Reynolds American Reports First Quarter Results, Reaffirms
Guidance, Says 'Performance is on Track' WINSTON-SALEM, N.C., April
27 /PRNewswire-FirstCall/ -- Reynolds American Inc. (NYSE:RAI)
today reported results for the first quarter of 2005 that were
consistent with the full-year guidance the company issued in
February. Reynolds American was established as a publicly traded
holding company in July 2004, following a combination of R.J.
Reynolds Tobacco Company (R.J. Reynolds) and the U.S. operations of
Brown & Williamson Tobacco Corporation (B&W). (Logo:
http://www.newscom.com/cgi-bin/prnh/20040720/CLTU061LOGO ) "We are
pleased with our first-quarter results. Our performance is on
track," said Susan M. Ivey, RAI's chief executive officer and
president. "The launch of R.J. Reynolds' new brand-portfolio
strategy is well underway, and steps have been taken to further
strengthen the performance of the two investment brands, Camel and
Kool. We continued the smooth integration of our operations, and we
are on target to deliver the merger-related synergies." First
Quarter Results RAI's first-quarter results follow in two sections:
one that presents as- reported (GAAP) measurements; and a second
section that provides certain pro- forma GAAP measurements, to
provide additional perspective on the company's performance. GAAP
(As Reported) First Quarter Results - Highlights For the Three
Months Ended March 31 (dollars in millions, except % per-share
amounts) 2005 2004(1) Change Net sales $1,957 $1,218 60.7%
Operating income $467 $221 111.3% Net income $281 $122 130.3% Net
income per diluted share $1.90 $1.43 32.9% 1. First-quarter 2004
operating results include the net benefit of a $9 million reversal
for previously recorded restructuring charges, as well as a $33
million charge related to Reynolds Tobacco's settlement of the
DeLoach case (the tobacco growers' lawsuit). GAAP Balance Sheet
Highlights (as of March 31, 2005) - Cash and short-term
investments: $1.9 billion - Debt: $1.6 billion - Equity: $6.3
billion - Dividend: $0.95 per share quarterly; $3.80 per share
annualized First Quarter Financial Results (GAAP) For first quarter
2005, net sales were $2.0 billion, up 60.7 percent compared with
$1.2 billion in 2004, due primarily to incremental revenues
resulting from the business combination and increased pricing.
Operating income was $467 million, up 111.3 percent from the prior
year period, due primarily to the business combination, increased
pricing, merger- related synergies and a benefit related to the MSA
Phase II growers' trust. These were partially offset by
merger-related expenses. Net income was $281 million, up 130.3
percent compared to the prior-year quarter. Earnings per diluted
share of $1.90 was up from $1.43 per share. A table that details
significant items that were included in GAAP earnings during the
first-quarter periods of 2004 and 2005 is attached at the end of
this document. Operating Company Volume The following table
summarizes first-quarter 2005 U.S. cigarette shipment volume for
RAI's operating companies, compared with 2004 pre-merger volumes
for R.J. Reynolds, Santa Fe, and Puerto Rico and other U.S.
