Exhibit 99.2
Reynolds American Inc.
Supplemental Condensed Consolidating Financial Statements (Unaudited)
Supplemental Condensed Consolidating Financial Statements (Unaudited)
On May 31, 2006, Reynolds American Inc., referred to as RAI, completed a private offering of $1.650 billion guaranteed, secured notes in connection with the funding of its acquisition on the same date of a group of companies collectively referred to as the Conwood companies. On June 20, 2006, RAI issued in a private offering $1.289 billion of its guaranteed, secured notes in exchange for notes previously issued by R.J. Reynolds Tobacco Holdings, Inc., referred to as RJR. Separate financial statements and other disclosures have not been presented concerning the guarantors of RAI’s $2.939 billion secured notes, because such information is materially included in the condensed consolidated financial statements (unaudited) contained in RAI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, filed with the SEC on August 4, 2006, and is not believed to be material to holders of such notes. RAI’s direct, wholly owned subsidiaries and certain of its indirectly owned subsidiaries have fully and unconditionally guaranteed these notes. Because the guarantees are full and unconditional and joint and several, the following condensed consolidating financial statements include: the accounts and activities of RAI, the parent issuer; RJR, R. J. Reynolds Tobacco Company, referred to as RJR Tobacco, Conwood Holdings, Inc. and the Conwood companies, Santa Fe Natural Tobacco Company, Inc., Lane, Limited, R. J. Reynolds Global Products, Inc., RJR Acquisition Corp. and certain of RJR Tobacco’s other subsidiaries, the guarantors; other indirect subsidiaries of RAI which are not guarantors; and elimination adjustments.
Condensed Consolidating Statements of Income (Unaudited)
(Dollars in Millions)
(Dollars in Millions)
Parent | Non- | |||||||||||||||||||
Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
For the Three Months Ended June 30, 2006 | ||||||||||||||||||||
Net sales | $ | — | $ | 2,165 | $ | 21 | $ | (16 | ) | $ | 2,170 | |||||||||
Net sales, related party | — | 121 | — | — | 121 | |||||||||||||||
Cost of products sold | — | 1,285 | 7 | (16 | ) | 1,276 | ||||||||||||||
Selling, general and administrative expenses | 8 | 375 | 9 | — | 392 | |||||||||||||||
Amortization expense | — | 7 | — | — | 7 | |||||||||||||||
Operating income (loss) | (8 | ) | 619 | 5 | — | 616 | ||||||||||||||
Interest and debt expense | 22 | 30 | — | — | 52 | |||||||||||||||
Interest income | (1 | ) | (22 | ) | — | — | (23 | ) | ||||||||||||
Intercompany interest (income) expense | (15 | ) | 15 | — | — | — | ||||||||||||||
Intercompany dividend income | — | (10 | ) | — | 10 | — | ||||||||||||||
Other (income) expense, net | 3 | (2 | ) | (4 | ) | — | (3 | ) | ||||||||||||
Income (loss) before income taxes | (17 | ) | 608 | 9 | (10 | ) | 590 | |||||||||||||
Provision for (benefit from) income taxes | (5 | ) | 227 | 1 | — | 223 | ||||||||||||||
Equity income from subsidiaries | 388 | 8 | — | (396 | ) | — | ||||||||||||||
Income before extraordinary item | 376 | 389 | 8 | (406 | ) | 367 | ||||||||||||||
Extraordinary item-gain on acquisition | — | 9 | — | — | 9 | |||||||||||||||
Net income | $ | 376 | $ | 398 | $ | 8 | $ | (406 | ) | $ | 376 | |||||||||
For the Three Months Ended June 30, 2005 | ||||||||||||||||||||
Net sales | $ | — | $ | 1,987 | $ | 21 | $ | (17 | ) | $ | 1,991 | |||||||||
