EXHIBIT 99.1
R.J. REYNOLDS P.O. Box 2866
TOBACCO HOLDINGS, INC. Winston-Salem, NC 27102-2866
- -------------------------------------------------------------------------------
CONTACT: Investors: Media:
---------- ------
Carole Biermann Wehn Seth Moskowitz
(336) 741-5182 (336) 741-7698
RJRTH 2003-13
R.J. Reynolds Reports Second Quarter 2003 Results
-------------------------------------------------
WINSTON-SALEM, N.C. - July 29, 2003 - R.J. Reynolds Tobacco Holdings, Inc.
(NYSE: RJR) today reported the following results for the second quarter of 2003.
The company's full-year forecast includes a restructuring charge reported in
the second quarter.
As Reported (GAAP) Second Quarter and First Half Results - Highlights
---------------------------------------------------------------------
(dollars in millions, except per-share amounts)
2nd Quarter 1st Half
----------- -----------
% %
2003(1) 2002 Change 2003(1) 2002(2) Change
------ ---- ------ ------ ------ ------
Net Sales ............................... $ 1,431 $ 1,705 -16% $ 2,649 $ 3,220 -18%
Operating Income ........................ $ 140 $ 372 -62% $ 275 $ 669 -59%
Net Income/(Loss) ....................... $ 70 $ 211 -67% $ 141 $ (124) -
Net Income/(Loss) per diluted share...... $ 0.83 $ 2.29 -64% $ 1.67 $ (1.34) -
(1)Second quarter and first half 2003 reported results include a restructuring
charge of $55 million ($34 million after tax).
(2)On January 1, 2002, RJR adopted SFAS No. 142. Under the new testing and
measurement requirements of SFAS No. 142, the fair value of certain of
RJR Tobacco's trademarks was less than the carrying value, which
resulted in a non-cash, trademark impairment charge of $502 million after
tax in the first quarter of 2002. See attached financial statements for
details.
Balance Sheet Highlights (as of June 30, 2003)
-----------------------------------------------
o Cash and short-term investments: $ 1.2 billion (after $550 million in scheduled debt maturities)
o Debt: $ 2.0 billion
o Equity: $ 6.6 billion
o Dividend: $0.95 per share quarterly; $3.80 per share annualized
Discussion of Second Quarter 2003 Results
-----------------------------------------
"RJR's financial results for the second quarter of 2003 reflect lower volume and
increased promotion spending," said Andrew J. Schindler, chairman and chief
executive officer of RJR. "However, during the quarter, the combined market
share of RJRT's four key brands was up compared with both the previous and
prior-year quarters.
"The comprehensive analysis of our business and cost structure that we announced
in April is ongoing, and we are on track with the very aggressive timetable we
set. Some changes have already begun. We expect to make further, significant
changes, begin implementing them, and announce a restructuring charge in the
September/October timeframe," he said. "This effort is intensely focused on
strengthening our business and improving our earnings in future years."
Schindler added, "We remain committed to maintaining our dividend of $3.80 per
share on an annualized basis, given the continued strength of our balance
sheet."
GAAP Financial Results
----------------------
Second-quarter net sales were $1.43 billion, down 16 percent from the year-ago
quarter primarily due to lower volume and higher promotion spending, partially
offset by a favorable impact of $54 million from changes in RJRT's
returned-goods policy. Operating income for the quarter was $140 million, down
62 percent versus the prior year. This was due to the factors mentioned above,
in addition to a $55 million restructuring charge, partially offset by lower
settlement expense. The restructuring charge is primarily related to the
discontinuation of certain event-marketing programs and the write-down of
equipment.
Second-quarter net income was $70 million, down 67 percent from $211 million in
the prior-year period. Earnings per diluted share in the second quarter were
$0.83, down 64 percent from $2.29 in the second quarter of 2002. Second-quarter
2003 per-share income includes a restructuring charge of $0.40 per diluted
share.
