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, 1994
RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-10215 13-3490602
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
RJR NABISCO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-6388 56-0950247
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1301 Avenue of the Americas
New York, New York 10019-6013
(212) 258-5600
(Address, including zip code, and telephone number,
including area code, of the principal executive offices of
RJR Nabisco Holdings Corp.
and RJR 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: June 30, 1994:
RJR Nabisco Holdings Corp.: 1,141,853,614 shares of common
stock, par value $.01 per share
RJR Nabisco, Inc.: 3,021.86513 shares of common stock, par value
$1,000 per share
--------------------
RJR 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>
<S> <C> <C>
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Condensed Statements of Income - Three Months
Ended June 30, 1994 and 1993 1
Consolidated Condensed Statements of Income - Six Months
Ended June 30, 1994 and 1993 2
Consolidated Condensed Statements of Cash Flows - Six Months
Ended June 30, 1994 and 1993 3
Consolidated Condensed Balance Sheets - June 30, 1994
and December 31, 1993 4
Notes to Consolidated Condensed Financial Statements 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22-23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
<PAGE>
PART I
------
Item 1. Financial Statements.
RJR Nabisco Holdings Corp.
RJR Nabisco, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
Three Months Three Months
Ended Ended
June 30, 1994 June 30, 1993
------------------ ----------------
Holdings RJRN Holdings RJRN
-------- ---- -------- ----
Net sales* $ 3,784 $ 3,784 $ 3,719 $ 3,719
--------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold 1,692 1,692 1,526 1,526
Selling, advertising,
administrative and
general expenses 1,261 1,260 1,456 1,453
Amortization of trademarks
and goodwill 156 156 155 155
-------- ---------- -------- --------
Operating income 675 676 582 585
Interest and debt expense (Note 5) (297) (297) (300) (295)
Other income (expense), net (31) (36) (3) (16)
-------- ---------- -------- --------
Income before income taxes 347 343 279 274
Provision for income taxes 155 154 137 136
-------- ---------- -------- --------
Income before extraordinary
item 192 189 142 138
Extraordinary item - loss on early
extinguishments of debt, net of
income taxes (Note 4) (146) (146) (65) (65)
-------- ---------- -------- --------
Net income 46 43 77 73
Less preferred stock dividends 32 - 7 -
-------- ---------- -------- --------
Net income applicable to
common stock $ 14 $ 43 $ 70 $ 73
======== ========= ======== ========
Net income (loss) per common
and common equivalent share:
Income before extraordinary
item $ 0.11 $ 0.10
Extraordinary item (0.10) (0.05)
-------- --------
Net income $ 0.01 $ 0.05
======== ========
Dividends per share of Series A
Preferred Stock (Note 8) $ 0.835 $ 0.835
======== ========
Dividends per share of Series C
Preferred Stock (Note 8) $ 0.935 $ -
======== ========
Average number of common and
common equivalent shares
outstanding (in thousands)
(Note 2) 1,519,452 1,352,205
--------- ---------
* Excludes excise taxes of $888 million and $913 million for the three months
ended June 30, 1994 and 1993, respectively.
See Notes to Consolidated Condensed Financial Statements
-1-
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
Six Months Six Months
Ended Ended
June 30, 1994 June 30, 1993
------------------ ----------------
Holdings RJRN Holdings RJRN
-------- ---- -------- ----
Net sales* $ 7,356 $ 7,356 $ 7,455 $ 7,455
-------- -------- -------- --------
Costs and expenses (Note 1)*:
Cost of products sold 3,264 3,264 3,060 3,060
Selling, advertising,
administrative and
general expenses 2,473 2,467 2,820 2,814
Amortization of trademarks
and goodwill 312 312 310 310
-------- -------- -------- --------
Operating income 1,307 1,313 1,265 1,271
Interest and debt expense (Note 5) (588) (588) (620) (597)
Other income (expense), net (43) (53) 4 (18)
-------- -------- -------- --------
Income before income taxes 676 672 649 656
Provision for income taxes 290 289 297 300
-------- -------- -------- --------
Income before extraordinary item 386 383 352 356
Extraordinary item - loss on
early extinguishments of debt,
net of income taxes (Note 4) (145) (145) (112) (105)
-------- -------- -------- --------
Net income 241 238 240 251
Less preferred stock dividends 65 - 13 -
-------- -------- -------- --------
Net income applicable to
common stock $ 176 $ 238 $ 227 $ 251
======== ======== ======== ========
Net income (loss) per common
and common equivalent share:
Income before extraordinary
item $ 0.22 $ 0.25
Extraordinary item (0.10) (0.08)
-------- -------
Net income $ 0.12 $ 0.17
======== =======
Dividends per share of Series A
Preferred Stock (Note 8) $ 1.670 $ 1.670
======== =========
Dividends per share of Series C
Preferred Stock (Note 8) $ 0.935 $ -
======== =========
Average number of common and common
equivalent shares outstanding
(in thousands) (Note 2) 1,442,461 1,355,214
--------- ---------
* Excludes excise taxes of $1,738 million and $1,781 million for the six months
ended June 30, 1994 and 1993, respectively.
See Notes to Consolidated Condensed Financial Statements
-2-
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Six Months Six Months
Ended Ended
June 30, 1994 June 30, 1993
------------------ ----------------
Holdings RJRN Holdings RJRN
-------- ---- -------- ----
Net cash flows from operating
activities (Note 6) $ 641 $ 729 $ 652 $ 230
-------- -------- -------- --------
Cash flows from (used in)
investing activities:
Capital expenditures (270) (270) (260) (260)
Proceeds from dispositions
of businesses - - 452 452
Acquisition of businesses (390) (390) (14) (14)
Other, net 8 8 6 6
-------- -------- -------- --------
Net cash flows from (used
in) investing activities (652) (652) 184 184
-------- -------- -------- --------
Cash flows from (used in)
financing activities:
Net borrowings (repayments)
under the Credit Agreements 1,478 1,478 (207) (207)
Net proceeds from the
issuance (repayments) of
commercial paper (199) (199) 165 165
Proceeds from issuance of
long-term debt 14 14 981 981
Repayments of long-term debt (2,523) (2,523) (1,727) (1,179)
Financing and advisory fees
paid (55) (1) (8) (8)
Increase in notes payable 69 69 104 104
Proceeds from issuance of
common stock 20 - 4 -
Proceeds from issuance of Series
C Preferred Stock 1,734 - - -
Issuance of common stock to
parent - 1,680 - -
Dividends paid (155) - (103) -
Dividends paid to parent - (20) - (29)
Other, net 15 (200) 34 (162)
-------- -------- -------- --------
Net cash flows from (used
in) financing activities 398 298 (757) (335)
-------- -------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (4) (4) (5) (5)
-------- -------- -------- --------
Net change in cash and
cash equivalents 383 371 74 74
Cash and cash equivalents at
beginning of period 215 205 99 96
-------- -------- -------- --------
Cash and cash equivalents at
end of period $ 598 $ 576 $ 173 $ 170
======= ======= ======== ========
See Notes to Consolidated Condensed Financial Statements
-3-
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
June 30, 1994 December 31, 1993
------------------- -----------------
Holdings RJRN Holdings RJRN
-------- ---- -------- ----
ASSETS
Current assets:
Cash and cash equivalents $ 598 $ 576 $ 215 $ 205
Accounts and notes receivable,
net 1,036 1,028 856 847
Inventories (Note 3) 2,597 2,597 2,700 2,700
Prepaid expenses and excise taxes 398 398 374 374
------- ------ -------- ------
Total current assets 4,629 4,599 4,145 4,126
------- ------ -------- ------
Property, plant and equipment
- at cost 7,553 7,553 7,166 7,166
Less accumulated depreciation (2,199) (2,199) (1,998) (1,998)
------- ------ -------- ------
Net property, plant and equipment 5,354 5,354 5,168 5,168
------- ------ -------- ------
Trademarks, net 8,637 8,637 8,727 8,727
Goodwill, net 12,855 12,855 12,851 12,851
Other assets and deferred charges 399 394 404 400
------- ------ -------- ------
$ 31,874 $ 31,839 $ 31,295 $31,272
======== ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 356 $ 356 $ 301 $ 301
Accounts payable 386 386 515 515
Accrued liabilities 2,632 2,553 2,751 2,705
Current maturities of long-term
debt (Note 5) 496 496 142 142
Income taxes accrued 249 249 234 234
------- ------ -------- ------
Total current liabilities 4,119 4,040 3,943 3,897
------- ------ -------- ------
Long-term debt (less current
maturities) (Note 5) 10,763 10,763 12,005 12,005
Other noncurrent liabilities 2,491 2,235 2,503 2,353
Deferred income taxes 3,687 3,614 3,774 3,701
Commitments and contingencies (Note 7)
Stockholders' equity (Note 8):
ESOP convertible preferred stock
(15,490,397 shares issued and
outstanding at June 30, 1994) 247 - 249 -
Series A convertible preferred
stock (52,500,000 shares issued
and outstanding at June 30, 1994) 2 - 2 -
Series B preferred stock (50,000
shares issued and outstanding at
June 30, 1994) 1,250 - 1,250 -
Series C Convertible preferred
stock (26,675,000 shares issued
and outstanding at June 30, 1994) 3 - - -
Common stock (1,141,853,614 shares
issued and outstanding at
June 30, 1994) 11 - 11 -
Paid-in capital 10,292 11,538 8,778 9,877
Retained earnings (accumulated
deficit) (642) (221) (883) (459)
Receivable from ESOP (200) - (211) -
Other stockholders' equity (149) (130) (126) (102)
------- ------ -------- ------
Total stockholders' equity 10,814 11,187 9,070 9,316
------- ------ -------- ------
$ 31,874 $ 31,839 $ 31,295 $ 31,272
======== ======== ======== ========
See Notes to Consolidated Condensed Financial Statements
-4-
<PAGE>
RJR Nabisco Holdings Corp.
