<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
-------------------
NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-13556 13-3077142
(State or other (Commission file (I.R.S. Employer Identification
jurisdiction of number) No.)
incorporation or
organization)
</TABLE>
NABISCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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)
</TABLE>
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.)
------------------------
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: OCTOBER 29, 1999:
<TABLE>
<C> <S>
NABISCO HOLDINGS 51,408,928 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01
CORP.: 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>
-------------------
NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--Three Months
Ended
September 30, 1999 and 1998............................... 1
Consolidated Condensed Statements of Income--Nine Months
Ended
September 30, 1999 and 1998............................... 2
Consolidated Condensed Statements of Comprehensive
Income--Three Months and
Nine Months Ended September 30, 1999 and 1998............. 3
Consolidated Condensed Statements of Cash Flows--Nine Months
Ended
September 30, 1999 and 1998............................... 4
Consolidated Condensed Balance Sheets--September 30, 1999
and
December 31, 1998......................................... 5
Notes to Consolidated Condensed Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 17
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures........................................................... 19
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 2,057 $2,057 $ 2,098 $2,098
-------- ------ -------- ------
Costs and expenses:
Cost of products sold..................................... 1,133 1,133 1,166 1,166
Selling, advertising, administrative and general
expenses................................................ 677 677 694 694
Amortization of trademarks and goodwill................... 54 54 54 54
Restructuring (credit).................................... (59) (59) -- --
-------- ------ -------- ------
OPERATING INCOME...................................... 252 252 184 184
Interest and debt expense................................... (64) (64) (72) (72)
Other income (expense), net................................. (7) (7) (10) (10)
-------- ------ -------- ------
Income before income taxes............................ 181 181 102 102
Provision for income taxes.................................. 64 64 47 47
-------- ------ -------- ------
NET INCOME BEFORE EXTRAORDINARY ITEM.................. 117 117 55 55
Extraordinary item--loss on early extinguishment of debt,
net of $2 million income tax.............................. (3) (3) -- --
-------- ------ -------- ------
Net income............................................ $ 114 $ 114 $ 55 $ 55
======== ====== ======== ======
NET INCOME (LOSS) PER COMMON SHARE--BASIC:
Income before extraordinary item.......................... $ .44 $ .21
Extraordinary item........................................ (.01) --
-------- --------
Net Income............................................ $ .43 $ .21
======== ========
NET INCOME (LOSS) PER COMMON SHARE--DILUTED:
Income before extraordinary item.......................... $ .44 $ .21
Extraordinary item........................................ (.01) --
-------- --------
Net Income............................................ $ .43 $ .21
======== ========
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .1875 $ .175
======== ========
Average number of common shares outstanding (in thousands):
Basic..................................................... 264,627 264,634
======== ========
Diluted................................................... 266,665 266,219
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
1
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 5,935 $5,935 $ 6,191 $6,191
-------- ------ -------- ------
Costs and expenses:
Cost of products sold..................................... 3,249 3,249 3,478 3,478
Selling, advertising, administrative and general
expenses................................................ 2,021 2,021 1,984 1,984
Amortization of trademarks and goodwill................... 161 161 167 167
Restructuring charge (credit)............................. (59) (59) 406 406
-------- ------ -------- ------
OPERATING INCOME...................................... 563 563 156 156
Interest and debt expense................................... (193) (193) (230) (230)
Other income (expense), net................................. (22) (22) (22) (22)
-------- ------ -------- ------
Income (loss) before income taxes..................... 348 348 (96) (96)
Provision (benefit) for income taxes........................ 130 130 (6) (6)
-------- ------ -------- ------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM........... 218 218 (90) (90)
Extraordinary item--loss on early extinguishment of debt,
net of $2 million income taxes............................ (3) (3) -- --
-------- ------ -------- ------
Net income (loss)..................................... $ 215 $ 215 $ (90) $ (90)
======== ====== ======== ======
NET INCOME (LOSS) PER COMMON SHARE--BASIC:..................
Income (loss) before extraordinary item................... $ .82 $ (.34)
Extraordinary item........................................ (.01) --
-------- --------
Net income (loss)..................................... $ .81 $ (.34)
======== ========
NET INCOME (LOSS) PER COMMON SHARE--DILUTED:................
Income (loss) before extraordinary item................... $ .82 $ (.34)
Extraordinary item........................................ (.01) --
-------- --------
Net income (loss)..................................... $ .81 $ (.34)
======== ========
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .5625 $ .525
======== ========
Average number of common shares outstanding (in thousands):
Basic..................................................... 264,676 264,507
======== ========
Diluted................................................... 266,867 264,507
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $114 $114 $ 55 $ 55
---- ---- ----- -----
Other comprehensive (loss):
Foreign currency translation.............................. (17) (17) (14) (14)
---- ---- ----- -----
Other comprehensive (loss) before income taxes.............. (17) (17) (14) (14)
Provision (benefit) for income taxes...................... -- -- -- --
---- ---- ----- -----
OTHER COMPREHENSIVE (LOSS) NET OF INCOME TAX................ (17) (17) (14) (14)
---- ---- ----- -----
Comprehensive income........................................ $ 97 $ 97 $ 41 $ 41
==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME (LOSS)........................................... $ 215 $ 215 $ (90) $ (90)
----- ----- ----- -----
Other comprehensive (loss):
Foreign currency translation.............................. (133) (133) (50) (50)
----- ----- ----- -----
Other comprehensive (loss) before income taxes.............. (133) (133) (50) (50)
Provision (benefit) for income taxes...................... -- -- -- --
----- ----- ----- -----
OTHER COMPREHENSIVE (LOSS) NET OF INCOME TAX................ (133) (133) (50) (50)
----- ----- ----- -----
Comprehensive income (loss)................................. $ 82 $ 82 $(140) $(140)
===== ===== ===== =====
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
----- ----- ------- -------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)....................................... $ 215 $ 215 $ (90) $ (90)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation of property, plant and equipment....... 198 198 207 207
Amortization of intangibles......................... 161 161 167 167
Deferred income tax provision (benefit)............. 27 27 (183) (183)
Restructuring items, net of cash payments........... (124) (124) 388 388
Changes in working capital items, net............... (277) (282) (192) (208)
Extraordinary loss on early retirement of debt,
net............................................... 3 3 -- --
