Rjr 1987 Annual Report

SCHEDULE X

RJR NABISCO, INC. AND SUBSIDIARIESSCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION

Years Ended December 31, 1988, 1987 and 1986(Dollars in Millions)

Column A

Item

Column B

Charged to Costs andExpenses

1988 1987 1986

Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $380 $378 $370

Advertising costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $813 $774 $807

http://legacy.library.ucsf.edu/tid/nbn14d00/pdf

EXHIBIT INDEX

ExhibitNo.

2---Agreement and Plan of Merger, dated as of November 30, 1988, among RJRNabisco, ]nc ., RJR Holdings Corp. RJR Holdings Group, Inc. and RJRAcq uisition Corporation . (Exhibit 50 to Amendment No . 6 to Schedule 14D-9 filed on December 7, 1988*) .

3(a)(i) -Restated Certificate of Incorporation of RJR Nabisco, Inc ., as amendedthrough October 26, 1987. (Exhibit 3(a) to Report on Form 10-K for thefiscal year ended December 31, 1987, File No . 1-6388*) .

3(a)(ii) -Certificate of Stock Designation of RJR Nabisco, Inc ., dated July 27, 1988and filed with the Delaware Secretary of State on July 28, 1988 .

3(b) -By-Laws of RJR Nabisco, Inc ., as amended through February 9, 1989 .4--Agreement of RJR Nabisco, Inc . to provide certain documents to the

Commission upon request .10(a) -Retirement Plan for Directors of RJR Nabisco, Inc. (as amended and restated

on January 1, 1989) .10(b) -Retirement Trust Agreement, made as of October 12, 1988, between RJR

Nabisco, Inc . and Wachovia Bank and Trust Company, N .A . (Exhibit 3 toSchedule 14D-9 filed on November 8, 1988*) .

10(c) -Consulting Agreement, dated as of October 1, 1988, between RJR Nabisco,Inc. and Andrew G .C. Sage 11 . (Exhibit 4 to Schedule 14D-9 filed onNovember 8, 1988*) .

10(d)(i) --Form of Employment Agreement containing Change of Control provision .(Exhibit 5 to Schedule 14D-9 filed on November 8, 1988*) .

10(d)(ii) --Special Addendum to Form of Employment Agreement filed as Exhibit10(d)(i), dated December 20, 1988 .

10(d)(iii) --Form of Agreement containing Gross-Up provisions, dated January 27, 1989 .10(d)(iv) --Trust Agreement between RJR Nabisco, Inc . and Wachovia Bank and Trust

Company, N .A ., Trustee, dated January 27, 1989 .10(e)(i) -Agreement, dated September 29, 1986, between RJR Nabisco, Inc . and

Marshall B . Bass. (Exhibit 6 to Schedule 14D-9 filed on November 8,1988*) .

10(e)(ii) --Letter Agreement, dated March 21, 1988, between RJR Nabisco, Inc . andMarshall B . Bass. (Exhibit 7 to Schedule 14D-9 filed on November 8,1988*) .

10(c)(iii) -Letter, dated June 30, 1988, from RJR Nabisco, Inc . to Marshall B . Bass .(Exhibit 8 to Schedule 14D-9 filed on November 8, 1988*) .

10(e)(iv) --Consulting Agreement, dated as of Ju)y 1, 1988, between RJR Nabisco, Inc .and Marshall B. Bass. (Exhibit 9 to Schedule 14D-9 filed on November 8,1988*) .

10(f)(i) -Form of Employment Agreement without Change of Control provision .(Exhibit 10 to Schedule 14D-9 filed on November 8, 1988*) .

10(f)(ii) --Special Addendum, dated December 20, 1988 . (Exhibit ]0(d)(ii) herein) .10(g)(i) --Master Trust Agreement, as amended and restated as of October 12, 1988,

between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N .A .(Exhibit 11 to Schedule 14D-9 filed on November 8, 1988*) .

10(g)(ii) --Amendment No . I to Master Trust Agreement, dated January 27, 1989 .10(g)(iii) ---Amendment No . 2 to Master Trust Agreement, dated January 27, 1989 .10(h)(i) -Excess Benefit Master Trust Agreement, as amended and restated as of

October 12, 1988, between RJR Nabisco, Inc . and Wachovia Bank and TrustCompany, N.A . (Exhibit 12 to Schedule 14D-9 filed on November 8, 1988*) .

10(h)(ii) --Amendment No . I to Excess Benefit Master Trust Agreement, dated January27, 1989 .

10(i) -RJR Nabisco, Inc . 1982 Long-Term Incentive Plan, as amended on July 21,1988 . (Exhibit 13 to Schedule 14D-9 filed on November 8, 1988*) .

SequentialPage No.


Exhibit SequentialNo. Page No.10(j) -1977 Stock Option Plan of RJR Nabisco, Inc ., as amended on July 21, 1988 .

(Exhibit 14 to Schedule 14D-9 filed on November 8, 1988*) .10(k)(i) -Supplementai Benefits Plan of RJR Nabisco, Inc . and Participating

Companies, as amended on October 12, 1988 . (Exhibit 15 to Schedule 14D-9filed on November 8, 1988*) .

10(k)(ii) -Amendment to Supplemental Benefits Plan, dated November 23, 1988 .10(k)(iii) --Amendment No . 2 to Supplemental Benefits Plan, dated January 27, 1989 .10(I)(i) -Additional Benefits Plan of RJR Nabisco, Inc . and Participating Companies,

effective October 12, 1988 . (Exhibit 16 to Schedule 14D-9 filed on November8, 1988*) .

10(I)(ii) -Amendment to Additional Benefits Plan, dated October 28, 1988 .10(I)(iii) -Amendment to Additional Benefits Plan, dated November 23, 1988 .10(1)(iv) -Amendment to Additional Benefits Plan No . 3, dated January 27, 1989 .10(m)(i) -RJR Nabisco, Inc . Supplemental Executive Retirement Plan, as amended on

July 21, 1988 . (Exhibit 17 to Schedule 14D-9 filed on November 8, 1988*) .I0(m)(ii) -Amendment to Supplemental Executive Retirement Plan, dated November

23, 1988 . -10(m)(iii) -Amendment No . 2 to Supplemental Executive Retirement Plan, dated

January 27, 1989 .10(n) -Letter Agreement, dated November 29, 1988, between RJR Nabisco, Inc .

and Ward M . Miller, Jr . (Exhibit 49 to Amendment No . 6 to Schedule 14D-9filed on December 7, 1988*) .

10(o)(i) -Letter, dated December 29, 1986, from RJR Nabisco, Inc . to Edward A .Horrigan , Jr. (Exhibit 62 to Amendment No . 13 to Schedule 14D-9 filed onJanuary 5, 1989*) .

10(o)(ii) -Agreement, dated December 14, 1988, among RJR Nabisco, Inc ., Edward A .Horrigan, Jr . and Elizabeth R . Horrigan . (Exhibit 63 to Amendment No . 13to Schedule 14D-9 filed on January 5, 1989*) .

10(p) --Letter, dated December 21, 1987, from RJR Nabisco, Inc . to John H . Clarke .(Exhibit 64 to Amendment No. 13 to Schedule 14D-9 filed on January 5,1989*) .

10(q) -Letter Agreement, dated February 16, 1988, between RJR Nabisco, Inc . andJames N . Crittenden . (Exhibit 65 to Amendment No . 13 to Schedule 14D-9filed on January 5, 1989*) .

10(r) -Letter, dated August 18, 1988, from RJR Nabisco, Inc . to Robert J .

10(s)

Carbonell . (Exhibit 66 to Amendment No . 13 to Schedule 14D-9 filed onJanuary 5, 1989*) .

-Letter, dated June 2, ;987, from RJR Nabisco, Inc . to Edward J . Robinson .(Exhibit 69 to Amendment No . 14 to Schedule 14D-9 filed on January 18,1989*) .

10(t) -Letter, dated December 7, 1987, from RJR Nabisco, Inc . to W .G. Champion

10(u)

Mitchell . (Exhibit 73 to Amendment No. 16 to Schedule 14D-9 filed onJanuary 31, 1989*) .

-Letter Agreement, dated February 20, 1989, between Kohlberg Kravis

10(v)Roberts & Co . and J . Paul Sticht .

--Addendum to Employment Agreement, dated November 10, 1988, between

11RJR Nabisco, Inc . and Lester W . Pullen .

-Computations of Consolidated Net Income Per Share of Common Stock .22 --Subsidiaries of the Registrant .24 -Consent of Independent Accountants .25 --Powers of Attorney .

*Incorporated by reference .


SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 1987 Commission file number 1-6388

RJR Nabisco ' Inc.(Exact name of registrant as specified in its charter)

DELA W ARE 56-0950247(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)

or organization)

300 GALLERIA PARKWAYATLANTA, GEORGIA 30339

(Address of principal executive offices) (Zip Code)

RegiStraTt'g telephone number, 7ncludong arew e'.tdv 404=85r2=300"- --

Securities registered pursuant to Section 12(b) of the Act :Name of each exchange on

Title of each class which registered

RegistrantCommon Stock (without par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York

Series B Cumulative Preferred Stock (without par value) . . . . . . . . . . . . . . . . . . . . . . . . . .. New York73ifs% Sinking Fund Debentures, Due February 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York8% Sinking Fund Debentures, Due January 15, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York

Subsidiaries of the RegistrantR. J . REYNOLDS TOBACCO CoMPANY-

7%% Sinking Fund Debentures, Due September 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New YorkNABISCO BRANDS, INC.-

Nabicco, Inc .73/.% Sinking Fund Debentures, Due May 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York73/.% Sinking Fund Debentures, Due November 1, 2003 . . . . . . . . . . . . . . . . . . . . . New York

Standard Brands Incorporated6'/.% Sinking Fund Debentures, Due June 1, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York73/.% Sinking Fund Debentures, Due May 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. New York9tfi% Sinking Fund Debentures, Due December 15, 2004 . . . . . . . . . . . . . . . . . . .. New York

Securities registered pursuant to Section 12(g) of the Act :

NoneIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or

15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. YES__4L NO

The aggregate market value of voting stock held by non-affiliates of the registrant as of March 7, 1988 was $12 .9billion. Directors and officers are considered affiliates for purposes of this calculation but should not necessarily bedeemed affiliates for any other purpose.

The number of shares of Common Stock outstanding at March 7, 1988 was 246,442,285 .

Documents Incorporated by ReferencePortions of the Annual Report to Stockholders of Registrant for the year ended December 31, 1987 are

incorporated by reference into Parts 1, 11 and IV .Portions of the Definitive Proxy Statement of Registrant, dated March 21, 1988 in connection with its annual

meeting of stockholders to be held on May 4, 1988 are incorporated by reference into Part 111 .


PART I

Item 1. Business

(a) General Development of Business

Registrant, RJR Nabisco, Inc ., a Delaware corporation organized in 1970 (the "Company"), is theparent company of R . J. Reynolds Tobacco Company ("Reynolds") and R . J . Reynolds TobaccoInternational, Inc. ("Tobacco International") (tobacco) and of Nabisco Brands, Inc . ("Nabisco"), DelMonte Corporation ("Del Monte"), Del Monte Tropical Fruit Company ("Del Monte Tropical Fruit")and Planters LifeSavers Company ("Planters LifeSavers") ( food ) . The Company's name was changed inApril, 1986 from R . J. Reynolds Industries, Inc . to its present name .

On March 6, 1987, the Company sold its spirits and wines business, conducted principally throughHeublein, Inc., to Grand Metropolitan plc for $1 .2 billion in cash. Such business is reported asdiscontinued operations in the Consolidated Financial Statements and prior years financial statementshave been restated . See Note 3 of Notes to Consolidated Financial Statements .

During the first quarter of 1987, the Company redeemed its 11 .20% Notes, Due August 1, 1997, its11 .35% Sinking Fund Debentures, Due November 1, 2015, its 113/,% Sinking Fund Debentures, DueAugust 1, 2015 and its 13.35% Sinking Fund Debentures, Due October 1, 2012 . See Note 4 of Notes toConsolidated Financial Statements .

During 1987, the Company announced ongoing programs for the repurchase of up to 5 million sharesof its Common Stock and up to approximately 1 .6 million shares of its Series B Cumulative PreferredStock, pursuant to which approximately 3 .1 million shares of Common Stock and 1 .2 million shares of suchPreferred Stock were repurchased in 1987 . See Notes 12 and 13 of Notes to Consolidated FinancialStatements .

(b) Financial Information about Industry Segments

During 1987, the Company's principal lines of business (industry segments) were tobacco and food .

The lines of business data for the years ended December 31, 1987, 1986 and 1985 appearing on page66 of the 1987 Annual Report to Stockholders (the "1987 Annual Report") is incorporated herein byreference .

(c) Narrative Description of Business

Tobacco

The tobacco line of business includes the operations of Reynolds and Tobacco International, whichmanufacture and sell tobacco products, principally cigarettes . Products are manufactured in the UnitedStates and in 33 foreign countries and territories by subsidiaries or licensees, and are sold throughout theUnited States and in more than 1 .60 markets around the world . Also included are the operations of RJRArcher, Inc ., a packaging company .

Domestic

The Company's domestic tobacco business is conducted through Reynolds . Reynolds' cigarettebrands include CAMEL, CENTURY, DORAL, MORE, Now, RITZ, SALEM, VANTAGE and WINSTON . Reynolds

believes that for 1987, four of its cigarette brands, WINSTON, SALEM, CAMEL and VANTAGE , were amongthe 10 largest selling cigarette brands in the United States . Although the DoRAL brand, the first brandedentry in the domestic market priced competitively with generic cigarettes, was not introduced until 1984,Reynolds believes that it was the eleventh largest selling cigarette in the United States in 1987 .

Reynolds' tobacco products are sold in the United States primarily to chain stores, to other large retailoutlets and through distributors to other retail and wholesale outlets . The markets for cigarettes and othertobacco products are highly competitive . Reynolds advertises its cigarette products extensively through all

1


major media except television and radio . Cigarette advertising and promotion is subject to significantlegislative restrictions in the United States, including a ban on radio and television advertising .

In the cigarette industry, total unit sales volume of cigarettes in the United States has declined inrecent years . However, Reynolds' unit sales volume increased in 1986, despite the overall industry declineand Reynolds' unit sales volu :ne declined in 1987 by 1 .6% as compared to a total industry decline of 2 .0% .According to independent analysts, total industry unit sales volume is projected to decline at an annual ratein the range of 2% for the foreseeable future . Reynolds believes that the decline is the result of numerousfactors, including health considerations, diminishing social acceptance of smoking, legislative limitationson smoking in public places and federal and state excise tax increases which have resulted in cigarette priceincreases. However, in recent years, price increases of cigarettes by Reynolds have more than offsetReynolds' decline in volume . No assurance can be given that Reynolds will be able to increase prices inthe future by an amount sufficient to offset any future decline in its unit sales volume .

Reynolds purchases at auction a large portion of its domestic tobacco requirements, including its flue-cured and burley domestic leaf tobacco, the principal kinds of tobacco it uses . The balance of its tobaccorequirements, principally types not grown in the United States, are purchased overseas . Such tobacco is inturn stored and aged by Reynolds for periods of approximately two to three years before it is used inmanufacture. Tobacco is an agricultural commodity subject to U .S. Government production controls andprice supports which can .substantially affect its market price . From time to time, various bills may bepending in Congress that would amend the tobacco control and support programs, some of which, ifenacted, could have an adverse effect on Reynolds .

In September, 1987, Reynolds announced that it is developing a new cigarette that uses, but does notburn, tobacco . Since the cigarette is in the development stage, Reynolds is unable to predict whether theproduct will be introduced nationally and, if so, its impact on the cigarette industry or Reynolds .

International

The Company's international tobacco business is conducted through Tobacco International . Sales areaccomplished through exports from the United States, from foreign manufacturing operations and throughlicensees. Key markets in which manufacturing subsidiaries are located include Belgium, Brazil, Canada,the Canary Islands, Ecuador, Malaysia, Hong Kong, Puerto Rico, Switzerland and West Germany .Additional key markets include Holland, France, Japan, Spain and Singapore .

Tobacco International's three primary cigarette brands are CAMEL, WINSTON and SALEM. Localbrands such as ExPORT "A" and MACDONALD SPECIAL in Canada, MUSTANG in Brazil and DORCHESTER in

the United Kingdom also contribute significantly to Tobacco International's volume base .

Tobacco International's unit sales volume increased 3 .3% in 1986 over 1985 and 10 .3% in 1987 over1986. Certain foreign operations are subject to local regulations that set import quotas, restrain financingflexibility and affect repatriation of earnings or assets . Advertising restrictions similar to, or morerestrictive than, those of the United States exist in several of Tobacco International's markets .

Legislation and Other Information Relating to Tobacco Products

For some years the advertising and sale of tobacco products, particularly cigarettes, have been underattack in the United States and many other countries as the result of claims that smoking is detrimental tohealth and, in the opinion of the Company, such attack has had and may continue to have an adverseeffect on industry sales.

In 1964, the Report of the Advisory Committee to the Surgeon General of the U .S. Public HealthService concluded that cigarette smoking was a health hazard of sufficient importance to warrantappropriate remedial action . Since 1969, federal law has required a warning statement on cigarettepackaging. Until October 12, 1985 the required statement was : "Warning : The Surgeon General HasDetermined That Cigarette Smoking Is Dangerous to Your Health ." Federal law also requires annualreports to Congress from the Federal Trade Commission ("FTC") and the Secretary of Health andHuman Services. The FTC has recommended in such reports to Congress that Congress enact legislation

2


requiring stronger warnings and that funding be provided for antismoking messages in mass media . Since1971, television and radio advertising of cigarettes has been prohibited in the United States. Cigaretteadvertising in other media in the United States is required to include information with respect to the "tar"and nicotine content of cigarettes as well as a warning statement .

In January 1979, the Secretary of Health, Education and Welfare released another report restatingconclusions similar to those contained in the 1964 report and asserting that a broader range of healthhazards is associated with cigarette smoking than those mentioned in the previous report . In January 1980,the Surgeon General released a report on the health consequences of smoking to women, stating thatwomen face the same health hazards from smoking as men and that pregnant women and their unbornchildren face greater risks . In December 1980, the Surgeon General issued a report stating that allcigarettes, including those with the lowest "tar" and nicotine content, were health hazards andrecommended various federal measures to reduce smoking . In January 1981, the Surgeon Generalreleased another report reviewing changes in the composition of cigarettes in recent decades, repeating theassessment that smoking any type of cigarette involves health risks and recommending further study of thepossible risks. In February 1982, the Surgeon General released a report reviewing the recent literatureregarding cancer and concluding that cigarette smokers have overall mortality rates from cancersubstantially greater than nonsmokers and that cigarette smoking is a major cause or a contributing factorin the development of various cancers. In November 1983, the Surgeon General released a reportreviewing the recent literature regarding cardiovascular disease and concluding that cigarette smoking is amajor cause of coronary heart disease and is associated with or a risk factor for other vascular diseases . InMay 1984, the Surgeon General released a report reviewing the recent literature regarding chronicobstructive lung disease and concluding that cigarette smoking is the major cause of chronic obstructivelung disease in the United States . In November 1985, the Surgeon General released a report reviewing therecent literature regarding health effects of workplace hazards and worker smoking, concluding that thelatter was the greater hazard to the workers . In December 1986, the Surgeon General released a reportreviewing the current literature on the health effects of environmental tobacco smoke exposure andconcluding that environmental tobacco smoke is a cause of disease in nonsmokers .

In October 1984, Congress enacted the Comprehensive Smoking Education Act which, among otherthings: (i) establishes an interagency committee on smoking and health which is charged with carryir ;out a program to inform the public of any dangers to human health presented by cigarette smoking ; (ii)requires a series of four new health warnings to be printed on cigarette packages and advertising on arotating basis; (iii) increases type size and area of the warning on cigarette advertisements ; and (iv)requires that cigarette manufacturers provide annually, on a confidential basis, a list of ingredients used inthe manufacture of cigarettes to the Secretary of Health and Human Services . The new warnings requiredon cigarette packages and advertisements (other than billboards) are as follows : (i) "Surgeon General'sWarning: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy" ;(ii) "Surgeon General's Warning : Quitting Smoking Now Greatly Reduces Serious Risks To YourHealth"; ( iii )"Surgeon General's Warning : Smoking By Pregnant Women May Result in Fetal Injury,Premature Birth, And Low Birth Weight"; and (iv) "Surgeon General's Warning: Cigarette SmokeContains Carbon Monoxide" . Similar warnings are required on outdoor billboards . The labeling andingredient provisions of the Comprehensive Smoking Education Act became effective October 12, 1985 . InOctober 1984, the Cigarette Safety Act of 1984 was also enacted that, among other things, creates aninteragency committee on cigarette fire safety.

In addition to the foregoing, legislation potentially detrimental to the tobacco industry, generallyrelating to taxation of cigarettes and regulation of advertising, labeling, promotion, sale and smoking ofcigarettes, has been introduced and enacted from time to time in Congress and in various state and locallegislative bodies. State and local legislation imposing restrictions on public smoking has been enacted in anumber of jurisdictions, and certain employers have initiated programs restricting smoking in theworkplace. It is not possible to state whether additional federal, state or local legislation will be enacted,or the nature of such legislation . Nor is it possible to state whether further action will be taken orrecommended by regulatory agencies or other governmental authorities .

It is not possible to predict the effect on the tobacco industry generally or on Reynolds or TobaccoInternational of any of the foregoing events and circumstances .