RJR Nabisco, Inc.
Notes to Consolidated Condensed Financial Statements
Note 1 - Interim Reporting and Results of Operations
For interim reporting purposes, certain costs and expenses are charged
to operations in proportion to the estimated total annual amount expected to be
incurred.
Certain prior year amounts have been reclassified to conform to the 1994
presentation.
In management's opinion, the accompanying unaudited consolidated
condensed financial statements (the "Consolidated Condensed Financial
Statements") of RJR Nabisco Holdings Corp. ("Holdings") and RJR Nabisco, Inc.
("RJRN" and collectively with Holdings, the "Registrants") contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods presented.
During the first quarter of 1994, Holdings' net income was increased by
a $20 million after-tax net benefit consisting of a pre-tax credit of $43
million ($41 million after-tax) related to the return of excess assets held in a
trust that was established to fund certain payments related to employee
compensation arrangements and a pre-tax charge of $32 million ($21 million
after-tax) related to the settlement of certain benefits under a Supplemental
Executive Retirement Plan maintained by Holdings.
Note 2 - Earnings Per Share
Earnings per share is based on the weighted average number of shares of
Holdings' common stock, par value $.01 per share, ("Common Stock"), $.835
Depositary Shares ("Series A Depositary Shares") and Series C Depositary Shares
("Series C Depositary Shares") outstanding during the period and Common Stock
assumed to be outstanding to reflect the effect of dilutive warrants and
options. Holdings' other potentially dilutive securities are not included in the
earnings per share calculation because the effect of excluding interest and
dividends on such securities for the period would exceed the earnings allocable
to the Common Stock into which such securities would be converted. Accordingly,
Holdings' earnings per share and fully diluted earnings per share are the same.
Note 3 - Inventories
The major classes of inventory are shown in the table below:
<TABLE><CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
<C> <C> <C>
Finished products $ 803 $ 771
Leaf tobacco 1,278 1,458
Raw materials 199 208
Other 317 263
----------- ----------
$ 2,597 $ 2,700
=========== ==========
</TABLE>
-5-
<PAGE>
Note 4 - Extraordinary Item
The early extinguishments of debt of Holdings and RJRN resulted in the
following extraordinary losses:
<TABLE><CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
Holdings RJRN Holdings RJRN Holdings RJRN Holdings RJRN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash paid in excess of net carrying
amount (book value) of debt
extinguished $ 207 $ 207 $ 93 $ 93 $ 206 $ 206 $ 160 $ 150
Write-off of debt issuance costs 17 17 5 5 17 17 9 9
----- ----- ----- ----- ----- ----- ----- -----
Extraordinary item - loss on early
extinguishments of debt
before income taxes 224 224 98 98 223 223 169 159
Benefit for income taxes (78) (78) (33) (33) (78) (78) (57) (54)
----- ----- ----- ----- ----- ----- ----- -----
Extraordinary item - loss on early
extinguishments of debt,
net of income taxes $ 146 $ 146 $ 65 $ 65 $ 145 $ 145 $ 112 $ 105
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Note 5 - Long-term Debt and Interest Expense
Long-term debt consisted of the following:
June 30, 1994 December 31, 1993
------------- -----------------
Debentures and notes $ 8,056 $ 8,095
Foreign currency debt 498 595
Revolving credit facility 1,650 328
Commercial paper 714 913
Other indebtedness 241 266
Subordinated debentures and notes:
Subordinated debentures - 280
Subordinated discount debentures - 1,393
Other subordinated indebtedness 100 277
Less current maturities (496) (142)
----------- -----------
$ 10,763 $ 12,005
=========== ===========
Consolidated interest and debt expense for Holdings consisted of the
following:
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
Cash interest $ 260 $ 230 $ 482 $ 454
Non-cash interest
and debt expense 37 70 106 166
------- ------ ------ ------
$ 297 $ 300 $ 588 $ 620
======= ====== ====== ======
-6-
<PAGE>
Note 5 - Long-term Debt and Interest Expense (continued)
Based on RJRN's intention and ability to continue to refinance, for
more than one year, the amount of its domestic commercial paper borrowings
outstanding either in the commercial paper market or with additional borrowings
under RJRN's $6.5 billion revolving credit facility (as amended from time to
time, the "1991 Credit Agreement"), commercial paper borrowings of $714 million
have been included in "Long-term debt" as of June 30, 1994.
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The 1991 Credit Agreement, together with RJRN's $1 billion revolving
credit facility (as amended from time to time, the "1993 Credit Agreement" and
together with the 1991 Credit Agreement, the "Credit Agreements"), which contain
restrictions on the payment of cash dividends or other distributions by Holdings
in excess of certain specified amounts, and the indentures relating to certain
of RJRN's debt securities, which contain restrictions on the payment of cash
dividends or other distributions by RJRN to Holdings in excess of certain
specified amounts, or for certain specified purposes, effectively limit the
payment of dividends on the Common Stock. In addition, the declaration and
payment of dividends is subject to the discretion of the board of directors of
Holdings and to certain limitations under Delaware law. The Credit Agreements
and the indentures under which certain debt securities of RJRN have been issued
also impose certain operating and financial restrictions on Holdings and its
subsidiaries. These restrictions limit the ability of Holdings and its
subsidiaries to incur indebtedness, engage in transactions with stockholders and
affiliates, create liens, sell certain assets and certain subsidiaries' stock,
engage in certain mergers or consolidations and make investments in unrestricted
subsidiaries.
On May 15, 1994, RJRN redeemed substantially all of its approximately
$2 billion in outstanding subordinated debentures. The subordinated debentures
redeemed consisted of the Subordinated Discount Debentures due May 15, 2001 (the
"Subordinated Discount Debentures"), the 15% Payment-in-Kind Subordinated
Debentures due May 15, 2001 (the "15% Subordinated Debentures") and the 13 1/2%
Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated Debentures")
at redemption prices of 107 1/2%, 107 1/2% and 106 3/4%, respectively.
Approximately $1.2 billion principal or accreted amount of such debentures was
refinanced with proceeds of debt securities maturing after 1998 that were issued
during 1993. Such proceeds had been used to temporarily reduce indebtedness
under the 1991 Credit Agreement. In addition, the redemption of such debentures
was funded with approximately $900 million of net proceeds from the sale of
266,750,000 Series C Depositary Shares completed on May 6, 1994 in connection
with the issuance of 26,675,000 shares of Series C Conversion Preferred Stock,
par value .01 per share, ("Series C Preferred Stock").
-7-
<PAGE>
Note 6 - Supplemental Cash Flows Information
A reconciliation of net income to net cash flows from operating activities
follows:
<TABLE><CAPTION>
Six Months Six Months
Ended Ended
June 30, 1994 June 30, 1993
Holdings RJRN Holdings RJRN
<S> <C> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 241 $ 238 $ 240 $ 251
------- ------ ------- ------
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation of property, plant and equipment 222 222 218 218
Amortization (principally intangibles) 346 346 347 347
Deferred income tax benefit (3) (3) (78) (115)
Non-cash interest and debt expense 106 106 166 143
Extraordinary item - loss on early
extinguishments of debt before income taxes 223 223 169 159
Changes in working capital items, net (393) (302) (328) (620)
Other, net (101) (101) (82) (153)
------- ------ ------- ------
Total adjustments 400 491 412 (21)
------- ------ ------- ------
Net cash flows from operating activities $ 641 $ 729 $ 652 $ 230
======= ====== ======= ======
</TABLE>
Note 7 - Contingencies
Various legal actions, proceedings and claims are pending or may be
instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates or
indemnitees, including those claiming that lung cancer and other diseases have
resulted from the use of or exposure to RJRT's tobacco products. During 1993, 16
new actions were filed or served against RJRT and/or its affiliates or
indemnitees and 18 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its affiliates or indemnitees. A total of 35 such actions in the
United States, one in Puerto Rico and one against RJRT's Canadian subsidiary
were pending on December 31, 1993. As of July 27, 1994, 46 active cases were
pending against RJRT and/or its affiliates or indemnitees, 44 in the United
States, one in Puerto Rico and one in Canada. Four of the 44 active cases in the
United States involve alleged non-smokers claiming injuries resulting from
exposure to environmental tobacco smoke. Six of the active cases, which are
described more specifically below, purport to be class actions on behalf of
thousands of individuals.
