, the acquisition
was carried in other assets in the consolidated balance sheet pending completion
of the purchase price allocation. During 1998 the purchase price was allocated
resulting in goodwill of $30 million, including $4 million for a plant closure.
The Consolidated Statements of Income and Comprehensive Income do not
include any revenues or expenses related to the acquisitions described above
prior to their respective closing dates. The acquisitions were financed through
commercial paper borrowings. The following are the Companies' unaudited pro
forma results of operations for 1999 and 1998, assuming that the 1999
acquisition of certain assets and liabilities of Favorite Brands International,
Inc. had occurred on January 1, 1998.
(Unaudited)
Years Ended December 31,
------------------------------------------
1999 1998
------------------- -------------------
In Millions, Except Per Share Amounts Nabisco Nabisco
- ------------------------------------- Holdings Nabisco Holdings Nabisco
-------- ------- -------- -------
Net sales.................................................... $8,890 $8,890 $9,146 $9,146
Income (loss) before extraordinary item...................... $ 317 $ 317 $ (110) $ (110)
Income (loss) per common share before extraordinary item:
Basic..................................................... $ 1.20 $ (.42)
Diluted................................................... $ 1.19 $ (.42)
These pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results
of operations which actually would have resulted had the acquisition occurred
on the date indicated, or which may result in the future.
Divestitures and Other Charges
The 1998 cost of products sold includes a $35 million net gain ($19
million after tax) related to businesses sold and a $21 million charge ($17
million after tax) to exit non-strategic businesses. Both items were recorded in
the third quarter. Businesses sold in 1998 include the College Inn brand of
canned broths, Plush Pippin frozen pies, the U.S. and Canadian tablespreads and
U.S. egg substitute businesses (formerly included in the U.S. Foods Group
operating segment) and the Del Monte brand canned vegetable business in
Venezuela (formerly included in the International Food Group operating segment)
for net proceeds of approximately $550 million.
In June 1997, Nabisco sold certain domestic regional brands for $50
million that resulted in a $32 million gain ($19 million after tax). In
addition, non-recurring expenses of $31 million ($18 million after tax) were
recognized. These included a $14 million additional provision to write-down
property, plant and equipment ($10 million), intangibles ($2 million) and
inventory ($2 million) of the Plush Pippin frozen pie business sold in 1998 at
its approximate carrying value of $5 million; $10 million of severance and
related benefits for approximately 80 sales persons in the U.S. Foods Group
sales organization; and $7 million of exit costs resulting from the relocation
of Nabisco International's headquarters from New York City to New Jersey
consisting of $6 million for lease abandonment costs and $1 million for employee
severance benefits. The net $1 million pre-tax gain from these items is included
in selling, advertising, administrative and general expenses in the Consolidated
Statements of
F-13
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Operations (Continued)
Income. 1997 net sales from the Plush Pippin frozen pie business were $40
million and operating income was not material.
Net sales for 1998 and 1997 from all divestitures in both years by
Nabisco were $298 million and $632 million, respectively. Operating income for
1998 and 1997 from the divested businesses was $33 million and $87 million,
respectively.
1998 Restructuring Charges
In the second and fourth quarters of 1998, Nabisco recorded
restructuring charges of $406 million ($268 million after tax) and $124 million
($94 million after tax), respectively. These restructuring programs were
undertaken to streamline operations and improve profitability and will result in
a workforce reduction of approximately 6,900 employees of which 6,100 positions
were eliminated as of December 31, 1999. The headcount reduction represents a
slight increase from the original projection of 6,500. The increase resulted
from higher than anticipated eliminations as projects were completed and is
primarily due to projects in International manufacturing locations and to a
lesser extent the Biscuit sales force reorganization. The increase in the number
of positions eliminated did not result in incremental spending as higher costs
for these projects were offset by lower costs and cash outlays overall, as
described below.
The June 1998 program was substantially completed in 1999 and the
December 1998 program is expected to be substantially completed by mid-year
2000. The restructuring programs when completed will require net cash
expenditures of approximately $140 million. In addition, the programs required
additional restructuring-related expenses of $132 million ($79 million after
tax), of which $76 million ($46 million after tax) was incurred in the twelve
months ended December 31, 1999, and are now completed. These additional expenses
were principally for implementation and integration of the programs and included
costs for relocation of employees and equipment and training.
In 1999, Nabisco recorded a net restructuring credit of $67 million
($48 million after tax), related to the Biscuit, U.S. Foods Group and
International businesses of $30 million, $18 million and $19 million,
respectively. The credit primarily reflects higher than anticipated proceeds
from the sale of facilities closed as part of the 1998 restructuring programs,
lower costs and cash outlays than originally estimated for certain of these
programs and minor project cancellations offset to a minor extent by increased
costs in certain programs.
The major components of the credit were lower severance and benefit
costs for: the sales force reorganization of $21 million; staff reduction at
headquarters and operating units of $24 million; and distribution
reorganizations of $5 million. The reduced costs reflected unanticipated staff
reductions through voluntary separations rather than planned terminations and
other net changes in cost estimates. In addition, asset impairment costs were
lower by $14 million reflecting higher proceeds and anticipated proceeds from
the sales of facilities.
F-14
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Operations (Continued)
The key elements of the restructuring programs include:
Severance Contract Asset Other Exit
In Millions and Benefits Terminations Impairments Costs Total
- ----------- ------------ ------------ ----------- ---------- -----
Sales force reorganizations.................... $ 37 $ 3 $ -- $ -- $ 40
Distribution reorganizations................... 16 8 9 33
Staff reductions............................... 83 3 86
Manufacturing costs reduction initiatives...... 22 8 30
Plant closures................................. 46 3 217 15 281
Product line rationalizations.................. 4 4 20 32 60
----- ---- ----- ---- -----
Total 1998 restructuring reserves........ 208 18 257 47 530
1999 net restructuring credit.................. (50) 1 (14) (4) (67)
----- ---- ----- ---- -----
158 19 243 43 463
----- ---- ----- ---- -----
Charges and Payments:
Year ended December 31, 1998................... (34) (3) (12) (12) (61)
Year ended December 31, 1999................... (98) (11) (221) (23) (353)
----- ---- ----- ---- -----
Total charges and payments, net of cash
proceeds............................ (132) (14) (233) (35) (414)
----- ---- ----- ---- -----
Reserve and valuation account balances as of
December 31, 1999........................... $ 26 $ 5 $ 10 $ 8 $ 49
===== ==== ===== ==== =====
- Sales force reorganizations consist of $35 million for the Nabisco
Biscuit Company to reorganize its direct store delivery sales force to
improve its effectiveness and $5 million for the International Food
Group, principally Latin America.
