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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 12, 1999
Date of Report (Date of earliest event reported)
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
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Delaware 1-10215 13-349-0602
(State of other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
(Exact name of registrant as specified in charter)
Delaware 1-6388 56-0950247
(State or other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
1301 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices) (Zip code)
(212) 258-5600
Registrant's telephone number,
including area code
R.J. Reynolds Tobacco Holdings, Inc. last
reported on Form 8-K as RJR Nabisco, Inc.
(Former name or address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
INTRODUCTION
RJR Nabisco Holdings Corp. (which will shortly be renamed Nabisco Group
Holdings Corp. and which this document refers to as NGH) and several of its
subsidiaries have recently completed a series of dispositions and reorganization
transactions constituting a fundamental restructuring of their businesses and
capital structures. The principal transactions in this reorganization that
affect NGH are the following:
o On May 12, 1999, RJR Nabisco, Inc. and R. J. Reynolds Tobacco Company
(which this document refers to as Reynolds Tobacco) completed the
sale of the international tobacco business to Japan Tobacco Inc. for
$8 billion, including the assumption of approximately $200 million of
net debt, except to the extent that local regulatory approvals for
this sale are still pending. As a result of this sale, Reynolds
Tobacco's only cigarette market will be the United States and its
territories, commonwealths, protectorates and possessions. This
document refers to RJR Nabisco, Inc. (which has subsequently been
renamed R.J. Reynolds Tobacco Holdings, Inc.) as RJR.
o On May 12, 1999, the board of directors of NGH declared a dividend of
100% of the common stock of RJR to record holders of NGH common stock
as of May 27, 1999, the record date for the distribution. In the
distribution, those NGH stockholders will receive one share of RJR
common stock for every three shares of NGH common stock that they
hold. The distribution is intended to be tax-free for United States
federal income tax purposes. Currently, NGH expects the distribution
to occur on or about June 14, 1999. After the completion of the
distribution, NGH's sole asset (besides approximately $300 million in
cash remaining after the securities redemptions described below) will
be 100% of the outstanding Class B Common Stock of Nabisco Holdings
Corp. (which this document refers to as Nabisco). The Class B Common
Stock currently represents approximately 80.5% of the economic
interest and approximately 97.7% of the voting interest in Nabisco.
For more information about the distribution, stockholders should
refer to the Information Statement of RJR dated May 19, 1999, which
is filed as Exhibit 99.1 to this document.
o On May 18, 1999, RJR transferred its approximately 80.5% interest in
Nabisco, together with approximately $1.6 billion in net cash
proceeds from the international tobacco sale, to NGH through a merger
transaction. In the merger transaction, RJR was renamed "R.J.
Reynolds Tobacco Holdings, Inc.".
o On May 18, 1999, NGH completed a tender offer and consent
solicitation relating to Trust Originated Preferred Securities that
were issued by RJR Nabisco Holdings Capital Trust II, an affiliate of
NGH. In that transaction:
o the holders of those securities agreed to waive a covenant in the
related indenture, thereby enabling NGH to complete the
distribution of the RJR common stock to its stockholders without
violating the terms of that indenture; and
o NGH repurchased approximately $276 million of those securities
out of a total of $373.75 million.
o On May 18, 1999, NGH called for redemption an additional $950 million
in Trust Originated Preferred Securities issued by RJR Nabisco
Holdings Capital Trust I, another affiliate of NGH. NGH will
complete this mandatory redemption on June 18, 1999.
o On May 18, 1999, NGH called for redemption approximately $205 million
of its ESOP Convertible Preferred Stock. NGH will complete this
mandatory redemption on June 10, 1999.
THE DISTRIBUTION
Description of the Distribution
The distribution agreement among NGH, RJR and Reynolds Tobacco sets forth
the general terms and conditions relating to, and their relationship after, the
distribution. For an extensive description of the distribution agreement and
related contracts, see the section of this document found under the heading
"Relationship Between NGH and RJR-- Distribution Agreement".
NGH currently expects to effect the distribution on or about June 14, 1999
by distributing all of the issued and outstanding shares of RJR common stock to
the record holders of NGH common stock on the record date for the distribution,
which is May 27, 1999. NGH will distribute one share of RJR common stock to each
of those holders for every three shares of NGH common stock owned of record by
that holder.
Federal Income Tax Consequences
In the opinion of Davis Polk & Wardwell, RJR's transfer of the
approximately 80.5% interest in Nabisco to NGH and the distribution by NGH of
RJR common stock to NGH stockholders should each qualify as tax-free spin-offs
under Section 355 of the Internal Revenue Code of 1986, as amended.
Assuming that the transfer of the Nabisco interest to NGH and the
distribution by NGH of RJR common stock to NGH stockholders each qualify as
tax-free spin-offs for United States federal income tax purposes, it is the
opinion of Davis Polk & Wardwell that:
o A holder of NGH common stock will not recognize gain or loss as a
result of the distribution by NGH of RJR common stock, except as
described immediately below with respect to fractional shares. Cash,
if any, received by an NGH stockholder instead of a fractional share
of RJR common stock will be treated as received in exchange for that
fractional share. That stockholder will recognize gain or loss to the
extent of the difference between its tax basis in that fractional
share and the amount received for that fractional share, and,
provided that fractional share is held as a capital asset, the gain
or loss will be capital gain or loss.
o An NGH stockholder will apportion its tax basis in its NGH common
stock between the NGH common stock and the RJR common stock received
in the distribution in proportion to the relative fair market values
of the NGH common stock and the RJR common stock on the distribution
date.
o If an NGH stockholder holds its NGH common stock as a capital asset,
that stockholder's holding period for the RJR common stock received
in the distribution will include the period during which that
stockholder held the NGH common stock with respect to which the
distribution was made.
o RJR and NGH will not recognize any gain or loss as a result of either
the transfer of the Nabisco interest to NGH or the distribution by
NGH of RJR common stock, except to the extent of any excess loss
accounts or deferred intercompany gains.
