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8-K - FORM 8-K - REYNOLDS AMERICAN INC | d383729d8k.htm |
Exhibit 99.1
Reynolds American Inc.
P.O. Box 2990
Winston-Salem, NC 27102-2990
Contact: | Investor Relations: Morris Moore (336) 741-3116 |
Media: Jane Seccombe (336) 741-5068 |
RAI 2012-13 |
RAI delivers higher second-quarter earnings,
reaffirms full-year guidance
WINSTON-SALEM, N.C. July 24, 2012
Second Quarter and First Half 2012 At a Glance
Adjusted EPS: Second quarter at $0.79, up 11.3 percent from prior-year quarter; first half at $1.41, up 4.4 percent
Excludes a charge of $0.01 per share related to Engle progeny lawsuits and special items*
Reported EPS: Second quarter at $0.78, up 39.3 percent; first half at $1.24, up 2.5 percent
RAI reaffirms 2012 guidance: Adjusted EPS range of $2.91 to $3.01
Excludes charges for Engle progeny lawsuits and 2012 restructuring
Higher adjusted operating income, margin at RJR Tobacco
Solid earnings, volume growth at American Snuff
Increased share and earnings at Santa Fe
RAI increased dividend 5.4 percent on May 3
* Special items are detailed in Schedule 2 and include the 2012 restructuring charge, and 2011 implementation costs, tax items and Scott lawsuit charge.
All references in this release to reported numbers refer to GAAP measurements; all adjusted numbers are non-GAAP, as defined in schedules 2 and 3 of this release, which reconcile reported to adjusted results.
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1
Reynolds American Inc. (NYSE: RAI) today announced second-quarter 2012 adjusted EPS of $0.79, up 11.3 percent from the prior-year quarter as higher cigarette and moist-snuff pricing, moist-snuff volume gains and productivity improvements more than offset cigarette volume declines. Adjusted results exclude a charge of $0.01 per share related to the Engle progeny lawsuits. Second-quarter reported EPS was $0.78, up 39.3 percent.
For the first half of 2012, adjusted EPS was $1.41, up 4.4 percent, while reported EPS was $1.24, up 2.5 percent. First-half adjusted results exclude the above litigation charge, as well as the 2012 restructuring charge and 2011 implementation costs, tax items and Scott lawsuit charge.
RAI reaffirmed adjusted EPS guidance for 2012 in the range of $2.91 to $3.01, up 3.6 percent to 7.1 percent. This excludes the charge of $0.01 per share for the Engle progeny lawsuits, as well as the 2012 restructuring charge of $0.16 per share following completion of a comprehensive business analysis.
2Q and First Half 2012 Financial Results Highlights (unaudited) (all dollars in millions, except per-share amounts; for reconciliations, including GAAP to non-GAAP, see schedules 2 and 3)
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For the Three Months Ended June 30 |
For the Six Months Ended June 30 |
|||||||||||||||||||||||
2012 | 2011 | % Change |
2012 | 2011 | % Change |
|||||||||||||||||||
Net sales |
$ | 2,176 | $ | 2,267 | (4.0 | )% | $ | 4,109 | $ | 4,258 | (3.5 | )% | ||||||||||||
Operating income |
||||||||||||||||||||||||
Reported (GAAP) |
$ | 734 | $ | 580 | 26.6 | % | $ | 1,220 | $ | 1,203 | 1.4 | % | ||||||||||||
Adjusted (Non-GAAP) |
744 | 722 | 3.0 | % | 1,380 | 1,357 | 1.7 | % | ||||||||||||||||
Net income |
||||||||||||||||||||||||
Reported (GAAP) |
$ | 443 | $ | 327 | 35.5 | % | $ | 713 | $ | 708 | 0.7 | % | ||||||||||||
Adjusted (Non-GAAP) |
449 | 417 | 7.7 | % | 813 | 789 | 3.0 | % | ||||||||||||||||
Net income per diluted share |
||||||||||||||||||||||||
Reported (GAAP) |
$ | 0.78 | $ | 0.56 | 39.3 | % | $ | 1.24 | $ | 1.21 | 2.5 | % | ||||||||||||
Adjusted (Non-GAAP)
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0.79
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0.71
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11.3
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%
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1.41
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1.35
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4.4
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%
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2
MANAGEMENTS PERSPECTIVE
Overview
RAI increased earnings and margin in the second quarter as our operating companies successfully navigated an intensely competitive environment, said Daniel M. Delen, president and chief executive officer. This performance rounded out a solid first half, and keeps us on track for full-year earnings growth in the mid- to high-single digits.