- Distribution reorganizations consist of plans to exit a number of
domestic and international distribution and warehouse facilities,
principally $19 million for the Nabisco Biscuit Company and $14
million for the International Food Group.
- Staff reductions consist of headquarters and operating unit
realignments, functional consolidations and eliminations of positions
throughout the Company. Amounts are: $37 million for the U.S. Foods
Group; $26 million for Nabisco International headquarters, Canada and
other foreign units; $15 million for corporate headquarters; and $8
million for the Nabisco Biscuit Company.
- Manufacturing cost reduction initiatives consist of a number of
domestic and international programs to increase productivity,
principally $19 million for the Nabisco Biscuit Company and $7 million
for Canada.
- Plant closure accruals are for the closure and future sale of 18
production facilities in order to improve manufacturing efficiencies
and reduce costs. Amounts are: Nabisco Biscuit Company $217 million;
U.S. Foods Group $12 million; and International Food Group $52
million. Other exit costs consist of carrying costs to be incurred
prior to sale.
F-15
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Operations (Continued)
- Product line rationalizations consist of exit costs to discontinue a
number of domestic and international product lines. Other exit costs
are principally write-offs for disposals of various discontinued
products. Amounts are: U.S. Foods Group $34 million; Nabisco Biscuit
Company $14 million; and International Food Group $12 million.
The key elements of the restructuring programs, after the restructuring
credit of $67 million include:
Severance Contract Asset Other Exit
In Millions and Benefits Terminations Impairments Costs Total
- ----------- ------------ ------------ ----------- ---------- -----
Sales force reorganizations.................... $ 16 $ 3 $ -- $-- $ 19
Distribution reorganizations................... 11 4 7 22
Staff reductions............................... 59 1 4 64
Manufacturing costs reduction initiatives...... 19 8 27
Plant closures................................. 51 6 203 15 275
Product line rationalizations.................. 2 5 21 28 56
---- --- ---- --- ----
Total restructuring charges.............. $158 $19 $243 $43 $463
==== === ==== === ====
Total charges and payments include cash expenditures, non-cash charges
primarily for asset impairments and committed severance and benefits to be paid.
The total cash payments, net of cash proceeds applied against the restructuring
reserves totaled $103 million, which is comprised of cumulative cash
expenditures of $124 million and cumulative cash proceeds of $21 million. For
the year ended December 31, 1999, cash payments, net of cash proceeds totaled
$65 million, which is comprised of $86 million of cash expenditures and $21
million of cash proceeds which were applied against the restructuring reserves.
Asset impairments in connection with the restructuring program were
identified and measured in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In
instances where the held and used method was applied, which includes all plant
closures, the fair value of impaired assets was determined using the discounted
cash flows generated from assets while still in use and the estimated proceeds
from their ultimate sale.
As of December 31, 1999, production had ceased in 16 of the 18 facilities
identified under the programs. Nabisco decided not to close the remaining two
small facilities in the International Food Group due to volatile economic
conditions and a highly inflationary economy which made the economic benefit
unachievable.
Note 4--Accounts Receivable
Nabisco maintains an arrangement to sell for cash substantially all of its
eligible domestic trade accounts receivable to a financial institution pursuant
to a purchase and sale agreement. Eligible trade accounts receivable, which are
sold without recourse, are accounts that are not in excess of certain
agreed-upon concentration amounts, and exclude amounts that may be delinquent,
in default, or disputed. Eligible accounts are sold on a daily basis and are
settled monthly. The maximum amount of outstanding eligible trade accounts
receivable sold at any time is $400 million. Nabisco provides
F-16
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4--Accounts Receivable (Continued)
ongoing credit and collection services on the sold accounts. The current
agreement will expire in October 2001. The weighted-average discount rates were
5.6%, 5.8% and 5.8% for the three years ended December 31, 1999, 1998 and 1997,
respectively. These rates were based upon the financial institution's commercial
paper borrowing rate plus participation fees of approximately 0.3% which are
adjusted annually. In addition, similar arrangements have been established for
the sale of trade accounts receivable by certain foreign subsidiaries. Eligible
trade accounts receivable balances sold were $260 million and $381 million as
December 31, 1999 and 1998, respectively. The aggregate expenses related to the
sales of trade accounts receivable included in Other income (expense), net were
$17 million in 1999, $19 million in 1998 and $20 million in 1997.
Note 5--Inventories
The major classes of inventory are shown in the table below:
December 31, December 31,
In Millions 1999 1998
- ----------- ------------ ------------
Finished products........................... $551 $457
Raw materials............................... 199 164
Other....................................... 148 132
---- ----
Total................................. $898 $753
==== ====
Note 6--Property, Plant and Equipment
Components of property, plant and equipment were as follows:
December 31, December 31,
In Millions 1999 1998
- ----------- ------------ ------------
Land and land improvements.................. $ 196 $ 192
Buildings and leasehold improvements........ 962 937
Machinery and equipment..................... 3,596 3,385
Construction-in-process..................... 299 292
------- -------
5,053 4,806
Less accumulated depreciation............... (1,966) (1,859)
------- -------
Net property, plant and equipment..... $ 3,087 $ 2,947
======= =======
Note 7--Notes Payable
Notes payable consist of notes payable to banks by foreign subsidiaries and
$5 million of commercial paper borrowings by certain foreign subsidiaries as of
December 31, 1999 and $9 million of commercial paper borrowings by certain
foreign subsidiaries as of December 31, 1998. The weighted average interest rate
on all notes payable and commercial paper borrowings was 8.2% and 8.0% at
December 31, 1999 and 1998, respectively. The weighted average interest rates
include borrowing rates in countries with high inflation, primarily in Latin
America and South Africa.
