<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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, 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: OCTOBER 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 September 30, 2000 and 1999......................... 1
Consolidated Condensed Statements of Income--Nine Months
Ended September 30, 2000 and 1999......................... 2
Consolidated Condensed Statements of Comprehensive
Income--Three and Nine Months Ended September 30, 2000 and
1999...................................................... 3
Consolidated Condensed Statements of Cash Flows--Nine Months
Ended September 30, 2000 and 1999......................... 4
Consolidated Condensed Balance Sheets--September 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................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 16
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, SEPTEMBER 30,
2000 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 2,253 $2,253 $ 2,057 $2,057
------- ------ ------- ------
Costs and expenses:
Cost of products sold..................................... 1,231 1,231 1,133 1,133
Selling, advertising, administrative and general
expenses................................................ 770 748 677 677
Amortization of trademarks and goodwill................... 55 55 54 54
Restructuring credit...................................... -- -- (59) (59)
------- ------ ------- ------
OPERATING INCOME...................................... 197 219 252 252
Interest and debt expense................................... (71) (71) (64) (64)
Other income (expense), net................................. 1 1 (7) (7)
------- ------ ------- ------
Income before income taxes............................ 127 149 181 181
Provision for income taxes.................................. 49 56 64 64
------- ------ ------- ------
NET INCOME BEFORE EXTRAORDINARY ITEM.................. 78 93 117 117
Extraordinary item--loss on early extinguishment of debt,
net of $2 million income taxes............................ -- -- (3) (3)
------- ------ ------- ------
Net income............................................ $ 78 $ 93 $ 114 $ 114
======= ====== ======= ======
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item.......................... $ .29 $ .44
Extraordinary item........................................ -- (.01)
------- -------
Net income............................................ $ .29 $ .43
======= =======
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item.......................... $ .29 $ .44
Extraordinary item........................................ -- (.01)
------- -------
Net income............................................ $ .29 $ .43
======= =======
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .1875 $ .1875
======= =======
Average number of common shares outstanding (in thousands):
Basic..................................................... 265,070 264,627
======= =======
Diluted................................................... 269,441 266,665
======= =======
</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, 2000 SEPTEMBER 30, 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $ 6,580 $6,580 $ 5,935 $5,935
------- ------ ------- ------
Costs and expenses:
Cost of products sold..................................... 3,594 3,594 3,249 3,249
Selling, advertising, administrative and general
expenses................................................ 2,231 2,209 2,021 2,021
Amortization of trademarks and goodwill................... 165 165 161 161
Restructuring credit...................................... (27) (27) (59) (59)
------- ------ ------- ------
OPERATING INCOME...................................... 617 639 563 563
Interest and debt expense................................... (213) (213) (193) (193)
Other income (expense), net................................. (10) (10) (22) (22)
------- ------ ------- ------
Income before income taxes............................ 394 416 348 348
Provision for income taxes.................................. 158 165 130 130
------- ------ ------- ------
NET INCOME BEFORE EXTRAORDINARY ITEM.................. 236 251 218 218
Extraordinary item--loss on early extinguishment of debt,
net of $2 million income taxes............................ -- -- (3) (3)
------- ------ ------- ------
Net income............................................ $ 236 $ 251 $ 215 $ 215
======= ====== ======= ======
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item.......................... $ .89 $ .82
Extraordinary item........................................ -- (.01)
------- -------
Net income............................................ $ .89 $ .81
======= =======
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary item.......................... $ .88 $ .82
Extraordinary item........................................ -- (.01)
------- -------
Net income............................................ $ .88 $ .81
======= =======
DIVIDENDS DECLARED PER COMMON SHARE......................... $ .5625 $ .5625
======= =======
Average number of common shares outstanding (in thousands):
Basic..................................................... 264,843 264,676
======= =======
Diluted................................................... 268,001 266,867
======= =======
</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,
2000 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $ 78 $ 93 $ 114 $ 114
----- ----- ----- -----
Other comprehensive (loss):
Cumulative translation adjustment......................... (4) (4) (17) (17)
(Provision) benefit for income taxes...................... -- -- -- --
----- ----- ----- -----
OTHER COMPREHENSIVE (LOSS), NET OF INCOME TAX............... (4) (4) (17) (17)
