RAI Reynolds American (delisted)

Full Year 2006 Reported EPS up 16%; Adjusted EPS up 4% WINSTON-SALEM, N.C., Feb. 8 /PRNewswire-FirstCall/ -- At a Glance - 2006 reported EPS up 16 percent at $4.10 - Includes a $90 million pre-tax trademark impairment charge in Q4 - 2006 adjusted EPS up 4 percent at $4.06 - Building on Success in 2006: - Total shareholder return of 43 percent - Dividend up 20 percent - Profits up at all operating companies - Conwood acquisition strengthens business; benefits bottom line - Growth brands drive market share - R.J. Reynolds on track for long-term growth - 2007 GAAP EPS forecast of $4.25 to $4.45 All references in this release to "reported" numbers refer to GAAP measurements; all "adjusted" numbers are non-GAAP, as defined in schedules 3 and 4 of this release, which reconcile reported to adjusted results for the fourth-quarter and full-year periods. Reynolds American Inc. (NYSE:RAI) today announced full-year 2006 profit gains on both a reported and adjusted basis, with strong performances by all of its operating companies. As expected, fourth-quarter adjusted EPS was down from the prior-year quarter, due to quarterly volume and promotional fluctuations. Full-year 2006 adjusted EPS of $4.06 was 3.8 percent higher than the prior year from pricing and cost reductions, partially offset by lower volumes. For full-year 2007, RAI forecasts it will deliver reported EPS of $4.25 to $4.45. Fourth Quarter and Full Year 2006 Financial Results - Highlights (unaudited) (all dollars in millions, except per share amounts; for reconciliations, including GAAP to non-GAAP, see schedules 3 and 4) For the Three Months For the Full Year Ending Dec. 31 Ending Dec. 31 % % 2006 2005 Change 2006 2005 Change Net sales $2,069 $2,047 1.1 % $8,510 $8,256 3.1 % Operating income Reported (GAAP) $324 $218 48.6 % $1,930 $1,459 32.3 % Adjusted (Non-GAAP) 425 438 < 3.0 >% 2,057 1,846 11.4 % Net income Reported (GAAP) $180 $297 < 39.4 >% $1,210 $1,042 16.1 % Adjusted (Non-GAAP) 239 302 < 20.9 >% 1,198 1,154 3.8 % Net income per diluted share Reported (GAAP) $0.61 $1.01 < 39.6 >% $4.10 $3.53 16.1 % Adjusted (Non-GAAP) 0.81 1.02 < 20.6 >% 4.06 3.91 3.8 % MANAGEMENT'S PERSPECTIVE Overview "Reynolds American continued to build on its momentum in 2006, with all of our operating companies posting full-year profit gains," said Susan M. Ivey, RAI's chairman and chief executive officer. "Our companies' key brands performed extremely well. And our acquisition of Conwood, the nation's second-largest smokeless-tobacco company, significantly broadened our business and diversified our profit stream. "Conwood is a powerful addition to the Reynolds American family," Ivey said. "Its performance has exceeded our expectations, and the acquisition added to earnings in its first seven months. "Our largest subsidiary, R.J. Reynolds, continued to post strong growth- brand gains and remains on track to achieve overall share growth by the end of 2010," she continued. "In 2006, Santa Fe Natural Tobacco Company again increased profit and share, and our Global Products subsidiary further strengthened its international businesses." In addition, she said, in 2006: - Reynolds American provided shareholders with a 43 percent return on their investment; - RAI split its stock two-for-one and increased its cash dividend by 20 percent; and - The company delivered about $300 million in incremental merger-related synergies and productivity initiatives. RAI's reported earnings for the fourth-quarter included a non-cash charge of $90 million associated with a decrease in the trademark values of some of R.J. Reynolds' non-growth brands. Excluding that non-cash charge, Reynolds American's 2006 reported EPS