NABISCO INC, 10-K405, 1999-03-22

NABISCO INC
10-K405, 1999-03-22
FOOD AND KINDRED PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

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<S> <C> <C>
DELAWARE 1-13556 13-3077142
(State or other (Commission file (I.R.S. Employer
jurisdiction of number) Identification No.)
incorporation or
organization)
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NABISCO, INC.
(Exact name of registrant as specified in its charter)

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<S> <C> <C>
NEW JERSEY 1-1021 13-1841519
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
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7 CAMPUS DRIVE
PARSIPPANY, NEW JERSEY 07054
(973) 682-5000
(Address, including zip code, and telephone number, including area code,
of the principal executive offices of Nabisco Holdings Corp. and Nabisco, Inc.)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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NAME OF EACH
EXCHANGE ON
WHICH
TITLE OF EACH CLASS REGISTERED
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NABISCO HOLDINGS CORP.
Class A Common Stock, par value $.01 per share New York
NABISCO, INC.
8.3% Notes due April 15, 1999 New York
8.0% Notes due January 15, 2000 New York
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None

INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO __

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF NABISCO
HOLDINGS CORP. ON MARCH 15, 1999 WAS APPROXIMATELY $2.2 BILLION. ALL OF THE
STOCK OF NABISCO, INC. IS HELD BY NABISCO HOLDINGS CORP.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: MARCH 15, 1999:

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NABISCO HOLDINGS CORP.: 51,525,119 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01 PER
SHARE
213,250,000 SHARES OF CLASS B COMMON STOCK, PAR VALUE $.01 PER
SHARE
NABISCO, INC.: 100 SHARES OF COMMON STOCK, PAR VALUE $2.50 PER SHARE
</TABLE>

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NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
-------------------

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF NABISCO HOLDINGS CORP. TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF THE
SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1999 ARE INCORPORATED
BY REFERENCE INTO PART III OF THIS REPORT.

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INDEX

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PAGE
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PART I
Item 1. Business........................................................................................ 1
(a) General Development of Business......................................................... 1
(b) Financial Information about Industry Segments........................................... 2
(c) Narrative Description of Business....................................................... 2
Other Matters......................................................................... 6
(d) Financial Information about Foreign and Domestic Operations............................. 6
Item 2. Properties...................................................................................... 7
Item 3. Legal Proceedings............................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders............................................. 7
Executive Officers of the Registrants........................................................... 8

PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters........................... 10
Item 6. Selected Financial Data......................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................... 13
Item 7a. Quantitative and Qualitative Disclosures About Market Risk...................................... 23
Item 8. Financial Statements and Supplementary Data..................................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................................... 25

PART III
Item 10. Directors and Executive Officers of the Registrants............................................. 25
Item 11. Executive Compensation.......................................................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 25
Item 13. Certain Relationships and Related Transactions.................................................. 25

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 25
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PART I

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

The operating subsidiaries of Nabisco Holdings Corp. ("Nabisco Holdings")
comprise one of the largest food companies in the world. In the United States,
the packaged food business is conducted by Nabisco Holdings' subsidiary,
Nabisco, Inc. ("Nabisco"), the largest manufacturer and marketer of cookies and
crackers. Food operations outside the United States are conducted by Nabisco
International, Inc. ("Nabisco International") and Nabisco Ltd, subsidiaries of
Nabisco. For financial information with respect to operations in various
geographic locations, see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 15 to the Consolidated
Financial Statements, and the related notes thereto, of Nabisco Holdings and
Nabisco as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998 (the "Consolidated Financial
Statements").

Nabisco Holdings was incorporated in Delaware in 1981 under the name of
Nabisco Brands, Inc. in connection with the combination of Nabisco, Inc., which
was incorporated in 1898 as the National Biscuit Company, and Standard Brands
Incorporated, which was incorporated in 1929 in connection with the combination
of The Fleischmann Company, Chase & Sanborn, Inc., Royal Baking Powder Company
and E.W. Gillette Company, Limited.

In 1985, Nabisco Holdings was acquired by RJR Nabisco, Inc. ("RJRN") and, in
1989, RJRN was acquired by RJR Nabisco Holdings Corp. ("RJRN Holdings").

On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), at an initial offering price of $24.50 per share. RJRN
owns 100% of the outstanding Class B Common Stock, par value $.01 per share (the
"Class B Common Stock" and, together with the Class A Common Stock, the "Common
Stock"), which currently represents approximately 80.5% of the economic interest
in Nabisco Holdings and approximately 97.6% of the combined voting power of
Nabisco Holdings' outstanding Common Stock.

On March 9, 1999, RJRN Holdings announced that its subsidiaries, RJRN and
R.J. Reynolds Tobacco Company, had entered into a definitive agreement to sell
the international tobacco business and that the board of directors of RJRN
Holdings had approved a plan to separate the domestic tobacco business conducted
by R.J. Reynolds Tobacco Company from the food business conducted by Nabisco.
Under the plan, the separation of the businesses will be accomplished through a
tax-free spin-off to RJRN Holdings shareholders of shares in the domestic
tobacco business.

Upon completion of the spin-off, RJRN Holdings will continue to exist as a
holding company, owning 80.5% of Nabisco Holdings, and will be renamed Nabisco
Group Holdings. Nabisco Group Holdings and Nabisco Holdings will each continue
to trade as separate companies on the New York Stock Exchange. The separation is
subject to final approval and is expected to occur following completion of the
sale of RJRN Holdings' international tobacco business.

Nabisco Holdings' relationship with RJRN Holdings and RJRN is governed by
agreements entered into in connection with Nabisco Holdings' initial public
offering of Class A Common Stock, including a corporate services agreement, a
corporate agreement and a tax-sharing agreement. It is possible that the
spin-off will require the amendment or termination of these agreements, but it
is not anticipated that any amendments or terminations will have a material
effect on Nabisco Holdings' or Nabisco's financial position or results of
operations.

In recent years, subsidiaries of Nabisco Holdings completed a number of
acquisitions to expand its domestic and international food businesses. In 1998,
a subsidiary of Nabisco acquired the assets of the

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Jamaican biscuit and snacking company, Butterkist, Ltd. In December, 1997,
Nabisco acquired the stock of Cornnuts, Inc., a manufacturer of crispy corn
kernel snacks.

During 1996, subsidiaries of Nabisco acquired the stock of the Mayco and
Capri biscuit businesses and the Vizzolini pasta business in Argentina, the
stock of Pilar, a Brazilian biscuit business, and the stock of Fontaneda, a
Spanish biscuit business. In addition, Nabisco formed the Nabisco Taiwan
Corporation which purchased the biscuit, confectionery and snack food assets of
a Taiwanese manufacturer.

In recent years, subsidiaries of Nabisco Holdings sold a number of
businesses which no longer met strategic objectives. In 1998, Nabisco sold the
College Inn brand of canned broths, Plush Pippin frozen pies, the U.S. and
Canadian tablespreads and U.S. egg substitute businesses, and the Del Monte
brand canned vegetable business in Venezuela. In 1997, Nabisco sold certain
domestic regional brands.

Nabisco will continue to assess its businesses to evaluate their consistency
with strategic objectives. Although Nabisco may acquire and divest additional
businesses in the future, no decisions have been made with respect to any such
acquisitions or divestitures. Under the provisions of existing credit
agreements, however, there are restrictions on the sale or disposition of all,
substantially all or any substantial portion of certain domestic businesses of
Nabisco. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

For information about operating segments for the years 1996 through 1998,
see Note 15 to the Consolidated Financial Statements.

Nabisco's businesses in the United States are comprised of the Nabisco
Biscuit Company and the U.S. Foods Group. Nabisco's businesses outside the
United States are conducted by Nabisco Ltd and Nabisco International, Inc.
("Nabisco International" and together with Nabisco Ltd, the "International Food
Group").

Food products are sold under trademarks owned or licensed by Nabisco and
brand recognition is considered essential to their successful marketing. None of
Nabisco's customers accounted for more than 10% of sales for 1998.

NABISCO BISCUIT COMPANY

The Nabisco Biscuit Company is the largest manufacturer and marketer in the
United States cookie and cracker industry with eight of the top ten selling
brands. Overall, in 1998, Nabisco Biscuit had a 38.6% share of the domestic
cookie category and a 52.6% share of the domestic cracker category (in the
aggregate more than two times the share of its closest competitor) compared to
39.6% and 53.7%, respectively, in 1997. Leading Nabisco Biscuit cookie brands
include OREO, CHIPS AHOY!, SNACKWELL'S and NEWTONS. Leading Nabisco Biscuit
cracker brands include RITZ, PREMIUM, NABISCO HONEY MAID GRAHAMS and TRISCUIT.

OREO and CHIPS AHOY! are the two largest selling cookies in the United
States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling
cookie brand. Line extensions such as OREO DOUBLE STUFF, FUDGE COVERED OREO and
Reduced Fat OREO continue to increase the brand's appeal to targeted consumer
groups. CHIPS AHOY! is the leader in the chocolate chip cookie segment with line
extensions such as CHUNKY CHIPS AHOY! and CHEWY CHIPS AHOY!.

