<PAGE> 1
EXHIBIT 99.1
R. J. REYNOLDS CAPITAL
INVESTMENT PLAN
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS
Years Ended December 30, 1999 and 1998
<PAGE> 2
R. J. REYNOLDS CAPITAL INVESTMENT PLAN
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
December 30, 1999 and 1998 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 30, 1999 and 1998 3
Notes to Financial Statements 4-11
NOTE: The accompanying financial statements have been prepared for the
purpose of filing with the Department of Labor Form 5500.
Supplemental schedules as required by Section 103(c)(5) of the
Employee Retirement Income Security Act of 1974 have been omitted
because no such supplemental schedules are required to be filed for
the year ended December 30, 1999.
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
RJR Employee Benefits Committee:
We have audited the accompanying statements of net assets available for benefits
of the R. J. Reynolds Capital Investment Plan (the "Plan") as of December 30,
1999 and 1998, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 30,
1999 and 1998, and the changes in net assets available for benefits for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
June 19, 2000
1
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R. J. REYNOLDS CAPITAL INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
ASSETS:
Investment, at fair market value - plan
interest in Master Trust (Notes 1,2 and 3) $1,229,937,455 $2,069,161,642
-------------- --------------
Receivables:
Investment income 9,078,445 9,691,635
Due from broker for sale of investments 5,219,010 1,411,182
-------------- --------------
Total receivables 14,297,455 11,102,817
-------------- --------------
Total assets 1,244,234,910 2,080,264,459
-------------- --------------
LIABILITIES:
Note payable to Nabisco Group Holdings Corp. -- 45,032,242
Interest payable on note payable to Nabisco
Group Holdings Corp. -- 1,873,314
Due to broker for purchase of investments 730,589 843,663
Other -- 413,668
-------------- --------------
Total liabilities 730,589 48,162,887
-------------- --------------
NET ASSETS AVAILABLE FOR BENEFITS $1,243,504,321 $2,032,101,572
============== ==============
See notes to financial statements.
2
<PAGE> 5
R. J. REYNOLDS CAPITAL INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
1999 1998
ADDITIONS:
Investment income - plan interest in
Master Trust (Notes 1,2,3 and 4) $ 187,480,495 $ 252,206,557
--------------- --------------
Contributions:
Employer's 40,050,474 28,283,520
Participants' 60,644,807 78,676,872
--------------- --------------
Total contributions 100,695,281 106,960,392
--------------- --------------
Allocation of shares of preferred stock
of Nabisco Group Holdings Corp., at market
(Notes 1 and 4) 34,275,056 33,179,332
--------------- --------------
Total additions 322,450,832 392,346,281
--------------- --------------
DEDUCTIONS:
Benefits paid to participants 178,413,549 210,344,377
Administrative expenses 1,758,432 2,941,576
Allocation of shares of preferred stock of
Nabisco Group Holdings Corp., at market
(Notes 1 and 4) 34,275,056 32,652,976
Interest expense 682,748 4,435,891
--------------- --------------
Total deductions 215,129,785 250,374,820
--------------- --------------
NET INCREASE PRIOR TO TRANSFERS TO OTHER PLANS 107,321,047 141,971,461
NET TRANSFERS (TO)/FROM OTHER PLANS (Note 1) (895,918,298) 4,287,940
--------------- --------------
NET (DECREASE) INCREASE (788,597,251) 146,259,401
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 2,032,101,572 1,885,842,171
--------------- --------------
End of year $ 1,243,504,321 $2,032,101,572
=============== ==============
See notes to financial statements.
3
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R. J. REYNOLDS CAPITAL INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1999 AND 1998
--------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
The following description of the R. J. Reynolds Capital Investment Plan (the
"Plan") provides only general information. Participants should refer to the Plan
document for a more complete description of the Plan's provisions.
GENERAL - The Plan is a voluntary and automatic defined contribution plan for
certain eligible regular employees of R.J. Reynolds Tobacco Holdings, Inc.
("RJR" or the "Company") and participating subsidiaries. All eligible employees
become participants unless they elect not to participate. RJR Employee Benefits
Committee controls and manages the operation and administration of the Plan.
During 1998 and 1999, Wachovia Bank, N.A. ("Wachovia") served as the trustee of
the Plan, and PricewaterhouseCoopers Kwasha HR Solutions (now known as
PricewaterhouseCoopers Unifi Network) served as the recordkeeper for the Plan.