3


Food

The Company's food business includes the operations of Nabisco, Del Monte, Del Monte TropicalFruit and Planters LifeSavers . Food products are produced, marketed or distributed worldwide andinclude cookies, crackers, cereals, confectioneries, nuts, snacks, canned foods, beverages and fresh fruit .Products and product lines of Nabisco, Del Monte, Del Monte Tropical Fruit and Planters LifeSavers areset forth under the captions "Food Products" and "Tropical Fruit" on pages 34 and 35 of the 1987 AnnualReport, which information is incorporated herein by reference .

Nabisco

Nabisco is a leading producer of cookies and crackers and offers consumers many of the leadingbrands in margarines, snack products, hot and cold breakfast cereals, desserts, and pet foods . Adisproportionate amount of Nabisco's sales occur in the latter part of a calendar year . Nabisco'sworldwide businesses are conducted through four operating units-the Biscuit Division and the GroceryProducts Division in the United States, Nabisco Brands Ltd (Canada) and International Nabisco Brands .Nabisco maintains food research facilities in East Hanover and Fair Lawn, New Jersey . Nabisco'sbusiness faces substantial competition in the United States and in other countries .

Del Monte

Del Monte produces and markets a wide variety of canned and dried foods and fresh fruits in manystyles and packs. Substantially all of Del Monte's operations are seasonal . Products are sold in majorconsumer markets in the world and are subject to intense competition . Del Monte's products are soldprimarily under the well-known DEL MONTE brand for fruits, vegetables, tomato products, juices and driedfruit . Most of these products are distributed both nationally and internationally . Del Monte maintainsfood research facilities at Walnut Cove, California .

Del Monte Tropical Fruit

Del Monte Tropical Fruit is engaged in the production, distribution and marketing of bananas, freshpineapples and other tropical fruits . Bananas are grown in Costa Rica and Guatemala on Del Monteproperties and are also supplied by associate producers there as well as in the Philippines . Bananas alsoare purchased in Ecuador and Colombia for distribution in the United States . Pineapple for the fresh fruitmarket is grown in Costa Rica, Hawaii, Kenya and the Philippines . Bananas and pineapples are marketedin North America, Europe, the Middle East and the Far East, and most sales are made under the DELMONTE brand . Del Monte believes that it is the largest marketer of pineapples in the United States .

Planters LijeSavers

Planters LifeSavers is a leading producer of nuts and snacks and offers consumers many of the leadingbrands in candy and gum. Its products are sold directly to large retail outlets as well as through

wholesalers and brokers from a network of distribution centers . Brand name products include PLANTERS

nuts and snacks, LIFE SAvEits hard-roll candy, BUBBLE Yutrt bubble gum, CARE*FREE sugarless gum, BABYRUTH and BurrERFtNGER candy bars, JUNIOR MINTS candy, CHUCKLES candy and BONKERS! chewy candy .In 1987, a Brazilian cashew nut producer was purchased to compliment the Planters LifeSavers line .During 1987, operational responsibility for Planters LifeSavers was transferred to Reynolds and the

headquarters of Planters LifeSavers was relocated from New Jersey to North Carolina . Subsequently, the

sales forces of Reynolds and Planters LifeSavers were merged early in 1988 .

Employees

At December 31, 1987, the Company had 120,334 full-time employees .

Environmental Matters Ln

The U.S. Government and various state and local governments have enacted or adopted laws and coregulations concerning protection of the environment . The regulations promulgated by the Environmental

00


Protection Agency and other governmental agencies under various statutes have resulted in, and will likelycontinue to result in, substantial expenditures for pollution control, waste treatment, plant modification andsimilar activities .

The Company has been engaged in a continuing program to assure compliance with such laws andregulations. Although it is difficult to identify precisely the portion of capital expenditures or other costsattributable to environmental laws, the Company does not expect such expenditures or other costs to bematerial or to have a material effect on the Company's financial position .

(d) Financial Information about Foreign and Domestic Operations and Export SalesThe information contained under the caption "Geographic Data" for the years 1985 through 1987 on

page 67 of the 1987 Annual Report is incorporated herein by reference .

Item 2. PropertiesThe information pertaining to the Company's assets by continuing lines of business and geographic

areas for each of the years ended December 31, 1987, 1986 and 1985 set forth under the captions "Lines ofBusiness Data" and "Geographic Data" on pages 66 and 67 of the 1987 Annual Report is incorporatedherein by reference .

Substantially all of Reynolds' domestic tobacco manufacturing facilities, consisting principally offactories and leaf storage warehouses, are located at or in the vicinity of Winston-Salem, North Carolina .All such facilities are owned by Reynolds . Included in such facilities is the Tobaccoville cigarettemanufacturing plant of approximately two million square feet which commenced production in the firstquarter of 1986 and became fully operational in 1987 . In addition, Reynolds is engaged in themodernization of its Whitaker Park cigarette manufacturing complex, which is expected to be completed in1989 .

Tobacco International has two tobacco manufacturing facilities located in West Germany and oneeach in Switzerland, Brazil, Canada, Puerto Rico, Belgium, the Canary Islands, Ecuador, Hong Kong andMalaysia .

The Company's food operations have operating properties and facilities, both owned and leased, inmany areas of the world . Food processing plants and related facilities are located throughout the UnitedStates and in Canada, the United Kingdom, France, Italy, Greece, Kenya, South Africa, Mexico, Brazil,Venezuela, India, Australia and the Philippines . Del Monte also owns or operates through lease oroperating agreements farming land in California, Hawaii, Texas, and the Northwest and Midwest areas ofthe United States, and in Kenya, South Africa, Latin America and the Philippines . These leases andoperating agreements generally are renewable at Del Monte's option . In addition, Del Monte TropicalFruit owns banana plantations in Costa Rica and Guatemala and a pineapple plantation in Costa Rica .Del Monte Tropical Fruit owns or leases refrigerated oceangoing vessels and owns or leases bananaterminals located in the United States . Planters LifeSavers has manufacturing plants at nine locationsthroughout the United States .

Item 3. Legal ProceedingsFor information relating to litigation, see Note I 1 of Notes to Consolidated Financial Statements .

Item 4. Submission of Matters to a Vote of Security HoldersNone .

Executive Officers of the RegistrantThe following is a list as of March 18, 1988, of the names and ages of the Company's Executive

Officers and all positions and offices held by each during the past five years .

Name Age Position*

Andrew S. Barrett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Senior Vice President, Corporate Personnel (1986) ; NBI-Senior Vice President, Personnel (1983 ) ; Vice Presidentand Assistant to the President (1982 ) .

Marshall B. Bass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Senior Vice President, Corporate Affairs (1986) ; Vice Presi-dent (1982 ) ; Corporate Director of Personnel Devel-opment (1976) .

5


Name Age Position•

Paul C. Bergson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Senior Vice President, Government Relations (1986) ; Rey-nolds-Vice President, Public Affairs (1984 ) ; Director,Public Affairs ( 1984 ) ; Company-Federal Public AffairsRepresentative (1979) .

Robert J. Carbonell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Vice Chairman of the Board (1987) ; Senior Executive VicePresident (1987 ); Executive Vice President ( 1986 ) ;NBI-Vice Chairman ( 1986 ); Executive Vice President(1984); Senior Vice President (1981) .

John H . Clarke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Senior Vice President, Technology (1987 ) ; NBI-ExecutiveVice President, Technology (1986 ) ; Senior Vice President(1985 ); Nabisco Brands USA-Executive Vice President,Corporate Technology (1984) ; Senior Vice President andGroup Executive, Corporate Technology (1982 ) .

Walter N . Coleman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Vice President and General Auditor (1987 ) ; NBI-VicePresident and General Auditor (1986 ) ; RCA Corpo-ration-Staff Vice President-Auditing (1983 ) ; Ingersoll-Rand Corporation-Director-Internal Audit ( 1979) .

C. Dennis Durden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Senior Vice President (1987 ) ; Vice President and Assistant tothe President and Chief Executive Officer (1986) ; Director,Public Policy Development (1985 ); Vice President andSecretary, International Advisory Board (1977 ) .

Harold L. Henderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Executive Vice President and General Counsel (1986 ) ; Sen-ior Vice President and General Counsel (1985 ) ; VicePresident and General Counsel (1985 ) ; The Firestone Tire& Rubber Company-Senior Vice President and GeneralCounsel (1982 ) .

Andrew P. Hines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Vice President and Controller (1987) ; NBI-Vice Presidentand Controller (1986) ; Nabisco Brands UK-Vice Presi-dent, Finance (1984); NBI-Assistant Controller (1982 ) .

Edward A. Horrigan, Jr. . . . . . . . . . . . . . . . . . . . . . . . . 58 Vice Chairman of the Board (1985 ) ; President and ChiefOperating Officer (1984 ) ; Executive Vice President(1981) .

F. Ross Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 President and Chief Executive Officer (1987 ) ; President and

illiam J. Liss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chief Operating Officer (1985 ) ; NBI-Vice Chairman ofthe Board and Chief Executive Officer (1984 ) ; Presidentand Chief Operating Officer (1981 ) .

Senior Vice President, Public Affairs (1987) ; Ohlmeyer Com-munications Company-Senior Vice President, CorporateRelations ( 1984) ; American Broadcasting Companies, Inc .

David G . Marshall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

-Vice President, Media Relations and Marketing Servicesand Director of the Olympic Unit, ABC Publishing (1982 ) .

Vice President, Personnel, Employee Benefits (1987) ; StaffVice President, Employee Benefits ( 1986) ; NBI-StaffVice President, Employee Benefits (1984 ) ; Sun Co .,Inc.-Manager, Benefit Planning and Development(1978) .

John D . Martin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Executive Vice President (1988); Ohlmeyer CommunicationsCompany-President and Chief Operating Officer ( 1983) .

George A. Midwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Vice President and Treasurer (1987 ) ; American CyanamidCo.-Treasurer (1979) .

Ward M . Miller, Jr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Vice President, Associate General Counsel and Secretary(1987); NBI-Senior Vice President, Law and Secretary(1984); Vice President, Law and Secretary ( 1981) .

W. G . Champion Mitchell . . . . . . . . . . . . . . . . . . . . 41 Senior Vice President, External Affairs (1988) ; WombleCarlyle Sandridge & Rice-Partner (1981 ) .

6


Name Age Position•

George D. Newton, Jr . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Vice President and Deputy General Counsel for Litigation(1987 ) ; Deputy General Counsel for Litigation (1985 ) ;Kirkland & Ellis-Partner (1964) .

Bruce B. Overton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Vice President, Personnel and Compensation (1988 ) ; StaffVice President, Personnel (1987 ) ; Staff Vice President,Compensation and Employee Information (1986 ) ; Corpo-rate Director, Compensation and Employee Information(1982) .

J. Thomas Pearson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Senior Vice President, Taxation (1988 ) ; Vice President,Taxation (1987 ); NBI-Vice President, Taxation (1982 ) .

Dean R. Posvar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Senior Vice President, Business Planning and Development(1987); NBI-Senior Vice President, Corporate Planningand Development (1984) ; Vice President, Corporate Plan-ning and Development (1982 ) .

Guli R. Rajani . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Deputy Treasurer (1987 ); Staff Vice President and AssistantTreasurer, International (1987 ) ; NBI-Assistant Treasurer(1982) .

Ray D . Risner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Vice President, Financial Administration (1987) ; Staff VicePresident and Assistant Treasurer (1987 ) ; NBI-Staff VicePresident, Financial Operations (1986) ; Director, Finan-cial Analysis (1982 ) .

Edward J. Robinson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Executive Vice President, Finance and Chief Financial Offi-cer (1987 ) ; Senior Vice President, Finance and ChiefFinancial Officer (1986 ) ; NBI-Chief Financial Officer(1985 ); Senior Vice President and Controller (1983 ) ; VicePresident, Treasurer (1982 ) .

Robert E . Shultz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Vice President, Pension Asset Management (1987) ; IBMCorp.-Director of U.S. Retirement Funds (1980) .

Kenneth D . Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 53 Senior Vice President-Corporate Government Affairs(1987 ); NB1-Senior Vice President, Government Affairs(1984 ); Canadian Consul General, New York and Cana-dian Commissioner to Bermuda (1981) .

James O. Welch, Jr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 56 Vice Chairman of the Board (1987) ; Senior Executive VicePresident (1986) ; NBI-Chairman and Chief ExecutiveOfficer (1986); Vice Chairman and Chief Executive Officer(1986 ); President and Chief Executive Officer (1985 ) ;President and Chief Operating Officer (1984) ; SeniorExecutive Vice President (1981) .

Samuel B. Witt III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Vice President and Associate General Counsel (1988) ; Asso-ciate General Counsel (1986) ; Reynolds-Vice President,General Counsel and Secretary (1981) .

*"NBI" refers to Nabisco Brands, Inc ., a subsidiary of the Company .

Each Executive Officer holds his term of office until the next following Annual Meeting of the Board ofDirectors, held in April, May or June at such time as the Board of Directors may fix in each year, and untilhis successor is elected and qualified .

7

Ihttp://legacy.library.ucsf.edu/tid/nbn14d00/pdf

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The information set forth under the caption "Dividends and Stock Prices" on page 51 of the 1987Annual Report is incorporated herein by reference .

Item 6. Selected Financial Data

The information contained under the caption "Selected Five-Year Financial Data" on page 44 andunder the caption "Selected Five-Year Financial Condition Data" on page 48 of the 1987 Annual Reportis incorporated herein by reference .

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information set forth under the caption "Management's Discussion and Analysis" contained onpages 45 through 50 of the 1987 Annual Report is incorporated herein by reference .

Item 8. Financial Statements and Supplementary Data

The information contained in the 1987 Annual Report under the captions and on the pages indicatedbelow is incorporated herein by reference :

Summary of Significant Accounting Policies (page 52)

Consolidated Statements of Income and Retained Earnings for the years ended December 31,1987, 1986 and 1985 (page 53)

Consolidated Statements of Changes in Financial Position for the years ended December 31,1987, 1986 and 1985 (page 54)

Consolidated Balance Sheets as of December 31, 1987 and 1986 (page 55)

Notes to Consolidated Financial Statements (pages 56 through 62)

Eleven-Year Financial Summary for the years ended December 31, 1987, 1986 and 1985 (page64)

Lines of Business Data and Geographic Data for the years ended December 31, 1987, 1986 and1985 (pages 66 and 67)

Quarterly Results of Operations for the years ended December 31, 1987 and 1986 (unaudited)(page 68)

Item 9. •Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

8


PART III

Item 10. Directors and Executive Officers of the Registrant

The information set forth on pages 2 through 7 and under the caption "Certain InformationConcerning the Board of Directors" on page 8 of Registrant's Definitive Proxy Statement dated March 21,1988, in connection with its Annual Meeting of Stockholders to be held on May 4, 1988 (the "DefinitiveProxy Statement"), is incorporated herein by reference . Reference is also made to "Executive Officers ofthe Registrant" following Item 4 of Part I of this Report .

Item 11. Executive Compensation

The information contained in the Definitive Proxy Statement under the captions and on the pagesindicated below is incorporated herein by reference :

Executive Compensation (page 9)

Stock Options and Other Plans (pages 9, 10 and 1 l)

Retirement Plan (pages 11 and 12)

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information appearing under the caption "Ownership of the Company's Securities" on page 12,the last three paragraphs appearing on page 7 and the security ownership information appearing on pages2 through 7 of the Definitive Proxy Statement is incorporated herein by reference .

Item 13. Certain Relationships and Related Transactions

The information set forth in the last two paragraphs appearing on page 8 of the Definitive ProxyStatement is incorporated herein by reference .

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1 . The financial statements listed in the accompanying index to financial statements andfinancial statement schedules are filed as part of this report .

2. The financial statement schedules listed in the accompanying index to financial statementsand financial statement schedules are filed as part of this report .

3. The exhibits listed in the accompanying index to exhibits are filed as part of this report .

(b) Reports on Form 8-K filed in Fourth Quarter 1987.

No reports on Form 8-K were filed during the fourth quarter of the year ended December 31,1987 .

( c ) Exhibits

See Index to Exhibits .

(d) Financial Statement Schedules

See Index to Financial Statements and Financial Statement Schedules .

The 1987 Annual Report is included as an Exhibit to this report . Except for portions expresslyincorporated herein, such Annual Report shall not be deemed "filed" as part of this report .

9


SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized .

RJR NABISCO, INC .( Registrant )

By: HAROLD L. HENDERSON

(Harold L Henderson)Executive Vice Presidentand General Counsel

Date: March 22, 1988Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the registrant and in the capacities indicated and on the datesindicated.

Signature Title Date

Principal Executive Officer :President and

Chief Executive Officer,F. Ross JOHNSON* Director

(F. Ross Johnson)Principal Financial Officer :

ExecutiveVice President,Finance and

EDWARD J. ROBINSON* Chief Financial Officer

(Edward J. Robinson)Principal Accounting Officer :

Vice PresidentANDREW P. HINES* and Controller

(Andrew P. Hines)

Directors :

.

WILLIAM S. ANDERSON* Director ~ March 22, 1988

(Wiiiiam S . Anderson)

ALBERT L . BUTLER, JR.* Director

(Albert L Butler, Jr.)

ROBERT J. CARBONELL* Director.... .. . .. . . . . . . . . . . . . .. . ......... ...... .. . . . . . . . . . . . . .. . .. ... ... . . .. . . . . . . . . . . . . . . . .. ... ............. ... ... .

(Robert J . Carboneli )

JOHN L. CLENDENIN* Director(John L Clendenin)

RONALD H. GRIERSON* Director

(Ronald H . Grierson)

JOHN W. HANLEY* Director. . . . . .-. . ..----------------------------------------------------------------------------°-----------. ......--

(John W. Hanley)Cn

EDWARD A. HORRIGAN, JR.* Director ~

(Edward A . Horrigan, Jr.) N

kDW

10 OD~


Signature Title Date

CHARLES E. HUGEL* Director(Charles E. Hugel)

VERNON E. JORDAN, JR.* Director

(Vernon E. Jordan, Jr.)

(Juanita M . Kreps)

Director

JOHN D. MACOMBER* Director(John D. Macomber)

JOHN G. MEDLIN, JR.* Director l, March 22, 1988----------------------•-------•-•------------•--°---------- . . .---------°--•-•--•-------•---------------

(John G . Medlin, Jr. )

ANDREW G. C. SAGE 11* Director

(Andrew G . C. Sage lI)

ROBERT M . SCHAEBERLEt Director

(Robert M. Schaeberle)

Director(J . Paul Sticht)

JAMES 0. WELCH, JR . * Director----°-•--•-------------------•---•-----°-- . .._ _. . .------ . _ . .. ._. . .. . .---- .. . . . . . . .....---•---••---•----_ . . .

(James O. Welch, Jr .)

*By: LEO C. WILKERSON

(Leo C. Wilkerson, Attorney-in-Fact)

11


®

INDEX TO FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULES

Financial Statements :

The following consolidated financial statements and supplementary data included in the 1987 AnnualReport are incorporated by reference in Item 8 appearing on page 8 herein :

Reference

1987Annual Report

(page)

Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 52Consolidated Statements of Income and Retained Earnings for the years ended

December 31, 1987, 1986 and 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 53Consolidated Statements of Changes in Financial Position for the years ended

December 31, 1987, 1986 and 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Consolidated Balance Sheets at December 31, 1987 and 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Eleven-Year Financial Summary for the years ended December 31, 1987, 1986

and 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Lines of Business Data and Geographic Data for the years ended December 31,

1987, 1986 and 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66Quarterly Results of Operations for the years ended December 31, 1987 and

1986 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68

Financial Statement Schedules:

The following financial statement schedules and report of independent accountants are includedherein :

Page

Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. F-1Schedules V, VI, VIII, IX and X of RJR Nabisco, Inc . and subsidiaries for the

three years ended December 31, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. F-2All other schedules for which provision is made in the applicable regulations of the Securities and

Exchange Commission are omitted because they are not required under the related instructions or are notapplicable or the required information is shown in the financial statements or notes thereto .

t

1 12


RJR NABISCO, INC.

Annual Report on Form 10-K

Year Ended December 31, 1987

Item 14(d) . Financial Statement Schedules

Ihttp://legacy.library.ucsf.edu/tid/nbn14d00/pdf

REPORT OF INDEPENDENT ACCOUNTANTS

RJR Nabisco, Inc .Its Directors and Stockholders

We have examined the consolidated financial statements and related schedules of RJR Nabisco, Inc .and subsidiaries listed in the Index to Financial Statements and Financial Statement Schedules of theannual report on Form 10-K of RJR Nabisco, Inc. for the year ended December 31, 1987 . Ourexaminations were made in accordance with generally accepted auditing standards and, accordingly,included such tests of the accounting records and such other auditing procedures as we considerednecessary in the circumstances .

In our opinion, the financial statements referred to above present fairly the consolidated financialposition of RJR Nabisco, Inc . and subsidiaries at December 31, 1987 and 1986, and the consolidatedresults of their operations and the changes in their consolidated financial position for each of the threeyears in the period ended December 31, 1987, in conformity with generally accepted accounting principlesapplied on a consistent basis . Further, it is our opinion that the schedules referred to above present fairlythe information set forth therein in compliance with the applicable accounting regulation of the Securitiesand Exchange Commission .

