<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 JUNE 30, 2000
-------------------
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 07054-0311
(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: JULY 31, 2000:
<TABLE>
<C> <S>
NABISCO HOLDINGS 51,819,593 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 June 30, 2000 and 1999.............................. 1
Consolidated Condensed Statements of Income--Six Months
Ended June 30, 2000 and 1999.............................. 2
Consolidated Condensed Statements of Comprehensive
Income--Three and Six Months Ended June 30, 2000 and
1999...................................................... 3
Consolidated Condensed Statements of Cash Flows--Six Months
Ended June 30, 2000 and 1999.............................. 4
Consolidated Condensed Balance Sheets--June 30, 2000 and
December 31, 1999......................................... 5
Notes to Consolidated Condensed Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 14
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signatures........................................................... 16
</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
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 2,258 $2,258 $ 2,023 $2,023
-------- ------ -------- ------
Costs and expenses:
Cost of products sold..................................... 1,217 1,217 1,089 1,089
Selling, advertising, administrative and general
expenses................................................ 768 768 703 703
Amortization of trademarks and goodwill................... 55 55 54 54
Restructuring credit...................................... (27) (27) -- --
-------- ------ -------- ------
OPERATING INCOME...................................... 245 245 177 177
Interest and debt expense................................... (72) (72) (64) (64)
Other income (expense), net................................. (5) (5) (5) (5)
-------- ------ -------- ------
INCOME BEFORE INCOME TAXES............................ 168 168 108 108
Provision for income taxes.................................. 70 70 43 43
-------- ------ -------- ------
NET INCOME............................................ $ 98 $ 98 $ 65 $ 65
======== ====== ======== ======
BASIC NET INCOME PER SHARE.................................. $ .37 $ .25
======== ========
DILUTED NET INCOME PER SHARE................................ $ .37 $ .24
======== ========
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .1875 $ .1875
======== ========
Average number of common shares outstanding (in thousands):
Basic..................................................... 264,795 264,664
======== ========
Diluted................................................... 267,929 266,894
======== ========
</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>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 4,327 $4,327 $ 3,878 $3,878
-------- ------ -------- ------
Costs and expenses:
Cost of products sold..................................... 2,363 2,363 2,116 2,116
Selling, advertising, administrative and general
expenses................................................ 1,461 1,461 1,344 1,344
Amortization of trademarks and goodwill................... 110 110 107 107
Restructuring credit...................................... (27) (27) -- --
-------- ------ -------- ------
OPERATING INCOME...................................... 420 420 311 311
Interest and debt expense................................... (142) (142) (129) (129)
Other income (expense), net................................. (11) (11) (15) (15)
-------- ------ -------- ------
INCOME BEFORE INCOME TAXES............................ 267 267 167 167
Provision for income taxes.................................. 109 109 66 66
-------- ------ -------- ------
NET INCOME............................................ $ 158 $ 158 $ 101 $ 101
======== ====== ======== ======
BASIC NET INCOME PER SHARE.................................. $ .60 $ .38
======== ========
DILUTED NET INCOME PER SHARE................................ $ .59 $ .38
======== ========
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .375 $ .375
======== ========
Average number of common shares outstanding (in thousands):
Basic..................................................... 264,729 264,700
======== ========
Diluted................................................... 267,281 266,968
======== ========
</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
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $ 98 $ 98 $ 65 $ 65
---- ---- ----- -----
Other comprehensive income (loss):
Reclassification of cumulative translation losses related
to businesses sold included in net income............... 51 51 -- --
Cumulative translation adjustment......................... (30) (30) 19 19
(Provision) benefit for income taxes...................... -- -- -- --
---- ---- ----- -----
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX............... 21 21 19 19
---- ---- ----- -----
Comprehensive income........................................ $119 $119 $ 84 $ 84
==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $158 $158 $ 101 $ 101
---- ---- ----- -----
Other comprehensive income (loss):
Reclassification of cumulative translation losses related
to businesses sold included in net income............... 51 51 -- --
Cumulative translation adjustment......................... (27) (27) (116) (116)
(Provision) benefit for income taxes...................... -- -- -- --
---- ---- ----- -----
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX........ 24 24 (116) (116)
---- ---- ----- -----
Comprehensive income (loss)................................. $182 $182 $ (15) $ (15)
==== ==== ===== =====
</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>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
----- ----- ----- -----
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income............................................... $ 158 $ 158 $ 101 $ 101