Gain on divestitures, net........................... -- -- (14) (14)
Other, net.......................................... (13) (13) (22) (22)
----- ----- ------- -------
Net cash flows from operating activities.............. 190 185 261 245
----- ----- ------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures.................................... (150) (150) (242) (242)
Proceeds from sale of assets............................ 27 27 8 8
Acquisition of businesses............................... (107) (107) (9) (9)
Proceeds from sale of businesses........................ -- -- 550 550
----- ----- ------- -------
Net cash flows from (used in) investing activities.... (230) (230) 307 307
----- ----- ------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from the issuance of long-term debt........ 497 497 1,279 1,279
Proceeds from the sale of call options on long-term
debt.................................................. -- -- 41 41
Repayments of long-term debt............................ (324) (324) (1,682) (1,682)
Decrease in notes payable............................... (8) (8) (95) (95)
Dividends paid on common stock.......................... (146) (146) (139) (139)
Repurchases of Class A common stock..................... (12) -- (38) --
Proceeds from exercise of Class A common stock
options............................................... 7 -- 24 --
----- ----- ------- -------
Net cash flows from (used in) financing activities.... 14 19 (610) (596)
----- ----- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................. (9) (9) (6) (6)
----- ----- ------- -------
Net change in cash and cash equivalents............... (35) (35) (48) (50)
Cash and cash equivalents at beginning of period.......... 111 111 127 127
----- ----- ------- -------
Cash and cash equivalents at end of period................ $ 76 $ 76 $ 79 $ 77
===== ===== ======= =======
Income taxes paid, net of refunds......................... $ 126 $ 126 $ 122 $ 122
Interest paid............................................. $ 204 $ 204 $ 213 $ 213
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
------- ------- ------- -------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 76 $ 76 $ 111 $ 111
Accounts receivable, net.............................. 512 512 506 506
Deferred income taxes................................. 93 93 98 98
Inventories........................................... 915 915 753 753
Prepaid expenses...................................... 75 75 70 69
------- ------- ------- -------
TOTAL CURRENT ASSETS.............................. 1,671 1,671 1,538 1,537
------- ------- ------- -------
Property, plant and equipment, net...................... 2,828 2,828 2,947 2,947
Trademarks, net......................................... 3,281 3,281 3,368 3,368
Goodwill, net........................................... 3,071 3,071 3,182 3,182
Other assets and deferred charges....................... 226 226 82 82
------- ------- ------- -------
$11,077 $11,077 $11,117 $11,116
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................... $ 54 $ 54 $ 68 $ 68
Accounts payable...................................... 310 310 407 407
Accrued liabilities................................... 1,012 962 1,043 997
Intercompany payable to Nabisco Holdings.............. -- 5 -- 5
Current maturities of long-term debt.................. 159 159 118 118
Income taxes accrued.................................. 91 91 111 111
------- ------- ------- -------
TOTAL CURRENT LIABILITIES......................... 1,626 1,581 1,747 1,706
------- ------- ------- -------
Long-term debt (less current maturities)................ 3,753 3,753 3,619 3,619
Other noncurrent liabilities............................ 726 726 704 704
Deferred income taxes................................... 1,159 1,159 1,162 1,162
Stockholders' equity:
Class A common stock (51,381,284 and 51,434,872 shares
issued and outstanding at September 30, 1999 and
December 31, 1998, respectively).................... 1 -- 1 --
Class B common stock (213,250,000 shares issued and
outstanding at September 30, 1999 and December 31,
1998)............................................... 2 -- 2 --
Paid-in capital....................................... 4,093 4,141 4,092 4,141
Retained earnings (accumulated deficit)............... 56 35 (5) (31)
Treasury stock, at cost............................... (19) -- (18) --
Accumulated other comprehensive income (loss)......... (318) (318) (185) (185)
Notes receivable on common stock purchases............ (2) -- (2) --
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY........................ 3,813 3,858 3,885 3,925
------- ------- ------- -------
$11,077 $11,077 $11,117 $11,116
======= ======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1--INTERIM REPORTING
GENERAL
For interim reporting purposes, certain costs and expenses are charged to
operations in proportion to the estimated total annual amount expected to be
incurred. The results for the three and nine months periods ended September 30,
1999 are not necessarily indicative of the results to be expected for the year
ended December 31, 1999.
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
In management's opinion, the accompanying unaudited consolidated condensed
financial statements (the "Consolidated Condensed Financial Statements") of
Nabisco Holdings Corp. ("Nabisco Holdings") and Nabisco, Inc. ("Nabisco"
together with Nabisco Holdings, the "Companies") contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods presented. The Consolidated Condensed
Financial Statements should be read in conjunction with the consolidated
financial statements and footnotes included in the Annual Report on Form 10-K of
Nabisco Holdings and Nabisco for the year ended December 31, 1998 and Form 8-K
filed June 16, 1999.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 1, 1999, Nabisco Holdings and Nabisco adopted SOP No. 98-5,
Reporting on the Costs of Start-Up Activities. SOP No. 98-5 established
standards on accounting for start-up and organization costs and, in general,
requires such costs to be expensed as incurred. The adoption of SOP No. 98-5 did
not have a material effect on Nabisco Holdings' or Nabisco's financial position
or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, which was required
to be adopted by January 1, 2000, with early adoption permitted. In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133, which amended SFAS
No. 133 to delay its effective date one year. SFAS No. 133 requires that all
derivative instruments be recorded on the consolidated balance sheet at their
fair value. Changes in the fair value of derivatives will be recorded each
period in earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Nabisco Holdings and Nabisco have not yet determined the
impact, if any, that adoption or subsequent application of SFAS No. 133 will
have on its financial position or results of operations.
ACQUISITIONS
During the third quarter of 1999 Nabisco acquired the stock of Canale SA,
Argentina's fourth largest biscuit company, for approximately $126 million. The
acquisition was accounted for as a purchase. Accordingly, the purchase price
will be allocated to the underlying assets and liabilities based upon their
estimated fair values at the date of acquisition. As of September 30, 1999 the
acquisition was carried in other assets in the consolidated balance sheet
pending completion of the purchase price allocation.
During the third quarter of 1999 Nabisco entered into a definitive agreement
to acquire certain assets and liabilities of Favorite Brands International, Inc.
for $475 million. The transaction is expected to be completed in the fourth
quarter of 1999, subject to various conditions including court and regulatory
6
<PAGE>
approval. Favorite Brands is currently reorganizing under Chapter 11 bankruptcy
protection, and the transaction is still subject to a bankruptcy court public
auction process. Favorite Brands is the fourth largest non-chocolate candy
company in the United States with annual sales of approximately $700 million.