ERNST & WHINNEY

Atlanta, GeorgiaFebruary 1, 1988

lD

F-I 00OD


SCHEDULE V

RJR NABISCO, INC. AND SUBSICIARIES

SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT


Column A Column B Column C Column D Column E Column F

Classification

Balance atBeginningof Period

Additionsat Cost Retirements

Other ChangesAdd (Deduct)

Describe

Balanceat End

of Period

Year ended December 31, 1987 :

Land and land improvements . . . . . . . . . . $ 296 $ 9 $ 2 $ 21 $ 324Buildings and leasehold

improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418 41 14 126 1,571Machinery and equipment . . . . . . . . . . . . . . . . 4,373 247 103 547 5,064Construction-in-process . . . . . . . . . . . . . . . . . . . . . 607 639 - (642) 604

$6,694 $ 936 $119 $ 52 (A ) $7,563

Year ended December 31, 1986 :Land and land improvements . . . . . . . . . . . S 246 $ 12 $ 5 $ 43 $ 296Buildings and leasehold

improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,105 81 8 240 1,418

Machinery and equipment . . . . . . . . . . . . . . . . 3,303 371 98 797 4,373Construction-in-process . . . . . . . . . . . . . . . . . . . . . 1,054 558 8 (997) 607

$5,708 $1,022 $119 $ 83 ( B ) $6,694


Land and land improvements . . . . . . . . . . . $ 187 $ 5 $ 4 $ 4 (B) $ 24654(C)

Buildings and leaseholdimprovements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538 82 17 63 (B) 1,105

439 (C)Machinery and equipment . . . . . . . . . . . . . . . . 1,715 229 91 347 (B) 3,303

1,103 (C)Construction-in-process . . . . . . . . . . . . . . . . . . . . . 611 630 1 (417)(B) 1,054

231 (C)

$3,051 $ 946 $113 $ 1,824 $5,708

Prior years have been restated to report the Company's former spirits and wines business asdiscontinued operations .

(A) Includes foreign currency translation effects of $175, divestments ($) 51) and reclassifications andmiscellaneous adjustments .

(B) Reclassifications, foreign currency -translation effects and/or miscellaneous adjustments .

( C ) Acquisitions at cost .

F-2


SCHEDULE VI

RJR NABISCO, INC. AND SUBSIDIARIES

SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATIONOF PROPERTY, PLANT AND EQUIPMENT



escription


AdditionsCharged

to Costs andExpenses etirements

Other ChangesAdd (Deduct )Describe(A)

Balance atEnd ofPeriod

Year ended December 31, 1987 :Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 $ 8 $- $ - $ 38Buildings and leaseholdimprovements . . . . . . . . . . . . . . : . . . . . . . . . . . . . . . . . 221 56 3 - 274

Machinery and equipment . . . . . . . . . . . . . . . . 1,100 386 70 (12) 1,404

$1,351 $450 $73 $(12) $1,716

Year ended December 31, 1986 :Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24 $ 7 $- $ (1) $ 30

Buildings and leaseholdimprovements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 49 1 (11) 221

Machinery and equipment . . . . . . . . . . . . . . . . 822 346 56 (12) 1,100

$1,030 $402 $57 $(24) $1,351

Year ended December 31, 1985 :Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 5 $- $ (1 ) $ 24Buildings and leasehold

improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 33 2 - 184Machinery and equipment . . . . . . . . . . . . . . . . 685 220 53 (30) 822

$ 858 $258 $55 $(31) $1,030

Prior years have been restated to report the Company's former spirits and wines business asdiscontinued operations .(A) Reclassifications, foreign currency translation effects and/or miscellaneous adjustments .


SCHEDULE VIII


SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS


Column A Column B Column C Column D Column E

Additions

escription


(1)Chargedto Costs

andExpenses

(2)Chargedto OtherAccounts(Describe)

Deduction(Describe)

(A)

Balanceat End ofPeriod


Those valuation and qualifying ac-counts which are deducted in thebalance sheet from the assets towhich they apply:

For discounts and doubtfulaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

2259

1383

15189

61369

$292 $147 $18(B) $27 $430


Those valuation and qualifying ac-counts which are deducted in thebalance sheet from the assets towhich they apply :

For discounts and doubtfulaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 21 - 30 67

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 139 1 27 225

$188 $160 $ 1(B) $57 $292

Year ended December 31, 1985 :Those valuation and qualifying ac-

counts which are deducted in thebalance sheet from the assets towhich they apply:

For discounts and doubtfulaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 27 16 9 76

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 64 10 5 112

$ 85 $ 91 $26(C) $14 $188


(A) Charges against the accounts . Ln( B ) Miscellaneous adjustments. ~ J

( C ) Principally acquisitions. 0°N

l0F-4 w~

~


SCHEDULE IX

RJR NABISCO, INC . AND SUBSIDIARIES

SCHEDULE IX-SHORT-TERM BORROWINGS



WeightedMaximum Average Average

Weighted Amount Amount InterestAverage Outstanding Outstanding Rate

Category of Aggregate Balance at Interest During the During the During theShort-term Borrowings End of Period(C) Rate Period Period(A) Period(B)


Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159 44.38%(D) $169 $ 98 33 .24%(D)Commercial Paper Holders . . . . .. 283 7.41 640 368 6.68


Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99 17.03% $126 $ 86 24.32%Commercial Paper Holders . . . . .. 419 7.97 674 427 6.99


Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104 17.22% $175 $115 24 .34%

Commercial Paper Holders . . . . .. 535 7.90 715 277 7.99


(A) Primarily daily average balance of total short-term debt .

(B) Short-term interest expense as a percentage of the average balance of interest bearing short-term debt .

(C) Varying maturity dates with no provision for extension at maturity .

(D)Higher weighted average interest rate is principally due to Brazilian borrowings .

l0F-5 ~

tJ


SCHEDULE X


SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION


Column A Column B

Item Charged to Costs and Expenses

1987 1986 1985

Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $378 $370 $264

Advertising costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $774 $807 $684


F-6


RJR Nabisco, Inc .

RJR Nabisco, Inc . is among the world'slargest consumer products companies,holding leading positions in both tobaccoand food products .

RJR Nabisco's principal operating units areR.J. Reynolds Tobacco Co ., Nabisco Brands, Inc,and Del Monte Tropical Fruit Co .

These businesses produce a wide range ofproducts, including cigarettes, cookies, crack-ers, nuts, snacks, confectionery products,processed fruits and vegetables, cereals,margarines and fresh fruit .

RJR Nabisco makes its products at 260 facili-ties in 40 countries . These consumer goodsare marketed in 160 countries and territoriesaround the world . Each day, consumerspurchase more than 80 million packagesof the company's products .

RJR Nabisco believes that superior returnscan be achieved on a consistent basis by mar-ket leadership in the consumer packagedgoods industry. The company's strategy is toconcentrate on core businesses, product qual-ity, management decentralization, financialstrength, internal capital generation, andongoing investment in technology, produc-tivity and marketing .

Contents

Letter to Shareholders 2Operating Review 8Famous Brands

from RJR Nabisco 34Board of Directors 40Officers of theCorporation 42

Financial Review 43Shareholder Informatlon 69

RJR Nabisco, Inc .

Highlights

/DollarsinMillionsExceptPerShareAmounts/ 1987 1986 Change

For the Years Ended December 31Net sales S 15,766 $15,102 + 4%Operating income* 2,304 2,340 - 2%Income from continuing operations 1,081 1,025 + 5%Net income 1,209 1,064 + 14 %Preferred dividends 30 102 - 71 %Net income applicable toCommon Stock 1,179 962 + 23 %

Income from continuingoperations per common share 4.19 3 .68 + 14 %

Net income per common share 4.70 3 .83 + 23 %Dividends per common share 1 .76 1 .51 + 17 %Return on average total capital 13.6% 1 1 .9%Return on average common

stockholders' equity 20.8% 19.0%At Year EndWorkingcapital S 1,717 S 1,329 +29%Book value per common share 24.41 21 .21 + 15 %Number of common shares

outstanding (in thousands) 247,357 250,395 - i%Number of stockholders 112,879 114,121 - 1%Number of full-time employees 120,334 122,395 - 2%

Prior years have been restated to report the Company s former spirits and wines business asdiscontinued operations (see Note 3 to the Financial Statements) .*Operating income includes the effects of net restructuring expense incurred in 1987 of S250million (see Note 1 to the Financial Statements) .

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Letter to ShareholdersIn 1987 RJR Nabisco achieved record

results while successfully sharpening itscompetitive effectiveness in the globalconsumer products market .

Net income rose 14 percent to S 1 .21 billion,up from $1 .06 billion in 1986 . Net income percommon share increased 23 percent to 54 .70,or 87 cents per share . Consolidated net salesreached S 15 .77 billion, up 4 percent fromS 15 .10 billion in the prior year .

Both our tobacco and food businesses con-tributed to these gains. The company's world-wide tobacco business achieved 1987 sales of56.35 billion, an 8 percent increase over 55 .87billion in 1986, and operating income rose to51 .82 billion, climbing 10 percent from 51 .66billion . Our food business reported 1987 salesof 59 .42 billion, up 2 percent from S 9 .24billion, and operating income totaled 5915million, a 12 percent gain over S820 millionin the prior year .

From an earnings perspective, we have anexcellent balance in the company betweenour tobacco and our food businesses . By com-paring operating income, you see a percent-age contribution of 67 percent from tobaccoand 33 percent from food . However, whenyou look at our operations on an after-taxbasis and excluding intangible amortization,tobacco represents 60 percent and foodrepresents 40 percent of the total .

Strategies for GrowthRJR Nabisco's activities in 1987, as well as

our strateqies for 1988, are based on fouroverriding principles :• Ensuring that our company continues as a

highly responsive and flexible organization ;• Continuing to build on the strength of ourcore businesses and well-established brandsin both tobacco and foods ;

• Continuing to invest in technological excel-lence in manufacturing and product devel-opment; and

• Continuing to maximize our balancesheet strength .

Corporate OrganizationWith the restructuring of our corporate

staff and the decentralization of our operatingunits now complete, our organization is ideallyset as an active, responsive and results-oriented team .

RJR Nabisco relocated Its corporate headquartersstaff to Atlanta, Georgia, during 1987.

F Ross Johnson, President and Chief Executive WOfficer, RJR Nabisco, Inc. %D

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2http://legacy.library.ucsf.edu/tid/nbn14d00/pdf

During the year, both our domestic andinternational tobacco businesses were placedunder the management of R .J. ReynoldsTobacco Co . In addition, Planters LifeSaversCo. was assigned to R.J. Reynolds Tobacco totake full advantage of common sales and distri-bution strategies . The senior managementgroup of our international tobacco businessmoved to London, closer to its major markets,and our international food business will followthere in 1988 .

As part of our strategy of building strengthon strength and concentrating on corebusinesses, we sold several operations thatdid not fit our strategic business focus ormeet our criteria for long-term growth .These divestitures included ;• Heublein Inc ., sold to Grand Metropolitan

PLC for 51 .2 billion ;• specialty tobacco and little cigar products ;• Canadian confectionery, margarine, dessertand food service businesses ; and our

• date and dry mix business and selectedconfectionery products in early 1988 .We will primarily utilize internal opportu-

nities to expand our tobacco and food oper-ations. However, as with any organization,should the right major acquisition opportunityarise, we would give it full consideration .

Concurrently, we will continue to makesmaller acquisitions that complement ourexisting operations, as we did in 1987 withthe purchases of a :• cashew nut company in Brazil ;• snack producer in New Zealand; and• frozen pastry firm in France .

Brand StrengthOur greatest asset is our lineup of leading

brand-name products . In tobacco, ourWINSTON, SALEM, CAMEL, VANTAGE and DORALbrands rank among the 15 best selling ciga-rettes in the United States, and CAMEL is a lead-ing global brand . In foods, the excellent resultsof line extensions such as OREO Big Stuf cookiesand RITZ BiTS bite-size crackers demonstrate thevitality of these long-time favorite brands .

Building on the powerful strength of ourfamous brands, we will continue to maximizetheir product potential and use our marketleadership position as a springboard for intro-ducing successful new brands .

Charles E. Hugel, Chairman of the Board,RJR Nabisco, Inc .


Technology

We firmly believe that technology is the cor-nerstone of future growth in both our tobaccoand food businesses . Reflecting this commit-ment, we raised our investment in researchand development by 19 percent to 5204million in 1987.

Perhaps no better example of the potentialimpact of technological innovation was ourSeptember announcement of a new cigarettedeveloped through our own technology-a product that heats, rather than burns,tobacco. We are excited about the productand its U .S. market introduction in the latterpart of 1988, as well as what it could repre-sent for the future growth of our industry .

To broaden our foods technology base, weformed a joint venture with BioTechnica Inter-national, Inc ., a biotechnology firm, to con-duct long-term development of improvedcrops using genetic engineering techniques .

Technology is essential in assuring that ourmanufacturing facilities are state of the art .Our cigarette manufacturing complex inTobaccoville, North Carolina-the world'slargest and most technically advancedfacility of its kind-became fully operationalduring the year. Modernization of the Whit-aker Park plant, another key componentof our S2 billion tobacco facilities program,is nearing completion .

In foods, we will spend more than 54billion over the next several years to intro-duce leading-edge technology to all ofour manufacturing far-ilities .

Financial PositionThe company took several actions in 1987

to improve its already strong financial position .The early retirement of high-interest debt andthe repurchase of a portion of the Series Bpreferred stock contributed to lowering thecorporation's total debt-to-capital ratio in1987 to 42 percent, compared to 51 percenton December 31, 1986 . Our interest costshave declined, and our remaining debt isset at fixed rates averaging below 9 percent .

Before capital expenditures and dividends,our cash flow totaled 52 .12 billion from contin-uing operations in 1987. This places us in anexcellent position to service both the long- andshort-term objectives of our company.

Dr. Robert J . Carbonell, Vice Chairman of the Board,RJR Nabisco, Inc .


It allows us to respond quickly to businessopportunities, as well as changing conditionsin the financial market . As an example of this,in October we announced plans to repur-chase up to 5 million shares of our commonstock. We did so to take advantage of theunusual opportunity to repurchase our sharesat attractive price levels .

Reflecting our corporation's strong 1987results, as well as our excellent financialposition, the Board of Directors raisedthe quarterly dividend on RJR Nabisco'scommon stock in July to 48 cents pershare, an increase of 20 percent .

LitigationLitigation involving the tobacco industry

continues to be of interest and concern to ourcompany and its shareholders . While the com-pany remains a defendant in a number ofproduct liability lawsuits in the United States,favorable decisions by Federal Circuit Courts ofAppeal during the year affirmed the adequacyof federally mandated health warnings for cig-arettes. A number of our state courts reachedthe same conclusion in favorable rulings forthe defendant cigarette companies .

We believe that such lawsuits are inappro-priate both from a legal and a public policystandpoint, and that our position in the liti-gation will ultimately prevail .

Executive Appointments

During 1987 a number of importantcharige~ took place in the senior manage-ment of our company.

Charles E. Hugel became Chairman ofthe Board of RJR Nabisco on October 1, 1987,succeeding J. Paul Sticht .

Among other key appointments :• Edward A. Horrigan, Jr., Vice Chairman of

the Board of RJR Nabisco, was also namedChairman and Chief Executive Officer of therestructured R .J. Reynolds Tobacco Co . ;

• Dr. Robert J. Carbonell was elected ViceChairman of the Board of RJR Nabisco ;

• James O. Welch, Jr. was elected ViceChairman of the Board of RJR Nabisco ;

• Edward J . Robinson was elected ExecutiveVice President, Finance, and ChiefFinancial Officer ;

James O. Welch, Jr., Vice Chairman of the Board,RJR Nabisco, Inc ., and Chairman, Nabisco Brands, Inc .


• John D. Martin was elected ExecutiveVice President, effective January 15, 1988 .He formerly served as President andChief Operating Officer of OhlmeyerCommunications Co ., our joint-venturecommunications company.

• H. John Greeniaus was namedPresident and Chief Executive Officerof Nabisco Brands ;

• Dolph V(/W von Arx was named Presidentand Chief Executive Officer of R .J . ReynoldsTobacco USA ;

• John H . Clarke was elected Senior VicePresident, Corporate Technology ;

• Dennis Durden was elected SeniorVice President ;

• William J. Liss was elected Senior VicePresident, Public Affairs ;

• W.G. Champion Mitchell was electedSenior Vice President, External Affairs ;

• J. Thomas Pearson was elected SeniorVice President, Taxation ;

• Dean R . Posvar was elected SeniorVice President, Business Planningand Development ;

• Kenneth D. Taylor was elected Senior -Vice President .Retiring from the company's Board of

Directors during 1988 will be J . Paul Stichtand Gerald H . Long. We are grateful fortheir leadership and many contributionsto our company.

Paul Sticht will retire from the Board after21 years of service to RJR Nabisco and itspredecessor, R .J. Reynolds Industries . He joinedthe Board in 1968, and has served as bothPresident and Chief Operating Officer andChairman and Chief Executive Officer ofour company.

Gerald Long, Senior Executive Vice Presidentof RJR Nabisco and Chairman of R .J . ReynoldsTobacco USA, will retire after 20 years withthe company. He has been a member of ourBoard since 1984 .

In February 1988, Martin S . Davis,Chairman and Chief Executive Officer ofGulf+Western Inc ., was nominated forelection to our Board of Directors at theMay 1988 annual stockholders meeting .

Outlook

RJR Nabisco is today in an enviableposition to meet the challenges of an ever-changing global market and to enhanceour shareholder value .

Our accomplishments to date and our plansfor the future are possible only through thesupport of our more than 120,000 employeesworldwide. On behalf of the Board of Direc-tors, I wish to express our deep appreciationfor their many contributions to makingRJR Nabisco one of the world's premierconsumer products companies .

F Ross JohnsonPresident and Chief Executive Officer

Atlanta, GeorgiaFebruary 19, 1988


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R .J. Reynolds Tobacco Company

The worldwide tobacco businesses ofRJR Nabisco achieved outstanding results for1987. The domestic and international tobaccobusinesses produced combined sales of $6 .35 biI-Iion, up 8 percent from 1986 . Operating incomewas S 1 .82 billion, an increase of 10 percent .

The tobacco operations achieved theseresults by strengthening core brands, increas-ing manufacturing efficiencies, developingnew products, and enhancing their salesand marketing strategies .

During 1987, RJR Nabisco's worldwidetobacco business was restructured underR.J. Reynolds Tobacco Co . to help ensure themost effective management of all global resources .A new business unit, R .J. Reynolds TobaccoDevelopment Corp ., was created to over-see new product developments on a world-wide basis . The senior executive group ofR.J. Reynolds Tobacco International moved toLondon, enabling management to be evenmore responsive to changing internationalmarket conditions .

Responsibility for Planters LifeSavers Co . wastransferred to R .J. Reynolds Tobacco Co . fromNabisco Brands, and the business was reloca-ted to Winston-Salem, North Carolina, fromParsippany, New Jersey. The sales forces ofR.J. Reynolds Tobacco USA and PlantersLifeSavers were merged in early 1988, formingRJR Sales Co ., to share distribution strengths .

In September, R .J. Reynolds Tobacco Co .announced the development of the most sig-nificant cigarette innovation in decades . Thecompany's new cigarette will provide consum-ers with an alternative in their selection of cig-arette brands . The cigarette looks, lights andsmokes like other cigarettes, but produces noash and virtually no sidestream smoke afterthe first few puffs . Because the tobacco isheated rather than burned, a majority of thecompounds of burning tobacco are eithereliminated or greatly reduced .

Development of the new cigarette contin-ued in 1988, and the product is scheduled toenter lead markets by the end of the year .

Throughout 1987 R.J. Reynolds TobaccoCo., and the entire tobacco industry, againfaced external pressures in the United Statesand abroad. Reynolds Tobacco will continue tovigorously defend its position in product liabil-ity litigation and on issues of higher cigarettetaxes, public smoking regulations, and bans oncigarette advertising and promotion .

With refinements made in the company's struc-ture and capabilities during 1987 R .J. ReynoldsTobacco Co . is better prepared than ever to bethe lowest cost supplier of the highest qualityproducts in the global tobacco industry.

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Edward A. Horrigan, Jr., Vice Chairman of the ~oBoard, RJR Nabisco, Inc ., and Chairman and Chief 'PExecutive Officer, R .J. Reynolds Tobacco Co. N


i

R.J. Reynolds Tobacco USAR.J. Reynolds Tobacco USA achieved record

results in 1987 posting gains in both sales andoperating income while increasing its share ofthe U .S . cigarette market .

Two key factors contributed to R .J. ReynoldsTobacco USA's continued success : its stronglineup of major brands targeted to appeal toindividual preferences for taste, style and price ;and its ongoing improvements in manufactur-ing and productivity

The solid showing by R .J. Reynolds TobaccoUSA brands in each major segment of the ciga-rette industry helped increase the company'sshare of the U .S. market to 32.52 percent from32 .36 percent . Since 1976, Reynolds TobaccoUSA has manufactured and marketed four ofthe nation's top 10 cigarette brands-WiNSroN,SALEM, CAMEL and VANTAGE .

Once again, Reynolds Tobacco USA out-performed the U .S. tobacco industry. Whileunit volume for the overall U .S. tobaccoindustry declined 2 percent, ReynoldsTobacco USA's unit volume for the yeardeclined byjust 1.6 percent .

The company achieved its record results byusing a two-pronged approach of redoublingits efforts to enhance its established corebrands and applying the necessary resourcesto develop new brands .

WINSTON, SALEM, and CAMEL cigarettes arebenefiting from enhanced consumer appeal asthe result of new packaging and advertisingcampaigns and line extensions .

SALEM, in particular, highlights the impactthat successful advertising and appealing pack-aging can make on consumers. SALEM packag-ing which had remained largely the samesince the 1950s, was redesigned in 1987 withbolder colors, a crisp sailboat logo and newlettering . In consumer testing, smokers of com-petitive products preferred the new packagingover the old style by a three-to-one margin . Inaddition, the packaging change was sup-ported by new advertising that emphasizes ~the brand's coolness and refreshment value .

1988 marks CAMEL cigarettes' 75th anniver-sary, an unusual brand milestone of longevityand consumer acceptance . The brand intro-duced new advertising, marketing and promo-tional efforts in early 1988 to celebrate thebrand's birthday. In addition, CAMEL Filters 100swere introduced during 1987, further broaden-ing that brand's appeal among smokers .

