RJR NABISCO HOLDINGS CORP, 8-K, 1999-06-03

RJR NABISCO HOLDINGS CORP
8-K, 1999-06-03
COOKIES & CRACKERS

Previous: LAKELAND BANCORP INC, S-4, 1999-06-03

Next: MAPICS INC, SC 13D/A, 1999-06-03

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

MAY 12, 1999
Date of Report (Date of earliest event reported)

RJR NABISCO HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 1-10215 13-349-0602
(State of other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
</TABLE>

<TABLE>
<S> <C>
1301 AVENUE OF THE AMERICAS 10019
NEW YORK, NEW YORK
(Address of principal executive offices) (Zip code)
</TABLE>

(212) 258-5600
Registrant's telephone number,
including area code
NOT APPLICABLE
(Former name or address, if changed since last report)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.

As previously disclosed, RJR Nabisco Holdings Corp. (which will shortly be
renamed Nabisco Group Holdings Corp. and which this document refers to as NGH)
and several of its subsidiaries have recently completed a series of dispositions
and reorganization transactions constituting a fundamental restructuring of
their businesses and capital structures, including, among other things:

- On May 12, 1999, RJR Nabisco, Inc. and R. J. Reynolds Tobacco Company
(which this document refers to as Reynolds Tobacco) completed the sale of
the international tobacco business to Japan Tobacco Inc. for $8 billion,
including the assumption of approximately $200 million of net debt, except
to the extent that local regulatory approvals for this sale are still
pending. As a result of this sale, Reynolds Tobacco's only cigarette
market will be the United States and its territories, commonwealths,
protectorates and possessions. This document refers to RJR Nabisco, Inc.
(which has subsequently been renamed R.J. Reynolds Tobacco Holdings, Inc.)
as RJR.

- On May 12, 1999, the board of directors of NGH declared a dividend of 100%
of the common stock of RJR to record holders of NGH common stock as of May
27, 1999, the record date for the distribution. In the distribution, those
NGH stockholders will receive one share of RJR common stock for every
three shares of NGH common stock that they hold. The distribution is
intended to be tax-free for United States federal income tax purposes.
Currently, NGH expects the distribution to occur on or about June 14,
1999. After the completion of the distribution, NGH's sole asset (besides
cash on hand) will be 100% of the outstanding Class B Common Stock of
Nabisco Holdings Corp. (which this document refers to as Nabisco). The
Class B Common Stock currently represents approximately 80.5% of the
economic interest and approximately 97.7% of the voting interest in
Nabisco. For more information about the distribution, stockholders should
refer to the Information Statement of RJR dated May 19, 1999, which is
filed as Exhibit 99.1 to the Registration Statement of RJR on Form 8-A
dated May 19, 1999.

- On May 18, 1999, RJR transferred the Class B Common Stock in Nabisco,
together with approximately $1.6 billion in net cash proceeds from the
international tobacco sale, to NGH through a merger transaction. In the
merger transaction, RJR was renamed "R.J. Reynolds Tobacco Holdings,
Inc.".

Upon completion of the distribution of the RJR common stock, NGH will be
renamed "Nabisco Group Holdings Corp." and continue to exist as a holding
company, owning approximately 80.5% of Nabisco. The re-named Nabisco Group
Holdings Corp. (symbol: NGH) and Nabisco (symbol: NA) will each continue to
trade as separate listed companies on The New York Stock Exchange. Shares of RJR
(symbol: RJR), as owner of 100% of Reynolds Tobacco, will also trade separately
on that exchange under its new name R.J. Reynolds Tobacco Holdings, Inc.

As a result of the above transactions the financial statements of NGH have
been restated to reflect Reynolds International's, corporate headquarters' and
Reynolds Tobacco's account balances and activities as discontinued operations.
These financial statements are included as Exhibits 99.1 and 99.2 of this
document.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

27.1 RJR Nabisco Holdings Corp. Financial Data Schedule for the year ended
December 31, 1998.

27.2 RJR Nabisco Holdings Corp. Financial Data Schedule for the year ended
December 31, 1997.

27.3 RJR Nabisco Holdings Corp. Financial Data Schedule for the year ended
December 31, 1996.

27.4 RJR Nabisco Holdings Corp. Financial Data Schedule for the three months
ended March 31, 1999.

2
<PAGE>
27.5 RJR Nabisco Holdings Corp. Financial Data Schedule for the three months
ended March 31, 1998.

99.1 Restated Audited Consolidated Financial Statements of Nabisco Group
Holdings Corp. at December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998.

99.2 Restated Consolidated Condensed Financial Statements of Nabisco Group
Holdings Corp. at March 31, 1999 and December 31, 1998 and for the three
months ended March 31, 1999 and 1998.

3
<PAGE>
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

<TABLE>
<S> <C> <C>
RJR NABISCO HOLDINGS CORP.

By: /s/ H. COLIN MCBRIDE
-----------------------------------------
Name: H. Colin McBride
Title: Senior Vice President, Secretary
and
Associate General Counsel
</TABLE>

June 3, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RJRN
HOLDINGS' CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000847903
<NAME> RJR NABISCO HOLDINGS CORP.
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 522
<ALLOWANCES> 0
<INVENTORY> 753
<CURRENT-ASSETS> 8,153
<PP&E> 4,806
<DEPRECIATION> (1,859)
<TOTAL-ASSETS> 17,744
<CURRENT-LIABILITIES> 1,844
<BONDS> 3,619
1,327
205
<COMMON> 3
<OTHER-SE> 7,806
<TOTAL-LIABILITY-AND-EQUITY> 17,744
<SALES> 8,400
<TOTAL-REVENUES> 8,400
<CGS> 4,683
<TOTAL-COSTS> 4,683
<OTHER-EXPENSES> 751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> (134)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (118)
<DISCONTINUED> (459)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (577)
<EPS-BASIC> (1.91)
<EPS-DILUTED> (1.91)

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 525
<ALLOWANCES> 0
<INVENTORY> 865
<CURRENT-ASSETS> 2,330
<PP&E> 5,040
<DEPRECIATION> (1,713)
<TOTAL-ASSETS> 19,832
<CURRENT-LIABILITIES> 1,822
<BONDS> 4,334
953
520
<COMMON> 3
<OTHER-SE> 9,108
<TOTAL-LIABILITY-AND-EQUITY> 19,832
<SALES> 8,734
<TOTAL-REVENUES> 8,734
<CGS> 4,950
<TOTAL-COSTS> 4,950
<OTHER-EXPENSES> 226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 636
<INCOME-TAX> 257
<INCOME-CONTINUING> 295
<DISCONTINUED> 107
<EXTRAORDINARY> (21)
<CHANGES> 0
<NET-INCOME> 381
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.03

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 561
<ALLOWANCES> 0
<INVENTORY> 879
<CURRENT-ASSETS> 2,536
<PP&E> 4,798
<DEPRECIATION> (1,511)
<TOTAL-ASSETS> 20,574
<CURRENT-LIABILITIES> 2,091
<BONDS> 4,213
954
537
<COMMON> 3
<OTHER-SE> 9,608
<TOTAL-LIABILITY-AND-EQUITY> 20,574
<SALES> 8,889
<TOTAL-REVENUES> 8,889
<CGS> 5,226
<TOTAL-COSTS> 5,226
<OTHER-EXPENSES> 656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 424
<INCOME-PRETAX> 24
<INCOME-TAX> 62
<INCOME-CONTINUING> (41)
<DISCONTINUED> 652
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611
<EPS-BASIC> 1.75
<EPS-DILUTED> 1.75

</TABLE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 98
<SECURITIES> 0
<RECEIVABLES> 488
<ALLOWANCES> 0
<INVENTORY> 803
<CURRENT-ASSETS> 8,058
<PP&E> 4,737
<DEPRECIATION> (1,878)
<TOTAL-ASSETS> 17,482
<CURRENT-LIABILITIES> 1,709
<BONDS> 3,692
1,327
201
<COMMON> 3
<OTHER-SE> 7,634
<TOTAL-LIABILITY-AND-EQUITY> 17,482
<SALES> 1,855
<TOTAL-REVENUES> 1,855
<CGS> 1,027
<TOTAL-COSTS> 1,027
<OTHER-EXPENSES> 53
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 26
<INCOME-TAX> 9
<INCOME-CONTINUING> 10
<DISCONTINUED> 66
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-BASIC> .22
<EPS-DILUTED> .22

</TABLE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 493
<ALLOWANCES> 0
<INVENTORY> 880
<CURRENT-ASSETS> 2,314
<PP&E> 5,093
<DEPRECIATION> (1,760)
<TOTAL-ASSETS> 19,563
<CURRENT-LIABILITIES> 1,545
<BONDS> 4,530
953
516
<COMMON> 3
<OTHER-SE> 8,923
<TOTAL-LIABILITY-AND-EQUITY> 19,563
<SALES> 1,962
<TOTAL-REVENUES> 1,962
<CGS> 1,125
<TOTAL-COSTS> 1,125
<OTHER-EXPENSES> 56
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 70
<INCOME-TAX> 27
<INCOME-CONTINUING> 32
<DISCONTINUED> (52)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)

</TABLE>

<PAGE>
NABISCO GROUP HOLDINGS CORP.
(CURRENTLY RJR NABISCO HOLDINGS CORP.)

RESTATED AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS

RJR Nabisco Holdings Corp.:

We have audited the accompanying consolidated balance sheets of RJR Nabisco
Holdings Corp. ("RJRN Holdings"--to be renamed Nabisco Group Holdings Corp.) as
of December 31, 1998 and 1997, and the related consolidated statements of
income, cash flows and stockholders' equity and comprehensive income for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of RJRN Holdings at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.

/S/ DELOITTE & TOUCHE LLP
New York, New York
May 18, 1999

REPORT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The financial statements presented in this report have been prepared by
management in accordance with generally accepted accounting principles using,
where appropriate, management's best estimates and judgment. Management
maintains a system of internal controls to provide reasonable assurance that the
assets of RJR Nabisco Holdings Corp. (to be renamed Nabisco Group Holdings
Corp.) are safeguarded and transactions are executed as authorized and properly
recorded. The system includes established policies and procedures, a program of
internal audits, management reviews and careful selection and training of
qualified personnel.

The audit committee is comprised solely of outside directors. It meets
periodically with management, the internal auditors, and the independent
auditors, Deloitte & Touche LLP, to discuss and address internal accounting
control, auditing and financial reporting matters. Both independent and internal
auditors have unrestricted access to the audit committee.