NOTE 2--REORGANIZATION OF NABISCO HOLDINGS' PARENTS
During the second quarter of 1999, the former direct and indirect parents of
the registrants, RJR Nabisco, Inc. (which has been renamed R.J. Reynolds Tobacco
Holdings, Inc.--"RJR") and RJR Nabisco Holdings Corp. (which has been renamed
Nabisco Group Holdings Corp.--"NGH") completed a series of reorganization
transactions. The principal transactions in this reorganization that affected
Nabisco Holdings and Nabisco, are the following:
- On May 18, 1999, RJR transferred all of the outstanding Class B Common
Stock of Nabisco Holdings to NGH through a merger transaction. The
Class B Common Stock currently represents approximately 80.5% of the
economic interest and approximately 97.7% of the voting interest in
Nabisco Holdings.
- On June 14, 1999, NGH paid a dividend of 100% of the common stock of RJR
to record holders of NGH common stock as of May 27, 1999, the record date
for the distribution. As a result of the distribution, Nabisco Holdings
and Nabisco and their subsidiaries are no longer affiliated with RJR and
its subsidiaries.
RELATED PARTY AGREEMENTS
NGH, RJR and Reynolds Tobacco entered into several agreements governing the
relationships among the parties after the distribution of RJR's shares to NGH
stockholders, including the provision of intercompany services by Nabisco to
NGH, certain tax matters, indemnification rights and obligations and other
matters among the parties as disclosed in the Form 8-K filed by Nabisco Holdings
and Nabisco on June 16, 1999.
These agreements replaced a predecessor intercompany services agreement, a
predecessor tax sharing agreement and a predecessor corporate agreement that had
previously been in place between Nabisco Holdings and RJR. Nabisco Holdings and
Nabisco, Inc. do not anticipate that Nabisco Holdings' entry into these new
agreements will have a material effect on either entity's financial condition or
results of operations.
IMPACT OF THE REORGANIZATION ON THE RETIREMENT PLAN FOR EMPLOYEES OF RJR
NABISCO, INC.
In connection with the reorganization transactions, the assets and
liabilities of the Retirement Plan for Employees of RJR Nabisco, Inc. (the "old
plan") were split into two plans. One plan covers employees and former employees
of Nabisco Holdings, Nabisco and NGH ("the Nabisco Plan") and the other plan
covers employees and former employees of RJR.
The split of the assets and liabilities of the old plan was in accordance
with a May 1999 agreement between the Pension Benefit Guaranty Corporation
("PBGC") and RJR Nabisco Holdings Corp. Based on this agreement and as required
by Section 414(1) of the Internal Revenue Code, the assets of the old plan were
allocated in proportion to the benefit obligations of each of the respective
plans. The use of this methodology resulted in a lower actual transfer of assets
to the Nabisco Plan of approximately $70 million and the assumption of higher
actual benefit obligations of approximately $30 million than the allocated
amounts used in the December 31, 1998 consolidated financial statements. The
impact of this change, an increase in unfunded liability of $100 million, will
be recognized in net periodic benefit costs over future periods. As a result,
net periodic benefit cost for full year 1999 is expected to increase by
approximately $7 million. The PBGC agreement did not require Nabisco to make
additional contributions to the Nabisco Plan.
7
<PAGE>
NOTE 3--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 of which 5,020 positions were
eliminated as of September 30, 1999. The restructuring programs will require net
cash expenditures of approximately $170 million. In addition, the programs will
require additional restructuring-related expenses of approximately
$134 million. Since the programs' inception, $102 million ($61 million after
tax) was incurred, of which $12 million ($8 million after tax) and $46 million
($28 million after tax), respectively, were incurred in the three months and
nine months ended September 30, 1999. These additional expenses are principally
for implementation and integration of the programs and include costs for
relocation of employees and equipment and training.
In the third quarter of 1999, Nabisco recorded a net restructuring credit of
$59 million ($44 million after tax), related to the Biscuit, U.S. Foods Group
and International businesses of $26 million, $14 million and $19 million,
respectively, primarily reflecting higher than anticipated proceeds from the
sale of facilities closed as part of the 1998 restructuring programs and lower
costs and cash outlays than originally estimated for certain of these programs.
The major components of the credit were lower severance and benefit costs
for: the sales force reorganization of $18 million; staff reduction at
headquarters and operating units of $20 million; and distribution
reorganizations of $4 million. The reduced costs reflect unanticipated staff
reductions through voluntary separations rather than planned terminations and
other net changes in cost estimates. In addition, asset impairment costs were
lower by $14 million reflecting higher proceeds and anticipated proceeds from
the sales of facilities.
The key elements of the restructuring programs include:
<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSET OTHER EXIT
IN MILLIONS AND BENEFITS TERMINATIONS IMPAIRMENTS 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 1998 restructuring reserves.... 208 18 257 47 530
Third quarter 1999 restructuring
credit.................................. (41) (2) (14) (2) (59)
---- --- ---- --- ----
167 16 243 45 471
---- --- ---- --- ----
Charges and Payments:
Year ended December 31, 1998............. (34) (3) (12) (12) (61)
Nine months ended September 30, 1999..... (55) (5) (66) (16) (142)
---- --- ---- --- ----
Total charges and payments, net of
cash proceeds...................... (89) (8) (78) (28) (203)
---- --- ---- --- ----
Reserve and valuation account balances as
of September 30, 1999................... $ 78 $ 8 $165 $17 $268
==== === ==== === ====
</TABLE>
8
<PAGE>
The total charges and payments, net of cash proceeds applied against the
restructuring reserves totaled $85 million, which is comprised of cumulative
cash expenditures of $103 million and cumulative cash proceeds of $18 million.
For the first nine months of 1999, charges and payments, net of cash proceeds
totaled $47 million, which is comprised of $65 million of cash expenditures and
$18 million of cash proceeds which were applied against the restructuring
reserves.
The key elements of the restructuring programs, after the restructuring
credit of $59 million include:
<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSET OTHER EXIT
IN MILLIONS AND BENEFITS TERMINATIONS IMPAIRMENTS COSTS TOTAL
- ----------- ------------ ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Sales force reorganizations.............. $ 19 $ 3 $ -- $-- $ 22
Distribution reorganizations............. 12 4 7 23
Staff reductions......................... 63 1 4 68
Manufacturing cost reduction
initiatives............................. 22 8 30
Plant closures........................... 49 3 203 15 270
Product line rationalizations............ 2 5 21 30 58
---- --- ---- --- ----
Total restructuring charges.......... $167 $16 $243 $45 $471
==== === ==== === ====
</TABLE>
Asset impairments in connection with the restructuring program were
identified and measured in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In
instances where the held and used method was applied, which includes all plant
closures, the fair value of impaired assets was determined using the discounted
cash flows generated from assets while still in use and the estimated proceeds
from their ultimate sale.