The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, indemnity and common law public nuisance.
Punitive damages, often in amounts totaling many millions of dollars, are
specifically pleaded in 21 cases in addition to compensatory and other damages.
The defenses raised by RJRT and/or its affiliates, where applicable, include
preemption by the Federal Cigarette Labeling and Advertising Act, as amended
(the "Cigarette Act"), of some or all such claims arising after 1969; the lack
of any defect in the product; assumption of the risk; comparative fault; lack of
proximate cause; and statutes of limitations or repose. Juries have found for
plaintiffs in two smoking and health cases in which RJRT was not a defendant,
but in one such case, which has been appealed by both parties, no damages were
awarded. The jury awarded plaintiffs $400,000 in the other such case, Cipollone
---------
v. Liggett Group, Inc., et. al., which award was overturned on appeal and the
- -------------------------------
case was subsequently dismissed.
-8-
<PAGE>
Note 7 - Contingencies (continued)
On June 24, 1992, the United States Supreme Court in Cipollone held that
---------
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Court also held that claims of breach of express warranty,
fraud, misrepresentation and conspiracy were not preempted. The Supreme Court's
decision was announced through a plurality opinion, and further definition of
how Cipollone will apply to other cases must await rulings in those cases.
---------
Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted and, if so, in what form, or whether such legislation would be
intended by Congress to apply retroactively. The Supreme Court's Cipollone
---------
decision itself, or the passage of such legislation, could increase the number
of cases filed against cigarette manufacturers, including RJRT.
RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research-USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
RJRT has received a civil investigative demand from the U.S. Department
of Justice requesting broad documentary information from RJRT. Although the
request appears to focus on tobacco industry activities in connection with
product development efforts, it also requests general information concerning
contacts with competitors. RJRT is unable to predict the outcome of this
investigation.
In March 1994, in Broin v. Philip Morris Companies Inc., et al., a
---------------------------------------------
purported class action against certain tobacco industry defendants, including
RJRT, in which flight attendants, claiming to represent a class of 60,000
individuals allege personal injury caused by exposure to environmental tobacco
smoke in their workplace, a Florida state intermediate appellate court reversed
a lower court ruling and reinstated plaintiffs' class action allegations. The
appellate court also ordered the trial court to hold further hearings on the
class allegations. The defendants have filed a request for review of this ruling
by a full panel of judges.
In March 1994, Lacey v. Lorillard Tobacco Company, Inc., et al., a
------------------------------------------------
purported class action, was filed in Circuit Court, Fayette County, Alabama
against three cigarette manufacturers, including RJRT. Plaintiff, who claims to
represent all smokers who have smoked or are smoking cigarettes manufactured and
sold by defendants in the state of Alabama, seeks compensatory and punitive
damages not to exceed $48,500 per each class member and injunctive relief
arising from defendants' alleged failure to disclose additives used in their
cigarettes. In April 1994, defendants removed the case to the United States
District Court for the Northern District of Alabama.
In March 1994, Castano v. The American Tobacco Company, et al., a
-----------------------------------------------
purported class action, was filed in the United States District Court for the
Eastern District of Louisiana against tobacco industry defendants, including
RJRT, seeking certification of a class action on behalf of all United States
residents who allegedly are or claim to be addicted, or are the legal survivors
of persons who allegedly were addicted, to tobacco products manufactured by
defendants. The complaint alleges that cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to induce addiction in smokers.
In March 1994, Allman v. Philip Morris, Inc., et al., and Higley v.
------------------------------------- ---------
Philip Morris, Inc., et al., were filed in the United States District Court for
- ---------------------------
the Southern District of California against industry members and others,
including RJRT, on behalf of a purported class of persons claiming to be
addicted to cigarettes who had been prescribed treatment using the nicotine
transdermal system. Plaintiffs assert a violation of the Racketeer Influenced
Corrupt Organizations Act and claim unspecified actual and treble damages. In
April 1994, the two cases were combined into a single amended complaint and
plaintiffs' counsel agreed to dismiss the Higley case.
------
-9-
<PAGE>
In May 1994, Engle v. R.J. Reynolds Tobacco Company, et al. was filed in
----------------------------------------------
Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. Plaintiffs cite the
Florida appellate court reversal in Broin in support of their allegations of
-----
class action status.
In June 1994, in Moore v. The American Tobacco Company., et al., RJRN
----------------------------------------------
was named along with other industry members as a defendant in an action brought
by the Mississippi state attorney general on behalf of the state to recover
state funds paid for health care and medical and other assistance to state
citizens suffering from diseases and conditions allegedly related to tobacco
use. This suit, which was brought in Chancery (equity) Court, Jackson County,
Mississippi, and which has been removed to the United States District Court for
the Southern District of Mississippi, also seeks an injunction from "promoting"
or "aiding and abetting" the sale of cigarettes to minors. Both actual and
punitive damages are sought in unspecified amounts.
In April 1994, Sparks v. R. J. Reynolds Tobacco Company, et al. was
------------------------------------------------
brought in Washington state court on behalf of a purported class of "parents
with a conscience" alleging that an RJRT advertising campaign targets minors and
constitutes an unfair trade practice under Washington state law. In May 1994,
the case was removed to the United States District Court for the Western
District of Washington.
In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, et al., a
------------------------------------------------
lawsuit similar to Sparks pending in California, which is a not class action but
which is a suit brought by plaintiffs acting as private attorneys general
alleging that an RJRT advertising campaign constitutes unfair competition under
the California Business and Professions Code, the California Supreme Court ruled
that plaintiffs' claim was not preempted by the Cigarette Act. This opinion
allows plaintiffs to pursue their lawsuit which had been dismissed at the trial
court level.
Litigation is subject to many uncertainties, and it is possible that
some of the legal actions, proceedings or claims could be decided against RJRT
or its affiliates or indemnitees. Determinations of liability or adverse rulings
against other cigarette manufacturers that are defendants in similar actions,
even if such rulings are not final, could adversely affect the litigation
against RJRT and its affiliates or indemnitees and increase the number of such
claims. Although it is impossible to predict the outcome of such events or their
effect on RJRT, a significant increase in litigation activities could have an
adverse effect on RJRT. RJRT believes that it has a number of valid defenses to
any such actions, including but not limited to those defenses based on
preemption under the Cipollone decision, and RJRT intends to defend vigorously
---------
all such actions.
The Registrants believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on either of the
Registrant's financial position; however, it is possible that the results of
operations or cash flows of the Registrants in particular quarterly or annual
periods or the financial condition of the Registrants could be materially
affected by the ultimate outcome of certain pending litigation matters.
Management is unable to derive a meaningful estimate of the amount or range of
any possible loss in any particular quarterly or annual period or in the
aggregate.
-10-
<PAGE>
Note 8 - Stockholders' Equity
Retained earnings (accumulated deficit) at June 30, 1994 includes non-
cash expenses related to accumulated trademark and goodwill amortization of
approximately $3.327 billion.
Dividends per Series A Depositary Share are equal to one-fourth of the
amount of dividends per share of Series A Conversion Preferred Stock, par value
$.01 per share, ("Series A Preferred Stock") of Holdings. Dividends per Series C
Depositary Share are equal to one-tenth of the amount of dividends per share of
Series C Preferred Stock of Holdings. Because Series A Preferred Stock and
Series C Preferred Stock mandatorily convert into Common Stock of Holdings,
dividends on shares of Series A Preferred Stock and Series C Preferred Stock are
reported similar to common equity dividends.
On May 6, 1994, Holdings completed the issuance of 26,675,000 shares of
Series C Preferred Stock in connection with the sale of 266,750,000 Series C
Depositary Shares at $6.50 per depositary share. Approximately $900 million of
the net proceeds from the sale of the Series C Depositary Shares were applied to
the redemption of RJRN's subordinated debentures on May 15, 1994. The remaining
net proceeds may be used for general corporate purposes which may include
refinancings of indebtedness, working capital, capital expenditures,
acquisitions and repurchases or redemptions of securities. In addition, such
proceeds may be used to facilitate one or more significant corporate
transactions, such as a joint venture, merger, acquisition, divestiture, asset
swap, spin-off and/or recapitalization, that could result in the separation of
the tobacco and food businesses of Holdings. Pending such uses, proceeds are
being used to repay indebtedness under the 1991 Credit Agreement and for short-
term liquid investments.