/S/ STEVEN F. GOLDSTONE
- ----------------------------

Chairman and
Chief Executive Officer

/S/ DAVID B. RICKARD
- ----------------------------

Senior Vice President
and Chief Financial Officer

2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ----------------------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
NET SALES................................................................................ $ 8,400 $ 8,734 $ 8,889
---------- ---------- ----------
Costs and expenses:
Cost of products sold.................................................................. 4,683 4,950 5,226
Selling, advertising, administrative and general expenses.............................. 2,670 2,469 2,528
Amortization of trademarks and goodwill................................................ 221 226 228
Restructuring expense (note 2)......................................................... 530 -- 428
---------- ---------- ----------
OPERATING INCOME................................................................... 296 1,089 479
Interest and debt expense................................................................ (401) (421) (424)
Other income (expense), net.............................................................. (29) (32) (31)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................................................. (134) 636 24
Provision (benefit) for income taxes..................................................... (2) 257 62
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST IN INCOME (LOSS)
OF NABISCO HOLDINGS.............................................................. (132) 379 (38)
Less minority interest in income (loss) of Nabisco Holdings.............................. (14) 84 3
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS........................................... (118) 295 (41)
Income (loss) from operations of discontinued businesses (note 17)....................... (459) 107 652
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................................ (577) 402 611
Extraordinary item--loss on early extinguishment of debt, net of income taxes and
minority interest...................................................................... -- (21) --
---------- ---------- ----------
NET INCOME (LOSS).................................................................. $ (577) $ 381 $ 611
---------- ---------- ----------
---------- ---------- ----------
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations............................................... $ (.49) $ .78 $ (.26)
Income (loss) from discontinued operations............................................. $ (1.42) $ .33 $ 2.01
Loss from extraordinary item........................................................... $ -- $ (.06) $ --
Net income (loss)...................................................................... $ (1.91) $ 1.05 $ 1.75
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations............................................... $ (.49) $ .76 $ (.26)
Income (loss) from discontinued operations............................................. $ (1.42) $ .33 $ 2.01
Loss from extraordinary item........................................................... $ -- $ (.06) $ --
Net income (loss)...................................................................... $ (1.91) $ 1.03 $ 1.75
DIVIDENDS PER SHARE:
Common stock........................................................................... $ 2.05 $ 2.05 $ 1.85
Series C preferred stock............................................................... $ -- $ 2.25 $ 6.01
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (577) $ 381 $ 611
Less (income) loss from discontinued operations................................... 459 (107) (652)
--------- --------- ---------
Income (loss) from continuing operations.......................................... (118) 274 (41)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Depreciation and amortization................................................... 494 503 498
Deferred income tax provision (benefit)......................................... (188) 12 (63)
Extraordinary loss.............................................................. -- 43 --
Restructuring and restructuring-related expenses, net of cash payments.......... 459 (179) 385
Other changes that provided (used) cash:
Accounts and notes receivable................................................. (5) 6 (23)
Inventories................................................................... 44 (12) (28)
Accounts payable and accrued liabilities, including income taxes.............. (61) (131) (110)
Other, net.................................................................... (62) 4 36
--------- --------- ---------
Total adjustments............................................................. 681 246 695
--------- --------- ---------
Net cash flows from continuing operations....................................... 563 520 654
Net cash flows with discontinued operations..................................... 546 592 693
--------- --------- ---------
Net cash flows from operating activities........................................ 1,109 1,112 1,347
--------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures.............................................................. (340) (392) (437)
Acquisitions of businesses........................................................ (9) (46) (173)
Divestitures of businesses and certain assets..................................... 562 65 16
Net repurchases of Nabisco Holdings' common stock................................. (38) (22) --
Net proceeds from exercise of Nabisco Holdings' common stock options.............. 25 -- --
--------- --------- ---------
Net cash flows from (used in) investing activities.............................. 200 (395) (594)
--------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......................................... 1,279 360 11
Repayments of long-term debt...................................................... (32) (1,109) (72)
Increase (decrease) in short-term borrowings...................................... (1,965) 824 34
Repurchase of common stock........................................................ -- -- (100)
Proceeds from the issuance of trust originated preferred securities............... 374 -- --
Redemption of Series B preferred stock............................................ (301) -- --
Dividends paid on common and preferred stock...................................... (742) (755) (716)
Other, net........................................................................ 69 4 64
--------- --------- ---------
Net cash flows used in financing activities..................................... (1,318) (676) (779)
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents........................ (6) (8) (2)
--------- --------- ---------
Net change in cash and cash equivalents......................................... (15) 33 (28)
Cash and cash equivalents at beginning of period.................................... 127 94 122
--------- --------- ---------
Cash and cash equivalents at end of period.......................................... $ 112 $ 127 $ 94
--------- --------- ---------
--------- --------- ---------

Income taxes paid, net of refunds................................................... $ 231 $ 247 $ 150
Interest paid....................................................................... $ 381 $ 453 $ 453
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

4
<PAGE>
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 112 $ 127
Accounts and notes receivable, net........................................................ 522 525
Inventories:
Finished products....................................................................... 457 540
Raw materials........................................................................... 164 182
Other................................................................................... 132 143
--------- ---------
Total inventories....................................................................... 753 865
--------- ---------
Prepaid expenses and other current assets................................................. 70 59
Net assets of discontinued businesses (note 17)........................................... 6,696 754
--------- ---------
TOTAL CURRENT ASSETS.................................................................. 8,153 2,330
--------- ---------

Property, plant and equipment--at cost:
Land and land improvements.............................................................. 192 199
Buildings and leasehold improvements.................................................... 937 942
Machinery and equipment................................................................. 3,385 3,509
Construction-in-process................................................................. 292 390
--------- ---------
Total property, plant and equipment..................................................... 4,806 5,040
Less accumulated depreciation............................................................... 1,859 1,713
--------- ---------
Property, plant and equipment, net...................................................... 2,947 3,327
--------- ---------

Trademarks, net of accumulated amortization (1998--$1,102, 1997--$1,070).................... 3,368 3,725
Goodwill, net of accumulated amortization (1998--$910, 1997--$834).......................... 3,182 3,343
Other assets and deferred charges........................................................... 94 150
Net assets of discontinued businesses (note 17)............................................. -- 6,957
--------- ---------
$ 17,744 $ 19,832
--------- ---------
--------- ---------
</TABLE>

5
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------------------------- --------- ---------

<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................................................... $ 68 $ 180
Accounts payable.......................................................................... 407 435
Accrued liabilities....................................................................... 1,231 1,057
Current maturities of long-term debt...................................................... 118 21
Income taxes accrued...................................................................... 20 129
--------- ---------
TOTAL CURRENT LIABILITIES............................................................. 1,844 1,822
--------- ---------

Long-term debt (less current maturities).................................................... 3,619 4,334
Minority interest in Nabisco Holdings....................................................... 752 812
Other noncurrent liabilities................................................................ 962 923
Deferred income taxes....................................................................... 1,226 1,357
Commitments and contingencies (note 9)
Nabisco Group Holdings' obligated mandatorily redeemable preferred securities of subsidiary 1,327 953
trusts holding solely junior subordinated debentures*.....................................

Stockholders' equity:
Preferred stock........................................................................... 205 520
Common stock (1998--328,385,148 shares issued, 1997--327,158,090 shares issued)........... 3 3
Paid-in capital........................................................................... 9,004 9,690
Retained earnings (accumulated deficit)................................................... (577) --
Accumulated other comprehensive income.................................................... (460) (413)
Treasury stock, at cost................................................................... (100) (100)
Other stockholders' equity................................................................ (61) (69)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY............................................................ 8,014 9,631
--------- ---------
$ 17,744 $ 19,832
--------- ---------
--------- ---------
</TABLE>

- ------------------------------

* The sole assets of the subsidiary trusts are junior subordinated debentures of
Nabisco Group Holdings Corp. The outstanding junior subordinated debentures have
aggregate principal amounts of approximately $978 and $385 million, annual
interest rates of 10% and 9 1/2%, and mature in December 2044 and September
2047, respectively. The preferred securities will be mandatorily redeemed upon
redemption of the junior subordinated debentures. See note 17 regarding the
partial tender and redemption of these securities.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
CAPITAL PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK* CAPITAL EARNINGS INCOME STOCK OTHER
----------- --------- ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996...................... $ 547 $ 10,118 $ -- $ (184) $ -- $ (152)
Net income.................................... 611
Foreign currency translation, net of tax
expense of $17 million...................... (45)
Minimum pension liability, net of tax benefit
of $2 million............................... (4)
Total comprehensive income....................
Retirement of 431,757 shares of ESOP preferred
stock....................................... (7)
Issuance of 775,366 shares of common stock.... 18
Repurchase of 3,377,300 shares of common
stock....................................... (100)
Cancellation of 9,000 shares of common
stock.......................................
Dividends..................................... (97) (611)
ESOP note payments received................... 34
Other......................................... 11 9
----------- --------- ----- ----- ----- -----
Balance at December 31, 1996.................... 540 10,050 -- (233) (100) (109)
Net income.................................... 381
Foreign currency translation, net of tax
expense of $12 million...................... (170)
Minimum pension liability, net of tax benefit
of $5 million............................... (10)
Total comprehensive income....................
Retirement of 843,970 shares of ESOP preferred
stock....................................... (14)
Conversion of 26,675,000 shares of Series C
preferred stock into 53,350,000
shares of common stock...................... (3) 3
Issuance of 405,532 shares of common stock.... 10
Cancellation of 171,750 shares of common
stock....................................... (5)
Dividends..................................... (361) (381)
ESOP note payments received................... 36
Other......................................... (7) 4
----------- --------- ----- ----- ----- -----
Balance at December 31, 1997.................... 523 9,690 -- (413) (100) (69)
Net loss...................................... (577)
Foreign currency translation, net of tax
benefit of $6 million....................... (50)
Minimum pension liability, net of tax expense
of $1 million............................... 3
Total comprehensive income (loss).............
Retirement of 895,983 shares of ESOP preferred
stock....................................... (14)
Redemption of 12,043,940 shares of Series B
preferred stock............................. (301)
Issuance of 1,264,058 shares of common
stock....................................... 41
Cancellation of 37,000 shares of common
stock....................................... (1)
Dividends..................................... (704)
ESOP note payments received................... 33
Other......................................... (22) (25)
----------- --------- ----- ----- ----- -----
Balance at December 31, 1998.................... $ 208 $ 9,004 $ (577) $ (460) $ (100) $ (61)
----------- --------- ----- ----- ----- -----
----------- --------- ----- ----- ----- -----

COMPREHENSIVE
TOTAL INCOME
--------- -----------------
<S> <C> <C>
Balance at January 1, 1996...................... $ 10,329
Net income.................................... 611 $ 611
Foreign currency translation, net of tax
expense of $17 million...................... (45) (45)
Minimum pension liability, net of tax benefit
of $2 million............................... (4) (4)
-----
Total comprehensive income.................... $ 562
-----
-----
Retirement of 431,757 shares of ESOP preferred
stock....................................... (7)
Issuance of 775,366 shares of common stock.... 18
Repurchase of 3,377,300 shares of common
stock....................................... (100)
Cancellation of 9,000 shares of common
stock....................................... --
Dividends..................................... (708)
ESOP note payments received................... 34
Other......................................... 20
---------
Balance at December 31, 1996.................... 10,148
Net income.................................... 381 $ 381
Foreign currency translation, net of tax
expense of $12 million...................... (170) (170)
Minimum pension liability, net of tax benefit
of $5 million............................... (10) (10)
-----
Total comprehensive income.................... $ 201
-----
-----
Retirement of 843,970 shares of ESOP preferred
stock....................................... (14)
Conversion of 26,675,000 shares of Series C
preferred stock into 53,350,000
shares of common stock...................... --
Issuance of 405,532 shares of common stock.... 10
Cancellation of 171,750 shares of common
stock....................................... (5)
Dividends..................................... (742)
ESOP note payments received................... 36
Other......................................... (3)
---------
Balance at December 31, 1997.................... 9,631
Net loss...................................... (577) $ (577)
Foreign currency translation, net of tax
benefit of $6 million....................... (50) (50)
Minimum pension liability, net of tax expense
of $1 million............................... 3 3
-----
Total comprehensive income (loss)............. $ (624)
-----
-----
Retirement of 895,983 shares of ESOP preferred
stock....................................... (14)
Redemption of 12,043,940 shares of Series B
preferred stock............................. (301)
Issuance of 1,264,058 shares of common
stock....................................... 41
Cancellation of 37,000 shares of common
stock....................................... (1)
Dividends..................................... (704)
ESOP note payments received................... 33
Other......................................... (47)
---------
Balance at December 31, 1998.................... $ 8,014
---------
---------
</TABLE>

- ------------------------
* Includes $3 million of common stock for each reporting period presented. The
number of shares of common stock, par value $.01, authorized at December 31,
1998 was 440,000,000. Common shares outstanding: 1998- 325,007,848 and 1997-
323,780,790.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Nabisco Group
Holdings Corp. ("NGH"--currently named RJR Nabisco Holdings Corp.), and its
majority-owned subsidiaries, including 80.6% of Nabisco Holdings Corp. ("Nabisco
Holdings") and its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco").

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

The account balances and activities of R.J. Reynolds Tobacco Holdings, Inc.
("RJR"--formerly named RJR Nabisco, Inc.), which included R.J. Reynolds
International ("Reynolds International"), R.J. Reynolds Tobacco Company
("Reynolds Tobacco") and corporate headquarters, are segregated and reported as
discontinued operations in the accompanying consolidated financial statements.
See note 17 for further discussion.

Certain prior years' amounts have been reclassified to conform to the 1998
presentation.

Unless otherwise noted, all dollar amounts presented are in millions except
per share amounts.

CASH EQUIVALENTS

Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and that have original maturities
of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
principally under the FIFO method.

DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLES

Property, plant and equipment are depreciated by the straight-line method
over the estimated useful lives of the assets.

Goodwill and trademarks are amortized using the straight-line method,
principally over 40 years. Management periodically evaluates the recoverability
of goodwill and trademarks. The carrying value of goodwill and trademarks would
be reduced if it is probable that management's best estimate of future operating
income before amortization of goodwill and trademarks from related operations,
on an undiscounted basis, will be less than the carrying value over the
remaining amortization period.

OTHER INCOME (EXPENSE), NET

Interest income, certain gains and losses on foreign currency transactions,
financing-related fees and other items of a financial nature are included in
"Other income (expense), net".

ADVERTISING AND RESEARCH AND DEVELOPMENT

Advertising and research and development costs are expensed as incurred.

INTEREST RATE ARRANGEMENTS

For interest rate swaps, the differential to be paid or received is accrued
and recognized in interest expense and may change as market interest rates
change. For purchased interest rate caps, the premium

8
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paid is amortized to interest expense over the term of the cap and any amounts
receivable are accrued as a reduction of interest expense. If an arrangement is
terminated prior to maturity, the gain or loss is recognized over the remaining
original life of the arrangement if the item hedged remains outstanding, or
immediately, if the item hedged does not remain outstanding. If the arrangement
is not terminated prior to maturity, but the underlying hedged item is no longer
outstanding, the interest rate arrangement is marked to market and any
unrealized gain or loss is recognized immediately.