As of September 30, 1999, production had ceased in 10 of the 18 facilities
to be closed, of which 4 were sold. In addition, 2 of the remaining facilities
are under contract to be sold.
NOTE 4--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
IN MILLIONS 1999 1998
- ----------- ------------- ------------
<S> <C> <C>
Finished products........................................... $573 $457
Raw materials............................................... 195 164
Other....................................................... 147 132
---- ----
$915 $753
==== ====
</TABLE>
NOTE 5--LONG-TERM DEBT
During the third quarter of 1999 Nabisco exercised a call option to redeem
$200 million of floating rate notes due August 2009 and recognized an after-tax
extraordinary loss of approximately $3 million. This redemption was refinanced
with commercial paper.
NOTE 6--SEGMENT INFORMATION
OPERATING SEGMENT DATA
Nabisco Holdings is a holding company whose subsidiaries are engaged in the
manufacture, distribution and sale of cookies, crackers and other food products.
Nabisco Holdings is organized and reports its results of operations in three
business segments: Biscuit, the U.S. Foods Group and the International Food
Group which are segregated by both product and geographic area.
9
<PAGE>
Nabisco Holdings' management evaluates the performance of its operating
segments based upon ongoing Operating Company Contribution (OCC). OCC for each
reportable segment is operating income before amortization of trademarks and
goodwill, restructuring charges and credits and restructuring-related expenses
and gain on divestitures, net.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
IN MILLIONS 1999 1998 1999 1998
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales from external customers:
Biscuit............................................... $ 924 $ 926 $ 2,688 $ 2,640
U.S. Foods Group...................................... 545 498 1,527 1,419
International Food Group.............................. 588 631 1,720 1,836
------- ------- ------- -------
Total ongoing..................................... 2,057 2,055 5,935 5,895
------- ------- ------- -------
U.S. Foods Group...................................... -- 40 -- 286
International Food Group.............................. -- 3 -- 10
------- ------- ------- -------
Total divested.................................... -- 43 -- 296
------- ------- ------- -------
Total........................................... $ 2,057 $ 2,098 $ 5,935 $ 6,191
======= ======= ======= =======
Segment operating company contribution
Biscuit............................................... $ 136 $ 127 $ 386 $ 399
U.S. Foods Group...................................... 74 60 196 171
International Food Group.............................. 49 48 129 127
------- ------- ------- -------
Total ongoing..................................... 259 235 711 697
------- ------- ------- -------
U.S. Foods Group...................................... -- 3 -- 38
International Food Group.............................. -- 1 -- 1
------- ------- ------- -------
Total divested.................................... -- 4 -- 39
------- ------- ------- -------
Total segment operating company contribution............ 259 239 711 736
Restructuring-related expenses.......................... 12 15 46 21
Gain on divestitures, net............................... -- (14) -- (14)
Amortization of trademarks and goodwill................. 54 54 161 167
Restructuring charge (credit)........................... (59) -- (59) 406
------- ------- ------- -------
Consolidated operating income........................... 252 184 563 156
Interest and debt expense............................... 64 72 193 230
Other expense, net...................................... 7 10 22 22
------- ------- ------- -------
Income (loss) before income taxes....................... $ 181 $ 102 $ 348 $ (96)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------------
SEPTEMBER 30, DECEMBER 31,
IN MILLIONS 1999 1998
- ----------- ------------- ------------
<S> <C> <C>
Segment assets:
Biscuit................................................... $ 2,150 $ 2,124
U.S. Foods Group.......................................... 906 840
International Food Group.................................. 2,587 2,579
------- -------
Total segment assets...................................... 5,643 5,543
Unallocated intangibles, net (1).......................... 5,434 5,574
------- -------
Consolidated assets....................................... $11,077 $11,117
======= =======
</TABLE>
- ------------------------
(1) Represents unallocated goodwill, trademarks and tradename resulting from
KKR's 1989 acquisition of RJR.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of Nabisco Holdings' financial
condition and results of operations. The discussion and analysis for sales,
operating company contribution and operating income includes information as
reported in the historical financial statements, followed by items that
management believes impact the comparability of historical results, ongoing
results and management's discussion and analysis of ongoing results. Ongoing
results are presented on a basis consistent with how the ongoing businesses are
managed. They exclude sales, operating company contribution and operating income
from divested businesses, restructuring charges and credits,
restructuring-related expenses and gains on divestitures, net that management
believes affect the comparability of the results of operations. The ongoing
results of operations should not be viewed as a substitute for the historical
results of operations but as a tool to better understand the underlying trends
in the business. The 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 Condensed Financial Statements.
The food business is conducted by the operating subsidiaries of Nabisco
Holdings. Nabisco's businesses in the United States are comprised of Biscuit 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").
NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998 % CHANGE
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REPORTED NET SALES:
Biscuit................................ $ 924 $ 926 -- $2,688 $2,640 2%
U.S. Foods Group....................... 545 538 1% 1,527 1,705 (10%)
International Food Group............... 588 634 (7%) 1,720 1,846 (7%)
------ ------ ------ ------
Total.................................. 2,057 2,098 (2%) 5,935 6,191 (4%)
------ ------ ------ ------
NET SALES FROM DIVESTED BUSINESSES:
U.S. Foods Group....................... -- 40 -- 286
International Food Group............... -- 3 -- 10
------ ------ ------ ------
Total.................................. -- 43 -- 296
------ ------ ------ ------
NET SALES FROM ONGOING BUSINESSES:
Biscuit................................ 924 926 -- 2,688 2,640 2%
U.S. Foods Group....................... 545 498 9% 1,527 1,419 8%
International Food Group............... 588 631 (7%) 1,720 1,836 (6%)
------ ------ ------ ------
Total.................................. $2,057 $2,055 -- $5,935 $5,895 1%
====== ====== ====== ======
</TABLE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON NET SALES FROM ONGOING
BUSINESSES:
- Biscuit's net sales were flat in the third quarter and increased 2% in the
first nine months versus the prior year. The sales performance in the
third quarter primarily reflects the carryover effect of 1998 price
increases and volume gains in cookies and crackers which were more than
offset by lower volumes in breakfast snacks. The first nine months' sales
increase reflects the carryover effect of 1998 price increases and volume
increases in cookie and cracker brands, partially offset by a decline in
breakfast snack volumes.