____________________
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of Holdings' financial condition and
results of operations should be read in conjunction with the historical
financial information included in the Consolidated Condensed Financial
Statements.
Results of Operations
Summarized financial data for Holdings is as follows:
<TABLE><CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
(Dollars in Millions) 1994 1993 % Change 1994 1993 % Change
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
RJRT $ 1,182 $ 1,331 (11)% $2,316 $2,736 (15)%
Tobacco International 712 699 2 1,439 1,398 3
------- ------- ------ ------
Total Tobacco 1,894 2,030 (7) 3,755 4,134 (9)
Total Food 1,890 1,689 12 3,601 3,321 8
------- ------- ------ ------
$ 3,784 $ 3,719 2 $7,356 $7,455 (1)
======= ======= ====== ======
Operating Company Contribution*:
RJRT $ 400 $ 369 8% $ 793 $ 869 (9)%
Tobacco International 173 146 18 352 305 15
------- ------- ------ ------
Total Tobacco 573 515 11 1,145 1,174 (2)
Total Food 282 254 11 512 457 12
Corporate (24) (32) 25 (38) (56) 32
------- ------- ------ ------
$ 831 $ 737 13 $1,619 $1,575 3
======= ======= ====== ======
Operating Income:
RJRT $ 308 $ 277 11% $ 610 $ 686 (11)%
Tobacco International 164 137 20 333 286 16
------- ------- ------ ------
Total Tobacco 472 414 14 943 972 (3)
Total Food 227 200 14 402 349 15
Corporate (24) (32) 25 (38) (56) 32
------- ------- ------ ------
$ 675 $ 582 16 $1,307 $1,265 3
======= ======= ====== ======
</TABLE>
____________________
* Operating income before amortization of trademarks and goodwill.
-12-
<PAGE>
Tobacco
The tobacco line of business is conducted by RJRT and R.J. Reynolds
Tobacco International, Inc. ("Tobacco International").
Holdings' worldwide tobacco business experienced continued net sales
growth in its international business conducted by Tobacco International that was
more than offset by a significant sales decline in the domestic business
conducted by RJRT. Net sales from the worldwide tobacco business amounted to
$1.89 billion in the second quarter of 1994, a decline of 7% from the second
quarter of 1993 level of $2.03 billion, and $3.76 billion in the first six
months of 1994, a decline of 9% from the first six months of 1993 level of $4.13
billion. Worldwide volume for the second quarter of 1994 and the first six
months of 1994 increased 8% and 5%, respectively, compared to the corresponding
periods of the prior year. Operating company contribution for the worldwide
tobacco business increased to $573 million in the second quarter of 1994, up 11%
from the second quarter of 1993 level of $515 million, as a result of gains in
both the domestic and international businesses. Operating company contribution
for the worldwide tobacco business amounted to $1.15 billion in the first six
months of 1994, a decline of 2% from the first six months of 1993 level of $1.17
billion, reflecting reductions for the domestic business which were partially
offset by gains in the international business. Operating income for the
worldwide tobacco business amounted to $472 million in the second quarter of
1994, an increase of 14% from the second quarter of 1993 level of $414 million,
and $943 million in the first six months of 1994, a decline of 3% from the first
six months of 1993 level of $972 million, reflecting the change in operating
company contribution.
Net sales for RJRT amounted to $1.18 billion in the second quarter of
1994, a decline of 11% from the second quarter of 1993 level of $1.33 billion,
and $2.32 billion in the first six months of 1994, a decline of 15% from the
first six months of 1993 level of $2.74 billion, primarily reflecting the impact
of industry-wide price reductions on full price brands (approximately $250
million in the second quarter of 1994 and approximately $500 million in the
first six months of 1994), which went into effect during the second half of 1993
that more than offset the impact of a higher proportion of sales from full price
brands in both periods. Overall volume decreased 3% in the second quarter of
1994 compared to the second quarter of 1993, and decreased 6% in the first six
months of 1994 compared to the first six months of 1993, primarily as a result
of a decline in the savings segment that more than offset the volume gains in
the full price segment. The impact of lower savings segment volume for the
second quarter of 1994 and the first six months of 1994 was partially offset by
higher selling prices in that segment. RJRT's operating company contribution was
$400 million in the second quarter of 1994, an 8% increase from the second
quarter of 1993 level of $369 million, as a result of the increased proportion
of sales from the higher margin full price segment and reduced promotional
spending which more than offset the impact of the industry-wide price reductions
on full price brands. RJRT's operating company contribution was $793 million in
the first six months of 1994, a 9% decline from the first six months of 1993
level of $869 million, due to the price reductions on the full price brands
which more than offset the cost savings achieved from previously established
restructuring programs, reduced promotional spending and the increased
proportion of sales from the higher margin full price segment. RJRT's operating
income was $308 million in the second quarter of 1994, an increase of 11% from
the second quarter of 1993 level of $277 million, and $610 million in the first
six months of 1994, a decline of 11% from the first six months of 1993 level of
$686 million. The change in operating income for both the second quarter of 1994
and the first six months of 1994 reflects the change in RJRT's operating
company contribution.
-13-
<PAGE>
Tobacco (continued)
During recent years, the lower price segment of the domestic cigarette
market has grown significantly and the full price segment has declined. This
overall trend was mitigated by the reduction in price in the full price segment
and the increased list prices on lower priced brands during the second half of
1993 but consumers remain sensitive to price changes. Although not the case in
the first and second quarters of 1994, RJRT has experienced substantial
increased volume in recent years in the lower price segment, but the earnings
attributable to these sales have not been sufficient to offset decreased
earnings resulting from declining sales of RJRT's full price brands. During the
second quarter of 1994 and the first six months of 1994, RJRT's margins improved
compared to the fourth quarter of 1993 due to more efficient marketing and cost
savings achieved from the previously established restructuring programs. RJRT's
domestic cigarette volume of non-full price brands as a percentage of its total
domestic volume was 40% in the second quarter of 1994 versus 32% for the
domestic cigarette market, and 41% in the first six months of 1994 versus 33%
for the domestic cigarette market. For the full year, RJRT's domestic cigarette
volume of non-full price brands as a percentage of its total domestic volume was
44% in 1993, 35% in 1992 and 25% in 1991 versus 37%, 30% and 25%, respectively,
for the domestic cigarette market.
In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form of any regulations that may be
finally adopted by OSHA, if the proposed regulations are adopted, RJRT expects
that many employers who have not already done so would prohibit smoking in the
workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. Because many employers currently do not
permit smoking in the workplace, RJRT cannot predict the effect of any
regulations that may be adopted, but incremental restrictions on smokers could
have an adverse effect on cigarette sales and RJRT.
During February 1994, the Commissioner of the U.S. Food and Drug
Administration (the "FDA"), which historically has refrained from asserting
jurisdiction over most cigarette products, stated that he intended to cause the
FDA to work with the U.S. Congress to resolve the regulatory status of
cigarettes under the Food, Drug and Cosmetic Act. During the second quarter of
1994, hearings were held in this regard and RJRT, along with other members of
the U.S. cigarette industry, were asked to provide voluntarily certain documents
and other information to Congress and the FDA. RJRT is unable to predict the
outcome of any Congressional deliberations or the likelihood that the FDA will
assert jurisdiction over cigarettes in some manner. Were the FDA to assert
jurisdiction in a manner that materially restricts the availability of
cigarettes to consumers, it would likely have a significant adverse effect on
RJRT.
In July 1994, an amendment to a Florida statute became effective, which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care and permits a lawsuit to be filed as a class action. The statute,
which has been challenged on state and federal constitutional grounds in a
lawsuit brought by Philip Morris Companies Inc., Associated Industries of
Florida, Publix Supermarkets, and National Association of Convenience Stores on
June 30, 1994, eliminates the comparative negligence and assumption of risk
defenses. RJRT is unable to predict whether a lawsuit will be filed under the
Florida statute, or if filed, the outcome thereof.
In addition, in June 1994, legislation was introduced in the U.S. Senate
which would authorize the Attorney General of the United States to seek to
recover from tobacco product manufacturers funds paid out in the form of
Medicaid and Medicare payments to treat illnesses allegedly related to the use
of tobacco products. It is not possible to predict whether such legislation will
be enacted or any resulting effect thereof on RJRT.