Delen said that RAIs operating companies continue to effectively execute their business strategies and remain focused on building their key brands. All three business segments improved their second-quarter financial performance. RAI added further value for shareholders in the quarter, with the 5.4 percent increase in its dividend.
The comprehensive business analysis completed earlier this year has given our companies added flexibility in this challenging environment, allowing them to move quickly to take advantage of marketplace opportunities, Delen said.
Our companies are also positioning their key brands for long-term growth as trends in tobacco use change, he said. In line with our strategy to transform the tobacco industry, they are actively working on the development of new non-combustible product innovations, ranging from vapor to nicotine replacement therapy products, and additional innovations in the cigarette, snus and dissolvable tobacco categories.
RAIs vision is to achieve market leadership by driving innovation throughout its businesses, while redefining enjoyment for adult tobacco consumers, Delen said. Were excited by what we have in the pipeline, and there will be more details to come as we move through the year.
To learn more about RAIs commitment to transforming tobacco, visit www.transformingtobacco.com.
RJR Tobacco
RJR Tobaccos second-quarter adjusted operating income increased by 0.2 percent from the prior-year quarter, to $604 million, as higher pricing and productivity gains offset cigarette volume declines and increased promotional spending. Adjusted results exclude a charge of $10 million related to the Engle progeny lawsuits.
The companys pricing gains, along with its premium mix and productivity improvements, resulted in an increase of 2.3 percentage points in second-quarter adjusted operating margin, to 33.0 percent.
For the first half of 2012, RJR Tobaccos adjusted operating income was $1.12 billion, in line with the prior-year period. First-half adjusted results exclude the above Engle litigation charge, as well as a restructuring charge of $138 million.
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First-half adjusted operating margin jumped 1.7 percentage points from the prior-year period, to 32.3 percent, as the company continues to focus on balancing profitability and share.
RJR Tobaccos second-quarter shipment volume was negatively impacted by intense competitive promotional activity. As a result, the companys shipments fell 6.7 percent from the prior-year quarter, mainly driven by losses on the companys non-focus value brands. This compares with the industry volume decline of 1.7 percent.
RJR Tobaccos total second-quarter cigarette market share was 26.2 percent, down 1.4 percentage points from the prior-year quarter.
RJR Tobaccos growth brands, Camel and Pall Mall, generated a combined market share of 16.7 percent in the second quarter, down 0.2 share points from the prior-year quarter.
Camel continued to hold up well in a tough market for premium-priced products, on the strength of its equity and positive consumer demographics. Despite intense competitive activity, Camels second-quarter share was down only 0.1 percentage point, at 8.3 percent.
Camels premium menthol cigarette styles, which offer consumers R.J. Reynolds innovative capsule technology, made further progress, increasing their second-quarter market share by 0.5 percentage points from the prior-year quarter, to 2.8 percent.
Camel SNUS turned in an excellent marketplace performance in the second quarter and now holds over 75 percent of the small but growing snus category. Camel SNUS offers six styles, with its latest variant, Camel SNUS Mint, gaining strength since its expansion to select retail outlets earlier this year.
In line with our transforming tobacco strategy, we continue to refine and broaden the appeal of Camel SNUS as a convenient smoke-free and spit-free alternative for adult tobacco consumers, and Im very pleased with how the market is responding, Delen said.
Pall Mall continued to be negatively impacted by significant competition from other value brands, as well as value-priced line extensions of competitive premium brands that sell at or below Pall Malls price. Second-quarter market share of Pall Mall was 8.4 percent, down 0.2 percentage points from the prior-year quarter.