Effective May 1, 2000, the trustee of the Plan was changed to Citibank, N.A. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA").
Prior to June 14, 1999, the Plan was named the RJR Nabisco Capital Investment
Plan and was sponsored by RJR Nabisco, Inc. During 1999, RJR Nabisco Holdings
Corp. ("Holdings") was renamed Nabisco Group Holdings Corp. ("NGH"), and on May
18, 1999, RJR, the owner of 100% of R. J. Reynolds Tobacco Company ("RJR
Tobacco"), transferred its approximately 80.5% interest in Nabisco Holdings
Corp. ("Nabisco") to NGH through a merger transaction. On June 14, 1999, NGH
distributed all of the outstanding shares of RJR common stock to NGH
stockholders of record as of May 27, 1999.
Due to the spin-off transaction, various plans, including the Plan, became
sponsored by RJR, and their names were changed. The name of the Plan was changed
from the RJR Nabisco Capital Investment Plan to the R. J. Reynolds Capital
Investment Plan. In addition, the Nabisco Inc. Capital Investment Plan was
adopted for Nabisco participants which became effective June 14, 1999. Effective
June 14, 1999, net assets of $891,619,532 were transferred from the Plan to the
Nabisco Inc. Capital Investment Plan.
With the spin-off transaction, the Company registered with the Securities and
Exchange Commission four million shares of RJR common stock for issuance
pursuant to the Plan and another plan sponsored by a subsidiary of the Company.
Each share of Nabisco common stock in the RJR Nabisco Common Stock Fund (which
was offered to participants of the Plan as an investment option) was converted
to one share of NGH common stock. Affected participants then received one share
of RJR common stock for every three shares of NGH common stock.
During 1999, the Plan was amended to accommodate the change in corporate
structure. The RJR Common Stock Fund was established, which invests in common
stock of RJR. Additionally, the Nabisco Common Stock Fund and the Nabisco Group
Holdings Stock Fund (formerly named RJR Nabisco Stock Fund) were "frozen."
Participants could no longer make contributions of any type to these funds, but
could transfer amounts in these funds to the other funds offered under the Plan,
and had to complete the transfer of these funds within approximately six months
of the spin-off date.
4
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An Asset Purchase Agreement (the "Agreement") dated July 17, 1998 between
ConAgra, Inc. and Nabisco, Inc. was entered into to provide in part for the sale
of the tablespreads business. Based upon the terms of the Agreement, transferred
employees who were participants of the Plan became fully vested and active
participation in the Plan ceased as of the closing date. Additionally, the Plan
was amended to provide for the direct trustee-to-trustee transfer of assets
representing the full account balances of transferred employees. During 1999,
net assets of $4,298,766 were transferred from the Plan to ConAgra, Inc. in
accordance with the terms of the Agreement.
INTEREST IN MASTER TRUST - The Plan's investments are in the R. J. Reynolds
Defined Contribution Master Trust, which was named the Defined Contribution
Master Trust prior to the spin-off transaction ("Master Trust"), which was
established for the investment of assets of the Plan and several other
Company-sponsored plans. Each participating plan has an undivided interest in
the Master Trust. The assets of the Master Trust were held by Wachovia during
1998 and 1999 and prior to May 1, 2000. The assets of the Master Trust have been
held by Citibank, N.A. since May 1, 2000. Investment income and administrative
expenses relating to the Master Trust are allocated to the individual plans
based upon average monthly balances invested by each plan.
CONTRIBUTIONS - Each year, participants may make basic contributions of up to 6%
of pre-tax annual compensation, as defined in the Plan. In addition,
participants may make supplemental contributions on a pre-tax basis of up to 16%
of compensation, including the basic contribution, as well as on an after-tax
basis of up to 16% of compensation. Contributions, whether made on a pre-tax or
after-tax basis, may not in the aggregate exceed 16% of compensation. The
Company contributes an amount equal to 50% of basic contributions. Contributions
are subject to certain limitations.