-14-
<PAGE>
Tobacco (continued)
It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, Tobacco International or the
cigarette industry generally but such legislation or regulations could have an
adverse effect on RJRT, Tobacco International or the cigarette industry
generally.
For a description of certain litigation affecting RJRT and its
affiliates, see Note 7 to the Consolidated Condensed Financial Statements.
Tobacco International recorded net sales of $712 million in the second
quarter of 1994, an increase of 2% from the second quarter of 1993 level of $699
million, and $1.44 billion in the first six months of 1994, an increase of 3%
from the first six months of 1993 level of $1.40 billion, due to volume gains in
the former Soviet Union, Malaysia and Western Europe, particularly Spain, and
favorable pricing in Eastern and Western Europe, which more than offset the
impact of product mix differences across markets and unfavorable foreign
currency developments. Tobacco International's operating company contribution
rose to $173 million in the second quarter of 1994, an increase of 18% compared
to the second quarter of 1993 level of $146 million, and $352 million in the
first six months of 1994, an increase of 15% from the first six months of 1993
level of $305 million, due to the volume gains, favorable pricing and lower
promotional spending which were partially offset by the product mix differences
across markets and unfavorable foreign currency developments. Tobacco
International's operating income was $164 million in the second quarter of 1994,
an increase of 20% from the second quarter of 1993 level of $137 million, and
$333 million in the first six months of 1994, an increase of 16% from the first
six months of 1993 level of $286 million. The increases in operating income
reflect the increase in Tobacco International's operating company contribution.
During the second quarter of 1994, Tobacco International continued its
significant pace of international expansion, opening a cigarette factory in
Poland and acquiring a tobacco processing plant in Russia and a 90 percent
interest in a confectionery plant in Kazakhstan, where it will establish a
cigarette production unit.
-15-
<PAGE>
Food
Holdings' food business is conducted by Nabisco Group ("Nabisco"), which
is comprised of the Nabisco Biscuit Company, the LifeSavers Company, the
Planters Company, the Specialty Products Company, the Fleischmann's Company, the
Food Service Company and Nabisco Brands Ltd, (collectively the "North American
Group") and Nabisco International.
Nabisco reported net sales of $1.89 billion in the second quarter of
1994, an increase of 12% from the second quarter of 1993 level of $1.69 billion,
and $3.60 billion in the first six months of 1994, an increase of 8% from the
first six months of 1993 level of $3.32 billion, with the North American Group
up 4% and 5%, respectively, and Nabisco International up 72% and 29%,
respectively. The North American Group increases are primarily attributable to
significant volume increases at the Nabisco Biscuit Company reflecting the
success of new product introductions in the U.S. biscuit market, including fat
free and low fat cookies and crackers, and volume increases from the Food
Service Company, the Specialty Products Company and the Fleischmann's Company's
refrigerated and frozen Egg Beaters. The Nabisco International increases were
primarily the result of the favorable impact of recent acquisitions.
Nabisco's operating company contribution was $282 million in the second
quarter of 1994, an increase of 11% from the second quarter of 1993 level of
$254 million, and $512 million in the first six months of 1994, an increase of
12% from the first six months of 1993 level of $457 million, with the North
American Group up 11% and 14%, respectively, and Nabisco International up 11%
and down 3%, respectively. The North American Group increases were primarily due
to the increase in net sales and savings from productivity programs, including
previously established restructuring programs. The Nabisco International
increase in operating company contribution for the second quarter of 1994 was
primarily due to the profit contribution from recent acquisitions and strong
results in Spain and Venezuela, partially offset by declines in volume resulting
from unfavorable business conditions in the Mexican and Brazilian markets. The
Nabisco International decrease in operating company contribution for the first
six months of 1994 was primarily due to the lower volume from its Brazilian and
Mexican operations that more than offset the impact of recent acquisitions.
Nabisco's operating income was $227 million in the second quarter of
1994, an increase of 14% from the second quarter of 1993 level of $200 million,
and $402 million in the first six months of 1994, an increase of 15% from the
first six months of 1993 level of $349 million, as a result of the increases in
operating company contribution.
During April 1994, Nabisco International acquired seventy-one percent of
Establecimiento Modelo Terrabusi S.A., Argentina's second largest cookie and
cracker business. During May 1994, Nabisco International acquired the remaining
50% interest in each of Royal Brands S.A. in Spain and Royal Brands Portugal.
Interest and Debt Expense
Consolidated interest and debt expense of $297 million in the second
quarter of 1994 and $588 million in the first six months of 1994 decreased 1%
and 5%, respectively, from the corresponding 1993 periods, primarily as a result
of refinancings of debt during 1993 and 1994, lower debt levels from the
application of proceeds from the issuances of preferred stock and lower
effective interest rates which more than offset the impact of higher market
interest rates in 1994.
-16-
<PAGE>
Net Income
Holdings' net income of $46 million in the second quarter of 1994 and
$241 million in the first six months of 1994 includes an after-tax extraordinary
loss of $146 million and $145 million, respectively, related to the repurchase
of debt during such periods. Excluding the extraordinary loss in both 1994
periods, as well as a similar extraordinary item which resulted in a $65 million
after- tax loss in the second quarter of 1993 and a $112 million after-tax loss
in the first six months of 1993, Holdings would have reported net income of $192
million for the second quarter of 1994 and $386 million for the first six months
of 1994, an increase of $50 million and $34 million, respectively, from the
comparable periods last year, primarily as a result of higher consolidated
operating income and the impact of lower interest expense for both periods,
offset in part by unfavorable foreign currency developments and, with respect to
the six months of 1994 period only, a $20 million after-tax net benefit reported
in the first quarter of 1994 (primarily reflected at Corporate) related to
certain employee compensation arrangements.
-17-
<PAGE>
Liquidity and Financial Condition
June 30, 1994
Free cash flow, which represents cash available for the repayment of
debt and certain other corporate purposes before the consideration of any debt
and equity financing transactions, acquisition expenditures and divestiture
proceeds, for the first six months of 1994 and 1993 was $240 million and $357
million, respectively.
The components of free cash flow are as follows:
<TABLE><CAPTION>
Six Months
Ended
June 30,
1994 1993
(In Millions)
<S> <C> <C>
Operating income $ 1,307 $ 1,265
Amortization of intangibles 312 310
-------- --------
Operating Company Contributions 1,619 1,575
Depreciation and other amortization 256 255
Increase in operating working capital (299) (319)
Capital expenditures (270) (260)
Change in other assets and liabilities (46) (51)
-------- --------
Operating cash flow* 1,260 1,200
Taxes paid (286) (259)
Interest paid (490) (471)
Dividends paid (155) (103)
Other, net (89) (10)
-------- --------
Free cash flow $ 240 $ 357
======== ========
</TABLE>
____________________
* Operating cash flow, which is used as an internal management measurement for
evaluating business performance, includes, in addition to net cash flows from
operating activities as recorded in the Consolidated Condensed Statement of
Cash Flows, proceeds from the sale of capital assets less capital
expenditures, and is adjusted to exclude income taxes and items of a financial
nature (such as interest paid, interest income, and other miscellaneous
financial income or expense items).
____________________
-18-
<PAGE>
Liquidity and Financial Condition (continued)
At June 30, 1994, Holdings had an outstanding total debt level (notes
payable and long-term debt, including current maturities) of approximately $11.6
billion and a total capital level (total debt and stockholders' equity) of
approximately $22.4 billion, a decrease of $833 million and an increase of $911
million, respectively, when compared to the corresponding amount at December 31,
1993. The decrease in the outstanding debt level is primarily due to the
application of approximately $900 million of net proceeds from the sale of the
Series C Depositary Shares to redeem a portion of RJRN's subordinated debentures
as discussed below. The increase in the total capital level is primarily due to
the sale of the Series C Depositary Shares, offset in part by the use of a
portion of the funds provided therefrom for the redemption of a portion of
RJRN's subordinated debentures. Holdings' ratio of total debt to stockholders'
equity improved to 1.1-to-1 at June 30, 1994 versus 1.4-to-1 at December 31,
1993. RJRN's ratio of total debt to common equity improved to 1.0-to-1 at June
30, 1994 versus 1.3-to-1 at December 31, 1993. In addition, total current
liabilities and long-term debt of RJRN's subsidiaries as of June 30, 1994 was
approximately $3.5 billion.
Holdings' effective interest rate on its consolidated long-term debt
decreased from 8.4% at December 31, 1993 to 7.6% at June 30, 1994 as a result of
the redemption of RJRN's subordinated debentures described below. Future
effective interest rates may vary as a result of RJRN's ongoing management of
interest rate exposure and changing market interest rates as well as refinancing
activities and changes in the ratings assigned to RJRN's debt securities by
independent rating agencies.
