("Reynolds American 4Q Net Down 13% On Write-Downs, Volume Slip," published at 8:19 a.m., EST, incorrectly said the write-downs were related to its cigarette brands, that Lorillard Inc.'s (LO) Newport brand had 89% of U.S. menthol sales, and that operating income at R.J. Reynolds fell. A corrected story appears below)

 
   DOW JONES NEWSWIRES

Reynolds American Inc.'s (RAI) fourth-quarter net income skidded 13% as the company wrote down the value of smokeless tobacco brands and investments.

Cigarette makers have been cutting costs to deal with a continued decline in U.S. sales partly due to a more health-conscious attitude among consumers, but also because of higher prices from state and federal excise taxes and payments under the 1998 settlement with states. Now, Reynolds and its rivals are expected to feel even more pain as a federal excise tax rises a further 61 cents per pack to $1 on April 1.

Reynolds, the second-largest U.S. tobacco company behind Altria Group Inc. (MO), reported net income of $258 million, or 89 cents a share, down from $297 million, or $1.01 a share, a year earlier. Excluding the write-downs, earnings rose to $1.27 a share from $1.15.

Net sales fell 2.4% to $2.18 billion, with domestic cigarette volume down 6.3% and smokeless tobacco up 13%.

Analysts polled by Thomson Reuters were looking for earnings of $1.16 a share on revenue of $2.2 billion.

Gross margin edged down to 46.5% from 46.6%.

The R.J. Reynolds Tobacco division saw a 15% rise in operating income as sales fell 3.6%. The company's U.S. market share dropped to 28% from 28.5%.

The Conwood division, which makes smokeless-tobacco brands Kodiak and Grizzly, swung to a loss on the write-downs. Revenue rose 6.9% on the volume gains and market share increased 1.5 percentage points to 28.2%.

Reynolds and other tobacco companies have increasingly pushed into the smokeless market, aiming to offset declining cigarette sales. Reynolds expanded its Camel Snus smoke-free offering to U.S. major markets last spring and plans to take it national early this year. Reynolds also is continuing to test other smokeless products.

Reynolds' bigger rival, Altria Group Inc. (MO), has also entered the smokeless market, last month completing its acquisition of UST, maker of Skoal and Copenhagen.

Despite the tax hikes, the moist smokeless tobacco sector is expected to flourish because the sector's taxes are still relatively low, Citigroup Inc. (C) said in a recent note.

Shares of Reynolds American closed at $38.86 on Tuesday, and didn't trade premarket.

-By Mike Barris, Dow Jones Newswires; 201-938-5658; mike.barris@dowjones.com