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    RJR's Second-Quarter Sales Decrease Slightly

    Effects of lower volume partially offset by improved full-price to savings-brand mix.

    WINSTON-SALEM, N.C. -- Reynolds American Inc. reported strong second-quarter financial results for R.J. Reynolds Tobacco Holdings Inc. (RJR), a publicly traded company until July 30, and now a wholly owned subsidiary of RAI.

    Reynolds American was established as a publicly traded holding company following a combination of the nation's No. 2 and No. 3 cigarette manufacturers, R.J. Reynolds Tobacco Co. (RJRT) and Brown & Williamson Tobacco Corp.

    RJR's solid second-quarter performance reflects continued improvements resulting from fundamental changes in the company's strategies and cost structure, announced in September 2003.

    "Our second-quarter results demonstrate our success over the past year in strengthening our business and positioning the company for future growth," said Andrew J. Schindler, executive chairman of Reynolds American. "We've made significant progress with our marketplace strategy, streamlining our cost structure, improving profitability and planning an efficient and effective integration of B&W and RJRT."

    Schindler added that the company is meeting all of its major restructuring milestones, and is well on its way to achieving its goal of $1 billion in cost savings by the end of 2005. "In addition, we are confident that we will achieve $550 million to $600 million in merger-related synergies within approximately two years," said Schindler.

    RJR's second-quarter net sales were $1.4 billion, a 5.5 percent decrease as the effects of lower volume were partially offset by an improved full-price to savings-brand mix. Also, RJR's second-quarter 2003 results benefited from the $54 million favorable impact of a change in RJRT's returned-goods policy.

    Operating income of $266 million was up 90 percent from the same quarter in the prior year, primarily as a result of cost-savings initiatives. In addition, second-quarter operating results benefited from a net restructuring charge adjustment of $9 million. The company recorded a $55 million restructuring charge in the second quarter of 2003.

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