of $4.10 would have been $4.29 - near the top of the $4.20 to $4.30 EPS range RAI provided in its Oct. 25 forecast. "Across all dimensions," Ivey said, "2006 was a year in which Reynolds American continued building on success and fortifying its foundation for growth." R.J. Reynolds "R.J. Reynolds posted significant achievements in 2006," said Daniel M. Delen, who joined the company as R.J. Reynolds' president on Jan. 1, 2007. "We continued to enhance our overall performance, and we further refined our marketing strategies to fuel additional gains on Camel, Kool and Pall Mall." On a combined basis, these three brands commanded 12.41 percent of the market in 2006 -- up 1.09 share points from the prior year. "That's a tremendous accomplishment," said Delen, adding that it helped R.J. Reynolds continue to slow its overall share decline. The company's 2006 decline was 0.50 market-share points, compared with 0.84 points in 2005 and 1.27 points in 2004. "This steady progress puts us on track to begin overall share growth by the end of 2010." Delen noted that Camel was the cigarette industry's fastest-growing brand in 2006. More than half of the brand's full-year gain of 0.68 share points came from the company's increased focus on the performance of Camel's menthol brand-styles. This focus, which included the introduction of Camel Wides Menthol, has strengthened the brand's position in the important and growing menthol category. In addition, Delen pointed to the company's mid-year expansion of the Camel trademark to a new smokeless and "spitless" tobacco product called Camel Snus as one of the many ways that the Camel brand continues to build on its long heritage of innovation. He said he was pleased with the Camel Snus test market, which is providing valuable learning that will enhance the product's potential. "This year, Camel will continue to provide innovative entries that satisfy unmet consumer desires," Delen said. "A good example is this month's launch of Camel No. 9, which we developed with feedback from adult female smokers. Camel No. 9's regular and menthol styles each offer a 'light and luscious' blend in a distinctive pack." Turning to Kool, Delen said a highlight of 2006 was the introduction of a wide-gauge cigarette called Kool XL. "Because it is 'smoother' and 'wider,'" he said, "Kool XL provides a tangible point of difference from competing brands. And moving forward in 2007, Kool will continue to deliver consumer- relevant brand differentiation." Delen noted that Pall Mall's demonstrated ability to grow market share with limited support prompted R.J. Reynolds to reclassify Pall Mall as a "growth brand." Like Camel and Kool, Pall Mall's growth comes primarily from competitive brands, so this move will complement the company's efforts to build market share and profits. R.J. Reynolds' brand-portfolio strategy includes three brand categories, which are now named: growth, support and non-support. Each of these categories plays a specific role in returning the company to overall share growth. R.J. Reynolds' total retail cigarette market-share for 2006 was 29.78 percent, down 0.50 points from the prior year. The company's premium-to- value-brand mix improved 1.1 percentage points to 61.5 percent for the full year. The company's full-year adjusted operating income was up 2.1 percent at $1.74 billion. As the company had projected, fourth-quarter operating results were down considerably (18.2 percent) from the prior-year quarter. That decline was primarily driven by the timing of promotional expenses and by lower shipment volume, as trade-inventory imbalances from earlier in the year were brought back in line. "R.J. Reynolds had a great year in 2006," Delen