FOREIGN CURRENCY ARRANGEMENTS

Forward foreign exchange contracts are carried at fair value on the
consolidated balance sheets. The corresponding gains or losses on those
contracts entered into to hedge firm commitments are deferred on the
consolidated balance sheets as well and included in the basis of the underlying
hedged transaction when settled. To the extent that the underlying hedged
foreign currency transaction does not occur, the gains and losses deferred are
recognized in earnings immediately. Gains or losses on those contracts entered
into to hedge foreign currency exposure of existing assets and liabilities are
generally recognized in income currently, along with the related translation
gains or losses recognized from the remeasurement of the assets or liabilities
hedged.

Translation gains or losses resulting from foreign-denominated borrowings
that are accounted for as hedges of certain foreign currency net investments
result in charges or credits to the cumulative translation adjustments account
in stockholders' equity.

COMMODITY CONTRACTS

Changes in the market value of commodity contracts are recorded as an
addition to, or reduction from, the raw material inventory cost. Market value
changes are recorded in cost of products sold when the related finished products
are sold. Due to wide fluctuations in the market prices for various agricultural
commodities, futures contracts are frequently entered into to hedge the price
risk associated with anticipated purchases. The amount of hedging losses
deferred as of December 31, 1998 and 1997 were $5 million and $7 million,
respectively.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On January 1, 1998, NGH adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS No. 130"), which established
standards for reporting and displaying comprehensive income and its components.
Comprehensive income is defined as the change in stockholders' equity during a
period from transactions from nonowner sources and primarily includes net income
(loss), foreign currency translation adjustments and minimum pension liability
adjustments. The components of comprehensive income are displayed in the
consolidated statements of stockholders' equity. The adoption of SFAS No. 130
did not have a material effect on NGH's financial position or results of
operations.

In the fourth quarter of 1998, NGH adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"), which established standards for the way in which
information about operating segments is reported. SFAS No. 131 also established
standards for related disclosures about products and services, geographic areas
and major customers. See note 14 for disclosures required by SFAS No. 131. The
adoption of SFAS No. 131 did not have a material effect on NGH's financial
position or results of operations.

NGH also adopted Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS
No. 132") during 1998. SFAS No. 132 standardized the disclosure requirements for
pensions and other postretirement benefits, requires additional information on
changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis and eliminates certain requirements from other
accounting standards no longer deemed

9
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
useful. It does not change the measurement or recognition of these plans. See
note 13 for disclosures required by SFAS No. 132. The adoption of SFAS No. 132
did not have a material effect on NGH's financial position or results of
operations.

During 1998, NGH also adopted Statement of Position ("SOP") No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, which requires certain costs incurred in connection with developing or
obtaining internal-use software to be capitalized and other costs to be
expensed. The adoption of SOP No. 98-1 had no material effect on NGH's financial
position or results of operations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"), which must be adopted by
January 1, 2000, with early adoption permitted. On May 20, 1999, the FASB issued
an exposure draft, which would amend SFAS No. 133 to delay its effective date
one year. SFAS No. 133 requires that all derivative financial instruments be
recorded on the consolidated balance sheet at their fair value. Changes in the
fair value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. NGH has not
yet determined the timing of adoption or the impact that adoption or subsequent
application of SFAS No. 133 will have on its financial position or results of
operations.

In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued SOP No. 98-5, Reporting on the
Costs of Start-Up Activities. SOP No. 98-5 establishes standards on accounting
for start-up and organization costs and, in general, requires such costs to be
expensed as incurred. This standard was adopted on January 1, 1999. The adoption
of SOP No. 98-5 did not have a material effect on NGH's financial position or
results of operations.

NOTE 2--RESTRUCTURING

1998 CHARGES

In the second and fourth quarters of 1998, Nabisco recorded restructuring
charges of $406 million ($216 million after-tax, net of minority interest) and
$124 million ($75 million after-tax, net of minority interest), respectively.
These restructuring programs were undertaken to streamline operations and
improve profitability and will include workforce reductions of approximately
6,500 employees. The restructuring programs will require cash expenditures of
approximately $205 million primarily to be spent in 1999. In addition, the
programs will require additional expenses of approximately $134 million, of
which $56 million ($27 million after-tax, net of minority interest) was incurred
in 1998. These restructuring related expenses are principally for implementation
and integration of the programs and include costs for relocation of employees
and equipment and training.

10
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
The key elements of the 1998 restructuring programs include:

<TABLE>
<CAPTION>
SEVERANCE CONTRACT ASSETS TO BE OTHER EXIT
AND BENEFITS TERMINATIONS DISPOSED OF COSTS TOTAL
------------- --------------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>

Sales force reorganizations......................... $ 37 $ 3 $ -- $ -- $ 40

Distribution reorganizations........................ 16 8 9 -- 33

Staff reductions.................................... 83 -- 3 -- 86

Manufacturing cost reduction initiatives............ 22 -- 8 -- 30

Plant closures...................................... 46 3 217 15 281

Product line rationalizations....................... 4 4 20 32 60
----- --- ----- --- ---------

Total restructuring charges......................... $ 208 $ 18 $ 257 $ 47 $ 530
----- --- ----- --- ---------
----- --- ----- --- ---------
</TABLE>

- - Sales force reorganizations consist of $35 million for Biscuit to reorganize
its direct store delivery sales force to improve its effectiveness and $5
million for the International Food Group, principally Latin America.

- - Distribution reorganizations consist of plans to exit a number of domestic
and international distribution and warehouse facilities, principally $19
million for Biscuit and $14 million for the International Food Group.

- - Staff reductions consist of headquarters and operating unit realignments,
functional consolidations and eliminations of positions throughout Nabisco.
Amounts are: $37 million for the U.S. Foods Group; $26 million for
International headquarters, Canada and other foreign units; $15 million for
corporate headquarters; and $8 million for Biscuit.

- - Manufacturing cost reduction initiatives consist of a number of domestic and
international programs to increase productivity, principally $19 million for
Biscuit and $7 million for Canada.

- - Plant closure accruals are for the closure and future sale of 18 production
facilities in order to improve manufacturing efficiencies and reduce costs.
Amounts by operating segment are: Biscuit $217 million; U.S. Foods Group $12
million; and International Food Group $52 million. As of December 31, 1998,
production had ceased in 6 facilities which are being actively marketed for
sale. Other exit costs consist of incremental costs to be incurred prior to
sale.

- - Product line rationalizations consist of exit costs to discontinue a number
of domestic and international product lines. Other exit costs are
principally write-offs for disposals of various discontinued products.
Amounts by operating segment are: U.S. Foods Group $34 million; Biscuit $14
million; and International Food Group $12 million.

As of December 31, 1998, $61 million of charges were applied against
restructuring reserves as follows: $34 million for 2,000 employees severed, $3
million for contract terminations, $12 million for asset disposals and $12
million for other exit costs. Of the charges applied against the restructuring
reserves, cash expenditures amounted to $39 million.

1996 CHARGES

Nabisco recorded a restructuring charge of $428 million ($241 million
after-tax, net of minority interest) in the second quarter of 1996. The
restructuring program was undertaken to streamline operations and improve
profitability and was substantially completed during 1997. The $428 million
restructuring charge required cash expenditures of $238 million. In addition to
the restructuring charge, the program

11
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
required additional 1996 expenditures of $97 million for implementation and
integration expenses, principally for relocation of employees and equipment and
training.

The major cost components of the $428 million restructuring charge (see
table below) were for domestic and international severance and benefits related
to workforce reductions totaling approximately 5,700 employees; product line
rationalization losses resulting from disposals of equipment ($91 million) and
packaging materials ($25 million) related to the elimination of more than 300
stock keeping units of slow moving products; losses to write-down the carrying
values of several non-strategic product lines prior to sale, including $30
million for intangibles, $3 million for inventory and $2 million for property;
contract termination costs related to the termination of manufacturing supply
and distribution contracts; and losses from disposals of property related to
international plant closures and domestic and international facility
reorganizations, including $19 million for property, $2 million for plant
closure costs and $1 million for the disposal of inventory.

The major cost components of the restructuring charge and changes in
estimates and charges are summarized below. Severance benefits increased $30
million over the original estimate due to higher than anticipated costs
associated with Biscuit's sales force reorganization. Estimated product line
disposals decreased $15 million due to the decision not to sell a small regional
brand. Estimated costs for product line rationalizations, contract terminations
and facility reorganizations were also changed due to different actual costs.

<TABLE>
<CAPTION>
JUNE 1996 CHANGE IN ADJUSTED PAYMENTS BALANCE PAYMENTS BALANCE
PROVISION ESTIMATE PROVISION & CHARGES 12-31-97 & CHARGES 12-31-98
----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Severance and benefits......... $ 194 $ 30 $ 224 $ (197) $ 27 $ (25) $ 2
Product line rationalizations.. 116 4 120 (117) 3 (3) --
Product line disposals......... 51 (15) 36 (36) -- -- --
Contract terminations.......... 45 (15) 30 (29) 1 (1) --
Plant closures and facility
reorganizations.............. 22 (4) 18 (12) 6 (6) --
----- ----- ----- ----------- --- ----- -----
Total.................... $ 428 $ -- $ 428 $ (391) $ 37 $ (35) $ 2
----- ----- ----- ----------- --- ----- -----
----- ----- ----- ----------- --- ----- -----
</TABLE>

NOTE 3--OPERATIONS

Cost of products sold in 1998 was reduced by a $14 million net gain ($1
million after-tax, net of minority interest) related to businesses sold and
non-strategic businesses exited in the third quarter. Businesses sold include
the College Inn brand of canned broths, the U.S. and Canadian tablespreads and
U.S. egg substitute businesses (formerly included in the U.S. Foods Group
operating segment) and the Del Monte brand canned vegetable business in
Venezuela (formerly included in the International Food Group operating segment)
for net proceeds of approximately $550 million, and the costs of exiting certain
non-strategic businesses.

In 1997, Nabisco sold certain domestic regional brands (formerly included in
the U.S. Foods Group) which resulted in a pre-tax gain of $32 million. In
addition non-recurring pre-tax expenses of $31 million were recorded for the
write-down of certain assets of a business held for sale, the reorganization of
the U.S. Foods Group selling organization and the relocation of the
International Food Group headquarters.

Net sales for 1998 and 1997 from all divestitures in both years by Nabisco
were $298 million and $632 million, respectively. Operating company contribution
for 1998 and 1997 from divested businesses was $39 million and $99 million,
respectively.

12
<PAGE>
NOTE 4--EARNINGS PER SHARE

The components of the calculation of earnings per share for income (loss)
from continuing operations are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC DILUTED BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) applicable to common stock
from continuing operations:
Income (loss) from continuing
operations.......................... $ (118) $ (118) $ 295 $ 295 $ (41) $ (41)
Preferred stock dividends............. (40) (40) (44) (44) (43) (43)
Adjustment for the dilutive effect of
Nabisco Holdings' stock options..... -- -- -- (3) -- --
---------- ---------- ---------- ---------- ---------- ----------
$ (158) $ (158) $ 251 $ 248 $ (84) $ (84)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding
(in thousands):
Common shares outstanding............. 323,853 323,853 323,787 323,787 324,917 324,917
Assumed exercise of NGH's stock
options............................. -- -- -- 1,531 -- --
---------- ---------- ---------- ---------- ---------- ----------
323,853 323,853 323,787 325,318 324,917 324,917
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

Shares of ESOP convertible preferred stock of 12,818,967, 13,714,950 and
14,558,920 were not included in computing diluted earnings per share for 1998,
1997 and 1996, respectively, because the effect would have been antidilutive.

NOTE 5--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS

<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
AVERAGE AVERAGE
AMOUNT YEAR-END AMOUNT YEAR-END
OUTSTANDING INTEREST RATE OUTSTANDING INTEREST RATE
----------- ------------- ----------- -------------
Domestic commercial paper (see note 8)............ $ 174 5.7% $ 1,991 6.2%
International commercial paper.................... 9 7.2% 26 4.1%
Notes payable to banks............................ 59 8.2% 154 8.2%
Other (see note 8)................................ -- -- 50 5.8%
----------- -----------
242 2,221
Amount reclassified as long-term debt (see note
8).............................................. (174) (2,041)
----------- -----------
Total short-term borrowings..................... $ 68 $ 180
----------- -----------
----------- -----------
</TABLE>

Nabisco maintains a four-year $1.5 billion revolving credit facility and a
364-day $1.11 billion credit facility primarily to support commercial paper
issuances. At the end of the 364-day period, any borrowings outstanding under
the 364-day credit facility are convertible into a three-year term loan at
Nabisco's option. The commitments under the revolving credit facility decline to
approximately $1.46 billion on October 31, 2001 for the final year. Borrowings
under the revolving credit facility bear interest at rates

13
<PAGE>
NOTE 5--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS (CONTINUED)
which vary with the prime rate or LIBOR. Borrowings outstanding under the
364-day credit facility bear interest at rates which vary with LIBOR.

