Full Year 2007 Reported EPS up 8.0%; Adjusted EPS up 12.6%
WINSTON-SALEM, N.C., Feb. 7 /PRNewswire-FirstCall/ -- At a Glance
-- 2007 4Q reported EPS up 65.6 percent at $1.01; full year up 8.0
percent at $4.43 -- Includes $65 million in pre-tax impairment
charges in 4Q -- 2007 4Q adjusted EPS up 42.0 percent at $1.15;
full year up 12.6 percent at $4.57 -- Strategic initiatives driving
results: -- All operating companies building strength -- Continued
growth on key cigarette and smokeless brands -- Continued
productivity gains -- Significantly higher consolidated operating
margins -- Dividend increased 13.3 percent to $3.40 annualized --
2008 EPS forecast: Mid-single-digit percentage growth, up from 2007
adjusted EPS of $4.57 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 fourth-quarter and full-year
results. Reynolds American Inc. (NYSE:RAI) today announced strong
fourth-quarter and full-year 2007 earnings gains on both a reported
and adjusted basis as increased pricing, moist-snuff volume and
productivity more than offset lower cigarette volume and higher
settlement expense. Results also reflect inclusion of the first
full year of Conwood's results and that company's continued growth.
RAI's full-year 2007 adjusted EPS of $4.57 was 12.6 percent higher
than the prior year. For full-year 2008, RAI forecasts mid-single-
digit percentage growth from 2007 adjusted EPS. Fourth Quarter and
Full Year 2007 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 % % 2007
2006 Change 2007 2006 Change Net sales $2,230 $2,069 7.8 % $9,023
$8,510 6.0 % Operating income Reported (GAAP) $517 $324 59.6 %
$2,288 $1,930 18.5 % Adjusted (Non-GAAP) 582 425 36.9 % 2,353 2,057
14.4 % Net income Reported (GAAP) $297 $180 65.0 % $1,308 $1,210
8.1 % Adjusted (Non-GAAP) 338 239 41.4 % 1,348 1,198 12.5 % Net
income per diluted share Reported (GAAP) $1.01 $0.61 65.6 % $4.43
$4.10 8.0 % Adjusted (Non-GAAP) 1.15 0.81 42.0 % 4.57 4.06 12.6 %
MANAGEMENT'S PERSPECTIVE Overview "I am very pleased to say that
2007 marked another strong year for Reynolds American," said Susan
M. Ivey, RAI's chairman and CEO. "All of our operating companies
are building marketplace strength through innovative products and
programs, and their strategic initiatives are driving results. Both
of our reportable segments continued to enhance performance and
profits, and we once again delivered robust earnings growth." Ivey
said that R.J. Reynolds Tobacco Company's focus on innovation and
efficiency continued to generate total growth-brand share gains and
higher operating income despite ongoing cigarette industry volume
declines. Conwood, the nation's second-largest smokeless tobacco
company, continued to significantly outpace the growth of the
moist-snuff category, while introducing innovations that strengthen
the company's platform for sustained growth. In addition, she said,
RAI's Santa Fe and Global Products subsidiaries delivered against
their objectives, and both invested in building their businesses
for accelerated future growth. "Santa Fe's highly profitable
Natural American Spirit brand achieved a milestone in 2007,
reaching half a share point of the U.S. cigarette market," Ivey
said. "And Global Products continues to build distribution and
enhance support of Natural American Spirit in key growth markets in
Europe and Japan." Ivey said that Reynolds American is squarely
focused on five growth strategies for its operating companies: --
R.J. Reynolds' base business growth; -- Smokeless growth and
innovation; -- Super-premium growth; -- Opportunistic international
expansion; and -- Selective portfolio enhancements. "Our results in
2007 demonstrate that these five strategic growth initiatives form
a solid foundation for Reynolds American's long-term success." Also
in 2007, Reynolds American: -- Increased its cash dividend by 13.3
percent to $3.40 per share on an annualized basis -- a yield that
ranks among the highest in the S&P 500; -- Refinanced $1.55
billion of debt, reducing expense, lengthening maturities and
providing additional financial flexibility; -- Obtained ratings
upgrades from Standard and Poor's, and Moody's; -- Continued to
post significant productivity gains; and -- Expanded and formalized
its Corporate Social Responsibility programs. RAI's reported
earnings for the fourth-quarter included a pre-tax non-cash charge
of $65 million associated with lower trademark values on some
non-focus brands. Excluding that non-cash charge, Reynolds
American's 2007 reported EPS of $4.43 would have been $4.57. R.J.