----- ----- ----- -----
Comprehensive income........................................ $ 74 $ 89 $ 97 $ 97
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------------- -------------------
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $ 236 $ 251 $ 215 $ 215
----- ----- ----- -----
Other comprehensive income (loss):
Reclassification of cumulative translation losses related
to businesses sold included in net income............... 51 51 -- --
Cumulative translation adjustment......................... (31) (31) (133) (133)
(Provision) benefit for income taxes...................... -- -- -- --
----- ----- ----- -----
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX........ 20 20 (133) (133)
----- ----- ----- -----
Comprehensive income........................................ $ 256 $ 271 $ 82 $ 82
===== ===== ===== =====
</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
SEPT. 30, 2000 SEPT. 30, 1999
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
----- ----- ----- -----
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income............................................... $ 236 $ 251 $ 215 $ 215
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation of property, plant and equipment........ 200 200 198 198
Amortization of intangibles.......................... 165 165 161 161
Deferred income tax provision........................ 30 33 27 27
Restructuring credit................................. (27) (27) (59) (59)
Restructuring payments............................... (46) (46) (65) (65)
Accounts receivable, net............................. 49 49 (49) (49)
Inventories.......................................... (108) (108) (184) (184)
Prepaid expenses and other current assets............ (8) (8) (8) (8)
Accounts payable..................................... (259) (259) (109) (109)
Accrued liabilities.................................. 72 53 94 89
Income taxes accrued................................. 75 83 (21) (21)
Extraordinary loss on early retirement of debt,
net................................................ -- -- 3 3
Other, net........................................... 25 25 (13) (13)
----- ----- ----- -----
Net cash flows from operating activities............... 404 411 190 185
----- ----- ----- -----
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures..................................... (131) (131) (150) (150)
Proceeds from sale of assets............................. 31 31 27 27
Acquisition of business.................................. -- -- (107) (107)
Investment in Finalrealm transactions.................... (151) (151) -- --
----- ----- ----- -----
Net cash flows (used in) investing activities.......... (251) (251) (230) (230)
----- ----- ----- -----
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from the issuance of long-term debt......... 111 111 497 497
Repayments of long-term debt............................. (222) (222) (324) (324)
Increase (decrease) in notes payable..................... 133 133 (8) (8)
Dividends paid on common stock........................... (149) (149) (146) (146)
Repurchases of Class A common stock...................... (13) -- (12) --
Proceeds from exercise of Class A common stock options... 20 -- 7 --
----- ----- ----- -----
Net cash flows from (used in) financing activities..... (120) (127) 14 19
----- ----- ----- -----
Effect of exchange rate changes on cash and cash
equivalents.............................................. (3) (3) (9) (9)
----- ----- ----- -----
Net change in cash and cash equivalents................ 30 30 (35) (35)
Cash and cash equivalents at beginning of period........... 110 110 111 111
----- ----- ----- -----
Cash and cash equivalents at end of period................. $ 140 $ 140 $ 76 $ 76
===== ===== ===== =====
Income taxes paid, net of refunds.......................... $ 53 $ 53 $ 126 $ 126
Interest paid.............................................. $ 211 $ 211 $ 204 $ 204
</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, 2000 DECEMBER 31, 1999
------------------- -------------------
<S> <C> <C> <C> <C>
NABISCO NABISCO
HOLDINGS NABISCO HOLDINGS NABISCO
------- ------- ------- -------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 140 $ 140 $ 110 $ 110
Accounts receivable, net of allowance for doubtful
accounts of $39 and $52, respectively............... 555 555 681 681
Intercompany receivable from Nabisco Holdings......... -- 4 -- --
Deferred income taxes................................. 111 111 116 116
Inventories........................................... 951 951 898 898
Prepaid expenses and other current assets............. 72 72 79 79
------- ------- ------- -------
TOTAL CURRENT ASSETS.............................. 1,829 1,833 1,884 1,884
------- ------- ------- -------
Property, plant and equipment--at cost.................. 4,997 4,997 5,053 5,053
Less accumulated depreciation........................... (2,055) (2,055) (1,966) (1,966)
------- ------- ------- -------
Net property, plant and equipment..................... 2,942 2,942 3,087 3,087
------- ------- ------- -------
Trademarks, net of accumulated amortization of $1,298
and $1,197, respectively.............................. 3,343 3,343 3,443 3,443
Goodwill, net of accumulated amortization of $1,060 and
$1,023, respectively.................................. 3,045 3,045 3,159 3,159
Other assets and deferred charges....................... 451 451 134 134
------- ------- ------- -------
$11,610 $11,614 $11,707 $11,707
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................... $ 80 $ 80 $ 39 $ 39
Accounts payable...................................... 359 359 642 642
Accrued liabilities................................... 1,089 1,040 1,020 970