territories. Volume increases for first-quarter 2005 were driven by
the addition of former B&W brands. Operating Company Volume For
the Three Months Ended March 31 % (volume in billions of units)
2005 2004 Change R.J. Reynolds volume 24.9 17.9 39.3% Full-price
14.9 11.6 28.5% Savings 10.0 6.3 59.5% Other volume(1) 0.6 0.5
15.0% Total domestic volume 25.5 18.4 38.7% 1. Other volume
includes U.S. volume for Lane's first-quarter 2005 U.S. cigarette
sales, as well as well as volume for Santa Fe, Puerto Rico and
other U.S. territories. Percentages are calculated from unrounded
volume numbers. Industry Volume and Mix Based on information from
Management Science Associates, Inc. (MSAi), industry volume for the
first quarter of 2005 was 88.0 billion units, down 4.2 percent from
the prior-year period. Industry shipments in the current quarter
were adversely impacted by one less shipping day compared with the
year-ago quarter. The industry's full-price mix was 71.3 percent
for the first quarter of 2005, up 2.0 percentage points from the
year-ago quarter. Pro Forma GAAP Results The following results are
presented as if the merger had been completed as of Jan. 1, 2004
(pro-forma GAAP basis). A table that reconciles GAAP to pro- forma
GAAP is attached at the end of this document. This table also
details significant adjustments that were included in GAAP earnings
during the first- quarter periods of 2004 and 2005. Pro Forma GAAP
First Quarter Results - Highlights(1) For the Three Months Ended
March 31 % (dollars in millions) 2005 2004 Change Net sales $1,957
$2,017 - 3.0% Operating income $467 $296 57.8% Net income $281 $165
70.3% 1. See the Reconciliation of GAAP to Pro Forma GAAP Results
table attached at the end of this document. On a pro-forma GAAP
basis, Reynolds American's first-quarter 2005 operating earnings
increased 57.8 percent to $467 million compared with the prior-year
quarter due primarily to increased pricing, merger-related
synergies and other cost reductions, and a benefit related to the
MSA Phase II growers' trust. These were partially offset by volume
declines, expenses from the quota buyout program and merger-related
costs. Net income rose 70.3 percent, to $281 million due to the
factors discussed above. Operating Company Volume and Product Mix
(Pro Forma) The following table summarizes first-quarter U.S.
cigarette shipment volume, with 2004 reported as if all brands had
been part of RAI's operating companies beginning Jan. 1, 2004. Pro
Forma Operating Company Volume For the Three Months Ended March 31
% (volume in billions of units) 2005 2004 Change R.J. Reynolds
volume 24.9 26.8 - 6.9% Full-price 14.9 15.9 - 5.8% Savings 10.0
10.9 - 8.5% Other volume(1) 0.6 0.6 1.7% Total domestic volume 25.5
27.4 - 6.7% 1. Other volume includes U.S. cigarette volume for
Santa Fe, Lane, and Puerto Rico and other U.S. territories.
Percentages are calculated from unrounded volume numbers. R.J.
Reynolds' Shipment Volume (Pro Forma) R.J. Reynolds' 2005
first-quarter shipment volume of 24.9 billion units was down 6.9
percent. This was in line with the 6-to-8 percent full-year 2005
volume decline that the company has said it expects as resources
are shifted away from prior investment brands and non-support
brands continue to decline under the new brand-portfolio strategy.
For the quarter, full-price mix improved to 59.9 percent, up 0.7
percentage points from the year-ago quarter. R.J. Reynolds' Retail
Share (Pro Forma) The following share information is reported as if
all brands were part of R.J. Reynolds beginning Jan. 1, 2004. R.J.
Reynolds' first-quarter 2005 share of U.S. retail cigarette sales
was 30.38 percent. That was down 0.56 percentage points from the
prior-year period, as investment-brand growth partially offset
declines on the company's selective support and non-support brands.
The company's two investment brands gained 0.52 share points in the
first- quarter compared with the year-ago quarter. Camel continued
its strong growth trend and Kool remained stable. The company's
selective support brands -- Winston, Salem, Doral and Pall Mall --
declined 0.38 share points in the first-quarter primarily due to a
0.25 share-point decline on Salem, reflecting the recent decision
to reduce Salem's marketing support. The performance of R.J.