Based on Nabisco's intention and ability to continue to refinance for more
than one year the amount of their respective domestic commercial paper and
revolving credit agreement borrowings and certain other borrowings through their
separate long-term revolving credit facilities, such borrowings were
reclassified as long-term debt.

Distributions and the payment of dividends by NGH were subject to certain
restrictions under certain financing agreements which were in effect at December
31, 1998 and debt instruments outstanding as of December 31, 1998 of NGH and its
subsidiaries. These financing agreements were terminated in May, 1999. The
financing agreements generally restricted cumulative common and preferred
dividends and distributions, limited the ability to incur indebtedness, engage
in transactions with stockholders and affiliates, create liens, sell or dispose
of certain assets and certain subsidiaries' stock, issue certain equity
securities and engage in certain mergers or consolidations.

Nabisco's credit agreements, among other things, generally restrict common
and preferred dividends and distributions, limit loans and advances by Nabisco
Holdings and its subsidiaries to RJR, limit the ability to incur indebtedness,
engage in transactions with stockholders and affiliates, create liens, acquire,
sell or dispose of certain assets and securities and engage in certain mergers
or consolidations.

NOTE 6--ACCRUED LIABILITIES

<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Payroll and employee benefits................................ $ 270 $ 270
Marketing and advertising.................................... 231 211
Restructuring................................................ 202 43
Dividends.................................................... 220 223
Accrued interest............................................. 70 38
Other........................................................ 238 272
------ ------
$ 1,231 $ 1,057
------ ------
------ ------
</TABLE>

NOTE 7--INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal............................................................. $ 116 $ 174 $ 91
Foreign and other................................................... 70 71 34
----- ----- -----
186 245 125
----- ----- -----
Deferred:
Federal............................................................. (172) 3 (87)
Foreign and other................................................... (16) 9 24
----- ----- -----
(188) 12 (63)
----- ----- -----
Provision (benefit) for income taxes.................................. $ (2) $ 257 $ 62
----- ----- -----
----- ----- -----
</TABLE>

14
<PAGE>
NOTE 7--INCOME TAXES (CONTINUED)
The components of the deferred income tax liability disclosed on the
consolidated balance sheets included the following:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Pension and other postretirement liabilities....................................... $ (174) $ (181)
Restructuring and other accrued liabilities........................................ (141) (45)
--------- ---------
Total deferred tax assets before valuation allowance......................... (315) (226)
Valuation allowance................................................................ 83 77
--------- ---------
Net deferred tax assets...................................................... (232) (149)
--------- ---------

Deferred tax liabilities:
Property and equipment............................................................. 322 336
Trademarks......................................................................... 1,027 1,059
Other.............................................................................. 109 111
--------- ---------
Total deferred tax liabilities............................................... 1,458 1,506
--------- ---------
Net deferred income taxes.................................................... $ 1,226 $ 1,357
--------- ---------
--------- ---------
</TABLE>

Pre-tax income (loss) for domestic and foreign operations consisted of the
following:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Domestic (includes U.S. exports)...................................... $ (182) $ 465 $ (88)
Foreign............................................................... 48 171 112
------ ------ ------
Pre-tax income (loss)................................................. $ (134) $ 636 $ 24
------ ------ ------
------ ------ ------
</TABLE>

The differences between the provision (benefit) for income taxes and income
taxes computed at statutory U.S. federal income tax rates are explained as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------- --------------- -------------
<S> <C> <C> <C>
Income taxes computed at statutory U.S. federal income tax
rates....................................................... $ (48) $ 223 $ 8
State and local income taxes, net of federal tax benefits..... 17 21 8
Goodwill amortization......................................... 30 30 37
Taxes on foreign operations at rates different than statutory
U.S. federal rate........................................... 11 (10) 13
Exempt foreign sales corporation earnings..................... (1) (1) (1)
Other items, net.............................................. (11) (6) (3)
----- ----- ------
Provision (benefit) for income taxes.......................... $ (2) $ 257 $ 62
----- ----- ------
----- ----- ------
Effective tax rate............................................ 1.5% 40.4% 258.3%
----- ----- ------
----- ----- ------
</TABLE>

At December 31, 1998, there was $749 million of accumulated and
undistributed income of foreign subsidiaries. These earnings were reinvested by
management abroad indefinitely. Accordingly, no applicable U.S. federal deferred
income taxes have been provided nor is a determination of the amount of
unrecognized U.S. federal deferred income taxes practicable.

15
<PAGE>
NOTE 8--LONG-TERM DEBT

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Short-term borrowings, reclassified.......................................................... $ 174 $ 2,041
5.38-8.3% notes, due 1999 through 2015....................................................... 2,142 2,146
6.0-6.375% puttable/callable notes, due 2011 through 2035.................................... 998 --
6.24% pound sterling notes due 2001.......................................................... 163 --
Other indebtedness........................................................................... 260 168
Current maturities of long-term debt......................................................... (118) (21)
--------- ---------
Total long-term debt..................................................................... $ 3,619 $ 4,334
--------- ---------
--------- ---------
</TABLE>

- ------------------------

The payment of long-term debt through December 31, 2003 is as follows:
2000--$237; 2001--$275; 2002-- $579 and 2003--$32.

In August 1997, Nabisco issued $200 million of floating rate notes (5.38% as
of December 31, 1998) due 2009, which are puttable and callable in August 1999.

In December 1997, Nabisco refinanced $432 million of 8.3% notes due 1999 and
$541 million of 8% notes due 2000 with short-term borrowings. An extraordinary
loss of approximately $43 million ($21 million after-tax, net of minority
interest) was recorded related to this transaction. These short-term borrowings
were refinanced in January 1998 with $1 billion long-term notes. The terms of
these notes are as follows: $400 million of 6% notes due 2011 which are puttable
and callable in 2001; $300 million of 6 1/8% notes due 2033 which are puttable
and callable in 2003; and $300 million of 6 3/8% notes due 2035 which are
puttable and callable in 2005. Unless the notes are put, the interest rates are
reset on the respective put or call date to achieve a yield to maturity of 5.75%
to 6.07%, plus in each case, Nabisco's future credit spread on treasury notes of
comparable maturities. The $1,039 million in proceeds from these notes, which
includes $41 million as compensation for the sale of call options, were used to
repay commercial paper borrowings.

In August 1998, a newly formed wholly-owned subsidiary trust of NGH issued
$374 million principal amount of preferred securities. The proceeds from the
sale of the preferred securities and the original capital contribution were
invested by the trust in approximately $385 million principal amount of 9 1/2%
junior subordinated debentures of NGH. The junior subordinated debentures are
redeemable by NGH at $25 per debenture on or after September 30, 2003 and are
due in September 2047. Cash distributions on the preferred securities are
cumulative at an annual rate of 9 1/2% of the liquidation amount of $25 per
security and are payable quarterly in arrears. In October 1998, NGH used $301
million of the proceeds from the issuance of the junior subordinated debentures
to redeem its outstanding Series B preferred stock.

Junior subordinated debentures of $978 million issued by a subsidiary trust
of NGH in 1995 may be redeemed at NGH's election at $25 per debenture on or
after August 19, 1998 and are due in December 2044. Cash distributions on the
preferred securities, which were issued by the subsidiary in exchange for an
equal amount of NGH Series B preferred stock, are cumulative at an annual rate
of 10% of the liquidation amount of $25 per security and are payable quarterly
in arrears.

On April 13, 1999, NGH offered to purchase any and all of its 9 1/2% trust
preferred securities and sought consents from the holders of those securities to
waive certain covenants that might have prevented some of the transactions
described in note 17. The consent offer expired on May 17, 1999. As of that
date, approximately $276 million of the total $374 million trust preferred
securities were tendered. The total cost to tender the preferred securities,
including accrued interest, premium fees and consent fees will total
approximately $314 million. NGH intends to invest approximately $100 million in
highly rated short-term commercial paper to service future principal and
interest payments on the trust securities not tendered.

On May 18, 1999, NGH called for redemption all of its $949 million 10% trust
preferred securities outstanding. NGH expects to complete this redemption on
June 18, 1999.

16
<PAGE>
NOTE 8--LONG-TERM DEBT (CONTINUED)

The estimated fair value approximated the carrying amount of long-term debt
at December 31, 1998 and 1997. Considerable judgment was required in
interpreting market data to develop the estimates of fair value. In addition,
the use of different market assumptions and/or estimation methodologies may have
had a material effect on the estimated fair value amounts. Accordingly, the
estimated fair value of long-term debt as of December 31, 1998 and 1997 is not
necessarily indicative of the amounts that Nabisco could realize in a current
market exchange.

Nabisco manages overall interest rate exposure by adjusting the mix of
floating rate debt and fixed rate debt. As part of managing such interest rate
exposures, Nabisco may enter into various interest rate arrangements from time
to time. See note 10 for further information regarding interest rate
arrangements.

NOTE 9--COMMITMENTS AND CONTINGENCIES

TOBACCO LITIGATION

As of May 27, 1999, NGH was a defendant in 17 lawsuits arising out of the
tobacco business conducted by Reynolds Tobacco or its subsidiaries. In two
additional cases, NGH has been voluntarily dismissed subject to plaintiffs'
discretion to restore NGH to the case within a limited period of time. These 17
cases name NGH on a variety of theories, not always specifically pled, that seek
to impose liability on NGH for injuries allegedly caused by the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, exposure to, or research, statements or warnings regarding cigarettes.

Most of these 17 active suits were brought in state courts by union health-
benefit trust funds--and, in one instance, a Native American tribe--seeking to
recover the health-care costs they claim to have incurred for their members
whose illnesses are allegedly related to cigarettes. Three of the cases are
non-union class action suits, one in Pennsylvania federal court, one in Indiana
state court and one in Missouri state court. A fourth purported class action is
pending in Nigeria. NGH's defenses in all the cigarette cases in which it is
named include the merits defenses of Reynolds Tobacco plus separate arguments
that NGH is a holding company that does not engage in any of the activities for
which plaintiffs seek to impose liability. NGH also seeks to be dismissed from
some of these cases based on the fact that it has no presence in the state in
which a particular case is pending and therefore should not be subject to the
jurisdiction of the applicable court.

In the union health-care cost-recovery cases of the kind noted above,
defendants also argue that the case should be dismissed because of the settled
law that one who pays an injured person's medical expenses is legally too remote
to maintain an action against the person allegedly responsible for the injury.
Most courts that have decided motions to dismiss based on this argument,
including the federal courts of appeals for the Second and Third Circuits, have
granted the motions to dismiss on these "remoteness" grounds. In another case,
in which NGH was named and which proceeded to trial before a jury, NGH as well
as RJR were dismissed from the case on a directed verdict after plaintiffs had
presented their case.

As of May 27, 1999, no case in which NGH is a named defendant was scheduled
for trial in 1999. Two cases in which Reynolds Tobacco is a defendant are in the
process of being tried and it is likely that several more will be tried during
the course of the year.

NGH's litigation defense costs as well as any liabilities it might incur as
a result of the cases pending against it are to be paid by RJR and Reynolds
Tobacco under the indemnification provisions of an agreement between NGH, RJR
and Reynolds Tobacco. NGH's costs of defense, as well as any liabilities
incurred as a result of the case pending in Nigeria, are also subject to an
indemnity from Japan Tobacco Inc. as provided under the sale agreement among
Japan Tobacco, Reynolds Tobacco and RJR. If RJR and Reynolds Tobacco and Japan
Tobacco cannot fulfill their respective indemnity obligations, NGH could be
required to make the relevant payments itself.

17
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition to the cases pending against NGH, there are several hundred
lawsuits relating to cigarettes in which Reynolds Tobacco, and sometimes RJR,
are named defendants. If Reynolds Tobacco and RJR are unable to satisfy their
payment obligations for any adverse judgments against them in some or all of
these cases, it is possible that plaintiffs in these cases would seek to recover
the unsatisfied obligations from the assets of NGH by bringing lawsuits on
various theories.

Some of the claims against NGH seek recovery of hundreds of millions and
possibly billions of dollars. This is also true of the litigation pending
against Reynolds Tobacco and RJR. Litigation is subject to many uncertainties.
Management is unable to predict the outcome of the litigation against NGH, or to
derive a meaningful estimate of the amount or range of any possible loss in any
quarterly or annual period or in the aggregate.

ENVIRONMENTAL MATTERS

The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, substantial expenditures for pollution control, waste
treatment, plant modification and similar activities.