Gerald H . Long (right), Chairman, R .J. ReynoldsTobacco USA

Dolph W. von Arx, President and Chief ExecutiveOfficer, R .J. Reynolds Tobacco USA

Salem cigarettes, the nation's leading mentholbrand, received an exciting new look for Itspackaging and advertising during 1987. The newpackage design and marketing support emphasizeSalem cigarettes' refreshing menthol flavor.


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The company's efforts were not limited to itsestablished brands . Since the DORAL brand wasreintroduced in 1984 as the first branded ciga-rette in the savings segment, targeted toappeal to price-conscious smokers, its successhas been phenomenal . DoRAL cigarettes' shareof the domestic market has climbed steadily,and it has become the number one brand inthe savings segment . The brand reached a 3.0share in 1987 up from 2 .1 percent in 1986 .

New, more distinctive packaging for theentire DORAL brand family, along with the addi-tion of three new styles, DORAL Full Flavor 85s,DORAL Full Flavor 100s and DORAL Ultra Lights100s, strengthened the company's leadershipposition in the growing savings segment .Other key brand accomplishments for the

year included a new advertising program forMORE cigarettes, new packaging for CENTURY

cigarettes, favorable consumer response toVANTAGE cigarettes' action-oriented advertisingcampaign, and a successful year of sharegrowth for NOW cigarettes .

Complementing the company's aggressivemarketing programs are the results of severalyears of manufacturing and productivity im-provements . In 1987, the company's Tobacco-ville complex-the world's largest and mosttechnologically advanced cigarette manufac-turing facility-was brought fully on line . Withthe phased start-up of the plant that began in1985 now complete, the company is realizingsubstantial increases in productivity and thehighest levels of product quality in its history.

Reynolds Tobacco USA's Whitaker Parkmanufacturing complex is undergoing renova-tic.n to make it the technological equivalent ofTobaccoville . The installation of new makingand packing equipment is scheduled for com-pletion in 1988 .

The combined manufacturing resources ofTobaccoville and Whitaker Park, together withthe efforts of its skilled and knowledgeableemployees, will put R .J. Reynolds Tobacco USAin an unparalleled position to become theindustry's lowest cost supplier of the highestquality cigarettes available .

With its exceptional line of leading cigarettebrands and advances in achieving greateroperating efficiencies, R .J. Reynolds TobaccoUSA is well positioned to continue its record ofsteady earnings growth .

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Winston is R.J. Reynolds Tobacco USA's bestselling brand family. The brand appeals toa wide range of consumers through a varietyof styles and packaging alternatives .

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R.J. Reynolds Tobacco International, Inc.R.J. Reynolds Tobacco International achieved

record unit volume of 99 billion units in 1987,an increase of more than 10 percent over 1986and about 10 times the growth rate of theworldwide cigarette market .

Tobacco International substantially increasedmarketing spending for its key brands aroundthe world, and achieved strong sales and oper-ating income in 1987

Paced by its major brands-CAMEL, WINSTONand SALEM-R .J. Reynolds Tobacco Interna-tional increased or maintained share in allof its top 20 markets during 1987 with a strongand balanced worldwide performance .

CAMEL, Tobacco International's global brand,increased or held share in all of its top 10 mar-kets . The CAMEL brand increased unit volumeand market share in its traditionally strongestregion, Western Europe, where overall indus-try unit volume declined .

A new cornerstone for Tobacco Internation-al's sponsorships established CAMEL cigarettesas a major force in Formula One automobileracing. Throughout the year, CAMEL cigarettesreceived worldwide publicity, targeted expo-sure and enhanced imagery at the Grand Prixrace courses of the world .

The company's other top brands alsocontributed to Tobacco International's record1987 performance . For WINSTON cigarettes,unit volume rose more than 10 percent in itsstrongholds of Spain, Portugal, Puerto Ricoand Hong Kong . The WINSTON brand alsowas successfully relaunched in Switzerlandand France .

In the menthol segment, SALEM cigaretteswere a powerfui presence with unit volumeup 18 percent in 1987. In Asia, which accountsfor about half of the brand's unit volume,SALEM cigarettes' volume grew by almost40 percent .

Tobacco International's local brands, whichposted a 10 percent unit volume increase in1987 also contributed to the company's excel-lent year. Especially strong performances camefrom MUSTANG in Brazil, and EXPORT "A" andMACDONALD SPEC IAL in Canada .

Operations will begin by the middle of 1988at Tobacco International's joint venture ciga-rette factory in the People's Republic of China .Access to Taiwan was achieved in 1987, andthe company continued to make progress

Lester W. Pullen, Chairman and Chief ExecutiveOfficer, R .J. Reynolds Tobacco International, Inc .

toward greater access to other major Camel cigarettes, R .J. Reynolds Tobaccogovernment-controlled markets such as International's global brand, reinforced ItsTurkey, Thailand and Korea . Image and expanded Its worldwide marketingBuilding on the momentum established in effort by becoming a sponsor of Formula One

1987, R .J. Reynolds Tobacco International is automobile racing .looking ahead to further growth in its globaltobacco business .


Planters LifeSavers Company

Planters LifeSavers Co . recorded higher salesand operating income in 1987, while increasingmarketing support for core brands and prod-ucts introduced during the year.

PLANTERS nuts, the leading brand name inpackaged nuts, continued to show gains inthe United States. The popular PLANTERS HoneyRoasted nuts, as well as other PLANTERS nut andsnack products, contributed to the brand'soverall volume growth . RJR Nabisco's pur-chase in July of a major Brazilian cashew nutproducer, Iracema Industrias de Caju S.A .,complemented the PLANTERS nut business .

PLANTERS Premium Select popcorn enteredthe growing popcorn market in March 1987.The premium brand of unpopped popcorn isavailable in jars and microwave bags . A natu-ral extension of the PLANTERS snack line, PLANT-ERS popcorn made good progress in'acompetitive market during its first year, backedby strong marketing support at both the tradeand consumer levels .

Individual-size packages of 12 differentPLANTERS nuts and salted snacks, along withproducts from Nabisco Brands' BiscuitDivision, were successfully launched as theSNACK-ALONGS line during 1987. This programprovides a one-of-a-kind, full-line snack centerfor convenience stores, drug stores and otherretail outlets in the United States .

LIFE SAVERS Fruit Juicers, a roll candy in fourflavors made with 10 percent real fruit juice,underwent successful development and con-sumer testing in 1987. National introductionwas completed in early 1988 .

BUBBLE YUM bubble gum and CARE*FREE SUg-ariesS gwYi achieved improved results for theyear. BUBBLE YuM bubble gum widened its mar-gin as the leading product in its category .CARE*FREE sugarless gum enjoyed excellent vol-ume and market share growth following theintroduction of a new, better-tasting product .

BUTTERFINGER candy bars completed a thirdstraight year of strong sales growth, while thesuccessful relaunch of BABY RUTH candy barsexceeded the company's goals for distributionand sales volume .

Joining with R .J. Reynolds Tobacco USA,Planters LifeSavers expects to improve distribu-tion at approximately 75,000 conveniencestores and 113,000 small retailers throughoutthe United States .

By combining a superior product lineupwith a powerful new sales and distributionforce, Planters LifeSavers is well positioned tobe the best and lowest cost supplier of theindustry's most complete line of snacks andconfectionery products .

John P. Polychron, President and Chief ExecutiveOfficer, Planters LifeSavers Co .

Building on Its lineup of popular leading brands,Planters LifeSavers is offering consumers a growingvariety of snacks and confectionery products .


Nabisco Brands, Inc .

Nabisco Brands, Inc . enjoyed a strongperformance in 1987, with volumes fromcontinuing businesses up 3 percent and salesfrom continuing businesses up 10 percent .New product successes led to market shareimprovements in nearly all key business areas .

Nabisco Brands is the largest component ofRJR Nabisco's food business . The company'shighly successful strategy of concentrating oncore brands and building growth from thestrength of its many leading brand name prod-ucts contributed to improved results in 1987 .

New product introductions and growthin established brands resulted in U.S. marketshare gains in cookies, crackers, breakfastcereal, margarine and other products . Strongvolume gains in the United Kingdom andother international markets also contributedto Nabisco Brands' results .

To help assure continued progress, during1987 Nabisco Brands increased investments inmarketing for its key brands, in technology fornew product development and in advance-ments in manufacturing capabilities .

RJR Nabisco will spend more than S4 billionover the next several years to assure that itsfood manufacturing facilities are the most tech-nologically advanced in the industry. A majordimension of the program will involve Nabis-co's Biscuit Division, which announced plansin early 1988 to construct a new, state-of-the-art bakery near Raleigh, North Carolina .

This new bakery will produce cookie andcracker products using the latest in food proc-essing technology. The North Carolina facilitywill prod! ~ce ma;or high-volume brands moreefficiently with enhanced quality control . Inaddition, it will give Nabisco Brands greaterflexibility in packaging its products to meetconsumer needs and production of specialtyitems, new products and special packs at itsother plants .

With an unparalleled lineup of famousbrands and a firm commitment to manufac-turing excellence, Nabisco Brands is preparedto meet the varied needs and individual tastesof consumers around the world with its high-quality food products .

H . John GreEnia us(rigPrEsiatn ; CrExecutive Officer, Nabisco B~ands .

Peter N . Rooers, Executive Vice President,Nabisco Brands, Inc .

American Classic crackers was one of 18 productsintroduced under the "'Nevv Sta-s from Nat .:isco"campaign. The largest product launch in companyhistory, the "New Stars" program achievedexcellent results in 1987.

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Biscuit Division

Bolstered by successful new productsand line extensions of its leading cookie andcracker brands, the Biscuit Division of NabiscoBrands achieved solid volume growth whichcontributed to higher sales and operatingincome for 1987.

Nabisco's Biscuit Division widened its U .S .market leadership in cookies and crackersthrough successful line extensions and newbrand introductions .

Nabisco Brands initiated the largest productlaunch in its history during July. Under the"New Stars from Nabisco" banner, 18 newcookie and cracker productsjoined otherNabisco favorites in stores nationwide . Thisnew product effort achieved an outstandingfirst-year sales performance. At the same time,it strengthened major brand franchises andenhanced Nabisco's product presence onsupermarket shelves .

In cookies, Nabisco extended several of itsstrong established brands with appealing newitems . OREO, the world's largest selling cookiebrand, achieved record volume for the thirdconsecutive year. An 8 percent volumeincrease in 1987 followed an exceptional per-formance in 1986, the brand's 75th anniver-sary. Strong consumer response to the newFudge Covered OREO and OReo Big Stuf cook-ies, both introduced as part of the "New Stars"program, demonstrated the ongoing vitalityof this long-time cookie favorite .

CHIPS AHOYI chocolate chip cookies, thenumber one brand in its category, recordedvolume gains in 1987, aided by the introductionof Fudge Strired CHIPS .AHovI cookies . The addi-tion of Newrorvs fruit-filled cookies in newsingle-serve variety packs contributed to thatbrand's 1987 volume growth .

Nabisco achieved its highest ever share ofthe growing U .S. cracker market in 1987. RrTzcrackers, America's favorite cracker brand,enjoyed overwhelming success with the intro-duction of RrTZ BITS, bite-size snack crackers .

Two entirely new cracker products joinedthe Nabisco lineup as well . AMERICAN CLASSICcrackers were introduced to meet growingconsumer interest in premium snack productsand in-home entertaining . QUACKERS snacks, abite-size cracker in the shape of a duck, alsoreceived enthusiastic consumer response .

The Biscuit Division's powerful market posi-tion in cookies and crackers, coupled withimproved manufacturing capabilities, offerstremendous potential for continued growth .

Wilfiam B . McKnipht, President, 6 :scui ;Nabisco Brands, Inc .

The popularity of Oreo Bio Stuf cook ies exFm ; ,i!` c :Nabisco Brands' successful strateov of introc,lcr-, ;line extensions of its many weEi-knov .•r,established brands .

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Grocery Products Division

The Grocery Products Division of NabiscoBrands recorded higher sales and operatingincome in 1987, a performance strengthenedby increased marketing support for establishedbrands, as well as growth from successful newproduct introductions.

In cereals, Nabisco Brands increased itsshare of the highly competitive ready-to-eatcategory, supported by the excellent results ofNABISCO Shredded Wheat cereals . The success-ful national rollout of FRUIT WHEATS cereal rein-forced Nabisco's strong position in the adultcereal market. Nabisco holds a 23 percentshare of this growing cereal segment, a solidfoundation for generating future expansion .

Good volume gains by FLEiscHnnANN's marga-rines enabled Nabisco to achieve its highestmarket share in recent history. An advertisingand promotion campaign aimed at health-conscious consumers contributed to thebrand's performance . BLUE BONNET margarinecontinued to compete effectively in the inter-mediate price segment, modestly increasing inboth volume and share .

Building on the prominence of the A .1 .brand, the leader in the steak sauce category,the Grocery Products Division introduced A .1 .Poultry Sauce in 1987. The new product wasdeveloped by Nabisco Brands to take advan-tage of the growing popularity of chicken .

Striking new packaging, coupled with inno-vative merchandising programs, sparked vol-ume improvement for ORTEGA Mexican foods .Five new table sauces introduced in 1987 com-plement the ORTEGA product line and help posi-tion the brand to increase its share of thefast-growing Mexican food category.

Other Grocery Products Division productsalso achieved good results in 1987, includingMILK-BONE dog biscuits, GREY POUPON DlJonmustards, ROYAL desserts, COLLEGE INN brothsand REGINA wine vinegar.

During the year, the Grocery Products Divi-sion established its own dedicated sales group .This step provided the division with more flexi-bility by combining the strengths of both adirect sales unit for cereal and pet snack prod-ucts, and broker representation for other gro-cery products. This focused effort enhancedoverall sales and merchandising effectivenessand strengthened the division's ability to serv-ice the grocery trade and to reach new outlets,such as drug stores and mass merchandisers .

The Grocery Products Division of NabiscoBrands, with its large and diverse group ofwell-known brand names, is managing itsproduct portfolio aggressively to assure con-tinued profitable growth .

Ellen R. M,arrarn, President, Grocery ProductsDivision, Nabisco Brands, Inc .

Nabisco Fruit Wheats cereal, one of Nabisco Brands'shredded wheat products, and its Fleischmann'smargarines appeal to the growing number ofconsumers wanting healthy foods .


Del Monte USA

Del Monte USA, the largest canner of fruitsand vegetables in the United States, main-tained a firm hold of the number one shareposition in both segments . Anchored by oneof the most widely recognized and respectedtrademarks in the food industry, Del MonteUSA achieved higher sales and operatingincome in 1987

In its core business, processed fruits andvegetables, Del Monte USA gained marketshare and improved profitability during 1987 .Canned fruit and vegetable volume signifi-cantly increased compared to 1986 andbettered the industry, which registered amodest volume decline .

Del Monte is following a strategy of creatingnew products and "niche" line extensions thattake advantage of its rich heritage, as well astechnical and distribution strengths in proc-essed fruits and vegetables .

A major step in this regard occurred in 1987with the introduction into test markets of DELMONTE Vegetable Classics, a line of vegetableside dishes packaged in shelf-stable plastictrays. The trays are designed for use in micro-wave ovens, providing both convenient andgood-tasting side dishes . Following successfultest marketing in Phoenix and Seattle, Vegeta-bie Classics will be expanded to additionalmarkets during 1988 .

Del Monte USA also introduced DEL MONTESpecialties, a line of premium quality vegeta-bles in smaller-sized, gold-label cans . This newvalue-added product line was designed forconsumers seeking variety and superiorquality. As an extension of the popularindiviaual-serving fruit cups, Del Monte USAintroduced Fruit-In-Gel Cups, a line of fruitspacked in fruit-flavored gelatin . A companionline of flavored applesauces, called ApplesauceCups, aiso joined the DEL MONTE line .

Recognizing the on-the-go lifestyles of con-sumers, Del Monte began distribution of ,single-serve sizes of its DEL MONTE FRUIT SNACKSand Fruit Blends juice drinks in 1987 The lineextensions expanded distribution beyond gro-cery stores into convenience stores, drugstores and small retail outlets .

Del Monte's umbrella advertising campaign,based on the "We Grow" theme, wasextended to all major product lines in bothprint and television . The use of this commontheme capitalizes on the synergies thatexist when one brand name spans manydifferent products .

Building on its long-established strengths inprocessed fruits and vegetables, Del MonteUSA is aggressively seeking opportunities toexpand its business .

A. Ewan Macdonald, President, Del Monte USA

Del Monte USA's new Vegetable Classics side dishescombine the nutritious goodness of Del Montevegetables with the convenience and ease ofmicrowave cooking .


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Nabisco Brands LtdNabisco Brands Ltd of Canada accom-

plished a dramatic turnaround in its key foodbusinesses during 1987. The Canadian foodcompany recorded gains in volume and mar-ket share for nearly all major advertisedbrands, reversing the prior year's decliningtrend. Both sales and operating income fromNabisco Brands Ltd's ongoing operations alsoimproved significantly .

Nabisco Brands Ltd's strategy of concentrat-ing marketing resources behind core brands,along with a program of restructuring,streamlining and decentralization, contributedgreatly to the year's performance . Through asuccessful divestiture program, the companysold a number of businesses that did not fit itslong-term strategic plans .

Nabisco Brands Ltd today is focused on twoprimary businesses-the Biscuit Division,which is Canada's top cookie and cracker pro-ducer, and the Grocery Division, a leading pro-ducer of cereals, pet snacks, canned fruits andvegetables, and fruit juices .

In both divisions, increased spending onadvertising and promotions for core brandscontributed to overall volume growth .

The Biscuit Division, led by Christie Brown,benefited from a number of successful lineextensions and new product introductionsduring 1987. These products included FuDGEE-ODOUBLE STUF cookies, new flavors of NEwroNfruit-filled cookies, Striped CHIPS AHOYI cookies,OREO DOUBLE STUF cookies, Whole Wheat RiTzand PREMIUM crackers, and new flavors ofCHRISTIE snacking crackers .

Nabisco Brands Ltd's new COUNTRY FIBREline of three cookie and cracker products,the company's largest product launch of theyear, achieved promising results . Thisunique biscuit line offers consumers a goodsource of dietary fibre in wholesome, good-tasting cookies and crackers .

In the Grocery Division, NABisco RAISINWHEATS cereal continued to show volumegrowth momentum . Nabisco Brands Ltd alsointroduced SHREDDED WHEAT'N BRAN nationallyin 1987 and launched a highly successful mar-keting effort to revitalize SHREDDIES cereal .

DEL MONTE canned fruit and fruit juices, eachthe leading brand in their product categories,achieved solid volume gains . DEL MONTEcanned vegetables experienced a slight vol-ume decline, due primarily to reduced avail-ability of crops for processing .

With a firm focus on its core businesses andmajor brands, Nabisco Brands Ltd is capitaliz-ing on its leadership positions in a variety ofwell-known biscuit and grocery products .

Raymond J. Verdon, President and Chief ExecutiveOfficer, Nabisco Brands Ltd

Nabisco Brands Ltd, one of Canada's leadino foodcompanies, Is strengthening its business by focusingon core brands, such as Peek Freans andChristie biscuit products .


lnternational Nabisco Brands

International Nabisco Brands' higher 1987sales and operating income benefited fromparticularly strong performances in the UnitedKingdom and Europe .

In the United Kingdom, InternationalNabisco's largest single market, good volumegrowth came from WALKERS and SMITHS crispsand snacks, as well as NABisco cereals. Success-ful product introductions included SMITHS Jack-ets crisps, a chip made using unpeeledpotatoes, and TEAM FLAKES cereal .

In France, volume and market share in-creases for the BELIN line of cookies extendedthe company's position as one of the country'stop biscuit producers . The acquisition of ULABahlsen, a French frozen pastry business,made Nabisco the leading marketer of thispopular French dessert .

Other major European markets also showedgood progress . In Italy, Nabisco continued toregister market share gains for the SAiwA line ofcookies. In Spain, the company's biscuit busi-ness achieved sharply higher volume andmarket share improvements . To enhance itsdistribution channels there, the companyentered into a partnership with Tabacalera,S.A ., Spain's government-owned tobaccoand foods company.

International Nabisco expanded its opera-tions in a number of other countries as well .Britannia Industries, Nabisco's 38 percent-owned business in India, began operating anew soya processing plant and maintained itsleadership position in the biscuit category. InNew Zealand, the company added to its num-ber one position in biscuit products byacquiring the country's leading snack pro-ducer, Abels Industries, Ltd .

Nabisco Brands' joint venture in the People'sRepublic of China completed construction andbegan start-up of a new bakery in late 1987.The Beging bakery will begin producing crack-ers for sale in China and other Far East coun-tries during 1988 . In addition, a joint-venturebusiness in Thailand began operating a newbakery during 1987.

The diversity of its products and the geo-graphic reach of its markets are important fac-tors in the overall strength of InternationalNabisco Brands . This balanced portfolio willhelp assure steady progress for the company'sworldwide food business .

R. Edwrd, Gfove ;. President, In :e; n~ :io ti,='Nabisco Brands

Belin, the leading cookie and cracker pro ::ij : r- i~,France, expanded its dessert line with the of new frozen pastry products in 1987

.

6


Del Monte Tropical Fruit CompanyDel Monte Tropical Fruit Co . remained

one of the world's top fresh fruit companies in1987, while taking steps to improve operationsand profitability. Results met expectations,although they were below 1986's recordperformance .

Del Monte Tropical Fruit's principal products,fresh bananas and pineapples, maintained vol-ume strength in the key markets of NorthAmerica, Europe and the Far East . The com-pany continued to improve production, trans-portation and agricultural techniques.