Management expects to consider opportunities to improve Holdings' and
its subsidiaries' capital and/or cost structure as they arise. Such
opportunities, if pursued, could involve further acquisitions from time to time
of substantial amounts of securities of Holdings or its subsidiaries through
open market purchases, redemptions, privately negotiated transactions, tender or
exchange offers or otherwise and/or the issuance from time to time of additional
securities by Holdings or its subsidiaries. Acquisitions of securities at prices
above their book value, together with the accelerated amortization of deferred
financing fees attributable to the acquired securities, would reduce reported
net income, depending upon the extent of such acquisitions. Nonetheless,
Holdings' and its subsidiaries' ability to take advantage of such opportunities
is subject to restrictions in the Credit Agreements and in certain of their debt
indentures.
In addition, management currently is reviewing and expects to continue
to review various corporate transactions, including, but not limited to, joint
ventures, mergers, acquisitions, divestitures, asset swaps, spin-offs and
recapitalizations. Although Holdings has discussed and continues to discuss
various transactions with third parties, no assurance may be given that any
transaction will be announced or completed. It is possible that Holdings'
tobacco and food businesses would be separated should certain of the foregoing
transactions be consummated.
On May 6, 1994, Holdings completed the issuance of 26,675,000 shares of
Series C Preferred Stock in connection with the sale of 266,750,000 Series C
Depositary Shares at $6.50 per depositary share. Approximately $900 million of
the net proceeds from the sale of the Series C Depositary Shares was applied to
the redemption of RJRN's subordinated debentures discussed below. The remaining
net proceeds may be used
-19-
<PAGE>
Liquidity and Financial Condition (continued)
for general corporate purposes which may include refinancings of indebtedness,
working capital, capital expenditures, acquisitions and repurchases or
redemptions of securities. In addition, such proceeds may be used to facilitate
one or more significant corporate transactions as described above. Pending such
uses, proceeds are being used to repay indebtedness under the 1991 Credit
Agreement and for short-term liquid investments.
The 1991 Credit Agreement is a $6.5 billion revolving bank credit
facility that provides for the issuance of up to $800 million of irrevocable
letters of credit. Availability under the 1991 Credit Agreement is reduced by an
amount equal to the stated amount of such letters of credit outstanding, by
commercial paper borrowings in excess of $1 billion and by amounts borrowed
under such facility. At June 30, 1994, approximately $364 million stated amount
of letters of credit was outstanding and $1.650 billion was borrowed under the
1991 Credit Agreement. Accordingly, the amount available under the 1991 Credit
Agreement at June 30, 1994 was $4.486 billion.
Availability under the 1993 Credit Agreement, which matures on April 3,
1995 and provides a back-up line of credit to support domestic commercial paper
issuances of up to $1 billion, is reduced by an amount equal to the aggregate
amount of domestic commercial paper outstanding. At June 30, 1994, approximately
$714 million of domestic commercial paper was outstanding. Accordingly, $286
million was available under the 1993 Credit Agreement at June 30, 1994.
The aggregate of consolidated indebtedness and interest rate
arrangements subject to fluctuating interest rates approximated $3.9 billion at
June 30, 1994. This represents a decrease of $1.6 billion from the year-end 1993
level of $5.5 billion, primarily due to Holdings' on-going management of its
interest rate exposure.
Certain financing agreements to which Holdings is a party and debt
instruments of RJRN directly or indirectly restrict the payment of dividends by
Holdings. The Credit Agreements, which contain restrictions on the payment of
cash dividends or other distributions by Holdings in excess of certain specified
amounts, and the indentures relating to certain of RJRN's debt securities, which
contain restrictions on the payment of cash dividends or other distributions by
RJRN to Holdings in excess of certain specified amounts, or for certain
specified purposes, effectively limit the payment of dividends on the Common
Stock. In addition, the declaration and payment of dividends is subject to the
discretion of the board of directors of Holdings and to certain limitations
under Delaware law. The Credit Agreements and the indentures under which certain
debt securities of RJRN have been issued also impose certain operating and
financial restrictions on Holdings and its subsidiaries. These restrictions
limit the ability of Holdings and its subsidiaries to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell certain
assets and certain subsidiaries' stock, engage in certain mergers or
consolidations and make investments in unrestricted subsidiaries. The
Registrants believe that they are currently in compliance with all covenants and
provisions in the Credit Agreements and their other indebtedness.
Capital expenditures were $270 million for the first six months of 1994.
The current level of expenditures planned for 1994 is expected to be in the
range of approximately $600 million to $650 million (approximately 60% Food and
40% Tobacco), which will be funded primarily by cash flows from operating
activities. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
the Registrants' businesses.
-20-
<PAGE>
Liquidity and Financial Condition (continued)
On May 15, 1994, RJRN redeemed substantially all of its approximately $2
billion in outstanding subordinated debentures. The subordinated debentures
redeemed consisted of the Subordinated Discount Debentures, 15% Subordinated
Debentures and the 13 1/2% Subordinated Debentures at redemption prices of 107
1/2%, 107 1/2% and 106 3/4%, respectively. Approximately $1.2 billion principal
or accreted amount of such debentures was refinanced with proceeds of debt
securities maturing after 1998 that were issued during 1993. Such proceeds had
been used to temporarily reduce indebtedness under the 1991 Credit Agreement. In
addition, the redemption of such debentures was funded with approximately $900
million of net proceeds from the sale of the Series C Depositary Shares
completed on May 6, 1994 in connection with the issuance of the Series C
Preferred Stock. The redemption resulted in an after-tax extraordinary loss in
the second quarter of 1994 of approximately $146 million.
The amount of cash outlays incurred during the first six months of 1994
in connection with the restructuring program announced in 1993 was primarily
offset by the after-tax cash savings realized from the restructuring program
during such period.
____________________
-21-
<PAGE>
PART II
Item 1. Legal Proceedings.
Tobacco-Related Litigation
As of July 27, 1994, 19 new actions have been filed or served against
RJRT and/or its affiliates or indemnitees, including 5 actions purporting to be
class actions, and 10 actions were dismissed or otherwise resolved in favor of
RJRT and/or its affiliates or indemnitees without trial. As of July 27, 1994, 46
active cases were pending against RJRT and/or its affiliates or indemnitees, 44
in the United States, one in Puerto Rico and one in Canada. The United States
cases are in 18 states and are distributed as follows: 13 in Louisiana, 7 in
Texas, 3 in California, 3 in Mississippi, 2 in Alabama, 2 in Florida, 2 in
Indiana, 2 in New Jersey, and one each in Illinois, Kansas, Massachusetts,
Minnesota, New York, Ohio, South Carolina, Tennessee, Washington and West
Virginia. Of the 44 active cases in the United States, 27 are pending in state
court and 17 in federal court.
In March 1994, in Broin v. Philip Morris Companies Inc., et al., a
---------------------------------------------
purported class action against certain tobacco industry defendants, including
RJRT, in which flight attendants, claiming to represent a class of 60,000
individuals allege personal injury caused by exposure to environmental tobacco
smoke in their workplace, a Florida state intermediate appellate court reversed
a lower court ruling and reinstated plaintiffs' class action allegations. The
appellate court also ordered the trial court to hold further hearings on the
class allegations. The defendants have filed a request for review of this ruling
by a full panel of judges.
In March 1994, Lacey v. Lorillard Tobacco Company, Inc., et al., a
------------------------------------------------
purported class action, was filed in Circuit Court, Fayette County, Alabama
against three cigarette manufacturers, including RJRT. Plaintiff, who claims to
represent all smokers who have smoked or are smoking cigarettes manufactured and
sold by defendants in the state of Alabama, seeks compensatory and punitive
damages not to exceed $48,500 per each class member and injunctive relief
arising from defendants' alleged failure to disclose additives used in their
cigarettes. In April 1994, defendants removed the case to the United States
District Court for the Northern District of Alabama.
In March 1994, Castano v. The American Tobacco Company, et al., a
-----------------------------------------------
purported class action, was filed in the United States District Court for the
Eastern District of Louisiana against tobacco industry defendants, including
RJRT, seeking certification of a class action on behalf of all United States
residents who allegedly are or claim to be addicted, or are the legal survivors
of persons who allegedly were addicted, to tobacco products manufactured by
defendants. The complaint alleges that cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to induce addiction in smokers.
In March 1994, Allman v. Philip Morris, Inc., et al., and Higley v.
------------------------------------- ---------
Philip Morris, Inc., et al., were filed in the United States District Court for
- ---------------------------
the Southern District of California against industry members and others,
including RJRT, on behalf of a purported class of persons claiming to be
addicted to cigarettes who had been prescribed treatment using the nicotine
transdermal system. Plaintiffs assert a violation of the Racketeer Influenced
Corrupt Organizations Act and claim unspecified actual and treble damages. In
April 1994, the two cases were combined into a single amended complaint and
plaintiffs' counsel agreed to dismiss the Higley case.