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation of property, plant and equipment........ 135 135 132 132
Amortization of intangibles.......................... 110 110 107 107
Deferred income tax provision........................ 26 26 18 18
Restructuring credit................................. (27) (27) -- --
Restructuring payments............................... (38) (38) (41) (41)
Accounts receivable, net............................. 69 69 3 3
Inventories.......................................... (69) (69) (86) (86)
Prepaid expenses and other current assets............ (15) (15) (3) (3)
Accounts payable..................................... (222) (222) (121) (121)
Accrued liabilities.................................. (1) (1) 38 33
Income taxes accrued................................. 56 60 17 17
Other, net........................................... 3 -- 4 4
----- ----- ----- -----
Net cash flows from operating activities............... 185 186 169 164
----- ----- ----- -----
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures..................................... (81) (81) (99) (99)
Proceeds from sale of assets............................. 14 14 14 14
Investment in Finalrealm transactions.................... (55) (55) -- --
----- ----- ----- -----
Net cash flows (used in) investing activities.......... (122) (122) (85) (85)
----- ----- ----- -----
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from the issuance of long-term debt......... 160 160 192 192
Repayments of long-term debt............................. (158) (158) (116) (116)
Increase (decrease) in notes payable..................... 23 23 (10) (10)
Dividends paid on common stock........................... (99) (99) (146) (146)
Repurchases of Class A common stock...................... (13) -- (12) --
Proceeds from exercise of Class A common stock options... 20 -- 7 --
----- ----- ----- -----
Net cash flows (used in) financing activities.......... (67) (74) (85) (80)
----- ----- ----- -----
Effect of exchange rate changes on cash and cash
equivalents.............................................. (2) (2) (6) (6)
----- ----- ----- -----
Net change in cash and cash equivalents................ (6) (12) (7) (7)
Cash and cash equivalents at beginning of period........... 110 110 111 111
----- ----- ----- -----
Cash and cash equivalents at end of period................. $ 104 $ 98 $ 104 $ 104
===== ===== ===== =====
Income taxes paid, net of refunds.......................... $ 27 $ 27 $ 30 $ 30
Interest paid.............................................. $ 138 $ 138 $ 132 $ 132
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
NABISCO HOLDINGS CORP.
NABISCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
------- ------- ------- -------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 104 $ 98 $ 110 $ 110
Accounts receivable, net.............................. 516 516 681 681
Deferred income taxes................................. 95 95 116 116
Inventories........................................... 905 905 898 898
Prepaid expenses and other current assets............. 82 82 79 79
Net assets of businesses held for sale................ 274 274 -- --
------- ------- ------- -------
TOTAL CURRENT ASSETS.............................. 1,976 1,970 1,884 1,884
------- ------- ------- -------
Property, plant and equipment--at cost.................. 4,972 4,972 5,053 5,053
Less accumulated depreciation........................... (2,050) (2,050) (1,966) (1,966)
------- ------- ------- -------
Net property, plant and equipment..................... 2,922 2,922 3,087 3,087
------- ------- ------- -------
Trademarks, net of accumulated amortization of $1,271
and $1,197, respectively.............................. 3,372 3,372 3,443 3,443
Goodwill, net of accumulated amortization of $1,057 and
$1,023, respectively.................................. 3,014 3,014 3,159 3,159
Other assets and deferred charges....................... 216 216 134 134
------- ------- ------- -------
$11,500 $11,494 $11,707 $11,707
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................... $ 45 $ 45 $ 39 $ 39
Accounts payable...................................... 379 379 642 642
Accrued liabilities................................... 1,022 967 1,020 970
Intercompany payable to Nabisco Holdings.............. -- 14 -- 7
Current maturities of long-term debt.................. 9 9 158 158
Income taxes accrued.................................. 154 158 104 104
------- ------- ------- -------
TOTAL CURRENT LIABILITIES......................... 1,609 1,572 1,963 1,920
------- ------- ------- -------
Long-term debt (less current maturities)................ 3,977 3,977 3,892 3,892
Other noncurrent liabilities............................ 767 764 744 744
Deferred income taxes................................... 1,123 1,123 1,176 1,176
Stockholders' equity:
Class A common stock (51,819,593 and 51,412,707 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively).................... 1 -- 1 --
Class B common stock (213,250,000 shares issued and
outstanding at June 30, 2000 and December 31,
1999)............................................... 2 -- 2 --
Paid-in capital....................................... 4,096 4,141 4,093 4,141
Retained earnings..................................... 196 186 148 127
Accumulated other comprehensive income (loss)......... (269) (269) (293) (293)
Treasury stock, at cost............................... -- -- (17) --
Notes receivable on common stock purchases............ (2) -- (2) --
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY........................ 4,024 4,058 3,932 3,975
------- ------- ------- -------
$11,500 $11,494 $11,707 $11,707
======= ======= ======= =======
</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 AND RESULTS OF OPERATIONS
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 six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the year ended
December 31, 2000.