During 1987, Del Monte Tropical Fruit sold57 million 40-pound boxes of bananas in themarkets of North America, Europe, the FarEast and the Middle East. In addition, the com-pany maintained its position as one of theworld's leading marketers of fresh pineapplewith a 33 percent share and sold approxi-mately 10 million boxes in North America,Europe and the Far East .

High-quality pineapples from Del Monte'snewest production facility in Costa Rica con-tinued to receive excellent consumer accept-ance. Production at the 6,000-acre facilityincreased 25 percent over 1986 levels, enablingDel Monte Tropical Fruit to increase sales toNorth American and European markets by31 percent..

Del Monte Tropical Fruit will increase itspresence in the European fresh fruit marketthrough a 1987 agreement with the state-owned Cameroon Development Corp . Underthe agreement, 3,000 acres of new bananaplantations will be developed in the Africannation of Cameroon . By early 1989, the newbusiness will supply bananas to Del Monte forsale in France and other European markets .

In addition, the company's plantation inKenya began providing fresh pineapple to newmarkets in Europe in early 1988 .

Del Monte Tropical Fruit signed an agree-ment in 1987 to build six refrigerated ships fortransporting bananas, pineapples and otherfruits . The vessels, scheduled for deployment inlate 1989, are designed to accommodate DelMonte's efficient system of palletized shippingand will be used for shipments from CentralAmerica to North America . Use of the techno-logically sophisticated ships will improve prod-uct quality while reducing operating costs .

Del Monte Tropical Fruit is developing itsproduction facilities, expanding into new mar-kets, and improving operating and marketingefficiencies to take full advantage of growingfresh fruit consumption worldwide .

Paul J. Bott, President and Chief Executive Officer,Del Monte Tropical Fruit Co .

Del Monte Tropical Fruit Co . is expanding its bananaand pineapple growing operations and improvingits transportation system to meet Increasingdemand for fresh fruit worldwide .


Sports Marketing

By teaming up sports and marketing,RJR Nabisco is using one of the most effectivemeans available to marketers of consumer prod-ucts to reach key consumer audiences .

RJR Nabisco companies were involvedwith some 1,800 individual sporting eventsaround the world in 1987. Millions of spectatorsattended these events in venues ranging fromthe Daytona 500 stock car race to the NabiscoMasters tennis championship, while millionsmore viewed them on television .

In motor sports, more than 6 million racingenthusiasts filled the stands at events spon-sored by R .J. Reynolds Tobacco USA during1987 Through its sponsorship of the NASCARWinston Cup Series in stock car racing,Winston drag racing, Camel GT sports car racing,and Camel motorcycle racing, R .J. ReynoldsTobacco is one of the best-known names inAmerican motor sports .

R .J. Reynolds Tobacco International movedinto the high-speed world of international For-mula One racing during 1987. The company'sCAMEL brand added sponsorship of the LotusGrand Prix Racing Team to its motor sportsinvolvement in Europe .

RJR Nabisco expanded its sponsorship ofprofessional golf, one of America's fastestgrowing spectator sports, in 1987 The NabiscoGrand Prix of Golf, a year-long points competi-tion among individual PGA tour professionalsthat also benefits charities throughout theUnited States, completed a successful first year.R .J. Reynolds Tobacco Co. sponsored the inau-gural Vantage Cup Championship in Winston-Salem, North Carolina, in 1987 This eventcapped off the first year of the Vantage Cupteam competition on the Senior PGA Tour.

In ladies' professional golf, Planters LifeSaversCo. will sponsor the first Planters Pat BradleyInternational Tournament in 1988 . RJR Nabisco'sinvolvement with women's golf began in 1982with the Nabisco Dinah Shore tournament,one of the major events on the LPGA tour .

The Nabisco Grand Prix of Tennis broughttogether the world's top men tennis playersto compete in more than 70 events in 1987Highlighting the year-long competition wasthe Nabisco Masters Championship in men'ssingles tennis, held at New York's MadisonSquare Garden, and the Nabisco MastersChampionship in doubles at Royal Albert Hallin London .

RJR Nabisco remains a leader in corporateuse of sporting events to reach consumersaround the world . For RJR Nabisco, sports andmarketing are truly a winning combination .

Bob Goalby, former Masters champion and a mem-ber of Team RJR Nabisco, competed with otherSenior PGA golfers at the first Vantage Champion-ship, sponsored by R .J. Reynolds Tobacco Co .

Top, right: The excitement of Winston Cup stock carracing draws millions of enthusiastic fans each yearto events throughout the United States .Middle, right: Professional golfers Jack Nicklaus,Raymond Floyd and Ben Crenshaw (left to right) aremembers of Team RJR Nabisco, a group of athleteswho represent the company In various sales,marketing and charitable activities .Bottom, right: Ivan Lendl, the world's top men'stennis player, received first place honors at the 1987Nabisco Masters Championship from tennis greatRod Laver, a member of Team RJR Nabisco .


Famous Brands From RJR Nabisco, Inc .

TOBACCO PRODUCTS Ideal Chocolate and Peanut Bars Triscuit WafersLorna Doone Shortbread Twigs Sesame and Cheese Snack Sticks

UNITED STATES Mallomars Chocolate Cakes Uneeda BiscuitsCigarette Brands Mystic Mint Sandwich Cookies Vegetable Thins Flavored CrackersCamel NOW Nabisco Brown Edge Wafers Waverly CrackersCentury Salem Nabisco Chocolate Chip Snaps Wheatsworth Stone GroundDoral Vantage Nabisco Chocolate Grahams Wheat CrackersMore Winston Nabisco Chocolate Pinwheels Cakes Wheat Thins Snack Crackers

Nabisco Chocolate Snaps Other Biscuit ProductsINTERNATIONAL Nabisco Devil's Food Cakes Comet Cones Cups and Sugar ConesNabisco Famous Chocolate Wafers ,Cigarette Brands Easy Cheese Pasteurized Process CheeseNabisco Famous Cookie AssortmentCamel More SpreadsNabisco Imported Danish CookiesWinston Vantage Mister Salty PretzelsSalem YSL Nabisco Marshmallow Puffs NAB PacksNabisco Marshmallow SandwichKEY NATIONAL BRANDS Nabisco Marshmallow Twirls Toastettes Toaster PastriesEurope Fudge Cakes Confectionery & Snack Produ-Reyno Nabisco Old Fashion Ginger Snaps Baby Ruth Candy BarsM Nabisco Pecan Shortbread Cookies Beechies Candy-Coated GumTime Nabisco Pure Chocolate Middles Beech-Nut Chewing GumUnited Kingdom National Arrowroot Biscuit Bonkersl Chewy CandyDorchester Newtons Fruit-Filled Cookies Breath Savers Sugar Free MintsBelgium/Luxembourg Nilla Wafers Bubble Yum Bubble GumSt. Michel Nutter Butter Peanut Butter Cookies Butterfinger Candy BarsWest Germany Oreo Chocolate Sandwich Cookies Care*Free Sugarless GumOverstolz Oreo Fudge-Covered Cookies Life Savers Roll Candy and LollipopsEastern Europe Oreo Big Stuf Cookies Pearson Specialty CandyGold Coast Pantry Molasses Cookies Planters NutsCanada Social Tea Biscuits Planters Peanut CandyExport'A" Planters Premium Select Popping CornCrackersMacdonald Select Planters SnacksAmerican Classic CrackersMacdonald Special Better Snack Thins Crackers Grocery ProductsBrazil Cheese Nips Crackers A.I . Steak and Poultry SaucesMustang Cheese Tid-Bit Crackers Blue Bonnet MargarinesTempo

Chicken In A Biskit Flavored Crackers Brer Rabbit Molasses and SyrupsLS Crown Pilot Crackers Chun King Oriental Canned FoodsLuxor Dandy Soup and Oyster Crackers College Inn Broths and Heat &Chanceller Doo Dads Snacks Serve EntreesECllci :jill" Escort Crackers Cream of Wheat and Cream ofDoral Suave Great Crispsl Snacks Rice CerealsFull Speed Holland Rusk Instant Toast Davis Baking PowderKing

Honey Maid Graham Crackers Del Monte Canned Vegetables andMeal Mates Sesame Bread Wafers No Salt Added Vegetables

FOOD PRODUCTS Nabisco Bacon Flavored Crackers Del Monte Tomato Products and No SaltNabisco Cinnamon Treats Added Tomato Products

UNITED STATES Nabisco Cracker Meal Del Monte Canned Fruits and LiteCookies Nabisco Graham Crackers Canned FruitsAlmost Home Cookies Nabisco Graham Cracker Crumbs Del Monte Dried FruitsBakers Bonus Cookies Nabisco Zweiback Del Monte Pickles and Pickle ProductsBarnum's Animals Crackers Oysterettes Soup and Oyster Crackers Del Monte Fruit CupsBiscos Cookies Premium Crackers Del Monte Fruit SnacksBugs Bunny Graham Cookies Ouackers Snacks Del Monte Pudding CupsCameo Creme Sandwich Ritz Crackers Del Monte Sardines in Tomato SauceChips Ahoyt Chocolate Chip Cookies Ritz Bits Crackers Egg Beaters Cholesterol-Free 99 % RealChips 'n More Chocolate Chip Cookies Royal Lunch Milk Crackers Egg ProductCookie Break Sandwich Cookies Sea Rounds Crackers Escoffier Sauces LnCookies 'n Fudge Cookies Sociables Crackers Fleischmann's Margarines m~Giggles Sandwich Cookies Grey Poupon Dijon Mustards 00Hey Day Fudge, Caramel and NMilk-Bone Brand Dog Biscuits

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Milk-Bone Brand Butcher Bones Cookies de Belin Middle East, Africa, Asia/PacificDog Snacks Crackers Gourmand Britannia Biscuits

Milk-Bone Brand Jerky Strips Del Monte Canned Fruits Britannia Vital Cooking OilMy*T*Fine Puddings and Pie Fillings Del Monte Canned Vegetables and Chicken In A Biskit Flavored CrackersNabisco 100% Bran No Salt Added Vegetables Chips Ahoyl Chocolate Chip CookiesNabisco Shredded Wheat, Fruit Wheats, Del Monte Dried Fruits Chip Star Fabricated Potato Chips

Toasted Wheat and Raisin, Del Monte Fruit Juice and Nectars Corn Diggers SnacksShredded Wheat and Bran, Del Monte Tomato Products Del Monte Banana KetchupSpoon Size Shredded Wheat Cereals Del Monte Fresh Bananas and Pineapples Del Monte Beverages

Ortega Mexican Foods Feuillete Dore Del Monte Canned FruitsRegina Cooking Wines and Feuillete Snack Crackers Del Monte Dried Fruits

Wine Vinegars Miniquiche Crackers Del Monte Tomato ProductsRoyai Gelatins, Puddings and No Bake Minizza Snack Crackers Del Monte Vinegar

Desserts Oro Sweet Biscuits ETA Snacks and NutsSteak Supreme Steak Sauce Oxford Range of Biscuits and Cookies Griffins BiscuitsTeam Flakes Parisienne Pastry Cake Life Savers Roll Candy and GumVermont Maid Syrup Pepito Chocolate-Covered Sweet Biscuits Minties CandiesWright's Natural Hickory Seasoning Petits Coeurs Sweet Biscuits Ole Nuts and SnacksBeverages Premium Saltine Crackers Parfait Soft CakeDel Monte Blends Juice Drinks Planters Nuts and Snack Products Picola Crepe CookiesDel Monte Juices, Juice Drinks Riera-Marsa Dry Baby Foods, Flour Mixes Planters Nuts and Snack Products

and Nectars and Instant Mashed Potatoes Pianters Peanut ButterHawaiian Punch Beverages Ritz Crackers Premium Saltine CrackersSnap-E-Tom Tomato and Chile Cocktail Royal Desserts, Gelatins and Cake Mixes Ritz Crackers

Saiwa Sugar Wafers Royal Brand BiscuitsIce Cream and Frozen Confections Urra Chocolate Enrobed Wafer Rum Slice BiscuitsLife Savers Flavor PopsOreo Cookies 'n Cream Ice Cream* Latin America Vita Brits CerealOreo Cookies 'n Cream on a Stick* Aurora Dessert Products Weeties Cereal

Oreo Cookies 'n Cream Sandwich* Beechies Gum and Hard Roll Candy United KingdomCameo Cream Sandwich Cookies Bendicks Confectionery

INTERNATIONAL BRANDS Chips Ahoyl Chocolate Chip Cookies Big D NutsDel Monte Del Monte Catsup Del Monte Canned FruitsNabisco Del Monte Canned Fruits Hovis Crackers and Digestive BiscuitsPlanters Del Monte Canned Vegetables and Huntley & Palmer's BiscuitsRitz No Salt Added Vegetables Island Blends Fruit JuicesRoyal Del Monte Dried Fruits Jacob's Club CountlineKEY NATIONAL BRANDS Del Monte Fruit Juices Nabisco Shredded Wheat CerealCanada Del Monte Marmalades Nabisco Team FlakesAylmer Canned Fruits and Vegetables Del Monte Mexican Peppers Peek Freans BiscuitsAylmer Soups Del Monte Pickles and Olives Planters NutsChristie Cookies, Crackers and Snacks Del Monte Pudding and Fruit Cups Ritz CrackersCream of Wheat Cereals Del Monte Tomato Products Shreddies CerealDad's Cookies Fleischmann's Baking Products Smiths Crisps and Snack ProductsDavid Cookies Gamesa Biscuits and Pasta Tea Time Sweet BiscuitsDel Monte Canned Fruits and Vegetables Gloria Powdered Milk Trio CountlineDel Monte Beverages Hawaiian Punch Beverages Walkers Crisps and Snack ProductsDel Monte and Aylmer Tomato Products Life Savers Roll CandyDel Monte Pudding Cups Lyons Baking Powder TROPICAL FRUITMilk-Bone Dog Snacks Newton Fruit-Filled CookiesNabisco Cereals Oreo Chocolate Sandwich Cookies United StatesPeek Freans Biscuits Planters Nuts and Snack Products Del Monte Fresh Bananas, PineapplesContinental Europe Pommys Delicatessen Products and PapayasArtiach Range of Biscuits Ritz Crackers CanadaAti Herb Tea Royal Baking Products Del Monte Fresh Bananas and Pineapples

Royal TeaBelin/Lenorte Frozen Pastries Europe, Asia/PacificBelin Pastries Royal Desserts and Drink Powders Del Monte Fresh Bananas PineapplesCatari Pizza Mixes Royalina Drink Powders , ,

Papayas and MangoesSabueso Dog BiscuitsChipster Potato Snacks Saromo Desserts and Drink Powders Middle EastSorbetto Sugar Wafers Del Monte Fresh Bananas

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RJR Nabisco, Inc .

Board of Directors

William S. AndersonChairman, Executive CommitteeNCR Corporation

Albert L. Butler, Jr.PresidentThe Arista Company

Dr. Robert J. CarbonellVice Chairman of the BoardRJR Nabisco, Inc .

John W. Hanley Edward A. Horrigan, Jr. Charles E . HugelChairman of the Executive Committee Vice Chairman of the Board Chairman of the BoardMonsanto Company RJR Nabisco, Inc . and RJR Nabisco, Inc . and

Chairman and Chief Executive Officer President and Chief Executive OfficerR.J. Reynolds Tobacco Company Combustion Engineering, Inc .

sDr. Juanita M. Kreps Gerald H. Long John D. MacomberFormer United States Secretary Senior Executive Vice President Former Chairman of the Board andof Commerce RJR Nabisco, Inc . and Chief Executive Officer

Chairman Celanese CorporationR.J. Reynolds Tobacco USA

Robert M. Schaeberle J. Paul Sticht James 0. Welch, Jr. u,Former Chairman of the Board Former Chairman of the Board Vice Chairman of the Board m

vNabisco Brands, Inc . RJR Nabisco, Inc . RJR Nabisco, Inc . and ODChairman NNabisco Brands, Inc . ~

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Committees

John L. ClendeninChairman and Chief Executive OfficerBeIlSouth Corporation

F. Ross JohnsonPresident and Chief Executive OfficerRJR Nabisco, Inc .

John G. Medlin, Jr.Chairman, President andChief Executive OfficerFirst Wachovia Corporation

Ronald H. GriersonVice ChairmanGeneral Electric Company PLC

Vernon E. Jordan, Jr.PartnerAkin, Gump, Strauss, Hauer & Feld

Andrew G.C. Sage 11Former Managing DirectorShearson Lehman Brothers

Executive CommitteeF Ross Johnson, ChairmanEdward A. Horrigan, Jr., Vice ChairmanDr. Robert J . CarbonellJohn L. ClendeninCharles E . HugelJohn G. Medlin, Jr.Andrew G.C. Sage IIJames O. Welch, Jr.Audit CommitteeWilliam S. Anderson, ChairmanJohn L. Clendenin, Vice ChairmanRonald H. GriersonVernon E. Jordan, Jr.Andrew G.C. Sage IIRobert M. SchaeberleOrganization, Compensation andNominating CommitteeAlbert L. Butler, Jr., ChairmanJohn G. Medlin, Jr., Vice ChairmanJohn W. HanleyCharles E. HugelDr. Juanita M . KrepsJohn D. Macomber

RJR Nabisco, Inc .InternationalAdvisory CouncilWilliam S. AndersonChairmanUnited StatesJaime CarvajalSpainRichard J. CurrieCanadaRegula M. DobieKenyaSimon Hornby .United KingdomErling S. LorentzenBrazilYohei MimuraJapanLouis von PlantaSwitzerlandBrian E . QuinnAustraliaJ. Paul StichtUnited StatesKenneth D. TaylorVice ChairmanCanadaFrancois VaxelaireBelgiumAlberto J . VollmerVenezuelaWR.A. WyllieHong KongDennis DurdenSecretaryUnited States 41http://legacy.library.ucsf.edu/tid/nbn14d00/pdf

RJR Nabisco, Inc .

Officers of the Corporation

F. Ross JohnsonPresident andChief Executive Officer

Charles E . HugelChairman of the Board

Dr. Robert J. CarbonellVice Chairmanof the Board

Gerald H. LongSenior ExecutiveVice President

Andrew S. BarrettSenior Vice President,Corporate Personnel

William J. LissSenior Vice President,Public Affairs

Walter N. ColemanVice President andGeneral Auditor

Andrew P. HinesVice President andController

David G. MarshallVice President, Personnel,Employee Benefits

Harold L. HendersonExecutive Vice Presidentand General Counsel

Marshall B . BassSenior Vice President,Corporate Affairs

Edward A. Horrigan, Jr. James O. Welch, Jr.Vice Chairman Vice Chairmanof the Board of the Board

John D. MartinExecutive Vice President

Paul C. BergsonSenior Vice President,Government Relations

WG. Champion Mitchell J. Thomas PearsonSenior Vice President, Senior Vice President,External Affairs Taxation

George A. MidwoodVice President andTreasurer

Bruce B . OvertonVice President, Personneland Compensation

Ward M. Miller, Jr.Vice President, AssociateGeneral Counsel andSecretary

George D. Newton, Jr.Vice President andDeputy General Counsel

Gull R . RaJanlDeputy Treasurer

Ray D. RisnerVice President, FinancialAdministration

John H. ClarkeSenior Vice President,Technology

Dean R. PosvarSenior Vice President,Business Planning andDevelopment

Robert E . ShultzVice President, PensionAsset Management

Samuel B. Witt IIIVice President andAssociate General Counsel

Edward J. RobinsonExecutive Vice President,Finance, andChief Financial Officer

Dennls DurdenSenior Vice President

Kenneth D. TaylorSenior Vice President


Financial ReviewContentsSelected Five-Year Financial Data 44Management's Discussion and Analysis

Results of Operations 45Selected Five-Year Financial Condition Data 48Financial Condition 49Foreign Currency 50Dividends and Stock Prices 51

Consolidated Financial StatementsSummary of Significant Accounting Policies 52Statements of Income and Retained Earnings 53Statements of Changes in Financial Position 54Balance Sheets 55Notes to Financial Statements 56Responsibility for Financial Statements 63Report of Independent Auditors 63

Other Financial DataEleven-Year Financial Summary 64Lines of Business Data 66

Geographic Data 67Quarterly Results of Operations 68


RJR Nabisco, Inc .Selected Ftve Year Financial DataFor the Years Ended December 31

/Dollars in Millions Except Per Share Amounts/ 1987 1986 1985 1984 1983Results of OperationsNet sales $15,766 $15,102 $11,622 58,200 $7,565Operating in come (1) 2,304 2,340 1,949 1,412 1,205Interest and debt expense 489 565 337 166 177Income from continuing operations 1,081 1,025 917 747 626Net income (2) 1,209 1,064 1,001 1,210 881Preferred dividends 30 102 91 56 62Net income applicable to Common Stock 1,179 962 910 1,154 819Income from continuing

operations per common share 4.19 3.68 3.27 2.46 2 .00Net income per common share (2) 4.70 3.83 3 .60 4.11 2 .90Other DataDividends on Common Stock S 440 S 378 5 357 S 360 5 345Dividends per common share 1 .76 1 .51 1 .41 1 .30 1 .22Dividend payout percentage (3) 37.3% 39.3 % 39.2 % 31 .2 % 42.1 %Common Stock price range :

High S 71 1/s S 55% S 35 S 29 S 253/eLow 34t/i 31 243/4 21 % 18

Number of common shares outstandingat year end (in thousands) 247,357 250,395 250,566 258,383 283,183

Number of stockholders at year end 112,879 114,121 155,138 114,220 126,889Number of full-time employees of

continuing operatior,s at year end 120,334 122,395 127,404 79,234 78,266

Prior years have been restated to report the Company's former spirits and wines business as discontinued operations (see Note 3 to the FinancialStatements) . The 1985 amounts include the operations of Nabisco Brands from July 2, 1985 (see Note 16 to the Financial Statements) .(1) Operating income includes the effects of net restructuring expense incurred in 1987 of $250 million (see Note 1 to the Financial Statements) .(2) The 1987 and 1984 amounts include net gains on the sale of the Company's discontinued operations of S215 million or 86 cents per share and $275

million or 98 cents per share, respectively. In addition, the 1987 amounts include an extraordinary loss from the early extinguishment of debt of S80million or 32 cents per share . (See Notes 3 and 4 to the Financial Statements .)