Net sales, related party | — | 112 | — | — | 112 | |||||||||||||||
Cost of products sold | — | 1,252 | 6 | (17 | ) | 1,241 | ||||||||||||||
Selling, general and administrative expenses | 8 | 397 | 7 | — | 412 | |||||||||||||||
Loss on sale of assets | — | 25 | — | — | 25 | |||||||||||||||
Amortization expense | — | 9 | — | — | 9 | |||||||||||||||
Restructuring and asset impairment charges | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Operating income (loss) | (8 | ) | 417 | 8 | — | 417 | ||||||||||||||
Interest and debt expense | — | 26 | — | — | 26 | |||||||||||||||
Interest income | — | (13 | ) | — | — | (13 | ) | |||||||||||||
Intercompany interest (income) expense | 6 | (7 | ) | 1 | — | — | ||||||||||||||
Intercompany dividend income | — | (39 | ) | — | 39 | — | ||||||||||||||
Other (income) expense, net | — | 8 | (5 | ) | — | 3 | ||||||||||||||
Income (loss) before income taxes | (14 | ) | 442 | 12 | (39 | ) | 401 | |||||||||||||
Provision for (benefit from) income taxes | (10 | ) | 159 | 1 | — | 150 | ||||||||||||||
Equity income from subsidiaries | 255 | 11 | — | (266 | ) | — | ||||||||||||||
Net income | $ | 251 | $ | 294 | $ | 11 | $ | (305 | ) | $ | 251 | |||||||||
2
Parent | Non- | |||||||||||||||||||
Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
For the Six Months Ended June 30, 2006 | ||||||||||||||||||||
Net sales | $ | — | $ | 3,974 | $ | 44 | $ | (33 | ) | $ | 3,985 | |||||||||
Net sales, related party | — | 266 | — | — | 266 | |||||||||||||||
Cost of products sold | — | 2,460 | 14 | (33 | ) | 2,441 | ||||||||||||||
Selling, general and administrative expenses | 14 | 703 | 17 | — | 734 | |||||||||||||||
Amortization expense | — | 14 | — | — | 14 | |||||||||||||||
Operating income (loss) | (14 | ) | 1,063 | 13 | — | 1,062 | ||||||||||||||
Interest and debt expense | 22 | 65 | — | — | 87 | |||||||||||||||
Interest income | (1 | ) | (58 | ) | — | — | (59 | ) | ||||||||||||
Intercompany interest (income) expense | (8 | ) | 8 | — | — | — | ||||||||||||||
Intercompany dividend income | — | (21 | ) | — | 21 | — | ||||||||||||||
Other (income) expense, net | 3 | (1 | ) | (5 | ) | — | (3 | ) | ||||||||||||
Income (loss) before income taxes | (30 | ) | 1,070 | 18 | (21 | ) | 1,037 | |||||||||||||
Provision for (benefit from) income taxes | (9 | ) | 397 | 2 | — | 390 | ||||||||||||||
Equity income from subsidiaries | 742 | 16 | — | (758 | ) | — | ||||||||||||||
Income before extraordinary item | 721 | 689 | 16 | (779 | ) | 647 | ||||||||||||||
Extraordinary item-gain on acquisition | — | 74 | — | — | 74 | |||||||||||||||
Net income | $ | 721 | $ | 763 | $ | 16 | $ | (779 | ) | $ | 721 | |||||||||
For the Six Months Ended June 30, 2005 | ||||||||||||||||||||
Net sales | $ | — | $ | 3,794 | $ | 42 | $ | (33 | ) | $ | 3,803 | |||||||||
Net sales, related party | — | 257 | — | — | 257 | |||||||||||||||
Cost of products sold | — | 2,373 | 12 | (33 | ) | 2,352 | ||||||||||||||
Selling, general and administrative expenses | 14 | 749 | 13 | — | 776 | |||||||||||||||
Amortization expense | — | 24 | — | — | 24 | |||||||||||||||
Loss on sale of assets | — | 25 | — | — | 25 | |||||||||||||||
Restructuring and asset impairment charges | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Operating income (loss) | (14 | ) | 881 | 17 | — | 884 | ||||||||||||||
Interest and debt expense | — | 50 | — | — | 50 | |||||||||||||||
Interest income | — | (29 | ) | (1 | ) | — | (30 | ) | ||||||||||||
Intercompany interest (income) expense | 11 | (12 | ) | 1 | — | — | ||||||||||||||