- U.S. Foods Group's net sales increased 9% in the third quarter and 8% in
the first nine months versus the prior year. Both periods were paced by
strong volume gains from nuts, confections, condiments and pet snacks.
11
<PAGE>
- International's net sales decreased 7% in the third quarter and 6% in the
first nine months versus the prior year. The decrease in the third quarter
was primarily driven by unfavorable foreign currency translation in
Brazil, the Andean region and Spain. Excluding the impact of foreign
currency translation, sales increased 5%. This performance reflects
increased pricing in Brazil and solid volume gains in Argentina, Asia,
Canada and the Caribbean partially offset by volume declines in Brazil and
Spain and price weakness in certain markets. The sales decline for the
first nine months was primarily driven by unfavorable foreign currency
translation, principally in Brazil. Excluding the impact of unfavorable
foreign currency translation, sales increased 4%. The increase was
primarily due to price increases partially offset by volume declines. The
price increases, paced by Brazil, were across all regions, with the
exception of Argentina which experienced competitive pricing pressures.
The volume declines were primarily in Brazil, the Andean region and Spain
offset in part by volume gains in Canada, the Caribbean and Mexico.
OPERATING COMPANY CONTRIBUTION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998 % CHANGE
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REPORTED OPERATING COMPANY CONTRIBUTION(1):
Biscuit........................................ $129 $117 10% $351 $385 (9%)
U.S. Foods Group............................... 73 64 14% 192 208 (7%)
International Food Group....................... 45 57 (21%) 122 136 (10%)
---- ---- ---- ----
Total.......................................... 247 238 4% 665 729 (9%)
---- ---- ---- ----
ITEMS EXCLUDED FROM ONGOING OPERATING COMPANY
CONTRIBUTION:
Biscuit
Restructuring-related expenses............. (7) (10) (35) (14)
U.S. Foods Group:
Restructuring-related expenses............. (1) (1) (4) (3)
Results from divested businesses........... -- 3 -- 38
Net gain on divested businesses............ -- 2 -- 2
International Food Group:
Restructuring-related expenses............. (4) (4) (7) (4)
Results from divested businesses........... -- 1 -- 1
Net gain on divested businesses............ -- 12 -- 12
---- ---- ---- ----
Total.......................................... (12) 3 (46) 32
---- ---- ---- ----
OPERATING COMPANY CONTRIBUTION FROM ONGOING
BUSINESSES:
Biscuit........................................ 136 127 7% 386 399 (3%)
U.S. Foods Group............................... 74 60 23% 196 171 15%
International Food Group....................... 49 48 2% 129 127 2%
---- ---- ---- ----
Total.......................................... $259 $235 10% $711 $697 2%
==== ==== ==== ====
</TABLE>
- ------------------------
(1) Operating company contribution represents operating income before
amortization of trademarks and goodwill and restructuring charges.
12
<PAGE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING COMPANY CONTRIBUTION
FROM ONGOING BUSINESSES:
- Biscuit's operating company contribution increased 7% in the third quarter
and decreased 3% in the first nine months versus the prior year. The third
quarter results were primarily attributable to the carryover effect of
1998 price increases and slightly lower marketing spending partially
offset by a decline in volume. The volume decline is primarily due to the
impact of lower breakfast snack volumes partially offset by gains in
cookie and cracker volumes. The year to date period was impacted by
increased marketing spending and increased selling costs associated with
the implementation of the redesigned direct store delivery sales force.
The carryover effect of 1998 price increases and lower manufacturing
overhead costs resulting from ongoing productivity programs, along with
volume gains for both cookies and crackers partially offset these higher
costs. Both the 1999 third quarter and year to date periods were
negatively impacted by a $6 million one time charge reflecting the
settlement with the Department of Labor regarding overtime pay for sales
personnel.
- U.S. Foods Group's operating company contribution increased 23% in the
third quarter and 15% in the first nine months versus the prior year. The
third quarter and first nine months' improvements were primarily due to
strong volume gains from nuts, confections, condiments and pet snacks
partially offset by increased marketing spending. The first nine months
were also impacted by the effect of productivity programs on fixed selling
costs.
- International's operating company contribution increased 2% in both the
third quarter and first nine months of 1999 versus the prior year. The
third quarter increase was primarily due to the sales results discussed
previously, combined with productivity gains partially offset by higher
marketing expenditures and the net impact of unfavorable foreign currency
translation. Increased operating company contribution was reported by
Asia, Canada, Argentina and the Caribbean offset in part by shortfalls in
Brazil and Mexico. The first nine months' increase reflects gains in most
regions paced by Asia, Spain, Brazil and Argentina offset in part by
shortfalls in Colombia and Mexico. The gains reflect the price increases
noted in our sales discussion and productivity gains in Argentina and
Spain. Partially offsetting these gains were increased marketing
expenditures primarily in Canada, Argentina and Asia and the unfavorable
impact of foreign currency translation.
OPERATING INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998 % CHANGE
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REPORTED OPERATING INCOME..................... $252 $ 184 37% $563 $ 156
---- ----- ---- -----
OPERATING INCOME (LOSS) EXCLUDED FROM ONGOING
BUSINESS:
Restructuring (charge) credit............. 59 -- 59 (406)
Restructuring-related expenses............ (12) (15) (46) (21)
Net gain on divested businesses........... -- 14 -- 14
Results from divested businesses.......... -- 1 -- 31
---- ----- ---- -----
Total..................................... 47 -- 13 (382)
---- ----- ---- -----
OPERATING INCOME FROM ONGOING BUSINESS........ $205 $ 184 11% $550 $ 538 2%
==== ===== ==== =====
</TABLE>
13
<PAGE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING INCOME FROM ONGOING
BUSINESSES:
- Nabisco Holdings' operating income was $205 million and $550 million for
the third quarter and the first nine months of 1999, an increase of 11%
and of 2%, respectively, from the same 1998 periods. The increase in the
third quarter was a result of higher operating company contribution
discussed previously. The increase in the first nine months reflects
higher operating company contribution discussed previously as well as
lower amortization of intangibles due to businesses sold in 1998.
INTEREST AND DEBT EXPENSE
Consolidated interest and debt expense of $64 million and $193 million for
the third quarter and first nine months of 1999 decreased 11% and 16%,
respectively from the same 1998 periods as a result of lower average borrowing
levels and lower average interest rates. Debt levels were reduced by the
application of net proceeds from businesses sold in the third quarter of 1998,
along with funds from operations and lower capital spending.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $7 million expense and $22 million expense
in the third quarter and first nine months of 1999 compared to $10 million
expense and $22 million expense for the same 1998 periods. The third quarter
decrease of $3 million was principally due to lower foreign exchange losses. The
first nine months comparison was flat primarily reflecting lower interest income
offset by lower financing costs.