NEWTONS, the oldest Nabisco Biscuit cookie brand, is the fourth leading
cookie brand in the United States. In recent years, fat free and reduced calorie
varieties of Newtons, as well as NEWTONS COBBLERS, have been introduced.

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SNACKWELL'S cookies and crackers, on a combined basis, is the seventh
leading brand in the United States. The entire SNACKWELL'S cookie and cracker
line was relaunched in the middle of the year, with improvements in taste,
texture and appearance. In addition, two new products, MINT CREME and CARAMEL
DELIGHTS were introduced during the year.

Nabisco Biscuit's cracker business is led by RITZ, the largest selling
cracker in the United States, as well as RITZ BITS, RITZ BITS SANDWICHES and
REDUCED FAT RITZ, all successful product line extensions. The RITZ product line
accounted for 13.4% of cracker sales in the United States in 1998, compared to
12.8% in 1997. PREMIUM, the oldest Nabisco cracker brand and the leader in the
saltine cracker segment, is joined by NABISCO HONEY MAID GRAHAMS, TRISCUIT, AIR
CRISPS and WHEAT THINS to comprise, along with RITZ, six of the eight largest
selling cracker brands in the United States. AIR CRISPS, launched nationally in
1996, consists of a line of light crispy baked snacks in Ritz, Cheese Nips,
Wheat Thins, Pretzel and Potato varieties. During the year, Nabisco Biscuit
introduced SWEET CRISPERS which ranked number one in sales for new
cookie/cracker products.

Nabisco Biscuit's other cookie and cracker brands, which include NILLA,
NUTTER BUTTER, STELLA D'ORO, BETTER CHEDDARS, CHEESE NIPS AND BARNUM'S ANIMAL
CRACKERS, compete in consumer niche segments. Many are the first or second
largest selling brands in their respective segments.

Nabisco Biscuit's products in the breakfast snack aisle include SNACKWELL'S
cereal bars, granola bars and TOASTETTES toaster pastries. The line has expanded
over the years with new varieties, and in 1998 Nabisco Biscuit introduced
SNACKWELL'S STREUSEL SQUARES.

Nabisco Biscuit's products are manufactured in 13 Nabisco Biscuit owned
facilities and in 15 facilities with which Nabisco Biscuit has production
agreements with contract manufacturers. These facilities are located throughout
the United States. Nabisco Biscuit also operates a flour mill in Toledo, Ohio
which supplies over 85% of its flour needs.

Nabisco Biscuit's products are sold to major grocery and other large retail
chains through Nabisco Biscuit's direct store delivery system. The system is
supported by a distribution network utilizing 11 major distribution warehouses
and 110 shipping branches where shipments are consolidated for delivery to
approximately 65,000 separate delivery points.

U.S. FOODS GROUP

Nabisco manages its non-biscuit food operations in the U.S. through the U.S.
Foods Group which is comprised of the following operating units:

SALES & INTEGRATED LOGISTICS GROUP. The Sales & Integrated Logistics Group
handles sales and distribution for the LifeSavers and Planters Specialty
Companies and distribution for the Food Service Company. 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
products are distributed from twelve distribution centers located throughout the
United States.

PLANTERS SPECIALTY COMPANY. The Planters Specialty Company produces and
markets a broad range of food products. These products include nuts and salty
snacks largely for sale in the United States, primarily under the PLANTERS
trademark. Planters, the only nut brand sold nationally, is the clear leader in
the packaged nut category. In December 1997, the CORNNUTS line of crispy corn
kernel snacks was acquired and added to the Planters line. The Planters
Specialty Company also manufactures and markets sauces and condiments, pet
snacks, hot cereals, dry mix desserts, and gelatins representing the largest
categories. Many of the Planters Specialty Company products are first or second
in their product categories. Well-known brand names include A.1. steak sauces,
GREY POUPON mustards, MILK-BONE pet snacks, CREAM OF WHEAT hot cereals, ROYAL
desserts and KNOX gelatines.

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Planters Specialty Company's primary entries in the steak sauce and mustard
segments are A.1. and A.1. BOLD steak sauces, the leading line of steak sauces,
and GREY POUPON mustards, which include the leading Dijon mustard.

Planters Specialty Company is the second largest manufacturer of pet snacks
in the United States with MILK-BONE dog biscuits and dog snacks. MILK-BONE
products include MILK-BONE ORIGINAL BISCUITS, FLAVOR SNACKS, SUPER PREMIUM
BISCUITS, DOG TREATS and DOGGIE BAG TREATS.

The Planters Specialty Company, a leading manufacturer of hot cereals,
participates in the cook-on-stove and mix-in-bowl segments of the category.
CREAM OF WHEAT, the leading wheat-based hot cereal, and CREAM OF RICE
participate in the cook-on-stove segment. INSTANT CREAM OF WHEAT participates in
the mix-in-bowl segment and includes new varieties such as BANANA NUT BREAD and
CINNAMON RAISIN. Quaker Oats Company is the most significant participant in the
hot cereal category.

Planters Specialty Company manufactures products in 7 plants and sources
products from a number of contract manufacturers.

LIFESAVERS COMPANY. The LifeSavers Company manufactures and markets
non-chocolate candy and gum primarily for sale in the United States. LifeSavers'
well-known brands include LIFE SAVERS candy, BREATH SAVERS sugar free mints,
CARE*FREE sugarless gum, ICE BREAKERS gum, BUBBLE YUM bubble gum, GUMMI SAVERS
fruit chewy candy, NOW & LATER fruit chewy taffy and FRUIT STRIPE gum. LIFE
SAVERS is the largest selling non-chocolate candy brand in the United States,
with a 1998 share of 5.1%, compared to 5.2% in 1997, of the non-chocolate candy
category. BREATH SAVERS is the largest selling sugar free breath mint in the
United States and BUBBLE YUM is among the largest selling bubble gum brands in
the United States.

LifeSavers manufactures its products in 4 owned plants and utilizes 3
primary contract manufacturers.

FOOD SERVICE COMPANY. The Food Service Company utilizes a direct national
sales force to sell a variety of specially packaged food products of the Nabisco
Biscuit Company and U.S. Foods Group including cookies, crackers, confections,
hot cereals, sauces and condiments to the food service and vending machine
industry.

INTERNATIONAL FOOD GROUP

NABISCO LTD. Nabisco Ltd conducts Nabisco's Canadian operations through its
Snack and Grocery Divisions. Excluding private label brands, the Snack Division
produced all of the top ten cookies and nine of the top ten crackers in Canada
in 1998. Nabisco Ltd's cookie and cracker brands in Canada include OREO, CHIPS
AHOY!, SNACKWELL'S, FUDGEE-O, PEEK FREANS, DAD'S, DAVID, PREMIUM PLUS, RITZ, AIR
CRISPS, TRISCUIT and STONED WHEAT THINS. These products are manufactured in five
bakeries in Canada and are sold through a direct store delivery system,
utilizing 10 sales offices and distribution centers and a combination of company
trucks and common carriers.

The Snack Division also uses a separate selling and marketing organization
which offers a variety of specially packaged food products to non-grocery
outlets, wherever the consumer may have opportunity to consume food products
outside of the home. The products are sourced from both the Snack and Grocery
Divisions and include cookies, crackers, canned fruits, vegetables, pasta and
condiments.

Nabisco Ltd's Grocery Division produces and markets canned fruits and
vegetables, fruit juices and drinks, pet snacks, pasta and other Italian food
products. The Grocery Division is the leading canned fruit producer and second
largest canned vegetable producer in Canada. Canned fruits and vegetables, as
well as fruit juices and drinks, are marketed under the DEL MONTE trademark
pursuant to a license from the Del Monte Corporation, and under the AYLMER
trademark. Dry pasta and other Italian food products

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are marketed under the PRIMO trademark, which is the number two pasta brand in
Canada. The Grocery Division also markets MILK-BONE pet snacks and MAGIC baking
powder, each a leading brand in Canada. Nabisco Ltd's Grocery Division operated
seven manufacturing facilities in 1998. Five produced canned products,
principally fruits and vegetables, one produced pet snacks and one produced
pasta. The Grocery Division's products are sold directly to retail chains and
are distributed through five regional warehouses.

NABISCO INTERNATIONAL. Nabisco International is a leading producer of
biscuits, powdered dessert and drink mixes, baking powder, pasta, juices, milk
products and other grocery items, as well as industrial yeast and bakery
ingredients. Nabisco International also exports a variety of Nabisco Biscuit
Company and U.S. Foods Group products to markets in Europe, the Middle East,
Latin America, Africa and Asia from the United States. Nabisco International
operates one of the largest multinational packaged food businesses in Latin
America, with operations in 15 countries.

Nabisco International manufactures and markets biscuits and crackers under
the NABISCO, TERRABUSI, ARTIACH, MARBU and LUCKY brands, yeast and bakery
ingredients under the FLEISCHMANN'S brand, desserts, drink mixes and baking
powder under the ROYAL brand, processed milk products under the GLORIA brand and
juice under the MAGUARY brand.