Reynolds "R.J. Reynolds' primary focus in 2007 was to continue
adding strength by improving margins and delivering innovations
that drive profitable and sustainable growth -- and we made great
strides on both fronts," said Daniel M. Delen, R.J. Reynolds'
president and CEO. "Innovations on Camel and Kool are building
equity for those premium growth brands by successfully meeting the
emerging desires of today's adult smokers," he said. "And our focus
on simultaneously creating value for our consumers, our trade
partners and our company is enhancing consumers' experiences, while
reducing complexity and increasing margins." Delen said that R.J.
Reynolds' 2007 highlights included additional gains in total
growth-brand market share, pricing strength, promotional
efficiencies and other important productivity initiatives across
the company. R.J. Reynolds' three growth brands -- Camel, Kool and
Pall Mall -- added 0.6 share points from the prior year, with a
combined full-year 2007 share of 13.0 percent. That increase was
driven by a 0.4 percentage point gain on Camel, which ended the
year with a 7.8 share of market. "Camel is continuing to grow
because it delivers relevant innovations that provide authentic
pleasure for today's adult smoker," Delen said. "For example, Camel
No. 9 and Camel Signature, which we introduced last year, were both
developed with extensive consumer input, and both are performing
very well. "In addition," he said, "more than 5 million adult
smokers were asked to participate in the design of new packaging
for Camel's base styles and Camel Wides that is currently being
introduced." Delen said that the bold, new packaging will modernize
the look of these Camel styles while maintaining the brand's rich
heritage. These styles will also feature an enhanced premium
tobacco blend. Another innovation, Camel Snus, represents the
brand's first foray into a new category: smoke-free tobacco
products that are also spitless. Camel Snus provides adults with a
discreet way to enjoy tobacco pleasure. In 2007, R.J. Reynolds
expanded its test of Camel Snus to a total of eight markets, and
the company plans to expand into additional markets in the second
quarter. "We continue to be very pleased with the Camel brand's
performance," said Delen, "and we're continuing to develop
innovative ways to leverage the increasing popularity of this
powerful brand family." Kool, R.J. Reynolds' menthol growth brand,
also has been building equity through innovation, led by the
growing popularity of Kool's XL styles. Kool XL, a smoother, wider
cigarette, was introduced in 2006 in 27 states. Last year, the
company expanded Kool XL nationally, along with a new, milder style
called XL Blue. "Kool XL is attracting competitive adult smokers,"
said Delen. "That helped Kool maintain its overall market share of
3.1 percent despite intense competition in the menthol market and
the above-average price increases we've taken to further strengthen
Kool's profitability." R.J. Reynolds' third growth brand, Pall
Mall, continues to gain share on the strength of its positioning as
a great product at a great price. Pall Mall remained focused on
volume and margin growth in 2007 as the brand added another 0.3
share points, for a full-year share of 2.1 percent. Delen said
growth brand gains in 2007 were more moderate than those in the
prior year as R.J. Reynolds continues to optimize the balance
between share and margin growth. The company's total share of
market in 2007 was 29.0 percent, down 0.7 share points from the
prior year. Its full-year premium-to-value mix continued to improve
-- up 0.9 percentage points to 62.4 percent. R.J. Reynolds'
full-year adjusted operating margin of 24.8 percent was up 1.3
percentage points from the prior year, as pricing and productivity
improvements, and pension favorability more than offset volume
declines and higher settlement expense. R.J. Reynolds' adjusted
full-year operating income of $1.97 billion was 8.8 percent higher
than the prior year. Fourth-quarter adjusted operating income of
$486 million rose 39.7 percent from the prior-year quarter
primarily due to higher pricing, coupled with a favorable
comparison resulting from the timing of prior-year promotional
expense. Delen said that R.J. Reynolds' 2007 shipment volume was
down 6.0 percent from the prior year compared with an industry
decline of 5.0 percent. In the fourth quarter, R.J. Reynolds'
volume was down 8.6 percent, while the industry declined 7.9
percent. Those declines were impacted by an industry wide reduction
in wholesale inventories during the fourth quarter of 2007. "We are
pleased with our overall performance in 2007," said Delen. "R.J.