Intercompany payable to Nabisco Holdings.............. -- -- -- 7
Current maturities of long-term debt.................. 100 100 158 158
Income taxes accrued.................................. 173 181 104 104
------- ------- ------- -------
TOTAL CURRENT LIABILITIES......................... 1,801 1,760 1,963 1,920
------- ------- ------- -------
Long-term debt (less current maturities)................ 3,834 3,834 3,892 3,892
Other noncurrent liabilities............................ 783 780 744 744
Deferred income taxes................................... 1,143 1,143 1,176 1,176
Stockholders' equity:
Class A common stock (51,819,593 and 51,412,707 shares
issued and outstanding at September 30, 2000 and
December 31, 1999, respectively).................... 1 -- 1 --
Class B common stock (213,250,000 shares issued and
outstanding at September 30, 2000 and December 31,
1999)............................................... 2 -- 2 --
Paid-in capital....................................... 4,097 4,141 4,093 4,141
Retained earnings..................................... 224 229 148 127
Accumulated other comprehensive income (loss)......... (273) (273) (293) (293)
Treasury stock, at cost............................... -- -- (17) --
Notes receivable on common stock purchases............ (2) -- (2) --
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY........................ 4,049 4,097 3,932 3,975
------- ------- ------- -------
$11,610 $11,614 $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 nine months ended September 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, as amended, 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 Finalrealm Limited ("Finalrealm"), a
consortium of investors, which acquired the equity of United Biscuits (Holdings)
plc ("UB"), a United Kingdom company. At that time, Nabisco invested
approximately $45 million in cash in DeluxeStar Limited ("DeluxeStar"), an
affiliate of Finalrealm. In July 2000, Nabisco sold its operations in Spain,
Portugal and the Middle East, which included $10 million in cash and cash
equivalents, to DeluxeStar and agreed to pay an additional $41 million in cash
to Finalrealm. In exchange for the total cash consideration and businesses sold,
Nabisco received mandatorily redeemable discounted preferred stock from
DeluxeStar and warrants from Bladeland Limited ("Bladeland"), the indirect
parent company of Finalrealm and DeluxeStar. The discounted preferred stock and
warrants were fair valued at approximately $277 million based on a valuation
opinion received from an independent investment banker. The discounted preferred
stock accretes non-cash dividend income at an annual rate of 11.72% and is
mandatorily redeemable in 2049. The discounted preferred stock converts into
26.51% of the common equity of Bladeland upon the future exercise of the
warrants. The warrants are exercisable at maturity, which is in 25 years, upon
an initial public offering by Bladeland, or upon a change of control in
Bladeland, in which the ownership of the equity investors becomes less than 50%.
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. In 1999,
these operations had annual net sales of approximately $290 million.
As a result of the transaction, Nabisco recorded $12 million of investor
financing fee income during the third quarter of 2000 in other income (expense),
net.
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.
6
<PAGE>
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS (CONTINUED)
In November 1999, Nabisco acquired certain assets and liabilities of
Favorite Brands International, Inc., a company operating under Chapter 11 of
Title 11 of the U.S. Code. As of June 30, 2000, the purchase price allocation
was completed and resulted in total goodwill of $106 million, an increase of
$38 million from December 31, 1999. The after-tax net increase in goodwill
consisted of:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Fair value adjustments to:
Property, plant and equipment............................. $16
Certain working capital items............................. 12
Severance accruals.......................................... 5
Contract exit cost accruals................................. 5
---
$38
===
</TABLE>
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 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, as
amended, 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 positions or results of operations.
During the second quarter 2000, the Emerging Issues Task Force ("EITF")
issued EITF Issue No. 00-14, Accounting for Certain Sales Incentives. EITF
No. 00-14 addresses the recognition, measurement and statement of income
classification of various sales incentives and will be effective for the fourth
quarter of 2000. Nabisco Holdings and Nabisco have determined that the impact of
adoption will be a reduction of approximately 1% to 2% on their net sales, with
no impact on either company's net income. Certain sales incentives, principally
for consumer coupon redemption expenses, currently included in selling,
advertising, administrative and general expenses will be reclassified as a
reduction of net sales and, upon adoption, prior period amounts will be restated
for comparative purposes.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, which
replaced SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This statement revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. Nabisco Holdings and Nabisco will
adopt SFAS No. 140 for transactions occurring after March 31, 2001. Nabisco
Holdings and Nabisco have not yet determined the impact that such adoption or
subsequent application will have on their financial positions or results of
operations.