NET INCOME (LOSS)
Nabisco Holdings' net income of $114 million and $215 million for the third
quarter and first nine months of 1999 compares to net income of $55 million and
a net loss of $90 million for the same 1998 periods. The third quarter increase
of $59 million is principally due to higher operating income of $68 million and
lower interest and debt expense of $8 million partially offset by an increase in
the provision for income taxes and a $3 million extraordinary loss. The increase
for the first nine months primarily reflects increased operating income of
$407 million and lower interest and debt expense of $37 million offset in part
by an increase in the provision for income taxes and a $3 million extraordinary
loss.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income of $97 million and $82 million for the third quarter
and first nine months of 1999 compares to comprehensive income of $41 million
and a comprehensive loss of $140 million for the same 1998 periods. Both the
third quarter and first nine months comparisons reflect higher net income offset
by the unfavorable impact of foreign currency translation.
RESTRUCTURING
Savings objectives set in our 1998 restructuring programs are on target
despite lower than anticipated spending to date. The June 1998 program is
expected to be substantially completed in 1999 and the December 1998 program is
expected to be substantially completed by mid-year 2000. Pre-tax savings in 1999
will be approximately $90 million including cash savings of $85 million and,
after completion of the programs, are expected to be approximately $145 million
annually including cash savings of $135 million. In the third quarter of 1999,
Nabisco recorded a net restructuring credit of $59 million reflecting higher
than anticipated proceeds from the sale of facilities closed as part of the 1998
restructuring programs and lower costs and cash outlays than originally
estimated for certain of these programs. As projects near completion, we will
continue to analyze the actual spending and the estimated cost to complete the
programs. The results of that analysis will determine what further adjustments,
if any, will be necessary.
14
<PAGE>
For a further discussion of restructuring programs see Note 3 to the
Consolidated Condensed Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from operating activities amounted to $190 million for the
first nine months of 1999 compared to $261 million for the first nine months of
1998. The decrease in net cash flows from operating activities primarily
reflects higher working capital requirements principally due to a higher
inventory position at September 30, 1999 versus an unusually low inventory
position at December 31, 1998.
Cash flows used in investing activities were $230 million for the first nine
months of 1999 compared to cash inflows of $307 million for the first nine
months of 1998. The $537 million change in cash flows was primarily due to the
absence in 1999 of proceeds from the sale of businesses and increased spending
for business acquisitions partially offset by lower capital expenditures and
higher proceeds from the sale of assets.
Capital expenditures were $150 million in the first nine months of 1999.
Management expects that the 1999 level of net investment for property, plant and
equipment will be $200 million, as spending for capital expenditures will be
approximately $230 million offset by proceeds from asset sales, 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.
Cash flows from financing activities were $14 million for the first nine
months of 1999, compared to $610 million of cash flows used in financing
activities for the first nine months of 1998. The $624 million change in cash
flows in 1999 is principally due to an increase in net borrowings in 1999 of
$165 million versus a reduction in net borrowings of $498 million in 1998
partially offset by the absence in 1999 of proceeds from the sale of call
options on long-term debt issued in January 1998.
During the third quarter of 1999 Nabisco exercised a call option to redeem
$200 million of floating rate notes due August 2009 and recognized an after tax
extraordinary loss of approximately $3 million. This redemption was refinanced
with commercial paper.
As of September 30, 1999, the $1.5 billion revolving credit facility was
unutilized and available to support borrowings. In addition, the 364-day
$1.11 billion credit facility was utilized to support outstanding commercial
paper borrowings of $582 million, and accordingly, $528 million was available.
Effective October 28, 1999, the 364-day facility was renewed and amended to a
$1.10 billion credit facility.
The companies believe that they are currently in compliance with all
covenants and restrictions imposed by the terms of their indebtedness.
At September 30, 1999, Nabisco Holdings' total debt (notes payable and
long-term debt including current maturities) and total capital (total debt and
total stockholders' equity) amounted to approximately $4.0 billion and
$7.8 billion, respectively, of which total debt is higher by $161 million and
total capital is higher by $89 million than their respective balances at
December 31, 1998. Nabisco Holdings' ratios of total debt to total stockholders'
equity and total debt to total capital at September 30, 1999 were 1.04 to 1 and
.51 to 1, respectively.
Nabisco Holdings currently pays regular quarterly dividends on its common
stock at an annual rate of $.75 per share. At that rate, the aggregate amount of
dividends to be paid would be approximately $198 million. Nabisco Holdings
believes that its internally generated cash and borrowings under its bank credit
agreement and any other lines of credit it may establish will provide adequate
funds for working capital, interest expense, capital expenditures and payment of
its anticipated quarterly dividends. Nabisco Holdings expects to finance future
acquisitions primarily from internally generated cash or borrowings.
15
<PAGE>
FOREIGN MARKET RISK
Nabisco's international businesses are exposed to financial market
volatility in the countries in which they operate, which can impact the
International Food Group's financial position. As of September 30, 1999,
Brazil's currency, the Real, devalued approximately 58% from December 31, 1998,
compared to the U.S. Dollar, which resulted in an unfavorable foreign currency
translation adjustment of approximately $118 million for the nine months ended
September 30, 1999.
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 has completed an inventory and assessment of its financial,
information and operational systems, including equipment with embedded
microprocessors, and has developed and executed detailed plans for required
systems modifications or replacements.
Software remediation of information technology systems ("IT systems") has
been completed and remediation of non-information technology systems with
embedded technology ("non-IT systems") is 97% complete and scheduled to be 100%
complete by the end of 1999.
Software testing following remediation is approximately 98% complete for IT
systems and is expected to be completed by the end of 1999. With respect to
non-IT systems, testing is 96% complete and is expected to be complete by the
end of 1999.
Approximately 98% of IT systems are remediated and in production. Management
expects the remainder to be completed and in production by the end of 1999.
Approximately 99% of non-IT systems are compliant and are expected to be fully
Year 2000 compliant by the end of 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 $40 million to
$45 million, of which $33 million has been spent through September 30, 1999.