An opinion of counsel does not bind the IRS or the courts. The IRS may
challenge positions taken based on an opinion of counsel, and could assert
claims, which could be material in amount, in connection with the transfer of
the Nabisco interest to NGH and/or the distribution by NGH of RJR common stock
to NGH stockholders. Davis Polk & Wardwell, however, is of the opinion that, if
the matter were litigated as a result of an assertion by the IRS that RJR's
transfer of the Nabisco interest to NGH and/or the distribution by NGH of RJR
common stock should be taxable, the taxpayer should prevail.
If the distribution by NGH of RJR common stock to NGH stockholders did not
qualify as tax-free, the fair market value of RJR's common stock received by a
holder of NGH common stock would be taxable as a dividend to the extent of NGH's
current-year and accumulated earnings and profits. If the distribution were
fully taxable as a dividend, that stockholder's tax basis in its NGH common
stock would not change as a result of the distribution, and its tax basis in RJR
common stock would equal the fair market value of the RJR common stock it
received on the distribution date. If the transfer of the Nabisco interest to
NGH did not qualify as a tax-free distribution, RJR would recognize a capital
gain equal to the difference between the fair market value of the Nabisco
interest and RJR's tax basis in that interest.
Each holder of NGH common stock that receives RJR common stock in the
distribution must attach a descriptive statement about the distribution to its
federal income tax return for the year in which the distribution occurs. NGH, or
RJR on its behalf, will provide the required information to each holder of NGH
common stock as of the record date for the distribution.
All NGH stockholders should consult their own tax advisors on the
particular federal, foreign, state and local tax consequences of the
distribution to them.
The tax sharing agreement describes the arrangements among NGH, RJR,
Nabisco and Reynolds Tobacco relating to tax sharing, tax indemnification and
other tax matters. For a description of these tax arrangements, see the section
of this document located under the heading "Relationship Between NGH and
RJR--Tax Sharing Agreement".
RELATIONSHIP BETWEEN NGH AND RJR
This section describes the primary agreements between NGH and RJR that will
define the ongoing relationship between them and their subsidiaries and
affiliates after the distribution and will provide for an orderly separation of
the two companies. The following description of the distribution agreement, the
tax sharing agreement, the intercompany services agreement and the corporate
agreement summarizes the material terms of those agreements. If there is a
discrepancy between this summary and those agreements, you should rely on the
information in those agreements. All stockholders should read those agreements,
forms of which NGH has filed as exhibits to RJR's Registration Statement on Form
8-A dated May 19, 1999.
Distribution Agreement
NGH has entered into a distribution agreement with RJR and Reynolds Tobacco
as of May 12, 1999. The distribution agreement provides for the principal
corporate transactions and procedures for separating the food and tobacco
businesses and the distribution. The distribution agreement also defines the
relationship between NGH, RJR and Reynolds Tobacco after the distribution with
respect to, among other things, indemnification arrangements, restrictions on
RJR's ability to engage in specified transactions, and employee benefit
arrangements.
Indemnification
In the distribution agreement, each of RJR and Reynolds Tobacco has agreed,
jointly and severally, to indemnify NGH, Nabisco, Nabisco's subsidiaries and
those entities' directors, officers and employees fully against the following
liabilities:
o All liabilities, other than for taxes (which are covered by the tax
sharing agreement described below), that arise out of any claim which
may at any time be made that:
o is, in whole or in part, based on the use, sale, distribution,
manufacture, development, advertising, marketing or health
effects of, exposure to, or research, statements or warnings
regarding, any tobacco products; or
o seeks to impose liability on RJR or NGH on the grounds that any
liability of Reynolds Tobacco or any of its subsidiaries that is
based on an action described immediately above is enforceable
against or recoverable from RJR or NGH;
o All liabilities, other than for taxes (which are covered by the tax
sharing agreement described below) and those tobacco-related
liabilities described above, that in any way relate to (1) RJR, its
subsidiaries or NGH, but only as to NGH with respect to matters and
conduct occurring or arising on or before the distribution or (2) the
tobacco business, or the ownership or use of property in connection
with that business;
o All liabilities for the fees, costs, expenses and transfer taxes to
be borne by RJR in connection with the transfer of its approximately
80.5% interest in Nabisco to NGH and the distribution;
o All liabilities arising from any breach by RJR or its subsidiaries of
any obligation under the distribution agreement or the other
agreements relating to the distribution, other than the tax sharing
agreement; and
o Various liabilities under the federal securities laws, including
those arising in connection with the information contained in filings
made under the federal securities laws by NGH or Nabisco, to the
extent that the information is (1) related primarily to the tobacco
business, if before the distribution date or (2) based upon
information furnished to NGH or Nabisco by RJR or its subsidiaries or
incorporated by reference by either of those parties from any SEC
filings made by RJR or its subsidiaries, if after the distribution
date.