Pall Malls affordable price and longer-lasting proposition have made it the nations best-selling value brand, and it continues to attract interest from value-conscious adult tobacco consumers.
American Snuff
American Snuffs second-quarter operating income increased 18.4 percent from the prior-year quarter, to $95 million, driven by higher moist-snuff volume and pricing on its flagship Grizzly brand.
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The companys second-quarter operating margin increased 3.2 percentage points from the prior-year quarter, to 55.4 percent.
American Snuffs impressive second-quarter performance in a highly competitive environment is a tribute to the companys highly successful execution of its business strategies, Delen said.
For the first half of 2012, American Snuffs adjusted operating income was up 6.8 percent from the prior-year period, at $179 million. These results reflect the impact of the sale of Lane, Limited at the end of February 2011, as well as investments in the implementation of retail moist-snuff contracts.
The companys first-half operating margin was 54.3 percent, up 2.0 percentage points from the prior-year period.
American Snuffs second-quarter moist-snuff volume increased 10.7 percent from the prior-year quarter, more than double the industry growth rate of about 5 percent.
The companys second-quarter moist-snuff market share increased 1.7 percentage points from the prior-year quarter, to 32.4 percent.
Once again, American Snuffs powerful Grizzly brand, the best-selling moist-snuff product in the U.S., drove performance, increasing second-quarter shipment volume by 12.3 percent and market share by 2.0 percentage points, to 29.0 percent.
The brand is benefiting from the companys investment in retail contracts, as well as its equity-building programs.
Grizzly continues to see outstanding growth on its pouch style products, capturing 70 percent of all pouch-style growth. Pouches are one of the fastest growing styles in the moist snuff category, and now account for almost 10 percent of total moist snuff sales.
Grizzly is focused on transforming its offerings in the Natural segment, where the brand is underdeveloped. The first-quarter introduction of new packaging that captures the premium quality and value of the brands five Premium Natural styles is meeting expectations, and offers incremental growth potential for Grizzly.
Santa Fe
Santa Fe increased second-quarter operating income by 25.9 percent from the prior-year quarter, to $64 million, driven by volume and pricing gains in the companys Natural American Spirit super-premium brand.
The companys second-quarter operating margin was up 3.4 percentage points from the prior-year quarter, at 49.4 percent.
5
For the first half of 2012, Santa Fes operating income rose 17.0 percent from the prior-year period, to $109 million. First-half operating margin was up 1.5 percentage points, at 47.5 percent.
Santa Fes shipment volumes, which were disrupted in the first quarter by the companys move to a more efficient, integrated supply chain, increased 9.5 percent in the second quarter.
Natural American Spirit continued its upward trajectory, increasing second-quarter market share by 0.2 percentage points from the prior-year quarter, to 1.1 percent.
Natural American Spirit is building a loyal franchise with its unique, additive-free and organic tobacco product offerings.
FINANCIAL UPDATE
Reynolds Americans second-quarter adjusted EPS was $0.79, up 11.3 percent from the prior-year quarter on higher pricing, productivity gains, the impact of the share repurchase program, and the resolution of various state-specific tax items. Adjusted results exclude a charge of $0.01 per share related to Engle progeny litigation.
On a reported basis, second-quarter EPS was $0.78, up 39.3 percent from the prior-year quarter.
The companys second-quarter adjusted operating margin increased 2.4 percentage points to 34.2 percent.
For the first half of 2012, adjusted EPS was $1.41, up 4.4 percent from the prior-year period.
Adjusted results exclude the above Engle litigation charge, and a charge of $0.16 per share related to the restructuring. First-half reported EPS was $1.24, up 2.5 percent.
RAI remains focused on returning value to shareholders through its attractive dividend. The dividend was increased by 5.4 percent in May, to an annualized rate of $2.36 per share. RAIs policy is to return about 80 percent of the companys current-year net income to shareholders in the form of dividends.
Reynolds American ended the quarter with $1.0 billion in cash balances, after repaying $450 million of debt that matured in June.
The company also continued its $2.5 billion share repurchase program initiated late last year, repurchasing 6.1 million shares for $250 million in the second quarter. That brought total repurchases to date to 19.2 million shares for $788 million.