7
<PAGE>
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS (CONTINUED)
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>
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 net 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 $122 million, which is comprised of
8
<PAGE>
NOTE 1--INTERIM REPORTING AND RESULTS OF OPERATIONS (CONTINUED)
cumulative cash expenditures of $170 million and cumulative cash proceeds of
$48 million. For the nine months ended September 30, 2000, cash payments, net of
cash proceeds totaled $19 million, which is comprised of $46 million of cash
expenditures and $27 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, are being transacted after the program completion dates. This is
expected to result in a net cash inflow of approximately $7 million subsequent
to September 30, 2000.
NOTE 2--CHANGE OF CONTROL
On June 25, 2000, the board of directors of Nabisco Group Holdings Corp.
("NGH") approved two major transactions: (1) the sale of NGH's 80.5% interest in
Nabisco Holdings to Philip Morris Companies, Inc. (the "Nabisco Sale") pursuant
to a merger in which Philip Morris will acquire all of the outstanding Nabisco
Holdings common stock for $55 per share (the "Nabisco Holdings merger"), and
(2) the subsequent acquisition of NGH by R.J. Reynolds Tobacco Holdings, Inc.
("RJR") pursuant to a merger in which RJR will acquire all of the outstanding
NGH common stock for $30 per share (the "NGH merger"). Completion of the Nabisco
Holdings merger is subject to customary closing conditions, including receipt of
regulatory approvals. Completion of the NGH merger is also subject to customary
closing conditions, including receipt of regulatory approvals and is conditioned
on the completion of the Nabisco Sale. There can be no assurance that such
approvals will be obtained. On October 27, 2000 the stockholders of NGH approved
the acquisition of Nabisco Holdings by Philip Morris and the subsequent
acquisition of NGH by RJR as discussed in Note 5--Subsequent Events. The
transactions are 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 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, as discussed above, is the
only Nabisco Holdings stockholder approval required to complete the Nabisco
Holdings merger.
All costs and expenses incurred in connection with the Nabisco Holdings
merger agreement and related transactions will be paid by the company incurring
such costs or expenses, except that Nabisco Holdings and NGH have agreed that
Nabisco Holdings will be responsible for fees and expenses of the financial,
legal and other advisors to Nabisco Holdings and NGH up to $50 million, and NGH
will be responsible for all such fees and expenses in excess of $50 million.
In connection with the Nabisco Holdings merger and the NGH merger, Nabisco
Holdings incurred costs during the third quarter of 2000 of $21 million for
financial, legal and other advisor fees. In addition, in accordance with the
terms of the Nabisco Holdings merger agreement, and upon depletion of its
existing treasury stock inventory, Nabisco Holdings paid cash to satisfy the
excess of the market price of Nabisco Holdings stock at the time of exercise,
over the exercise price of Nabisco Holdings stock options. As a result, Nabisco
Holdings and Nabisco recognized compensation expense of $28 million during the
third quarter and first nine months of 2000. These costs have been classified as
selling, advertising, administrative and general expenses in the accompanying
Consolidated Condensed Statements of Income.