Intercompany dividend income | — | (39 | ) | — | 39 | — | ||||||||||||||
Other (income) expense, net | — | 12 | (5 | ) | — | 7 | ||||||||||||||
Income (loss) before income taxes | (25 | ) | 899 | 22 | (39 | ) | 857 | |||||||||||||
Provision for (benefit from) income taxes | (12 | ) | 334 | 3 | — | 325 | ||||||||||||||
Equity income from subsidiaries | 545 | 19 | — | (564 | ) | — | ||||||||||||||
Net income | $ | 532 | $ | 584 | $ | 19 | $ | (603 | ) | $ | 532 | |||||||||
3
Condensed Consolidating Statements of Cash Flows (Unaudited)
(Dollars in Millions)
(Dollars in Millions)
Parent | Non- | |||||||||||||||||||
Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
For the Six Months Ended June 30, 2006 | ||||||||||||||||||||
Cash flows (used in) from operating activities | $ | 787 | $ | (68 | ) | $ | 16 | $ | (632 | ) | $ | 103 | ||||||||
Cash flows from (used in) investing activities: | ||||||||||||||||||||
Purchases of short-term investments | — | (2,966 | ) | — | — | (2,966 | ) | |||||||||||||
Proceeds from sales of short-term investments | — | 3,621 | — | — | 3,621 | |||||||||||||||
Capital expenditures | — | (71 | ) | (2 | ) | — | (73 | ) | ||||||||||||
Distribution from equity investments | — | — | 8 | — | 8 | |||||||||||||||
Intercompany notes receivable | (3,168 | ) | 9 | — | 3,159 | — | ||||||||||||||
Net intercompany investments | (381 | ) | 381 | — | — | — | ||||||||||||||
Business acquisition | — | (3,517 | ) | — | — | (3,517 | ) | |||||||||||||
Proceeds from sale of business | — | 3 | — | — | 3 | |||||||||||||||
Other, net | (2 | ) | 5 | — | — | 3 | ||||||||||||||
Net cash flows from (used in) investing activities | (3,551 | ) | (2,535 | ) | 6 | 3,159 | (2,921 | ) | ||||||||||||
Cash flows from (used in) financing activities: | ||||||||||||||||||||
Dividends paid on common stock | (368 | ) | (611 | ) | — | 611 | (368 | ) | ||||||||||||
Dividends paid on preferred stock | (21 | ) | — | — | 21 | — | ||||||||||||||
Proceeds from exercise of stock options | 3 | — | — | — | 3 | |||||||||||||||
Tax benefit from exercise of stock options | 2 | — | — | — | 2 | |||||||||||||||
Repayments of long-term debt | — | (190 | ) | — | — | (190 | ) | |||||||||||||
Issuance of long-term debt | 1,641 | — | — | — | 1,641 | |||||||||||||||
Principal borrowings under term loan credit facility | 1,550 | — | — | — | 1,550 | |||||||||||||||
Deferred debt issuance costs | (48 | ) | — | — | — | (48 | ) | |||||||||||||
Intercompany notes payable | (9 | ) | 3,168 | — | (3,159 | ) | — | |||||||||||||
Net cash flows from (used in) financing activities | 2,750 | 2,367 | — | (2,527 | ) | 2,590 | ||||||||||||||
Net change in cash and cash equivalents | (14 | ) | (236 | ) | 22 | — | (228 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 227 | 1,076 | 30 | — | 1,333 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 213 | $ | 840 | $ | 52 | $ | — | $ | 1,105 | ||||||||||
For the Six Months Ended June 30, 2005 | ||||||||||||||||||||
Cash flows from operating activities | $ | 328 | $ | 81 | $ | 14 | $ | (463 | ) | $ | (40 | ) | ||||||||
Cash flows from (used in) investing activities: | ||||||||||||||||||||
Purchases of short-term investments | — | (4,947 | ) | — | — | (4,947 | ) | |||||||||||||
Proceeds from sales of short-term investments | — | 4,726 | — | — | 4,726 | |||||||||||||||
Capital expenditures | — | (44 | ) | (1 | ) | — | (45 | ) | ||||||||||||
Distribution from equity investments | — | — | 4 | — | 4 | |||||||||||||||