RAI continues to maintain a strong balance sheet, with modest debt levels and a conservative leverage ratio of 1.3 times debt to EBITDA. The companys pension plans remain well funded at about 90 percent.
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This solid first-half performance in a challenging environment allows us to reaffirm adjusted EPS guidance of $2.91 to $3.01 for 2012, excluding the Engle litigation and restructuring charges, said Thomas R. Adams, RAIs chief financial officer.
CONFERENCE CALL WEBCAST TODAY
Reynolds American will webcast a conference call to discuss second-quarter 2012 results at 11:00 a.m. Eastern Time on Tuesday, July 24, 2012. The call will be available live online on a listen-only basis. To register for the call, please go to http://www.reynoldsamerican.com/events.cfm. A replay of the call will be available on the site. Investors, analysts and members of the news media can also listen to the live call by phone, by dialing (877) 390-5533 (toll free) or (678) 894-3969 (international). 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 Jane Seccombe at (336) 741-5068.
WEB DISCLOSURE
RAIs website, www.reynoldsamerican.com, is the primary source of publicly disclosed news about RAI and its operating companies. We use the website as our primary means of distributing quarterly earnings and other company news. We encourage investors and others to register at www.reynoldsamerican.com to receive alerts when news about the company has been posted.
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 future events or the future performance or results of RAI and its subsidiaries 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 taxation and regulation of tobacco products, including the regulation of tobacco products by the U.S. Food and Drug Administration (FDA); |
| the possibility that the FDA will issue a regulation prohibiting menthol as a flavor in cigarettes or prohibit mint or wintergreen as a flavor in smokeless tobacco products; |
| decreased sales resulting from the future issuance of corrective communications required by the order in the U.S. Department of Justice case on five subjects, including smoking and health, and addiction; |
| 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; |
7
| the potential difficulty of obtaining bonds as a result of litigation outcomes and the challenges to the Florida bond statute applicable to the Engle progeny cases; |
| the possibility of being required to pay various adverse judgments in the Engle progeny and/or other litigation; |
| the substantial payment obligations with respect to cigarette sales, and the substantial limitations on the advertising and marketing of cigarettes (and of R.J. Reynolds smoke-free tobacco products) under the State Settlement Agreements; |
| the continuing decline in volume in the U.S. cigarette industry and RAIs 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 industry consolidations or any new entrants in the marketplace; |
| increased promotional activities by competitors, including manufacturers of 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 the businesses of RAIs operating companies without negatively affecting financial or operating results; |
| the reliance on a limited number of suppliers for certain raw materials; |
| the cost of tobacco leaf, and other raw materials and other commodities used in products; |
| the effect of market conditions on interest-rate risk, foreign currency exchange-rate risk and the return on corporate cash; |
| changes in the financial position or strength of lenders participating in RAIs credit facility; |
| the impairment of goodwill and other 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; |
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| the credit rating of RAI and its securities; |
| any restrictive covenants imposed under RAIs debt agreements; |
| the possibility of natural or man-made disasters or other disruptions that may adversely affect manufacturing or other operations and other facilities; |
| the significant ownership interest of Brown & Williamson Holdings, Inc. (B&W), RAIs largest shareholder, in RAI and the rights of B&W under the governance agreement between the companies; |
| the expiration of the standstill provisions of the governance agreement on July 30, 2014; |
| a termination of the governance agreement or certain provisions of it in accordance with its terms, including the limitations on B&Ws representation on RAIs board and its board committees; and |
| RAIs shareholder rights plan not applying to British American Tobacco p.l.c. except in limited circumstances. |
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; American Snuff Company, LLC; Santa Fe Natural Tobacco Company, Inc.; and Niconovum AB.
| R.J. Reynolds Tobacco Company is the second-largest U.S. tobacco company. The companys brands include many of the best-selling cigarettes in the U.S.: Camel, Pall Mall, Winston, Kool, Doral and Salem. |
| American Snuff Company, LLC is the nations second-largest manufacturer of smokeless tobacco products. Its leading brands are Grizzly and Kodiak. |
| Santa Fe Natural Tobacco Company, Inc. manufactures Natural American Spirit cigarettes and other additive-free tobacco products. |
| Niconovum AB markets innovative nicotine replacement therapy products in Sweden under the Zonnic brand name. |
Copies of RAIs news releases, annual reports, SEC filings and other financial materials, including risk factors containing forward-looking information, are available at www.reynoldsamerican.com. To learn more about how Reynolds American and its operating companies are transforming the tobacco industry, visit http://TransformingTobacco.com.