Discussion of Key Performance Factors During Second Quarter 2003
----------------------------------------------------------------
The following table summarizes second-quarter and first-half 2003 domestic
cigarette shipment volume, in billions of units:
For the Three Months For the Six Months
Ended June 30 Ended June 30
------------- -------------
% %
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
RJR Tobacco Volume ........................ 21.0 23.5 -10.9% 40.1 45.8 -12.5%
RJR Tobacco total full-price ......... 13.0 14.3 -9.2% 24.4 28.1 -13.1%
RJR Tobacco total savings ............ 8.0 9.2 -13.6% 15.7 17.7 -11.6%
SFNTC Volume* ............................. 0.3 0.3 +8.6% 0.6 0.5 +8.3%
RJR Total Domestic Volume** ............... 21.3 23.8 -10.7% 40.7 46.3 -12.2%
- ----------
* This comparison includes shipments during the first two weeks of 2002,
which was prior to the completion of RJR's acquisition of Santa Fe Natural
Tobacco Company on Jan. 16, 2002. It does not include Santa Fe Natural
Tobacco Company's international cigarette volume of approximately 0.14
billion units for the quarter (0.28 billion units for the first half of
2003). The 8.6% increase in SFNTC volume in second quarter 2003 is based on
actual volume of 298.9 million units in second quarter 2003 compared with
275.2 million units during the second quarter of 2002.
** The above results exclude Puerto Rico and certain other U.S. territories'
volume of approximately 0.2 billion units for second quarter 2003 and 0.5
billion units for the first half of 2003.
According to Management Science Associates, Inc. (MSAi), second-quarter industry
shipments were 95.8 billion units, a decrease of 2.5 percent compared with the
second quarter of 2002. MSAi reported second-quarter industry full-price
shipments of 70.8 billion units, level with the prior-year quarter.
Savings-brand shipments declined 8.8 percent. However, Reynolds Tobacco
continues to believe that the volume associated with smaller, deep-discount
manufacturers is not fully reflected in these reported numbers.
Based on MSAi reported volume, the second-quarter industry mix of full-price
versus savings-brand volume improved, with full-price brands representing 73.9
percent of industry volume, compared with 72.0 percent in the year-ago quarter.
The industry's full-price mix for the first half of 2003 was 73.4 percent,
stable compared with 73.3 percent in the first half of 2002.
Reynolds Tobacco's second-quarter shipment volume of 21 billion units was down
10.9 percent from the prior-year quarter, due to an underlying decline in
consumption, as well as trade inventory shifts. The company's mix of full-price
versus savings-brand volume improved. Reynolds Tobacco's full-price mix for the
second quarter was 62.2 percent, up from 61.0 percent in the second quarter of
2002.
The company's first-half volume was 40.1 billion units, down 12.5 percent from
45.8 billion units in the first half of 2002. Reynolds Tobacco's first-half
full-price mix was 60.9 percent, down from 61.3 percent in the year-ago period.
Retail Share of Market Performance
----------------------------------
On a combined basis, the share of RJRT's four key brands - and the company's
full-price share - was up compared with both the previous and prior-year
quarters. The company's second-quarter full-price share was 14.39 percent, up
0.17 share points versus the year-ago quarter, and up 0.09 share points compared
with the first quarter of 2003.
RJR Tobacco's total retail share of market for second quarter 2003 was 22.77
percent, down 0.09 share points from the year-ago quarter and 0.15 share points
lower than the previous quarter. The company's total share of market for the
first half of 2003 was 22.85, up 0.09 share points from the first half of 2002.
During the quarter, Camel continued its long-term growth trend. The retail share
of Camel's filtered styles for the second quarter and for the first half of the
year were up compared with those periods in 2002, while the brand's
second-quarter share was down somewhat from the first quarter of 2003.