Intercompany notes receivable | — | 8 | — | (8 | ) | — | ||||||||||||||
Proceeds from sale of business | — | 35 | — | — | 35 | |||||||||||||||
Other, net | — | 3 | — | — | 3 | |||||||||||||||
Net cash flows from (used in) investing activities | — | (219 | ) | 3 | (8 | ) | (224 | ) | ||||||||||||
Cash flows from (used in) financing activities: | ||||||||||||||||||||
Repurchase of common stock | (3 | ) | — | — | — | (3 | ) | |||||||||||||
Dividends paid on common stock | (280 | ) | (435 | ) | — | 435 | (280 | ) | ||||||||||||
Dividends paid on preferred stock | (28 | ) | — | — | 28 | — | ||||||||||||||
Issuance of long term debt | — | 498 | — | — | 498 | |||||||||||||||
Deferred debt issuance costs | — | (7 | ) | — | — | (7 | ) | |||||||||||||
Proceeds from exercise of stock options | 1 | — | — | — | 1 | |||||||||||||||
Intercompany notes payable | (8 | ) | — | — | 8 | — | ||||||||||||||
Net cash flows from (used in) financing activities | (318 | ) | 56 | — | 471 | 209 | ||||||||||||||
Net change in cash and cash equivalents | 10 | (82 | ) | 17 | — | (55 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 141 | 1,290 | 68 | — | 1,499 | |||||||||||||||
Cash and cash equivalents at end of period | $ | 151 | $ | 1,208 | $ | 85 | $ | — | $ | 1,444 | ||||||||||
4
Condensed Consolidating Balance Sheets (Unaudited)
(Dollars in Millions)
(Dollars in Millions)
Parent | Non- | |||||||||||||||||||
Issuer | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
June 30, 2006 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 213 | $ | 840 | $ | 52 | $ | — | $ | 1,105 | ||||||||||
Short-term investments | — | 717 | — | — | 717 | |||||||||||||||
Accounts and notes receivable | 1 | 104 | 7 | — | 112 | |||||||||||||||
Accounts receivable, related party | — | 33 | — | — | 33 | |||||||||||||||
Income tax receivable | — | 12 | — | — | 12 | |||||||||||||||
Inventories | — | 1,101 | 18 | — | 1,119 | |||||||||||||||
Deferred income taxes | 2 | 861 | 1 | — | 864 | |||||||||||||||
Prepaid expenses | 13 | 114 | 3 | (11 | ) | 119 | ||||||||||||||
Assets held for sale | — | 2 | — | — | 2 | |||||||||||||||
Short-term intercompany notes and interest receivable | 340 | 91 | 7 | (438 | ) | — | ||||||||||||||
Other intercompany receivables | — | 8 | 9 | (17 | ) | — | ||||||||||||||
Total current assets | 569 | 3,883 | 97 | (466 | ) | 4,083 | ||||||||||||||
Property, plant and equipment, net | — | 1,048 | 17 | — | 1,065 | |||||||||||||||
Trademarks, net | — | 2,182 | — | — | 2,182 | |||||||||||||||
Goodwill | — | 9,051 | 8 | — | 9,059 | |||||||||||||||
Other intangibles, net | 2 | 220 | — | — | 222 | |||||||||||||||
Long-term intercompany notes | 4,136 | 359 | — | (4,495 | ) | — | ||||||||||||||
Investment in subsidiaries | 7,268 | 58 | — | (7,326 | ) | — | ||||||||||||||
Other assets and deferred charges | 85 | 219 | 34 | (15 | ) | 323 | ||||||||||||||
Total assets | $ | 12,060 | $ | 17,020 | $ | 156 | $ | (12,302 | ) | $ | 16,934 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Tobacco settlement and related accruals | $ | — | $ | 1,499 | $ | — | $ | — | $ | 1,499 | ||||||||||
Accounts payable and other accrued liabilities | 231 | 1,437 | 20 | (11 | ) | 1,677 | ||||||||||||||
Due to related party | — | 10 | — | — | 10 | |||||||||||||||
Deferred revenue, related party | — | 49 | — | — | 49 | |||||||||||||||
Current maturities of long-term debt | 251 | 63 | — | — | 314 | |||||||||||||||
Short-term intercompany notes and interest payable | 23 | 348 | 67 | (438 | ) | — | ||||||||||||||