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, 1999.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
BUSINESS DISPOSALS
In April 2000, Nabisco joined a consortium of investors, Finalrealm Limited
("Finalrealm"), that acquired the equity of United Biscuits (Holdings) plc
("UB"), a United Kingdom company. At that time, Nabisco invested approximately
$45 million of cash in an affiliate of Finalrealm. In July 2000, Nabisco sold
its operations in Spain, Portugal and the Middle East, which included
$10 million of cash and cash equivalents, to an affiliate of Finalrealm and
agreed to pay an additional $41 million of cash to Finalrealm. In exchange for
the total cash consideration and businesses sold, Nabisco received mandatorily
redeemable discounted preferred stock and warrants valued at approximately
$277 million. The preferred stock is convertible into common equity upon the
future exercise of the warrants. These securities are being accounted for on a
cost basis. The sale of operations resulted in the recognition of a
pre-and-after-tax loss of approximately $18 million that was recorded in
selling, advertising, administrative and general expenses in the quarter ended
June 30, 2000. The net assets of these operations are presented as net assets of
businesses held for sale as of June 30, 2000, in the Consolidated Condensed
Balance Sheet. In 1999, these operations had annual net sales of approximately
$290 million.
BUSINESS ACQUISITIONS
In July 2000, Nabisco acquired UB's operations in China, Hong Kong and
Taiwan for approximately $99 million as part of its agreement to join the
consortium of investors discussed above. In 1999, these operations had annual
net sales of approximately $66 million.
In November 1999, Nabisco acquired certain assets and liabilities of
Favorite Brands International, Inc. As of June 30, 2000, the purchase price
allocation was completed and resulted in goodwill of $106 million.
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. SFAS No. 133
requires that all derivative instruments be recorded on the
6
<PAGE>
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS (CONTINUED)
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 will adopt SFAS 133, as amended, on January 1, 2001 but have not yet
determined the impact that such adoption or subsequent application will have on
their financial position or results of operations.
In December 1999, The Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. Nabisco Holdings and Nabisco are required to adopt SAB No. 101 in
the fourth quarter of 2000. SAB No. 101 provides additional guidance on revenue
recognition, as well as criteria for when certain revenue is generally realized
and earned, and also requires the deferral of incremental direct selling costs.
Nabisco Holdings and Nabisco have determined that the impact of adoption or
subsequent application of SAB No. 101 will not have a material effect on their
financial position or result of operations.
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. In the second quarter of 2000, Nabisco recorded a net
reduction of $27 million in the previously recorded restructuring expense due to
higher than anticipated proceeds from assets sold and lower than anticipated
spending primarily in severance programs. This restructuring credit combined
with the $67 million net restructuring credit recorded in 1999 resulted in a
total net charge for the 1998 restructuring programs of $436 million
($296 million after tax). These restructuring programs were undertaken to
streamline operations and improve profitability and have resulted in the
elimination of approximately 6,900 employee positions.
The June 1998 program was completed in 1999 and the December 1998 program
was completed as of June 30, 2000.