Nabisco International's largest market is Brazil, where it operates 15
manufacturing facilities. In the biscuit category, Nabisco International is the
market leader in Spain, Argentina, Venezuela, Puerto Rico, Nicaragua, Uruguay,
Taiwan and Beijing, China. It holds strong number two positions in Peru,
Ecuador, other Central American markets, Shanghai and Guangzhou, China. Nabisco
International is the market leader in powdered desserts in Spain and most of
Latin America, in the yeast category in Brazil and certain other Latin American
countries and in baking powder throughout South America.

Nabisco International increased its Latin American biscuit operations
through the acquisitions of Companhia Produtos Pilar in Brazil, and Productos
Mayco S.A.I.C.I.F. and Productos Capri S.A.C.I.I. in Argentina during 1996, and
Galletera Tejerias, S.A. in Venezuela during 1995. Its pasta business was
strengthened in Argentina via the acquisition of Luis Vizzolini e Hijos,
S.A.I.C., and initiated in Brazil with the Pilar acquisition. In 1998, Nabisco
International acquired Butterkist Ltd., a biscuit producer in Jamaica.

Nabisco International's products in Spain include biscuits marketed under
the ARTIACH and MARBU trademarks, powdered dessert mixes marketed under the
ROYAL trademark, and various other foods, including canned meats and juices. In
1996, it consolidated its market leadership position in biscuits with the
acquisition of Galletas Fontaneda, S.A.

In Asia, Nabisco International operates its Chinese biscuit business through
joint ventures in Beijing and a wholly-owned subsidiary in Suzhou. In Indonesia,
a plant which is 70% owned by Nabisco and 30% owned by its partner and
distributor was started up in 1996. Biscuit leadership in Taiwan was gained in
1996 through the acquisition of the assets of Lucky Enterprises Corporation
Limited, the leading biscuit company in Taiwan.

Nabisco International's grocery and biscuit products are sold to retail
outlets through its own local country sales forces and independent wholesalers
and distributors. Industrial yeast and bakery products are sold to the bakery
trade through Nabisco International's own local country sales forces and
independent distributors.

RAW MATERIALS

Agricultural commodities constitute the principal raw materials used by
Nabisco in its food businesses. These raw materials are normally purchased
through supplier contracts, while the commodities market is utilized to hedge
prices for a large portion of anticipated future requirements. Prices of
agricultural commodities tend to fluctuate due to seasonal, climactic and
economic factors which generally also affect

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Nabisco's competitors. Nabisco Holdings and Nabisco believe that the raw
materials for Nabisco products are in plentiful supply and are readily available
from a variety of independent suppliers.

COMPETITION

Generally, the markets in which the Nabisco Biscuit Company, U.S. Foods
Group and the International Food Group conduct their business are highly
competitive. Competition consists of large domestic and international companies,
local and regional firms and generic and private label products of food
retailers. Competition is conducted on the basis of brand recognition, brand
loyalty, quality and price. Substantial advertising and promotional expenditures
are required to maintain or improve a brand's market position or to introduce a
new product.

The trademarks under which the Nabisco Biscuit Company, U.S. Foods Group and
the International Food Group market their products are generally registered in
the United States and other countries in which such products are sold and are
generally renewable indefinitely. Nabisco and certain of its subsidiaries have
from time to time granted various parties exclusive licenses to use one or more
of their trademarks in particular locations. Nabisco does not believe that such
licensing arrangements have a material effect on the conduct of its domestic or
international businesses.

OTHER MATTERS

ENVIRONMENTAL MATTERS

The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. Nabisco
and its subsidiaries have been engaged in a continuing program to assure
compliance with federal, state and local environmental laws and regulations. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, annual expenditures of approximately $20 million for
pollution control, waste treatment, plant modification and similar activities.

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 fifteen 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.

EMPLOYEES

At December 31, 1998, Nabisco had approximately 51,000 full time employees.
Most of the unionized workers at Nabisco's domestic locations are represented
under a national contract with the Bakery, Confectionery and Tobacco Workers
International Union, which was ratified in August 1996 and which will expire in
August 2001. Other unions represent the employees at a number of Nabisco
locations. Nabisco Holdings believes that Nabisco's relations with these
employees and with their unions are good.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

For information about foreign and domestic operations for the years 1996
through 1998, see Note 15 to the Consolidated Financial Statements.

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ITEM 2. PROPERTIES

For information on properties, see Item 1. For additional information
pertaining to the location of Nabisco's assets as of December 31, 1998 and 1997,
see Note 15 to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

In the fourth quarter of 1995, purported RJRN Holdings' stockholders filed,
on their own behalf and derivatively on behalf of RJRN Holdings and Nabisco
Holdings, three putative class and derivative actions in the Court of Chancery
of the State of Delaware in and for New Castle County against members of the
RJRN Holdings' Board and RJRN Holdings and Nabisco Holdings, as nominal
defendants. The actions were consolidated in December 1995. The plaintiffs
allege, among other things, that the individual defendants breached their
fiduciary duty and wasted corporate assets by undertaking the debt exchange
offer and consent solicitation completed by RJRN and Nabisco in June 1995 and by
amending RJRN Holdings' By-Law provisions concerning the right to call
stockholder meetings and procedures for stockholder action by written consent in
August 1995. The plaintiffs allege that management took these and other actions
to obstruct wrongfully a spin-off of Nabisco Holdings, to enrich the defendants
at the expense of RJRN Holdings, its stockholders and Nabisco Holdings and to
entrench the defendants in the management and control of RJRN Holdings. The
plaintiffs seek injunctive relief and, alternatively, compensatory damages for
Nabisco Holdings, RJRN Holdings and RJRN shareholders, as well as attorneys'
fees and expenses and other unspecified relief. They purportedly seek the
injunctive relief to facilitate a spin-off of Nabisco Holdings or the
acquisition of RJRN Holdings and Nabisco Holdings by a third party. On February
25, 1999, the plaintiffs in this case filed a status report with the court
indicating that a stipulation of dismissal without prejudice will be circulated
shortly. As of March 16, 1999, no stipulation has been entered.

Nabisco Holdings and/or Nabisco are defendants in various lawsuits arising
in the ordinary course of business. In the opinion of management, the resolution
of these matters is not expected to have a material adverse effect on either
company's financial condition or results of operations. For additional
information relating to legal proceedings, see "Other Matters--Environmental
Matters" in Item 1.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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EXECUTIVE OFFICERS OF THE REGISTRANTS

The following table sets forth certain information concerning the executive
officers of Nabisco Holdings and Nabisco:

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING PAST FIVE YEARS
NAME AGE AND OTHER INFORMATION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
James M. Kilts 51 President and Chief Executive Officer of Nabisco Holdings and of Nabisco
since January 1998; previously Executive Vice President-Worldwide Food of
Philip Morris Companies, 1994-March 1997; President of Kraft USA,
1989-1994. Member of the Board of Directors of Nabisco Holdings and of
Nabisco since January 1998 and the May Department Stores Company since
November 1998.

Richard H. Lenny 47 Executive Vice President of Nabisco Holdings and of Nabisco and President
of Nabisco Biscuit Company since February 1998; previously President of
Pillsbury North America, November 1996-January 1998; President of
Pillsbury Specialty Brands, February 1995-November 1996; prior thereto,
Senior Vice President-Sales & Customer Service of Kraft Foods, May
1994-February 1995; Executive Vice President-Sales of Kraft USA, 1991-May
1994.

Douglas R. Conant 47 Executive Vice President of Nabisco Holdings and of Nabisco since June 1995
and President of Nabisco U.S. Foods Group since February 1997; previously
President of Sales & Integrated Logistics Group, 1994-June 1995; Senior
Vice President-Marketing of Nabisco Biscuit Company, 1993-1994.

Elizabeth R. Culligan 48 Executive Vice President of Nabisco Holdings and of Nabisco and President
of Nabisco International since February 1998; previously Senior Vice
President-Marketing of Nabisco Biscuit Company, September 1996-February
1998; prior thereto, President of Ciba Self-Medication North America,
September 1995-September 1996; General Manager and Vice President of
SmithKline Beecham Consumer Healthcare, Northern Europe, November
1994-August 1995; Managing Director, Northern Europe of Sterling Health,
1992-November 1994.

James E. Healey 57 Executive Vice President and Chief Financial Officer of Nabisco Holdings
and of Nabisco since June 1997; prior thereto, Vice President and
Treasurer of Bestfoods (formerly CPC International), 1995-1997; and
Comptroller of Bestfoods, 1987-1995. Member of the Board of Directors of
Interchange Financial Services Corp. since 1994.

James A. Kirkman III 57 Executive Vice President, General Counsel and Secretary of Nabisco Holdings
and of Nabisco since April 1995; previously Senior Vice President,
General Counsel and Secretary of Nabisco Holdings, October 1994-April
1995, and of Nabisco, 1992-April 1995.