Reynolds is focused on further enhancing its operating margins and
income in 2008." Conwood "Conwood had another outstanding year in
2007, with double-digit volume and profit growth, and continued
margin gains," said William M. Rosson, Conwood's president and CEO.
"Our profits were up more than 13 percent, and Grizzly continued to
produce strong volume and share growth." Conwood's fourth-quarter
pro-forma adjusted operating income was $84 million, up 5.0 percent
from the fourth quarter of 2006. Full-year profits of $344 million
were 13.7 percent higher than 2006 on the strength of higher volume
and pricing. The company's operating margins of 51.4 percent were
almost a full percentage point higher than the prior year. To
provide meaningful period-over-period comparisons, Reynolds
American uses adjusted pro-forma results. These assume that Conwood
with its current line of products had been an RAI subsidiary since
the beginning of 2006. Conwood has continued to post volume,
earnings and margin growth since its acquisition in May 2006.
During its first full year as a member of the RAI family, Conwood
continued to lead growth in the moist-snuff category, and gained
0.9 share points in 2007 -- with a full-year share of 26.0 percent.
That growth was driven by an additional gain of 1.7 share points on
Grizzly, which had a full-year share of shipments of 21.1 percent.
Despite higher pricing and heavy competition that included a number
of new market entrants, Grizzly grew at more than twice the
industry rate. In 2007, Grizzly captured well over 40 percent of
all volume growth in the moist-snuff category. Rosson said that
during the fourth quarter, Grizzly introduced two new styles
designed to meet the changing preferences of today's moist-snuff
consumers -- and both have been very well received. Grizzly
Wintergreen Pouch, now in three states, will expand to eight
additional states during the first quarter of 2008 and will be
national by the end of the year. Grizzly pouches provide
pre-measured portions that are more convenient than traditional,
loose moist-snuff. "Pouches now represent about 6 percent of the
total moist-snuff market, and the demand for them continues to
grow," Rosson said. "Given the popularity of the Grizzly brand, we
see a lot of opportunity for this new pouch style." The second test
product, Grizzly Snuff, is a traditional, natural- flavored,
fine-cut product that was designed to go head-to-head with the
industry's leading premium brand. "We introduced Grizzly Snuff in
two states, and its performance has been outstanding," Rosson said.
"We're expanding it to 16 additional states this month, and it will
be available nationally in the second quarter." Conwood's leading
premium entry -- Kodiak -- experienced volume and share declines
last year in the face of heavy promotion by competitive brands.
"We're taking action to make Kodiak more competitive while
maintaining strong margins," Rosson said, noting that Conwood will
soon introduce packaging and product upgrades on Kodiak's mint and
straight styles, and the company is developing new styles to
enhance Kodiak's appeal. Commenting on Conwood's continued strong
performance, Rosson said: "It was another great year for Conwood,
and this year we will continue to build on the strength we added in
2007." 2008 FULL YEAR FORECAST "Reynolds American's 2007 results
continue to highlight the fundamental strength of our business
model and its ability to deliver sustained earnings growth in the
years ahead," said Thomas R. Adams, Reynolds American's chief
financial officer. "We expect to deliver mid-single-digit EPS
percentage growth in 2008, up from our 2007 adjusted EPS of $4.57,"
he said. "And we plan to deliver mid- single-digit growth over the
next several years." Adams said the 2008 guidance does not include
potential favorable impacts from the termination of the Gallaher JV
or resolution of disputed NPM adjustments. He noted that Reynolds
American remains focused on profitable growth through innovation.
"Our companies have repeatedly demonstrated that they can identify
and deliver innovative products that address emerging consumer
trends," he said. "All of our companies have strong brands, solid
growth strategies and a commitment to continuously improve the
efficiency and effectiveness of their operations. That provides RAI
with a solid platform for continued future growth." Adams said that
RAI remains committed to delivering shareholder value. "A good
example of that is our 75 percent dividend payout ratio and the 13
percent increase in our dividend last year. With a dividend yield
of more than 5 percent, RAI ranks among the highest in the S&P
500." He added that Reynolds American's successful refinancing of
$1.55 billion in 2007 reduced debt expense, lengthened average
maturities to nine years and added balance-sheet flexibility.