------
-22-
<PAGE>
In May 1994, Engle v. R.J. Reynolds Tobacco Company, et al. was filed in
----------------------------------------------
Circuit Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who were allegedly addicted, to tobacco products. Plaintiffs cite the
Florida appellate court reversal in Broin in support of their allegations of
-----
class action status.
In June 1994, in Moore v. The American Tobacco Company., et al., RJRN
----------------------------------------------
was named along with other industry members as a defendant in an action brought
by the Mississippi state attorney general on behalf of the state to recover
state funds paid for health care and medical and other assistance to state
citizens suffering from diseases and conditions allegedly related to tobacco
use. This suit, which was brought in Chancery (equity) Court, Jackson County,
Mississippi, and which has been removed to the United States District Court for
the Southern District of Mississippi, also seeks an injunction from "promoting"
or "aiding and abetting" the sale of cigarettes to minors. Both actual and
punitive damages are sought in unspecified amounts.
In April 1994, Sparks v. R. J. Reynolds Tobacco Company, et al. was
-----------------------------------------------
brought in Washington state court on behalf of a purported class of "parents
with a conscience" alleging that an RJRT advertising campaign targets minors and
constitutes an unfair trade practice under Washington state law. In May 1994,
the case was removed to the United States District Court for the Western
District of Washington.
In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, et al., a
------------------------------------------------
lawsuit similar to Sparks pending in California, which is a not class action but
which is a suit brought by plaintiffs acting as private attorneys general
alleging that an RJRT advertising campaign constitutes unfair competition under
the California Business and Professions Code, the California Supreme Court ruled
that plaintiffs' claim was not preempted by the Cigarette Act. This opinion
allows plaintiffs to pursue their lawsuit which had been dismissed at the trial
court level.
_________________
The Registrants believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on either of the
Registrant's financial position; however, it is possible that the results of
operations or cash flows of the Registrants in particular quarterly or annual
periods or the financial condition of the Registrants could be materially
affected by the ultimate outcome of certain pending litigation matters.
Management is unable to derive a meaningful estimate of the amount or range of
any possible loss in any particular quarterly or annual period or in the
aggregate.
-23-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
<TABLE>
<S> <C>
*4.1 Certificate of Elimination of Cumulative Convertible
Preferred Stock of RJR Nabisco Holdings Corp., filed July 7,
1994.
*4.2 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of RJR Nabisco, Inc., filed May
13, 1994.
4.3 Registrants agree to furnish copies of any
instruments defining the rights of holders of long-term debt of
the Registrants and their consolidated subsidiaries that does
not exceed 10 percent of the total assets of the Registrants
and their consolidated subsidiaries to the Securities and
Exchange Commission upon request.
*10.1 Letter Agreement dated June 10, 1994 between Eugene
R. Croisant, RJR Nabisco Holdings Corp. and RJR Nabisco, Inc.
*11.1 RJR Nabisco Holdings Corp. Computation of Earnings
Per Share for the three months ended June 30, 1994 and 1993.
*11.2 RJR Nabisco Holdings Corp. Computation of Earnings
Per Share for the six months ended June 30, 1994 and 1993.
*12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to
Fixed Charges for the six months ended June 30, 1994.
____________________
*Filed herewith.
(b) Reports on Form 8-K
-------------------
None.
-24-
<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.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
(Registrants)
Date: August 3, 1994 /s/ Stephen R. Wilson
----------------------------
Stephen R. Wilson,
Executive Vice President and
Chief Financial Officer
/s/ Robert S. Roath
----------------------------
Robert S. Roath,
Senior Vice President and
Controller
-25-
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
----------- ----
4.1 Certificate of Elimination of Cumulative Convertible
Preferred Stock of RJR Nabisco Holdings Corp., filed
July 7, 1994.
4.2 Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of RJR Nabisco, Inc.,
filed May 13, 1994.
4.3 Registrants agree to furnish copies of any
instruments defining the rights of holders of long-
term debt of the Registrants and their consolidated
subsidiaries that does not exceed 10 percent of the
total assets of the Registrants and their
consolidated subsidiaries to the Securities and
Exchange Commission upon request.
10.1 Letter Agreement dated June 10, 1994 between Eugene
R. Croisant, RJR Nabisco Holdings Corp. and RJR
Nabisco, Inc.
11.1 RJR Nabisco Holdings Corp. Computation of Earnings
Per Share for the three months ended June 30, 1994
and 1993.
11.2 RJR Nabisco Holdings Corp. Computation of Earnings
Per Share for the six months ended June 30, 1994 and
1993.
12.1 RJR Nabisco, Inc. Computation of Ratio of Earnings to
Fixed Charges for the six months ended June 30,1994.
</TABLE>
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF DESIGNATION OF "RJR NABISCO HOLDINGS
CORP.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF JULY, A.D.
1994, AT 3:45 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE KENT COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
-------------------
Secretary of State
Authentication: 7174648
Date: 07-08-94
<PAGE>
CERTIFICATE OF ELIMINATION
of
Cumulative Convertible Preferred Stock
of
RJR NABISCO HOLDINGS CORP.
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
In accordance with Section 151(g) of the General Corporation
Law of the State of Delaware, RJR Nabisco Holdings Corp., a
Delaware corporation (the "Corporation"), does hereby certify
that the following resolutions respecting its Cumulative
Convertible Preferred Stock, stated value $25 per share, were
duly adopted by the Corporation's Board of Directors:
RESOLVED, that no shares of the Corporation's Cumulative
Convertible Preferred Stock (the "Cumulative Preferred
Stock") are outstanding and no shares of the Cumulative
Preferred Stock will be issued; and
RESOLVED, that the Officers of the Corporation are hereby
directed to file with the Secretary of State of the State of
Delaware a certificate pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware setting
forth these resolutions in order to eliminate from the
Corporation's Amended and Restated Certificate of
Incorporation all reference to the Cumulative Preferred
Stock.
IN WITNESS WHEREOF, RJR Nabisco Holdings Corp. has caused
this Certificate to be signed by Jo-Ann Ford, its Vice President
and Secretary, and attested by Suzanne P. Jenney, its Assistant
Secretary, this 1st day of July, 1994.
By: /s/ Jo-Ann Ford
---------------------------
Jo-Ann Ford
Vice President & Secretary
ATTEST:
/s/ Suzanne P. Jenney
---------------------
Suzanne P. Jenney
Assistant Secretary
State of Delaware
Office of the Secretary of State
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "RJR NABISCO, INC.", FILED
IN THIS OFFICE ON THE THIRTEENTH DAY OF MAY, A.D. 1994, AT 3:30
O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE KENT COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ William T. Quillen
----------------------
William T. Quillen
Secretary of State
Authentication: 7119560
Date: 05-13-94
<PAGE>
CERTIFICATE OF AMENDMENT
------------------------
of the
AMENDMENT AND RESTATED CERTIFICATE OF INCORPORATION
---------------------------------------------------
of
RJR NABISCO, INC.
-----------------
(originally incorporated under the name of R.J. Reynolds
Industries, Inc. on March 4, 1970)
* * * * *
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
* * * * *
RJR Nabisco, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware (hereinafter called the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: The first paragraph of ARTICLE IV of the Amended and
Restated Certificate of Incorporation is hereby amended to read
as follows:
"The total number of shares of capital stock that the
Corporation is authorized to issue is four thousand (4,000)
shares of Common Stock, par value $1,000.00 each."
SECOND: Such amendment was approved by the holders of a
majority of the outstanding Common Stock of the Corporation at a
meeting duly called and held on May 4, 1994 in accordance with
the provisions of Section 222 of the General Corporation Law of
the State of Delaware.
THIRD: Such amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
2
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed and this Certificate to be signed by its Vice
President and attested to by its Assistant Secretary, this 6th
day of May, 1994.
RJR Nabisco, Inc.
By: /s/ Robert F. Sharpe, Jr.
-------------------------------
Robert F. Sharpe, Jr.
Vice President, Assistant
[CORPORATE SEAL] General Counsel and Secretary
ATTEST:
By:/s/ Suzanne P. Jenney
------------------------
Suzanne P. Jenney
Assistant Secretary
RJR
NABISCO
Charles M. Harper
Chairman and Chief Executive Officer
June 10, 1994
Eugene R. Croisant
Executive Vice President and
Chief Administrative Officer
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, NY 10019
Dear Gene:
This is to confirm with you certain conditions of your
employment with RJR Nabisco Holdings Corp. and RJR Nabisco, Inc.
(the "Company").
Your annual base salary during your employment shall be no
less than $475,000, and your annual bonus shall be targeted at
the maximum percentage for Grade Level A employees.