In the distribution agreement, NGH has agreed to indemnify RJR, its
subsidiaries and those entities' directors, officers and employees fully against
the following liabilities:
o All liabilities, other than any for taxes (which are covered by the
tax sharing agreement described below), whenever arising, that in any
way relate to (1) any of Nabisco, Nabisco's subsidiaries or NGH, but
only as to NGH with respect to matters and conduct occurring or
arising at any time after the distribution or (2) the food business,
or the ownership or use of property in connection with that business;
o All liabilities arising from any breach by NGH, Nabisco or Nabisco's
subsidiaries of any obligation under the distribution agreement or
any of the other agreements relating to the distribution, other than
the tax sharing agreement; and
o Various liabilities under the federal securities laws, including
those arising in connection with the information contained in filings
made under the federal securities laws by RJR, to the extent that the
information is (1) related primarily to the food business, if before
the distribution date or (2) based upon information furnished to RJR
by NGH, Nabisco or any of its subsidiaries or incorporated by
reference by RJR or its subsidiaries from any SEC filings made by
NGH, Nabisco or any of Nabisco's subsidiaries, if after the
distribution date.
The distribution agreement also includes procedures for notice and payment
of indemnification claims. Any indemnification under the indemnities described
above is to be paid net of any tax benefit to the indemnified party.
Additionally, the distribution agreement provides that NGH will have the right
to assume and control the defense of itself, RJR (but not Reynolds Tobacco and
Reynolds Tobacco's subsidiaries) and any member of the Nabisco group of
companies against any tobacco-related litigation and claims. This assumption and
control will not affect the indemnity obligations of RJR and Reynolds Tobacco
that are described above. For information regarding indemnification against tax
liabilities, see the portion of this document found under the heading "--Tax
Sharing Agreement" below.
Because RJR and Reynolds Tobacco may be required to perform their indemnity
obligations to NGH and other indemnitees that are described above, the
distribution agreement imposes limitations on the ability of RJR and its
subsidiaries to engage in specific transactions. For a description of the
restrictions imposed on RJR and its subsidiaries by the distribution agreement,
stockholders should refer to the Information Statement of RJR dated May 19,
1999, which is filed as Exhibit 99.1 to this document.
Employee Benefit Matters
The distribution agreement provides, generally, that RJR will be
responsible for all employee benefits relating to current and former RJR
employees and that NGH will be responsible for all employee benefits relating to
current and former NGH employees. Under the distribution agreement, NGH stock
options will be equitably adjusted to take into account the distribution as
follows:
o The exercise price and number of shares subject to NGH options held
by current and former NGH employees will be adjusted to preserve the
value of the NGH options before the distribution.
o NGH options held by current and former employees of RJR and Reynolds
Tobacco will be equitably converted into two options, one relating to
RJR's common stock and one relating to NGH common stock, with
adjustments to preserve the value of the NGH options before the
distribution.
Intercompany Accounts
Upon completion of the distribution, there will be no intercompany accounts
or indebtedness between NGH and any of its subsidiaries, on the one hand, and
RJR and any of its subsidiaries, on the other, except that Nabisco and RJR will
settle any accounts between them that are outstanding on the distribution date
in the ordinary course of business.
Transaction Expenses
RJR is responsible for all material transaction expenses incurred in
connection with the distribution and the other transactions described in this
document, except that NGH will be responsible for all fees and expenses incurred
to redeem or refinance the Trust Originated Preferred Securities of NGH's
affiliates and the ESOP Convertible Preferred Stock of NGH. RJR is also
responsible for all liabilities arising out of the closing of the corporate
headquarters, severance and benefits payment obligations to corporate
headquarters employees and related transaction and ongoing administrative
expenses. Before the distribution, RJR will transfer funds to NGH in an amount
that is sufficient to satisfy these obligations in full.
Intercompany Services
Before the distribution, RJR will agree to terminate an intercompany
services agreement dated as of January 26, 1995 between RJR and Nabisco. After
the distribution, there will be no material services received or provided by NGH
and any of its subsidiaries at that time, on the one hand, and RJR and any of
its subsidiaries, on the other, except for cooperation in the ordinary course
between these groups on litigation matters.
On the distribution date, NGH and Nabisco will enter into an intercompany
services agreement under which Nabisco will agree to provide various services to
NGH, including those relating to the provision of insurance, the administration
of benefit plans and specified tax, accounting, reporting cash management,
public relations, risk management, legal and other corporate services. In return
for those services, NGH will pay to Nabisco an amount in cash equal to those
services' fair market value as determined by the parties. The intercompany
services agreement will terminate on the date that NGH owns less than 50% of the
shares of Nabisco's Class B Common Stock that NGH owns on the distribution date.
Upon completion of the distribution, NGH currently anticipates that it will
be responsible for three general categories of non-contingent obligations, (1)
those arising out of the ongoing operation of NGH as a holding company
(including the services to be provided by Nabisco to NGH under the intercompany
services agreement), (2) those arising out of the distribution and other
reorganization transactions, including expenses relating to severance benefits,
the closing of prior headquarters and other transaction costs, and (3) those
relating to Trust Originated Preferred Securities with an aggregate outstanding
liquidation preference of approximately $97.75 million on the distribution date
(assuming completion on that date of the redemption of $950 million in Trust
Originated Preferred Securities). NGH anticipates that, upon completion of the
distribution, it will have approximately $300 million in cash that it expects to
use to satisfy these obligations, including the ongoing administrative expenses
for a number of years.
Tax Sharing Agreement
NGH will enter into a tax sharing agreement with RJR, Nabisco and Reynolds
Tobacco that will describe, among other things, each company's rights and
obligations relating to tax payments and refunds for periods before and after
the distribution and related matters like the filing of tax returns and the
handling of audits and other tax proceedings. The tax sharing agreement also
describes the indemnification arrangements among RJR and its subsidiaries (which
this document refers to as the RJR tax group), Nabisco and its subsidiaries
(which this document refers to as the Nabisco tax group) and NGH. The tax
sharing agreement contains the representations and covenants that the RJR tax
group, the Nabisco tax group and NGH will make relating to RJR's transfer of the
Nabisco interest to NGH, the distribution of the RJR common stock to NGH
stockholders and those parties' conduct after those transactions.
