RJ Reynolds Tob (NYSE:RJR)
Historical Stock Chart
From Jul 2019 to Jul 2024
![Click Here for more RJ Reynolds Tob Charts. Click Here for more RJ Reynolds Tob Charts.](/p.php?pid=staticchart&s=NY%5ERJR&p=8&t=15)
R.J. Reynolds Reports Third Quarter 2003 Results; Adjusts Full-Year Forecast
WINSTON-SALEM, N.C., Oct. 28 /PRNewswire-FirstCall/ -- R.J. Reynolds Tobacco
Holdings, Inc. today reported the following results for the third quarter of
2003. These third-quarter earnings reflect charges related to the company's
previously announced restructuring, including non- cash pre-tax trademark and
goodwill impairment charges of approximately $3.6 billion and pre-tax
restructuring charges of $310 million. The company's full-year forecast has
been revised to include the impairment charges as well as some favorable
adjustments.
GAAP Third Quarter and Nine Month Highlights
(dollars in millions, except per-share amounts)
Third Quarter Nine Months
2003(1) 2002 2003(1) 2002(2)
Net sales $ 1,384 $ 1,585 $ 4,033 $ 4,805
Operating income (loss)$ (3,643) $ 252 $ (3,368) $ 921
Net income (loss) $ (3,451) $ 139 $ (3,310) $ 15
Net income (loss) per
diluted share $ (41.31) $ 1.56 $ (39.55) $ 0.16
(1) Due to the restructuring RJR announced on Sept. 17, 2003, third-
quarter 2003 reported results include restructuring charges of
$310 million ($188 million after tax) and trademark and goodwill
impairment charges of $3.59 billion ($3.46 billion after tax). Nine-
month 2003 results also include a second-quarter restructuring charge
of $55 million, or $34 million after tax.
(2) Due to RJR's adoption on Jan. 1, 2002, of SFAS No. 142, the fair value
of certain RJR Tobacco 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.
Balance Sheet Highlights (as of Sept. 30, 2003)
* Cash and short-term investments: $1.7 billion
* Debt: $1.7 billion
* Equity: $3.1 billion
* Dividend: $0.95 per share quarterly; $3.80 per
share annualized
Discussion of Third Quarter 2003 Results
"Our third-quarter results include significant impairment charges necessitated
by the restructuring we announced in September," said Andrew J. Schindler,
chairman and chief executive officer of RJR. "R.J. Reynolds Tobacco Company is
implementing a two-pronged initiative to drive profit growth: a refocused
brand-portfolio strategy, and a dramatic cost-structure reduction. We are
aggressively pursuing our target of a $1 billion reduction in annual costs by
year-end 2005, and have already begun implementing $800 million in cost
reductions."
Dianne M. Neal, RJR's chief financial officer, said, "Because of the
restructuring, we were required to do an impairment analysis, which resulted in
trademark and goodwill impairment charges totaling $3.6 billion in the third
quarter. These non-cash charges do not affect the operations of our businesses
or our financing arrangements."
Neal noted that accounting rules required RJR to record a trademark impairment
charge due to a decline in the fair market value of certain trademarks, even
though the aggregate fair market value of RJR Tobacco brands has increased,
because of higher values for Camel and Salem.
Third Quarter 2003 Financial Results
Third-quarter net sales were $1.38 billion, down 12.7 percent from the year-ago
quarter primarily due to lower volume, partially offset by a favorable impact of
$39 million from changes in Reynolds Tobacco's returned- goods policy. Largely
as a result of impairment charges of $3.59 billion and restructuring charges of
$310 million, RJR reported an operating loss of $3.64 billion for the quarter,
compared with operating income of $252 million in the third quarter of 2002.
Third-quarter net loss was $3.45 billion, primarily due to restructuring and
impairment charges, partially offset by the returned goods favorability and a
favorable resolution of tax matters for prior years of $55 million. In
comparison, net income in third quarter 2002 was $139 million. Loss per diluted
share in the third quarter was $41.31, compared with net income per diluted
share of $1.56 in the prior-year quarter.
Nine Month Financial Results
Net sales for the first nine months of 2003 were $4.03 billion, down 16.1
percent from the prior-year period, primarily due to lower volume and higher
promotional spending, partially offset by higher selling prices, as well as $93
million of returned-goods reserve adjustments. Largely due to third-quarter
impairment charges of $3.59 billion and to restructuring charges totaling $365
million, RJR reported an operating loss of $3.37 billion for the first nine
months of 2003, compared with income of $921 million in the prior- year period.
Net loss for the first nine months was $3.31 billion, down from income of $15
million in the year-ago period, primarily due to impairment and restructuring
charges, partially offset by the tax and returned-goods favorabilities discussed
above. This nine-month comparison includes the effect of a non-cash trademark
impairment charge of $502 million after tax in the first quarter of 2002 due to
the adoption of SFAS No. 142, as discussed in footnote 2 in the chart above.
