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Corporate Results Hold Few Surprises; Buyout Costing RJR Nabisco Dearly

April 22, 1989

NEW YORK (AP) _ Several corporate heavy hitters weighed in with their first-quarter financial results this past week and most figures tipped the scales close to where the companies intended.

A grim performance by RJR Nabisco Inc. may have been expected, due to its $25 billion buyout by Kohlberg Kravis Roberts & Co., but that didn’t make the news any easier to bear.

The company said it shouldered $247 million in so-called ″change of control″ costs, including severance pay, pension plan benefits and other payments to executives leaving on account of the buyout.

RJR Nabisco shareholders are expected to approve the deal with Kohlberg Kravis at a special meeting on Thursday.

The flop of RJR Nabisco’s Premier smokeless cigarette, which was recently yanked from test market store shelves because consumers rejected the brand, also had something to do with the earnings slump.

The company said its after-tax income in the January through March period amounted to $103 million, down 62 percent from $273 million in the same quarter a year ago.

Sales in the quarter were up 5 percent, to $4 billion from $3.8 billion in 1988.

Without the buyout-related costs and a charge for abandoning the Premier tests, net income would have been up 17 percent to $320 million in the first quarter.

The leveraged buyout of RJR Nabisco is setting precedents for costs associated with these deals in which a target company’s assets and cash flow typically are tapped to finance the transaction.

For RJR Nabisco, further costs could show up in subsequent earnings statements.

The buyout was expected to impair RJR Nabisco’s profitability but the magnitude of the effect in the first quarter was a surprise to some analysts.

Among other companies posting results, General Motors Corp. reported a 42.2 percent first-quarter profit gain, reflecting improvements in North American automobile operations and continued cost-saving measures.

The nation’s largest company said it earned $1.55 billion, or $2.37 per share, in the three months ended March 31, up from $1.09 billion, or $1.56 per share, for the same 1988 period. Revenue rose 11.9 percent to $29.6 billion from $26.4 billion.

American Telephone & Telegraph Co. reported a 20.7 percent rise in first- quarter earnings to $594 million, or 55 cents a share, from $492 million, or 46 cents a share, as revenue rose 3.2 percent to $8.66 billion from $8.39 billion. AT&T benefited from growth in international sales of products and services plus a surge in long-distance calling.

BankAmerica Corp. said its net income soared 152 percent in the first quarter, underscoring the strength of the big bank holding company’s recovery. First-quarter profit rose to a record $275 million, or $1.38 a share, from the prior year’s $109 million, 56 cents a share. The parent of Bank of America lost $955 million in 1987 and rebounded last year to post a profit of $726 million.

In other business and economic news during the week:

-Drexel Burnham Lambert Inc. announced a major restructuring that involves the sale of its retail brokerage operation and a reduction of as much as one- third in the number of its employees.

Separately, a federal appeals court unexpectedly delayed approval of the settlement between Drexel and the Securities and Exchange Commission of securities fraud charges. SEC Chairman David Ruder hinted the agency may still take action against Drexel Chief Executive Officer Frederick Joseph.

-Billionaire oilman Marvin Davis took his bid for NWA Inc. directly to stockholders by offering $90 a share in cash in a hostile takeover deal that could total $3.1 billion including related fees. The offer for the parent of Northwest Airlines, the nation’s fourth largest carrier, expires at midnight May 17.

-The Labor Department reported the Consumer Price Index rose 0.5 percent in March and increased at a 6.1 percent annual rate in the first quarter. Although it was the fastest pace since the 6.3 percent rate in 1987′s first quarter, the financial markets rallied on the news because the numbers were better than expected.

End adv weekend editions April 22-23

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