(financial and volume schedules follow)
9
Schedule 1
REYNOLDS AMERICAN INC.
Condensed Consolidated Statements of Income - GAAP
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 (1) | 2012 | 2011 (1) | |||||||||||||
Net sales, external |
$ | 2,089 | $ | 2,128 | $ | 3,945 | $ | 4,015 | ||||||||
Net sales, related party |
87 | 139 | 164 | 243 | ||||||||||||
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Net sales |
2,176 | 2,267 | 4,109 | 4,258 | ||||||||||||
Cost of products sold |
1,112 | 1,193 | 2,106 | 2,228 | ||||||||||||
Selling, general and administrative expenses |
325 | 488 | 623 | 815 | ||||||||||||
Amortization expense |
5 | 6 | 11 | 12 | ||||||||||||
Restructuring charge |
| | 149 | | ||||||||||||
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Operating income |
734 | 580 | 1,220 | 1,203 | ||||||||||||
Interest and debt expense |
58 | 55 | 114 | 110 | ||||||||||||
Interest income |
(2 | ) | (3 | ) | (4 | ) | (6 | ) | ||||||||
Other expense, net |
2 | | 5 | | ||||||||||||
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Income from continuing operations before income taxes |
676 | 528 | 1,105 | 1,099 | ||||||||||||
Provision for income taxes |
233 | 201 | 392 | 391 | ||||||||||||
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Net income |
$ | 443 | $ | 327 | $ | 713 | $ | 708 | ||||||||
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Basic net income per share |
$ | 0.78 | $ | 0.56 | $ | 1.25 | $ | 1.21 | ||||||||
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Diluted net income per share |
$ | 0.78 | $ | 0.56 | $ | 1.24 | $ | 1.21 | ||||||||
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Basic weighted average shares, in thousands |
569,144 | 582,902 | 571,800 | 582,953 | ||||||||||||
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Diluted weighted average shares, in thousands |
570,930 | 585,874 | 574,235 | 585,761 | ||||||||||||
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Segment data: |
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Net sales: |
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R.J. Reynolds (2) |
$ | 1,833 | $ | 1,960 | $ | 3,464 | $ | 3,660 | ||||||||
American Snuff |
172 | 153 | 330 | 320 | ||||||||||||
Santa Fe |
129 | 110 | 229 | 202 | ||||||||||||
All Other |
42 | 44 | 86 | 76 | ||||||||||||
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$ | 2,176 | $ | 2,267 | $ | 4,109 | $ | 4,258 | |||||||||
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Operating income: |
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R.J. Reynolds (2) |
$ | 594 | $ | 461 | $ | 971 | $ | 970 | ||||||||
American Snuff |
95 | 80 | 179 | 166 | ||||||||||||
Santa Fe |
64 | 51 | 109 | 92 | ||||||||||||
All Other |
4 | 15 | 12 | 16 | ||||||||||||
Corporate |
(23 | ) | (27 | ) | (51 | ) | (41 | ) | ||||||||
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$ | 734 | $ | 580 | $ | 1,220 | $ | 1,203 | |||||||||
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Supplemental information: |
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Excise tax expense |
$ | 1,028 | $ | 1,092 | $ | 1,951 | $ | 2,066 | ||||||||
Master Settlement Agreement and other state settlement expense |
$ | 623 | $ | 647 | $ | 1,180 | $ | 1,222 | ||||||||
Federal tobacco buyout expense |
$ | 55 | $ | 58 | $ | 111 | $ | 118 | ||||||||
FDA fees |
$ | 31 | $ | 30 | $ | 61 | $ | 60 |
(1) | Prior year amounts have been adjusted to reflect the change in method of recognizing actuarial gains and losses for pension and postretirement benefits. |
(2) | Includes results of super premium brands, DUNHILL and STATE EXPRESS 555, transferred January 1, 2012, into R.J. Reynolds from Santa Fe. |
Schedule 2
REYNOLDS AMERICAN INC.