Loss per diluted share for the first nine months of 2003 was $39.55, compared
with income of $0.16 per diluted share in the prior-year period.
Volume and Product Mix During Third Quarter and First Nine Months
The following table summarizes RJR's third-quarter and September 2003
year-to-date domestic cigarette shipment volume, in billions of units:
For the Three Months For the Nine Months
Ended Sept. 30 Ended Sept. 30
% %
2003 2002 Change 2003 2002 Change
RJR Tobacco volume 20.7 23.6 -12.1% 60.8 69.4 -12.4%
RJR Tobacco total
full-price 13.0 14.6 -10.7% 37.4 42.7 -12.3%
RJR Tobacco total
savings 7.7 9.0 -14.3% 23.4 26.7 -12.5%
SFNTC volume (1) 0.3 0.3 + 4.8% 0.9 0.8 + 6.6%
RJR total domestic
volume (2) 21.0 23.9 -11.9% 61.7 70.2 -12.2%
(1) This comparison includes domestic 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. The 4.8% increase
in SFNTC domestic volume in third quarter 2003 is based on actual
volume of 316.4 million units in third quarter 2003 compared with
301.9 million units during the third quarter of 2002.
(2) The above results exclude Puerto Rico and certain other U.S.
territories' volume of approximately 0.3 billion units for third
quarter 2003 and 0.8 billion units for the first nine months of 2003.
RJR Tobacco's volume declines during the third quarter were driven by underlying
consumption declines and inventory shifts. The company's mix of full-price
versus savings-brand volume improved in the third quarter with full-price mix of
62.7 percent, up a full percentage point from 61.7 percent in the prior-year
quarter. RJR Tobacco's September year-to-date full-price mix was 61.5 percent,
unchanged from the prior-year period.
Based on information from Management Science Associates, Inc. (MSAi), a supplier
of industry shipment data, total third-quarter industry volume was 96.8 billion
units, down 4.6 percent from the third quarter of 2002. For the first nine
months of 2003, total industry volume was 280.8 billion units, down 6.7 percent
compared to the prior-year period. The industry full-price mix during the third
quarter was 74.1 percent, up from 72.4 percent in the third quarter of 2002.
The industry full-price mix for the first nine months of 2003 was 73.7 percent,
up from 73.0 percent in the year-ago period. RJR Tobacco continues to believe
the volume associated with smaller, deep-discount manufacturers is not fully
reflected in MSAi's reported numbers.
Retail Share of Market Performance
On Sept. 17, the company announced that RJR Tobacco is transitioning to a new
brand-portfolio strategy that will focus on delivering improved profitability
through greater emphasis on its premium brands with the highest growth
potential. Under the new strategy, which will be fully implemented in 2004,
marketing investment will be primarily focused on Camel and Salem to achieve
market-share and profit growth. RJRT will make more limited investments in its
two other key brands, Winston and Doral, to optimize profitability on those
brands.
RJR Tobacco's total share of market for the third quarter and the first nine
months of 2003 were down compared with the same periods in 2002. However, the
company's full-price share for the same periods in 2003 was up compared with the
third quarter and first nine months of 2002.
RJR Tobacco's total share of market for the third quarter of 2003 was 22.43
percent, down 0.78 share points from the third quarter of 2002. Full- price
share for the quarter was 14.28 percent, up 0.12 share points from the
prior-year quarter. RJRT's third-quarter savings share of market was 8.14
percent, down 0.92 share points from third quarter 2002.
For the first nine months of 2003, RJR Tobacco's total share of market was 22.70
percent, down 0.21 share points compared with the prior-year period. Full-price
share was 14.32 percent, up 0.09 share points from the first nine months of
2002. RJRT's savings share for the first nine months was 8.38 percent, down
0.31 share points from the prior-year period.
Combined retail market share for RJR Tobacco's two growth brands, Camel and
Salem, grew in the third-quarter and year-to-date periods versus prior year.
The Camel brand's filtered styles are up 0.33 share points year-to-date versus
the same period last year.
Salem's performance has improved significantly. Its year-to-date retail share
is up 0.05 share points versus last year, and the brand has gained 0.35 share
points since its "Stir the Senses" relaunch in April 2003.
Santa Fe's Natural American Spirit brand again delivered volume and market-share
gains compared to the prior-year quarter and the first nine months of 2002.
Full Year 2003 Earnings Outlook
When announcing its restructuring in September, RJR provided full-year guidance
that excluded impairment charges. The following revised guidance reflects
trademark and goodwill impairment charges, as well as some favorable
adjustments.
For full-year 2003, RJR forecasts the following results:
* Operating loss of approximately $3.240 billion to $3.290 billion
(including pre-tax restructuring charges of $375 million and non-cash
trademark and goodwill impairment charges of $3.590 billion).