9
<PAGE>
NOTE 3--INVENTORIES
The major classes of inventory are shown in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
IN MILLIONS 2000 1999
----------- -------------- ------------
<S> <C> <C>
Finished products........................................... $605 $551
Raw materials............................................... 211 199
Work in process............................................. 32 45
Other....................................................... 103 103
---- ----
$951 $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, restructuring-related expenses and costs
associated with the Nabisco Holdings merger and the NGH merger. Such costs
include the cash buyout of exercised Nabisco Holdings stock options and
financial, legal and other advisor fees.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
IN MILLIONS 2000 1999 2000 1999
----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net sales from external customers:
Nabisco Biscuit Company........................ $ 962 $ 924 $ 2,779 $ 2,688
Nabisco Foods Company.......................... 748 545 2,112 1,527
International Food Group....................... 543 588 1,689 1,720
------- ------- ------- -------
Total...................................... $ 2,253 $ 2,057 $ 6,580 $ 5,935
======= ======= ======= =======
Segment operating company contribution:
Nabisco Biscuit Company........................ $ 161 $ 136 $ 439 $ 386
Nabisco Foods Company.......................... 100 74 271 196
International Food Group....................... 40 49 112 129
------- ------- ------- -------
Total segment operating company contribution..... 301 259 822 711
Cash buyout of exercised Nabisco Holdings stock
options........................................ (28) -- (28) --
Financial, legal and other advisor fees.......... (21) -- (21) --
Loss on sale of businesses....................... -- -- (18) --
Restructuring credit............................. -- 59 27 59
Restructuring-related expenses................... -- (12) -- (46)
Amortization of trademarks and goodwill.......... (55) (54) (165) (161)
------- ------- ------- -------
Consolidated operating income.................... 197 252 617 563
Interest and debt expense........................ (71) (64) (213) (193)
Other income (expense), net...................... 1 (7) (10) (22)
------- ------- ------- -------
Income before income taxes....................... $ 127 $ 181 $ 394 $ 348
======= ======= ======= =======
</TABLE>
10
<PAGE>
NOTE 5--SUBSEQUENT EVENTS
On October 27, 2000, the stockholders of NGH approved the acquisition of
Nabisco Holdings by Philip Morris and the subsequent acquisition of NGH by RJR.
In November 2000, Nabisco signed definitive agreements for the sale of its
domestic breath mints, gum, dry mix dessert and baking powder businesses. These
transactions are conditioned on completion of the acquisition of Nabisco
Holdings by Philip Morris, and are subject to customary closing conditions,
including receipt of regulatory approvals. In 1999, these businesses had net
sales and operating income of approximately $314 million and $96 million,
respectively.
11
<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, restructuring-related expenses and costs
associated with the Nabisco Holdings merger and the NGH merger 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ ------------------------------
DOLLARS IN MILLIONS 2000 1999 % CHANGE 2000 1999 % CHANGE
------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nabisco Biscuit Company.................. $ 962 $ 924 4 % $2,779 $2,688 3 %
Nabisco Foods Company.................... 748 545 37 % 2,112 1,527 38 %
International Food Group................. 543 588 (8)% 1,689 1,720 (2)%
------ ------ ------ ------
Total.................................. $2,253 $2,057 10 % $6,580 $5,935 11 %
====== ====== ====== ======
</TABLE>
<TABLE>
<C> <S>
- Nabisco Biscuit Company's net sales increased 4% in the
third quarter and 3% in the first nine months versus the
same periods last year. The increase in both periods
resulted from the continued momentum in volume growth from
its cookie and cracker brands of 3% and 4% for the third
quarter and first nine months of 2000, respectively, versus
the same periods last year, and favorable pricing actions.
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 37% in the third
quarter and 38% in the first nine months versus the
comparable periods last year. Excluding the impact on net
sales resulting from the November 1999 acquisition of the
Favorite Brands' business, net sales grew 4% in the third
quarter and 8% in the first nine months, over the respective
prior year periods. Volume gains from confections, including
the impact of several new products, and condiments, coupled
with favorable pricing actions, continued to drive growth in
both periods. Volume gains in nuts and pet snacks also
contributed to the increase in net sales for the first nine
months versus the same period last year.
</TABLE>
12
<PAGE>
<TABLE>
<C> <S>
- International Food Group's net sales decreased 8% in the
third quarter and 2% in the first nine months versus the
same periods last year. Excluding the net sales of Spain,
Portugal and the Middle East, whose operations were disposed
of in July of 2000, International's net sales increased 4%
in both the third quarter and first nine months of 2000 over
the comparable 1999 periods. In the third quarter, the net
sales increase, after excluding the disposals in 2000, was
due to the additional volume contributed by the Canale
acquisition and gains in Asia, primarily pricing, and
Canada, due to volume, offset by softness in pricing for the
Southern Cone Region of South America, principally Argentina
and Uruguay. Year to date gains were attributable to the
addition of Canale, higher volume in Venezuela offset in
part by volume weakness in Mexico and both price and volume
weakness in the balance of the Southern Cone businesses.