said, "and we have solid plans to continue that growth in 2007 and beyond." Conwood Conwood's performance in 2006 further solidified the company's position as the smokeless-tobacco growth leader, with the company delivering strong gains in volume, market share and profits. In 2006, one of every four cans of moist snuff sold in the United States was manufactured by Conwood. The company's full-year share of moist-snuff shipments was 25.15 percent, up 2.48 points from the prior-year period. That performance was largely driven by an exceptional 3.42 point market- share gain by Grizzly, the nation's leading moist-snuff value brand. "Grizzly is a great brand that is increasingly popular and profitable," said William M. Rosson, Conwood's president and chief executive officer. "In the five years since it was introduced, it's captured 20 percent of the moist-snuff market." Conwood's 2006 achievements in the moist-snuff category also included stabilizing the share of Kodiak, the company's leading premium brand. Like competitive premium brands, Kodiak's performance had been soft, as the demand for value brands increased. Reynolds American acquired Conwood on May 31, 2006, so RAI's full-year reported results include Conwood for only seven months. Conwood's contribution exceeded RAI's expectations and was accretive to RAI's bottom line. To better quantify Conwood's continued growth, Reynolds American uses adjusted pro-forma results, as if Conwood had been owned by RAI since the beginning of 2005. On this adjusted pro-forma basis, Conwood increased both its profits and its margins in the fourth quarter and for the full year. Conwood's adjusted pro-forma operating income for the fourth quarter was up 20.0 percent to $72 million. Full-year adjusted pro-forma operating income of $284 million was up 16.4 percent from 2005. Conwood's adjusted full-year margins of 57.9 percent were up 1.6 percentage points from the prior year. In addition to its strong marketplace and financial performance in 2006, Conwood made significant progress in integrating its sales, marketing and distribution functions with those of RAI's Lane subsidiary. Effective Jan. 1, 2007, Conwood has handled the sales, distribution and marketing of Lane's products, except for Dunhill and State Express 555 cigarettes, which have moved to R.J. Reynolds. "We're working hard to continue building our momentum," said Rosson. "We delivered excellent results in 2006, and 2007 should shape up as another very strong year." 2007 FULL YEAR FORECAST "Based on the increased strength of Reynolds American, we now expect to deliver mid-single-digit EPS percentage growth for the next several years, with a forecast of $4.25 to $4.45 in 2007," said Dianne M. Neal, RAI's chief financial officer. "This increase from last year's projection of low-single-digit gains reflects our continued focus on key growth drivers, the increasing strength of our companies' brands, and the addition of Conwood's climbing profits. We have also raised the five-year productivity goal we announced in 2006. Including the savings we captured in 2006, we now expect to deliver approximately $500 million in productivity savings by the end of 2011, with $75-to-$100 million of that in 2007." "Since we announced the B&W/RJR merger in late 2003, our stock price has tripled, we've raised our dividend 60 percent and we've provided an annual average shareholder return of about 40 percent," Neal said. "It's clear that we're making tremendous progress enhancing shareholder value and building an organization that can generate sustainable earnings growth for the long term." CONFERENCE CALL WEBCAST TODAY Reynolds American will webcast a conference call to discuss fourth-quarter and full-year 2006 results at 9:30 a.m. Eastern Time on Thursday, Feb. 8, 2007. 