In April 1995, NGH was named a potentially responsible party (a "PRP") with
certain third parties under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to a superfund site at
which a former subsidiary of RJR had operations. Certain subsidiaries of NGH
have also been named as PRPs with third parties or may have indemnification
obligations with respect to a number of additional sites. Liability under CERCLA
is joint and several.

NGH's subsidiaries have been engaged in a continuing program to assure
compliance with U.S., state and local laws and regulations. Although it is
difficult to identify precisely the portion of capital expenditures or other
costs attributable to compliance with environmental laws and to estimate the
cost of resolving these CERCLA matters, NGH does not expect such expenditures or
other costs to have a material adverse effect on the business or financial
condition of NGH and its subsidiaries taken as a whole.

COMMITMENTS

At December 31, 1998, commitments totalled approximately $220 million,
principally for minimum operating leases, the purchase of machinery and
equipment and other contractual arrangements.

NOTE 10--FINANCIAL INSTRUMENTS

INTEREST RATE ARRANGEMENTS

At December 31, 1998, Nabisco had outstanding interest rate caps at an
aggregate notional principal amount of $700 million expiring in June 1999 and
outstanding interest rate swaps at a notional principal amount of $565 million.
These swaps expire as follows: $463 million in 1999; $29 million in 2003; and
$73 million in 2004. At December 31, 1997, similar arrangements for $300 million
were outstanding.

In November 1997, Nabisco locked in the value of the anticipated call
premium associated with the call option feature included in the $1.0 billion of
puttable/callable notes issued in January 1998. This was accomplished by selling
$900 million of notional principal call options on the yield to maturity for the
applicable U.S. Treasury securities on the applicable puttable/callable date.
Nabisco also sold $600 million notional principal amount of U. S. Treasury
securities to lock in the anticipated initial interest rates on these notes.
These arrangements were settled in January 1998 when the notes were issued.

18
<PAGE>
NOTE 10--FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of interest rate arrangements
entered into as of December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
ASSETS/(LIABILITIES) ASSETS/(LIABILITIES)
-------------------------------- --------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Variable interest rate pay swaps.......................... $ -- $ 11 $ -- $ (1)
Interest rate caps........................................ $ -- $ -- $ 1 $ --
U.S. Treasury locks....................................... $ -- $ -- $ -- $ (3)
Written call options...................................... $ -- $ -- $ -- $ (13)
</TABLE>

FOREIGN CURRENCY ARRANGEMENTS

At December 31, 1998 and 1997, Nabisco had outstanding forward foreign
exchange contracts with banks to purchase and sell an aggregate amount of $21
million and $82 million, respectively. Such contracts were primarily entered
into to hedge certain international subsidiary debt. The purpose of Nabisco's
foreign currency hedging activities is to protect Nabisco from risk that the
eventual dollar cash flows resulting from transactions with international
parties will be adversely affected by changes in exchange rates. Based on
calculations from independent third parties, the estimated fair value of these
financial instruments as of December 31, 1998 was unfavorable by less than $1
million and as of December 31, 1997 was favorable by approximately $2 million.

MARKET AND CREDIT RISK

The above interest rate and foreign currency arrangements entered into
involve, to varying degrees, elements of market risk as a result of potential
changes in future interest and foreign currency exchange rates. To the extent
that the financial instruments entered into remain outstanding as effective
hedges of existing interest rate and foreign currency exposure, the impact of
such potential changes in future interest rates and foreign currency exchange
rates on the financial instruments entered into would offset the related impact
on the items being hedged. Also, NGH and its subsidiaries may be exposed to
credit losses in the event of non-performance by the counterparties to these
financial instruments. However, NGH and its subsidiaries continually monitor
their positions and the credit ratings of their counterparties and therefore, do
not anticipate any non-performance.

There are no significant concentrations of credit risk with any individual
counterparties or groups of counterparties as a result of any financial
instruments entered into including those financial instruments discussed above.

NOTE 11--CAPITAL STOCK AND PAID-IN CAPITAL

The outstanding capital stock of NGH at December 31, 1998 consisted of
common stock and ESOP convertible preferred stock (stated value of $16 per
share). All classes of preferred stock of NGH (150,000,000 shares authorized at
December 31, 1998) rank senior to common stock as to dividends and liquidation
preferences.

NGH redeemed its Series B preferred stock (12,044 shares issued and
outstanding at December 31, 1997) on October 13, 1998, resulting in the
redemption of its Series B depositary shares (12,043,940 outstanding at December
31, 1997) at $25 per Series B depositary share plus accrued and unpaid
dividends. Each share of Series B preferred stock paid cash dividends of
$2,312.50 per share per annum until the shares were redeemed.

19
<PAGE>
NOTE 11--CAPITAL STOCK AND PAID-IN CAPITAL (CONTINUED)
NGH and its subsidiaries sponsor a defined contribution plan in which
matching contributions to eligible employees are made in the form of ESOP
preferred stock. Every five shares of ESOP preferred stock (12,818,967 and
13,714,950 shares issued and outstanding at December 31, 1998 and 1997,
respectively) is generally convertible into one share of common stock of NGH,
and bears cumulative dividends at 7.8125% of stated value per annum at least
until April 10, 1999, payable semi-annually in arrears. The ESOP preferred stock
is redeemable at the option of NGH on or after April 10, 1999 at an initial
redemption price of $16.25 per share. The redemption price declines thereafter
to $16 per share on April 10, 2001, plus accrued and unpaid dividends. NGH
matches $.50 for every pre-tax dollar contributed by each eligible employee, up
to a maximum of 6% of the employee's pay. The shares of ESOP preferred stock are
allocated to employees at either a floor value of $16 per share or the fair
market value of one-fifth of a share of common stock, whichever is higher.
Unallocated shares totalled 2,142,175 and 4,182,985 at December 31, 1998 and
1997, respectively. During 1998, 1997 and 1996, approximately $28 million, $32
million and $28 million, respectively, was contributed to the ESOP by NGH and
approximately $17 million, $18 million and $18 million, respectively, of ESOP
dividends were used to service the ESOP's debt to NGH that was incurred in
connection with the initial formation of the ESOP. On or about May 18, 1999, NGH
called for redemption all of its outstanding ESOP convertible preferred stock at
$16.25 per share, plus accrued dividends, at a total cost of approximately $200
million. NGH expects to complete this redemption on June 10, 1999.

NOTE 12--STOCK PLANS

NGH's 1989 stock plan provides for grants of options to purchase common
stock of NGH to non-employee directors, directors and key employees of NGH and
its subsidiaries, including RJR. A maximum of 6,000,000 shares may be issued
under this plan. The options granted under the plan generally vest over three
years, are separately exercisable for primarily ten years from the date of grant
and are exercisable at a price that is generally the fair market value of the
stock at the grant date.

NGH's 1990 long-term incentive plan ("LTIP") provides for grants of
incentive stock options, other stock options, stock appreciation rights,
restricted stock, purchase stock, dividend equivalent rights, performance units,
performance shares and other stock-based grants to key employees. A maximum of
33,000,000 shares of common stock of NGH may be issued under the LTIP. The
options granted under the plan generally vest over three years, are exercisable
for 10-15 years from date of grant, and are exercisable at a price that is
generally the fair market value of the stock at the grant date. As of December
31, 1998, purchase stock, stock options other than incentive stock options,
restricted stock and other stock-based grants have been granted under the LTIP.

Nabisco Holdings' 1994 long-term incentive plan is similar to the LTIP
except that stock-based awards are denominated in shares of Class A common stock
of Nabisco Holdings.

20
<PAGE>
NOTE 12--STOCK PLANS (CONTINUED)
The changes in stock options under NGH's stock plans are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year......... 17,378,041 $ 29.54 17,783,323 $ 29.54 14,855,935 $ 28.40
Options granted...................... 657,536 35.78 589,600 32.37 3,792,447 34.57
Options exercised.................... (271,458) 26.37 (396,363) 25.81 (595,112) 25.68
Options cancelled.................... (274,008) 35.87 (598,519) 34.68 (269,947) 31.41
------------ ------------ ------------
Balance at end of year............... 17,490,111 29.72 17,378,041 29.54 17,783,323 29.54
------------ ------------ ------------
------------ ------------ ------------
Exercisable at end of year........... 15,393,538 29.05 5,683,937 31.09 4,618,935 30.46
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The changes in stock options under Nabisco Holdings' stock plan are as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year......... 14,159,527 $ 30.15 11,727,881 $ 28.57 8,909,663 $ 26.77
Options granted...................... 2,830,983 45.51 2,758,500 37.22 3,114,200 33.83
Options exercised.................... (832,534) 27.50 -- -- -- --
Options cancelled.................... (643,735) 38.59 (326,854) 33.13 (295,982) 29.73
------------ ------------ ------------
Balance at end of year............... 15,514,241 32.75 14,159,527 30.15 11,727,881 28.57
------------ ------------ ------------
------------ ------------ ------------
Exercisable at end of year........... 7,805,633 26.67 -- -- -- --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Additional information at December 31, 1998 with respect to options under
NGH's and Nabisco Holdings' stock plans is as follows:

<TABLE>
<CAPTION>
NABISCO
NGH HOLDINGS
--------------- --------------
<S> <C> <C>
Option price range at end of year...................................... $ 22.82-52.50 $ 24.50-52.88
Shares of common stock available for future grant...................... 14,512,688 12,183,572
Weighted-average remaining contractual life of outstanding options at
end of year.......................................................... 9.8 years 9.6 years
</TABLE>

21
<PAGE>
NOTE 12--STOCK PLANS (CONTINUED)
NGH and its subsidiaries recognize and measure compensation costs related to
employee stock plans utilizing the intrinsic value based method. Had
compensation expense been determined based upon the fair value of awards granted
during 1998, 1997 and 1996, NGH's net income (loss) and earnings (loss) per
share would have been as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------------ -------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)...................... $ (577) $ (602) $ 381 $ 354 $ 611 $ 591
Basic earnings (loss) per share........ $ (1.91) $ (1.98) $ 1.05 $ 0.96 $ 1.75 $ 1.69
Diluted earnings (loss) per share...... $ (1.91) $ (1.98) $ 1.03 $ 0.94 $ 1.74 $ 1.68
Weighted-average grant date fair value
of NGH's options granted during the
year................................. -- $ 7.33 -- $ 6.79 -- $ 7.06
Weighted-average grant date fair value
of Nabisco Holdings' options granted
during the year...................... -- $ 14.27 -- $ 12.55 -- $ 11.00
</TABLE>

Had compensation expense been determined based upon the fair value of awards
granted to employees of NGH's continuing businesses, net income (loss) from
continuing operations and earnings (loss) per share from continuing operations
would have been as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------------ -------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) from continuing
operations........................... $ (118) $ (133) $ 295 $ 280 $ (41) $ (52)
Basic earnings (loss) per share from
continuing operations................ $ (0.49) $ (0.53) $ 0.78 $ 0.73 $ (0.26) $ (0.29)
Diluted earnings (loss) per share from
continuing operations................ $ (0.49) $ (0.53) $ 0.76 $ 0.72 $ (0.26) $ (0.29)
</TABLE>

For the years ended December 31, 1998, 1997 and 1996, all options granted to
employees of NGH's continuing businesses were granted under Nabisco Holdings'
stock plans.

For options granted, fair value was determined using the Black-Scholes
option pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
NABISCO NABISCO NABISCO
NGH HOLDINGS NGH HOLDINGS NGH HOLDINGS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield.................................... 5.8% 1.7% 5.8% 1.7% 5.3% 1.9%
Expected volatility............................... 31% 23% 31% 23% 29% 24%
Risk-free interest rate........................... 5.8% 5.7% 6.4% 6.6% 6.2% 6.4%
Expected option life (years)...................... 5 7 5 7 5 7
</TABLE>

In 1998, NGH granted 992,600 shares of restricted stock to eligible
employees. These shares may not be disposed of or otherwise transferred during
the restricted period, generally three to five years. Restrictions on the stock,
net of forfeitures, lapse as follows: 2001--57,123 shares, 2002--57,123 shares,
2003--640,354 shares and thereafter--200,000 shares. The market price of the
stock at the grant date was charged to stockholders' equity as unearned
compensation and will be subsequently amortized over the periods during which
the restrictions lapse. Compensation expense of approximately $6 million was

22
<PAGE>
NOTE 12--STOCK PLANS (CONTINUED)
recorded in 1998. The unamortized portion remaining in stockholders' equity at
December 31, 1998 was $26 million.