The key elements of the restructuring programs were:
<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 costs reduction
initiatives............................ 22 -- 8 -- 30
Plant closures........................... 46 3 217 15 281
Product line rationalizations............ 4 4 20 32 60
----- ---- ----- ---- -----
Total 1998 restructuring reserves.... 208 18 257 47 530
1999 net restructuring credit............ (50) 1 (14) (4) (67)
2000 net restructuring credit............ (4) (3) (21) 1 (27)
----- ---- ----- ---- -----
Total program reserves............... 154 16 222 44 436
----- ---- ----- ---- -----
Charges and Payments:
Cumulative through December 31, 1999..... (132) (14) (233) (35) (414)
Six months ended June 30, 2000........... (22) (2) 11 (9) (22)
----- ---- ----- ---- -----
Total charges and payments, net of
cash proceeds...................... (154) (16) (222) (44) (436)
----- ---- ----- ---- -----
Program reserves as of June 30, 2000..... $ -- $ -- $ -- $ -- $ --
===== ==== ===== ==== =====
</TABLE>
7
<PAGE>
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS (CONTINUED)
The key elements of the restructuring programs, after the restructuring
credits of $94 million were:
<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSET OTHER EXIT
IN MILLIONS AND BENEFITS TERMINATIONS IMPAIRMENTS COSTS TOTAL
----------- ------------ ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Sales force reorganizations.............. $ 16 $ 3 $ -- $-- $ 19
Distribution reorganizations............. 10 4 (2) -- 12
Staff reductions......................... 56 1 3 -- 60
Manufacturing costs reduction
initiatives............................ 19 -- 8 -- 27
Plant closures........................... 51 3 192 15 261
Product line rationalizations............ 2 5 21 29 57
---- --- ---- --- ----
Total restructuring charges.......... $154 $16 $222 $44 $436
==== === ==== === ====
</TABLE>
Total charges and payments include cash expenditures, non-cash charges
primarily for asset impairments and committed severance and benefits to be paid.
The total cash payments, net of cash proceeds applied against the restructuring
reserves totaled $130 million, which is comprised of cumulative cash
expenditures of $162 million and cumulative cash proceeds of $32 million. For
the six months ended June 30, 2000, cash payments, net of cash proceeds totaled
$27 million, which is comprised of $38 million of cash expenditures and
$11 million of cash proceeds which were applied against the restructuring
reserves. Although projects have been completed, proceeds to be collected and
certain cash payments, primarily severance and benefits that are paid over time,
will be transacted after the program completion dates. This is expected to
result in a net cash inflow of approximately $15 million subsequent to June 30,
2000. Cash payments for the six months ended June 30, 2000 exceeded charges and
payments, net of cash proceeds, for the six months ended June 30, 2000, due to
payments made to satisfy severance and benefit obligations previously committed
and charged against the reserves.
NOTE 2--CHANGE OF CONTROL
On June 25, 2000, Nabisco Holdings entered into a merger agreement with
Philip Morris Companies, Inc. pursuant to which Philip Morris will acquire all
of the outstanding Nabisco Holdings common stock for $55 per share (the "Nabisco
Holdings' merger"). Completion of the Nabisco Holdings merger is subject to
customary closing conditions, including receipt of stockholder and regulatory
approvals. There can be no assurance that such approvals will be obtained. The
transaction is expected to close during the fourth quarter of 2000.
The sale of Nabisco Holdings requires approval by holders of a majority of
the outstanding shares of Nabisco Group Holdings Corp. ("NGH") common stock
because the Nabisco Holdings' shares constitute substantially all of the assets
of NGH. NGH has entered into a voting and indemnity agreement with Philip Morris
with respect to the sale of Nabisco Holdings which generally provides that,
subject to receiving approval of the sale of Nabisco Holdings from NGH
stockholders, NGH will promptly vote in favor of the Nabisco Holdings' merger.
The approval by NGH is the only Nabisco Holdings' stockholder approval required
to complete the Nabisco Holdings' merger.
8
<PAGE>
NOTE 3--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
IN MILLIONS 2000 1999
----------- --------- ------------
<S> <C> <C>
Finished products........................................... $508 $551
Raw materials............................................... 246 199
Work in process............................................. 46 45
Other....................................................... 105 103
---- ----
$905 $898
==== ====
</TABLE>
NOTE 4--SEGMENT REPORTING
Nabisco Holdings is a holding company whose subsidiaries are engaged in the
manufacture, distribution and sale of cookies, crackers and other food products.