Peter Klein 52 Executive Vice President-Strategy, Business Development and Marketing
Services of Nabisco Holdings and Nabisco since April 1998; prior thereto,
Partner and Director of The Cambridge Group, November 1991-April 1998.
</TABLE>

8
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING PAST FIVE YEARS
NAME AGE AND OTHER INFORMATION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John F. Manfredi 58 Executive Vice President-Corporate Affairs of Nabisco Holdings and of
Nabisco since April 1995; previously Senior Vice President-Corporate
Affairs of Nabisco Holdings, October 1994-April 1995; Senior Vice
President-External and Government Affairs of Nabisco, 1992-April 1995.

Thomas G. McBrady 61 Executive Vice President-Operations of Nabisco Holdings and of Nabisco
since February 1998; previously Senior Vice President-Operations and
Technology of Nabisco Biscuit Company, 1988-February 1998.

C. Michael Sayeau 53 Executive Vice President-Human Resources of Nabisco Holdings and of Nabisco
since April 1995; previously Senior Vice President-Human Resources of
Nabisco Holdings, October 1994-April 1995, and of Nabisco, 1992-April
1995.

Ian E. Lee-Leviten 48 Senior Vice President and Controller of Nabisco Holdings and of Nabisco
since July 1998; previously Senior Vice President-Taxation of Nabisco
Holdings and of Nabisco, March 1997-June 1998; Vice President-Taxation of
Nabisco Holdings and of Nabisco, February 1995-February 1997; prior
thereto, Vice President-Tax Planning and Audits of RJRN Holdings and of
RJRN, 1989-February 1995.

Robert A. Schiffner, Jr. 49 Senior Vice President and Treasurer of Nabisco Holdings and of Nabisco
since July 1998; previously Senior Vice President and Controller of
Nabisco Holdings and of Nabisco, March 1997-June 1998; Vice President and
Controller of Nabisco Holdings and of Nabisco, April 1995-February 1997;
Senior Director-Finance and Business Development, Specialty Products
Company, January 1994-March 1995.
</TABLE>

9
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Class A Common Stock of Nabisco Holdings commenced trading on the New
York Stock Exchange (the "NYSE") on January 20, 1995. There is no public trading
market for the Class B Common Stock of Nabisco Holdings, all of which is held by
RJRN. All of the common stock of Nabisco is held by Nabisco Holdings.

As of March 15, 1999, there were approximately 855 record holders of the
Class A Common Stock. The initial public offering price of the Class A Common
Stock was $24.50. The closing price on the NYSE of the Class A Common on March
15, 1999 was $41.75.

The following table sets forth, for the calendar periods indicated, the high
and low sales prices per share for the Class A Common Stock on the NYSE
Composite Tape, as reported in the Wall Street Journal.
<TABLE>
<CAPTION>
1998 HIGH LOW
------- --------
<S> <C> <C> <C> <C>
First Quarter................................................................... $50 3/8 $38
Second Quarter.................................................................. $54 1/4 $34 7/8
Third Quarter................................................................... $39 3/16 $31 3/4
Fourth Quarter.................................................................. $42 3/8 $33 3/4

1997
<S> <C> <C> <C> <C>
First Quarter................................................................... $44 1/2 $36 1/2
Second Quarter.................................................................. $43 1/2 $36
Third Quarter................................................................... $43 7/8 $37 1/2
Fourth Quarter.................................................................. $48 1/2 $39 1/2
</TABLE>

On July 1, 1995, Nabisco Holdings paid an initial quarterly dividend of
$.1375 per share. Nabisco Holdings has paid quarterly dividends on each October
1, January 1, April 1, and July 1 since then. Commencing with the April 1, 1999
payment, the quarterly dividend was increased to $.1875 per share or $.75 per
share on an annual basis.

The operations of Nabisco Holdings are conducted through Nabisco and its
subsidiaries, and therefore Nabisco Holdings is dependent on the earnings and
cash flow of Nabisco and its subsidiaries to satisfy its obligations and other
cash needs. For information concerning limitations on dividends, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--Liquidity and Financial Condition and Note 9 to the Consolidated
Financial Statements. Nabisco Holdings does not believe that its credit
arrangements will limit its ability to pay its anticipated quarterly dividends.

RJRN, a wholly-owned subsidiary of RJRN Holdings, owns 100% of the
outstanding Class B Common Stock of Nabisco Holdings, which represents
approximately 80.5% of the economic interest and 97.6% of the combined voting
power of all of the outstanding Common Stock as of March 15, 1999.

10
<PAGE>
The separation is subject to final approval and is expected to occur following
completion of the sale of RJRN Holdings' international tobacco business.

Nabisco Holdings' relationship with RJRN Holdings and RJRN is governed by
agreements entered into in connection with Nabisco Holdings' initial public
offering of Class A Common Stock completed on January 26, 1995, including a
corporate services agreement, a corporate agreement and a tax-sharing agreement.
It is possible that the spin-off will require the amendment or termination of
these agreements, but it is not anticipated that any amendments or terminations
will have a material effect on Nabisco Holdings' or Nabisco's financial position
or results of operations.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data of Nabisco Holdings Corp. ("Nabisco
Holdings") presented below as of December 31, 1998 and 1997 and for each of the
years in the three-year period ended December 31, 1998 were derived from the
consolidated financial statements of Nabisco Holdings (the "Consolidated
Financial Statements") set forth herein, which have been audited by Deloitte &
Touche LLP, independent auditors. In addition, the selected consolidated
financial data of Nabisco Holdings presented below as of December 31, 1996, 1995
and 1994 and for each of the years in the two year period ended December 31,
1995 were derived from audited consolidated financial statements of Nabisco
Holdings, not presented herein. The data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
RESULTS OF OPERATIONS
Net sales.......................................................................... $ 8,400 $ 8,734 $ 8,889 $ 8,294 $ 7,699
------- ------- ------- ------- -------
Cost of products sold.............................................................. 4,683 4,950 5,226 4,776 4,295
Selling, advertising, administrative and general expenses(1)....................... 2,672 2,476 2,533 2,389 2,292
Amortization of trademarks and goodwill............................................ 221 226 228 227 225
Restructuring charges.............................................................. 530 -- 428 -- --
------- ------- ------- ------- -------
Operating income................................................................. 294 1,082 474 902 887
Interest and debt expense(2)....................................................... (296) (326) (329) (349) (376)
Other income (expense), net(3)..................................................... (29) (32) (32) (17) (20)
------- ------- ------- ------- -------
Income (loss) before income taxes................................................ (31) 724 113 536 491
Provision for income taxes......................................................... 40 293 96 222 224
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......................................... (71) 431 17 314 267
Extraordinary item - loss on early extinguishment of debt, net of income taxes..... -- (26) -- (19) --
------- ------- ------- ------- -------
Net income (loss)................................................................ $ (71) $ 405 $ 17 $ 295 $ 267
------- ------- ------- ------- -------
------- ------- ------- ------- -------

<CAPTION>
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net income (loss) per common share - basic:
Income (loss) before extraordinary item.......................................... $ (.27) $ 1.63 $ .06 $ 1.20
Extraordinary item............................................................... -- (.10) -- (.07)
------- ------- ------- -------
Net income (loss).............................................................. $ (.27) $ 1.53 $ .06 $ 1.13
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common share - diluted:
Income (loss) before extraordinary item.......................................... $ (.27) $ 1.61 $ .06 $ 1.20
Extraordinary item............................................................... -- (.10) -- (.07)
------- ------- ------- -------
Net income (loss).............................................................. $ (.27) $ 1.51 $ .06 $ 1.13
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

11
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Dividends declared per common share................................................ $ .70 $ .68 $ .6025 $ .4125
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
BALANCE SHEET DATA (AT END OF PERIOD)
<S> <C> <C> <C> <C> <C>
Working capital.................................................................... $ (209) $ (41) $ (340) $ -- $(1,463)
Total assets....................................................................... 11,117 12,117 12,290 12,303 11,886
Total debt......................................................................... 3,805 4,535 4,488 4,455 5,640
Stockholders' equity(4)............................................................ 3,885 4,204 4,084 4,244 2,880
</TABLE>

(1) For 1994, selling, advertising, administrative and general expenses include
an allocation from RJR Nabisco, Inc. ("RJRN") for corporate administrative
costs not specifically attributable to an operating company. Such allocation
was based on the ratio of Nabisco Holdings' invested capital (as defined
below) to RJR Nabisco Holdings Corp. ("RJRN Holdings") consolidated invested
capital.

(2) For 1994, interest and debt expense includes an allocation from RJRN for
corporate interest expense and amortization of debt issuance costs not
specifically attributable to an operating company. Such allocation was based
on the ratio of Nabisco Holdings' invested capital at the beginning of the
year (sum of working capital, property, plant and equipment, other assets,
goodwill, trademarks and other intangibles and less minority interest
liabilities) to RJRN Holdings' consolidated invested capital at the
beginning of the year, adjusted for (i) the change in Nabisco Holdings'
invested capital during the year times (ii) the RJRN short-term borrowing
rate. For 1995, interest expense included payments to RJRN and affiliates of
$141 million.

