R.J. Reynolds Faces Probe

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R.J. Reynolds Faces Probe

WINSTON-SALEM, N.C. -- Number-two cigarette maker R.J. Reynolds Tobacco Holdings Inc., the maker of Winston and Camel cigarettes, said the Securities and Exchange Commission (SEC) has begun a formal investigation into potential violations of securities laws related to its expense accounting, but the development didn't have a significant impact on investors, Monday's Wall Street Journal reported.

RJR, the second-largest U.S. cigarette maker in terms of revenue behind the Philip Morris USA unit of Altria Group Inc., received a subpoena from the SEC on July 3 related to its practice of aggregating certain expenses. Talks to date with SEC staff have focused on whether the Winston-Salem, N.C., company should break out certain costs in its public filings or be able to lump those costs with other expenses.

RJR said a separate disclosure of these costs would harm the company. "This has nothing to do with any financial improprieties or accounting improprieties," said Seth Moskowitz, an RJR spokesman. "None of our competitors breaks out what the SEC wants us to break out."

At issue, the report said, is the category of expenses classified in public filings as "selling, general and administrative expenses." RJR reported total selling, general and administrative expenses of $381 million for the second quarter, up 6.7 percent from a year ago. The broad category includes marketing and selling costs as well as the costs of litigating product-liability lawsuits and other legal cases. It is generally shown as one figure in quarterly and annual financial results.