Return Filing, Tax Payment and Conduct of Tax Proceedings
In general, NGH will be responsible for filing consolidated federal and
consolidated, combined or unitary state income tax returns that include the RJR
tax group and the Nabisco tax group for periods through the distribution date
and that include the Nabisco tax group for post-distribution tax periods, and
paying the associated taxes. RJR and Nabisco will reimburse NGH for the portion
of those taxes that relate to the tobacco business, in RJR's case, or the food
business, in Nabisco's case. The tax sharing agreement will generally seek to
allocate tax liabilities based upon the respective tax liabilities of the RJR
tax group, the Nabisco tax group and NGH, as if each group or company had filed
its own tax return. NGH will generally pay to RJR the net benefit received by
the NGH consolidated group from the carryback of various tax attributes of the
RJR tax group arising in post-distribution tax periods to pre-distribution tax
periods.
Under the tax sharing agreement, the RJR tax group and the Nabisco tax
group have irrevocably designated NGH as their agent for purposes of taking a
broad range of actions in connection with taxes for pre-distribution periods.
Those actions include the settlement of tax audits, other tax proceedings, and
disputes arising out of the interpretation of the tax sharing agreement. These
arrangements may result in conflicts of interest among NGH, Nabisco, RJR and
Reynolds Tobacco.
Tax Representations, Covenants and Indemnification Arrangements
Under the tax sharing agreement, each of NGH and Nabisco will covenant to
the RJR tax group, and each of RJR and Reynolds Tobacco will covenant to NGH and
the Nabisco tax group, that it will not engage in various transactions for two
years after the distribution, unless it obtains an IRS ruling or an opinion of
acceptable tax counsel that the contemplated transaction will not cause the
transfer of the Nabisco interest to NGH or the distribution of the RJR common
stock to NGH stockholders to be taxable. Transactions subject to these
restrictions include, subject to specified exceptions:
o the liquidation, merger or consolidation with another company of that
corporation or of various subsidiaries;
o the sale, exchange, distribution or other disposition of assets of
that corporation or of various subsidiaries outside of the ordinary
course of business;
o the discontinuation of the active conduct of the food business or the
tobacco business, as the case may be;
o the repurchase of stock of that corporation, other than through
transactions meeting a set of IRS guidelines; and
o any transaction or change in equity structure that may cause the
transfer of the Nabisco interest to NGH and/or the distribution of
RJR common stock to NGH stockholders to be treated as part of a plan
pursuant to which one or more persons acquire, directly or
indirectly, stock of NGH, Nabisco or RJR, as the case may be,
representing 50% or more of the vote or of the value of any of those
corporations.
Under the tax sharing agreement, the RJR tax group, the Nabisco tax group
and NGH have agreed to indemnify one another against various tax liabilities.
The chart immediately below summarizes these tax indemnification arrangements.
TAX SHARING AGREEMENT INDEMNITIES
The RJR tax group NGH will indemnify NGH will indemnify The Nabisco tax group The Nabisco tax group
will indemnify NGH the RJR tax group the Nabisco tax group will indemnify the will indemnify NGH
and the Nabisco tax against, among other against, among other RJR tax group against, against, among other
group against, among things, things, among other things, things,
other things,
o tax liabilities o tax liabilities o tax liabilities o tax liabilities o tax liabilities
attributable to the attributable to NGH attributable to NGH attributable to the attributable to the
RJR tax group relating to tax relating to tax Nabisco tax group Nabisco tax group
relating to any tax periods after periods after relating to tax relating to tax
period; December 1989; December 1989; periods after periods after
December 1989; December 1989; and
and
o tax liabilities o tax liabilities o tax liabilities o tax liabilities o tax liabilities
attributable to NGH relating to any tax relating to any tax relating to any tax relating to any tax
or the Nabisco tax period resulting period resulting period resulting period resulting
group relating to from a breach by from a breach by from a breach by from a breach by the
tax periods before NGH of any NGH of any the Nabisco tax Nabisco tax group
January 1990; and representation or representation or group of any of any
covenant made by covenant made in representation or representation or
NGH in the tax the tax sharing covenant made in covenant made in
sharing agreement; agreement; and the tax sharing the tax sharing
and agreement. agreement.
o tax liabilities o any tax liabilities o any tax liabilities
relating to any tax resulting from resulting from
period resulting RJR's transfer of RJR's transfer of
from a breach by the Nabisco interest the Nabisco interest
the RJR tax group to NGH or the to NGH or the
of any distribution, except, distribution, except,
representation or among other things, among other things,
covenant made by to the extent those to the extent those
the RJR tax group liabilities arise from liabilities arise from
in the tax sharing a breach by the RJR a breach by the RJR
agreement. tax group of any tax group or the
representation or Nabisco tax group
covenant made in of any
the tax sharing representation or
agreement. covenant made by
the relevant group
in the tax sharing
agreement.
The amount of taxes against which each of the RJR tax group, NGH and the
Nabisco tax group will be required to indemnify the other parties is uncertain,
and could be material.