(3) For 1994, other income (expense), net includes an allocation (as defined
above) from RJRN for interest income, foreign exchange gains or losses and
other financial income and expenses not specifically attributable to an
operating company.

(4) The December 31, 1994 amount represents RJRN's investment in Nabisco
Holdings.

12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of Nabisco Holdings' financial
condition and results of operations should be read in conjunction with the
historical financial information and the related notes thereto included in the
Consolidated Financial Statements.

The food business is conducted by operating subsidiaries of Nabisco
Holdings. Nabisco's businesses in the United States are comprised of the Nabisco
Biscuit Company and the U.S. Foods Group. Nabisco's businesses outside the
United States are conducted by Nabisco Ltd and Nabisco International, Inc.
("Nabisco International" together with Nabisco Ltd, the "International Food
Group").

RESULTS OF OPERATIONS

Summarized financial data for Nabisco Holdings is as follows:

<TABLE>
<CAPTION>
% CHANGE FROM
PRIOR YEAR
--------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS) 1998 1997 1996 1998 1997
------ ------ ------ ------ ------
Net Sales:
Biscuit................................................................................. $3,542 $3,545 $3,677 --% (4)%
U.S. Foods Group........................................................................ 2,334 2,604 2,638 (10)% (1)%
International Food Group................................................................ 2,524 2,585 2,574 (2)% --%
------ ------ ------
Total Nabisco Holdings.................................................................. $8,400 $8,734 $8,889 (4)% (2)%
------ ------ ------
------ ------ ------
Operating Company Contribution(1):
Biscuit(2).............................................................................. $ 500 $ 691 $ 542 (28)% 27%
U.S. Foods Group(3)..................................................................... 335 386 346 (13)% 12%
International Food Group(4)............................................................. 210 231 242 (9)% (5)%
------ ------ ------
Total Nabisco Holdings.................................................................. $1,045 $1,308 $1,130 (20)% 16%
------ ------ ------
------ ------ ------
Operating Income(5)
Total Nabisco Holdings.................................................................. $ 294 $1,082 $ 474 (73)% 128%
------ ------ ------
------ ------ ------
</TABLE>

- ------------------------

(1) Operating company contribution represents operating income before
amortization of trademarks and goodwill and restructuring charges.

(2) Includes restructuring related expense of $42 million in 1998 and $58
million in 1996.

(3) Includes restructuring related expense of $6 million in 1998 and $33 million
in 1996 and net gains from divestitures of $2 million in 1998 and $32
million in 1997. Also includes a $14 million provision for the additional
write-down of the Plush Pippin frozen pie business held for sale and $10
million of severance and benefits related to the reorganization of the U.S.
Foods Group selling organization in 1997.

(4) Includes restructuring related expense of $8 million in 1998 and $6 million
in 1996 and a net gain from divestitures of $12 million in 1998. 1997
includes $7 million of exit costs resulting from the relocation of Nabisco
International's headquarters from New York City to New Jersey.

(5) 1998 includes restructuring charges of $530 million and 1996 includes
restructuring charges of $428 million.

13
<PAGE>
SALES

1998 VS. 1997. Nabisco Holdings' reported net sales of $8.40 billion were
down 4% compared to 1997 reported net sales of $8.73 billion. Excluding the
sales of businesses sold and exited in 1998 and 1997 from both years, Nabisco
Holdings' net sales from ongoing businesses were flat at $8.10 billion. For a
discussion of divestitures see Note 2 to the Consolidated Financial Statements.

- Biscuit's net sales were flat at $3.54 billion versus the prior year
reflecting price increases and volume gains in core cookies and crackers
largely offset by lower volumes in SnackWell's and breakfast snacks.
Although net sales were flat versus the prior year, momentum was
reestablished in the second half of 1998 and after adjusting selling days
to an equal days basis, Biscuit's net sales rose nearly 5% in the fourth
quarter of 1998 versus the same period a year ago. These sales reflect the
impact of increased marketing spending and the efforts of Biscuit's
redesigned direct store delivery sales force which was approximately
one-third in place at December 31, 1998 and was approximately 54% in place
on February 28, 1999.

- The U.S. Foods Group's net sales decreased 10% in 1998 primarily due to
divestitures in 1998 and 1997 (1998 - College Inn broths, the tablespreads
and egg substitute businesses, Plush Pippin frozen pies and the chocolate
yogurt business, 1997 - certain regional brands). Excluding the impact
from these businesses, net sales increased 3% primarily due to the
inclusion of Cornnuts snacks acquired in December 1997 and increased
volume for Planters nuts, A.1. steak sauces and pet snacks, partially
offset by lower volume for confections.

- The International Food Group's reported net sales decreased by 2% in 1998
versus 1997. Excluding the impact of foreign currency translation,
International's net sales were up 2% in 1998 versus the prior year
primarily due to price increases and increased volumes in several Latin
American markets partially offset by volume declines in Brazil, Argentina
and Asia.

1997 VS. 1996. Nabisco Holdings reported net sales of $8.73 billion, a
decrease of 2% from the 1996 level of $8.89 billion, with Biscuit's net sales
down 4%, the U.S. Foods Group down 1% and the International Food Group flat.

- Biscuit's net sales declined 4% in 1997 versus the prior year, primarily
due to volume declines in SnackWell's and breakfast snacks, which more
than offset volume increases in other core cookie and cracker brands. The
decrease reflects a decline in market share in a number of core brands,
less market acceptance of certain new products and in-store performance
difficulties experienced in Nabisco Biscuit Company's direct store
delivery system.

- The U.S. Foods Group's net sales decreased 1% in 1997 primarily due to
lower sales volume for tablespreads, condiments and certain other products
and the impact from the sale of certain domestic regional brands in the
second quarter of 1997 partially offset by higher volume for Planters nuts
and certain confectionery products.

- The International Food Group's $11 million net sales increase for 1997
reflected improved results in Asia and Mexico, partially offset by
declines in Brazil, principally volume, resulting from aggressive
competitive activity in the biscuit and milk categories, and in Argentina,
due to competitive pricing pressures. The results reflect economic and
competitive problems in certain international markets and underperformance
at certain units.

OPERATING INCOME AND OPERATING COMPANY CONTRIBUTION

1998 VS. 1997. Nabisco Holdings reported operating income of $294 million
in 1998 versus $1,082 million in 1997. Restructuring charges of $530 million
recorded in 1998, and a 20% decline in operating company contribution offset by
a $5 million decrease in intangible amortization account for the decline.

14
<PAGE>
Nabisco Holdings' reported operating company contribution was $1,045 million
in 1998, compared to $1,308 million reported in 1997. The 1998 operating company
contribution includes $56 million of restructuring related expenses (Biscuit -
$42 million, U.S. Foods Group - $6 million and International Food Group - $8
million) and a $14 million net gain from divestitures (U. S. Foods Group $2
million and International Food Group $12 million). The 1997 period included a
$32 million gain from the sale of certain U.S. Foods Group regional brands
offset in part by a $14 million provision for the additional write-down of the
Plush Pippin frozen pie business which was being held for sale, $10 million of
severance and benefits related to the reorganization of the U.S. Foods Group
selling organization and $7 million of exit costs resulting from the relocation
of Nabisco International's headquarters from New York City to New Jersey.
Excluding the impact of these items from both years, Nabisco Holdings' operating
company contribution decreased 17% to $1,087 million in 1998, compared to $1,307
million in 1997. On the same basis:

- Biscuit's operating company contribution declined 22% to $542 million,
largely the result of increased marketing spending invested behind core
brands including the SnackWell's line. Higher costs associated with
strengthening and redesigning the direct store delivery sales organization
also significantly contributed to the profit decline.

- The U.S. Foods Group's reported operating company contribution declined
$39 million in 1998 to $339 million. Excluding the results from
divestitures in both years, the U.S. Foods Group's operating company
contribution in 1998 increased 7% to $301 million from $281 million in
1997 primarily due to gains in Planters nuts, A.1. steak sauces, pet
snacks and the acquisition of Cornnuts in December 1997 partially offset
by declines in confections.

- The International Food Group's operating company contribution decreased
13% to $206 million. The decrease in operating company contribution was
principally due to unfavorable foreign currency translation of $20 million
and lower earnings, exclusive of foreign currency translation, in Spain,
Asia and Canada which more than offset increased earnings in Brazil and
Argentina as progress was made in lowering costs in these operating units.

1997 VS. 1996. Nabisco Holdings reported operating income of $1,082 million
in 1997 versus $474 reported in 1996. Restructuring charges of $428 million
recorded in 1996, and a 16% increase in operating company contribution account
for the increase.