"Looking ahead," Adams said, "RAI's fundamental financial strength,
and continued margin improvements at R.J. Reynolds and Conwood,
provide many opportunities to enhance shareholder value and further
strengthen our platform for growth." CONFERENCE CALL WEBCAST TODAY
Reynolds American will webcast a conference call to discuss
fourth-quarter and full-year 2007 results at 9:30 a.m. Eastern Time
on Thursday, Feb. 7, 2008. 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. These statements
regarding RAI's future performance and financial results inherently
are subject to a variety of risks and uncertainties, 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 possibility of bonding issues as a
result of litigation outcomes; -- 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
and RAI's dependence on the U.S. 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 ability to achieve efficiencies in manufacturing and
distribution operations, including outsourcing functions, 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 impairment of goodwill and intangible
assets, including trademarks; -- 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 substantial amount of RAI
debt; -- 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; -- the significant
ownership interest of Brown & Williamson Holdings, Inc., RAI's
largest shareholder, in RAI and the rights of B&W under the
governance agreement; -- the expiration of the standstill
provisions of the governance agreement; 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 uncertainties and risks,
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, Pall Mall, Winston
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/or distributes American-blend
cigarettes, including Natural American Spirit, 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/. (financial and
volume tables follow) Schedule 1 REYNOLDS AMERICAN INC. Condensed
Consolidated Statements of Income - GAAP (Dollars in Millions,
Except Per Share Amounts) (Unaudited) Three Months Ended Twelve
Months Ended December 31, December 31, 2007 2006 2007 2006 Net
sales, external $2,097 $1,954 $8,516 $8,010 Net sales, related
party 133 115 507 500 Net sales 2,230 2,069 9,023 8,510 Cost of
products sold 1,192 1,160 4,960 4,803 Selling, general and
administrative expenses 450 487 1,687 1,658 Amortization expense 6
7 23 28 Restructuring charges - 1 - 1 Trademark impairment charges
65 90 65 90 Operating income 517 324 2,288 1,930 Interest and debt
expense 81 91 338 270 Interest income (40) (43) (134) (136) Other
(income) expense, net 3 (7) 11 (13) Income from continuing
operations before income taxes 473 283 2,073 1,809 Provision for
income taxes 176 103 766 673 Income from continuing operations 297
180 1,307 1,136 Extraordinary item - gain on acquisition (1) - - 1
74 Net income $297 $180 $1,308 $1,210 Basic income per share:
Income from continuing operations $1.01 $0.61 $4.44 $3.85
Extraordinary item (1) - - - 0.25 Net income $1.01 $0.61 $4.44
$4.10 Diluted income per share: Income from continuing operations
$1.01 $0.61 $4.43 $3.85 Extraordinary item (1) - - - 0.25 Net
income $1.01 $0.61 $4.43 $4.10 Basic weighted average shares, in
thousands 294,178 295,093 294,385 295,033 Diluted weighted average
shares, in thousands 294,771 295,470 294,889 295,384 Segment data:
Net sales: R.J. Reynolds (2) $1,944 $1,818 $7,918 $7,708 Conwood
(3) 175 155 670 409 All Other (2) (3) 111 96 435 393 $2,230 $2,069
$9,023 $8,510 Operating income: R.J. Reynolds (2) $453 $252 $1,934
$1,693 Conwood (3) 52 73 312 181 All Other (2) (3) 39 39 148 154
Corporate Expense (27) (40) (106) (98) $517 $324 $2,288 $1,930
Supplemental information: Excise tax expense $482 $516 $2,026
$2,124 Master settlement agreement and other state settlement
expense $676 $623 $2,821 $2,611 Federal tobacco buyout expense $52
$65 $255 $256 (1) Includes adjustments to the 2000 extraordinary
gain on acquisition, resulting from favorable resolution of prior
years' tax matters. (2) Includes results of Lane, Limited's Dunhill
and State Express cigarette brands transferred January 1, 2007,
into the R.J. Reynolds segment from All Other. (3) Includes results
of Lane, Limited's remaining products transferred January 1, 2007,