Corporate Agreement
On the distribution date, NGH and Nabisco will enter into a corporate
agreement under which Nabisco will grant to NGH (1) a continuing option, that is
transferable to any of NGH's subsidiaries, to purchase, under specified
circumstances, additional shares of Class B Common Stock, or shares of nonvoting
capital stock, of Nabisco and (2) registration rights. These rights are
substantially similar to those that Nabisco had granted to RJR in a predecessor
corporate agreement dated as of January 26, 1995. On the distribution date,
Nabisco and RJR will agree to terminate that predecessor agreement.
DIVIDENDS
Before the distribution, NGH paid a regular quarterly cash dividend at an
annual rate of $2.05 per share of common stock. On May 12, 1999, NGH declared
its regularly scheduled quarterly cash dividend of $0.5125 per NGH common share.
This cash dividend will be payable on June 9, 1999 to holders of NGH common
shares as of May 27, 1999.
The board of directors of NGH will be responsible for determining NGH's
dividend policy after the distribution. NGH currently anticipates that, after
the distribution, it will pay a regular quarterly cash dividend that is
approximately equal to the amount of the regular Nabisco quarterly cash dividend
that NGH expects to receive after the distribution. However, the dividend
payable on each NGH common share will be less than the dividend payable on each
Nabisco common share because the number of outstanding NGH common shares exceeds
the number of Nabisco shares owned by NGH. Passing through Nabisco's current
annual dividend of $0.75 per share on NGH's 213,250,000 shares of Nabisco stock
would yield an annual dividend of approximately $0.49 per share on the
325,711,720 shares of NGH stock outstanding on May 12, 1999.
Forward-looking statements may not be accurate. This document contains
forward-looking statements about NGH that NGH believes are within the meaning of
the Private Securities Litigation Reform Act of 1995. Statements in this
document that are not historical facts are identified by this risk factor as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this document, the words "anticipates", "believes", "expects", "intends",
"projects", "forecasts", and similar expressions as they relate to NGH or its
management or board of directors are intended to identify the statements in
which they are used in this document as forward-looking statements. In making
any of those forward-looking statements, NGH believes that the expectations are
based on reasonable assumptions. However, any of those statements may be
influenced by factors that could cause actual outcomes and results to be
materially different from those projected. Those forward-looking statements are
subject to numerous risks and uncertainties that could cause actual results to
differ materially from that projected in any of those forward-looking
statements, some of which are beyond the control of NGH.
The actual results, performance or achievement by NGH could differ
materially from those expressed in, or implied by, those forward-looking
statements. Accordingly, no assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if any
of them do so, what impact they will have on the results of operations and
financial condition of NGH. NGH does not undertake any obligation to revise any
forward-looking statement to reflect events or circumstances after the date of
this document or to reflect the occurrence or nonoccurrence of anticipated or
unanticipated events.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information
RJR Nabisco Holdings Corp.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma consolidated condensed financial statements reflect
the effects of adjustments to the historical results of operations and financial
condition of NGH. You should read the unaudited pro forma consolidated condensed
financial statements in conjunction with the consolidated financial statements
of NGH included in its Form 10-K for the year ended December 31, 1998 and the
consolidated condensed financial statements of NGH included in its Form 10-Q for
the three months ended March 31, 1999, both incorporated by reference herein.
The unaudited pro forma consolidated condensed statements of income give
effect to the following transactions as if they had occurred on January 1, 1998:
- the international tobacco sale;
- the issuance by RJR of $1.25 billion in debt securities at an effective
annual interest rate of 7.829%;
- the application of a portion of the net proceeds from the international
tobacco sale to reduce debt and for general corporate purposes;
- the transfer of RJR's interest in Nabisco to NGH;
- the distribution of RJR common stock to NGH stockholders;
- the adjustment to selling, advertising, administrative and general
expenses to reflect the estimated level of administrative expense of NGH
after the completion of the transfer of RJR's interest in Nabisco to NGH
and the distribution;
- the elimination of miscellaneous expenses that will not be incurred after
the distribution; and
- the tax effects of the foregoing transactions or items.
The unaudited pro forma consolidated condensed balance sheet gives effect to
the pro forma transactions and events described in the first five bullet points,
as if they occurred on March 31, 1999.