Salem is beginning to benefit from its strengthened positioning and more
competitive promotion levels, launched earlier this year. Salem had a strong
second quarter, achieving share growth compared with both the previous and
prior-year quarters.
Base Winston's share has remained relatively stable for more than a year.
Winston's new geographic promotion strategy is working, and contributing to the
brand's stability.
Doral remains the nation's No. 1 savings brand. Doral's second-quarter share of
market declined, reflecting pricing pressure from increased premium-price
promotions and deep-discount brands.
During the second quarter, Santa Fe's Natural American Spirit brand again
delivered solid performance, posting volume, market-share and earnings gains
compared to the prior-year quarter.
Full Year 2003 Earnings Outlook
-------------------------------
In April, the company provided full- year guidance of $500 million in operating
income, $250 million in net income, and earnings per diluted share of $3.00, and
noted that the guidance excluded anticipated restructuring charges. RJR's
full-year guidance now includes the restructuring charge reported in the second
quarter. For full-year 2003, RJR forecasts the following results, excluding
future restructuring and related costs:
o Operating income of approximately $470 million to $495 million,
(including a $55 million restructuring charge in the second quarter)
o Net income of approximately $235 million to $250 million (including a
$34 million after-tax restructuring charge in the second quarter)
o Net income per diluted share of approximately $2.78 to $2.96
o Consolidated domestic tobacco shipment volumes down approximately 12%
o Cash and short-term investments of approximately $1.5 billion. This
assumes a stable dividend, and approximately $740 million in debt
repayments during 2003.
Conference Call Webcast Today
-----------------------------
R.J. Reynolds Tobacco Holdings, Inc. will webcast a conference call to discuss
second-quarter financial results at 10 a.m. ET on Tuesday, July 29. The call
will be available live online on a listen-only basis. To register for the call,
please visit the "Investors" section of www.RJRHoldings.com. A replay of the
call will be available on the site for seven 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.
Statements included in this news release which 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 RJR's future performance and financial results include risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These risks include the substantial
and increasing regulation and taxation of the cigarette industry; various legal
actions, proceedings and claims arising out of the tobacco business and the
claimed health effects of cigarettes that are pending or may be instituted
against RJR or its subsidiaries; the substantial payment obligations and
limitations on the advertising and marketing of cigarettes under various
litigation settlement agreements; the continuing decline in volume in the
domestic cigarette industry; competition from other cigarette manufacturers,
including increased promotional activities and the growth of the deep-discount
category; the success of new product innovations and acquisitions; the effect of
market conditions on the performance of pension assets and the return on
corporate cash; any potential costs or savings associated with realigning the
cost structure of RJR and its subsidiaries; and the ratings of RJR securities.
R.J. Reynolds Tobacco Holdings, Inc. is the parent company of R.J. Reynolds
Tobacco Company and Santa Fe Natural Tobacco Company, Inc. R.J. Reynolds Tobacco
Company is the second-largest tobacco company in the United States,
manufacturing about one of every four cigarettes sold in the United States.
Reynolds Tobacco's product line includes four of the nation's 10 best-selling
cigarette brands: Camel, Winston, Salem and Doral. Santa Fe Natural Tobacco
Company, Inc. manufactures Natural American Spirit cigarettes and other tobacco
products, and markets them both nationally and internationally. Copies of RJR's
news releases, annual reports, SEC filings and other financial materials are
available on the company's website, www.RJRHoldings.com.