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 30 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. RISK FACTORS 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 tobacco products; - various legal actions, proceedings and claims relating to the sale, distribution, manufacture, development, advertising, marketing and claimed health effects of tobacco products 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 the MSA and other state settlement agreements; - the continuing decline in volume in the domestic cigarette industry; concentration of a material amount of sales with a single customer or distributor; - competition from other manufacturers, including any new entrants in the marketplace; - increased promotional activities by competitors, including deep-discount cigarette brands; - the success or failure of new product innovations and acquisitions; - the responsiveness of both the trade and consumers to new products, marketing strategies and promotional programs; - the failure to realize the anticipated benefits arising from the Conwood acquisition; - the ability to achieve efficiencies in manufacturing and distribution operations without negatively affecting sales; - the cost of tobacco leaf and other raw materials and other commodities used in products, including future market pricing of tobacco leaf, which could adversely impact inventory valuations; - the effect of market conditions on foreign currency exchange-rate risk, interest-rate risk and the return on corporate cash; - the effect of market conditions on the performance of pension assets or any adverse effects of any new legislation or regulations changing pension expense accounting or required pension funding levels; - the rating of RAI's securities; - any restrictive covenants imposed under RAI's debt agreements; - the possibility of fire, violent weather and other disasters that may adversely affect manufacturing and other facilities; - any adverse effects from the transition of the packaging operations formerly conducted by RJR Packaging, LLC, a wholly owned subsidiary of RJR Tobacco, to the buyers of RJR Packaging, LLC's businesses; and - the potential existence of significant deficiencies or material weaknesses in internal control 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. ABOUT US Reynolds American Inc. (NYSE:RAI) is the parent company of R.J. Reynolds Tobacco Company; Conwood Company, LLC; Santa Fe Natural Tobacco Company, Inc; 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 country. The company's brands include five of the 10 best-selling U.S. brands: Camel, Kool, Winston, Salem and Doral. - Conwood Company, LLC is the nation's second-largest manufacturer of smokeless tobacco products. Its leading brands are Kodiak, Grizzly and Levi Garrett. Conwood also sells and distributes a variety of tobacco products manufactured by Lane, Limited, including Winchester and Captain Black little cigars, and Bugler roll-your-own tobacco. - Santa Fe Natural Tobacco Company, Inc. manufactures Natural American Spirit cigarettes and other additive-free 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 at http://www.reynoldsamerican.com/. Schedule 1 REYNOLDS AMERICAN INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-GAAP (Dollars in Millions, Except Per Share Amounts) (Unaudited) Three Months Twelve Months Ended Ended December 31, December 31, 2006 2005 2006 2005 Net sales, external $1,954 $1,952 $8,010 $7,779 Net sales, related party 115 95 500 477 Net sales 2,069 2,047 8,510 8,256 Cost of products sold 1,160 1,183 4,803 4,919 Selling, general and administrative expenses 487 