Reconciliation of GAAP to Adjusted Results
(Dollars in Millions)
(Unaudited)
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 companys 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 June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Operating | Net | Diluted | Operating | Net | Diluted | |||||||||||||||||||
Income | Income | EPS | Income | Income | EPS | |||||||||||||||||||
GAAP results |
$ | 734 | $ | 443 | $ | 0.78 | $ | 580 | $ | 327 | $ | 0.56 | ||||||||||||
The GAAP results include the following: |
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Engle progeny cases |
10 | 6 | 0.01 | | | | ||||||||||||||||||
Implementation costs included in cost of products sold and selling, general and administrative expenses |
| | | 3 | 2 | | ||||||||||||||||||
Scott lawsuit |
| | | 139 | 88 | 0.15 | ||||||||||||||||||
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Total adjustments |
10 | 6 | 0.01 | 142 | 90 | 0.15 | ||||||||||||||||||
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Adjusted results |
$ | 744 | $ | 449 | $ | 0.79 | $ | 722 | $ | 417 | $ | 0.71 | ||||||||||||
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Six Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Operating | Net | Diluted | Operating | Net | Diluted | |||||||||||||||||||
Income | Income | EPS | Income | Income | EPS | |||||||||||||||||||
GAAP results |
$ | 1,220 | $ | 713 | $ | 1.24 | $ | 1,203 | $ | 708 | $ | 1.21 | ||||||||||||
The GAAP results include the following: |
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Restructuring charge |
149 | 93 | 0.16 | | | | ||||||||||||||||||
Engle progeny cases |
11 | 7 | 0.01 | | | | ||||||||||||||||||
Implementation costs included in cost of products sold and selling, general and administrative expenses |
| | | 15 | 9 | 0.02 | ||||||||||||||||||
Scott lawsuit |
| | | 139 | 88 | 0.15 | ||||||||||||||||||
Tax items |
| | | | (16 | ) | (0.03 | ) | ||||||||||||||||
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Total adjustments |
160 | 100 | 0.17 | 154 | 81 | 0.14 | ||||||||||||||||||
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Adjusted results |
$ | 1,380 | $ | 813 | $ | 1.41 | $ | 1,357 | $ | 789 | $ | 1.35 | ||||||||||||
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Condensed Consolidated Balance Sheets
(Dollars in Millions)
(Unaudited)
June 30, 2012 |
Dec. 31, 2011 |
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Assets |
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Cash and cash equivalents |
$ | 1,005 | $ | 1,956 | ||||
Other current assets |
2,342 | 2,351 | ||||||
Trademarks and other intangible assets, net |
2,591 | 2,602 | ||||||
Goodwill |
8,010 | 8,010 | ||||||
Other noncurrent assets |
1,286 | 1,335 | ||||||
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$ | 15,234 | $ | 16,254 | |||||
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Liabilities and shareholders equity |
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Tobacco settlement accruals |
$ | 1,720 | $ | 2,530 | ||||
Other current liabilities |
2,591 | 1,746 | ||||||
Long-term debt (less current maturities) |
2,569 | 3,206 | ||||||
Deferred income taxes, net |
641 | 511 | ||||||
Long-term retirement benefits (less current portion) |
1,595 | 1,759 | ||||||
Other noncurrent liabilities |
227 | 251 | ||||||
Shareholders equity |
5,891 | 6,251 | ||||||
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$ | 15,234 | $ | 16,254 | |||||
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Schedule 3
REYNOLDS AMERICAN INC.
Reconciliation of GAAP to Adjusted Operating Income by Segment
The R.J. Reynolds segment consists of the primary operations of R.J. Reynolds Tobacco Company, the second-largest tobacco company in the United States and which also manages a contract manufacturing business.