Nabisco Holdings' reported operating company contribution was $1,308 million
in 1997, an increase of 16% from the 1996 level of $1,130 million. The 1997
period included a $32 million gain from the sale of certain U.S. Foods Group
regional brands offset in part by a $14 million provision for the additional
write-down of the Plush Pippin frozen pie business which was being held for
sale, $10 million of severance and benefits related to the reorganization of the
U.S. Foods Group selling organization and $7 million of exit costs related to
the relocation of International headquarters from New York City to New Jersey.
1996 included $97 million of restructuring related expenses (Biscuit - $58
million, U.S. Foods Group - $33 million and International Food Group - $6
million) associated with implementation of the June 1996 restructuring program.
Excluding the impact of these items from both years, Nabisco Holdings' operating
company contribution increased 7% to $1,307 million in 1997, compared to $1,227
million in 1996. On the same basis:

- Biscuit's operating company contribution increased $91 million or 15% in
1997. This increase resulted largely from restructuring driven margin
improvements and on-going productivity initiatives.

- The U.S. Foods Group's operating company contribution decreased $1 million
in 1997. This flat profit performance was primarily due to restructuring
efficiencies offset by reduced sales of higher margin products.

15
<PAGE>
- The International Food Group's 4% decline in operating company
contribution for 1997 was primarily attributable to lower earnings in
Brazil from lower sales, and in Argentina due to lower sales and higher
marketing expenses, partially offset by profitable sales growth in Mexico
and Asia and productivity driven earnings improvements in Canada.

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 6,500 employees. The restructuring charges consisted
of $314 million for the Nabisco Biscuit Company, $82 million for the U.S. Foods
Group and $16 million for corporate headquarters. The restructuring charge for
the International Food Group amounted to $118 million and primarily consisted of
$17 million for Canada and $84 million for Latin American operations, including
$38 million for Brazil and $22 million for Argentina. The key elements of the
restructuring programs include:

<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSETS TO BE OTHER EXIT
IN MILLIONS AND BENEFITS TERMINATIONS DISPOSED OF COSTS TOTAL
- ---------------------------------------------------- ------------- --------------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>

Sales force reorganizations......................... $ 37 $ 3 $ 40

Distribution reorganizations........................ 16 8 $ 9 33

Staff reductions.................................... 83 3 86

Manufacturing cost reduction initiatives............ 22 8 30

Plant closures...................................... 46 3 217 $ 15 281

Product line rationalizations....................... 4 4 20 32 60
----- --- ----- --- ---------

Total restructuring charges......................... $ 208 $ 18 $ 257 $ 47 $ 530
----- --- ----- --- ---------
----- --- ----- --- ---------
</TABLE>

- - 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 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. As of December 31, 1998,
production had ceased in 6 facilities which are being actively marketed for
sale. Other exit costs consist of carrying costs to be incurred prior to
sale.

16
<PAGE>
products. Amounts are: U.S. Foods Group $34 million; Nabisco Biscuit Company
$14 million; and International Food Group $12 million.

The 1998 restructuring programs are proceeding as scheduled. The June 1998
program is expected to be completed in 1999 and the December 1998 program is
expected to be completed by mid year 2000. These programs will require cash
expenditures of approximately $205 million, primarily to be expended in 1999. In
addition, the programs will require additional expenditures of approximately
$134 million, of which $56 million ($33 million after tax) was incurred in 1998.
These additional expenses are principally for implementation and integration of
the programs and include costs for relocation of employees and equipment and
training. The Company expects to incur capital expenditures of approximately
$100 million over the programs' duration. All cash requirements are expected to
be funded from operations. Pre-tax savings in 1999 will be approximately $80
million and, after completion of the programs, are expected to be approximately
$145 million annually.

As of December 31, 1998, $61 million of charges were applied against
restructuring reserves as follows: $34 million for 2,000 employees severed; $3
million for contract terminations; $12 million for assets disposals; and $12
million of other exit costs. Of the charges applied against the restructuring
reserves, cash expenditures amounted to $39 million.

1996 RESTRUCTURING CHARGE

- $81 million of severance benefits for restructuring corporate staff and
operating company head offices.

- $116 million to eliminate low-volume product lines and sizes.

- $62 million for severance benefits and contract exit costs to increase the
efficiency and effectiveness of the U.S. sales organizations.

- $118 million for streamlining production and distribution systems,
principally for severance benefits and property disposals.

- $51 million to write-down the values of several non-strategic regional
product lines held for sale.

The restructuring charge consisted of $238 million for the Nabisco Biscuit
Company and $115 million for the U.S. Foods Group and corporate, including $29
million for the Food Service Company, $29 million for the Planters Specialty
Company and the remainder of approximately $57 million for corporate
headquarters operations, the Sales & Integrated Logistics Group and other
business units. The restructuring expense for the International Food Group
amounted to $75 million and consisted of $51 million for Latin American
operations, including $31 million for Brazil, $11 million for Canada, and $10
million for Iberia.

The 1996 restructuring program events were substantially completed by the
end of 1997.

The major cost components of the restructuring charge, changes in estimates
and charges are summarized below. Severance benefits increased $30 million over
the original estimate due to higher than anticipated costs associated with the
Nabisco Biscuit Company's sales force reorganization. Estimated product line
rationalizations decreased $15 million due to the decision not to sell a small
regional brand.

17
<PAGE>
Estimated costs for product line rationalizations, contract terminations and
facility reorganizations were also changed due to different actual costs.

<TABLE>
<CAPTION>
JUNE 1996 CHANGE IN ADJUSTED PAYMENTS BALANCE PAYMENTS BALANCE
IN MILLIONS PROVISION ESTIMATE PROVISION & CHARGES 12-31-97 & CHARGES 12-31-98
- ------------------------------- ----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Severance and benefits......... $ 194 $ 30 $ 224 $ (197) $ 27 $ (25) $ 2
Product line rationalizations.. 116 4 120 (117) 3 (3) --
Product line disposals......... 51 (15) 36 (36) -- -- --
Contract terminations.......... 45 (15) 30 (29) 1 (1) --
Plant closures and facility
reorganizations.............. 22 (4) 18 (12) 6 (6) --
----- ----- ----- ----------- --- --- -----
Total...................... $ 428 $ 0 $ 428 $ (391) $ 37 $ (35) $ 2
----- ----- ----- ----------- --- --- -----
----- ----- ----- ----------- --- --- -----
</TABLE>

As of December 31, 1998, cumulative cash expenditures amounted to $238
million which were provided from operations. Cash requirements in 1999 to
extinguish the remaining obligations, principally severance benefits, are
estimated to be approximately $2 million. In addition, the program required
additional 1996 expenditures of $97 million ($57 million after tax) for
implementation and integration expenses, principally for relocation of employees
and equipment and training. Annual pre-tax savings, commencing in 1998, are
approximately $150 million. The program costs are discussed further in Note 2 to
the Consolidated Financial Statements.

INTEREST AND DEBT EXPENSE

1998 VS. 1997. Consolidated interest and debt expense of $296 million in
1998 decreased by $30 million or 9% from 1997 primarily due to the paydown of
commercial paper with the net proceeds from businesses sold in the third quarter
of 1998 and the replacement of fixed rate debt at lower rates partially offset
by a reduction in capitalized interest in 1998.

1997 VS. 1996. Consolidated interest and debt expense of $326 million in
1997 decreased $3 million or 1% from 1996 primarily as a result of slightly
lower borrowing levels and lower interest rates on borrowings, partially offset
by a reduction in capitalized interest in 1997.

OTHER INCOME (EXPENSE), NET

1998 VS. 1997. Consolidated other income (expense), net amounted to $29
million of expense in 1998 versus $32 million of expense in 1997, a decrease of
$3 million in expense. The lower level of expense in 1998 reflects higher
interest income partially offset by an increase in foreign exchange losses.

PROVISION FOR INCOME TAXES

1998 VS. 1997. The reported effective tax rate of (128.4)% in 1998 is
higher than the 40.5% rate for 1997 due to the greater impact of non-deductible
goodwill amortization relative to income (loss) before taxes, a 31.7% effective
tax rate on the 1998 restructuring charges, and an 80.9% effective tax rate on
the net gain from divestitures in 1998. Excluding the restructuring charges and
the net gain from divestitures and their related tax impact, the effective tax
rate was 40.5% for 1998.

1997 VS. 1996. The reported effective tax rate for 1996 is higher than the
40.5% rate for 1997, as a result of the June 1996 restructuring program.
Excluding the restructuring charge and related tax benefit, the effective rate
was 41.4% for 1996.

NET INCOME (LOSS)

1998 VS. 1997. Nabisco Holdings' net loss for 1998 includes a $2 million
after tax net gain related to divestitures and after tax charges of $395 million
related to the 1998 restructuring program. 1997 includes a

18
<PAGE>
$1 million net gain. Excluding these items, net income of $322 million in 1998
decreased 25% from the 1997 full year level of $430 million, reflecting lower
operating income, partially offset by lower intangible amortization and interest
expense.

1997 VS. 1996. Nabisco Holdings' net income in 1997 includes a net gain of
$1 million and an extraordinary loss on the early extinguishment of debt of $26
million. The net income in 1996 includes after tax expenses of $357 million
related to the June 1996 restructuring program. Excluding the effects of these
items, net income of $430 million in 1997 increased 15% from the 1996 level of
$374 million, reflecting improved operating income.