On December 22, 1999, the Plan was amended to permit the Company to make a
minimum employer contribution to the Plan each taxable year. The amount of the
minimum Company contribution for the 2000 Plan year is $25,000,000.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") - On April 10, 1991, the ESOP borrowed
$250 million (the "ESOP Loan") from Holdings to purchase 15,625,000 shares of
RJR Nabisco Holdings Corp. Convertible Preferred Stock (the "ESOP Preferred
Stock"), stated value $16.00 per share. The market value of the ESOP Preferred
Stock was the greater of the stated value of the ESOP Preferred Stock or the
market value of Holdings' common stock (the "ESOP market value"). The ESOP Loan
had a weighted average interest rate of 8.2% effective January 5, 1993 and
matured on July 2, 2016. The ESOP Preferred Stock was convertible into 3,125,000
shares of Holdings' common stock, subject to adjustment in certain events, and
bore cumulative dividends at a rate of 7.8125% of stated value per annum at
least until April 10, 1999 and was payable semi-annually in arrears commencing
January 2, 1992, when, as and if declared by the Board of Directors of Holdings.
The ESOP Preferred Stock represented an unallocated investment of the Plan which
was allocated to individual participants' accounts as the ESOP Loan is repaid.
The unallocated ESOP Preferred Stock is collateral for the ESOP Loan. The Plan
obtained funds to repay the ESOP Loan primarily from dividends on the ESOP
Preferred Stock and Nabisco matching contributions. The ESOP Preferred Stock was
redeemable at the option of Holdings, in whole or in part, at any time on or
after April 10, 1999, at an initial optional redemption price of $16.25 per
share.
Effective June 10, 1999, the Plan was amended to provide that the ESOP portion
of the Plan ceased to exist. In conjunction with this cessation, all shares of
the ESOP Preferred Stock held under the ESOP were redeemed by Holdings.
Participants received $16.25 per share in cash for the shares of ESOP Preferred
Stock allocated to their accounts; these funds were then invested in the
Interest Income fund offered as an investment option of the Plan. The remaining
funds were used to repay the ESOP Loan in full.
5
<PAGE> 8
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contributions and withdrawals, as applicable, and allocations of
(a) the Company's contributions and (b) Plan earnings, and debited with an
allocation of administrative expenses. Allocations are based on participant
earnings or account balances, as defined. Forfeited balances of terminated
participants' nonvested accounts are used to reduce future Company
contributions. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's vested account.
VESTING - Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in Company contributions occurs upon the earlier of:
completion of 24 months of Plan participation, 60 months of service (as defined)
with the Company or affiliated companies, or upon the occurrence of certain
events as defined in the Plan document.
INVESTMENT OPTIONS - Upon enrollment in the Plan, a participant may direct
employee contributions in 1% increments in any of eight investment fund options
before June 14, 1999, and seven investment fund options after June 14, 1999. As
of June 16, 2000, three additional investment fund options were available.
Participants may change or transfer their investments options at any time via
telephone.
LOANS TO PARTICIPANTS - Participants may borrow from their fund accounts a
minimum of $1,000 up to a maximum of the lesser of $50,000, or 50% of their
vested account balance, reduced by the highest outstanding loan balance during
the preceding 12 months. Loan transactions are treated as a transfer between
the investment fund and the loan fund. Loan terms shall not be for more than
five years or up to 10 years for the purchase of a primary residence. The loans
are secured by the balance in the participant's account and bear interest at a
rate commensurate with local prevailing rates as determined quarterly by the
Plan administrator. Principal and interest is paid ratably through payroll
deductions.
PAYMENT OF BENEFITS - On termination of service, a participant will receive a
lump-sum amount equal to the value of the participant's vested interest in his
or her account, or for certain employees, annual installments over a period not
to exceed the lesser of 15 years or the participant's life expectancy if certain
requirements set forth in the Plan are met.
EXPENSES - Expenses relating to the purchase or sale of investments are included
in the cost or deducted from the proceeds, respectively. Direct charges and
expenses including investment manager fees attributable to specific investment
funds may be charged against that investment fund. Other plan expenses such as
trustee, auditor, general plan recordkeeping, and Internal Revenue Service user
fees may be paid directly from the Master Trust. Other expenses continue to be
paid by the Company.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Plan are prepared under
the accrual method of accounting.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, and changes therein, and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
6
<PAGE> 9
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's interest in the Master
Trust, except for the guaranteed investment contracts, is valued at estimated
fair value. If available, quoted market prices are used to value the underlying
investments. In instances wherein quoted market prices are not available, the
fair value of investments is estimated primarily by independent investment
brokerage firms and insurance companies.