Nabisco Holdings is organized and reports its results of operations in three
business segments: Nabisco Biscuit Company, the Nabisco Foods Company and the
International Food Group which are segregated by both product and geographic
area.
The Company evaluates performance and allocates resources based on operating
company contribution ("OCC"). OCC for each reportable segment is operating
income before amortization of intangibles and exclusive of a restructuring
credit, loss on sale of businesses and restructuring-related expenses.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
IN MILLIONS 2000 1999 2000 1999
----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net sales from external customers:
Nabisco Biscuit Company........................ $ 936 $ 897 $ 1,817 $ 1,764
Nabisco Foods Company.......................... 733 547 1,364 982
International Food Group....................... 589 579 1,146 1,132
------- ------- ------- -------
Total...................................... $ 2,258 $ 2,023 $ 4,327 $ 3,878
======= ======= ======= =======
Segment operating company contribution:
Nabisco Biscuit Company........................ $ 146 $ 129 $ 278 $ 250
Nabisco Foods Company.......................... 106 73 171 122
International Food Group....................... 39 48 72 80
------- ------- ------- -------
Total segment operating company contribution..... 291 250 521 452
Restructuring-related expenses................... -- (19) -- (34)
Loss on sale of businesses....................... (18) -- (18) --
Restructuring credit............................. 27 -- 27 --
Amortization of trademarks and goodwill.......... (55) (54) (110) (107)
------- ------- ------- -------
Consolidated operating income.................... 245 177 420 311
Interest and debt expense........................ (72) (64) (142) (129)
Other income (expense), net...................... (5) (5) (11) (15)
------- ------- ------- -------
Income before income taxes....................... $ 168 $ 108 $ 267 $ 167
======= ======= ======= =======
</TABLE>
9
<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 of the results
of operations is divided into separate sections for sales and operating company
contribution and operating income. The sales section includes information as
reported in the historical financial statements followed by management's
discussion and analysis of these results. The operating income and operating
company contribution section provides a reconciliation of operating income to
operating company contribution, which excludes amortization of trademarks and
goodwill and special items that management believes impact the comparability of
historical results. This is followed by management's discussion and analysis of
operating company contribution ("OCC") which is presented on a basis consistent
with how the businesses are managed. Special items include a restructuring
credit, loss on sale of businesses and restructuring-related expenses that
management believes affect the comparability of the results of operations. OCC
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 Nabisco
Biscuit Company and the Nabisco Foods Company. 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
DOLLARS IN MILLIONS 2000 1999 % CHANGE 2000 1999 % CHANGE
------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nabisco Biscuit Company.................. $ 936 $ 897 4% $1,817 $1,764 3%
Nabisco Foods Company.................... 733 547 34% 1,364 982 39%
International Food Group................. 589 579 2% 1,146 1,132 1%
------ ------ ------ ------
Total.................................. $2,258 $2,023 12% $4,327 $3,878 12%
====== ====== ====== ======
</TABLE>
<TABLE>
<C> <S>
- Nabisco Biscuit Company's net sales increased 4% in the
second quarter and 3% in the first six months versus the
same year periods. The increase in both periods resulted
from the continued momentum in volume growth from its cookie
and cracker brands. These volume gains were driven by new
products, increased marketing investment and the increasing
efficiency and effectiveness of Biscuit's reorganized direct
store delivery sales force. Several discontinued breakfast
food and snack products partially offset the improvements in
both periods.
- Nabisco Foods Company's net sales increased 34% in the
second quarter and 39% in the first six months versus the
same year periods. Excluding the impact on net sales
resulting from the November 1999 acquisition of the Favorite
Brands' business, net sales grew 8% and 10%, over the
respective prior year periods. Volume gains from nuts,
confections, pet snacks and condiments, as well as the
impact of several new products, continued to drive growth in
both periods.