Reynolds' non-support brands was consistent with the company's new
brand-portfolio strategy. The role of these brands is to maximize
near-term profits. The non-support brands were down 0.70 share
points compared with the first quarter of 2004. R.J. Reynolds
believes that its new, focused portfolio strategy, combined with
merger-related synergies, continuous productivity improvement and a
relentless focus on a high-performance culture, will deliver
sustainable profit growth. The company expects long-term growth in
total company share, as gains on investment brands offset declines
among its selective-support and non-support brands. Reynolds
American Outlook "Today, we are reaffirming our full-year
forecast," said Dianne M. Neal, Reynolds American's chief financial
officer. "Our first-quarter performance met our expectations and
was in line with the guidance we provided on February 15th." In
February, Reynolds American provided the following outlook for
2005: - Operating income of $1.65 billion to $1.75 billion; - Net
income of $970 million to $1.03 billion; and - Diluted earnings per
share of $6.55 to $6.95. Among the factors contributing to
operating results are: - Incremental synergies of $325 million to
$375 million; - One-time merger-related expenses of approximately
$100 million; - Merger-related depreciation and amortization of
approximately $50 million; and - Total MSA and quota buyout
expenses of approximately $2.8 billion, which includes a Phase II
growers' trust benefit of approximately $75 million. As Neal noted
in February, the 2005 forecast does not include the impact of a
final ruling concerning a refund of 2004 Phase II payments, or any
remaining charges associated with the pending sale of the company's
packaging division. Reynolds American expects merger-related cash
costs of $200 million to $250 million in 2005 and expects to end
the year with cash and short-term investments of approximately $2.0
billion. The company expects to end the year with $1.6 billion in
debt. In reaffirming the forecast, Neal noted that the company
continues to evaluate alternatives concerning pre-funding a 2006
debt maturity of $500 million. Conference Call Webcast Today
Reynolds American will webcast a conference call to discuss
first-quarter 2005 financial results at 9:30 a.m. Eastern Daylight
Time on Wednesday, April 27. The call will be available live online
on a listen-only basis. To register for the call, please visit the
"Investors" section of http://www.reynoldsamerican.com/ . A replay
of the call will be available on the site for seven days. Remarks
made during the conference call will be current at the time of the
call and will not be updated to reflect subsequent material
developments. Although news media representatives will not be
permitted to ask questions during the call, they are welcome to
monitor the remarks on a listen-only basis. Following the call,
media representatives may direct inquiries to Seth Moskowitz at
(336) 741-7698. Cautionary Information Regarding Forward-Looking
Statements Statements included in this news release that are not
historical in nature are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements regarding RAI's
future performance and financial results inherently are subject to
a variety of risks and uncertainties that could cause actual
results to differ materially from those described in the
forward-looking statements. These risks and uncertainties include
the substantial and increasing regulation and taxation of the
cigarette industry; various legal actions, proceedings and claims
relating to the sale, distribution, manufacture, development,
advertising, marketing and claimed health effects of cigarettes
that are pending or may be instituted against RAI or its
subsidiaries; the substantial payment obligations and limitations
on the advertising and marketing of cigarettes under various
litigation settlement agreements; the continuing decline in volume
in the domestic cigarette industry; competition from other
cigarette manufacturers, including increased promotional activities
and the growth of deep-discount brands; the success or failure of
new product innovations and acquisitions; the responsiveness of
both the trade and consumers to new products and marketing and
promotional programs; the ability to realize the benefits and
synergies arising from the combination of R.J. Reynolds and the
U.S. cigarette and tobacco business of B&W; any potential costs
or savings associated with realigning the cost structure of RAI and
its subsidiaries; the ability to achieve efficiencies in
manufacturing and distribution operations without negatively
affecting sales; the cost of tobacco leaf and other raw materials
and commodities used in products; the effect of market conditions
on the performance of pension assets, foreign currency exchange
rate risk, interest rate risk and the return on corporate cash; the
ratings of RAI securities; and the potential existence of
significant deficiencies or material weaknesses in internal
controls over financial reporting that may be identified during the
performance of testing required under Section 404 of the
Sarbanes-Oxley Act of 2002. Due to these risks and uncertainties,
you are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
news release. Except as provided by federal securities laws, RAI is
not required to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise. Reynolds American Inc. is the parent company of R.J.