F-17
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8--Accrued Liabilities
Accrued liabilities consisted of the following:
December 31, December 31,
In Millions 1999 1998
- ----------- ------------ ------------
Payroll and employee benefits.................. $ 349 $ 274
Marketing and advertising...................... 272 237
Restructuring.................................. 35 202
Insurance...................................... 53 50
Taxes, other than income taxes................. 53 47
Interest....................................... 69 70
All other...................................... 139 117
------ ------
Nabisco............................. 970 997
Dividends payable on Common Stock.............. 50 46
------ ------
Nabisco Holdings.................... $1,020 $1,043
====== ======
Note 9--Income Taxes
The provision (benefit) for income taxes before extraordinary item
consisted of the following:
Years Ended December 31,
----------------------------------------------------------------------
In Millions 1999 1998 1997
- ----------- -------------------- ------------------ ------------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Current:
Federal....................... $109 $109 $158 $158 $211 $211
Foreign and other............. 65 65 70 70 71 71
---- ---- ---- ---- ---- ----
174 174 228 228 282 282
---- ---- ---- ---- ---- ----
Deferred:
Federal....................... 39 39 (172) (172) 2 2
Foreign and other............. 9 9 (16) (16) 9 9
---- ---- ---- ---- ---- ----
48 48 (188) (188) 11 11
---- ---- ---- ---- ---- ----
Provision for income taxes...... $222 $222 $ 40 $ 40 $293 $293
==== ==== ==== ==== ==== ====
F-18
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9--Income Taxes (Continued)
The components of the deferred income tax (assets) and liabilities were as
follows:
December 31,
In Millions 1999 1998
- ----------- ---- ----
Current deferred income tax assets:
Accrued liabilities and other........................... $ (121) $ (103)
Valuation allowance..................................... 5 5
------ ------
Net current deferred income tax assets............. (116) (98)
------ ------
Non-current deferred income tax assets:
Pension liabilities..................................... (14) (24)
Other postretirement liabilities........................ (149) (149)
Other non-current liabilities........................... (82) (134)
------ ------
Total non-current deferred income tax
assets before valuation allowance.................. (245) (307)
Valuation allowance, primarily foreign
net operating losses................................ 85 82
------ ------
Net non-current deferred income tax assets........... (160) (225)
------ ------
Non-current deferred income tax liabilities:
Property, plant and equipment........................... 277 322
Trademarks.............................................. 1,004 1,027
Other................................................... 55 38
------ ------
Total non-current deferred income tax liabilities.... 1,336 1,387
------ ------
Net non-current deferred income tax liabilities...... $1,176 $1,162
====== ======
Pre-tax income (loss) before extraordinary item for domestic and foreign
operations is shown in the following table:
Years Ended December 31,
---------------------------------------------------------------
In Millions 1999 1998 1997
- ----------- ------------------- ------------------ ------------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Domestic (includes U.S. exports)............. $371 $371 $(77) $(77) $553 $553
Foreign...................................... 211 211 46 46 171 171
---- ---- ---- ---- ---- ----
Pre-tax income (loss)........................ $582 $582 $(31) $(31) $724 $724
==== ==== ==== ==== ==== ====
F-19
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9--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:
Years Ended December 31,
---------------------------------------------------------------
In Millions 1999 1998 1997
- ----------- ------------------- ------------------ ------------------
Nabisco Nabisco Nabisco
Holdings Nabisco Holdings Nabisco Holdings Nabisco
-------- ------- -------- ------- -------- -------
Reconciliation from statutory rate to effective rate:
Income taxes computed at statutory U.S.
federal income tax rates.......................... $204 $204 $(11) $(11) $254 $254
State taxes, net of federal benefit.................. 15 15 17 17 21 21
Goodwill amortization................................ 30 30 30 30 30 30
Taxes on foreign operations at rates other than
statutory U.S. federal rate....................... (24) (24) 12 12 (10) (10)
Other items, net..................................... (3) (3) (8) (8) (2) (2)
---- ---- ------ ------ ---- ----
Provision for income taxes........................... $222 $222 $ 40 $ 40 $293 $293
==== ==== ====== ====== ==== ====
Effective tax rate................................... 38.2% 38.2% (128.4)% (128.4)% 40.5% 40.5%
==== ==== ====== ====== ==== ====
The reported effective tax rate was 38.2% in 1999 versus the (128.4)% rate
for 1998. The 38.2% effective tax rate benefited from the 28.3% effective tax
rate recorded on restructuring credits. Excluding the tax related impact from
restructuring credits in 1999 and restructuring charges and the net gain from
divestitures in 1998, the effective tax rates are 39.5% and 40.5% for 1999 and
1998, respectively. The reported effective tax rate for 1997 was 40.5%.
At December 31, 1999, there was $802 million 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 have been provided nor is a determination of the
amount of unrecognized U.S. federal deferred income taxes practicable.
F-20
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10--Long-term Debt
Long-term debt consisted of the following:
December 31, December 31,
In Millions 1999 1998
- ----------- ------------ ------------
Commercial paper, average interest rates of 6.4% and 5.7%.......... $ 902 $ 174
8.3% notes due April 15, 1999...................................... -- 106
8.0% notes due January 15, 2000.................................... 148 148
6.24% pound sterling notes due August 12, 2001..................... -- 163
6.8% notes due September 1, 2001................................... 80 80
6.7% notes due June 15, 2002....................................... 400 400
6.85% notes due June 15, 2005...................................... 400 400
7.05% notes due July 15, 2007...................................... 400 400
5.38% notes due August 26, 2009.................................... -- 200
6.0% notes due February 15, 2011................................... 400 400
7.55% debentures due June 15, 2015................................. 399 399
6.13% notes due February 1, 2033................................... 299 299
6.38% notes due February 1, 2035................................... 299 299
Other long-term debt............................................... 323 269
Less current maturities............................................ (158) (118)
------ ------
Total........................................................... $3,892 $3,619
====== ======
The payment of long-term debt through December 31, 2004 is due as
follows (in millions): 2001-$139; 2002-$1,399; 2003-$52 and 2004-$97.