The Plan has entered into various benefit-responsive investment contracts with
insurance companies which maintain the contributions in a general account. The
accounts are credited with earnings on the underlying investments and charged
for participant withdrawals and administrative expenses. The contracts are
included in the financial statements at contract value, which approximates fair
value, as reported to the Plan by the insurance companies. Contract value
represents contributions made under the contract, plus earnings, less
participant withdrawals and administrative expenses. Participants may ordinarily
direct the withdrawal or transfer of all or a portion of their investment at
contract value.
There are no reserves against contract value for credit risk of the contract
issuer or otherwise. The contract rates ranged from 4.92% to 8.10% and 4.90% to
7.70% at December 30, 1999 and 1998, respectively. The crediting interest rate
is based on a formula agreed upon with the issuer, but may not be less than
certain percentages.
Within the Master Trust, purchases and sales of securities are recorded on a
trade-date basis. Interest income is recorded on the accrual basis. Dividends
are recorded on the ex-dividend date.
PAYMENT OF BENEFITS - Benefits are recorded when paid.
RECLASSIFICATIONS - The Plan has adopted Statement of Position 99-3, Accounting
for and Reporting of Certain Defined Contribution Plan Investments and Other
Disclosure Matters. As a result, the 1998 financial statements have been revised
to eliminate the by-fund disclosures.
3. MASTER TRUST
The following table presents the investments for the Master Trust:
<TABLE>
<CAPTION>
DECEMBER 30,
----------------------------------
1999 1998
<S> <C> <C>
Investments, at fair value:
Wachovia Bank, N.A. Diversified Short-Term Investment Fund $ 58,527,157 $ 35,900,963
Nabisco Group Holdings Corp. Common Stock 2,482,527 92,213,077
Nabisco Holdings Corp. Class A Common Stock 13,093,331 35,771,834
R.J. Reynolds Tobacco Holdings, Inc. Common Stock 19,676,293 --
Nabisco Group Holdings Corp. Convertible Preferred Stock -- 205,195,600
Mutual funds 689,979,659 1,222,181,989
Corporate bonds 98,139,938 129,146,280
Loans to participants 17,054,117 39,234,647
-------------- --------------
898,953,022 1,759,644,390
-------------- --------------
Guaranteed investment contracts, at contract value 330,984,433 435,954,523
-------------- --------------
Total investments $1,229,937,455 $2,195,598,913
============== ==============
</TABLE>
7
<PAGE> 10
Investment income for the Master Trust is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 30,
---------------------------------
1999 1998
<S> <C> <C>
Investment income:
Net appreciation (depreciation) in fair value of investments:
Nabisco Group Holdings Corp. Common Stock $ 40,055,886 $ (20,825,390)
Nabisco Holdings Corp. Class A Common Stock (445,950) (2,735,867)
R.J. Reynolds Tobacco Holdings, Inc. Common Stock (59,151,447) --
Nabisco Group Holdings Corp. Convertible Preferred Stock 3,102,192 --
Mutual funds 149,176,730 194,080,955
Corporate bonds 6,246,153 8,960,079
------------- -------------
138,983,564 179,479,777
Interest and dividends 54,009,079 85,248,610
------------- -------------
Total investment income $ 192,992,643 $ 264,728,387
============= =============
</TABLE>
At December 30, 1999 and 1998, the Plan's interest in the net assets of the
Master Trust was approximately 100% and 94%, respectively.