</TABLE>
OPERATING INCOME AND OPERATING COMPANY CONTRIBUTION
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
NABISCO NABISCO NABISCO NABISCO
DOLLARS IN MILLIONS HOLDINGS NABISCO HOLDINGS NABISCO HOLDINGS NABISCO HOLDINGS NABISCO
------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INCOME................... $197 $219 $252 $252 $617 $639 $563 $563
---- ---- ---- ---- ---- ---- ---- ----
ITEMS EXCLUDED FROM OPERATING
COMPANY CONTRIBUTION:
Amortization of trademarks and
goodwill..................... 55 55 54 54 165 165 161 161
Special items:
Cash buyout of exercised
Nabisco Holdings stock
options...................... 28 28 -- -- 28 28 -- --
Financial, legal and other
advisor fees in connection
with the Nabisco Holdings and
NGH mergers.................. 21 -- -- -- 21 -- -- --
Restructuring credit........... -- -- (59) (59) (27) (27) (59) (59)
Loss on sale of businesses..... -- -- -- -- 18 18 -- --
Restructuring-related
expenses..................... -- -- 12 12 -- -- 46 46
---- ---- ---- ---- ---- ---- ---- ----
104 83 7 7 205 184 148 148
---- ---- ---- ---- ---- ---- ---- ----
OPERATING COMPANY CONTRIBUTION BY
SEGMENT:
Nabisco Biscuit Company.......... 161 162 136 136 439 440 386 386
Nabisco Foods Company............ 100 100 74 74 271 271 196 196
International Food Group......... 40 40 49 49 112 112 129 129
---- ---- ---- ---- ---- ---- ---- ----
Total............................ $301 $302 $259 $259 $822 $823 $711 $711
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
THE FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON OPERATING COMPANY
CONTRIBUTION:
<TABLE>
<C> <S>
- Nabisco Biscuit Company's operating company contribution
increased 18% in the third quarter and 14% in the first nine
months versus the same prior year periods. The third quarter
results were primarily attributable to gains in cookie and
cracker volumes, and favorable pricing actions offset in
part by higher marketing investment. Driving the first nine
months' improvement was strong cookie and cracker volumes,
lower raw material costs, and higher pricing. Partially
offsetting this improvement were increased marketing
investments and lower breakfast snack volumes.
- Nabisco Foods Company's operating company contribution was
$100 million in the third quarter of 2000, an increase of
$26 million over the third quarter of 1999, and $271 million
in the first nine months of 2000, an increase of $75 million
from the first nine months of 1999. The results in both
periods were primarily driven by strong volume gains coupled
with favorable pricing. Increased marketing investments
partially offset the first nine months' comparison.
</TABLE>
13
<PAGE>
<TABLE>
<C> <S>
- International Food Group's operating company contribution
declined 18% in the third quarter of 2000 and 13% in the
first nine months of 2000 from the comparable 1999 periods
principally due to the disposal of its operations in Spain,
Portugal, and the Middle East in July of 2000. Excluding the
results of these businesses, the International Food Group's
operating company contribution was up 3% in the third
quarter and 12% in the first nine months versus the same
periods last year. The third quarter increase is primarily
attributed to the sales gains noted above as costs remained
flat with the prior year period. Canada, Mexico, Asia, and
Venezuela reported higher OCC while Brazil and Southern Cone
were weaker. The first nine month performance primarily
reflects the sales gains noted, offset by higher marketing
investment and foreign exchange. Strengths in Canada,
Venezuela and the Asian businesses offset weaknesses in
Brazil and Mexico.
</TABLE>
INTEREST AND DEBT EXPENSE
Consolidated interest and debt expense of $71 million in the third quarter
and $213 million for the first nine months of 2000 increased 11% and 10% from
the same 1999 periods due to higher average debt levels and higher average
interest rates.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $1 million income and $10 million expense in
the third quarter and first nine months of 2000 compared to $7 million expense
and $22 million expense in the same 1999 periods. The third quarter comparison
primarily reflects United Biscuits investor financing fee income of $12 million
and dividend income accreted on the discounted preferred stock of $7 million.
Partially offsetting these gains were increased foreign exchange losses
primarily due to the impact of currency movements on this investment. The first
nine months comparison also reflects lower foreign exchange losses not related
to the United Biscuits transactions, offset in part by increased financing costs
and lower interest income.