Nabisco Holdings and Nabisco maintain a $1.5 billion revolving credit
facility and a 364-day $1.10 billion credit facility primarily to support
commercial paper issuances. At the end of the 364-day period, any borrowings
outstanding under the 364-day credit facility are convertible into a three-year
term loan at Nabisco's option. The commitments under the revolving credit
facility decline to approximately $1.46 billion on October 31, 2001 for the
final year. Borrowings under the revolving credit facility bear interest at
rates which vary with the prime rate or LIBOR. Borrowings under the 364-day
credit facility bear interest at rates which vary with LIBOR. At December 31,
1999, the full $1.5 billion was available under the revolving credit facility
and $198 million was available under the 364-day credit facility. Similar
facilities were in place during 1998 and 1997.
Commercial paper borrowings have been included under long-term debt
based on Nabisco's intention, and ability under its credit facilities, to
refinance these borrowings for more than one year.
The credit facilities restrict dividends and distributions after
January 1, 1999 by Nabisco Holdings to holders of its equity securities by
requiring a minimum net worth amount. As of December 31, 1999, actual net worth,
as defined, exceeded required net worth by approximately $915 million.
The credit facilities also limit the ability of Nabisco Holdings and
its subsidiaries to incur indebtedness, engage in transactions with stockholders
and affiliates, create liens, acquire, sell or dispose of certain assets and
securities and engage in certain mergers or consolidations. Nabisco and
F-21
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10--Long-term Debt (Continued)
Nabisco Holdings believe that they are currently in compliance with all
covenants and restrictions imposed by the terms of their indebtedness.
In August 1997, Nabisco issued $200 million of floating rate (5.38% at
December 31, 1998) notes due August 2009. During the third quarter of 1999
Nabisco exercised a call option to redeem these notes and recognized an after
tax extraordinary loss of approximately $3 million. This redemption was
refinanced with commercial paper.
In December 1997, Nabisco completed a tender offer and redeemed $432
million of its $538 million 8.3% notes due 1999 and $541 million of its $688
million outstanding 8% notes due 2000. An extraordinary loss of $43 million ($26
million after tax) was recorded for this transaction. The redemption of these
notes was financed with additional short-term borrowings, which in turn were
refinanced by the issuance of long-term debt in January 1998.
In January 1998, Nabisco issued $400 million of 6% notes due February
15, 2011 which are putable and callable on February 15, 2001; $300 million of
6 1/8% notes due February 1, 2033 which are putable and callable on February 1,
2003; and $300 million of 6 3/8% notes due February 1, 2035 which are putable
and callable on February 1, 2005. Unless the notes are put, the interest rates
on the 6% notes, the 6 1/8% notes and the 6 3/8% notes are reset on the
applicable put/call date at 5.75%, 6.07% and 6.07%, respectively, plus, in each
case, Nabisco's future credit spread on treasury notes of comparable maturities.
Nabisco no longer retains the right to call these notes as these options were
sold at issuance for $41 million. The net proceeds from these notes and the sale
of call options were used to repay commercial paper borrowings.
Nabisco filed a shelf registration statement with the Securities and
Exchange Commission for $1.0 billion of debt which was declared effective on
December 10, 1999.
The estimated fair value of long-term debt, including current
maturities at December 31, 1999 and 1998 was approximately $4.0 billion for both
years. 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
long-term debt as of December 31, 1999 and 1998 is not necessarily indicative of
the amounts that Nabisco could realize in a current market exchange.
Note 11--Contingencies
Nabisco Holdings or certain of its subsidiaries have been named
"potentially responsible parties" with third parties under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") or may have
indemnification obligations with respect to 14 sites. Liability under CERCLA is
joint and several. Although it is difficult to identify precisely the estimated
cost of resolving these CERCLA matters, such expenditures or costs are not
expected to have a material adverse effect on Nabisco Holdings' or Nabisco's
financial condition or results of operations.
In addition, a subsidiary of Nabisco may have indemnification
obligations to a third party with respect to certain lawsuits arising from a
CERCLA site although the subsidiary itself is not named in the lawsuits.
Management cannot currently predict the likelihood that it will have to perform
on these obligations or what the magnitude of the obligations would be.
F-22
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12--Related Party Transactions
NGH, RJR and R.J. Reynolds Tobacco Company entered into several
agreements governing the relationships among the parties after the distribution
of RJR's shares to NGH stockholders, including the provision of intercompany
services by Nabisco to NGH, certain tax matters, indemnification rights and
obligations and other matters among the parties.
These agreements replaced a predecessor intercompany services
agreement, a predecessor tax sharing agreement and a predecessor corporate
agreement that had previously been in place between Nabisco Holdings and RJR.
Nabisco Holdings and Nabisco do not anticipate that Nabisco Holdings' entry into
these new agreements will have a material effect on either entity's financial
condition or results of operations.
Note 13--Commitments
At December 31, 1999, other commitments totaled approximately $239
million, which included $28 million for capital commitments and $211 million
related to operating lease commitments. The operating lease amounts for each of
the five succeeding years are: 2000--$37 million; 2001--$29 million; 2002--$25
million; 2003--$20 million; 2004--$20 million; and in 2005 and thereafter--$80
million. Rent expense, including operating leases was $102 million, $89 million
and $84 million for the three years ended December 31, 1999, 1998 and 1997,
respectively.
Note 14--Financial Instruments
Interest Rate
Nabisco manages its debt structure and interest rate risk through the
use of fixed and floating rate debt, and through the use of derivatives. Nabisco
uses interest rate swaps and caps to hedge its exposure to interest rate
changes, and also to lower its financing costs.
At December 31, 1999, outstanding interest rate caps had an aggregate
notional principal amount of $700 million and expire in June 2000. The estimated
fair values of these financial instruments as of December 31, 1999, and similar
financial instruments as of December 31, 1998, were favorable by less than $1
million.
At December 31, 1999, outstanding fixed to floating interest rate swaps
for $102 million notional principal amount had estimated fair values which were
unfavorable by approximately $4 million. These swaps expire as follows: $29
million in 2003; and $73 million in 2004. At December 31, 1998, similar
financial instruments for $565 million had estimated fair values which were
favorable by approximately $11 million.
Estimated fair values for all interest rate financial instruments were
based on calculations by independent third parties.
