The leverage buyouts of the 1980s have left plenty of debt-laden firms gasping for air in the 1990s.
Happily, RJR Nabisco seems determined to escape that fate, and continues to make good progress on its balance sheet.Buoyed by the strong showing of its tobacco operations in the fourth quarter 1990, the company posted its best results since its $24.5 billion buyout by Kohlberg Kravis Roberts & Co. in 1989.
The money markets responded to the news, with a top financial rating service upping its ratings on many of RJR's outstanding bonds issues.
For the fourth quarter, RJR Nabisco Holdings reported a 15 percent increase in operating profits and reduced its net loss to $13 million for the period, the lowest since the buyout.
For the year, RJR reported operating profits rose 31 percent to $3.43 billion. Sales increased 8 percent increase to $13.88 billion.
After paying on its debt service, the food and tobacco giant's net loss was $429 million, down 63 percent from $1.15 billion in fiscal 1989.
``RJR Nabisco concluded 1990 as a far stronger company - more competitive, more focused, more efficient,' Chairman and CEO Louis V. Gerstner Jr. said.
In response to the results, Moody's Investor Services increased its ratings on much of RJR's high-yield debt, issued to finance the LBO. The upgrade lifted some of the junk bonds to Ba1, one grade below investment quality.
Besides making the bonds more attractive, the upgrade will also allow RJR, when needed, to borrow money more cheaply in the short-term market. That will further lower operating costs.
Moody's said it upgraded the bonds because RJR's ``1990 equity infusion and the current equity exchange offer represent a shift in ownership philosophy which over time will enhance debtholder protection measurements.'
The statement refers to RJR's November completion of a $6.9 billion recapitalization program that included retirement of more than $4 billion in junk bonds and a $1.15 billion bridge loan; as well as an offer announced in late December to swap cash and common stock for up to an additional $753 million in bonds.
Exports to forefront?\
There is perhaps no better evidence of the growing importance of cigarette exports than Philip Morris' $400 million expansion of its Cabarrus County manufacturing plant.
In announcing the project a couple weeks ago, Philip Morris president and CEO William I. Campbell gave much of the credit to increased cigarette exports.
``Smokers around the world are demanding more of our cigarettes than we can comfortably produce,' Campbell said. ``Right now our facilities and our people are working overtime, but we view this as only a short-term solution.'
This at a time when domestic cigarette consumption is steadily falling.
Campbell said cigarette exports had doubled between 1986 and 1990 to $6 billion per year. Philip Morris accounted for 60 percent, or about $3.6 billion, of that total, he said.
Although Cabarrus County is obviously the big winner in the expansion, all of North Carolina will benefit from some of the numbers it will generate.
The company projects the three-year construction project will create 1,000 construction-related jobs and $52 million in wages and salaries.
When completed, 660 jobs will be added at the plant itself, up from 1,800, and another 1,000 jobs in the community because of increased economic activity. The jobs will generate $46 million in annual wages and salaries and another $15 million in benefits, Philip Morris says.
The tax payoff: state and local taxes totaling about $15 million per year.
Despite being banned from television and radio, four brands of cigarettes are among the top 200 products in terms of advertising expenditures, according to Advertising Age, a trade magazine.
Three brands belong to market leader Philip Morris - Marlboro (No. 45), Virginia Slims (No. 129) and Merit (No. 143).
The other on the list is Newport (No. 100), made by Lorillard in Greensboro.
No R.J. Reynolds Tobacco Co. brand was among the top 200.
Through the first nine months of 1990, Philip Morris spent $65.9 million to tout Marlboro, $30.7 million on Virginia Slims and $27.9 on Merit advertisements.
Lorillard parted with $37.3 million for Newport ads.
The top three advertised products were AT&T products and services ($371.6 million), McDonald's restaurants ($334.7 million) and Kellogg breakfast foods ($307.8 million.
The cut-off point of the list, No. 200, was Arby's restaurants, which spent $21.3 million on advertisements through the first nine months of 1990.