Consolidated Sales Rise 7.8%, Net Income Up 28.6% ---------------------------------------------------------------------- TOKYO--(BUSINESS WIRE)--May 21, 1999--Japan Tobacco Inc. (JT) (TSE: 2914) today announced its consolidated results for the fiscal year ended March 31, 1999, which do not reflect contributions from the recently acquired non-U.S. tobacco operations of R.J. Reynolds. Fiscal 1999 Performance JT posted gains in consolidated net sales, operating income, and net income, driven by growth in both its tobacco and diversified businesses. "We are gratified by JT's strong performance in fiscal 1999," said Mr. Masaru Mizuno, President and CEO of Japan Tobacco Inc. "While our year-to-year comparisons benefited from the fact that fiscal 1998 tobacco sales decreased in Japan due to heavy forward buying just ahead of an April 1997 tax hike, we did a solid job of weathering a second consecutive hike in fiscal 1999. We also are particularly pleased by strong top-line growth in our diversified businesses and continue our commitment to further expanding those activities." The Company noted that Japan Tobacco's consolidated subsidiaries increased to 50 companies, with the addition of Unimat Corporation and Torii Pharmaceuticals Inc1. during the period. Consolidated net sales for fiscal 1999 reached (Y)3.8 trillion ($32.3 billion), an increase of 7.8% compared to the prior year. Fiscal 1999 tobacco sales climbed 4.7%, to (Y)3.6 trillion ($30.1 billion). Domestic tobacco sales accounted for (Y)3.5 trillion ($28.9 billion) of this total, up 4.9% from the previous year's figure. Number of sticks sold in Japan rose 1.2%, or 3 billion sticks, to 257.5 billion sticks. Although a new tobacco tax hike was instituted in December 1998, JT worked to solidify its domestic sales by launching four new products and by running promotional campaigns aimed at further strengthening its established brands. JT's share of the Japanese market stood at 76.5% in fiscal 1999, compared to 77.6% the prior year. Exports of tobacco, meanwhile, rose 2.7%, to (Y)117.1 billion ($975.8 million), and other tobacco sales totaled (Y)28.7 billion ($239.2 million), compared to (Y)32.7 billion the prior year. Diversified businesses recorded strong growth in fiscal 1999, climbing 83.1% to (Y)259.8 billion ($2.2 billion). Pharmaceutical sales increased 47.6%, to (Y)23.7 billion ($198 million), primarily benefiting from an increase in revenues from the very successful HIV protease inhibitor, Viracept (TM). In foods, strong sales of JT's hit soft drink, Momo no Tennensui, and consolidation of Unimat Corporation business increased sales 470.9%, to (Y)150.7 billion ($1.2 billion). Finally, for other operations, which consist of agribusiness, real estate, and engineering-related operations, sales declined 14.2%, to 85.3 billion ($711 million). Cost of sales in fiscal 1999 rose at a slower rate than sales, contributing to a 16.1% increase in gross profit, to (Y) 727.1 billion ($6.1 billion). Gross margin rate for the year improved to 18.7%, from 17.4% in the prior period. Fiscal 1999 SG&A totaled (Y)558.2 billion ($4.7 billion), up 12.4%. The increase was primarily attributable to parent company sales promotions, increased costs associated with long-term investments in pharmaceuticals and food-related operations, and consolidation of the recently acquired Unimat Corporation, a vending machine company. Operating income during the period climbed 30.3%, to (Y)168.8 billion ($1.4 billion), driven by the increase in sales and improvement in gross margin. Non-operating expenses, meanwhile, declined 32.7% compared to fiscal 1998 because of a substantial decrease in losses on valuation of securities. Net income for fiscal 1999 reached (Y)74.6 billion ($622 million), up 28.6% from the prior year. Earnings per share were (Y)37,316 ($310.97), compared to (Y)29,010 in the year-earlier period. Fiscal 1999 Dividends Announced Underlining its commitment to providing stable shareholder return and based on its business performance in fiscal 1999, Japan Tobacco today announced a year-end dividend of (Y)3,500. Total annual dividends for shareholders will be (Y)7,000, equal to payments in fiscal 1998. Fiscal 