The American Snuff segment consists of the primary operations of American Snuff Company, LLC, the second-largest smokeless tobacco products manufacturer in the United States, and Lane, Limited until its sale on February 28, 2011.
The Santa Fe segment consists of the primary operations of Santa Fe Natural Tobacco Company, Inc., which manufactures Natural American Spirit cigarettes and other additive-free tobacco products.
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 companys continuing operations is enhanced through the disclosure of these metrics.
Three Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
R.J. Reynolds |
American Snuff |
Santa Fe |
R.J. Reynolds |
American Snuff |
Santa Fe |
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GAAP operating income |
$ | 594 | $ | 95 | $ | 64 | $ | 461 | $ | 80 | $ | 51 | ||||||||||||
The GAAP results include the following: |
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Engle progeny cases |
10 | | | | | | ||||||||||||||||||
Implementation costs included in cost of products sold and selling, general and administrative expenses (1) |
| | | 3 | | | ||||||||||||||||||
Scott lawsuit |
| | | 139 | | | ||||||||||||||||||
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Total adjustments |
10 | | | 142 | | | ||||||||||||||||||
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Adjusted operating income |
$ | 604 | $ | 95 | $ | 64 | $ | 603 | $ | 80 | $ | 51 | ||||||||||||
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Six Months Ended June 30, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
R.J. Reynolds |
American Snuff |
Santa Fe |
R.J. Reynolds |
American Snuff |
Santa Fe |
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GAAP operating income |
$ | 971 | $ | 179 | $ | 109 | $ | 970 | $ | 166 | $ | 92 | ||||||||||||
The GAAP results include the following: |
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Restructuring charge (2) |
138 | | | | | | ||||||||||||||||||
Engle progeny cases |
11 | | | | | | ||||||||||||||||||
Implementation costs included in cost of products sold and selling, general and administrative expenses (1) |
| | | 11 | 2 | 1 | ||||||||||||||||||
Scott lawsuit |
| | | 139 | | | ||||||||||||||||||
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Total adjustments |
149 | | | 150 | 2 | 1 | ||||||||||||||||||
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Adjusted operating income |
$ | 1,120 | $ | 179 | $ | 109 | $ | 1,120 | $ | 168 | $ | 93 | ||||||||||||
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(1) | For the three and six months ended June 30, 2011, RAI and its operating companies recorded aggregate implementation costs of $3 million and $15 million, respectively, including $1 million, respectively, including $1 million in corporate costs during the six-month period. |
(2) | For the six months ended June 30, 2012, RAI and its operating companies recorded aggregate restructuring charges of $149 million, including $11 million in corporate costs. |
Schedule 4
R.J. REYNOLDS CIGARETTE VOLUMES AND RETAIL SHARE OF MARKET
VOLUME (in billions):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||||||||||
2012 | 2011 | Units | % | 2012 | 2011 | Units | % | |||||||||||||||||||||||||
Camel |
5.5 | 5.8 | (0.2 | ) | -4.1 | % | 10.6 | 10.6 | (0.0 | ) | -0.2 | % | ||||||||||||||||||||
Pall Mall |
5.6 | 5.8 | (0.2 | ) | -3.6 | % | 10.5 | 11.0 | (0.5 | ) | -4.4 | % | ||||||||||||||||||||
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Total growth brands |