F-23
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14--Financial Instruments (Continued)
Foreign Currency
At December 31, 1999 and 1998, Nabisco had outstanding forward foreign
exchange contracts with banks to purchase and sell an aggregate amount of $5
million and $21 million, respectively. Such contracts were primarily entered
into to hedge certain international subsidiary debt. The purpose of Nabisco's
foreign currency hedging activities is to protect Nabisco from risk that the
eventual U.S. dollar cash flows resulting from transactions with international
parties will be adversely affected by changes in exchange rates. Based on
calculations from independent third parties, the estimated fair value of these
financial instruments as of December 31, 1999 was favorable by less than $1
million and as of December 31, 1998 was unfavorable by approximately $1 million.
Market and Credit Risk
The outstanding interest rate and foreign currency financial
instruments involve, to varying degrees, elements of market risk as a result of
potential changes in 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 interest rates and foreign currency exchange rates on
the financial instruments entered into would offset the related impact on the
items being hedged. Also, Nabisco may be exposed to credit losses in the event
of non-performance by the counterparties to these financial instruments.
However, management 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-24
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15--Retirement Benefits
Nabisco and its subsidiaries sponsor a number of non-contributory and
contributory defined benefit pension plans covering most U.S. and certain
foreign employees and former employees of Nabisco, Nabisco Holdings and NGH.
Additionally, Nabisco and its subsidiaries participate in several (i)
multi-employer plans, which provide benefits to certain union employees, and
(ii) defined contribution plans, which provide benefits to certain employees in
foreign countries. Nabisco also provides certain other postretirement health and
life insurance benefits for retired employees of Nabisco, Nabisco Holdings and
NGH and their dependents.
In connection with the reorganization transactions described in Note 2
to the Consolidated Financial Statements, the assets and liabilities of the
Retirement Plan for Employees of RJR Nabisco, Inc. (the "old plan") were split
into two plans. One plan covers employees and former employees of Nabisco,
Nabisco Holdings and NGH (the "Nabisco Plan") and the other plan covers
employees and former employees of RJR.
The split of assets and liabilities of the old plan was in accordance
with a May 1999 agreement between the Pension Benefit Guaranty Corporation
("PBGC") and RJR Nabisco Holdings Corp. (now known as NGH). Based on this
agreement and as required by Section 414(l) of the Internal Revenue Code, the
assets of the old plan were allocated in proportion to the benefit obligations
of each of the respective plans. The use of this methodology resulted in a lower
actual net transfer of assets to the Nabisco Plan of $69 million and assumption
of higher actual benefit obligations of $30 million than the allocated amounts
used in the December 31, 1998 consolidated financial statements. These amounts
have been reflected as transfers between other members of a controlled group in
the following disclosures. The impact of this change, an increase in the
unfunded pension liability of $99 million, will be recognized in net periodic
benefit costs over future periods. As a result, the 1999 net periodic benefit
cost for Nabisco increased by approximately $7 million. The PBGC agreement did
not require Nabisco to make additional contributions to the Nabisco Plan.
Effective in 1999, all assets and benefit obligations for Nabisco,
Nabisco Holdings and NGH were consolidated in the following disclosures.
However, the net periodic benefit cost for former employees of NGH continues to
be accrued in the financial statements of NGH.
In addition to the change in unfunded pension liability in the Nabisco
Plan described above, $28 million of unfunded benefit obligations were reflected
as a transfer from other members of a controlled group due to benefit
obligations attributable to former employees of NGH. All of the liabilities
attributable to these obligations are accrued in the financial statements of
NGH.
The portion of the unfunded surplus (benefit) obligation for pension
benefits attributable to Nabisco was $98 million and $(117) million as of
December 31, 1999 and 1998, respectively.
F-25
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15--Retirement Benefits (Continued)
Pension Benefits Other Benefits
---------------- --------------
December 31, December 31,
---------------- --------------
In Millions 1999 1998 1999 1998
- ----------- ---- ---- ---- ----
Change in benefit obligation
Benefit obligation at January 1...................................... $1,693 $1,718 $ 460 $ 531
Service cost......................................................... 50 46 6 6
Interest cost........................................................ 112 114 32 33
Plan amendments...................................................... -- (6) -- --
Actuarial (gain) loss................................................ (206) (6) (31) (68)
Foreign currency translation......................................... 15 (15) 2 (2)
Benefits paid........................................................ (158) (158) (44) (40)
Transfer from other members of controlled group...................... 58 -- 4 --
------ ------ ----- -----
Obligations at December 31........................................... 1,564 1,693 429 460
------ ------ ----- -----
Change in plan assets
Fair value of plan assets at January 1............................... 1,576 1,568 -- --
Actual return on plan assets......................................... 247 141 -- --
Employer contributions............................................... 36 40 44 40
Plan participants' contributions..................................... 1 1 -- --
Foreign currency translation......................................... 17 (16) -- --
Benefits paid........................................................ (158) (153) (44) (40)
Settlements.......................................................... -- (5) -- --
Transfer to other members of controlled group........................ (69) -- -- --
------ ------ ----- -----
Fair value of plan assets at December 31............................. 1,650 1,576 -- --
------ ------ ----- -----
Funded status
Funded status at December 31......................................... 86 (117) (429) (460)
Unrecognized transition asset........................................ (1) (2) (2) (3)
Unrecognized prior service cost...................................... 4 5 -- --
Unrecognized (gain) loss............................................. (189) 35 8 37
------ ------ ----- -----
Net amount recognized................................................ $ (100) $ (79) $(423) $(426)
====== ====== ===== =====
Amounts recognized in the Consolidated Balance Sheets
Prepaid benefit cost................................................. $ 22 $ 19 $ -- $ --
Accrued benefit liability............................................ (135) (112) (423) (426)
Intangible asset..................................................... 2 2 -- --
Accumulated other comprehensive income............................... 11 12 -- --
------ ------ ----- -----
Net amount recognized................................................ $ (100) $ (79) $(423) $(426)
====== ====== ===== =====
Of the net amount recognized at December 31, 1999, $(16) million for
pension benefits and $(6) million for other benefits was recorded by NGH.