Management believes that the assumptions used provide a reasonable basis on
which to present the unaudited pro forma consolidated condensed financial
statements. NGH is providing the unaudited pro forma consolidated condensed
financial statements for informational purposes only. They should not be
construed to be indicative of NGH's results of operations or financial position
had the transactions and events described above been consummated on the dates
assumed. These pro forma financial statements also do not project the results of
operations or financial position for any future period or date.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
INTERNATIONAL
TOBACCO
BUSINESS APPLICATION
NGH DISCONTINUED NEW OF ADJUSTMENT AS
HISTORICAL OPERATIONS(1) DEBT(1) PROCEEDS(1) OF EXPENSES(1) ADJUSTED
----------- ---------------- ----------- ----------------- ----------------- ----------
NET SALES.......................... $ 4,221 $ (673) $ -- $ -- $ -- $ 3,548
COSTS AND EXPENSES
Costs of products sold........... 2,109 (332) -- -- -- 1,777
Selling, advertising, admin. and
general expenses............... 1,550 (236) -- -- (12) 1,302
Tobacco settlement and related
expenses....................... -- -- -- -- -- --
Amortization of intangibles...... 154 (9) -- -- -- 145
Restructuring expense............ -- -- -- -- -- --
----------- ------- ----- ----- ----- ----------
Operating income (loss)............ 408 (96) -- -- 12 324
Interest and debt expense.......... (216) 13 (25) 118 -- (110)
Other income (expense), net........ (39) 22 -- -- 7 (10)
----------- ------- ----- ----- ----- ----------
Income (loss) before taxes......... 153 (61) (25) 118 19 204
Provision (benefit) for income
taxes(1)......................... 70 (25) (9) 44 7 87
----------- ------- ----- ----- ----- ----------
Income (loss) before minority
interest in Nabisco.............. 83 (36) (16) 74 12 117
Less minority interest in income
(loss) of Nabisco................ 7 -- -- -- -- 7
----------- ------- ----- ----- ----- ----------
Income (loss) from continuing
operations....................... $ 76 $ (36) $ (16) $ 74 $ 12 $ 110
----------- ------- ----- ----- ----- ----------
----------- ------- ----- ----- ----- ----------
Basic EPS.......................... $ 0.22
Diluted EPS........................ $ 0.22
RJR NGH
SPIN- OFF(1) PRO FORMA(2)
------------ ---------------
NET SALES.......................... $ (1,693) $ 1,855
COSTS AND EXPENSES
Costs of products sold........... (750) 1,027
Selling, advertising, admin. and
general expenses............... (658) 644
Tobacco settlement and related
expenses....................... -- --
Amortization of intangibles...... (92) 53
Restructuring expense............ -- --
------------ -------
Operating income (loss)............ (193) 131
Interest and debt expense.......... 43 (67)
Other income (expense), net........ -- (10)
------------ -------
Income (loss) before taxes......... (150) 54
Provision (benefit) for income
taxes(1)......................... (66) 21
------------ -------
Income (loss) before minority
interest in Nabisco.............. (84) 33
Less minority interest in income
(loss) of Nabisco................ -- 7
------------ -------
Income (loss) from continuing
operations....................... $ (84) $ 26
------------ -------
------------ -------
Basic EPS.......................... $ 0.08
Diluted EPS........................ $ 0.08
Weighted average number of
common and common
equivalent shares out-
standing (in thousands):
Basic EPS................ 324,053
Diluted EPS.............. 324,301
Weighted average number of
equivalent shares out-
standing (in thousands):
Basic EPS................ 325,002
Diluted EPS.............. 325,250
common and common
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET FORTH
HEREIN.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
INTERNATIONAL
TOBACCO
BUSINESS APPLICATION
NGH DISCONTINUED NEW OF ADJUSTMENT AS
HISTORICAL OPERATIONS(1) DEBT(1) PROCEEDS(1) OF EXPENSES(1) ADJUSTED
----------- ---------------- ----------- ----------------- ----------------- -----------
NET SALES........................... $ 17,037 $ (2,921) $ -- $ -- $ -- $ 14,116
COSTS AND EXPENSES
Costs of products sold............ 7,530 (1,494) -- -- -- 6,036
Selling, advertising, admin. and
general expenses................ 6,453 (1,003) -- -- (48) 5,402
Tobacco settlement and related
expenses........................ 1,442 -- -- -- -- 1,442
Amortization of intangibles....... 629 (42) -- -- -- 587
Restructuring expense............. 585 (55) -- -- -- 530
----------- ------- ----- ----- ----- -----------
Operating income (loss)............. 398 (327) -- -- 48 119
Interest and debt expense........... (880) 53 (98) 444 -- (481)
Other income (expense), net......... (132) 75 -- -- 28 (29)
----------- ------- ----- ----- ----- -----------
Income (loss) before taxes.......... (614) (199) (98) 444 76 (391)
Provision (benefit) for income
taxes(1).......................... (23) (139) (34) 161 27 (8)
----------- ------- ----- ----- ----- -----------
Income (loss) before minority
interest in Nabisco............... (591) (60) (64) 283 49 (383)
Less minority interest in income
(loss) of Nabisco................. (14) -- -- -- -- (14)
----------- ------- ----- ----- ----- -----------
Income (loss) from continuing
operations........................ $ (577) $ (60) $ (64) $ 283 $ 49 $ (369)
----------- ------- ----- ----- ----- -----------
----------- ------- ----- ----- ----- -----------
Basic EPS........................... $ (1.91)
Diluted EPS......................... $ (1.91)
Weighted average number of common
and common equivalent shares
outstanding (in thousands):
Basic EPS....................... 323,853
Diluted EPS..................... 323,853
RJR NGH
SPIN- OFF(1) PRO FORMA(2)
------------ --------------
NET SALES........................... $ (5,716) $ 8,400
COSTS AND EXPENSES
Costs of products sold............ (1,353) 4,683
Selling, advertising, admin. and
general expenses................ (2,719) 2,683
Tobacco settlement and related
expenses........................ (1,442) --
Amortization of intangibles....... (366) 221
Restructuring expense............. -- 530
------------ --------------
Operating income (loss)............. 164 283
Interest and debt expense........... 176 (305)
Other income (expense), net......... -- (29)
------------ --------------
Income (loss) before taxes.......... 340 (51)
Provision (benefit) for income
taxes(1).......................... 41 33
------------ --------------
Income (loss) before minority
interest in Nabisco............... 299 (84)
Less minority interest in income
(loss) of Nabisco................. -- (14)
------------ --------------
Income (loss) from continuing
operations........................ $ 299 $ (70)
------------ --------------
------------ --------------
Basic EPS........................... $ (0.29)
Diluted EPS......................... $ (0.29)
Weighted average number of common
and common equivalent shares
outstanding (in thousands):
Basic EPS....................... 324,700
Diluted EPS..................... 325,300
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME SET FORTH
HEREIN.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(1) The following is a summary of the adjustments reflected in the unaudited
pro forma consolidated condensed statements of income:
- Adjust historical results of operations to exclude the results of the
international tobacco business;
- Adjust historical interest and debt expense, as applicable, based on the
issuance by RJR of $1.25 billion in debt securities at an effective annual
interest rate of 7.829%;
- Adjust historical interest and debt expense, as applicable, based on the
application of a portion of the net proceeds from the international
tobacco sale to (i) repay $4.04 billion of outstanding RJR borrowings,
including 90% of the debt securities that RJR offered to purchase on April
13, 1999, (ii) repurchase approximately $276 million of Trust Originated
Preferred Securities (approximately 74% of that class of securities
outstanding) and (iii) redeem the $950 million of Trust Originated
Preferred Securities;
- Adjust historical selling, advertising, administrative and general
expenses to reflect the estimated level of administrative expense of NGH
after the completion of the transfer of RJR's interest in Nabisco to NGH
and the distribution of RJR common stock to NGH stockholders;
- Adjust historical other income (expense), net to eliminate miscellaneous
expenses that would not be incurred after the completion of the
distribution;
- Adjust historical results of operations to exclude the results of RJR; and
- Recognize income taxes on the pro forma adjustments at the U.S. statutory
rate of 35%.