11.1 | 11.6 | (0.5 | ) | -4.0 | % | 21.1 | 21.6 | (0.5 | ) | -2.3 | % | ||||||||||||||||||||
Other |
7.0 | 7.8 | (0.8 | ) | -10.8 | % | 13.3 | 15.1 | (1.8 | ) | -12.0 | % | ||||||||||||||||||||
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Total R.J. Reynolds domestic |
18.1 | 19.4 | (1.3 | ) | -6.7 | % | 34.4 | 36.7 | (2.3 | ) | -6.3 | % | ||||||||||||||||||||
Total premium |
10.6 | 11.1 | (0.5 | ) | -4.5 | % | 20.1 | 20.8 | (0.7 | ) | -3.2 | % | ||||||||||||||||||||
Total value |
7.5 | 8.4 | (0.8 | ) | -9.7 | % | 14.3 | 15.9 | (1.6 | ) | -10.3 | % | ||||||||||||||||||||
Premium/total mix |
58.3 | % | 57.0 | % | 1.4 | 58.4 | % | 56.6 | % | 1.9 | ||||||||||||||||||||||
Industry |
76.1 | 77.4 | (1.3 | ) | -1.7 | % | 143.0 | 147.0 | (4.1 | ) | -2.8 | % | ||||||||||||||||||||
Premium |
54.3 | 55.3 | (1.0 | ) | -1.8 | % | 101.7 | 104.3 | (2.6 | ) | -2.5 | % | ||||||||||||||||||||
Value |
21.9 | 22.1 | (0.3 | ) | -1.2 | % | 41.3 | 42.7 | (1.4 | ) | -3.4 | % | ||||||||||||||||||||
Premium/total mix |
71.3 | % | 71.4 | % | (0.1 | ) | 71.1 | % | 70.9 | % | 0.2 |
RETAIL SHARE OF MARKET:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Camel |
8.3 | % | 8.4 | % | (0.1 | ) | 8.4 | % | 8.3 | % | 0.0 | |||||||||||||
Pall Mall |
8.4 | % | 8.6 | % | (0.2 | ) | 8.5 | % | 8.6 | % | (0.1 | ) | ||||||||||||
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Total growth brands |
16.7 | % | 16.9 | % | (0.2 | ) | 16.8 | % | 16.9 | % | (0.1 | ) | ||||||||||||
Other |
9.5 | % | 10.7 | % | (1.2 | ) | 9.7 | % | 10.9 | % | (1.2 | ) | ||||||||||||
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Total R.J. Reynolds domestic |
26.2 | % | 27.6 | % | (1.4 | ) | 26.5 | % | 27.8 | % | (1.3 | ) |
Amounts are rounded on an individual basis and, accordingly, may not sum in the aggregate.
Industry volume data based on information from Management Science Associates, Inc.
Retail shares of market are as reported by Information Resources Inc./Capstone.
Schedule 5
AMERICAN SNUFF MOIST-SNUFF VOLUMES AND RETAIL SHARE OF MARKET
VOLUME (in millions of cans):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||||||||||
2012 | 2011 | Units | % | 2012 | 2011 | Units | % | |||||||||||||||||||||||||
Grizzly |
99.0 | 88.2 | 10.8 | 12.3 | % | 192.0 | 173.2 | 18.8 | 10.9 | % | ||||||||||||||||||||||
Other |
12.3 | 12.4 | (0.1 | ) | -0.7 | % | 23.7 | 24.4 | (0.7 | ) | -2.8 | % | ||||||||||||||||||||
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Total moist snuff cans |
111.3 | 100.6 | 10.7 | 10.7 | % | 215.8 | 197.6 | 18.2 | 9.2 | % |
RETAIL SHARE OF MARKET:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Grizzly |
29.0 | % | 27.0 | % | 2.0 | 28.8 | % | 26.8 | % | 2.1 | ||||||||||||||
Other |
3.4 | % | 3.7 | % | (0.3 | ) | 3.5 | % | 3.7 | % | (0.3 | ) | ||||||||||||
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Total retail share of market |
32.4 | % | 30.7 | % | 1.7 | 32.3 | % | 30.5 | % | 1.8 |
Amounts are rounded on an individual basis and, accordingly, may not sum in the aggregate.
Retail share of market for moist snuff based on Information Resources Inc./Capstone.
Schedule 6
SANTA FE VOLUMES AND RETAIL SHARE OF MARKET
VOLUME (in billions):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||||||||||
2012 | 2011 | Units | % | 2012 | 2011 | Units | % | |||||||||||||||||||||||||
Natural American Spirit |
0.8 | 0.8 | 0.1 | 9.5 | % | 1.5 | 1.4 | 0.1 | 5.4 | % |
RETAIL SHARE OF MARKET:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Natural American Spirit |
1.1 | % | 0.9 | % | 0.2 | 1.1 | % | 0.9 | % | 0.2 |
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./Capstone.