NOTE 13--RETIREMENT BENEFITS

NGH and its subsidiaries sponsor a number of non-contributory defined
benefit pension plans covering most U.S. and certain foreign employees of
Nabisco. Additionally, Nabisco and its subsidiaries participate in several
multi-employer plans, which provide benefits to certain union employees, and
defined contribution plans, which provide benefits to certain employees in
foreign countries. NGH also provides certain health and life insurance benefits
for retired employees and their dependents. In 1998, NGH adopted SFAS No. 132.
All the information is presented accordingly.

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
IN MILLIONS 1998 1997 1998 1997
- --------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1............................................ $ 1,718 $ 1,559 $ 531 $ 493
Service cost............................................................... 46 39 6 7
Interest cost.............................................................. 114 116 33 36
Plan amendments............................................................ (6) 8 -- --
Actuarial (gain) loss...................................................... (6) 167 (68) 32
Foreign currency exchange.................................................. (15) (10) (2) (2)
Benefits paid.............................................................. (158) (161) (40) (35)
--------- --------- --------- ---------
Obligations at December 31................................................. $ 1,693 $ 1,718 $ 460 $ 531
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1..................................... $ 1,568 $ 1,497 $ -- $ --
Actual return on plan assets............................................... 141 203 -- --
Employer contributions..................................................... 40 30 40 35
Plan participants' contributions........................................... 1 1 -- --
Foreign currency exchange.................................................. (16) (11) -- --
Benefits paid.............................................................. (153) (152) (40) (35)
Settlements................................................................ (5) -- -- --
--------- --------- --------- ---------
Fair value of plan assets at December 31................................... $ 1,576 $ 1,568 $ -- $ --
--------- --------- --------- ---------
FUNDED STATUS
Funded status at December 31............................................... $ (117) $ (150) $ (460) $ (531)
Unrecognized transition asset.............................................. (2) -- (3) (6)
Unrecognized prior service cost............................................ 5 11 -- --
Unrecognized loss.......................................................... 35 45 37 106
--------- --------- --------- ---------
Net amount recognized...................................................... $ (79) $ (94) $ (426) $ (431)
--------- --------- --------- ---------
--------- --------- --------- ---------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost....................................................... $ 19 $ 18 $ -- $ --
Accrued benefit liability.................................................. (112) (130) (426) (431)
Intangible asset........................................................... 2 3 -- --
Accumulated other comprehensive income..................................... 12 15 -- --
--------- --------- --------- ---------
Net amount recognized...................................................... $ (79) $ (94) $ (426) $ (431)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Plan assets consist primarily of a diversified portfolio of fixed-income
investments, debt and equity securities and cash equivalents. The projected
benefit obligation, accumulated benefit obligation, and fair

23
<PAGE>
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were as follows:

<TABLE>
<CAPTION>
IN MILLIONS 1998 1997
- -------------------------------------------------------------------------------- ----- ---------
<S> <C> <C> <C> <C>
Projected benefit obligation.................................................... $ 95 $ 126
Accumulated benefit obligation.................................................. $ 92 $ 122
Fair value of plan assets....................................................... $ 40 $ 59
</TABLE>

The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- ------------------------
IN MILLIONS 1998 1997 1996 1998 1997
- ------------------------------------------------------------------- --------- --------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Service cost....................................................... $ 46 $ 39 $ 47 $ 6 $ 7
Interest cost...................................................... 114 116 109 33 36
Expected return on plan assets..................................... (135) (129) (124) -- --
Amortization of transition (asset) obligation...................... (1) (1) (1) (2) (3)
Amortization of prior service cost................................. 3 3 1 -- --
Amortization of net (gain) loss.................................... (2) (2) -- -- --
Settlement (gain) loss............................................. 2 -- -- -- --
--------- --------- --------- --- ---
Net periodic benefit cost.......................................... 27 26 32 $ 37 $ 40
--- ---
--- ---
Multi-employer and defined contribution plans...................... 32 33 35
--------- --------- ---------
Total pension benefit cost......................................... $ 59 $ 59 $ 67
--------- --------- ---------
--------- --------- ---------

<CAPTION>
IN MILLIONS 1996
- ------------------------------------------------------------------- -----
<S> <C>
Service cost....................................................... $ 7
Interest cost...................................................... 34
Expected return on plan assets..................................... --
Amortization of transition (asset) obligation...................... (2)
Amortization of prior service cost................................. --
Amortization of net (gain) loss.................................... --
Settlement (gain) loss............................................. --
---
Net periodic benefit cost.......................................... $ 39
---
---
Multi-employer and defined contribution plans......................
Total pension benefit cost.........................................
</TABLE>

The principal plans used the following weighted average actuarial
assumptions for accounting purposes:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
AS OF DECEMBER 31, 1998 1997 1998 1997
- -------------------------------------------------------------------------- --------- --------- --------- ---------

<S> <C> <C> <C> <C>
Discount rate............................................................. 6.9% 7.1% 6.8% 7.1%
Expected return on plan assets............................................ 9.3% 9.3%
Rate of compensation increase............................................. 4.7% 4.7%
</TABLE>

The assumed health care cost trend rate was 6% in 1998 and 5.5% in 1999,
gradually declining to 5% by the year 2000 and remaining at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one-percentage-point change in
the assumed health care cost trend rates would have had the following impact on
1998 amounts:

<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT POINT
IN MILLIONS INCREASE DECREASE
- ----------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Increase (decrease) in postretirement benefit cost................................. $ 7 $ (3)
Increase (decrease) in postretirement benefit obligation........................... $ 37 $ (34)
</TABLE>

24
<PAGE>
NOTE 14--SEGMENT INFORMATION

The following information is presented in accordance with SFAS No. 131,
which was adopted by NGH in the fourth quarter of 1998.

NGH's 80.6%-owned subsidiary, Nabisco Holdings, manufactures and markets
cookies, crackers, non-chocolate candy and gum products, nuts and snacks and
other specialty products under several brand names in the United States, Canada,
Europe, Asia, and Latin America. NGH is organized and reports its results of
operations in three operating segments: Nabisco Biscuit, the U.S. Foods Group
and the International Food Group, which are segregated by both product and
geographic location.

Nabisco Biscuit manufactures and markets cookies and crackers in the United
States. Nabisco Biscuit's leading cookie brands include Oreo, Chips Ahoy!,
SnackWell's and Newtons. Its leading cracker brands include Ritz, Premium,
Triscuit, Air Crisps and Wheat Thins. The U.S. Foods Group represents Nabisco
Holdings' non-biscuit food operations in the United States and manufactures and
markets sauces and condiments, pet snacks, hot cereals, dry mix desserts,
gelatins, non-chocolate candy, gum, nuts and salty snacks. It sells to major
grocery chains, national drug and mass merchandisers, convenience channels and
warehouse clubs through a direct sales force. It also sells to retail grocery
chains and regional mass merchandisers through independent brokers. The
International Food Group conducts Nabisco Holdings' operations outside the
United States, primarily in markets in Canada and Latin America and certain
markets in Europe, the Middle East, Africa and Asia. Nabisco International
primarily produces and markets biscuits, powdered desserts and dry mixes, baking
powder, pasta, juices, and milk products in these regions. See note 3 for
details of businesses divested and exited.

The accounting policies of the reportable operating segments are the same as
those described in note 1. NGH management evaluates the performance of its
operating segments based upon ongoing Operating Company Contribution ("OCC").
OCC for each reportable segment is operating income before amortization of
trademarks and goodwill, restructuring expenses and other items deemed unusual
by management. These items include the net gain on Food businesses divested and
exited during 1998 and restructuring related costs in 1998 and 1996, which are
described further in notes 2 and 3.

See note 2 regarding significant non-cash expenses recorded relating to
restructurings affecting all operating segments.

SEGMENT PROFIT/(LOSS) AND ASSET INFORMATION:

25
<PAGE>
NOTE 14--SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
Depreciation:
<S> <C> <C> <C>
Nabisco Biscuit................................................................ $ 146 $ 148 $ 149
U.S. Foods Group............................................................... 46 49 49
International Food Group....................................................... 81 80 72
--------- --------- ---------
Consolidated depreciation.................................................... $ 273 $ 277 $ 270
--------- --------- ---------
--------- --------- ---------

Additions to long-lived assets:
Nabisco Biscuit................................................................ $ 188 $ 206 $ 190
U.S. Foods Group............................................................... 49 64 89
International Food Group....................................................... 103 122 158
--------- --------- ---------
Consolidated additions to long-lived assets.................................. $ 340 $ 392 $ 437
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31 1998 1997
- --------------------------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Segment assets:
Nabisco Biscuit................................................................ $ 2,079 $ 2,273
U.S. Foods Group............................................................... 816 1,116
International Food Group....................................................... 2,550 2,737
Unallocated intangibles, net(1)................................................ 5,574 5,974
Net assets of discontinued businesses.......................................... 6,696 7,711
Corporate...................................................................... 29 21
--------- ---------
Total segment assets......................................................... $ 17,744 $ 19,832
--------- ---------
--------- ---------
</TABLE>

- ------------------------

(1) Represents unallocated goodwill, trademarks and tradename resulting from the
1989 leveraged buyout of RJR.

A reconciliation of consolidated OCC to consolidated income (loss) before
income taxes is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Ongoing OCC...................................................................... $ 1,089 $ 1,315 $ 1,232
Items excluded from OCC:
Goodwill and trademark amortization............................................ (221) (226) (228)
Interest and debt expense...................................................... (401) (421) (424)
Other income (expense), net.................................................... (29) (32) (31)
Restructuring expenses and related costs....................................... (586) -- (525)
Net gain on divested food businesses........................................... 14 -- --
--------- --------- ---------
Income (loss) before income taxes............................................ $ (134) $ 636 $ 24
--------- --------- ---------
--------- --------- ---------
</TABLE>

26
<PAGE>
NOTE 14--SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC SEGMENT INFORMATION:

<TABLE>
<CAPTION>
NET SALES NET PROPERTY
YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------- --------------------
IN MILLIONS 1998 1997 1996 1998 1997
- ----------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
United States.................................................... $ 5,876 $ 6,149 $ 6,315 $ 2,023 $ 2,315
Latin America.................................................... 1,428 1,438 1,442 550 589
Other............................................................ 1,096 1,147 1,132 374 423
--------- --------- --------- --------- ---------
$ 8,400 $ 8,734 $ 8,889 $ 2,947 $ 3,327
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

NOTE 15--ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Advertising expense..................................................................... $ 226 $ 223 $ 201
Research and development expense........................................................ 100 95 105
Rent expense............................................................................ 89 84 77
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31 1998 1997
- ---------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Accumulated other comprehensive income (loss):
Cumulative translation adjustment................................................. $ (441) $ (391)
Minimum pension liability......................................................... (19) (22)
--------- ---------
Total accumulated other comprehensive income (loss)............................. $ (460) $ (413)
--------- ---------
--------- ---------
</TABLE>

NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998(1)
Net sales.................................................................. $ 1,962 $ 2,131 $ 2,098 $ 2,209
Operating income (loss).................................................... 183 (210) 185 138
Income (loss) from continuing operations................................... 32 (177) 32 (5)
Income (loss) from discontinued operations................................. (52) 47 126 (580)
Net income (loss).......................................................... (20) (130) 158 (585)
Per share data:(2)
Basic income (loss) per share:
Continuing operations.................................................. $ .06 $ (.58) $ .06 $ (.04)
Discontinued operations................................................ (.16) .14 .39 (1.79)
Net income (loss)...................................................... (.10) (.44) .45 (1.83)
Diluted income (loss) per share:
Continuing operations.................................................. $ .06 $ (.58) $ .06 $ (.04)
Discontinued operations................................................ (.16) .14 .39 (1.79)
Net income (loss)...................................................... (.10) (.44) .45 (1.83)
Common stock dividends declared.......................................... .5125 .5125 .5125 .5125
Market price of common stock
--high................................................................. $ 38 1/16 $ 31 5/16 $ 27 3/8 $31 15/16
--low.................................................................. 30 23 1/2 21 5/16 24
--close................................................................ 31 5/16 23 3/4 25 3/16 29 11/16
</TABLE>

27
<PAGE>
NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
1997
<S> <C> <C> <C> <C>
Net sales.................................................................. $ 1,905 $ 2,191 $ 2,203 $ 2,435
Operating income........................................................... 197 263 250 379
Income (loss) from continuing operations................................... 39 66 66 124
Income from discontinued operations........................................ 174 177 56 (300)
Net income (loss).......................................................... 213 243 122 (197)
Per share data:(2)
Basic income (loss) per share:.
Continuing operations.................................................. $ .09 $ .17 $ .17 $ .35
Discontinued operations................................................ .53 .55 .17 (.93)
Extraordinary loss..................................................... -- -- -- (.06)
Net income (loss)...................................................... .62 .72 .34 (.64)
Diluted income (loss) per share:
Continuing operations.................................................. $ .09 $ .17 $ .17 $ .34
Discontinued operations................................................ .53 .54 .17 (.92)
Extraordinary loss..................................................... -- -- -- (.06)
Net income (loss)...................................................... .62 .71 .34 (.64)
Common stock dividends declared.......................................... .5125 .5125 .5125 .5125
Market price of common stock
--high................................................................. $ 38 7/8 $ 36 1/2 $ 36 1/8 $37 15/16
--low.................................................................. 30 5/8 27 29 9/16 29 7/8
--close................................................................ 32 1/4 33 34 3/8 37 1/2
</TABLE>

- --------------------------

(1) The second quarter of 1998 includes restructuring and related expenses of
$412 million ($219 million after-tax, net of minority interest).