(2) The unaudited pro forma consolidated condensed statements of income do not
give effect to:
- the one-time net gain recognized upon completion of the international
tobacco sale of approximately $3.1 billion for the three months ended
March 31, 1999 and for the year ended December 31, 1998, subject to any
post-closing adjustments;
- the one-time loss of $348 million, net of tax, that would be recognized
for the three months ended March 31, 1999 and for the year ended December
31, 1998 upon the repayment of a portion of the outstanding borrowings of
RJR on a pro forma basis, the repurchase of approximately $276 million of
Trust Originated Preferred Securities, the redemption of $950 million of
Trust Originated Preferred Securities and certain other transaction costs;
- the one-time costs and expenses of $226 million after-tax to eliminate
corporate headquarters;
- interest income on (i) the net proceeds from the issuance by RJR of $1.25
billion in debt securities and (ii) the funds invested (approximately $114
million) from the application of a portion of the net proceeds from the
international tobacco sale to cover the cash requirements of the Trust
Originated Preferred Securities not tendered.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN MILLIONS)
INTERNATIONAL
TOBACCO
BUSINESS INTERNATIONAL
NGH DISCONTINUED TOBACCO APPLICATION OF
HISTORICAL OPERATIONS(1) SALE(1) NEW DEBT(1) PROCEEDS(1) AS ADJUSTED
----------- --------------- ------------- ------------- --------------- -----------
ASSETS
Current assets:
Cash and cash equivalents(2).... $ 246 $ (143) $ 7,800 $ 1,250 $ (5,918) $ 3,235
Accounts and other receivables,
net............................. 1,160 (521) -- -- -- 639
Inventories..................... 2,353 (1,023) -- -- -- 1,330
Prepaid expenses and excise
tax............................. 728 (235) -- -- -- 493
----------- ------- ------------- ------------- ------- -----------
Total current assets........ 4,487 (1,922) 7,800 1,250 (5,918) 5,697
Property, plant and equipment,
net............................. 5,180 (1,220) -- -- -- 3,960
Investments in subsidiary......... 2,838 (2,838) -- -- --
Trademarks........................ 7,202 (717) -- -- -- 6,485
Goodwill.......................... 11,325 (434) -- -- -- 10,891
Other assets and deferred
charges......................... 438 (133) -- -- 88 393
----------- ------- ------------- ------------- ------- -----------
Total assets................ $ 28,632 $ (1,588) $ 4,962 $ 1,250 $ (5,830) $ 27,426
----------- ------- ------------- ------------- ------- -----------
----------- ------- ------------- ------------- ------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short term borrowings........... $ 279 $ (212) $ -- $ -- $ -- $ 67
Accounts payable and accrued
liabilities..................... 3,721 (746) -- -- -- 2,975
Current maturities of long-term
debt............................ 407 (19) -- -- (111) 277
Income taxes accrued............ 277 (2) 2,000 -- -- 2,275
----------- ------- ------------- ------------- ------- -----------
Total current liabilities... 4,684 (979) 2,000 -- (111) 5,594
Long-term debt (less current
maturities)..................... 8,630 (195) -- 1,250 (3,928) 5,757
Minority interest in Nabisco.... 727 -- -- -- -- 727
Other noncurrent liabilities.... 2,277 (388) -- -- -- 1,889
Deferred income taxes........... 3,149 (26) (300) -- (9) 2,814
----------- ------- ------------- ------------- ------- -----------
Total liabilities........... 19,467 (1,588) 1,700 1,250 (4,048) 16,781
Commitments and contingencies
NGH's obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely junior subordinated
debentures...................... 1,327 -- -- -- (1,229) 98
Stockholders' equity:
ESOP Preferred stock............ 201 -- -- -- (205) (4)
Common stock.................... 3 -- -- -- -- 3
Paid in capital................. 8,918 -- -- -- -- 8,918
Retained earnings (accumulated
deficit)........................ (577) -- 3,029 -- (348) 2,104
Accumulated other comprehensive
income.......................... (566) -- 233 -- -- (333)
Treasury stock, at cost......... (100) -- -- -- -- (100)
Other stockholders' equity...... (41) -- -- -- -- (41)
----------- ------- ------------- ------------- ------- -----------
Total stockholders'
equity...................... 7,838 -- 3,262 -- (553) 10,547
----------- ------- ------------- ------------- ------- -----------
Total liabilities and
stockholders' equity........ $ 28,632 $ (1,588) $ 4,962 $ 1,250 $ (5,830) $ 27,426
----------- ------- ------------- ------------- ------- -----------
----------- ------- ------------- ------------- ------- -----------
RJR
SPIN-OFF AND
OTHER NGH
ADJUSTMENTS(1) PRO FORMA
--------------- -----------
ASSETS
Current assets:
Cash and cash equivalents(2).... $ (3,092) $ 143
Accounts and other receivables,
net............................. (151) 488
Inventories..................... (527) 803
Prepaid expenses and excise
tax............................. (424) 69
--------------- -----------
Total current assets........ (4,194) 1,503
Property, plant and equipment,
net............................. (1,101) 2,859
Investments in subsidiary......... -- --
Trademarks........................ (3,150) 3,335
Goodwill.......................... (7,759) 3,132
Other assets and deferred
charges......................... (193) 200
--------------- -----------