NET INCOME
Nabisco Holdings reported net income of $78 million and $236 million in the
third quarter and first nine months of 2000, a decrease of 32% and an increase
of 10%, respectively, from the same 1999 periods. The third quarter decrease
reflects lower operating income and higher interest and debt expense partially
offset by a decrease in the provision for income taxes, higher other income and
the absence of an extraordinary loss in the third quarter of 2000. The first
nine months increase reflects higher operating income, lower other expense and
the absence in 2000 of an extraordinary loss offset in part by higher interest
and debt expense and an increase in the provision for income taxes.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income was $74 million and $256 million in the third quarter
and first nine months of 2000 versus $97 million and $82 million for the same
1999 periods. The third quarter comparison reflects lower net income partially
offset by lower foreign currency translation losses. The nine 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 September 30, 2000, the 1998 restructuring programs were 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
$122 million with $19 million expended in the first nine months of 2000.
Cumulative cash payments, net of cash proceeds
14
<PAGE>
is comprised of $170 million in cash payments and cumulative cash proceeds of
$48 million. For the nine months ended September 30, 2000, cash payments net of
cash proceeds is comprised of $46 million of cash expenditures and $27 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, are being transacted after the program completion dates. This is
expected to result in a net cash inflow of approximately $7 million subsequent
to September 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 $404 million for the
first nine months of 2000 compared to $190 million for the first nine months of
1999. The increase in net cash flows from operating activities primarily
reflects the year 2000 increase in net income, lower working capital
requirements and lower restructuring credits and payments.
Cash flows used in investing activities increased $21 million in the first
nine months of 2000 to $251 million from $230 million in the first nine months
of 1999 primarily due to the investment in Finalrealm transactions partially
offset by lower acquisition expenditures and lower capital expenditures.
Capital expenditures were $131 million in the first nine months of 2000.
Management expects that capital expenditures for 2000 will be approximately $270
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 nine months of 2000
were $120 million, an increase of $134 million compared to the first nine months
of 1999. The increase was principally due to a reduction in net borrowings
partially offset by higher proceeds from the exercise of Class A common stock
options.
As of September 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 $1.01 billion, and accordingly, $90 million was available.
Effective October 26, 2000, the 364-day facility was renewed, amended and
extended to January 25, 2001 to a $1.09 billion facility.
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 September 30, 2000, actual net
worth, as defined, exceeded required net worth by approximately $896 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 September 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
15
<PAGE>
approximately $4.0 billion and $8.1 billion, respectively, of which total debt
is lower by $75 million and total capital is higher by $42 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 September 30,
2000 were .99 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.
SUBSEQUENT EVENTS
On October 27, 2000, the stockholders of NGH approved the acquisition of
Nabisco Holdings by Philip Morris and the subsequent acquisition of NGH by RJR.
In November 2000, Nabisco signed definitive agreements for the sale of its
domestic breath mints, gum, dry mix dessert and baking powder businesses. These
transactions are conditioned on completion of the acquisition of Nabisco
Holdings by Philip Morris and are subject to customary closing conditions,
including receipt of regulatory approvals. In 1999, these businesses had net
sales and operating income of approximately $314 million and $96 million,
respectively.
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 $193 million
after tax at September 30, 2000, a decrease of $28 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 $19 million at September 30,
2000, a decrease of $11 million from the December 31, 1999 amount.
16
<PAGE>
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, the completion
of the Nabisco Holdings and NGH mergers 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>
<C> <S>
10.1 First Amendment to the 364 Day Credit Agreement dated as of
September 8, 2000, among Nabisco Holdings Corp., Nabisco,
Inc. and the lending institutions party thereto.
10.2 Nabisco, Inc. Deferred Compensation Plan, as amended and
restated effective as of September 13, 2000.
12 Nabisco, Inc. Computation of Ratio of Earnings to Fixed
Charges for the nine months ended September 30, 2000.
27.1 Nabisco Holdings Corp. Financial Data Schedule for the nine
months ended September 30, 2000.
27.2 Nabisco, Inc. Financial Data Schedule for the nine months
ended September 30, 2000.
</TABLE>
(b) Reports on Form 8-K
Nabisco Holding's current report on Form 8-K dated August 21, 2000
announcing the Federal Trade Commission's request for additional
information in connection with its antitrust review of the proposed
acquisition of Nabisco Holdings by Philip Morris.
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)
/s/ JAMES E. HEALEY
......................................
James E. Healey
Executive Vice President and
Chief Financial Officer
Date: November 14, 2000 /s/ THOMAS J. PESCE
......................................
Thomas J. Pesce
Senior Vice President and Controller
</TABLE>
19