(3) Dividends on Common Stock as a percentage of net income applicable to Common Stock . The 1987 and 1984 dividend payout percentage would be45 .6 and 41 .0 percent, respectively, excluding the gain on the sale of discontinued operations .


Management's Discussionand Anaiysis

The operations of the Company's formerspirits and wines business have beenreported as discontinued operations, andprior years have been restated (see Note 3 tothe Financial Statements) . The Companynow classifies its continuing operations intotwo lines of business, tobacco and food .

Results of OperationsConsolidated

Consolidated net sales for 1987 increased4 percent over the prior year to S 15 .8 billion .Both the tobacco and food lines of businesscontributed to the increase. The tobacco gainwas due principally to price increases togetherwith favorable foreign currency exchangerates and international tobacco unit volumegrowth. The food gain was due to new prod-uct introductions and volume gains.

Operating income increased in both lines ofbusiness principally due to the factors notedabove; however, the improvements weremore than offset by the $250 million specialcharge for net restructuring expense (seeNote 1 to the Financial Statements) .

The 1987 income from continuing opera-tions increased S56 million, or 5 percent, andincome from continuing operations per shareincreased 51 cents, or 14 percent, to $4 .19 .These increases were mainly due to the salesincreases noted above and decreased interestand debt expense resulting from the earlyextinguishment of 51 .6 billion of high-interestdebt in the first quarter of 1987 (see Note 4 tothe Financial Statements) .

Net incurne fur 1987 rose 5145 million to $1 .2billion and net income per share increased 23percent to $4.70. The higher net income andnet income per share were primarily the resultof improved income from continuing opera-tions and the S215 million gain on the sale ofdiscontinued operations (see Note 3 to theFinancial Statements), partly offset by theextraordinary loss of 580 million on the earlyextinguishment of debt . During 1987, the Com-pany repurchased 3 .6 million shares of itsCommon Stock and 1 .2 million shares of its

Series B Cumulative Preferred Stock (ste Notes Consolidated12 and 13 to the Financial Statements) . Net Sales

Consolidated net sales for 1986 increased 30 (Dollars in Billions)percent over the prior year to S 15 .1 billion . Theimprovement was principally due to the inclu-sion of Nabisco Brands, which was acquiredon July 2,1985 (see Note 16 to the FinancialStatements) . Tobacco operations also contri-

s17 .5

14 .0

'83 '84 '85 '86 '87

buted to the sales gain through volume and 10 .5price increases .

Consolidated operating income for 1986 7.0increased 20 percent, or 5391 million . Theincrease was primarily the result of the Nabisco 3 .5Brands acquisition, and contributions fromtobacco operations . Partially offsetting theseincreases was a charge of approximately S 94million related to the streamlining of the corpo-rate office functions in connection with theplanned relocation of the corporate headquar-ters to Atlanta, Georgia in 1987.

The 1986 income from continuing opera-tions increased $108 million, or 12 percent, andincome from continuing operations per shareincreased 41 cents, or 13 percent, to $3 .68 .These increases were mainly due to the im-proved operating income noted above . Par-tially offsetting these increases were higherinterest and debt expense, mainly related tothe Nabisco Brands acquisition, the corporatestreamlining noted above, the early retirementof high-cost debt and the reversal of invest-ment tax credits as a result of the Tax ReformAct of 1986 .

Net income for 1986 rose S63 million to $1 .1billion and net income per share increased 6percent to 53.83. The higher net income andnet income per share were primarily the result

ConsolidatedOperating Income(Dollars in Millions)

$2.500

2,000

1,500

1,000

500

'83 '84 '85 '86 '87

Consolidated Incomefrom Continuing Operations(Dollars in Miltions)

$1,100

880

660

'83 '84 '85 '86 '87

440

220

50782 9439


Consolidated Income fromContinuing OperationsPer Common Share(Dollars)

$4 .75

3.80

2.85

1 .90

.95

'83 '84 '85 '86 '87

TobaccoSales(Dollars in Billions)

S 6 .5

5 .2

3 .9

2 .6

1 .3

'83 '84 '85 '86 '87

Tobacco OperatingIncome'(Dollars in Millions)

51,875

1,500

1,125

750

375

'83 '84 '85 '86 '87

•Excludes 1987 restructuring expense .

46

of improved operating income . The percent-age contributions of each of the Company'slines of business to net sales and oper-ating income during the last five yearswere as follows :

1987 1986 1985 1984 1983

Net SalesTobacco 40% 39% 47 % 63 % 64 %Food 60 61 53 37 36

100% 100% 100% 100% 100%

Operatiny Irxome•Tobacco 67% 67% 73% 88% 90%Food 33 33 27 12 10

100% 100% 100% 100% 100%"Contributions by line of business computed withouteffects of corporate and restructuring expense(see Note 1 to the Financial Statements) .

TobaccoThe tobacco line of business includes the

operations of R .J. Reynolds Tobacco USA andR.J. Reynolds Tobacco International, whichmanufacture and sell tobacco products, princi-pally cigarettes . Products are manufactured inthe United States and in 33 foreign countriesand territories by subsidiaries or licensees, andare sold throughout the United States and inmore than 160 markets around the world . Alsoincluded are the operations of RJR Archer, apackaging company.

Sales for the tobacco operations were S 6 .3billion for 1987 up $480 million over the prioryear. The sales increase for the year was due tohigher manufacturers' selling prices, recordinternational unit volume growth and favor-able foreign currency rates .

Domestic market share for 198Z measuredon a manufacturer's shipment basis, increasedto 32.5 percent . While the total industry vol-ume declined 2.0 percent, R .J. ReynoldsTobacco USA once again outperformed theindustry with a decline of only 1 .6 percent to185.3 billion units .The gain in international unit volume, to

98.9 billion units compared with 89 .7 billionunits in 1986, was the highest rate of growthamong major multinational tobacco compan-ies. This was achieved through advances in

the Company's three primary internationalbrands : CAMEL, Sjit.EM and WINSTON . At thesame time, growth was achieved in all majorgeographic regions including Europe, Asia,Canada and Latin America . R .J . ReynoldsTobacco International increased or maintainedits share of market in all of its top 20 markets .Operating income was 51 .8 billion for 1987,

or 10 percent higher than last year, excludingrestructuring expense . The improvement inoperating income was the result of the salesgains noted above, improved operating effi-ciencies and continuing cost-control efforts .These factors more than offset increasedexpenses designed to strengthen marketingand selling activities .

Sales for the tobacco operations were $5 .9billion for 1986, up $444 million over the prioryear. The sales increase for the year was due toimproved volumes, favorable foreign currencyeffects and increased selling prices .

Domestic market share for 1986, measuredon a manufacturer's shipment basis, increasedto 32.4 percent, and unit volume increased to188.3 billion units, despite an overall industrydecline . Market share also improved at the con-sumer level due to strong performancefrom established brands and volume fromnew brands .

International volume for 1986 was up 3 .3percent to 89 .7 billion units, with CAMEL vol-ume up 8 percent . CAMEL held or increased itsshare of market in 9 of its top 10 markets andreached a 3 .6 percent share of the Europeanmarket. WINSTON and SALEM also performedwell in their respective regions of emphasis .

Operating income was 51 .7 billion for 1986,or 12 percent higher than in 1985 . Theimprovement in operating income resultedfrom the higher prices and volumes and for-eign currency effects noted above as well ascontinuing cost-control efforts .


FoodThe food line of business includes the

operations of Nabisco Brands and PlantersLifeSavers, acquired in July 1985, and DelMonte. Food products are produced, marketedor distributed worldwide and include cookies,crackers, cereals, confectioneries, nuts, snacks,canned foods, beverages and fresh fruit .

Foods sales were $9 .4 billion in 1987 anincrease of S 184 million over the prior yeardespite the loss of S639 million in sales fromthe divestment of certain Canadian and otherfood businesses in 1987 and 1986 . New prod-uct introductions and volume growth in estab-lished brands resulted in higher United Statesmarket share in a number of product catego-ries, such as cookies, crackers, cereal andmargarine. Also contributing to the salesimprovement were volume gains in theUnited Kingdom and other internationalmarkets .

Operating income increased to S915 million,excluding restructuring expense, comparedwith $820 million for the prioryear, an in-crease of 12 percent, due principally to strongresults from the Company's United Statescookie, cracker, grocery products, hard-rollcandy and gum businesses . The performanceof Del Monte's tropical fruit business metexpectations, although it was below thestrong performance of 1986 .

Food sales were $9 .2 billion in 1986, anincrease of 49 percent over 1985 . This increasewas principally due to the inclusion of the full-year results of Nabisco Brands . Partially offset-ting this increase was the loss of sales from thedispositions of iranchise beverages, vinegarand yeast, and frozen foods operations .

Operating income increased to S820 millionfor 1986 compared with S549 million for theprior year, an increase of 49 percent, due prin-cipally to the inclusion of a full-year's results ofoperations by Nabisco Brands . Also contribut-ing to the operating income increase was astrong performance by the tropical fruit opera-tions .

Restructuring ExpenseDuring 1987 the Company incurred $250

million (net of nonrecurring gains) for restruc-turing expense (see Note 1 to the FinancialStatements). These provisions were principallyfor the write-do-wn of redundant equipmentand facilities from the continuing moderniza-tion of domestic tobacco operations, imple-mentation of a Voluntary Separation IncentiveProgram for tobacco employees, restructuringprograms in its food subsidjaries and relocating

the Planters LifeSavers headquarters offices to FoodWinston-Salem, North Carolina from New Jer- Salessey. As part of this program, the restructuring (Dollars in Billions)expenses were partially offset by nonrecurringgains from the sales of the Canadian coffee,margarine and confectionery businesses, saleof U.S. specialty tobacco brands, andpremium refunds from a restructuring of

s1o,0

8.0

insurance programs. 6.0The R .J. Reynolds Tobacco Co .'s Voluntary

Separation Incentive Program was imple- 4 .0mented to increase operating efficiency andstrengthen the Company's competitive posi-tion by reducing its work force . The Planters

2.0 [LifeSavers relocation, to occur in 1988, will takeadvantage of many common opportunities, insuch areas as sales and distribution, with R .J.Reynolds Tobacco USA .

Interest and Debt ExpenseInterest and debt expense (net of capitalized

interest) for 1987 was $489 million, comparedwith S565 million and S337 million for 1986and 1985, respectively. The 1987 decrease wasprincipally due to the lower level of debt as a

'83 '84 '85 '86 '87

Food OperatingIncome*(Dollars in Millions)

s 1,000

result of the early extinguishment of 51 .6 billion 800of high-interest debt (see Note 4 to the Finan-cial Statements) in the first quarter of 1987,while the 1986 increase was principally due tothe higher level of long-term debt associatedwith the Nabisco Brands acquisition (see Note16 to the Financial Statements) .

Income TaxesThe FASB has issued a final statement,

' Accounting for Income Taxes, "which theCompany expects to adopt in 1988 . The newstandard requires use of the liability methodunder which the effects on deferred taxes ofchanges in tax rates and laws are recorded asa component of tax expense in the period ofchange rather than the period of timing differ-ence reversal as the current deferred methodrequires . The Company would realize, in theyear of adoption, a one-time cumulative bene-fit to income from reductions of deferredincome taxes resulting from lower income taxrates. The effect on annual income is notexpected to be material .

The Company has chosen not to adopt thisstatement in 1987 to provide adequate lead-time for analyzing the effect of the newaccounting standard .

600

400

200

'83 '84 '85 '86 '87

*Excludes 1987 restructuring expense .

•` 47http://legacy.library.ucsf.edu/tid/nbn14d00/pdf

RJR Nabisco, Inc .Selected Five Year Financial Condition Data

(i7oNars in Millions Except PerSnareA rnounts/ 1987 (1) 1986 1985 1984 (1) 1983Funds provided by continuing operations $ 2,124 S 1,875 S 1,447 S 1,082 S 943Workingcapital $ 1,717 $ 1,329 S 1,617 $2,780 $2,853Current ratio 1 .4 1 .3 1 .4 2 .5 3.3Total assets $16,861 $16,701 $16,414 58,805 58,776Return on beginning total assets (2) 9.0% 8.5 % 13.5 % 14.8 % 1 1 .2 %Return on average total assets 8 .9% 8.4% 9.4% 14.8% 11 .2%Total debt (3) $ 4,488 S 5,774 S 5,628 $1,443 $1,444Preferredstock 173 291 1,587 499 631Common stockholders' equity 6,038 5,312 4,796 4,478 5,223Tota1 capital $10,699 S 1 1,377 $12,011 $6,420 $7,298

Return on beginning total capital (4) 13 .2% 1 1 .6% 18.5% 17.8% 13 .6%Return on average total capital 13 .6% 11 .9% 12.9% 19.0% 13.5%Total debt as a percentage of total capital (5) 41 .9% 50.8% 46.9% 22.5% 19.8%Return on beginning common

stockholders' equity (6) . 22.2% 20.1 % 20.3 % 22.1 % 17.2 %Return on average commonstockholders'equiry 20.8% 19.0% 19.6% 23.8% 16.4%Capital expenditures $ 936 S 1,022 S 946 S 642 S 492Book value per common share $ 24.41 S 21 .21 S 19.14 $17.33 $18.44

Prior years have been restated to report the Company's former spirits and wines business as discontinued operations (see Note 3 to the FinancialStatements) . The 1985 amounts include the operatiorls of Nabisco Brands from July 2, 1985 (see Note 16 to the Financial Statements) .(1) Net income for 1987 and 1984 includes a $215 million and $275 million gain, respectively, on the sale of the Company's discontinued operations . In

addition, the 1987 net income includes an extraordinary loss from the early extinguish ment of debt of $80 million . (See Notes 3 and 4 to the FinancialStatements .)

(2) Net income plus after-tax interest ard debt expense divided by beginning total assets .(3) Total debt consists of notes payable and long-term debt (including current maturities) .(4) Net income plus after-tax interest and debt expense divided by beginning total capital .(5) At December 31, 1987. 1986, 1985, 1984 and 1983, the sum of the total debt and redeemable preferred stock as a percentage of total capital was 43 .6

percent, 53 .3 percent, 60.1 percent, 30.2 percent and 28 .4 percent, respectively .(6) Net income applicable to Common Stock divided by beginning common stockhotders ' equity .

I

1


Financiai Condition

Funds Provided byContinuing Operations

Funds provided by continuing operationswere 52 .1 billion in 1987 compared with 51 .9billion in 1986 and 51 .4 billion in 1985 . Theincreases in funds provided by continuingoperations were due to higher levels of incomeand noncash charges . Internally generatedfunds from operations represent a majorsource of funds available to the Company.

During 1987, funds provided by continuingoperations continued to be sufficient, as inprior years, to meet capital expenditures andcash dividends . Over the past five years, fundsprovided by continuing operations totaled$7.5 billion and have increased at a com-pounded rate of 23 percent . These funds wereprincipally used for capital expenditures andcash dividends, leaving S 1 .2 billion of internallygenerated funds available for other Companypurposes . In the future, the Company expectsthat internally generated funds will continueto be more than sufficient to meet projectedcapital expenditures and cash dividends . TheCompany has paid a dividend every year since1900 and in the *.hird quarter of 1987 increasedthe regular quarterly cash dividend on Com-mon Stock by 20 percent to 48 cents per share .

LiquidityAt December 31,1987, working capital was

$1 .7 billion compared with 51 .3 billion atyear-end 1986 and the current ratio was 14 and 1 .3for 1987 and 1986 . respectively .The Company believes that its continued

favorable current ratio is an important indica-tor of its ability to meet short-term obligations .A further indication of the Company's favor-able liquidity position is that 20 percent of cur-rent assets are LIFO inventories, which arecarried at values substantially less than currentcost. The current cost of inventories was 51 .3billion more than the amounts at which theywere carried on the 1987 Balance Sheet (seeNote 6 to the Financial Statements) .

During 1987, the Company's extinguishmentof S 1 .6 billion of high-interest debt (see Note 4to the Financial Statements) and the issuanceof S 1 .3 billion of lower interest debt resulted in

a weighted average interest rate of less than996 for debt outstanding at December 31,1987 In addition, the Company maintainedseasonal credit facilities with various banks, aswell as a Eurodollar credit facility which expiresin 1993 (see Notes 8 and 10 to the FinancialStatements) . The credit available throughthese facilities ensures the Company's accessto credit markets and the availability of signifi-cant financial resources, as well as operationalflexibility. Unused credit facilities totaled$1.2 billion atyear-end 1987, including S550million to support outstanding commercialpaper. The Company utilizes commercial paperto fund seasonal working capital requirementsas needed .

Capital ResourcesTotal capital was 510.7 billion at December

31,1987, compared with S 11 .4 billion for theprior year end . The decrease was due princi-pally to the early extinguishment of 51 .6 billionof high-interest debt (see Note 4 to the Finan-cial Statements), retirement of substantially allof the short-term notes which were classifiedas long-term in the prior year, and the repur-chase of a portion of its Common Stock andSeries B Cumulative Preferred Stock. ThroughDecember 31,1987, 3,103,400 shares havebeen repurchased under the Common Stockrepurchase program which announced therepurchase of up to 5 million shares . The pri-mary sources of funds for the above transac-tions were the proceeds from the sale ofHeublein (see Note 3 to the Financial State-ments), the issuance of $1 .3 billion of long-termdebt and internally generated funds .

Consequently, total debt as a percentage oftotal capital at December 31,1987, declined to42 percent compared with 51 percent at year-end 1986, and the sum of total debt andredeemable preferred stock as a percentage oftotal capital decreased to 44 percent from 53percent for the previous year.

The Company believes its financial positionis strong, as indicated by continued favorablefinancial ratios, and that it has the ability tofinance operations as necessary. The Com-pany also believes that the debt-to-capitalratios will improve over time as internallygenerated funds are expected to exceed pro-jected capital expenditures and cash dividends .Should the need for external financing arise,the Company expects to have continuedaccess to short-term credit markets to fundseasonal working capital requirements and tohave the ability to raise additional funds in thelong-term debt market .

Funds Provided byContinuing Operations,Capital Expenditures andCash Dividends(Dotlars in Millions)

s2,2oo

1,760

1,320

880

440

'83 '84 '85

∎ Funds Provided

∎ Capital Expenditures

∎ Cash Dividends

Compositionof Capital(Dollars in Billions)

s 12 .5

10 .0

7 .5

5.0

2 .5

'86 '87

'83 '84 '85 '86 '87

∎ Total Debt∎ Preferred Stock∎ Common Stockholders' Equity


∎ Tobacco∎ Food∎ Corporate

1988-1990 ProjectedCapital Expenditures byUne of Business

∎ Tobacco∎ Food∎ Corporate

Capital ExpendituresConsolidated capital expenditures for 1987

1986 and 1985 were $936 million, $1,022 mil-lion and S 946 million, respectively. Tobaccocapital expenditures accounted for 46 percentof the 1987 consolidated total, while foodexpenditures were 48 percent of the total .

Tobacco capital expenditures during 1987were $433 million compared with S613 millionfor the prior year The expenditures for bothyears were principally for a new manufactur-ing complex in North Carolina and for theexpansion and modernization of facilitiesworldwide. The new cigarette plant began ini-tial production in January 1986 and becamefully operational by the end of 1987 supplyingover 50 percent of the domestic tobacco pro-duction requirements .

Food capital expenditures totaled $445 mil-lion in 1987 compared with $344 million in1986. The increase was primarily due to themodernization and cost reduction efforts offood operations .

Capital expenditures are currently projectedto total S 5 .0 billion over the next three yearscompared with S2.9 billion for the last threeyears. The projected increase is principally dueto the food businesses . Over this period, foodcapital expenditures are expected to increaseto approximately 60 percent of the consoli-dated total, principally for the modernizationand expansion of facilities in the Biscuit Division .

Foreign CurrencyThe Company has operations in many

countries, utilizing 33 functional currencies inits more than 300 subsidiaries and branches .The major functional currency is the U.S. dollar.Significant foreign currency net investmentsare located in Canada, the United Kingdom,France, West Germany, Italy and the Philip-pines . Changes in the strength of these coun-tries' currencies relative to the U .S. dollar resultin direct charges or credits to the equity sec-tion on the Consolidated Balance Sheets . TheCompany also has significant exposure to for-eign exchange sale and purchase transactionsin currencies other than a functional currency.

The exposures include the West German mark,Japanese yen, U.S. dollar, French franc, Britishpound and Spanish peseta . The Companymanages these exposures to minimize theeffects of foreign currency transactionson its income .

Although fluctuations in the value of foreigncurrencies cause U .S. dollar translated amountsto change in comparison with previous peri-ods, the Company cannot quantify in anymeaningful way the effect of such fluctuationsupon future income . This is due to the largenumber of currencies involved, the constantlychanging exposure to these currencies, thecomplexity of intercompany relationships, thehedging activity entered into to minimize theeffect of rate changes, and the fact that all for-eign currencies do not react in the same man-ner against the U.S. dollar.


Dividends and Stock PricesThe Company's Common Stock is listed on

the New York Stock Exchange (trading sym-bol: RJR) and on stock exchanges in London,Geneva, Zurich, Basel, Frankfurt, Dusseldorf,Berlin, Amsterdam, Paris, Brussels, Antwerpand Tokyo. The number of common stock-hotders of record at December 31,1987was 104,720.