- International Food Group's net sales increased 2% in the
second quarter and 1% in the first six months versus the
same year periods. Excluding the impact of unfavorable
foreign currency translations, International's net sales
increased 5% and 4% over the same year periods. The second
quarter increase was primarily due to volume gains in the
Andean region, Canada and Argentina and favorable pricing
actions in Brazil, Mexico and the Caribbean region partially
offset by volume declines in Mexico and Iberia. The sales
increase in the first six months reflects volume gains in
the Andean region, Asia, and Argentina and price increases
in Brazil, the Caribbean region and Canada. This increase
was offset in part by volume declines in Mexico, Brazil and
Iberia. The impact of the Canale S.A. acquisition in
September 1999 is reflected in Argentina's volume gains for
both periods.
</TABLE>
10
<PAGE>
OPERATING INCOME AND OPERATING COMPANY CONTRIBUTION
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
DOLLARS IN MILLIONS 2000 1999 % CHANGE 2000 1999 % CHANGE
------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING INCOME......................... $ 245 $ 177 38% $ 420 $ 311 35%
------ ------ ------ ------
ITEMS EXCLUDED FROM OPERATING COMPANY
CONTRIBUTION:
Amortization of trademarks and
goodwill........................... (55) (54) (110) (107)
Special items:
Restructuring credit................. 27 -- 27 --
Loss on sale of businesses........... (18) -- (18) --
Restructuring-related expenses....... -- (19) -- (34)
------ ------ ------ ------
(46) (73) (101) (141)
------ ------ ------ ------
OPERATING COMPANY CONTRIBUTION BY
SEGMENT:
Nabisco Biscuit Company................ 146 129 13 % 278 250 11 %
Nabisco Foods Company.................. 106 73 45 % 171 122 40 %
International Food Group............... 39 48 (19)% 72 80 (10)%
------ ------ ------ ------
Total.................................... $ 291 $ 250 16 % $ 521 $ 452 15 %
====== ====== ====== ======
</TABLE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING COMPANY
CONTRIBUTION:
<TABLE>
<C> <S>
- Nabisco Biscuit Company's operating company contribution
increased 13% in the second quarter and 11% in the first six
months versus the same prior year periods. Volume gains
continued to drive the results along with reduced raw
materials costs. Increased marketing spending and lower
breakfast snack volumes partially offset these gains in both
periods.
- Nabisco Foods Company's operating company contribution
increased 45% in the second quarter and 40% in the first six
months versus the same prior year periods. The results in
both periods were primarily due to strong volume gains
partially offset by increased marketing spending. The
addition of the Favorite Brands' business contributed 11
percentage points and 9 percentage points to the second
quarter and first six months increases, respectively.
- International Food Group's operating company contribution
decreased 19% in the second quarter and 10% in the first six
months versus the same prior year periods. The second
quarter decrease was primarily due to increased marketing
investments in Brazil, Canada and Asia and volume declines
in Mexico and Iberia, as well as higher costs in Iberia.
Partially offsetting this decrease were favorable pricing
actions in Mexico and the Caribbean region and higher
volumes in the Andean region and Canada. The first six
months' performance principally reflects increased marketing
spending in Canada, Asia and Brazil, lower volumes in Mexico
and Iberia, and higher costs in Iberia. This decrease was
offset in part by volume gains in the Andean region, Asia
and Argentina and price increases in the Caribbean region
and Canada.
</TABLE>
INTEREST AND DEBT EXPENSE
Consolidated interest and debt expense of $72 million in the second quarter
and $142 million for the first six months of 2000 increased 13% and 10% from the
same 1999 periods due to higher average debt levels and higher average interest
rates.
11
<PAGE>
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $5 million expense and $11 million expense
in the second quarter and first six months of 2000 compared to $5 million
expense and $15 million expense in the same 1999 periods. The second quarter
comparison primarily reflects increased financing costs offset by higher
dividend income. The first six months comparison primarily reflects lower
foreign exchange losses.
NET INCOME
Nabisco Holdings reported net income of $98 million and $158 million in the
second quarter and first six months of 2000, an increase of 51% and 56%,
respectively, from the same 1999 periods. Both current periods reflect higher
operating income partially offset by higher interest and debt expense and an
increase in the provision for income taxes. The first six months comparison also
reflects lower other expenses.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was $119 million income and $182 million income
in the second quarter and first six months of 2000 versus income of $84 million
and a loss of $15 million for the same 1999 periods. The second quarter
comparison reflects higher net income, the reclassification of cumulative
translation losses related to businesses sold in 2000 partially offset by
foreign currency translation losses in 2000 versus foreign currency translation
gains in 1999. The six month increase is due to higher net income, the
reclassification of cumulative translation losses related to businesses sold in
2000 and lower foreign currency translation losses.