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 it will
not suffer any material adverse affects of third party non-compliance. This
effort consisted 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 September 30, 1999, Nabisco had sent correspondence
to 100% of these third parties. As of September 30, 1999, Nabisco has received
responses from 70% of all third parties, with 69% of all third parties
indicating compliance. To supplement this effort, Nabisco has conducted more
detailed readiness reviews, including telephone interviews, of the Year 2000
status of the suppliers ranked as most critical based on the nature of their
relationship with Nabisco. For third parties who have not responded or where
compliance could not be established from the communications, management has
considered this in their assessment of risk and contingency planning.
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 have been developed, which include backup
procedures, identification of alternate suppliers and possible increases in
safety inventory levels. 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
16
<PAGE>
errors, and inventory obsolescence. However, Nabisco believes its Year 2000
implementation plan, including contingency measures, will 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. Nabisco employs a variance/co-variance approach to its calculation
of Value at Risk ("VaR"), which is a statistical measure of potential loss in
terms of fair value, cash flows, or earnings of interest rate sensitive
financial instruments over a one year horizon using a 95% confidence interval
for changes in interest rates. 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.
The VaR of the potential loss in fair value associated with Nabisco's
exposure to changing interest rates was $207 million after tax at September 30,
1999, a decrease of $39 million from the December 31, 1998 amount. This exposure
is primarily related to long-term debt with fixed interest rates.
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.
COMMODITY PRICE EXPOSURE
The VaR associated with Nabisco's derivative commodity instruments due to
reasonably possible near-term changes in commodity prices, based on historical
commodity price movements, would not result in a material effect on the future
earnings of Nabisco.
The VaR associated with Nabisco's net commodity exposure (derivatives plus
physical contracts less anticipated future consumption) would result in a
potential loss in earnings of $44 million after tax at September 30, 1999, an
increase of $26 million from the December 31, 1998 amount primarily due to the
volatility of soy oil and wheat commodity prices on our underlying positions in
those commodities.
The VaR associated with either Nabisco's derivative commodity instruments or
its net commodity exposure would not have a material effect on the fair values
or cash flows of Nabisco.
------------------------
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 level of restructuring-related expenses and the amount of
savings from the restructuring program, 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.
17
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 Third Amendment to the 364 Day Facility, dated October 28,
1999, among Nabisco Holdings Corp., Nabisco, Inc., and the
lending institutions parties thereto.
12 Nabisco, Inc. Computation of Ratio of Earnings to Fixed
Charges for the nine months ended September 30, 1999.
27.1 Nabisco Holdings Corp. Financial Data Schedule for the nine
months ended September 30, 1999.
27.2 Nabisco, Inc. Financial Data Schedule for the nine months
ended September 30, 1999.
</TABLE>
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
NABISCO HOLDINGS CORP.
NABISCO, INC.
(Registrants)
Date: November 15, 1999 /s/ JAMES E. HEALEY
......................................
James E. Healey
Executive Vice President and
Chief Financial Officer
/s/ THOMAS J. PESCE
......................................
Thomas J. Pesce
Senior Vice President and Controller
</TABLE>
19
<PAGE>
Exhibit 10.1
THIRD AMENDMENT
THIRD AMENDMENT (this "Amendment"), dated as of October 28,
1999, among NABISCO HOLDINGS CORP. ("Holdings"), NABISCO, INC. (the "Borrower"),
the lenders party to the Credit Agreement referred to below and Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A. and The Fuji Bank Limited, as
Senior Managing Agents. All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided for such terms in the Credit
Agreement.
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Lenders and the Senior
Managing Agents are parties to a Credit Agreement, dated as of October 31, 1996
(as amended prior to the date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement
as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 6.09 of the Credit Agreement is hereby amended by
changing the two references to "December 31, 1995" therein to read "December 31,
1998".
2. Section 6.10 of the Credit Agreement is hereby amended by
changing the phrase "RJRN is indemnifying Holdings" therein to read: "RJT is
indemnifying NGHC, Holdings and its Subsidiaries".
3. The Credit Agreement is hereby amended by adding a new
Section 6.16 to read:
"6.16 YEAR 2000 COMPLIANCE. Holdings has reviewed the areas
within its consolidated business and operations that could be adversely affected
by, and has developed and is carrying out a plan to address on a timely basis,
the "Year 2000 Problem" (that is, the risk that computer applications used by
Holdings and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates on or prior to and any date
after December 31, 1999). Based on such review and plan, Holdings reasonably
believes that the "Year 2000 Problem" will not have a material adverse effect on
the operations, business, properties, assets or financial condition of Holdings
and its Subsidiaries, taken as a whole."
4. Sections 7.01(c) and 7.09 of the Credit Agreement are
hereby amended by changing the references to "Sections 8.03(e), 8.04(i), 8.05,
8.07, 8.08 and 8.09" therein to read: "Sections 8.03(e), 8.05 and 8.06".
<PAGE>
5. Section 7.10 of the Credit Agreement is hereby deleted in
its entirety.
6. Section 8.02 of the Credit Agreement is hereby amended in
its entirety to read:
"8.02 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Holdings
will not, and will not permit any Subsidiary to, wind up, liquidate or dissolve
its affairs, or enter into any transaction of merger or consolidation, or sell
or otherwise dispose of property or assets constituting all or substantially all
of the property or assets of Holdings and its Subsidiaries as a whole, except
that any Subsidiary of Holdings may be merged or consolidated with or into, or
be liquidated into, any Person (including Holdings, but only if the Borrower has
first merged into or consolidated with Holdings) PROVIDED that in the event of a
merger, consolidation or liquidation of the Borrower with or into any such
Person, the surviving corporation, if not the Borrower, shall execute and
deliver agreements assuming the obligations of the Borrower under this Agreement
and the Notes, which assumption agreements and all related actions and
documentation shall be in form and substance satisfactory to the Senior Managing
Agents; PROVIDED FURTHER that if any of the foregoing transactions involves a
Material Subsidiary, after giving effect to such transaction, no Event of
Default would result therefrom. Notwithstanding anything to the contrary
contained in this Section 8.02, no Restricted Sale shall be permitted".
7. Sections 8.04, 8.05 and 8.09 of the Credit Agreement are
hereby deleted and Sections 8.06, 8.07 and 8.08 of the Credit Agreement are
hereby renumbered as Sections 8.04, 8.05 and 8.06, respectively.
8. Section 8.06 of the Credit Agreement (renumbered as 8.04
pursuant to Section 7 above) is hereby amended by changing the reference therein
to "RJRN Agreements" to read "NGHC Agreements".
9. Section 8.07 of the Credit Agreement (renumbered as 8.05
pursuant to Section 7 above) is hereby amended by (i) changing the reference to
"25%" therein to read "33%" and (ii) changing the reference to "January 1, 1996"
therein to read "January 1, 1999".