The Company's Series B Cumulative Pre-ferred Stock is listed and traded only in theUnited States. The regular quarterly dividendper share is 52 .87% .

The following table sets forth the dividendspaid per share of Common Stock and the highand low sales prices, taken from the Compos-ite Tape as reported by the Wall Street Journal,for the common and preferred stock duringthe last two years:

Net Income PerCommon Share andDividends Per Common Share(Dollan)

$4 .75

3.80

2 .85

1 .90

.95

'83 '84 '85 '86 '87

∎ Net Incorne∎ Net Income from Continuing Operations∎ Dvidends

Series B CumulativeCommon Stock Preferred Stock

Market Price Market PriceOuarters Dividends (hlgh-low) (high-low)1987First S .40 $65s/e - 49 $125'h - 121Second .40 59'/e - 47 1/4 124 - 117 1hThlyd .48 71 '/e - 523/4 123 - 117 1hFourth .48 68S/e - 341h 120 - 115A/4Year $1 .76 571 I/e - 341/i $125'h - 1153/41986First S .37 $44'/z - 31 S 121 %- 1103/eSecond .37 543/a - 37 1253/8 - 120%Third .37 55% - 44% 1253/4 - 121 %4Fourth .40 535/e - 473/e 1263/4 - 1203/4Year $1 .51 $55% - 31 S 1263/4 - 1 103/e


RJR Nabisco, Inc .

Consolidated Financial Statements

The Summary of Significant Accounting Poli-cies below, the Notes to Consolidated Finan-cial Statements on pages 56 through 62, andthe Lines of Business and Geographic Data onpages 66 and 67 are integral parts of theaccompanying financial statements .

Summary of SignificantAccounting Policies

This summary of significant accounting poli-cies is presented to assist in understanding theCompany's financial statements included inthis report . These policies conform to generallyaccepted accounting principles and have beenconsistently followed by the Company in allmaterial respects.

ConsolidationThe Company includes in its consolidated

financial statements the accounts of the parentand all subsidiaries . The Company's formerspirits and wines business is reported as dis-continued operations, and prior years financialstatements have been restated accordingly .

InventoriesIn all of the Company's businesses, invento-

ries are stated at the lower of cost or market .Various methods are used for determining costas described below

The cost of domestic inventories is deter-mined principally under the LIFO method . Thecost of remaining inventories is determined

under the FIFO, specific lot and weighted aver-age methods . In accordance with recognizedtrade practice, stocks of tobacco, which mustbe cured for more than one year, are classifiedas current assets .

DepreciationProperty, plant and equipment are depre-

ciated principally by the straight-line method .

Goodwill and TrademarksGoodwill and trademarks are generally

amortized on a straight-line basis over a40-year period .

Other Income and ExpenseThe Company includes in "Other income

(expense), net" items of a financial nature,principally interest income and gains andlosses on foreign currency transactions.

Income TaxesThe Company uses the flow-through

method in accounting for investment tax cred-its, whereby the provision for income taxes isreduced in the year the tax credits first becomeavailable.

Excise TaxesExcise taxes are excluded from "Net sales"

and "Cost of products sold ."


RJR Nabisco, Inc .Consolidated Statements of Income and Retained EarningsFor the Years Ended December 31/oalars in!uimons Except Persnare Amounts) 1987 1986 1985

Net sales* S 15,766 S 15,102 S11,622Costs and expenses :

Cost of products sold* 8,221 7,920 6,024Selling, advertising, administrative

and general expenses 4,991 4,842 3,649Restructuring expense, net (Note 1) 250 - -

Operating income 2,304 2,340 1,949Interest and debt expense (net of capitalized

amounts of 519, $71 and S67, respectively) (489) (565) (337)Other income (expense), net 1 7 51Income before provision for income taxes 1,816 1,782 1,663Provision for income taxes (Note 2) 735 757 746Income from continuing operations 1,081 1,025 917Income (loss) from discontinued operations,

net of taxes (Note 3) (7) 78 84Gain (loss) on sale of discontinued operations,

net of taxes (Note 3) 215 (39) -Income before extraordinary Item 1,289 1,064 1,001Extraordinary item - loss from early

extinguishment of debt, net of taxes (Note 4) 80 - -

Net Income 1,209 1,064 1,001Less preferred dividends 30 102 91

Net Income applicable to Common Stock 1,179 962 910Retained earnings at beginning of year 4,832 4,357 4,034Less :

Cash dividends on Common Stock 440 378 357Retirement of Company's stocks 23 109 230

Retained earnings at end of year S 5,548 S 4,832 S 4,357

Income per common share :Continuing operations S 4.19 S 3.68 S 3 .27Discontinued operations 0.83 0.15 0.33Extraordinary item (0.32) - -

Net Income $ 4.70 S 3 .83 S 3.60Average number of common shares

outstanding (in thousands) 250,612 251,073 252,941

*Excludes excise taxes of 53 .314, $3,057 and $2 .640 for 1987,1986 and 1985, respectively.


RJR Nabisco, Inc .Consolidated Statements of Changes In Financial PositionFor the Years Ended December 31

(Dollars in Millions/ 1987 1986 1985Funds provided by continuing operations :

Net sales $15,766 $15,102 $11,622Less operating costs and expenses which required

the outlay of working capital 13,642 13,227 10,175Total funds provided by continuing operations 2,124 1,875 1,447Funds required by continuing operations :

Change in working capital resultingfrom operations (see below) 62 (116) (46)

Capital expenditures 936 1,022 946Miscellaneous acquisitions of businesses 78 - 34Miscellaneous dispositions of businesses (125) (376) -Disposals of property, plant and equipment (46) (62) (58)Cash dividends 470 480 448Cumulative translation adjustments (88) (10) 15Other 108 (172) 242

Total funds required by continuing operatlons 1,395 766 1,581Net funds provided (required) by continuing operations 729 1,109 (134)

Funds provided (required) by financing transactions :Net change in current notes payable (76) (121) 429Issuance of long-term debt 1,288 1,125 3,334Retirements of long-term debt (2,545) (909) (445)Issuance of Company's stocks (Notes 12 and 13) 24 41 1,241Repurchases of Company's stocks (Notes 12 and 13) (317) (1,469) (403)Extraordinary loss (Note 4) (80) - -

Net funds provided (required) by financing transactions (1,706) (1,333) 4,156Net change in funds related to

discontinued operations (Note 3) 1,238 504 (85)Net funds required for acquisition

of Nabisco Brands, Inc . (Note 16) - - (4,672)Increase (decrease) In cash and short-term Investments S 261 S 280 S (735)Analysis of change In working capital

resulting from operations :Funds required (provided) by the change in :

Accounts and notes receivable S 70 S (49) S 107Inventories 58 (256) (29)Prepaid expenses and excise taxes 48 63 22Accounts payable and accrued accounts (236) (154) (418)Income taxes accrued 122 280 272

Change In working capital resulting from operations S 62 S (116) S (46)


RJR Nabisco, Inc .

Consotidated Balance SheetsDecember 31

/Lbllars in Millpns/ 1987 1986

AssetsCurrent assets :

Cash and short-term investments (Note 5) S 1,088 S 827Accounts and notes receivable

(less allowances of $61 and $67, respectively) 1,745 1,675Inventories (Note 6) 2,678 2,620Prepaid expenses and excise taxes 329 273

Total current assets 5,840 5,395Property, plant and equipment - at cost (Note 7) 7,563 6,694Less accumulated depreciation 1,716 1,351Net property, plant and equipment 5,847 5,343Goodwill and trademarks

(net of amortization of S 326 and $ 207, respectively) 4,525 4,603Other assets and deferred charges 649 644Net assets of discontinued operations (Note 3) - 716

$16,861 $16,701Liabilities and Stockholders' EquityCurrent liabilities :

Notes payable (Note 8) S 442 S 518Accounts payable and accrued accounts (Note 9) 3,187 2,923Current maturities of long-term debt (Note 10) 162 423Income taxes accrued 332 202

Total current liabilities 4,123 4,066Long-term debt (Note 10) 3,884 4,833Other noncurrent liabilities 1,797 1,448Deferred Income taxes 846 751Commitments and contingencies (Note 11)Redeemable preferred stock (Note 12) 173 291Common stockholders' equlty :

Common Stock (Note 13) 251 251Paid-in capita! (Note 13} , 312 320Cumulative translation adjustments (Note 14) 86 (76)Retained earnings 5,548 4,832Treasury stock, at cost (Note 13) (159) (15)

Total common stockholders' equlty 6,038 5,312$16,861 $16,701


redundant equipment and facilities from thecontinuing modernization of domestictobacco operations /5135 million), the Volun-tary Separation Incentive Program announcedby R .J. Reynolds Tobacco Co. in June 1987(5180 million), restructuring programs in thefood subsidiaries (S 134 million) and relocationof the Planters LifeSavers headquarters toWinston-Salem, North Carolina ($50 million) .

This restructuring program included nonre-curring gains from the sales of the Company'sCanadian coffee, margarine and confectionery

RJR Nabisco, Inc .Notes to Consolidated Financial Statements(Dollars in Millions Except Per Share Amounts)

Note I The differences between the provision forRestructuring Expense, Net income taxes and income taxes computed at

Restructuring expense for 1987 included statutory U.S. federal income tax rates arecosts principally related to the write-down of explained as follows :

1987 1986 1985

Current:FederalForeign and other

$370312

$305228

$507177

682 533 684

Deferred :FederalForeign and other

84(31)

17846

2537

53 224 62Provision for

income taxes $735 $757 $746

The provision for income taxes consisted ofthe following :

businesses (5178 million), premium refundsfrom a restructuring of insurance programsand miscellaneous gains from the sale of spe-cialty tobacco brands .Note 2Provision for Income Taxes

Deferred income tax expense results fromtiming differences in the recognition of reve-nue and expense for book and tax purposes .The sources of these differences and the taxeffect of each were as follows :

1987 1986 1985Excess of tax over

book depreciation $171 S178 S 94Restructuring items (123)Various other items . 5 46 (32)Deferred income taxes S 53 $224 S 62

1987 1986 1985Income taxes computed

at statutory U.S.federal income tax rates S726 S820 S765

Taxes on foreign operationsless than statutoryU .S . federal Income tax rates f25) (48) (25)

State taxes, net offederal beneflt 46 51 48

Investment tax credit (14) (46) (60)Goodwill amortization 48 58 25 #Miscellaneous Items (46) (78) (7) iProvision for

Incometaxes i735 $757 $746Effective tax rate 40.5% 42.5 % 44.9%

At December 31,1987, there was S 2 .2 billionof accumulated and undistributed income offoreign subsidiaries for which no provision forU.S. federal income taxes had been made . Theundistributed income is intended to be rein-vested abroad indefinitely or repatriated sub-stantially free of additional tax .

There are a number of issues pending as aresult of Internal Revenue Service audits . Theresolution of these issues is not expected tohave a material effect on the Company s finan-cial position .

Note 3Discontinued Operations

On March 6,1987, the Company sold itsspirits and wines business, conducted princi-pally through Heublein, Inc ., for 51 .2 billion incash. After provision for income taxes of $230million, the gain on the sale was $ 215 millionor 86 cents per share .

On October 1,1986, the Company sold, forcash, its quick-service restaurant business,essentially Kentucky Fried Chicken, for $840million . After provision for income taxes of 528million, the loss on the sale was $39 million .The loss reduced 1986 net income per shareby 16 cents .

Summarized information for discontinuedoperations is shown in the following table :

Pretax income from continuing operationsfor domestic and foreign operations is shownin the following table :

Net salesOperating income (loss)Income (loss) before provision

1987 1986 1985 for income taxes

Domestic (includesU.S. exports) $1,020 $1,209 $1,256

Provision (benefit) forincome taxes

Foreign* 796 573 407 Income (loss) from

$1,816 $1,782 $1,663discontinued operations

Gain (ioss) on saie, net of tax"Pretax income of foreign operations Is Income of aii oper-ations located outside the United States, some of whichmay also be currently subject to US tax jurisdlction . Discontinued operations

per common share

1987 1986 1985$102 $1,896 S 1,912

(7) 208 214

(10) 187 191

(3) 109 107

(7) 78 84215 (39)$208 S 39 $ 84

1 .83 S .15 S .33

56 50782 9450http://legacy.library.ucsf.edu/tid/nbn14d00/pdf

Note 4Extraordinary Item

During the first quarter of 1987 the Com-pany sustained an extraordinary loss as a resultof the early extinguishment of $1 .2 billion ofthe 11.2% Notes issued in the Nabisco Brandsacquisition (see Note 16 to the Financial State-ments), as well as 11 .35 %,11 .75 % and 13 .35 %Debentures classified as short-term at year-end1986 . Proceeds from the sale of Heublein wereused to extinguish the 11 .2 % Notes . A total of$1.6 billion of debt was extinguished at a pre-mium of $80 million (after a tax benefit of $55million), which decreased income per share by32 cents .

Note 5Cash and Short-Term Investments

Short-term investments at December 31,1987 and 1986, valued at cost (approximatemarket), totaled S786 million and S675 million,respectively. Short-term investments at Decem-ber 31, 1987 principally consisted of certificatesof deposit.

Note 6Inventories

The major classes of inventory and theamount of each at December 31 were :

1987 1986

Leaf tobacco S 833 S 945Finished products 1.087 953Raw materials 375 416Other 383 306

$2,678 $2,620

At December 31,1987 and 1986, 51 .2 billionand $1 .3 billion, respectively, of the inventorywas valued by the LIFO method . The balanceof the inventory was valued by various othermethods, principally FIFO .

The current cost of LIFO inventories atDecember 31,1987 and 1986, was greater thanthe amounts at which these inventories werecarried on the balance sheets by $1 .3 billion ineach year.

During 1987 and 1986, net income wasincreased by S20 million and S33 million,respectively, as a result of LIFO inventory liqui-dations. The LIFO liquidations resulted frommanagement's plan to manage leaf tobaccoinventory levels, consistent with its forecast offuture operating requirements . The overallcost of recent leaf purchases at auction hasbeen increasing, which results in higher cost ofsales .

Note 7Property, Plant and EquipmentComponents of property, plant and equip-

ment at December 31 are shown in the follow-ing table :

1987 1986Land and land improvements S 324 S 296Buildings and

lea hold imprDvements 1.571 1,418Machinery and equipment 6,064 4,373Construction-In-process 604 607

S7,563 $6,694

Note 8Notes Payable and Related Information

Notes payable consisted of the following atDecember 31 :

1987 1986Commercial paper $283 $419Notes payable, principally

to domestic banks 159 99

S442 S518

Unused lines of credit at December 31,1987,totaled $1 .2 billion and included $550 million tosupport outstanding domestic commercialpaper. Of these lines at December 31,1987,$639 million was in the form of seasonal creditfacilities . The S 550 million was in the form of aEurodollar credit facility with various foreignbanks and foreign branches of domestic bankswhich provides for commitments up to S600million in borrowings. Under this facility agree-ment, the Company is obligated to pay a com-mitment fee of 8/100 of 1 percent per annumon the committed amount . It expires in 1993(see Note 10 to the Financial Statements) .Note 9Accounts Payable and Accrued Accounts

Accounts payable and accrued accountsconsisted of the following at December 31 :

1987 1986Trade accounts S 621 S 532Marketing and advertising 666 460Payroll and employee benefits 489 444Restructuring and relocation 255 -Excise taxes 226 310other 930 1,177

53,187 52,923


Note 10Long-term Debt

December 31,1987 December 31,1986Due Within Due After Due Within Due AfterOne Year One Year (1) One Year One Year

Long-term debt consisted of the following:73/e - 93/e % Debentures, with semiannual and annual

sinking fund payments through 2017 (reduced byS 79 million and $88 million of such debentures heldbythe Company on December 31,1987 and 1986,respectively, for future sinking fund requirements)

11 .35 -13 .35% Debentures6% - 93/4 % Notes, due through 199410 -10% % Notes, due 1988 to 199311 .2 % Notes, due 19977.61-10.88% effective interest rates, foreign currency debt,

due 1990 to 2001(2)Zero Coupon Guaranteed Notes, due 1992, net of discount

of S 160 million and S202 million at December 31,1987 and 1986, respectively, effective interest rateof 14 .64%

Credit agreements with various banks, due 1993 (3)Other indebtedness

S 6 S 1,454 5 6 S 483- 353

100 351 - 250700 - 699

1,199

653 - 648

205 - 19850 - 877

56 471 64 479$162 $3,884 $423 54,833

The payment schedule of debt due through 1992 is as follows (in millions) :1989-5310 ;1990-$274 ;1991-5422 : and 1992-s 517 .(1)The Company has entered into hedging arrangements which will offset the effects of future exchange rate movements on these debt issues .(2)i At December 31, 1987, the Company's Eurodollar credit facility (see Note 8 to the Financial statementsl supported S 50 million of short-term notes(3)that have been classified as long-term based upon the Company's intention to continue that amount o~ debt in some form for more than one year .

Note 11Commitments and Contingencies

Various legal actions, proceedings andclaims are pending or may be institutedagainst the Company and its subsidiaries,including those claiming that lung cancer andother diseases have resulted from the use ofthe tobacco products of R .J. Reynolds TobaccoCo. (Reynolds) . During 1987, 14 new suchactions were commenced, and 42 suchactions were dismissed or otherwise resolvedin favor of Reynolds prior to trial . A total of 68such actions were pending at December 31,1987 Some of the foregoing involve or mayinvolve claims for compensatory, punitive orother damages in substantial amounts .Litigation is subject to many uncertainties,and it is possible that some of the legal actions,proceedings or claims could be decidedunfavorably to Reynolds .

The Company has product liability insur-ance covering only a portion of such legalactions, proceedings or claims, and themaximum insurance coverage available onreasonable terms and conditions is substan-tially less than the aggregate compensatoryand other damages alleged in such actions,proceedings or claims.

S8

The Company believes that the aboveactions, proceedings or claims, in the aggre-gate, should not have any material adverseeffect on the Company's financial position.

At December 31, 1987, the Company hadcommitments totaling approximately $450 mil-lion for the purchase of machinery and equip•ment in connection with its facilitiesmodernization programs .

Note 12Redeemable Preferred Stock

The Company had one class of cumulativepreferred stock (Series B) outstanding atDecember 31,1987. The stock is senior to theCommon Stock as to dividends and prefer-ences in liquidation .

The Series B Stock is subject to mandatoryredemption of 327,375 shares peryear, com-mencing November 1,1989, at a redemptionprice of S 100 per share plus any accrued divi-dends. The Company has the noncumulativeoption to double the amount redeemed pursu-ant to such mandatory redemption in anyyear. The Company may elect to redeem all orpart of the Series B Stock, in addition to themandatory redemption requirement, at an ini-tial optional redemption price of S 111 .50 plus

50782 9452


accrued dividends on November 1, 1989 . Theoptional redemption price declines thereafteron an annual basis to $100 plus accrued divi-dends on November 1, 1994, and thereafter .During 1987, the Company repurchased andretired 1 .174,217 shares of the Series B Stockunder a repurchase program to buy back up to1, 597,021 shares . Cumulative dividends arepayable quarterly on the Series B Stock at anannual rate of 511 .50 and aggregated 530 mil-lion in 1987 and S33 million in 1986 and 1985,respectively. Additionally, holders of the SeriesB Stock are entitled to one vote per share on allmatters on which holders of Common Stockhave the right to vote.

On March 1,1986, the Company redeemedall remaining shares of its Series A CumulativePreferred Stock at S48 .50 per share plusaccrued dividends . Dividends on Series A Stockwere $1 million in 1986 and S9 million in 1985 .

On December 1,1986, the Companyredeemed all remaining shares of its Series CCumulative Preferred Stock at 5135 .23 pershare plus 51 .08 per share in accrued divi-dends. Dividends on Series C Stock were $68million in 1986 and S49 million in 1985 .

Changes in redeemable preferred stock aresummarized in the following table :

1987 1986 1985

Shares Amount Shares Amount Shares Amount

Series A Cumulative Preferred Stock -without par value (548 .50 stated value) :Balance at beginning of year - - 1,634,494 5 79 7,053,478 $ 342Shares redeemed and retired - - (1,634,494) (79) (5,418,984) (263)

- - - - 1,634,494 79

Less treasury stock :Balance at beginning ofyear - - (41,809) (2) (2,801,856) (133)Shares purchased - - - - (644,617) (32)Shares retired - - 41,809 2 3,404,664 163

- - - - (41,809) (2)Balance at end of year - - - - 1,592,685 S 77

Series B Cumulative Preferred Stock -without par value (S 100 statedvalue-authorized 1,732,304 shares atDecember 3 ., 1987) :Balance at beginning of year 2,906,521 $ 291 2,911,295 S 291 2,899,112 S 290Shares issued upon conversion of 4~/2 %

Convertible Subordinated Debentures - - - - 12,183 1Shares retired* (1,174,217/ (118) (4,774) - - -

1,732,304 173 2,906,521 291 2,911,295 291

Less treasury stock:Balance at beginning of year - - (4,774) - (4,774) -Shares retired - - 4,774 - - -

- - - - (4,774) -Batance at end of year 1,732,304 S 173 2.906,521 5 291 2,906,521 S 291

Series C Cumulative Preferred Stock -without par value (S 125 stated value) :Balance at beginning of year - - 9,750,095 S1,219 - S -Shares issued in Nabisco Brands

acquisition (see Note 16) - - - - 9,750,095 1,219Shares redeemed and retired* - - (9,750,095) (1,219) - -

Balance at end of year - - - - 9,750,095 S1,2119million in 1986 . The excess of the cost*The aggregate cost to the Company, including all related fees and expenses, was S 141 million in 1987 and $1,328

of shares repurchased and retired over the stated value of S 118 million and51,2I 9 million, In 1987 and 1986, respectively, has been charged to retainedearnings.