436 1,658 1,611 Amortization expense 7 8 28 41 (Gain) loss on sale of assets - (1) - 24 Restructuring charges 1 3 1 2 Goodwill and trademark impairment charges 90 200 90 200 Operating income 324 218 1,930 1,459 Interest and debt expense 91 32 270 113 Interest income (43) (32) (136) (85) Other (income) expense, net (7) 1 (13) 15 Income from continuing operations before income taxes 283 217 1,809 1,416 Provision for (benefit from) income taxes 103 (23) 673 431 Income from continuing operations 180 240 1,136 985 Gain on sale of discontinued businesses, net of income taxes (1) - 2 - 2 Income before extraordinary item 180 242 1,136 987 Extraordinary item - gain on acquisition (2) - 55 74 55 Net income $180 $297 $1,210 $1,042 Basic income per share: Income from continuing operations $0.61 $0.81 $3.85 $3.34 Gain on sale of discontinued businesses (1) - 0.01 - 0.01 Extraordinary item (2) - 0.19 0.25 0.18 Net income $0.61 $1.01 $4.10 $3.53 Diluted income per share: Income from continuing operations $0.61 $0.81 $3.85 $3.34 Gain on sale of discontinued businesses (1) - 0.01 - 0.01 Extraordinary item (2) - 0.19 0.25 0.18 Net income $0.61 $1.01 $4.10 $3.53 Basic weighted average shares, in thousands 295,093 294,836 295,033 294,790 Diluted weighted average shares, in thousands 295,470 295,201 295,384 295,172 Segment data: Net sales: RJR Tobacco $1,813 $1,917 $7,675 $7,695 Conwood 127 - 291 - All Other 129 130 544 561 $2,069 $2,047 $8,510 $8,256 Operating income: RJR Tobacco $233 $183 $1,626 $1,346 Conwood 63 - 160 - All Other 50 41 194 144 Corporate Expense (22) (6) (50) (31) $324 $218 $1,930 $1,459 (1) The 1999 gain on the sale of the international tobacco business was adjusted as a result of a favorable resolution of prior-years' tax matters. (2) Includes adjustments to the 2000 extraordinary gain on acquisition, resulting from favorable resolution of prior-years' tax matters. Schedule 2 REYNOLDS AMERICAN INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Millions) (Unaudited) The $3.5 billion cost of the acquisition of Conwood has been allocated on the basis of the fair value of assets acquired and liabilities assumed as of the acquisition date. The excess cost over the net fair value of assets acquired and liabilities assumed was recognized in goodwill. December 31, December 31, 2006 2005 Assets Cash and cash equivalents $1,433 $1,333 Short-term investments 1,293 1,373 Other current assets 2,209 2,359 Trademarks, net 3,479 2,188 Goodwill 8,175 5,672 Other noncurrent assets 1,589 1,594 $18,178 $14,519 Liabilities and shareholders' equity Tobacco settlement and related accruals $2,237 $2,254 Current maturities of long-term debt 344 190 Accrued liabilities and other current liabilities 1,511 1,705 Long-term debt (less current maturities) 4,389 1,558 Long-term deferred income taxes 1,167 639 Long-term retirement benefits 1,227 1,374 Other noncurrent liabilities 260 246 Shareholders' equity 7,043 6,553 $18,178 $14,519 Schedule 3 REYNOLDS AMERICAN INC. Reconciliation of GAAP to Adjusted Results GAAP results include the acquired operations of Conwood since May 31, 2006. RAI management uses "adjusted" (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and believes that investors' understanding of the underlying performance of the company's continuing operations is enhanced through the disclosure of these metrics. "Adjusted" (non-GAAP) results are not, and should not be viewed as, substitutes for "reported" (GAAP) results. Three Months Ended December 31, 2006 2005 Operat- Operat- ing Net Diluted ing Net Diluted Income Income EPS Income Income EPS GAAP results $324 $180 $0.61 $218 $297 $1.01 The GAAP results include the following expense (income): Phase II growers' trust