into the Conwood segment from All Other. Schedule 2 REYNOLDS
AMERICAN INC. Condensed Consolidated Balance Sheets (Dollars in
Millions) (Unaudited) December 31, December 31, 2007 2006 Assets
Cash and cash equivalents $2,215 $1,433 Short-term investments 377
1,293 Other current assets 2,400 2,209 Trademarks, net 3,407 3,479
Goodwill 8,174 8,175 Other noncurrent assets 2,056 1,589 $18,629
$18,178 Liabilities and shareholders' equity Tobacco settlement and
related accruals $2,449 $2,237 Current maturities of long-term debt
- 344 Accrued liabilities and other current liabilities 1,454 1,511
Long-term debt (less current maturities) 4,515 4,389 Long-term
deferred income taxes 1,184 1,167 Long-term retirement benefits
(less current portion) 1,167 1,227 Other noncurrent liabilities 394
260 Shareholders' equity 7,466 7,043 $18,629 $18,178 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, 2007 2006 Operating Net Diluted Operating Net Diluted
Income Income EPS Income Income EPS GAAP results $517 $297 $1.01
$324 $180 $0.61 The GAAP results include the following expense
(income): Merger/integration costs - - - 10 6 0.02 Restructuring
charges - - - 1 1 - Trademark impairment charges 65 41 0.14 90 56
0.19 Favorable resolution of tax matters - - - - (4) (0.01) Total
adjustments 65 41 0.14 101 59 0.20 Adjusted results $582 $338 $1.15
$425 $239 $0.81 Twelve Months Ended December 31, 2007 2006
Operating Net Diluted Operating Net Diluted Income Income EPS
Income Income EPS GAAP results $2,288 $1,308 $4.43 $1,930 $1,210
$4.10 The GAAP results include the following expense (income):
Federal tobacco buyout assessment - - - (9) (6) (0.02)
Merger/integration costs - - - 45 28 0.10 Restructuring charges - -
- 1 1 - Trademark impairment charges 65 41 0.14 90 56 0.19
Favorable resolution of tax matters - - - - (17) (0.06)
Extraordinary gain on acquisition - (1) - - (74) (0.25) Total
adjustments 65 40 0.14 127 (12) (0.04) Adjusted results $2,353
$1,348 $4.57 $2,057 $1,198 $4.06 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.
R.J. Reynolds' segment results include the 2007 transfer of the
Dunhill and State Express cigarette brands from Lane, Limited,
previously reported as All Other. 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 January 1, 2006. Conwood's
segment results include the 2007 transfer of Lane, Limited's
remaining products, previously reported as All Other. Beginning
January 1, 2007, certain corporate expenses are no longer allocated
to the operating segments. The segment amounts presented for prior
periods have been reclassified to reflect the current composition
of the reportable segments. 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, 2007 2006 R.J. R.J.
Reynolds Conwood Reynolds Conwood GAAP operating income $453 $52
$252 $73 The GAAP results include the following expense (income):
Merger/integration costs - - 5 5 Restructuring charges - - 1 -
Trademark impairment charges 33 32 90 - Total adjustments 33 32 96
5 Adjusted operating income $486 $84 $348 78 Proforma purchase
adjustments 2 Proforma adjusted operating income $80 Twelve Months
Ended December 31, 2007 2006 R.J. R.J. Reynolds Conwood Reynolds
Conwood GAAP operating income $1,934 $312 $1,693 $181 The GAAP
results include the following expense (income): Federal tobacco
buyout assessment - - (9) - Merger/integration costs - - 33 12
Restructuring charges - - 1 - Trademark impairment charges 33 32 90
- Total adjustments 33 32 115 12 Adjusted operating results $1,967
$344 $1,808 193 Conwood pre-acquisition GAAP operating income 113
Proforma purchase adjustments (3) Proforma adjusted operating
income $303 Schedule 5 R.J. REYNOLDS VOLUMES AND SHARE OF MARKET
UNIT VOLUME (in billions): Three Months Ended December 31, Change
2007 2006 Units % Camel (filter styles) 5.8 5.8 0.0 -0.3% Kool 2.7
2.9 (0.2) -8.1% Pall Mall 1.8 1.5 0.2 14.9% Total growth brands
10.2 10.2 0.0 -0.2% Total support brands 9.7 10.7 (1.1) -9.8% Total
non-support brands 3.2 4.3 (1.1) -25.2% Total R.J. Reynolds
domestic 23.1 25.3 (2.2) -8.6% Total premium 14.4 15.6 (1.2) -7.6%
Total value 8.7 9.7 (1.0) -10.1% Premium/total mix 62.3% 61.7% 0.6%
Industry 86.5 93.9 (7.5) -7.9% Premium 61.8 66.7 (5.0) -7.5% Value
24.7 27.2 (2.5) -9.2% Premium/total mix 71.4% 71.0% 0.4% R.J.