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Note 13Common Stock and Pald-In Capital

1987 1986 1985Shares Amount ' Shares Amount Shares Amount

Common Stock-no par (S1 stated value-authorized 600,000,000 shares atDecember 31, 1987) :Balance at beginning of year 50,698,401 251 50,698,401 251 58,548,528 259Shares issued upon conversion of4%96 Convertible SubordinatedDebentures - - -- - 78,932 -Shares repurchased and retired (1) - - - - (7,929,059) (8)Balance at end of year 250,698,401 $251 250,698,401 , $251 250,698,401 S251

Pald-In capital :Balance at beginning of year S 320 S332 S344Common Stock repurchased and retired (I) - - (10)Other {8) (12) (2)Bafance at end of year S 312 $320 S332

Treasury stock :Balance at beginning of year /303,468) S (15) (131,940) S (4) (165,273) S (4)Shares purchased (2) (3,633,200) (176) (1,300,000) (62) (850,000) /25)Shares issued under incentivecompensation plan awards, net 595,432 32 1,128,472 51 883,333 25Balance at end of year (3,341,236) $/159) (303,468) S (15) (131,940) S (4)

(1) The aggregate cost to the Company including all related fees and expenses was $248 million in 1985 . The excess of the cost of shares repurchaseand retired over the stated value has been charged to retained earnings, S230 million, and paid-in capital, S 10 million .

(2) In October 1987, the Company announced its intention to repurchase up to 5 miliion shares of its Common Stock . At December 31, 1987, 3,103,400shares had been repurchased under this program at an aggregate cost of $145 million .

The Company has three stock option plansthat provide for the granting of options to pur-chase shares of the Company's CommonStock to certain officers and other employees .These plans permit the granting of incentiveawards in the form of incentive stock options(ISOs), stock appreciation rights (SARs) andother stock options . The option price for out-standing options is the average quoted marketprice on the date of grant . Options that lapseor are cancelled are added back to sharesauthorized for future grants .

Under the 1982 Long-Term Incentive Plan,the maximum number of shares of CommonStock that may be granted is 12,500,000 . As ofDecember 31, 1987, there were 615,031 ISOs(37,201 of which have SARs attached) and2,253,853 nonqualified options(1,341,928 of which have SARs attached) out-standing with expiration dates ranging fromJuly 21, 1988 to June 18, 1996 . The averageexercise price was 534 .18, and such optionswere held by 519 participants .

Under the 1977 Stock Option Plan, thenumber of shares of Common Stock granted,net of cancellations, was 5,325,548 . No addi-tional shares may be granted under this plan .

As of December 31, 1987, there were 749,105nonqualified options/SARs outstanding withexpiration dates ranging from September 21,1988 to June 18, 1996 . The average exerciseprice was 524.65, and such optionsJSARswere held by 168 participants .

Under the Career Executive Stock Plan, thetotal number of shares of Common Stockgranted, net of cancellations, was 2,634,041 .No additional shares may be granted underthis plan . As of December 31, 1987, there were10,425 nonqualified options/SARs outstandingwith an expiration date of February 15, 1994 .The average exercise price was 523.45, andsuch options/SARs were held by 6 participants .

The following table summarizes the changesin options outstanding and related priceranges for shares of Common Stock underoptions :


1987 1986 1985Options:

Outstanding at beginning of year 4,702,295 4,918,294 4,136,7851982 Long Term Incentive Plan :Granted - 1,242,900 1,305,278Exercised (588,566) (959,213) (396,523)

1977 Stock Option Plan :Granted - 93,200 459,114Exercised - (210,204) (395,612) (403,415)

Career Executive Stock Plan :Exercised (13,865) (51,050) (45,2011

Cancelled (261,246) (146,224) (137,744)Outstanding at end of year 3,628,414 4,702,295 4,918,294

Price Ranges :Outstanding at beginning of year $12.19-49.06 $11 .81-31 .55 $11 .51-26.30Granted under 1982 Long Term Incentive Plan - 49.06 26.19-30 .55Granted under 1977 Stock Option Plan - 35.38-49 .06 27 .50-31 .55Options/SARs exercised (market prices ranged from

544.56-70.75 in 1987, $31 .3 i-54 .56 in 1986 andS25.25-34.88 in 1985) 12 .1949.06 1 1 .81-31 .55 11 .51-26.30

Cancelled 20.2349.06 18.48-49 .06 17 .28-31 .55Outstanding at end of year $12 .19-49.06 $12.19-49 .06 $11 .81-31 .55

At December 31, 1987 options were exercisable as to 2,123,746 shares, compared with 2 .172,799 shares at December 31, 1986, and 2,373,437 shares atDecember 31, 1985 . As of December 31, 1987 options for 5,310, 591 shares of Common Stock were available for future grants .

I

Note 14Cumulative Translation Adjustments

The changes in this account are shown inthe following table :

1987 1986Balance at beginning

ofyear s(761 S ( 14o)

~

Translation and otheradjustments 159 34

Related income taxes 6 7

~ Sale of businesses (3) 23Balance at end of year $86 S(76)~

t)

i

Note 15Retirement Benefits

The Company sponsors a number of non-contributory defined benefit pension planscovering most U.S. employees . Plans coveringregular full-time employees in the tobaccooperations (as well as hourly employees in thefood operations) provide pension benefits thatare based on the employee's length of serviceand final average compensation before retire-ment. Plans covering salaried employees of thecorporate group and food operations wereamended in late 1987 to provide for individualaccounts which offer lump sum or annuitypayment options, with benefits based onaccumulated compensation and interest cred-its made monthly throughout the career ofeach participant, with an initial opening credit

based on the value of retirement benefitsaccrued prior to the date of such amendment .The Company's policy is to fund the cost ofcurrent service benefits and past service costover periods not exceeding 30 years to theextent that such costs are currently tax deduct-ible. Additionally, the Company participates inseveral multi-employer plans, which providedefined benefits to certain of the Company sunion employees .

Employees in foreign countries who are notU.S. citizens are covered by various post-employment benefit arrangements, some ofwhich are considered to be defined benefitplans for accounting purposes. -

The Company elected early adoption ofFASB Statement No . 87, "Employers' Account-ing for Pensions;' for its United States pensionplans in 1986 and for its Canadian pensionplans in 1987. The effect of the 1987 adoptionin Canada was not significant, while the 1986adoption for U.S. plans reduced pensionexpense for that year by S21 million . Pensionexpense and related information presented forprior periods have not been retroactivelyrestated . The Company intends to apply FASBStatement No. 87 to its other foreign plans in1988, the effect of which is expected to beimmaterial .


A summary of the components of net peri-odic pension cost for Company sponsoredplans follows :

1987 1986 1985Defined benefit plans:

Service cost-benefits earnedduring tfie period 82 69

Interest cost on projectedbenefit obligation 195 167

Actual return onplan assets (89) (281)

Net amortizationand deferral (132) 96

Total U.S. andCanadian plans 56 51 $60

Foreign plans 18 15 14Net pension cost of

defined benefit plans 74 66 74Muititmpia)er plans 29 23 17Total pension expense $ 103 $ 89 591

The following table sets forth the fundedstatus and amounts recognized in the Consoli-dated Balance Sheets at December 31,1987and 1986 for the Company's United States andCanadian defined benefit pension plans, usingthe following assumptions :

1987 1986Weighted-average discount rate 8.5% 8.0%Rate of increase in compen-

sation levels 6.596 6.5%Expected long-term rate of

return on assets 9.0% 9.0%

Plans WhoseAssets

ExceededAccumulated

December 31, 1987 Benefits

Plans WhoseAccumulated

BeneritsExceededAssets

Present valueof benefit obligations:Vested benefit obligation t 1.050 $744Accumulated

benefit obligation S 1,247 $804Plan assets at

fair market value S 1,707 $676Projected benefit obligation (1,683) (914J

Pr 'ected benefit obligationm excess of) or less

n plan assets 24 (R38)Unrecognized net loss 11 16Prior service cost not yet

recognized in periodicpensron cost . 11 24

Unrecognized net assets atJanuary 1,1987,net of amortization (171) (1 t 1)

Net pension liabilityrecognized in thebalance sheet f (125) $(309)

Net pension liabilityrecognized in the balancesheet at December 31,1986(u.S, plans oniy) S 28) (329)

The projected benefit obligation includesS 79 million related to the 1987 Voluntary Sepa-ration Incentive Program of R .J . ReynoldsTobacco Co.

At December 31, 1987, 82 percent of theplan assets were invested in listed stocks andbonds. The balance consisted of variousincome producing investments .

The actuarial present value of accumulatedplan benefits for the United States defined ben-efit pension plans at December 31, 1986 was$1.8 billion, including vested benefits of 51 .5 bil-lion. The net assets available for benefits were$2.1 billion .

In addition to providing pension benefits,the Company provides certain health care andlife insurance benefits for retired employees .Substantially all of its regular full-time emplay-ees, including certain employees in foreigncountries, may become eligible for those bene-fits if they reach retirement age while workingfor the Company. The cost of retiree healthcare and life insurance benefits is generally rec-ognized as expense when claims are paid .Claim payments and insurance premiums forretirees amounted to S28 million in 1987 5$26million in 1986 and $17 million in 1985 .

Note 16Acqulsitlon

The Company purchased 50 .2 percent ofthe outstanding shares of Nabisco Brands, Inc .Common Stock on July 2,1985, for $85 pershare. The acquisition was completed onSeptember 10,1985 upon the conversion of theremaining shares of Nabisco Brands, Inc .Common Stock into a combination of theCompany's Series C Cumulative PreferredStock and 11.2 % Notes . (See Notes 10 and 12 tothe Financial Statements .)

The total cost of the acquisition, which wasaccounted for as a purchase, was S4 .9 billion .Excluding working capital acquired of $295million, the investment was primarily forintangibles of S 3 .9 billion, properry, plantand equipment of $1 .8 billion, and long-termdebt of $685 million.

If the acquisition had taken place as of thebeginning of 1985, pro forma net sales, incomefrom continuing operations and the related pershare amount for 1985 would have been $14 .5billion, $899 million and S2 .90, respectivety .

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Responsibility for FinancialStatements

RJR Nabisco, Inc . is responsible for the prep-aration and accuracy of the financial state-ments and other information included in thisreport. The financial statements have beenprepared in accordance with generallyaccepted accounting principles using, whereappropriate, management's best estimates andjudgment .

The Company's independent auditors,Ernst & Whinney, have examined the financialstatements in accordance with generallyaccepted auditing standards and their reportappears herein .

In meeting its responsibility for the reliabilityof the financial statements, the Companydepends on its system of internal accountingcontrols . The system is designed to providereasonable assurance that assets are safe-guarded and transactions are executed asauthorized and properly recorded . The systemis augmented by written policies and proce-dures and an extensive internal audit program .

The Board of Directors of the Company hasan Audit Committee which is composedentirely of directors who are neither officersnor employees of the Company. The AuditCommittee meets regularly with manage-ment, the internal auditors and the indepen-dent auditors to discuss audit scope and resultsand to address internal control and financialreporting matters . Both independent andinternal auditors have unrestricted access tothe Audit Committee .

President andChief Executive Officer

Executive Vice President,Finance, and ChiefFinancial Officer

February 1, 1988

Report of Ernst & Whtnney,independent AuditorsRJR Nabisco, Inc .Its Directors and Stockholders

We have examined the consolidated bal-ance sheets of RJR Nabisco, Inc . and subsi-diaries as of December 31,1987 and 1986, andthe related consolidated statements of incomeand retained earnings and changes in financialposition for each of the three years in theperiod ended December 31,1987. Our exami-nations were made in accordance withgenerally accepted auditing standards and,accordingly included such tests of theaccounting records and such other audit-ing procedures as we considered necessaryin the circumstances .

In our opinion, the financial statementsreferred to above present fairly the consoli-dated financial position of RJR Nabisco, Inc .and subsidiaries at December 31,1987 and1986, and the consolidated results of theiroperations and the changes in their consoli-dated financial position for each of the threeyears in the period ended December 31,1987,in conformity with generally acceptedaccounting principles applied on a consis-tent basis.

441c. vC lT/

Atlanta, GeorgiaFebruary 1,1988


RJR Nabisco, Inc .Eieven Year Financial SummaryFor the Years Ended December 31

(Oollars in Millans fxcept Pershare Data/ 1987 1986 1985 1984

Net sales S 15,766 $15.102 $11,622 $8,200Operating income 2,304 2,340 1,949 1,412Interest and debt expense 489 565 337 166Income before provision for income taxes 1,816 1,782 1,663 1,353Income from continuing operations 1,081 1,025 917 747Net income 1,209 1,064 1,001 1,210Preferred dividends 30 102 91 56Net income applicable to Common Stock 1,179 962 910 1,154

Per share of Common Stock :Continuing operations S 4.19 5 3 .68 S 3 .27 S 2.46Net income 4.70 3.83 3.60 4.11Dividends 1 .76 1 .51 1 .41 1 .30Book value 24.41 21 .21 19.14 17.33

Workingcapital S 1,717 S 1,329 $ 1,617 52,780Capital expenditures 936 1,022 946 642Depreciation expense 450 402 258 151Property plant and equipment, net 5,847 5,343 4,678 2,193Total assets 16,861 16,701 16,414 8,805Short-term debt 604 941 804 218Long-term debt 3,884 4,833 4,824 1,225Preferred stock 173 291 1,587 499Common stockholders' equity 6,038 5,312 4,796 4,478

Average common shares outstanding (in thousands) 250,612 251,073 252,941 280,938Number of employees at year end 120,334 122,395 127,404 79,234

Effective income tax rate 40 .596 42.5% 44.9% 44 .8%Current ratio 1.4 1 .3 1 .4 2.5

Prior years have been restated to report the Company's former spirits and wines business as discontinued operations (see Note 3 to the Financial Statements) .The 1985 amounts include the operations of Nabisco Brands from July 2, 1985(see Note 16 to the Financial Statements) .

6fhttp://legacy.library.ucsf.edu/tid/nbn14d00/pdf

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RJR Nabisco, Inc .

Lines of Business DataThe Company classifies its continuing operations into two principal lines of business which are described in Management'sDiscussion and Analysis, beginning on page 45 of this report. Summarized financial information for these operations for each ofthe past three years is shown in the following tables . The 1985 amounts include the operations of Nabisco Brands from July 2,1985 (see Note 16 to the Financial Statements) .fDoUars in Millionsj 1987 1986 1985Net sales:Tobacco ~` S 6,346 $ 5,866 S 5,422Food 9,420 9,236 6,200

Consolidated net sales $15,766 S 15,102 511,622Operating Income :

Tobacco S 1,821 5 1,659 S 1,483Food 915 - 820 549Restructuring expense (i) (250) - -Corporate (182) (139) (83)

Consolidated operating Income S 2,304 S 2,340 S 1,949

Assets:Tobacco $ 5,208 S 4,882 S 4,496Food 10,117 9,822 9,598Corporate (2) 1,536 1,281 863

16,861 15,985 14,957Net assets of

discontinued operations - 716 1,457

Consolidated assets $16,861 $16,701 $16,414

Capital expenditures :Tobacco S 433 S 613 S 647Food 445 344 279Corporate 58 65 20

Consolidated capital expenditures S 936 $ 1,022 $ 946

Depreciation and amortization expense :Tobacco S 244 $ 205 S 146Food 380 376 195Corporate 28 24 13

Consoiiidated depreciation andamortization expense S 652 S 605 S 354

(1) Restructuring expense for 1987 includes S(2611 mitlion, S 18 million and S(7) million for Tobacco . Food and Corporate, respectively (see Note I to theFinancial Statements) .

(2) All cash and short•term investments are included in Corporate assets .


RJR Nabisco, Inc .

Geographic DataThe following table shows certain financial information relating to the Company's continuing operations in various geographicareas .

/Dollars in Millrons/ 1987 1986 1985Net sales :

United States $11,721 $11,338 S 9,095Canada 850 1,060 830Europe 2,361 2,055 1,125Other geographic areas 1,387 1,217 996Less transfers between geographic areas (l) (553) (568) (424)

Consolidated net sales S 15,766 515,102 $11,622Operating Income:

United States S 2,162 S 2,026 S 1,694Canada 112 85 106Europe 241 180 90Other geographic areas 221 188 142Restructuring expense (2) (250)Corporate (182) (139) (83)

Consolidated operating Income $ 2,304 S 2,340 S 1,949Assets :

United States S 10,881 S 10,982 S 10,115Canada 700 896 1,048Europe 2,293 1,660 1,552Other geographic areas 1,451 1,166 1,379Corporate 1,536 1,281 863

16,861 15,985 14,957Net assets of discontinued operations - 716 1,457

Consolidated assets $16,861 S 16,701 $16,414Liabilities of the Company s continuing

operations located In foreign countries S 1,831 S 1,578 S 1,523

(1) Transfers between geographic areas (which consist principally of fresh and canned fruit from Latin America, Africa and the Philippines transferred tothe United States and Europe) are generally made at fair market value.

(2) Restructuring expense for 1987 includes S(428) million and S178 million for the United States and Canada, respectively (see Note 1 to the FinancialStatements) .

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RJR Nabisco, Inc .

Ouarterly Results of Operations (Unaudited)The following is a summary of the quarterly results of operations for the years ended December 31 :

(Dollars in Mildons Except PerShare Amounts/ First Second Third Fourth1987Net sales $3,489 $4,023 $3,835 $4,419Operating Income (t1 277 632 6S0 745Income from continuing operations 92 299 320 370Net income (2( 220 299 ' 320 370Income from continuing operationsper common share 0.33 1 .16 1 .24 1 .46

Net income per common share 0.84 1 .16 1 .24 1 .46

1986(3)Net sales 53,397 53,832 53,656 54,217Operating income 461 591 609 679Income from continuing operations 195 253 267 310Net income 206 276 268 314Income from continuing operations

per common share 0.61 0.91 0.96 1 .20Net income per common share 0.66 0.99 0.97 1 .21

Previously published quarterly financial data have been restated to report the Company's former spirits and wines business as discontinued operations(see Note 3 to the Financial statements) .(1) Operating income for the first, second and third quarters of 1987 included $219 million, $12 million and S19 million, respectively for net restructuring

expense (see Note 1 to the Financial Statements) .(2) Net income in the first quarter of 1987 included the net gain on the sale of the Company s discontinued operations of $215 million or 86 cents per

share and an extraordinary loss from the early extinguishment of debt of 580 million or 32 cents per share . (See Notes 3 and 4 to the Financial State-ments) .

(3) The 1986 fourth quarter operations vvere adversely affected by charges related to the early retirement of high-cost debt and a one-time corporatestreamlining program .

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RJR Nabisco, Inc .

Shareholder Information

Corporate HeadquartersRJR Nabisco, Inc .300 Galleria ParkwayAtlanta, Georgia 30339

Shareholder InquiriesCommunications concerning dividends,change of address, transfer requirements andlost certificates should be directed to the com-pany's transfer agent .

Other shareholder inquiries may be directed toShareholder Services, RJR Nabisco, Inc ., Reyn-olds Boulevard, Winston-Salem, North Caro-lina 27102. Telephone: 919-741-2347

Transfer Agent and RegistrarWachovia Bank and Trust Company, N .A .Corporate Trust DepartmentP.O. Box 3001Winston-Salem, North Carolina 27102Telephone : 919-7 70-5 790

Independent AuditorsErnst & Whinney787 Seventh AvenueNew York, New York 10019

1800 Peachtree CenterSouth Tower225 Peachtree Street, N .E .Atlanta, Georgia 30303

Common StockThe company's Common Stock is listed on theNew Ybrk, London, Tokyo, Zurich, Geneva,Basel, Amsterdam, Frankfurt, West Berlin,Dusseldorf, Paris, Brussels and Antwerp stockexchanges .Trading symbol on New York Stock Exchange :RJR .

Dividend Reinvestment PlanAll registered holders of RJR Nabisco, Inc .Common Stock are eligible to participate in aconvenient and economical method for auto-matically reinvesting their dividends towardsthe purchase of additional shares of the com-pany's Common Stock . A booklet describingthe Plan, together with an enrollment form,can be obtained by writing the transfer agentor calling 919-770-6000 .

Notice of MeetingThe Annual Meeting of the company's share-holders will be held at the Waverly Hotel, 2450Galleria Parkway, Atlanta, Georgia, at 10 a.m .on Wednesday, May 4,1988 . Notice of theAnnual Meeting, together with a Proxy State-ment and Proxy, will be mailed in March toshareholders of record as of the close of busi-ness March 7,1988 .

Availability of Form 10-KOn or after March 31,1988, a copy of the com-pany's annual report to the Securities andExchange Commission on Form 10-K for theyear ending December 31,1987, will be pro-vided to shareholders upon written request to :Shareholder Services, RJR Nabisco, Inc .,Reynolds Boulevard, Winston-Salem, NorthCarolina 27102

Supplemental InformationRJR Nabisco shareholders and other interestedinvestors may write to request reprints offinancial community presentations, corporateresponsibility information and speeches deliv-ered by senior management . Requests shouldbe directed to Corporate Public Affairs, RJRNabisco, Inc., 300 Galleria Parkway, Atlanta,Georgia 30339 . Telephone : 404-852-3078Security analysts and other investment profes-sionals should direct their inquiries to HuntleyR. Whitacre, Vice President, Investor Relations,RJR Nabisco, Inc ., 300 Galleria Parkway,Atlanta, Georgia 30339 .Telephone : 404-852-4706

Throughout this annual report, product references in all capitalktters and initial capital letters represent trade names or brandnames owned by or associated with RJR Nabisco . Inc .©1989 RJR Nabisco. Inc .


RNANABISCO


Rjr 1987 Annual Report

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Transcript of Rjr 1987 Annual Report