The fourth quarter of 1998 includes $159 million ($93 million after-tax, net
of minority interest) of restructuring and related expenses.

(2) Earnings per share is computed independently for each of the periods
presented; therefore, the sum of the earnings per share amounts for the
quarters may not equal the total for the year.

NOTE 17--SUBSEQUENT EVENTS

DISCONTINUED OPERATIONS

On March 9, 1999, RJR and Reynolds Tobacco entered into a definitive
agreement to sell the international tobacco business for approximately $8
billion, including the assumption of approximately $200 million of net debt, to
Japan Tobacco Inc. The sale was completed on May 12, 1999, except to the extent
that local regulatory approvals for this sale are still pending. Under the terms
of the agreement, Japan Tobacco acquired substantially all of the business
including intellectual property rights of Reynolds International, including the
international rights to the CAMEL, WINSTON and SALEM brand names. Proceeds from
the sale were used to reduce debt and for general corporate purposes.

Also on March 9, 1999, NGH announced that its board of directors had
approved a plan to separate the domestic tobacco business conducted by Reynolds
Tobacco, from the food business conducted by Nabisco's operating subsidiaries.
Under the plan, the separation will be accomplished by the transfer of RJR's
80.5% interest in Nabisco, together with approximately $1.6 billion in after-tax
proceeds from the international tobacco sale, to NGH through a merger
transaction that is intended to be tax-free and which occurred on May 18, 1999,
followed by a spin-off to NGH stockholders of shares in RJR that is intended to
be tax-free. On May 12, 1999, NGH's board of directors approved the spin-off,
which is expected to occur on or about June 14, 1999.

28
<PAGE>
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
New York Stock Exchange. Shares of RJR (symbol: RJR), as the owner of 100% of
Reynolds Tobacco, will also trade separately under the changed name of R.J.
Reynolds Tobacco Holdings, Inc.

NGH, RJR and Reynolds Tobacco have entered into, or will enter into, several
agreements governing the relationships among the parties after the distribution
of RJR's shares to NGH stockholders, including the provision of intercompany
services by Nabisco to NGH, certain tax matters, indemnification rights and
obligations and other matters between the parties.

Reynolds International's, corporate headquarters' and Reynolds Tobacco's
operating results are segregated and reported as discontinued operations in the
accompanying consolidated financial statements. Prior period financial
statements have been reclassified to conform to the current year presentation.

Summarized operating results of the discontinued businesses are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................ $ 8,637 $ 8,323 $ 8,174
Provision (benefit) for income taxes............................. (21) 273 523
Net income (loss)................................................ (459) 107 652
</TABLE>

Assets and liabilities of the discontinued businesses are as follows:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current assets.......................................................... $ 2,987 $ 3,049
Property, plant and equipment, net...................................... 2,351 2,612
Trademarks and goodwill, net............................................ 12,165 12,576
Other assets and deferred charges....................................... 341 320
Current liabilities..................................................... (2,859) (2,323)
Long-term debt (less current maturities)................................ (5,036) (5,122)
Deferred income taxes................................................... (1,936) (2,167)
Other noncurrent liabilities............................................ (1,317) (1,234)
--------- ---------
Net assets of discontinued businesses................................. $ 6,696 $ 7,711
--------- ---------
--------- ---------
</TABLE>

----------------------------

The unaudited pro forma information below reflects adjustments to the
historical results of operations and financial condition of NGH. The unaudited
pro forma balance sheet gives effect to the following transactions as if they
occurred on December 31, 1998, as applicable:

- the sale of Reynolds International and application of a portion of the net
proceeds to reduce debt and for general corporate purposes;

- the issuance of $1.25 billion of debt securities by RJR;

- the transfer of RJR's interest in Nabisco to NGH, together with
approximately $1.6 billion of the net cash proceeds from the international
tobacco sale, through a merger transaction;

- the redemption of $1.23 billion of trust originated preferred securities
and the repurchase of approximately $200 million of ESOP preferred stock;
and

- the spin-off of RJR to NGH stockholders.

The unaudited pro forma income statement gives effect to the above
transactions and the adjustment to selling, advertising, administrative and
general expenses to reflect the estimated level of corporate headquarters'
administrative expenses after the completion of the RJR spin-off, as if the
transactions occurred on January 1, 1998. No adjustment has been made for
one-time or non-recurring items in the unaudited pro forma income statement.

29
<PAGE>
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma consolidated financial data based on transactions
and events that are currently probable to occur. NGH has provided the unaudited
pro forma consolidated condensed financial statements for informational purposes
only. You should not construe them to be indicative of the results of operations
or financial position had the transactions and events described above been
consummated on the dates assumed and do not project the results of operations or
financial position for any future date or period.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents...................................................................... $ 157
Accounts and other receivables, net............................................................ 522
Inventories.................................................................................... 753
Prepaid expenses and excise taxes.............................................................. 70
-------
Total current assets....................................................................... 1,502
-------
Property, plant and equipment, net............................................................. 2,947
Trademarks, net................................................................................ 3,368
Goodwill, net.................................................................................. 3,182
Other assets and deferred charges.............................................................. 196
-------
Total assets............................................................................... $ 11,195
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings.......................................................................... $ 68
Accounts payable and accrued liabilities....................................................... 1,638
Current maturities of long-term debt........................................................... 118
Income taxes accrued........................................................................... 20
-------
Total current liabilities.................................................................. 1,844
-------
Long-term debt (less current maturities)....................................................... 3,619
Minority interest in Nabisco Holdings.......................................................... 752
Other noncurrent liabilities................................................................... 704
Deferred income taxes.......................................................................... 1,271
NGH's obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely
junior subordinated debentures................................................................ 98
Total stockholders' equity..................................................................... 2,907
-------
Total liabilities and stockholders' equity................................................. $ 11,195
-------
-------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
(UNAUDITED)
Net sales...................................................................................... $ 8,400
Costs and expenses............................................................................. 7,366
Amortization of trademarks and goodwill........................................................ 221
Restructuring expense.......................................................................... 530
-------
Operating income........................................................................... 283
Interest expense and other income (expense), net............................................... (334)
Income tax provision........................................................................... 33
Minority interest.............................................................................. 14
-------
Loss from continuing operations............................................................ $ (70)
-------
-------
</TABLE>

------------------------

<PAGE>
NABISCO GROUP HOLDINGS CORP.
(CURRENTLY RJR NABISCO HOLDINGS CORP.)

RESTATED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
NET SALES........................................................................ $ 1,855 $ 1,962
------- -------
Costs and expenses:
Cost of products sold.......................................................... 1,027 1,125
Selling, advertising, administrative and general expenses...................... 641 598
Amortization of trademarks and goodwill........................................ 53 56
------- -------
OPERATING INCOME............................................................. 134 183
Interest and debt expense........................................................ (98) (104)
Other income (expense), net...................................................... (10) (9)
------- -------
INCOME BEFORE INCOME TAXES................................................... 26 70
Provision for income taxes....................................................... 9 27
------- -------
INCOME BEFORE MINORITY INTEREST IN INCOME OF NABISCO HOLDINGS................ 17 43
Less minority interest in income of Nabisco Holdings............................. 7 11
------- -------
INCOME FROM CONTINUING OPERATIONS............................................ 10 32
Income (loss) from operations of discontinued businesses, net of income taxes.... 66 (52)
------- -------
NET INCOME (LOSS)............................................................ $ 76 $ (20)
------- -------
------- -------
BASIC NET INCOME (LOSS) PER SHARE:
Income from continuing operations.............................................. .02 .06
Income (loss) from discontinued operations..................................... .20 (.16)
Net income (loss)............................................................ .22 (.10)
DILUTED NET INCOME (LOSS) PER SHARE:
Income from continuing operations.............................................. .02 .06
Income (loss) from discontinued operations..................................... .20 (.16)
Net income (loss)............................................................ .22 (.10)

DIVIDENDS PER SHARE OF COMMON STOCK.............................................. $ .5125 $ .5125
</TABLE>

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 76 $ (20)
Less (income) loss from discontinued operations................................ (66) 52
----- -----
Income from continuing operations.............................................. 10 32
----- -----
Adjustments to reconcile net income (loss) to net cash flows used in operating
activities:
Depreciation and amortization.............................................. 120 124
Deferred income tax expense................................................ 16 23
Changes in working capital items, net...................................... (342) (372)
Other, net................................................................. 10 6
----- -----
Total adjustments........................................................ (196) (219)
----- -----
Net cash flows used in continuing operating activities....................... (186) (187)
Net cash flows with discontinued operations.................................. 150 152
----- -----
Net cash flows used in operating activities.................................. (36) (35)
----- -----
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures........................................................... (47) (78)
Disposition of businesses and certain assets................................... 2 3
Repurchases of Nabisco Holdings' Class A common stock.......................... -- (26)
Proceeds from exercise of Nabisco Holdings' Class A common stock options....... 2 15
----- -----
Net cash flows used in investing activities.................................. (43) (86)
----- -----
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) of long-term debt.................................. (7) 990
Increase (decrease) in short-term borrowings................................... 238 (751)
Dividends paid on common and preferred stock................................... (183) (191)
Other, net..................................................................... 23 55
----- -----
Net cash flows from financing activities..................................... 71 103
----- -----
Effect of exchange rate changes on cash and cash equivalents..................... (6) (4)
----- -----
Net change in cash and cash equivalents...................................... (14) (22)
Cash and cash equivalents at beginning of period................................. 112 127
----- -----
Cash and cash equivalents at end of period....................................... $ 98 $ 105
----- -----
----- -----
Income taxes paid, net of refunds................................................ $ 11 $ 53
Interest paid.................................................................... $ 104 $ 85
</TABLE>

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

2
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 98 $ 112
Accounts and notes receivable, net.......................................... 488 522
Inventories................................................................. 803 753
Prepaid expenses and excise taxes........................................... 69 70
Net assets of discontinued businesses....................................... 6,600 6,696
------- -------
TOTAL CURRENT ASSETS.................................................... 8,058 8,153
------- -------
Property, plant and equipment, net............................................ 2,859 2,947
Trademarks, net............................................................... 3,335 3,368
Goodwill, net................................................................. 3,132 3,182
Other assets and deferred charges............................................. 98 94
------- -------
$ 17,482 $ 17,744
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ 67 $ 68
Accounts payable and accrued liabilities.................................... 1,369 1,638
Current maturities of long-term debt........................................ 265 118
Income taxes accrued........................................................ 8 20
------- -------
TOTAL CURRENT LIABILITIES............................................... 1,709 1,844
------- -------
Long-term debt (less current maturities)...................................... 3,692 3,619
Minority interest in Nabisco Holdings......................................... 727 752
Other noncurrent liabilities.................................................. 964 962
Deferred income taxes......................................................... 1,225 1,226
Contingencies (note 5)
Nabisco Group Holdings' obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely junior subordinated debentures*......... 1,327 1,327
Stockholders' equity:
ESOP preferred stock........................................................ 201 205
Common stock (1999--328,729,048 shares issued, 1998--328,385,148 shares
issued)................................................................... 3 3
Paid-in capital............................................................. 8,842 9,004
Retained earnings (accumulated deficit)..................................... (501) (577)
Accumulated other comprehensive income (loss)............................... (566) (460)
Treasury stock, at cost..................................................... (100) (100)
Other stockholders' equity.................................................. (41) (61)
------- -------
TOTAL STOCKHOLDERS' EQUITY............................................ 7,838 8,014
------- -------
$ 17,482 $ 17,744
------- -------
------- -------
</TABLE>

- ------------------------
* The sole assets of the subsidiary trusts are junior subordinated debentures
of Nabisco Group Holdings Corp. The outstanding junior subordinated
debentures have aggregate principal amounts of approximately $978 and $385
million, annual interest rates of 10% and 9 1/2%, respectively and mature in
December, 2044 and September, 2047, respectively. The preferred securities
will be mandatorily redeemed upon redemption of the junior subordinated
debentures. See note 6 for discussion regarding the partial tender and
redemption of these securities.

