Note 15 — Segment Information
RAI’s reportable operating segments are RJR Tobacco, American Snuff and Santa Fe. The RJR Tobacco segment consists of the primary operations of R. J. Reynolds Tobacco Company. The American Snuff segment consists of the primary operations of American Snuff Co. and, prior to its sale, Lane. The Santa Fe segment consists of the primary operations of SFNTC. Niconovum AB, Niconovum USA, Inc. and RJR Vapor, among other RAI subsidiaries, are included in All Other. The segments were identified based on how RAI’s chief operating decision maker allocates resources and assesses performance. Certain of RAI’s operating subsidiaries have entered into intercompany agreements for products or services with other subsidiaries. As a result, certain activities of an operating subsidiary may be included in a different segment of RAI.
RAI’s largest reportable operating segment, RJR Tobacco, is the second largest tobacco company in the United States. RJR Tobacco’s brands include two of the best-selling cigarettes in the United States: CAMEL and PALL MALL. These brands, and its other brands, including WINSTON, KOOL, DORAL, SALEM, MISTY and CAPRI, are manufactured in a variety of styles and marketed in the United States. As part of its total tobacco strategy, RJR Tobacco also offers a smoke-free tobacco product, CAMEL Snus. RJR Tobacco manages contract manufacturing of cigarette and tobacco products through arrangements with BAT affiliates, and manages the export of tobacco products to certain U.S. territories, U.S. duty-free shops and U.S. overseas military bases. RJR Tobacco manages the super-premium cigarettes, DUNHILL and STATE EXPRESS 555, which are licensed from BAT.
American Snuff is the second largest smokeless tobacco products manufacturer in the United States. American Snuff’s primary brands include its largest selling moist snuff brands, GRIZZLY and KODIAK.
Santa Fe manufactures and markets cigarettes and other tobacco products under the NATURAL AMERICAN SPIRIT brand.
Niconovum AB, Niconovum USA, Inc. and RJR Vapor, among other RAI subsidiaries, are included in All Other. Niconovum AB and Niconovum USA, Inc., are marketers of nicotine replacement therapy products in Sweden and the United States, respectively, under the ZONNIC brand name. RJR Vapor is a manufacturer and distributor of digital vapor cigarettes under the VUSE brand name in the United States.
Intersegment revenues and items below the operating income line of the consolidated statements of income are not presented by segment, since they are excluded from the measure of segment profitability reviewed by RAI’s chief operating decision maker. Additionally, information about total assets by segment is not reviewed by RAI’s chief operating decision maker and therefore is not disclosed.
Segment Data:
| 2013 | 2012 | 2011 | ||||||||||
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Net sales: |
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RJR Tobacco |
$ | 6,728 | $ | 6,960 | $ | 7,317 | ||||||
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American Snuff |
745 | 681 | 648 | |||||||||
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Santa Fe |
572 | 486 | 416 | |||||||||
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All Other |
191 | 177 | 160 | |||||||||
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Consolidated net sales |
$ | 8,236 | $ | 8,304 | $ | 8,541 | ||||||
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Operating income (loss): |
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RJR Tobacco(1)(2)(3) |
$ | 2,587 | $ | 1,735 | $ | 1,958 | ||||||
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American Snuff(2) |
420 | 374 | 331 | |||||||||
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Santa Fe(3) |
280 | 237 | 186 | |||||||||
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All Other(2) |
(70 | ) | (36 | ) | 18 | |||||||
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Corporate(1) |
(85 | ) | (96 | ) | (94 | ) | ||||||
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Consolidated operating income |
$ | 3,132 | $ | 2,214 | $ | 2,399 | ||||||
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Cash capital expenditures: |
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RJR Tobacco |
$ | 55 | $ | 36 | $ | 55 | ||||||
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American Snuff |
15 | 24 | 106 | |||||||||
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Santa Fe |
2 | 4 | 7 | |||||||||
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All Other |
81 | 24 | 22 | |||||||||
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Consolidated capital expenditures |
$ | 153 | $ | 88 | $ | 190 | ||||||
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Depreciation and amortization expense: |
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RJR Tobacco |
$ | 68 | $ | 99 | $ | 110 | ||||||
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American Snuff |
18 | 19 | 17 | |||||||||
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Santa Fe |
3 | 2 | 5 | |||||||||
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All Other |
14 | 11 | 6 | |||||||||
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Consolidated depreciation and amortization expense |
$ | 103 | $ | 131 | $ | 138 | ||||||
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Reconciliation to income from operations before income taxes: |
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Operating income(1)(2)(3) |
$ | 3,132 | $ | 2,214 | $ | 2,399 | ||||||
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Interest and debt expense |
259 | 234 | 221 | |||||||||
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Interest income |
(5 | ) | (7 | ) | (11 | ) | ||||||
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Other expense, net |
137 | 34 | 3 | |||||||||
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Income from operations before income taxes |
$ | 2,741 | $ | 1,953 | $ | 2,186 | ||||||
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| (1) |
Includes restructuring and/or asset impairment charges of $149 million for the year ended December 31, 2012, see “Restructuring Charges” in note 4. |
| (2) |
Includes trademark, goodwill and/or other intangible asset impairment charges of $32 million, $129 million and $48 million for the years ended December 31, 2013, 2012 and 2011, respectively, see “Intangible Assets” in note 3. |
| (3) |
Includes NPM Adjustment credits of $478 million for RJR Tobacco and $5 million for Santa Fe for the year ended December 31, 2013, see “— Cost of Products Sold” in note 1. |
Sales to McLane Company, Inc., a distributor, comprised approximately 31% of RAI’s consolidated revenue in each of 2013 and 2012, and 27% of RAI’s consolidated revenue in 2011. Sales to Core-Mark International, Inc., a distributor, represented approximately 11% of RAI’s consolidated revenue in 2013, and 10% of RAI’s consolidated revenue in 2012. McLane Company, Inc. and Core-Mark International, Inc. are customers of RJR Tobacco, American Snuff and Santa Fe. No other customer accounted for 10% or more of RAI’s consolidated revenue during those periods.
RAI’s operating subsidiaries’ sales to foreign countries, primarily to related parties, for the years ended December 31, 2013, 2012 and 2011 were $497 million, $494 million and $613 million, respectively.