You shall participate in Long Term Incentive Plan grants at
the level appropriate for Grade Level A employees while you are
actively employed, and in the Executive Equity Program until its
final award while you are actively employed, if you are
terminated by the Company other than for Cause, or if you leave
the Company for other reasons enumerated in the Executive Equity
Program documents.
During you employment you shall receive all employee
benefits and perquisites normally accorded to a Grade Level A
employee, including, but not limited to, a personal car allowance
under the Company Flexible Perquisite Program. You shall also be
covered by the same liability and indemnification programs
afforded to other officers.
If you are terminated by the Company at any time without
"Cause" (as defined in the Company's 1993 Stock Option Grant
documents), the Company shall pay you, in place of any other
severance programs of the Company, Compensation Continuance for
36 months. "Compensation Continuance" means monthly payments at
a rate equal to your annual base salary plus the annual bonus
targeted during the period prior to termination. As provided in
the usual Salary and Benefit Continuation Program of the Company,
all benefits and perquisites continue during Compensation
Continuance. In the event of death or disability during
Compensation Continuance, Compensation Continuance shall be
treated in the same manner as Salary Continuation under the
Company's Salary and Benefit Continuation Program in effect on
May 31, 1994.
<PAGE>
If you are terminated by the Company other than for Cause,
or you are otherwise eligible to retire by prior commitments by
the Company under the Supplemental Executive Retirement Plan
(SERP), you shall receive at the conclusion of any Compensation
Continuance a maximum unreduced SERP benefit of 50% of Average
Final Compensation all as defined in the SERP Plan document. The
SERP benefit shall be offset by other plans of the Company and by
any prior SERP annuity purchases only as such offsets and plans
are described in the SERP Plan document. Retirement under the
SERP shall be deemed retirement with the consent of the Company
for all plans and programs of the Company. This commitment shall
not affect the validity of your SERP Acknowledgement dated
February 3, 1994. (Copy attached as Attachment A).
As long as there is no duplication of benefits, any
commitments made by the Company prior to this letter shall
continue during and after your employment, including but not
limited to, (i) the SERP Participation Agreement, dated March 30,
1993 (copy attached as Attachment B) and the Chairman's
confirmation letter of June 20, 1991 appended thereto; (ii) the
same eligibility for the maximum unreduced SERP benefit described
above that becomes accrued during your employment and (iii) the
provision in my memorandum to you of October 5, 1993 (copy
attached as Attachment C) that should you die while employed by
the Company, your spouse shall receive the same lump sum SERP
benefit that you would have received had you retired rather than
died on the date of your death.
If any of the payments or provisions made by this commitment
shall be assessed as "excess parachute payments" under the
Internal Revenue Code, the Company shall place you in the same
after-tax position that you would have been if such payments or
provisions had not been determined to be excess parachute
payments.
Gene, I too look forward to your help in continuing to make this
Company very successful.
Sincerely,
/s/ Charles M. Harper
-----------------------
Charles M. Harper
EXHIBIT 11.1
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Millions Except Per Share Amounts)
<TABLE><CAPTION>
Three Months Three Months
Ended Ended
June 30,1994 June 30,1993
------------------------ ------------------------
Fully Fully
Primary Diluted (A) Primary Diluted (A)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Average number of common and common equivalent shares
outstanding during the period (in thousands):
Common Stock and Series A Depositary Shares issued and
outstanding at beginning of period.............................. 1,348,588 1,348,588 1,347,837 1,347,837
Average number of shares of common stock and Series C
Depositary Shares issued during the period (including
shares of common stock issued during the period through
the exercise of options and/or conversion of redeemable
convertible preferred stock).................................... 161,720 161,720 (1) (1)
Average number of shares related to value of restricted stock
earned during the period........................................ - - 1,286 1,286
Average number of stock warrants and options outstanding during
the period and shares issuable under performance shares granted 9,144 10,379 3,083 3,083
Shares issuable upon conversion of redeemable convertible
preferred stock................................................. - - - 11,203
Shares issuable upon conversion of ESOP convertible preferred
stock........................................................... - 15,507 - 15,623
Shares issuable upon conversion of senior converting debentures...... - - - 5,639
---------- ---------- ---------- -----------
Average number of common and common equivalent shares
outstanding during the period................................... 1,519,452 1,536,194 1,352,205 1,384,670
========== ========== ========== ===========
Income (loss) applicable to common stock:
Income before extraordinary item.................................... $ 192 $ 192 $ 142 $ 142
Interest on senior converting debentures (net of income taxes)....... - - - 4
Preferred stock dividends............................................ (32) (29) (8) -
Income tax benefit on ESOP preferred stock dividends................. - (1) 1 -
---------- ---------- ---------- -----------
Income before extraordinary item applicable to common stock.......... 160 162 135 146
Extraordinary item................................................... (146) (146) (65) (65)
---------- ---------- ---------- -----------
Net income applicable to common stock............................... $ 14 $ 16 $ 70 $ 81
========== ========== ========== ===========
Income (loss) per common and common equivalent share:
Income before extraordinary item.................................... $ .11 $ .11 $ 0.10 $ 0.11
Extraordinary item................................................... (.10) (.10) (0.05) (0.05)
---------- ---------- ---------- -----------
Net income.......................................................... $ .01 $ .01 $ 0.05 $ 0.06
========== ========== ========== ===========
____________________
(A) For purposes of this Exhibit, the calculations of fully diluted earnings per share include common stock equivalents
and other potentially dilutive securities that produce an anti-dilutive result.
</TABLE>
EXHIBIT 11.2
RJR NABISCO HOLDINGS CORP.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Millions Except Per Share Amounts)
<TABLE><CAPTION>
Six Months Six Months
Ended Ended
June 30,1994 June 30,1993
------------------------ -------------------------
Fully Fully
Primary Diluted (A) Primary Diluted (A)
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Average number of common and common equivalent shares
outstanding during the period (in thousands):
Common Stock and Series A Depositary Shares issued and
outstanding at beginning of period.............................. 1,348,011 1,348,011 1,344,649 1,344,649
Average number of shares of common stock and Series C
Depositary Shares issued during the period (including
shares of common stock issued during the period through
the exercise of options and/or conversion of redeemable
convertible preferred stock).................................... 81,381 81,381 2,670 2,670
Average number of shares related to value of restricted stock
earned during the period........................................ - - 643 643
Average number of stock warrants and options outstanding during
the period and shares issuable under performance shares granted. 13,069 13,686 7,252 7,252
Shares issuable upon conversion of redeemable convertible
preferred stock................................................. - - - 11,203
Shares issuable upon conversion of ESOP convertible preferred
stock........................................................... - 15,534 - 15,624
Shares issuable upon conversion of senior converting debentures...... - - - 11,096
---------- ---------- ---------- -----------
Average number of common and common equivalent shares
outstanding during the period................................... 1,442,461 1,458,612 1,355,214 1,393,137
========== ========== ========== ===========
Income (loss) applicable to common stock:
Income before extraordinary item.................................... $ 386 $ 386 $ 352 $ 352
Interest on senior converting debentures (net of income taxes)....... - - - 17
Preferred stock dividends............................................ (65) (58) (16) -
Income tax benefit on ESOP preferred stock dividends................. - (1) 3 -
---------- ---------- ---------- -----------
Income before extraordinary item applicable to common stock.......... 321 327 339 369
Extraordinary item................................................... (145) (145) (112) (112)
---------- ---------- ---------- -----------
Net income applicable to common stock............................... $ 176 $ 182 $ 227 $ 257
========== ========== ========== ===========
Income (loss) per common and common equivalent share:
Income before extraordinary item.................................... $ 0.22 $ 0.22 $ 0.25 $ 0.27
Extraordinary item................................................... (.10) (.10) (0.08) (0.08)
---------- ---------- ---------- -----------
Net income........................................................... $ 0.12 $ 0.12 $ 0.17 $ 0.19
========== ========== ========== ===========
____________________
(A) For purposes of this Exhibit, the calculations of fully diluted earnings per share include common stock equivalents and other
potentially dilutive securities that produce an anti-dilutive result.
</TABLE>
EXHIBIT 12.1
RJR NABISCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Six Months
Ended
June 30, 1994
-------------
Earnings before fixed charges:
Income before extraordinary item.................. $ 383
Provision for income taxes........................ 289
-----
Income before income taxes........................ 672
Interest and debt expense......................... 588
Interest portion of rental expense................ 26
------
Earnings before fixed charges..................... $ 1,286
=======
Fixed charges:
Interest and debt expense......................... $ 588
Interest portion of rental expense................ 26
Capitalized interest.............................. 5
-------
Total fixed charges.......................... $ 619
=====
Ratio of earnings to fixed charges................ 2.1
========