F-26
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15--Retirement Benefits (Continued)
Plan assets consist primarily of a diversified portfolio of
fixed-income investments, debt and equity securities and cash equivalents. The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets were as follows:
December 31,
------------
In Millions 1999 1998
- ----------- ---- ----
Projected benefit obligation............................... $67 $95
Accumulated benefit obligation............................. $67 $92
Fair value of plan assets.................................. $ 3 $40
The components of net periodic benefit cost are as follows:
Pension Benefits Other Benefits
-------------------------- --------------------
Years Ended Years Ended
December 31, December 31,
-------------------------- --------------------
In Millions 1999 1998 1997 1999 1998 1997
- ----------- ---- ---- ---- ---- ---- ----
Service cost............................................. $ 50 $ 46 $ 39 $ 6 $ 6 $ 7
Employee contributions................................... (1) -- -- -- -- --
Interest cost............................................ 112 114 116 32 33 36
Expected return on plan assets........................... (133) (135) (129) -- -- --
Amortization of transition (asset) obligation............ (1) (1) (1) (3) (2) (3)
Amortization of prior service cost....................... 3 3 3 -- -- --
Amortization of net (gain) loss.......................... 1 (2) (2) 1 -- --
Settlement (gain) loss................................... -- 2 -- -- -- --
---- ---- ---- --- --- ---
Net periodic benefit cost................................ 31 27 26 $ 36 $ 37 $ 40
==== ==== ====
Multi-employer and defined contribution plans............ 32 32 33
---- ---- ----
Total pension benefit cost............................... $ 63 $ 59 $ 59
===== ===== =====
Of the 1999 net periodic benefit cost, approximately $1 million for
pension benefits and less than $1 million for other benefits was recorded
by NGH.
The principal plans used the following weighted average actuarial
assumptions for accounting purposes:
Pension Benefits Other Benefits
---------------- ---------------
December 31, December 31,
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Discount rate............................................ 7.9% 6.9% 8.0% 6.8%
Expected return on plan assets........................... 9.3% 9.3%
Rate of compensation increase............................ 4.6% 4.7%
The assumed health care cost trend rate was 5.5% in 1999 and 5% in 2000
and thereafter. Assumed health care cost trend rates have a significant effect
on the amounts reported for the health
F-27
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15--Retirement Benefits (Continued)
care plan. A one-percentage-point change in the assumed health care cost trend
rates would have had the following impact on 1999 amounts:
1-Percentage- 1-Percentage-
Point Point
In Millions Increase Decrease
- ----------- ------------- -------------
Increase (decrease) in postretirement benefit cost........... $ 3 $ (2)
Increase (decrease) in postretirement benefit obligation..... $31 $(27)
Note 16--Stockholders' Equity
Nabisco Holdings
The authorized capital stock of Nabisco Holdings consists of (a)
1 billion shares of Common Stock, par value $.01 per share, of which (i)
265,000,000 shares have been designated as Class A Common Stock, of which
51,819,653 shares are issued, (ii) 213,250,000 shares have been designated as
Class B Common Stock, all of which are issued and outstanding, (iii) the
remaining 521,750,000 shares may be designated by the board of directors as
either Class A or Class B Common Stock prior to issuance, and (b) 75,000,000
shares of Preferred Stock, par value $.01 per share, of which no shares have
been issued.
The holders of Class A Common Stock and Class B Common Stock generally
have identical rights except that holders of Class A Common Stock are entitled
to one vote per share while holders of Class B Common Stock are entitled to ten
votes per share on all matters to be voted on by stockholders. Each share of
Class B Common Stock is convertible, at the option of the holder, into one share
of Class A Common Stock.
NGH beneficially owns 100% of the Class B Common Stock of Nabisco
Holdings which represents 80.6% of the economic interest and 97.6% of the
combined voting power of the Common Stock as of December 31, 1999. Any shares of
Class B Common Stock disposed of by NGH shall automatically convert to shares of
Class A Common Stock on a share-for-share basis upon such disposition, except
for (i) a disposition to one of its subsidiaries or (ii) a disposition effected
in connection with a transfer of Class B Common Stock to the stockholders of NGH
as a dividend intended to be on a tax-free basis in which case the conversion of
the Class B Common Stock to Class A Common Stock will be structured as necessary
to preserve the tax-free status of the transfer.
In December 1997, Nabisco Holdings' board of directors authorized the
repurchase from time to time of up to 2 million shares of Class A Common Stock.
As of December 31, 1999, Nabisco Holdings had reacquired 1,550,000 shares, of
which 1,143,054 shares were used to satisfy awards under the Nabisco Holdings
1994 Long Term Incentive Plan.
During 1996, 54,981 shares of Class A Common Stock were sold in
connection with purchase stock grants awarded under the Nabisco LTIP. The shares
were purchased at their fair market value for a total of approximately $2
million by two then current members of the board of directors. The borrowings
are presented as notes receivable in the Consolidated Statement of Stockholders'
Equity.
Nabisco Holdings' dividends are funded from matching dividends paid on
the same dates by Nabisco.
F-28
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16--Stockholders' Equity (Continued)
Stock Plans
The Nabisco Holdings Corp. 1994 Long Term Incentive Plan (the "Nabisco
LTIP") provides for grants of incentive stock options, 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 Nabisco LTIP may be granted to key employees of, or other
persons having a unique relationship to Nabisco Holdings and its subsidiaries,
all as determined by the compensation committee of the board of directors.
Members of the compensation committee are ineligible for grants. The maximum
number of shares which may be granted in respect of all awards during the term
of the Nabisco LTIP is 28.3 million shares of Class A Common Stock. The Nabisco
LTIP has limits as to the amount of shares which may be issued. The annually
granted stock options have a 15 year term for the 1995 grants and a 10 year term
for grants made thereafter. Stock option grants vest over three years, and are
exercisable three years after the grant date. The exercise price is the fair
market value of the stock at the grant date.
Directors of Nabisco Holdings who have never been employees of NGH or
any of its subsidiaries are eligible to be granted options under a separate plan
which provides for the issuance of a maximum of 300,000 shares of Class A Common
Stock. The option terms are substantially similar to the Nabisco LTIP. Stock
option grants during 1999, 1998 and 1997 were 4,700, 3,600 and 6,000 shares,
respectively.