RESTRUCTURING
Savings objectives set in our 1998 restructuring programs are on target. As
of June 30, 2000, the 1998 restructuring programs are complete. Pre-tax savings
in 2000 are expected to be approximately $140 million including cash savings of
$133 million and are expected to be approximately $145 million annually
including cash savings of $135 million in 2001 and thereafter. In the second
quarter of 2000, Nabisco recorded a net restructuring credit of $27 million in
addition to the $67 million net restructuring credit recorded in 1999. These net
credits reduced the restructuring charges to $436 million. Cumulative cash
expenditures, net of cash proceeds to date have totaled $130 million with
$27 million expended in the first six months of 2000. Cumulative cash payments,
net of cash proceeds is comprised of $162 million in cash payments and
cumulative cash proceeds of $32 million. For the six months ended June 30, 2000,
cash payments net of cash proceeds is comprised of $38 million of cash
expenditures and $11 million of cash proceeds. Although projects have been
completed, proceeds to be collected and certain cash payments, primarily
severance and benefits that are paid over time, will be transacted after the
program completion dates. This is expected to result in a net cash inflow of
approximately $15 million subsequent to June 30, 2000. For a further discussion
of the restructuring programs, see Note 1 to the Consolidated Condensed
Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Net cash flows from operating activities amounted to $185 million for the
first six months of 2000 compared to $169 million for the first six months of
1999. The increase in net cash flows from operating activities primarily
reflects the year 2000 increase in net income partially offset by higher working
capital requirements.
Cash flows used in investing activities increased $37 million in the first
six months of 2000 to $122 million from the first six months of 1999 primarily
due to the investment in Finalrealm transactions partially offset by lower
capital expenditures.
12
<PAGE>
Capital expenditures were $81 million in the first six months of 2000.
Management expects that capital expenditures for 2000 will be approximately $250
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
2000.
Cash flows used in financing activities for the first six months of 2000
decreased $18 million to $67 million from the first six months of 1999. The
decrease was principally due to a reduction in dividends paid in 2000, due to
the early payout of Nabisco Holdings' second quarter 1999 dividend and higher
proceeds from the exercise of Class A common stock options partially offset by a
reduction in net borrowings.
As of June 30, 2000, the $1.5 billion revolving credit facility was
unutilized and available to support borrowings. In addition, the 364-day
$1.1 billion credit facility was utilized to support outstanding commercial
paper borrowings of $1.06 billion, and accordingly, $41 million was available.
The Nabisco Holdings' credit facilities restrict dividends and distributions
after January 1, 1999 by Nabisco Holdings to holders of its equity securities by
requiring a minimum net worth amount. As of June 30, 2000, actual net worth, as
defined, exceeded required net worth by approximately $871 million. Nabisco
Holdings does not believe that its credit arrangements will limit its ability to
pay dividends.
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. Nabisco Holdings and
Nabisco believe that they are currently in compliance with all covenants and
restrictions imposed by the terms of their indebtedness.
On June 25, 2000, Nabisco Holdings entered into a merger agreement with
Philip Morris Companies, Inc. pursuant to which Philip Morris will acquire all
of the outstanding Nabisco Holdings common stock for $55 per share. This
agreement requires Nabisco Holdings to conduct its business in the ordinary
course consistent with past practice and limits the ability of Nabisco Holdings
and its subsidiaries to incur indebtedness, acquire, sell or dispose of certain
assets and securities, and take certain other actions.
At June 30, 2000, 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 $8.1 billion,
respectively, of which total debt is lower by $58 million and total capital is
higher by $34 million than their respective balances at December 31, 1999.