(financial tables follow)
R.J. REYNOLDS TOBACCO HOLDINGS, 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,
---------------------- ----------------------
2003 2002 2003 2002
-------- ---------- -------- ----------
Net sales (1)................................................................. $ 1,431 $ 1,705 $ 2,649 $ 3,220
-------- ---------- -------- ----------
Cost of products sold ..................................................... 855 976 1,604 1,858
Selling, general and administrative expenses .............................. 381 357 715 693
Restructuring and impairment charges (2) .................................. 55 - 55 -
-------- ---------- -------- ----------
Operating income .......................................................... 140 372 275 669
Interest and debt expense ................................................. 29 36 65 72
Interest income ........................................................... (7) (12) (17) (28)
Other (income) expense, net ............................................... 1 2 (6) 5
-------- ---------- -------- ----------
Income before income taxes ................................................ 117 346 233 620
Provision for income taxes ................................................ 47 135 92 242
-------- ---------- -------- ----------
Income before cumulative effect of accounting change ...................... 70 211 141 378
Cumulative effect of accounting change, net of
income taxes (3) ........................................................ - - - (502)
-------- ---------- -------- ----------
Net income (loss) ......................................................... $ 70 $ 211 $ 141 $ (124)
======== ========== ======== ==========
Basic income (loss) per share:
Income before cumulative effect of accounting change ................... $ 0.84 $ 2.35 $ 1.68 $ 4.17
Cumulative effect of accounting change (3) ............................. - - - (5.54)
-------- ---------- -------- ----------
Net income (loss) ................................................ $ 0.84 $ 2.35 $ 1.68 $ (1.37)
======== ========== ======== ==========
Diluted income (loss) per share:
Income before cumulative effect of accounting change ................... $ 0.83 $ 2.29 $ 1.67 $ 4.07
Cumulative effect of accounting change (3) ............................. - - - (5.41)
-------- ---------- -------- ----------
Net income (loss) ................................................ $ 0.83 $ 2.29 $ 1.67 $ (1.34)
======== ========== ======== ==========
Basic weighted average shares, in thousands ............................... 83,479 89,824 83,755 90,625
======== ========== ======== ==========
Diluted weighted average shares, in thousands ............................. 83,986 92,026 84,469 92,792
======== ========== ======== ==========
(1) Net sales in the second quarter of 2003 benefited from a $54 million
adjustment related to revised returned-goods policies.
(2) Includes fixed asset impairment, contract termination costs and related
charges.
(3) On January 1, 2002, RJR adopted SFAS No. 142. Under the new testing and
measurement requirements of SFAS No. 142, the fair value of certain
of RJR Tobacco's trademarks was less than the carrying value, which
resulted in a non-cash, trademark impairment charge in the first
quarter of 2002.
RECONCILIATION OF 2002 RESULTS TO 2003 RESULTS
(Dollars in Millions)
(Unaudited)
2nd Quarter First Half
---------------------- ----------------------
Operating Net Operating Net
Income Income Income Income
-------- ---------- -------- ----------
2002 RESULTS .............................................................. $ 372 $ 211 $ 669 $ (124)
Cumulative effect of accounting change - 2002 ............................. - - - 502
Restructuring and impairment charges - 2003 ............................... (55) (34) (55) (34)
Operations ................................................................ (177) (107) (339) (203)
-------- --------- --------- ----------
2003 RESULTS .............................................................. $ 140 $ 70 $ 275 $ 141
======== ========= ========= ==========
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
June 30, December 31,
2003 2002
--------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents ................................................. $ 994 $ 1,584
Short-term investments .................................................... 203 595
Other current assets ...................................................... 1,618 1,813
Trademarks, net ........................................................... 2,085 2,085
Goodwill, net ............................................................. 7,099 7,090
Other noncurrent assets ................................................... 1,461 1,484
------- ----------
$13,460 $ 14,651
======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Tobacco settlement and related accruals ................................... $ 1,085 $ 1,543
Current maturities of long-term debt ...................................... 244 741
Accrued liabilities and other ............................................. 985 1,143
Long-term debt (less current maturities) .................................. 1,727 1,755
Deferred income taxes ..................................................... 1,190 1,236
Long-term retirement benefits ............................................. 1,251 1,176
Other noncurrent liabilities .............................................. 346 341
Stockholders' equity ...................................................... 6,632 6,716
------- ----------
$13,460 $ 14,651
======= ==========