related expenses - - - (1) (1) - Merger/integration costs 10 6 0.02 19 12 0.04 (Gain) loss on sale of assets - - - (1) (1) - Restructuring charges 1 1 - 3 2 0.01 Goodwill and trademark impairment charges 90 56 0.19 200 128 0.43 Favorable resolution of tax matters - (4) (0.01) - (78) (0.27) Gain on sale of discontinued operations - - - - (2) (0.01) Extraordinary gain on acquisition - - - - (55) (0.19) Total adjustments 101 59 0.20 220 5 0.01 Adjusted results $425 $239 $0.81 $438 $302 $1.02 Twelve Months Ended December 31, 2006 2005 Operat- Operat- ing Net Diluted ing Net Diluted Income Income EPS Income Income EPS GAAP results $1,930 $1,210 $4.10 $1,459 $1,042 $3.53 The GAAP results include the following expense (income): Federal tobacco buyout assessment (9) (6) (0.02) 81 51 0.17 Phase II growers' trust offset - - - (79) (49) (0.17) Phase II growers' trust related expenses - - - 52 33 0.11 Merger/integration costs 45 28 0.10 107 68 0.23 Loss on sale of assets - - - 24 15 0.05 Restructuring charges 1 1 - 2 1 - Goodwill and trademark impairment charges 90 56 0.19 200 128 0.44 Favorable resolution of tax matters - (17) (0.06) - (78) (0.26) Gain on sale of discontinued operations - - - - (2) (0.01) Extraordinary gain on acquisition - (74) (0.25) - (55) (0.18) Total adjustments 127 (12) (0.04) 387 112 0.38 Adjusted results $2,057 $1,198 4.06 $1,846 $1,154 $3.91 Schedule 4 REYNOLDS AMERICAN INC. Reconciliation of GAAP to Proforma Adjusted Operating Income by Segment R.J. Reynolds is the second largest cigarette manufacturer in the United States and manages a contract manufacturing business. Conwood is the second largest smokeless tobacco products manufacturer in the United States. Conwood's GAAP operating income includes the operations acquired by RAI since May 31, 2006. GAAP proforma adjustments reflect the impact of fair values of acquired assets and liabilities assumed as if the acquisition had been completed on each of January 1, 2005 and January 1, 2006. Management uses "adjusted" (non-GAAP) measurements to set performance goals and to measure the performance of the company, and believes that investors' understanding of the underlying performance of the company's continuing operations is enhanced through the disclosure of these metrics. Three Months Ended December 31, 2006 2005 R.J. R.J. Reynolds Conwood Reynolds Conwood GAAP operating income $233 $63 $183 $- The GAAP results include the following expense (income): Phase II growers' trust related expenses - - (1) - Merger/integration costs 5 7 19 - Restructuring charges 1 - 3 - Goodwill and trademark impairment charges 90 - 198 - Total adjustments 96 7 219 - Adjusted operating income $329 70 $402 - Conwood pre-acquisition GAAP operating income - 59 Proforma adjustments 2 1 Proforma adjusted operating income $72 $60 Twelve Months Ended December 31, 2006 2005 R.J. R.J. Reynolds Conwood Reynolds Conwood GAAP operating income $1,626 $160 $1,346 $- The GAAP results include the following expense (income): Federal tobacco buyout assessment (9) - 79 - Phase II growers' trust offset - - (79) - Phase II growers' trust related expenses - - 52 - Merger/integration costs 33 10 107 - Restructuring charges 1 - 2 - Goodwill and trademark impairment charges 90 - 198 - Total adjustments 115 10 359 - Adjusted operating results $1,741 170 $1,705 - Conwood pre-acquisition GAAP operating income 113 247 Proforma adjustments 1 (3) Proforma adjusted operating income $284 $244 Schedule 5 REYNOLDS AMERICAN INC. / INDUSTRY VOLUMES (Volume in Billion Units) Three Months Ended Dec 31, Change 2006 2005 UNITS % CAMEL (Filter Styles) 5.8 5.7 0.0 0.8% KOOL 2.9 3.0 -0.1 -4.0% PALL MALL 1.5 1.5 0.1 4.5% TOTAL GROWTH BRANDS 10.2 10.2 0.0 -0.1% TOTAL SUPPORT BRANDS 10.7 11.3 -0.6 -5.5% TOTAL NON-SUPPORT BRANDS 4.3 5.0 -0.8 -15.0% TOTAL RJRT DOMESTIC 25.2 26.6 -1.4 -5.2% OTHER RAI COMPANIES 0.6 0.6 0.0 -0.1% TOTAL RAI 25.8 27.2 -1.4 -5.1% TOTAL RJRT 25.2 26.6 -1.4 -5.2% TOTAL PREMIUM 15.6 16.2 -0.6 -3.9% TOTAL VALUE 9.7 10.4 -0.7 -7.2% PREMIUM/TOTAL MIX 61.6% 60.8% 0.8% INDUSTRY 92.0 94.6 -2.6 -2.7% PREMIUM 66.6 66.7 -0.2 -0.3% VALUE 25.4 27.8 -2.4 -8.7% PREMIUM/TOTAL MIX 72.4% 70.6% 1.8% Twelve Months Ended Dec 31, Change 2006 2005 UNITS % CAMEL (Filter Styles) 23.5 22.0 1.4 6.5% KOOL 11.7 11.8 0.0 -0.4% PALL MALL 6.4 5.8 0.6 10.5% TOTAL GROWTH BRANDS 41.6 39.6 2.0 5.1% TOTAL SUPPORT BRANDS 44.1 46.6 -2.6 -5.5% TOTAL NON-SUPPORT BRANDS 18.0 21.1 -3.1 -14.6% TOTAL RJRT DOMESTIC 103.7 107.4 -3.6 -3.4% OTHER RAI COMPANIES 2.5 2.4 0.1 4.3% TOTAL RAI 106.2 109.8 -3.5 -3.2% TOTAL RJRT 103.7 107.4 -3.6 -3.4% TOTAL PREMIUM 63.8 64.8 -1.1 -1.6% TOTAL VALUE 40.0 42.6 -2.6 -6.1% PREMIUM/TOTAL MIX 61.5% 60.4% 1.1% INDUSTRY 372.5 381.7 -9.2 -2.4% PREMIUM 270.0 271.4 -1.3 -0.5% VALUE 102.5 110.4 -7.9 -7.2% PREMIUM/TOTAL MIX 72.5% 71.1% 1.4% Amounts are rounded on an individual basis and, accordingly, may not sum in the aggregate. Industry data based on information from Management Science Associates, Inc. R. J. Reynolds' support brands include Winston, Salem, Doral, Capri and Misty Other RAI Companies include U.S. volume for Lane Limited and Santa Fe Natural Tobacco Co., as well as volume for Puerto Rico and other U.S. territories. Schedule 6 R.J.REYNOLDS - RETAIL SHARE OF MARKET Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 Change 2006 2005 Change CAMEL (Filter Styles) 7.55% 7.14% 0.41 7.42% 6.74% 0.68 KOOL 3.20% 3.12% 0.08 3.13% 3.01% 0.13 PALL MALL 1.89% 1.68% 0.21 1.86% 1.58% 0.28 TOTAL GROWTH BRANDS 12.63% 11.93% 0.70 12.41% 11.33% 1.09 TOTAL SUPPORT BRANDS 12.00% 12.50% (0.50) 12.12% 12.82% (0.70) TOTAL NON-SUPPORT BRANDS 4.89% 6.05% (1.15) 5.25% 6.14% (0.89) TOTAL RJRT DOMESTIC 29.53% 30.48% (0.95) 29.78% 30.28% (0.50) Amounts are rounded on an individual basis and, accordingly, may not sum in the aggregate. Retail shares of market are as reported by Information Resources Inc. R. J. Reynolds' support brands include Winston, Salem, Doral, Capri and Misty Schedule 7 CONWOOD VOLUMES AND SHARE OF MARKET (Volume in Millions of Cans) Three Months Twelve Months Ended Ended UNIT VOLUME December 31, Change December 31, Change 2006 2005 Units % 2006 2005 Units % KODIAK 14.1 14.3 (0.2) -1.4% 56.7 59.8 (3.1) -5.2% Other premium 0.9 0.9 (0.1) -5.7% 3.5 3.7 (0.1) -3.9% Total premium 14.9 15.2 (0.2) -1.6% 60.2 63.4 (3.2) -5.1% GRIZZLY 54.9 42.7 12.2 28.5% 202.1 156.5 45.6 29.1% Other price- value 0.7 0.9 (0.2) -20.3% 3.1 4.1 (1.0) -25.3% Total price- value 55.6 43.6 12.0 27.6% 205.2 160.6 44.6 27.7% Total moist snuff cans 70.5 58.8 11.8 20.0% 265.4 224.1 41.3 18.4% Volumes reported include pre-acquisition amounts. Amounts are rounded on an individual basis and, accordingly, may not sum in the aggregate. Three Months Twelve Months MARKET SHARE Ended December 31, Ended December 31, 2006 2005 Change 2006 2005 Change Kodiak 4.99% 5.64% (0.65) 5.09% 5.83% (0.74) Total premium 5.32% 6.03% (0.71) 5.42% 6.22% (0.80) Grizzly 20.81% 17.77% 3.04 19.45% 16.03% 3.42 Total price-value 21.05% 18.12% 2.94 19.73% 16.44% 3.29 Total company 26.37% 24.14% 2.23 25.15% 22.67% 2.48 Share data for total moist snuff based on distributor reported data processed by Management Science Associates, Inc. DATASOURCE: Reynolds American Inc. CONTACT: Investor Relations, Morris Moore, +1-336-741-3116, or Media, Seth Moskowitz, +1-336-741-7698, both of Reynolds American Inc. Web site: http://www.rjrt.com/ http://www.reynoldsamerican.com/

Copyright