* Net loss of approximately $3.235 billion to $3.265 billion (including
after-tax restructuring charges of $228 million and non-cash trademark
and goodwill impairment charges of $3.461 billion).
* Net loss per diluted share of approximately $38.65 to $39.00.
* Consolidated domestic tobacco shipment volumes down approximately 12%.
* Cash and short-term investments of approximately $1.6 billion to
$1.7 billion, which assumes a stable dividend.
Conference Call Webcast Today
R.J. Reynolds Tobacco Holdings, Inc. will webcast a conference call to discuss
third-quarter financial results at 10 a.m. Eastern Standard Time on Tuesday,
Oct. 28. 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.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.
Except as provided by federal securities laws, RJR is not required to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
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, http://www.rjrholdings.com/.
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - GAAP
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Net sales (1) $ 1,384 $ 1,585 $ 4,033 $ 4,805
Cost of products sold 814 985 2,418 2,843
Selling, general and
administrative expenses 313 348 1,028 1,041
Restructuring and impairment
charges (2) 310 -- 365 --
Goodwill and trademark
impairment (3) 3,590 -- 3,590 --
Operating income
(loss) (3,643) 252 (3,368) 921
Interest and debt expense 25 38 90 110
Interest income (6) (16) (23) (44)
Other (income) expense, net 2 2 (4) 7
Income (loss) before
income taxes (3,664) 228 (3,431) 848
Provision for (benefit
from) income taxes (213) 89 (121) 331
Income (loss) before
cumulative effect of
accounting change (3,451) 139 (3,310) 517
Cumulative effect of
accounting change, net of
income taxes (4) -- -- -- (502)
Net income (loss) $ (3,451) $ 139 $ (3,310) $ 15
Basic income (loss) per share:
Income (loss) before
cumulative effect of
accounting change $ (41.31) $ 1.58 $ (39.55) $ 5.76
Cumulative effect of
accounting change
(4) -- -- -- (5.59)
Net income (loss) $ (41.31) $ 1.58 $ (39.55) $ 0.17
Diluted income (loss) per share:
Income (loss) before
cumulative effect of
accounting change $ (41.31) $ 1.56 $ (39.55) $ 5.64
Cumulative effect of
accounting change
(4) -- -- -- (5.48)
Net income (loss) $ (41.31) $ 1.56 $ (39.55) $ 0.16
Basic weighted average
shares, in thousands 83,538 87,937 83,683 89,729
Diluted weighted average
shares, in
thousands (5) 83,538 89,373 83,683 91,652
(1) Net sales benefited from an adjustment related to revised sales
programs of $39 million in the third quarter and $93 million September
year-to-date.
(2) Includes severance and related benefits, fixed asset impairment,
contract termination costs and related charges.
(3) Includes impairment of goodwill of RJR Tobacco and certain trademarks
as a result of valuation required by SFAS No. 142 related to RJR's
third quarter restructuring.
(4) 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.
(5) For the quarter and nine months ended September 30, 2003, common stock
equivalents were excluded from diluted per share amounts, as they
would have been anti-dilutive.
Reconciliation of 2002 Results to 2003 Results
(Dollars in Millions)
(Unaudited)
Third Quarter Nine Months
Operating Net Operating Net
Income Income Income Income
2002 Results $ 252 $ 139 $ 921 $ 15
Cumulative accounting
change-2002 -- -- -- 502
Restructuring and
impairment charges (310) (188) (365) (222)
Goodwill and trademark
impairment (3,590) (3,461) (3,590) (3,461)
Income tax adjustments -- 55 -- 55
Reduction of returned
goods reserve 39 23 93 56
Operations (34) (19) (427) (255)
2003 Results $ (3,643) $ (3,451) $ (3,368) $ (3,310)
R.J. REYNOLDS TOBACCO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
September 30, December 31,
2003 2002
Assets (Unaudited)
Cash and cash equivalents $ 1,568 $ 1,584
Short-term investments 107 595
Other current assets 1,513 1,813
Trademarks, net 1,759 2,085
Goodwill, net 3,835 7,090
Other noncurrent assets 1,399 1,484
$ 10,181 $ 14,651
Liabilities and stockholders' equity
Tobacco settlement and related accruals $ 1,553 $ 1,543
Current maturities of long-term debt 56 741
Accrued liabilities and other 973 1,143
Long-term debt (less current maturities) 1,692 1,755
Deferred income taxes 911 1,236
Long-term retirement benefits 1,363 1,176
Other noncurrent liabilities 531 341
Stockholders' equity 3,102 6,716
$ 10,181 $ 14,651
DATASOURCE: R.J. Reynolds Tobacco Holdings, Inc.
CONTACT: investors, Carole Biermann When, +1-336-741-5182, or media,
Seth Moskowitz, +1-336-741-7698, both of R.J. Reynolds Tobacco Holdings, Inc.
Web site: http://www.rjrholdings.com/