Nabisco Holdings' ratios of total debt to total stockholders' equity and total
debt to total capital at June 30, 2000 were 1 to 1 and .50 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 during 2000. 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. There are no
restrictions on the payment of Nabisco Holdings customary quarterly dividends
under the terms of the Nabisco Holdings' merger agreement with Philip Morris
Companies, Inc. Nabisco Holdings expects to finance future acquisitions, if any,
primarily from internally generated cash or borrowings.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Nabisco is exposed to market risk in the areas of foreign currency exchange
rates, interest rates and commodity prices. 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 market risk sensitive financial 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. 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.
INTEREST RATE EXPOSURE
The VaR, which is the potential loss in fair value of financial instruments
resulting from Nabisco's exposure to changing interest rates, was $216 million
after tax at June 30, 2000, a decrease of $5 million from the December 31, 1999
amount.
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 (anticipated future
purchases less derivatives, inventory and firm purchase commitments) would
result in a potential loss in pre-tax earnings of $36 million at June 30, 2000,
an increase of $6 million from the December 31, 1999 amount.
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 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.
14
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters below were voted upon at the annual meeting of stockholders of
Nabisco Holdings Corp. held on May 8, 2000. At the meeting, 41,499,066 shares of
Class A Common Stock and 213,250,000 shares of Class B Common Stock were
represented in person or by proxy. Class A Common Stock and Class B Common Stock
are entitled to one (1) vote and ten (10) votes per share, respectively, and
vote together as a single class.
(a) Election of thirteen Directors
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- ------------- --------------
<S> <C> <C>
Herman Cain...................................... 2,173,893,881 105,187
John T. Chain, Jr. .............................. 2,173,872,821 126,247
Julius L. Chambers............................... 2,173,859,228 139,840
John L. Clendenin................................ 2,173,868,225 130,843
Steven F. Goldstone.............................. 2,173,890,640 108,428
Ray J. Groves.................................... 2,173,869,013 130,055
David B. Jenkins................................. 2,173,868,539 130,529
Nancy Karch...................................... 2,173,896,131 102,937
James M. Kilts................................... 2,173,891,046 108,022
Fred H. Langhammer............................... 2,173,893,931 105,137
H. Eugene Lockhart............................... 2,173,894,101 104,967
Theodore E. Martin............................... 2,173,869,491 129,577
Rozanne L. Ridgway............................... 2,173,870,245 128,823
</TABLE>
(b) Ratification of appointment of Deloitte & Touche LLP as independent
auditors.
<TABLE>
<S> <C>
For....................................................... 2,173,960,677
Against................................................... 22,019
Abstain................................................... 16,372
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
2 Agreement and Plan of Merger, dated as of June 25, 2000
among Nabisco Holdings Corp., Phillip Morris Companies Inc.,
and Strike Acquisition Corp. (which is incorporated by
reference to Annex A to the Preliminary Information
Statement on Schedule 14C filed on July 28, 2000).
10.1* Amendment to Form of Non-Qualified Stock Option Agreement
between Nabisco Holdings Corp. and the optionee named
therein dated June 28, 2000 (1999 and 2000 grants).
10.2* Amendment to Form of Restricted Stock Unit Agreement between
Nabisco Holdings Corp. and the optionee named therein dated
June 28, 2000 (1999 and 2000 grants).
10.3* Amendment to Tax Sharing Agreement dated as of June 25, 2000
among Nabisco Group Holdings Corp., R.J. Reynolds Tobacco
Holdings, Inc., Nabisco Holdings Corp., and R.J. Reynolds
Tobacco Company.
12* Nabisco, Inc. Computation of Ratio of Earnings to Fixed
Charges for the six months ended June 30, 2000.
27.1* Nabisco Holdings Corp. Financial Data Schedule for the six
months ended June 30, 2000.
27.2* Nabisco, Inc. Financial Data Schedule for the six months
ended June 30, 2000.
</TABLE>
----------------------------
* Filed herewith.
(b) Reports on Form 8-K
Nabisco Holding's current report on Form 8-K dated June 28, 2000
announcing the signing of definitive agreements for the sale of Nabisco
Holdings and NGH.
15
<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)
/s/ JAMES E. HEALEY
......................................
James E. Healey
Executive Vice President and
Chief Financial Officer
Date: August 14, 2000 /s/ THOMAS J. PESCE
......................................
Thomas J. Pesce
Senior Vice President and Controller
</TABLE>
16