2000 Outlook Management today also issued consolidated sales and earnings forecasts for the fiscal year ending March 31, 2000. These forecasts do not include anticipated results from the food division of Asahi Chemical, because that acquisition has not yet been completed. JT is forecasting fiscal year 2000 consolidated sales of approximately (Y)4.4 trillion, up 14.3% from the prior year. Of this total, tobacco is expected to account for about (Y)4.1 trillion, while the diversified operations of pharmaceuticals, foods, and others are expected to reach approximately (Y)65 billion, (Y)168 billion, and (Y)82 billion, respectively. The Company said that although the acquisitions of RJRI (described below) and Torii Pharmaceutical Inc. are expected to benefit JT's consolidated net sales in fiscal 2000, a number of extraordinary conditions will likely impact profits. Of particular note, the costs associated with amortizing the RJRI trademarks will be borne for an 11-month period, from May 1999 until March 2000, while RJRI's revenues will only be booked for an 8-month period, from May to December 1999 (RJRI's end-year fiscal close). Reflecting the above conditions, JT's fiscal 2000 recurring profit should decline 13.5% from fiscal 1999, to (Y)143 billion, while net income is expected to decrease 2.2% to approximately (Y)73 billion. RJRI Acquisition On May 12, 1999, Japan Tobacco Inc. completed its acquisition of RJR Nabisco Holdings Corporation's non-U.S. tobacco operations. Valued at US$7.83 billion in cash, the deal consisted of US$5.065 billion to acquire all the shares of RJR Nabisco's non-U.S. tobacco operations, US$2.68 billion for the non-U.S. rights to all of its trademarks and intellectual property, and US$87 million for other assets including an export manufacturing facility in Puerto Rico. Japan Tobacco Inc., with sales in the year ended March 31, 1999 of (Y)3.8 trillion, is one of the world's largest manufacturers of tobacco products. Worldwide the Company's flagship brand, Mild Seven, is the second most popular cigarette, and its Mild Seven Super Lights brand is the number one seller in the light cigarette category. Since its privatization in 1985, it has actively diversified its operations in pharmaceuticals and foods. JT trades on the Tokyo Stock Exchange under the ticker 2914. Please note that all U.S. dollar amounts are translated from yen at the rate of (Y)120=US$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 1999. Please also note that some statements contained within this release may be of a forward-looking nature and may involve risks and uncertainties. These statements are based on our current expectations about future events. Forward-looking statements are not guarantees of future performance, and actual future results and outcomes may differ materially from those discussed. Factors that may cause such differences include, but are not limited to, changes in exchange rates, unexpected costs associated with new product introductions or market entries, and activities of competitors. Note: For further information on JT's financial performance, please feel free to access the English JT Homepage at: http://www.jtnet.ad.jp/WWW/JT/JTI_E/Welcome.html This site can be accessed after 3:00 am, May 22, Tokyo time (2:00 pm, May 21, New York time.) 1 Torii Pharmaceuticals consolidated reporting reflected in balance sheet only, during fiscal 1999. JAPAN TOBACCO BUSINESS RESULTS (Consolidated) (Yen Bill Year ended March 31, 1999 1998 Change Memo Operating Revenue 3,876.5 3,596.9 279.6 Consoli-Nonconsoli Ratio 1.37 to 1.41 (+0.04Times) 1)Tobacco Business 3,616.7 3,455.0 161.7 Domestic Production Volume Domestic Sales 3,470.8 3,308.1 162.5 254.5 to 257.5(+3.0bnUnits) Import Volume 72.1 to 77.5 (+5.4bnUnits) Export Sales 117.1 114.0 3.1 Volume 18.1 to 20.5 (+2.3bnUnits) Other 28.7 32.7 (4.0) 2)Diversified Business 259.8 141.8 117.9 Refer to Segment Information Operating Expenses 1)Cost of Sales 3,149.3 2,970.7 178.6 Excise Tax 2,221.1 2,088.4 132.8 Tobacco Business 815.6 812.3 3.3 Diversified Business 112.6 70.0 42.6 2)Selling,General and Administrative Expenses 558.2 496.6 61.5 Including Sales Promotion Cost of Newly Consolidated "UNIMAT Corp." Amortization of Goodwill JPY 5.1bn Operating Profit 168.8 129.5 39.3 Consoli-Nonconsoli Ratio 1.09 to 1.16 (+0.07Times) 1)Non-Operating Income 15.9 14.6 1.2 2)Non-Operating Expenses 19.5 29.0 (9.5) Decrease in Loss on Valuation of Securities Recurring Profit 165.2 115.1 50.0 Consoli-Nonconsoli Ratio 1.06 to 1.17 (+0.11Times) Income Taxes 84.0 52.4 31.6 Re-Classification of Enterprise Tax 17.1bn Net Income 74.6 58.0 16.6 Consoli-Nonconsoli Ratio 1.01 to 1.10 (+0.09Times) (Consolidated) SEGMENT INFORMATION (yen billion) Financial Results 1999 1998 Change Memo Tobacco Business Third Party Sales 3,616.7 3,455.0 161.7 Increase in Excise Tax +JPY132.7bn Inter Segment Sales 5.6 Operating Expense 3,428.4 Operating Income 193.8 Pharmaceuticals Business Third Party Sales 23.7 16.0 7.7 Increase in Revenues of "ViraceptTM" HIV Treatment Inter Segment Sales 2.3 Operating Expense 38.7 R&D about JPY 20.0bn Operating Income (12.6) Foods Business Third Party Sales 150.7 26.4 124.3 Increase in Soft Drink "Momo-no-Tennensui" Sales & "UNIMAT Corp" Newly Consolidated Inter Segment Sales 0.4 Operating Expense 159.8 Increase in Sales Promotion Operating Income (8.6) Amortization of Goodwill of "UNIMAT Corp"5.1bn Others Business Third Party Sales 85.3 99.3 (14.0) Decrease in Engineering & Real Estate Business Inter Segment Sales 20.2 Operating Expense 108.1 Operating Income (2.6) Reference Depreciation of PP&E and Amortization of Intangible Assets 88.6 Acquisition of PP&E and Intangible Assets 82.0 JAPAN TOBACCO BUSINESS RESULTS (Non-Consolidated) (billion yen) 1999 1998 Change Memo Operating Revenue 2,757.0 2,621.6 135.4 1)Tobacco Business 2,652.2 2,558.7 93.5 Tobacco Sales (Net of Tax) 981.5 to 996.5 + JPY 30bn Domestic Sales 2,631.9 2,535.8 96.0 JT Shares in Japan 77.6% to 76.5% -1.1 Points Domestic tobacco sales Volume 254.5 to 257.5 +3.0bn Units Average Sales Price per 10 Units 116.8 to 119.8 + JPY 3.0 Export Sales 20.3 22.8 (2.4) Export Sales Volume 13.2 to 13.2 +0.05bn Units 2)Diversified Business 104.7 62.9 41.8 (Sales Growth) Pharmaceuticals 22.5 14.9 7.6 Increase in Revenues of "ViraceptTM" HIV Treatment Foods 45.1 15.3 29.7 Increase in Soft Drink "Momo-no-Tennensui" Sales Others 37.1 32.6 4.4 Operating Expenses 2,610.9 2,502.5 108.4 1)Cost of Sales 2,178.0 2,080.4 97.5 Excise Tax 1,655.6 1,577.1 78.5 (Including Special Excise Tax + JPY 59.3bn) Cost of Sales in Tobacco Business 459.9 463.8 (3.9) Cost of Sales in Diversified Business 62.4 39.4 22.9 2)Selling, General and Administrative Expenses 432.8 422.0 10.8 Personnel 140.2 147.7 (7.5) Advertising 26.8 26.5 0.2 Sales Promotion 86.9 70.3 16.6 Freight, Storage 28.4 25.0 3.4 Research and Development 36.9 35.7 1.2 Operating Profit 146.0 119.0 27.0 (+22.7%) (Non-Consolidated) (billion yen) 1999 1998 Change Memo Operating Profit 146.0 119.0 27.0 (+22.7%) 1)Non-Operating Income 14.0 14.2 (0.1) 2)Non-Operating Expenses 18.7 24.3 (5.5)Loss on Valuation of Securities 9.6 to 3.2 - JPY6.4bn Recurring Profit 141.3 108.9 32.4 (+29.7%) 1)Extraordinary Profit 4.5 2.1 2.3 Gain on Disposal of PP&E 2)Extraordinary Loss 8.9 6.8 2.0 Loss on Disposal of PP&E Income Before Income Taxes 136.9 104.2 32.7 (+31.5%) Income Taxes 69.2 46.8 22.3 Re-Classification of Enterprise Tax JPY14.1bn Net Income 67.7 57.3 10.4 (+18.2%) Earnings per Share JPY 33,870 Financial Condition 1999 1998 Change Memo Equity Ratio(%) 73.3% 74.1% - 0.8 Points (billion yen) Reference 1999 1998 Change Memo Depreciation of PP&E 51.0 53.6 (2.6) Acquisition of PP&E 30.9 35.3 (4.4) Japan Tobacco Forecasts for the Year ending March 31, 2000 (billion Yen) Exchange Rate JPY 120/$ Consolidated 2000(Est.) 1999 Memo Sales 4,430.0 3,876.5 Tobacco 4,115.0 3,616.7 Pharmaceuticals 65.0 23.7 Foods 168.0 150.7 Others 82.0 85.3 Recurring Profit 143.0 165.2 Net Income 73.0 74.6 (Reference) RJRI* Sales 408.4 Recurring Profit 38.2 Net Income 25.8 TORII PHARMACEUTICAL* Sales 42.0 Recurring Profit 3.0 Net Income (2.0) *After adjustments of inter-transaction, etc. Non-Consolidated 2000(Est.) 1999 Memo Sales 2,850.0 2,757.0 Tobacco 2,738.0 2,652.2 Pharmaceuticals 21.0 22.5 Foods 60.0 45.1 Others 30.0 37.1 Recurring Profit 98.0 141.3 Net Income 56.0 67.7  