Total assets................ $ (16,397) $ 11,029
--------------- -----------
--------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short term borrowings........... $ -- $ 67
Accounts payable and accrued
liabilities..................... (1,606) 1,369
Current maturities of long-term
debt............................ (12) 265
Income taxes accrued............ (2,267) 8
--------------- -----------
Total current liabilities... (3,885) 1,709
Long-term debt (less current
maturities)..................... (2,065) 3,692
Minority interest in Nabisco.... -- 727
Other noncurrent liabilities.... (1,183) 706
Deferred income taxes........... (1,544) 1,270
--------------- -----------
Total liabilities........... (8,677) 8,104
Commitments and contingencies
NGH's obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely junior subordinated
debentures...................... -- 98
Stockholders' equity:
ESOP Preferred stock............ 4 --
Common stock.................... -- 3
Paid in capital................. (7,539) 1,379
Retained earnings (accumulated
deficit)........................ (226) 1,878
Accumulated other comprehensive
income.......................... -- (333)
Treasury stock, at cost......... -- (100)
Other stockholders' equity...... 41 0
--------------- -----------
Total stockholders'
equity...................... (7,720) 2,827
--------------- -----------
Total liabilities and
stockholders' equity........ $ (16,397) $ 11,029
--------------- -----------
--------------- -----------
SEE NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET SET FORTH HEREIN.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(1) The following is a summary of the adjustments reflected in the unaudited
pro forma consolidated condensed balance sheet:
- Adjust the historical balance sheets accounts to eliminate the accounts of
the international tobacco business;
- Receipt of the proceeds from the international tobacco sale and
recognition of the cumulative translation account applicable to the
international tobacco business. The international tobacco sale results in
a one-time net gain of approximately $3.1 billion, subject to any
post-closing adjustments, after the recognition of a $233 million loss
pertaining to the cumulative translation account;
- Receipt of the net proceeds from the issuance by RJR of $1.25 billion in
debt securities;
- Application of a portion of the net proceeds from the international
tobacco sale to (1) repay $4.04 billion of outstanding RJR borrowings,
including 90% of the debt securities that RJR offered to purchase on April
13, 1999, (2) repurchase approximately $276 million of Trust Originated
Preferred Securities (approximately 74% of that class of securities
outstanding), (3) redeem $950 million of Trust Originated Preferred
Executives, (4) redeem the ESOP Convertible Preferred Stock and (5) invest
funds (approximately $114 million) to cover the nontendered Trust
Originated Preferred Securities. As a result of the difference between the
cash paid to effect the first four transactions and the net carrying value
of such securities, and after giving effect to the write-off of related
deferred issuance costs of $26 million and certain other transaction
costs, a one-time charge on a pro forma basis of approximately $348
million after-tax is reflected;
- Reflect one-time costs and expenses of $226 million after-tax to eliminate
corporate headquarters; and
- Adjust the historical balance sheet accounts to reflect the elimination of
the accounts of RJR that are being distributed by NGH to its stockholders.
(2) The line item "Cash and cash equivalents" does not reflect the additional
proceeds that RJR expects to receive from the international tobacco sale as a
result of the adjustment to the purchase price for any earnings generated by the
international tobacco business after December 31, 1998 through May 12, 1999, the
closing date of the international tobacco sale. Also not reflected in cash and
cash equivalents are the proceeds to be received by RJR from the international
tobacco business for the settlement of intercompany indebtedness in the ordinary
course of business. RJR expects that approximately $200 million of additional
proceeds will result from these transactions.
R.J. Reynolds Tobacco Holdings, Inc.
See pages 32-39 of the Information Statement of RJR dated as of May 19,
1999 that is Exhibit 99.1 to this document.
(c) Exhibits
Exhibit
No. Description
--- -----------
2.1 Purchase Agreement dated as of March 9, 1999 among R.J.
Reynolds Tobacco Company, RJR Nabisco, Inc. and Japan Tobacco
Inc. and amended as of May 11, 1999.
2.2 Certificate of Merger and Agreement and Plan of Merger dated as
of May 18, 1999 among RJR Nabisco Holdings Corp., RJR Nabisco,
Inc. and R.J. Reynolds Tobacco Holdings, Inc.
99.1 Information Statement of R.J. Reynolds Tobacco Holdings, Inc.
dated May 19, 1999 and incorporated by reference from Exhibit
99.1 to the Registration Statement of R.J. Reynolds Tobacco
Holdings, Inc. on Form 8-A dated May 19, 1999.
SIGNATURE
Pursuant to the requirements 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.
RJR NABISCO HOLDINGS CORP.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
By: /s/ H. Colin McBride
---------------------------------
Name: H. Colin McBride
Title: Senior Vice President,
Associate General Counsel and
Corporate Secretary
May 27, 1999