10. Section 10 of the Credit Agreement is hereby amended as
follows:
(i) the reference to "Section 8.08" in the definition of
Adjusted Operating Income is changed to "Section 8.06";
(ii) the definition of Applicable Utilization Fee Percentage
shall be changed in its entirety to read:
"Applicable Utilization Fee Percentage" shall mean, at any
time during a period set forth below, the percentage set forth opposite such
period below:
<TABLE>
<CAPTION>
Applicable
Period Utilization Fee Percentage
------ --------------------------
<S> <C>
NIG Period .500%
-2-
<PAGE>
Minimum Investment .375%
Grade Period
Increased Investment Grade Period .250%
Maximum Investment Grade Period .125%
</TABLE>
(iii) the reference to "RJRN" in the definition of Change of
Control is changed to "NGHC";
(iv) the definitions of Consolidated Cash Interest Expense,
Cumulative Consolidated Net Income, Dividends, Exchange Agreement, Foreign
Subsidiary, Permitted Currency Agreement, Restricted Payments, RJRN, RJRN
Agreements, RJRN Entity, RJRN Holdings and Specified Permitted Existing Debt are
deleted;
(v) the definition of Corporate Agreement is changed in its
entirety to read:
"Corporate Agreement" shall mean the Corporate Agreement dated
as of June 14, 1999 among NGHC, Holdings and RJT.
(vi) in the definition of Indebtedness (i) the reference to
"the RJRN Agreements" is changed to "the NGHC Agreements" and (ii) the reference
to "or outstanding under Section 8.04(i)" is deleted;
(vii) the reference to "or any substantial portion" in the
definition of Restricted Sales is deleted;
(viii) the definition of Services Agreement is changed in its
entirety to read:
"Services Agreement" shall mean the Intercompany Services
Agreement dated as of June 14, 1999 among NGHC, Holdings and RJT.
(ix) the definition of Tax Sharing Agreement is changed in its
entirety to read:
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement
dated as of June 14, 1999 among NGHC, Holdings, RJT and R.J. Reynolds Tobacco
Company.
(x) the reference to "Section 8.08 or 8.09" in the definition
of Test Period is changed to read "Section 8.06";
(xi) the phrase "dated as of the date hereof" in the
definition of 364 DF Credit Agreement is changed to read "dated as of October
28, 1999";
(xii) the reference to "50%" in the definition of Utilization
Period is changed to read "33%"; and
-3-
<PAGE>
(xiii) the following definitions are added in appropriate
alphabetical order:
"NGHC" shall mean Nabisco Group Holdings Corp., a Delaware
corporation.
"NGHC Agreements" shall mean the Corporate Agreement, the
Services Agreement and the Tax Sharing Agreement.
"RJT" shall mean R.J. Reynolds Tobacco Holdings, Inc., a
Delaware corporation.
11. The references to "Sections 8.03(e), 8.04(i), 8.05, 8.07,
8.08, and 8.09" in each of Sections 12.07(a) and 12.12 of the Credit Agreement
are hereby changed to read "Sections 8.03(e), 8.05 and 8.06".
12. The references to page 38 and to December 31, 1995 in
Annex IV to the Credit Agreement are hereby changed to read "page 7" and
"December 31, 1998", respectively.
13. This Amendment is limited as specified and shall not
constitute a modification, amendment or waiver of any other provision of the
Credit Agreement or any other Credit Document.
14. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Payments
Administrator.
15. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
16. This Amendment shall become effective on the date when
Holdings, the Borrower and the Required Banks shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have delivered
(including by way of facsimile transmission) the same to the Payments
Administrator at its Notice Office provided that any payment of Utilization Fees
due on or after such date with respect to any day prior thereto shall be
computed on the basis of the Utilization Fee applicable prior to such
effectiveness.
17. From and after the effectiveness of this Amendment, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to such Credit Agreement as
amended hereby.
* * *
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
NABISCO HOLDINGS CORP.
By_________________________________
Title:
NABISCO, INC.
By__________________________________
Title:
-5-
<PAGE>
EXHIBIT 12
NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1999
-------------------
<S> <C>
Earnings before fixed charges:
Income before extraordinary item.......................... $ 218
Provision for income taxes................................ 130
-----
Income before income taxes................................ 348
Interest and debt expense................................. 193
Interest portion of rental expense........................ 23
-----
Earnings before fixed charges............................... $ 564
=====
Fixed charges:
Interest and debt expense................................. $ 193
Interest portion of rental expense........................ 23
Capitalized interest...................................... 1
-----
Total fixed charges..................................... $ 217
=====
Ratio of earnings to fixed charges.......................... 2.6
=====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS OF NABISCO, INC. WHICH WERE FILED WITH THE SEC
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000932130
<NAME> NABISCO HOLDINGS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 512
<ALLOWANCES> 0
<INVENTORY> 915
<CURRENT-ASSETS> 1,671
<PP&E> 2,828
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,077
<CURRENT-LIABILITIES> 1,626
<BONDS> 3,753
0
0
<COMMON> 3
<OTHER-SE> 3,810
<TOTAL-LIABILITY-AND-EQUITY> 11,077
<SALES> 5,935
<TOTAL-REVENUES> 5,935
<CGS> 3,249
<TOTAL-COSTS> 3,249
<OTHER-EXPENSES> 161
<LOSS-PROVISION> (59)
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 348
<INCOME-TAX> 130
<INCOME-CONTINUING> 218
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 215
<EPS-BASIC> .81
<EPS-DILUTED> .81
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF NABISCO, INC. WHICH WERE FILED
WITH THE SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000069526
<NAME> NABISCO, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 76
<SECURITIES> 0
<RECEIVABLES> 512
<ALLOWANCES> 0
<INVENTORY> 915
<CURRENT-ASSETS> 1,671
<PP&E> 2,828
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,077
<CURRENT-LIABILITIES> 1,581
<BONDS> 3,753
0
0
<COMMON> 0
<OTHER-SE> 3,858
<TOTAL-LIABILITY-AND-EQUITY> 11,077
<SALES> 5,935
<TOTAL-REVENUES> 5,935
<CGS> 3,249
<TOTAL-COSTS> 3,249
<OTHER-EXPENSES> 161
<LOSS-PROVISION> (59)
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 348
<INCOME-TAX> 130
<INCOME-CONTINUING> 218
<DISCONTINUED> 0
<EXTRAORDINARY> (3)
<CHANGES> 0
<NET-INCOME> 215
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