SEASONALITY

Nabisco's business is seasonal, with generally higher sales levels in the
fourth quarter. For information concerning seasonality, see Note 16 to the
Consolidated Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, Nabisco Holdings and Nabisco adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
and Statement of Position No. 98-1, Accounting for Costs of Computer Software
Developed or Obtained for Internal Use. These accounting standards did not have
a material effect on Nabisco Holdings' or Nabisco's financial position or
results of operations.

See Note 1 to the Consolidated Financial Statements for a further discussion
regarding recently adopted and issued accounting pronouncements.

LIQUIDITY AND FINANCIAL CONDITION

Net cash flows from operating activities amounted to $650 million for 1998
compared to $573 million for 1997. The increase in net cash flows from operating
activities primarily reflects lower working capital requirements.

Net cash flows from operating activities amounted to $573 million for 1997
compared to $750 million for 1996. The decrease in net cash flows from operating
activities primarily reflects a $99 million increase in 1997 payments related to
the 1996 restructuring program and higher working capital requirements.

Net cash flows from investing activities in 1998 increased $587 million from
1997 levels to $214 million, primarily due to increased net proceeds of $500
million from the sale of businesses, and reduced levels of capital expenditures
and acquisition spending in 1998.

Net cash flows used in investing activities for 1997 decreased $221 million
from 1996 levels to $373 million, primarily because of lower spending on
business acquisitions of $127 million, a decrease in capital expenditures of $45
million and the collection in 1997 of $50 million of proceeds from the sale of
certain regional brands.

Capital expenditures were $340 million in 1998. Management expects that the
level of capital expenditures for 1999 will be approximately $200 million, which
is sufficient to support the strategic and operating needs of Nabisco Holdings'
businesses. Management also expects that cash flow from operations will be
sufficient to support its planned capital expenditures in 1999. Nabisco
Holdings' long-term commitments for capital expenditures are not material.

Net cash flows used in financing activities were $874 million for 1998,
compared to $158 million of cash flows used in financing activities in 1997. The
increase in 1998 is primarily due to higher debt repayments of $748 million in
1998 versus 1997.

19
<PAGE>
Net cash flows used in financing activities for 1997 amounted to $158
million, a decrease of $24 million from 1996, principally due to higher net
borrowings which were partially offset by higher cash dividends.

In August 1997, Nabisco issued $200 million of floating rate (5.38% at
December 31, 1998) notes due August 2009 which are putable and callable in
August 1999. The interest rate for the first two years varies with LIBOR and,
unless the notes are put, is set thereafter at a fixed rate resulting in a yield
to maturity of 6.2% plus Nabisco's future credit spread on ten-year treasury
notes.

In December 1997, Nabisco completed a tender offer and redeemed $432 million
of its $538 million outstanding 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 refinanced 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 at a fixed rate resulting in a
yield to maturity of comparable maturities. The net proceeds from these notes
were used to repay short-term debt.

Nabisco maintains a four-year $1.5 billion revolving credit facility, of
which no borrowings were outstanding at December 31, 1998, and a 364-day $1.11
billion credit facility primarily to support commercial paper borrowings of $174
million. Accordingly, $934 million was available at December 31, 1998. 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. Unless
extended, the revolving credit facility expires in October 2002 and the 364-day
credit facility expires in October 1999. The commitments under the revolving
credit facility decline to approximately $1.46 billion in the final year. The
revolving credit facility also provides for the issuance of up to $300 million
of letters of credit, of which none was issued at December 31, 1998.
Availability under the revolving credit facility is reduced by the amount of any
borrowings outstanding and letters of credit issued under the facility and by
the amount of outstanding commercial paper in excess of $1.11 billion.

Nabisco's credit facilities generally restrict common and preferred
dividends and distributions by Nabisco Holdings after April 28, 1995 to holders
of its equity securities to an aggregate amount equal to $300 million plus 50%
of Nabisco Holdings' cumulative consolidated net income after January 1, 1995.

Nabisco's credit facilities 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. In addition, certain
RJRN credit agreements indirectly limit the issuance of equity securities,
beyond certain substantial amounts, by Nabisco Holdings and Nabisco and the sale
or disposition of certain of their assets. Nabisco Holdings and Nabisco believe
that they are currently in compliance with all covenants and restrictions
imposed by the terms of their indebtedness.

At December 31, 1998, Nabisco Holdings' total debt (notes payable and
long-term debt, including current maturities) and total capital (total debt and
stockholders' equity) amounted to approximately $3.8 billion and $7.7 billion,
respectively, of which total debt is lower by approximately $730 million and
total capital is lower by $1,049 million than at December 31, 1997. Nabisco
Holdings' ratios of total debt to stockholders' equity and total debt to total
capital were .98 to 1 and .49 to 1, respectively.

The 1998 restructuring programs will require cash expenditures of
approximately $205 million, primarily to be expended in 1999. In addition, the
programs will require additional expenditures of

20
<PAGE>
approximately $134 million, of which $56 million was incurred in 1998. These
additional expenses are principally for implementation and integration of the
programs and include costs for relocation of employees and equipment and
training. The Company expects to incur capital expenditures of approximately
$100 million over the programs duration. All cash requirements are expected to
be funded from operations.

At December 31, 1998, there was $749 million of accumulated and
undistributed income of foreign subsidiaries. No applicable U.S. taxes have been
provided because management intends for these earnings to be reinvested abroad
indefinitely. Combined with an increase in international borrowings, these
accumulated and undistributed earnings have funded and will continue to fund
international acquisitions, new product introductions and other business
building opportunities.

INFLATION

Inflation has not had a material effect on Nabisco Holdings' or Nabisco's
business in recent years. Management believes that the effects of changing
prices and inflation in 1998 have been successfully managed with both margins
and earnings being protected through a series of pricing adjustments, cost
control programs and productivity gains.

FOREIGN MARKET RISK

Nabisco is exposed to the current volatility of financial markets in Brazil,
which could potentially adversely impact the International Food Group's
financial position. As of February 28, 1999, Brazil's currency, the REAL,
suffered a devaluation of approximately 68% from December 31, 1998, compared to
the U.S. Dollar, which resulted in an unfavorable cumulative translation
adjustment of approximately $150 million.

At this time, Nabisco is unable to predict with any certainty the short or
long-term impact of the REAL devaluation on the Brazilian subsidiary's
operations, but at this time it is not expected to have a material effect on
Nabisco Holdings' or Nabisco's financial position or results of operations.

YEAR 2000 ISSUE

Nabisco has developed plans to address the implications of the Year 2000 on
its computer systems and business operations. The Year 2000 Issue stems from
computer applications that were written using two digits rather than four digits
to define the applicable year. The issue is whether computer systems will
properly interpret date-sensitive information when the year changes to 2000.

Nabisco is continuing to assess and inventory its financial, information and
operational systems, including equipment with embedded microprocessors, and is
developing detailed plans for required systems modifications or replacements.
The inventory and assessment process for information technology systems ("IT
systems") has been completed. Management estimates that this process for
non-information technology systems with embedded technology ("non-IT systems")
is 76% complete and scheduled to be 100% complete by April of 1999.

Software remediation is ongoing and, in the case of IT systems, is
approximately 88% complete. Management expects this phase of Year 2000 readiness
to be complete by the end of first quarter 1999, with the exception of certain
stand-alone systems which are anticipated to be completed in the second quarter
of 1999. In the case of non-IT systems, hardware and software remediation is in
its early stages with an estimated completion date of the third quarter of 1999.

Software testing following remediation is approximately 77% complete for IT
systems. Management expects that testing will be complete by the second quarter
of 1999, with the exception of certain stand-alone systems which are anticipated
to be completed in the third quarter of 1999. With respect to non-IT systems,
testing has recently begun and is expected to be complete by the third quarter
of 1999.

21
<PAGE>
Approximately 70% of IT systems are remediated and in production. Management
expects the remainder to be completed and in production by the second quarter of
1999, with the exception of certain stand-alone systems which are anticipated to
be completed in the third quarter of 1999. 45% of non-IT systems are compliant
as of December 31, 1998 and are expected to be fully Year 2000 compliant by
November 1999.

Incremental costs, which include contractor costs to modify or replace
existing systems, and costs of internal resources dedicated to achieving Year
2000 compliance are charged to expense as incurred and are funded by operating
cash flows. Costs are expected to total approximately $35 million to $40
million, of which $16 million has been spent through December 31, 1998.

In 1998 Nabisco began a process of contacting key third parties (suppliers,
services providers and customers) to determine their progress on Year 2000
compliance issues and to assess the potential impact on operations if key third
parties are not successful in converting their systems in a timely manner. In
early 1999, Nabisco initiated an effort to gain greater assurance that Nabisco
will not suffer any material adverse affects of third party non-compliance. This
effort consists of re-contacting these third parties and contacting additional
selected third parties to obtain more accurate and up-to-date status of their
Year 2000 compliance. As of February 28, 1999, Nabisco had sent correspondence
to 90% of these third parties and expects to complete the effort in March 1999.
As of February 28, 1999, Nabisco has received responses from 11% of all third
parties, with 9% indicating compliance. Responses from all third parties are
expected to be received by the third quarter of 1999.