As of December 31, 1999, 9,108,434 shares were available for future
grants under the Nabisco Holdings stock plans. The changes in stock options
under the stock plans were as follows:
1999 1998 1997
---------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options in thousands Options Price Options Price Options Price
- -------------------- ------- --------- ------- -------- ------- --------
Balance at beginning of year........... 15,514 $32.75 14,160 $30.15 11,728 $28.57
Granted................................ 3,604 42.61 2,831 45.51 2,759 37.22
Exercised.............................. (278) 28.89 (833) 27.50 -- --
Cancelled.............................. (528) 42.62 (644) 38.59 (327) 33.13
------ ------ ------
Balance at end of year................. 18,312 $34.46 15,514 $32.75 14,160 $30.15
====== ====== ======
Exercisable at end of year............. 10,222 $28.52 7,806 $26.67 --
====== ====== ======
Options Outstanding
---------------------------------------------------------
Options in thousands, life in years Number Weighted-Average
- ----------------------------------- Outstanding Remaining Weighted-Average
Range of Exercise Prices at 12/31/99 Contractual Life Exercise Price
- ------------------------ ----------- ----------------- ----------------
$24.50 - $27.88.................................. 4,476 10.1 $25.61
$28.00 - $32.94.................................. 3,237 10.0 28.26
$33.00 - $36.94.................................. 2,516 6.2 33.99
$37.00 - $43.31.................................. 5,700 8.3 40.44
$44.88 - $52.88.................................. 2,383 8.1 45.69
------
18,312 8.7 $34.46
======
F-29
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16--Stockholders' Equity (Continued)
Nabisco Holdings recognizes and measures costs related to employee
stock plans utilizing the intrinsic value based method. Had compensation expense
been determined based upon the fair value of awards granted during 1999, 1998
and 1997, Nabisco Holdings' results would have been as indicated in the table
below. Nabisco's net income (loss) would have been reduced by the same amounts
indicated.
Years Ended December 31,
--------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
Net income (loss) (in millions).................. $ 357 $ 337 $ (71) $ (89) $ 405 $ 387
Net income (loss) per share - basic.............. $1.35 $ 1.27 $(.27) $ (.34) $1.53 $ 1.46
Net income (loss) per share - diluted............ $1.34 $ 1.27 $(.27) $ (.34) $1.51 $ 1.44
Weighted-average fair value of options granted
during the year................................ $13.17 $14.27 $12.55
For options granted, fair value was determined using the Black-Scholes
option pricing model with the following weighted-average assumptions:
1999 1998 1997
---- ---- ----
Dividend yield........................................ 1.9% 1.7% 1.7%
Expected volatility................................... 26% 23% 23%
Risk-free interest rate............................... 5.1% 5.7% 6.6%
Expected option life (years).......................... 7 7 7
Note 17--Segment Information
Operating Segment Data
Nabisco Holdings is a holding company whose subsidiaries are engaged in
the manufacture, distribution and sale of cookies, crackers, and other food
products. Nabisco Holdings is organized and reports its results of operations in
three business segments: Nabisco Biscuit, the U.S. Foods Group and the
International Food Group which are segregated by both product and geographic
area.
The Company evaluates performance and allocates resources based on
ongoing operating company contribution ("OCC"). Ongoing OCC for each reportable
segment is operating income before amortization of intangibles and exclusive of
restructuring charges and credits, restructuring-related expenses, and net gains
on divested businesses. The accounting policies of the segments are the same as
those described in Note 1.
Nabisco Biscuit manufactures and markets cookies and crackers in the
United States. Its products are sold to major grocery and other large retail
chains through its own direct store delivery system. The U.S. Foods Group
represents other food operations in the United States and manufactures and
markets sauces and condiments, pet snacks, hot cereals, dry mix desserts,
gelatins, non-chocolate candy, gum, nuts and salty snacks. It sells to major
grocery chains, national drug and mass merchandisers, convenience channels and
warehouse clubs through a direct sales force. It also sells to small retail
grocery chains and regional mass merchandisers through independent brokers. The
International Food Group conducts Nabisco's international operations, outside
the United States, primarily in markets in
F-30
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17--Segment Information (Continued)
Latin America, Canada, certain markets in Europe, the Middle East, Africa and
Asia. The International Food Group primarily produces and markets biscuits,
powdered dessert and dry mixes, baking powder, pasta, juices, milk products and
other grocery items.
One of Nabisco's customers accounted for approximately 11% of
consolidated net sales in 1999 and no customer accounted for 10% or more of
consolidated net sales in 1998 and 1997. Sales to this customer are included in
the net sales amount for each of our business segments.
Years Ended December 31,
-------------------------------
In Millions 1999 1998 1997
- ----------- ------ ------ ------
Net sales from external customers:
Biscuit................................................ $3,640 $3,542 $3,545
U.S. Foods Group....................................... 2,246 2,047 1,988
International Food Group............................... 2,382 2,513 2,569
------ ------ ------
Total ongoing....................................... 8,268 8,102 8,102
------ ------ ------
U.S. Foods Group....................................... -- 287 616
International Food Group............................... -- 11 16
------ ------ ------
Total divested...................................... -- 298 632
------ ------ ------
Total............................................. $8,268 $8,400 $8,734
====== ====== ======
Segment operating company contribution:
Biscuit................................................ $ 557 $ 542 $ 691
U.S. Foods Group....................................... 338 301 281
International Food Group............................... 200 205 236
------ ------ ------
Total ongoing....................................... 1,095 1,048 1,208
------ ------ ------
U.S. Foods Group....................................... -- 38 97
International Food Group............................... -- 1 2
------ ------ ------
Total divested...................................... -- 39 99
------ ------ ------
Total segment operating company contribution.............. 1,095 1,087 1,307
Restructuring-related expenses............................ 76 56 31
Net gain on divested businesses........................... -- (14) (32)
Amortization of trademarks and goodwill................... 213 221 226
Restructuring charges (credits)........................... (67) 530 --
------ ------ ------
Consolidated operating income............................. 873 294 1,082
Interest and debt expense................................. 260 296 326
Other expense, net........................................ 31 29 32
------ ------ ------
Income (loss) before income taxes......................... $ 582 $ (31) $ 724
====== ====== ======
F-31
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17--Segment Information (Continued)
Years Ended December 31,
----------------------------
In Millions 1999 1998 1997
- ----------- ---- ---- ----
Depreciation:
Nabisco Biscuit.................................... $146 $146 $148
U.S. Food Group.................................... 42 46 49
International Food Group........................... 77 81 80
---- ---- ----
Total.............................................. $265 $273 $277
==== ==== ====
Years Ended December 31,
----------------------------
In Millions 1999 1998 1997
- ----------- ---- ---- ----
Capital expenditures:
Nabisco Biscuit..................................... $128 $188 $206
U.S. Food Group..................................... 42 49 64
International Food Group............................ 71 103 122
---- ---- ----
Total............................................... $241 $340 $392
==== ==== ====
December 31,
-------------------
In Millions 1999 1998
- ----------- ------- -------
Segment assets:
Nabisco Biscuit..................................... $ 2,170 $ 2,124
U.S. Foods Group.................................... 1,506 840
International Food Group............................ 2,644 2,579
------- -------
Total Segment Assets................................ 6,320 5,543
Unallocated intangibles, net (1).................... 5,387 5,574
------- -------
Consolidated assets................................. $11,707 $11,117
======= =======
Geographic Segment Information
Net Sales Net Property
Years Ended December 31, December 31,
--------------------------- -----------------
In Millions 1999 1998 1997 1999 1998
- ----------- ------ ------ ------ ------ ------
United States................................... $5,886 $5,876 $6,149 $2,188 $2,023
Latin America................................... 1,249 1,428 1,438 499 550
Other........................................... 1,133 1,096 1,147 400 374
------ ------ ------ ------ ------
$8,268 $8,400 $8,734 $3,087 $2,947
====== ====== ====== ====== ======
- -------------------
(1) Represents unallocated goodwill, trademarks and tradename resulting from
the 1989 acquisition of Nabisco Holdings' parent company.