4. EMPLOYEE STOCK OWNERSHIP PLAN
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed ESOP investments of the
Plan are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1998
-------------------------------------------------
ALLOCATED UNALLOCATED TOTAL
<S> <C> <C> <C>
Net assets:
Investment, at fair value $170,921,895 $ 34,275,056 $205,196,951
------------ ------------ ------------
Receivables:
Investment income 6,682,654 1,338,869 8,021,523
Due from trustee for sale of investments 12,419 -- 12,419
------------ ------------ ------------
Total receivables 6,695,073 1,338,869 8,033,942
------------ ------------ ------------
Total assets 177,616,968 35,613,925 213,230,893
------------ ------------ ------------
Liabilities:
Note payable to Nabisco Group Holdings Corp. -- 45,032,242 45,032,242
Interest payable on note payable to
Nabisco Group Holdings Corp. -- 1,873,314 1,873,314
Other 13,770 -- 13,770
------------ ------------ ------------
Total liabilities 13,770 46,905,556 46,919,326
------------ ------------ ------------
Net assets available (deficit) for benefits $177,603,198 $(11,291,631) $166,311,567
============ ============ ============
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
DECEMBER 30, 1999
-----------------------------------------------------
ALLOCATED UNALLOCATED TOTAL
<S> <C> <C> <C>
Changes in net assets:
Additions:
Investment income $ 9,630,718 $ -- $ 9,630,718
Participants' contributions: -- 32,953,961 32,953,961
Allocation of shares of preferred stock of
Nabisco Group Holdings Corp. 34,275,056 -- 34,275,056
------------- ------------- -------------
Total additions 43,905,774 32,953,961 76,859,735
------------- ------------- -------------
Deductions:
Benefits paid to participants 5,846,396 -- 5,846,396
Allocation of shares of preferred stock of
Nabisco Group Holdings Corp. -- 34,275,056 34,275,056
Redemption of shares of preferred stock of
Nabisco Group Holdings Corp. 201,707,448 -- 201,707,448
Interest expense -- 682,748 682,748
------------- ------------- -------------
Total deductions 207,553,844 34,957,804 242,511,648
------------- ------------- -------------
Interfund transfers, net (13,295,474) 13,295,474 --
------------- ------------- -------------
Net (decrease) increase prior to transfers to other plans (176,943,544) 11,291,631 (165,651,913)
Net transfer to other plans (659,654) -- (659,654)
------------- ------------- -------------
Net (decrease) increase (177,603,198) 11,291,631 (166,311,567)
Net assets (deficit) available for benefits:
Beginning of year 177,603,198 (11,291,631) 166,311,567
------------- ------------- -------------
End of year $ -- $ -- $ --
============= ============= =============
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 30, 1998
----------------------------------------------------
ALLOCATED UNALLOCATED TOTAL
<S> <C> <C> <C>
Changes in net assets:
Additions:
Investment income $ 13,046,006 $ 3,239,621 $ 16,285,627
Employer's contributions -- 28,275,860 28,275,860
Allocation of shares of preferred stock of
Nabisco Group Holdings Corp. 33,179,332 -- 33,179,332
------------- ------------ -------------
Total additions 46,225,338 31,515,481 77,740,819
------------- ------------ -------------
Deductions:
Benefits paid to participants 14,455,500 -- 14,455,500
Allocation of shares of preferred stock of
Nabisco Group Holdings Corp. -- 32,652,976 32,652,976
Interest expense -- 4,435,891 4,435,891
------------- ------------ -------------
Total deductions 14,455,500 37,088,867 51,544,367
------------- ------------ -------------
Interfund transfers, net (12,534,511) 12,328,653 (205,858)
------------- ------------ -------------
Net increase prior to transfers to other plans 19,235,327 6,755,267 25,990,594
Transfers to other plans (112,679) -- (112,679)
------------- ------------ -------------
Net increase 19,122,648 6,755,267 25,877,915
Net assets (deficit) available for benefits:
Beginning of year 158,480,550 (18,046,898) 140,433,652
------------- ------------ -------------
End of year $ 177,603,198 $(11,291,631) $ 166,311,567
============= ============ =============
</TABLE>
5. RELATED-PARTY TRANSACTIONS
Certain Plan investments have been shares of money market funds and units of
participation in common trust funds managed by Wachovia. Wachovia was the
trustee as defined by the Plan during 1998 and 1999 and, therefore, these
transactions qualified as party-in-interest transactions in 1998 and 1999.
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants would become 100% vested in their employer contributions.
7. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
At December 30, 1998, amounts allocated to withdrawing participants and net
assets available for benefits per the Form 5500 were $2,597,160 and
$2,029,504,412, respectively.
10
<PAGE> 13
8. INCOME TAX STATUS
The Plan obtained its latest determination letter dated February 20, 1996, in
which the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the Internal Revenue Code. The
Plan has been amended and restated since receiving this determination letter.
The Company believes that the Plan is currently designed and being operated in
compliance with the applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been included in the Plan's
financial statements.
11