Progress against Year 2000 compliance plans is monitored by management as
well as the internal audit department. Results are reported to the Board of
Directors on a regular basis.

Nabisco's existing systems risk management program includes emergency backup
and recovery procedures to be followed in the event of failure of a
business-critical system. In addition, contingency plans to protect the business
from Year 2000-related interruptions are being developed, which will include
development of backup procedures, identification of alternate suppliers and
possible increases in safety inventory levels. These plans will be complete by
the second quarter of 1999. The possible consequences of Nabisco or key third
parties not being fully Year 2000 compliant include temporary plant closings,
delays in the delivery of products or receipt of supplies, invoice and
collection errors, and inventory obsolescence. However, Nabisco believes its
Year 2000 implementation plan, including contingency measures, should be
completed in all material respects by the end of 1999, thereby reducing the
possible material adverse effects of the Year 2000 on Nabisco's business,
results of operations, cash flows or financial condition.

EURO CURRENCY CONVERSION

On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the euro as their common legal currency. The euro trades on
currency exchanges and is available for non-cash transactions. From January 1,
1999 through January 1, 2002, participating countries can also maintain their
national ("legacy") currencies as legal tender for goods and services. Beginning
January 1, 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation no later than July 1, 2002.
Nabisco's operating subsidiaries in Spain and Portugal have been affected by the
euro conversion and have established plans to address any business issues
raised, including the competitive impact of cross-border price transparency. It
is not anticipated that there will be any near term business ramifications;
however, the long-term implications, including any changes or modifications that
will need to be made to business and financial strategies, are still being
reviewed. From an accounting, treasury and computer system standpoint, the
impact from the euro currency conversion is not expected to have a material
impact on the financial position or results of operations of Nabisco and its
subsidiaries.

22
<PAGE>
ENVIRONMENTAL MATTERS

Nabisco Holdings and its subsidiaries have been engaged in a continuing
program to assure compliance with various federal, state and local governmental
laws and regulations concerning the protection of the environment. This program
has resulted in, and will likely continue to result in, annual expenditures of
approximately $20 million. 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 fifteen sites. Liability
under CERCLA is joint and several. Although it is difficult to identify
precisely the estimated cost of resolving these CERCLA matters, management does
not expect such expenditures or costs to have a material adverse effect on the
financial condition or results of operations of Nabisco Holdings or Nabisco.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of Nabisco due to
adverse changes in financial and commodity market prices and rates. Nabisco is
exposed to market risk in the areas of foreign currency exchange rates, interest
rates and commodity prices. These exposures are directly related to its
international operations, its use of agricultural commodities in its operations,
and its normal investing and funding activities. Nabisco has established various
policies and procedures to manage its exposure to market risks, including the
use of financial and commodity derivatives, which are highly correlated to its
underlying exposures. Nabisco estimates its market risk due to changes in
foreign currency rates, interest rates and commodity prices utilizing financial
models called Value at Risk ("VaR"). Nabisco employs a variance/co-variance
approach to its calculation of VaR, which is a statistical measure of the
potential loss in terms of fair value, cash flows or earnings of market risk
sensitive instruments over a one-year horizon using a 95% confidence interval
for changes in market rates and prices. The model assumes that financial returns
are normally distributed. For options and instruments with non-linear returns,
the model uses the delta/gamma method to approximate the financial return.

INTEREST RATE EXPOSURE

Nabisco is exposed to changes in interest rates primarily as a result of its
borrowing activities which include commercial paper, short-term borrowings and
long-term fixed rate debt used to maintain liquidity and fund its business
operations. The VaR associated with the fair value of financial instruments
resulting from changes in interest rates was a $246 million after tax loss at
December 31, 1998, an increase of $80 million from the December 31, 1997 amount.
This change is primarily due to (i) the increase in price volatility of
long-term U.S. treasuries which are used to estimate the VaR of Nabisco's
interest rate sensitive financial instruments, and (ii) the impact of the change
in mix of variable and fixed rate debt due to the January 1998 issuance of $1.0
billion of putable/callable long-term debt that replaced commercial paper
borrowings.

The VaR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by Nabisco, nor does it
consider the potential effect of favorable changes in market factors.

Nabisco does not believe that reasonably possible near-term changes in
interest rates will have a material effect on the future earnings or cash flows
of Nabisco.

FOREIGN EXCHANGE EXPOSURE

Upon reviewing its derivatives and other foreign currency instruments, based
on historical foreign currency rate movements, Nabisco does not believe that
reasonably possible near-term changes in foreign currency will result in a
material effect on the future earnings, fair values or cash flows of Nabisco.

23
<PAGE>
COMMODITY PRICE EXPOSURE

Based on either Nabisco's derivative commodity instruments or its net
commodity exposure (derivatives plus physical contracts less anticipated future
consumption), reasonably possible near-term changes in commodity prices, based
on historical commodity price movements, would not result in a material effect
on future earnings, fair values or cash flows of Nabisco.

SUBSEQUENT EVENT

RJRN, a wholly-owned subsidiary of RJRN Holdings, owns 100% of the
outstanding Class B Common Stock of Nabisco Holdings, which represents
approximately 80.5% of the economic interests and 97.6% of the combined voting
power of all of the outstanding Common Stock as of March 15, 1999.

On March 9, 1999, RJRN Holdings announced that its subsidiaries RJRN and
R.J. Reynolds Tobacco Company, had entered into a definitive agreement to sell
the international tobacco business and that the board of directors of RJRN
Holdings had approved a plan to separate the domestic tobacco business conducted
by R.J. Reynolds Tobacco Company from the food business conducted by Nabisco.
Under the plan, the separation of the businesses will be accomplished through a
tax-free spin-off to RJRN Holdings shareholders of shares in the domestic
tobacco business.

Nabisco Holdings' relationship with RJRN Holdings and RJRN is governed by
agreements entered into in connection with Nabisco Holdings' initial public
offering of Class A Common Stock completed on January 26, 1995, including a
corporate services agreement, a corporate agreement and a tax-sharing agreement.
It is possible that the spin-off will require the amendment or termination of
these agreements, but it is not anticipated that any amendments or terminations
will have a material effect on Nabisco Holdings' or Nabisco's financial position
or results of operations.

------------------------

The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements concerning, among other things, the impact of Year 2000 on systems
and applications, the ramification of euro currency conversion, the level of
restructuring related expenses and the amount of savings from restructuring
programs, the level of future capital expenditures, and the level of dividends.
These statements reflect management's current views with respect to future
events and financial performance. These forward-looking statements are based on
many assumptions and factors including competitive pricing for products,
commodity prices, success of new product innovations and acquisitions, economic
conditions in countries where Nabisco Holdings' subsidiaries do business, the
effects of currency fluctuations and the effects of government regulation. Any
changes in such assumptions or factors could produce significantly different
results.

24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to the Index to Financial Statements on page 28 for the required
information.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

Item 10 is hereby incorporated by reference to Nabisco Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1999. Reference is also made regarding the executive officers
of the Registrants to "Executive Officers of the Registrants" following Item 4
of Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

Item 11 is hereby incorporated by reference to Nabisco Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 12 is hereby incorporated by reference to Nabisco Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item 13 is hereby incorporated by reference to Nabisco Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1999.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<S> <C> <C>
(A) 1. The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this report.

2. The exhibits listed in the accompanying Index to Exhibits are filed as part of
this report.

(B) REPORTS ON FORM 8-K FILED IN FOURTH QUARTER 1998

None.

See Exhibit Index.

(D) FINANCIAL STATEMENT SCHEDULES

None.
</TABLE>

25
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Township of
Parsippany, State of New Jersey on March 22, 1999.

NABISCO HOLDINGS CORP.

By: /s/ JAMES E. HEALEY
..........................................
(James E. Healey)
Executive Vice President and
Chief Financial Officer

/s/ IAN E. LEE-LEVITEN
..........................................
(Ian E. Lee-Leviten)
Senior Vice President
and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 22, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ----------------------------------

<S> <C> <C>
* President and Chief Executive
.......................................... Officer (principal executive
(James M. Kilts) officer) and Director

/s/ JAMES E. HEALEY Executive Vice President and
.......................................... Chief Financial Officer
(James E. Healey)

/s/ IAN E. LEE-LEVITEN Senior Vice President and
.......................................... Controller (principal accounting
(Ian E. Lee-Leviten) officer)

* Director
..........................................
(Herman Cain)

* Director
..........................................
(John T. Chain, Jr.)

* Chairman of the Board of Directors
..........................................
(Steven F. Goldstone)

* Director
..........................................
(David B. Jenkins)

* Director
..........................................
(Kay Koplovitz)
</TABLE>

*By: /s/ JAMES A. KIRKMAN III
..........................................
(James A. Kirkman III)
Attorney-in-Fact

26
<PAGE>
SIGNATURES

NABISCO, INC.