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

3
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 -- INTERIM REPORTING

GENERAL

The consolidated condensed financial statements include the accounts of
Nabisco Group Holdings Corp. ("NGH"--currently named RJR Nabisco Holdings
Corp.), and its majority-owned subsidiaries, including 80.5% of Nabisco Holdings
Corp. ("Nabisco Holdings") and its wholly-owned subsidiary, Nabisco, Inc.
("Nabisco").

In management's opinion, the accompanying unaudited consolidated condensed
financial statements (the "Consolidated Condensed Financial Statements") of NGH
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods presented.
The Consolidated Condensed Financial Statements should be read in conjunction
with the restated consolidated financial statements and footnotes of NGH for the
year ended December 31, 1998.

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 period amounts have been reclassified to conform to the
current period presentation.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On January 1, 1999, NGH adopted SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 established standards on accounting for
start-up and organization costs and, in general, requires such costs to be
expensed as incurred. The adoption of SOP No. 98-5 did not have a material
effect on NGH's financial position or results of operations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During the second quarter of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS No. 133"), which must
be adopted by January 1, 2000, with early adoption permitted. On May 20, 1999,
the FASB issued an exposure draft, which would amend SFAS No. 133 to delay its
effective date one year. SFAS No. 133 requires that all derivative instruments
be recorded on the consolidated balance sheet at their fair value. Changes in
the fair value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. NGH has not
yet determined the timing of adoption or the impact that adoption or subsequent
application of SFAS No. 133 will have on its financial position or results of
operations.

COMPREHENSIVE INCOME

Total comprehensive income for the three months ended March 31, 1999 and
1998 was $(30) million and $(20) million, respectively. Total comprehensive
income includes net income (loss), foreign currency translation adjustments and
minimum pension liability adjustments.

1998 RESTRUCTURING EXPENSES

In the second and fourth quarters of 1998, Nabisco recorded restructuring
expenses of $406 million ($216 million after-tax, net of minority interest) and
$124 million ($75 million after-tax, net of minority

4
<PAGE>
NOTE 1 -- INTERIM REPORTING (CONTINUED)
interest), respectively. These restructuring programs were undertaken to
streamline operations and improve profitability and will result in a workforce
reduction of approximately 6,500 employees of which 3,825 positions were
eliminated as of March 31, 1999. The restructuring programs will require cash
expenditures of approximately $205 million, of which $16 million was paid in the
first quarter of 1999, primarily for severance and benefits. In addition, the
programs will require additional expenses of approximately $134 million, of
which $15 million ($7 million after-tax, net of minority interest) was incurred
in the first quarter of 1999. These additional expenses are principally for
implementation and integration of the programs and include costs for relocation
of employees and equipment and training.

For the three months ended March 31, 1999, $33 million of the accrual was
utilized as follows: $17 million for severance and benefits, $9 million for the
disposal of assets and $7 million for other exit costs.

1996 RESTRUCTURING EXPENSE

The 1996 restructuring program, which was undertaken to streamline
operations and improve Nabisco's profitability, has been completed and the
balance remaining at December 31, 1998 of $2 million for severance costs was
paid during the first quarter of 1999.

NOTE 2 -- INVENTORIES

The major classes of inventory are as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- ---------------
<S> <C> <C>
Finished products............................................... $ 472 $ 457
Raw materials................................................... 202 164
Other........................................................... 129 132
------ -----
$ 803 $ 753
------ -----
------ -----
</TABLE>

NOTE 3 -- EARNINGS PER SHARE

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
1999 1998
------------------------ ------------------------
BASIC DILUTED BASIC DILUTED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations applicable to common stock:
Income from continuing operations.................................. $ 10 $ 10 $ 32 $ 32
Preferred stock dividends.......................................... (4) (4) (11) (11)
----------- ----------- ----------- -----------
$ 6 $ 6 $ 21 $ 21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common and common equivalent shares
outstanding (in thousands):
Common shares...................................................... 324,053 324,053 323,798 323,798
Assumed exercise of NGH's stock options............................ -- 248 -- 1,696
----------- ----------- ----------- -----------
324,053 324,301 323,798 325,494
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

Shares of ESOP convertible preferred stock of 12,543,347 and 13,432,872 were
not included in computing diluted earnings per share for 1999 and 1998,
respectively, because the effect would have been antidilutive. Common shares
also exclude approximately 949,100 and 966,000 shares of restricted stock as the
vesting provisions had not been met at March 31, 1999 and 1998, respectively.

5
<PAGE>
NOTE 4 -- SEGMENT REPORTING

NGH is a holding company whose subsidiaries are engaged principally in the
manufacture, distribution and sale of cookies, crackers, and other food
products. NGH is organized and reports its results of operations in three
operating segments: Nabisco Biscuit, the U.S. Foods Group and the International
Food Group which are segregated by both product and geographic location.

NGH's management evaluates the performance of its operating segments based
upon ongoing Operating Company Contribution ("OCC"). OCC for each reportable
segment is operating income before amortization of trademarks and goodwill,
restructuring expenses and other items deemed unusual by management. These items
include restructuring related costs in 1999.

SEGMENT PROFIT/(LOSS) INFORMATION:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Net sales from external customers:
Nabisco Biscuit........................................................................... $ 867 $ 850
U.S. Foods Group.......................................................................... 435 530
International Food Group.................................................................. 553 582
--------- ---------
Consolidated net sales from external customers.......................................... $ 1,855 $ 1,962
--------- ---------
--------- ---------
Ongoing OCC:
Nabisco Biscuit........................................................................... $ 121 $ 143
U.S. Foods Group.......................................................................... 49 63
International Food Group.................................................................. 32 32
Other..................................................................................... -- 1
--------- ---------
Consolidated OCC........................................................................ $ 202 $ 239
--------- ---------
--------- ---------
</TABLE>

A reconciliation of consolidated OCC to consolidated income before income
taxes is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Ongoing OCC................................................................................. $ 202 $ 239
Items excluded from OCC:
Goodwill and trademark amortization....................................................... (53) (56)
Interest and debt expense................................................................. (98) (104)
Other income (expense), net............................................................... (10) (9)
Restructuring related costs............................................................... (15) --
--------- ---------
Income before income taxes.............................................................. $ 26 $ 70
--------- ---------
--------- ---------
</TABLE>

NOTE 5 -- CONTINGENCIES

TOBACCO LITIGATION

6
<PAGE>
NOTE 5 -- CONTINGENCIES (CONTINUED)
a holding company that does not engage in any of the activities for which
plaintiffs seek to impose liability. NGH also seeks to be dismissed from some of
these cases based on the fact that it has no presence in the state in which a
particular case is pending and therefore should not be subject to the
jurisdiction of the applicable court.

In addition to the cases pending against NGH, there are several hundred
lawsuits relating to cigarettes in which Reynolds Tobacco, and sometimes RJR,
are named defendants. If Reynolds Tobacco and RJR are unable to satisfy their
payment obligations for any adverse judgments against them in some or all of
these cases, it is possible that plaintiffs in these cases would seek to recover
the unsatisfied obligations from the assets of NGH by bringing lawsuits on
various theories.

NOTE 6 -- THE REORGANIZATION

DISCONTINUED OPERATIONS

7
<PAGE>
NOTE 6 -- THE REORGANIZATION (CONTINUED)
occurred on May 18, 1999, followed by a spin-off to NGH stockholders of shares
in RJR that is intended to be tax-free. On May 12, 1999, NGH's board of
directors approved the spin-off, which is expected to occur on or about June 14,
1999.

Upon completion of the spin-off, NGH will be legally renamed Nabisco Group
Holdings Corp. and continue to exist as a holding company, owning 80.5% of
Nabisco. The re-named Nabisco Group Holdings Corp. (symbol: NGH) and Nabisco
(symbol: NA) will each continue to trade as separate companies on The New York
Stock Exchange. Shares of RJR (symbol: RJR), as the owner of 100% of Reynolds
Tobacco, will also trade separately under the changed name of R.J. Reynolds
Tobacco Holdings, Inc.

On April 13, 1999, NGH offered to purchase any and all of its 9 1/2% trust
preferred securities and sought consents from the holders of those securities to
waive certain covenants that might have prevented some of the transactions
described above. The consent offer expired on May 17, 1999. As of that date,
approximately $276 million of the total $374 million trust preferred securities
were tendered. The total cost to tender the preferred securities, including
accrued interest, premium fees and consent fees will total approximately $314
million. NGH intends to invest approximately $100 million in highly rated
short-term commercial paper to service future principal and interest payments on
the trust securities not tendered.

On May 18, 1999, NGH called for redemption all of its $949 million 10% trust
preferred securities outstanding. NGH expects to complete this redemption on
June 18, 1999.

On or about May 18, 1999, NGH called for redemption all of its outstanding
ESOP convertible preferred stock at $16.25 per share, plus accrued dividends, at
a total cost of approximately $200 million. NGH expects to complete this
transaction on June 10, 1999.

Reynolds International's, corporate headquarters' and Reynolds Tobacco's
account balances and activities are segregated and reported as discontinued
operations in the accompanying consolidated condensed financial statements.
Prior period financial statements have been reclassified to conform to the
current year presentation.

Summarized operating results of the discontinued businesses are as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales.................................................................. $ 2,366 $ 1,985
Provision (benefit) for income taxes....................................... 61 (5)
Net income (loss).......................................................... 66 (52)
</TABLE>

8
<PAGE>
NOTE 6 -- THE REORGANIZATION (CONTINUED)
Assets and liabilities of the discontinued businesses are as follows:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Current assets...................................................... $ 3,029 $ 2,987
Property, plant and equipment, net.................................. 2,321 2,351
Trademarks and goodwill, net........................................ 12,060 12,165
Other assets and deferred charges................................... 340 341
Current liabilities................................................. (2,975) (2,859)
Long-term debt (less current maturities)............................ (4,938) (5,036)
Deferred income taxes............................................... (1,924) (1,936)
Other noncurrent liabilities........................................ (1,313) (1,317)
----------- ------------
Net assets of discontinued businesses............................. $ 6,600 $ 6,696
----------- ------------
----------- ------------
</TABLE>

----------------------------

- the sale of Reynolds International and application of a portion of the net
proceeds to reduce debt and for general corporate purposes;

- the issuance of $1.25 billion of debt securities by RJR;

- the transfer of RJR's interest in Nabisco to NGH, together with
approximately $1.6 billion of the net cash proceeds from the international
tobacco sale, through a merger transaction;

- the redemption of $1.23 billion of trust originated preferred securities
and the repurchase of approximately $200 million of ESOP preferred stock;
and

- the spin-off of RJR to NGH stockholders.

The unaudited pro forma income statement gives effect to the above
transactions and the adjustment to selling, advertising, administrative and
general expenses to reflect the estimated level of corporate headquarters'
administrative expenses after the completion of the RJR spin-off, as if the
transactions occurred on January 1, 1999. No adjustment has been made for
one-time or non-recurring items in the unaudited pro forma income statement.

Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma consolidated financial data based on transactions
and events that are currently probable to occur. NGH has provided the unaudited
pro forma consolidated condensed financial statements for informational purposes
only. You should not construe them to be indicative of the results of operations
or financial position had the transactions and events described above been
consummated on the dates assumed and do not project the results of operations or
financial position for any future date or period.

9
<PAGE>
NOTE 6 -- THE REORGANIZATION (CONTINUED)

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------
<S> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents...................................................................... $ 143
Accounts and other receivables, net............................................................ 488
Inventories.................................................................................... 803
Prepaid expenses and excise taxes.............................................................. 69
-------
Total current assets....................................................................... 1,503
-------
Property, plant and equipment, net............................................................. 2,859
Trademarks, net................................................................................ 3,335
Goodwill, net.................................................................................. 3,132
Other assets and deferred charges.............................................................. 200
-------
Total assets............................................................................... $ 11,029
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings.......................................................................... $ 67
Accounts payable and accrued liabilities....................................................... 1,369
Current maturities of long-term debt........................................................... 265
Income taxes accrued........................................................................... 8
-------
Total current liabilities.................................................................. 1,709
-------
Long-term debt (less current maturities)....................................................... 3,692
Minority interest in Nabisco Holdings.......................................................... 727
Other noncurrent liabilities................................................................... 706
Deferred income taxes.......................................................................... 1,270
NGH's obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely
junior subordinated debentures................................................................ 98
Total stockholders' equity..................................................................... 2,827
-------
Total liabilities and stockholders' equity................................................. $ 11,029
-------
-------
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1999
-----------------
<S> <C>
(UNAUDITED)
Net sales...................................................................................... $ 1,855
Costs and expenses............................................................................. 1,671
Amortization of trademarks and goodwill........................................................ 53
-------
Operating income........................................................................... 131
Interest expense and other income (expense), net............................................... (77)
Income tax provision........................................................................... 21
Minority interest.............................................................................. (7)
-------
Loss from continuing operations............................................................ $ 26
-------
-------
</TABLE>

------------------------