Other intercompany payables | 17 | — | — | (17 | ) | — | ||||||||||||||
Total current liabilities | 522 | 3,406 | 87 | (466 | ) | 3,549 | ||||||||||||||
Intercompany notes | 359 | 4,136 | — | (4,495 | ) | — | ||||||||||||||
Long-term debt (less current maturities) | 4,226 | 187 | — | — | 4,413 | |||||||||||||||
Deferred income taxes | — | 595 | — | (15 | ) | 580 | ||||||||||||||
Long-term retirement benefits | 22 | 1,204 | 10 | — | 1,236 | |||||||||||||||
Other noncurrent liabilities | 19 | 224 | 1 | — | 244 | |||||||||||||||
Shareholders’ equity | 6,912 | 7,268 | 58 | (7,326 | ) | 6,912 | ||||||||||||||
Total liabilities and shareholders’ equity. | $ | 12,060 | $ | 17,020 | $ | 156 | $ | (12,302 | ) | $ | 16,934 | |||||||||
December 31, 2005 | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 227 | $ | 1,076 | $ | 30 | $ | — | $ | 1,333 | ||||||||||
Short-term investments | — | 1,373 | — | — | 1,373 | |||||||||||||||
Accounts and notes receivable | — | 95 | 4 | — | 99 | |||||||||||||||
Accounts receivable, related party | — | 67 | — | — | 67 | |||||||||||||||
Income tax receivable | — | 159 | — | — | 159 | |||||||||||||||
Inventories | — | 1,053 | 13 | — | 1,066 | |||||||||||||||
Deferred income taxes | 3 | 862 | — | — | 865 | |||||||||||||||
Prepaid expenses | 6 | 95 | 3 | (6 | ) | 98 | ||||||||||||||
Assets held for sale | — | 5 | — | — | 5 | |||||||||||||||
Short-term intercompany notes and interest receivable | — | 83 | 10 | (93 | ) | — | ||||||||||||||
Other intercompany receivables | 248 | — | 11 | (259 | ) | — | ||||||||||||||
Total current assets | 484 | 4,868 | 71 | (358 | ) | 5,065 | ||||||||||||||
Property, plant and equipment, net | — | 1,037 | 16 | — | 1,053 |
5
Trademarks, net | — | 2,188 | — | — | 2,188 | |||||||||||||||
Goodwill | — | 5,664 | 8 | — | 5,672 | |||||||||||||||
Other intangibles, net | — | 226 | — | — | 226 | |||||||||||||||
Long-term intercompany notes | — | 367 | — | (367 | ) | — | ||||||||||||||
Investment in subsidiaries | 6,860 | 44 | — | (6,904 | ) | — | ||||||||||||||
Other assets and deferred charges | 20 | 272 | 36 | (13 | ) | 315 | ||||||||||||||
Total assets | $ | 7,364 | $ | 14,666 | $ | 131 | $ | (7,642 | ) | $ | 14,519 | |||||||||
Liabilities and shareholders’ equity | ||||||||||||||||||||
Tobacco settlement and related accruals | $ | — | $ | 2,254 | $ | — | $ | — | $ | 2,254 | ||||||||||
Accounts payable and other accrued liabilities | 383 | 1,210 | 18 | (6 | ) | 1,605 | ||||||||||||||
Due to related party | — | 31 | — | — | 31 | |||||||||||||||
Deferred revenue, related party | — | 69 | — | — | 69 | |||||||||||||||
Current maturities of long-term debt | — | 190 | — | — | 190 | |||||||||||||||
Short-term intercompany notes and interest payable | 23 | 9 | 61 | (93 | ) | — | ||||||||||||||
Other intercompany payables | — | 259 | — | (259 | ) | — | ||||||||||||||
Total current liabilities | 406 | 4,022 | 79 | (358 | ) | 4,149 | ||||||||||||||
Intercompany notes | 367 | — | — | (367 | ) | — | ||||||||||||||
Long-term debt (less current maturities) | — | 1,558 | — | — | 1,558 | |||||||||||||||
Deferred income taxes | — | 652 | — | (13 | ) | 639 | ||||||||||||||
Long-term retirement benefits | 25 | 1,340 | 9 | — | 1,374 | |||||||||||||||
Other noncurrent liabilities | 13 | 233 | — | — | 246 | |||||||||||||||
Shareholders’ equity | 6,553 | 6,861 | 43 | (6,904 | ) | 6,553 | ||||||||||||||
Total liabilities and shareholders’ equity. | $ | 7,364 | $ | 14,666 | $ | 131 | $ | (7,642 | ) | $ | 14,519 | |||||||||
6