F-32
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18--Quarterly Results of Operations (Unaudited)
The following is a summary of 1999 and 1998 quarterly results of
operations and per share data for Nabisco Holdings:
In Millions, Except Per Share Amounts First Second Third Fourth
- ------------------------------------- ----- ------ ----- ------
1999(1)
Net sales....................................... $1,855 $2,023 $2,057 $2,333
Gross profit.................................... 828 934 924 1,080
Operating income................................ 134 177 252 310
Income before extraordinary item................ 36 65 117 142
Net income...................................... 36 65 114 142
Per share data:
Net income - basic.............................. $ .14 $ .25 $ .43 $ .54
Net income - diluted............................ .13 .24 .43 .53
Dividends declared.............................. .1875 .1875 .1875 .1875
Market price
High......................................... 45 13/16 43 1/2 43 15/16 38 1/8
Low.......................................... 38 5/16 37 9/16 34 7/16 31 3/16
First Second Third Fourth
----- ------ ----- ------
1998(2)
Net sales....................................... $1,962 $2,131 $2,098 $2,209
Gross profit.................................... 837 944 932 1,004
Operating income (loss)......................... 182 (210) 184 138
Net income (loss)............................... 55 (200) 55 19
Per share data:
Net income (loss) - basic....................... $ .21 $ (.76) $ .21 $ .07
Net income (loss) - diluted..................... .21 (.76) .21 .07
Dividends declared.............................. .175 .175 .175 .175
Market price
High......................................... 50 3/8 54 1/4 39 3/16 42 3/8
Low.......................................... 38 34 7/8 31 3/4 33 3/4
- -------------------
(1) The first quarter of 1999 includes $15 million ($9 million after tax or
$.04 per share) of restructuring related expenses.
The second quarter of 1999 includes $19 million ($11 million after tax or
$.04 per share) of restructuring related expenses.
The third quarter of 1999 includes $12 million ($8 million after tax or
$.03 per share) of restructuring related expenses and a credit of $59
million ($44 million after tax or $.16 per share) applicable to the June
and December 1998 restructuring programs.
The fourth quarter of 1999 includes $30 million ($18 million after tax or
$.07 per share) of restructuring related expenses and a credit of $8
million ($4 million after tax or $.02 per share) applicable to the June and
December 1998 restructuring programs.
F-33
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18--Quarterly Results of Operations (Unaudited) (Continued)
(2) The second quarter of 1998 includes a $406 million ($268 million after tax
or $1.01 per share) restructuring charge and $6 million expense ($4 million
after tax or $.02 per share) of restructuring related expenses.
The third quarter of 1998 includes a net gain of $14 million ($2 million
after tax or $.01 per share) from divestitures and $15 million ($8 million
after tax or $.03 per share) of restructuring related expenses.
The fourth quarter of 1998 includes a $124 million ($94 million after tax
or $0.35 per share) restructuring charge and $35 million ($21 million after
tax or $.08 per share) of restructuring related expenses.
Note 19--Subsequent Event (Unaudited)
On December 14, 1999, Nabisco announced its participation in a joint
venture, Burlington Biscuits plc ("Burlington"), with Hicks, Muse, Tate & Furst
Limited ("HMTF"), an investment firm, to bid for 100% of United Biscuits
(Holdings) plc ("UB"). Subsequently, Burlington acquired 29.9% of UB. As
announced on March 20, 2000, Nabisco and HMTF have entered into definitive
agreements under which: (i) Nabisco and HMTF will join a consortium of
investors, Finalrealm Limited ("Finalrealm"), also bidding for UB; (ii) an
associate of Finalrealm will acquire Burlington's 29.9% interest in UB, giving
Finalrealm a 47.6% interest in UB; (iii) Finalrealm's cash offer of 265 pence
per UB share becomes a Final Offer under the City Code and is extended until
April 5, 2000; (iv) subject to Finalrealm being entitled to exercise compulsory
acquisition rights in respect of minority interests in UB and regulatory
competition clearance, Nabisco will contribute approximately $45 million in cash
and its operations in Spain, Portugal and the Middle East (in 1999, these
operations had net sales of approximately $290 million) to an associate of
Finalrealm; (v) Finalrealm has agreed to procure the sale to Nabisco of UB's
operations in China, Hong Kong and Taiwan conditional on the Final Offer
becoming or being declared wholly unconditional (in 1999, these operations had
net sales of approximately $66 million); and (vi) following completion of the
Final Offer and its related transactions, Nabisco would have an equity interest
of 24.6% in the joint venture.
Upon completion, the joint venture will be comprised of UB businesses
in the United Kingdom, France and the Benelux countries, Nabisco's operations
named above and HMTF's UK Horizon Biscuits business.
F-34