Reynolds Tobacco Company, Santa Fe Natural Tobacco Company, Inc.,
Lane Limited and R.J. Reynolds Global Products, Inc. R.J. Reynolds
Tobacco Company, the second- largest U.S. tobacco company,
manufactures about one of every three cigarettes sold in the United
States, including five of the nation's 10 best-selling brands:
Camel, Winston, Kool, Salem and Doral. Santa Fe Natural Tobacco
Company, Inc. manufactures Natural American Spirit cigarettes and
other tobacco products, and markets them both nationally and
internationally. Lane Limited manufactures several roll-your-own,
pipe tobacco and little cigar brands, and distributes Dunhill
tobacco products. R.J. Reynolds Global Products, Inc. manufactures,
sells and distributes American-blend cigarettes and other tobacco
products to a variety of customers worldwide. Copies of RAI's news
releases, annual reports, SEC filings and other financial materials
are available on the company's Web site,
http://www.reynoldsamerican.com/ . (financial tables follow)
REYNOLDS AMERICAN INC. CONDENSED CONSOLIDATED STATEMENTS OF
INCOME-GAAP (Dollars in Millions, Except Per Share Amounts)
(Unaudited) Three Months Ended March 31, 2005 2004 Net sales $1,957
$1,218 Cost of products sold 1,111 711 Selling, general and
administrative expenses 364 295 Amortization expense 15 -
Restructuring adjustments - (9) Operating income 467 221 Interest
and debt expense 24 20 Interest income (17) (5) Other expense, net
4 5 Income before income taxes 456 201 Provision for income taxes
175 79 Net income $281 $122 Basic income per share $1.91 $1.45
Diluted income per share $1.90 $1.43 Basic weighted average shares,
in thousands 147,384 84,274 Diluted weighted average shares, in
thousands 147,584 85,238 REYNOLDS AMERICAN INC. Reconciliation of
2004 GAAP Results to 2005 GAAP Results (Dollars in Millions)
(Unaudited) First Quarter Operating Net Income Income 2004 Results
$221 $122 Deduct 2004 restructuring and impairment adjustments (9)
(6) Add back 2004 settlement of tobacco growers' lawsuit 33 20
Phase II growers' trust offset 65 39 Merger/integration costs (22)
(13) Operations 179 119 2005 Results $467 $281 CONDENSED
CONSOLIDATED BALANCE SHEETS (Dollars in Millions) March 31,
December 31, 2005 2004 (Unaudited) Assets Cash and cash equivalents
$1,616 $1,499 Short-term investments 326 473 Other current assets
2,432 2,652 Trademarks, net 2,399 2,403 Goodwill 5,685 5,685 Other
noncurrent assets 1,657 1,716 $14,115 $14,428 Liabilities and
shareholders' equity Tobacco settlement and related accruals $1,974
$2,381 Current maturities of long-term debt 50 50 Accrued
liabilities and other current liabilities 1,618 1,624 Long-term
debt (less current maturities) 1,570 1,595 Deferred income taxes
747 805 Long-term retirement benefits 1,510 1,469 Other noncurrent
liabilities 330 328 Shareholders' equity 6,316 6,176 $14,115
$14,428 REYNOLDS AMERICAN INC. Reconciliation of GAAP to Pro-forma
GAAP Results The pro-forma GAAP results for the quarter ended March
31, 2004, are presented as if the merger had been completed on
January 1, 2004. First Quarter 2005 2004 Operating income: RAI GAAP
$467 $221 B&W/Lane GAAP results - 117 Proforma adjustments -
(42) RAI pro-forma GAAP $467 $296 The proforma GAAP operating
results include the following expenses (income): RJR net
restructuring charges (adjustments) - (9) RJR settlements - 33 RAI
Phase II growers' trust offset (65) - RAI merger/integration costs
22 - B&W merger/integration costs - 6 Net income: RAI GAAP $281
$122 B&W/Lane GAAP Results - 71 Proforma adjustments - (28) RAI
pro-forma GAAP $281 $165 The proforma GAAP results include the
following expenses (income): RJR net restructuring charges
(adjustments) - (6) RJR settlements - 20 RAI Phase II growers'
trust offset (39) - RAI merger/integration costs 13 - B&W
merger/integration costs - 4 LOGO:
http://www.newscom.com/cgi-bin/prnh/20040720/CLTU061LOGO AP
Archive: http://photoarchive.ap.org PRN Photo Desk,
photodesk@prnewswire.com DATASOURCE: Reynolds American Inc.
CONTACT: Investors, Ken Whitehurst of Reynolds American Inc.,
+1-336-741-0951; or Media, Seth Moskowitz, +1-336-741-7698, for
Reynolds American Inc. Web site: http://www.reynoldsamerican.com/
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