REYNOLDS VOLUMES AND SHARE OF MARKET UNIT VOLUME (in billions):
Twelve Months Ended December 31, Change 2007 2006 Units % Camel
(filter styles) 24.2 23.5 0.7 3.1% Kool 11.1 11.7 (0.6) -5.3% Pall
Mall 7.1 6.4 0.7 10.3% Total growth brands 42.4 41.6 0.8 1.9% Total
support brands 40.9 44.1 (3.2) -7.2% Total non-support brands 14.4
18.3 (3.8) -20.9% Total R.J. Reynolds domestic 97.8 104.0 (6.2)
-6.0% Total premium 61.0 64.0 (3.0) -4.7% Total value 36.7 40.0
(3.2) -8.1% Premium/total mix 62.4% 61.6% 0.9% Industry 357.2 376.0
(18.8) -5.0% Premium 259.9 270.4 (10.5) -3.9% Value 97.3 105.6
(8.3) -7.9% Premium/total mix 72.8% 71.9% 0.8% RETAIL SHARE OF
MARKET: Three Months Ended Twelve Months Ended December 31,
December 31, 2007 2006 Change 2007 2006 Change Camel (filter
styles) 7.9% 7.6% 0.3 7.8% 7.4% 0.4 Kool 3.1% 3.2% (0.1) 3.1% 3.1%
0.0 Pall Mall 2.2% 1.9% 0.3 2.1% 1.9% 0.3 Total growth brands 13.2%
12.6% 0.5 13.0% 12.4% 0.6 Total support brands 11.3% 12.0% (0.7)
11.6% 12.1% (0.5) Total non-support brands 4.1% 4.9% (0.8) 4.4%
5.3% (0.8) Total R.J. Reynolds domestic 28.5% 29.5% (1.0) 29.0%
29.8% (0.7) Amounts are rounded on an individual basis and,
accordingly, may not sum in the aggregate. R.J. Reynolds' support
brands include Winston, Salem, Doral, Capri and Misty. Industry
data based on information from Management Science Associates, Inc.
Retail shares of market are as reported by Information Resources
Inc. Schedule 6 CONWOOD VOLUMES AND SHARE OF SHIPMENTS UNIT VOLUME
(in millions of cans): Three Months Ended December 31, Change 2007
2006 Units % Kodiak 13.6 14.1 (0.5) -3.5% Other premium 0.6 0.8
(0.2) -12.3% Total premium 14.2 14.9 (0.7) -4.7% Grizzly 62.1 54.9
7.2 13.1% Other price-value 0.4 0.7 (0.3) -5.7% Total price-value
62.5 55.6 6.9 12.4% Total moist snuff cans 76.7 70.5 6.2 8.8%
Twelve Months Ended December 31, Change 2007 2006 Units % Kodiak
53.5 56.7 (3.2) -5.6% Other premium 2.9 3.5 (0.6) -17.1% Total
premium 56.4 60.2 (3.8) -6.3% Grizzly 237.0 202.1 34.9 17.3% Other
price-value 2.2 3.1 (0.9) -29.0% Total price-value 239.2 205.2 34.0
16.6% Total moist snuff cans 295.6 265.4 30.2 11.4% SHARE OF
SHIPMENTS: Three Months Ended Twelve Months Ended December 31,
December 31, 2007 2006 Change 2007 2006 Change Kodiak 4.4% 5.0%
(0.6) 4.5% 5.1% (0.6) Total premium 4.6% 5.3% (0.7) 4.7% 5.4% (0.7)
Grizzly 21.9% 20.8% 1.1 21.1% 19.4% 1.7 Total price-value 22.1%
21.1% 1.0 21.3% 19.7% 1.6 Total Conwood 26.7% 26.3% 0.4 26.0% 25.1%
0.9 2006 volumes include pre-acquisition amounts. Amounts are
rounded on an individual basis and, accordingly, may not sum in the
aggregate. Share data for total moist snuff based on distributor
reported data processed by Management Science Associates, Inc.
DATASOURCE: Reynolds American Inc. CONTACT: Investors, Morris
Moore, +1-336-741-3116, or Media, Seth Moskowitz, +1-336-741-7698,
both for Reynolds American Inc. Web site:
http://www.reynoldsamerican.com/
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