Name: Reynolds American Inc. (NYSE:RAI) | Cash Flow Statement
Creator: Stock Analysis on Net

Cash Flow Statement

The cash flow statement provides information about a company cash receipts and cash payments during an accounting period, showing how these cash flows link the ending cash balance to the beginning balance shown on the company balance sheet.

The cash flow statement consists of three parts: cash flows provided by (used in) operating activities, cash flows provided by (used in) investing activities, and cash flows provided by (used in) financing activities.

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Reynolds American Inc., consolidated cash flow statement

US$ in millions

12 months ended:	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Income from discontinued operations, net of tax	—)	—)	(25)	—)	—)
Gain on divestitures	(4,861)	(3,181)	—)	—)	—)
Loss on early extinguishment of debt and related expenses	239)	—)	—)	124)	21)
Asset impairment and exit charges, net of cash payments	—)	94)	—)	—)	—)
Depreciation and amortization expense	123)	122)	106)	103)	131)
Trademark and other intangible asset impairment charges	—)	—)	—)	32)	129)
Deferred income tax expense (benefit)	387)	(659)	(180)	312)	(44)
Accounts and other receivables	24)	86)	(3)	(18)	11)
Inventories	89)	31)	(154)	(143)	(17)
Related party, net	(5)	14)	—)	10)	5)
Accounts payable	42)	32)	(43)	(2)	74)
Accrued liabilities, including other working capital	(160)	(242)	30)	78)	(65)
Tobacco settlement accruals	(314)	239)	92)	(763)	(40)
Pension and postretirement	(415)	91)	317)	(185)	129)
Other, net	58)	316)	13)	42)	(38)
Other changes that provided (used) cash	(681)	567)	252)	(981)	59)
Adjustments to reconcile to net cash flows from operating activities	(4,793)	(3,057)	178)	(410)	296)
Net cash flows from operating activities	1,280)	196)	1,623)	1,308)	1,568)
Capital expenditures	(206)	(174)	(204)	(153)	(88)
Proceeds from settlement of investments	266)	332)	4)	6)	—)
Acquisition, net of cash acquired	—)	(17,220)	—)	—)	—)
Proceeds from divestitures	5,015)	7,056)	—)	—)	—)
Proceeds from termination of joint venture	—)	—)	35)	31)	30)
Other, net	3)	1)	(40)	3)	4)
Net cash flows (used in) from investing activities	5,078)	(10,005)	(205)	(113)	(54)
Dividends paid on common stock	(2,369)	(1,583)	(1,411)	(1,335)	(1,307)
Repurchase of common stock	(226)	(124)	(440)	(775)	(1,101)
Repayments of long-term debt	(500)	(450)	—)	(1,035)	(1,076)
Early extinguishment of debt	(3,650)	—)	—)	—)	—)
Premiums paid for early extinguishment of debt	(207)	—)	—)	(155)	(20)
Proceeds from termination of interest rate swaps	66)	—)	—)	—)	—)
Proceeds from BAT Share Purchase	—)	4,673)	—)	—)	—)
Issuance of long-term debt	—)	8,975)	—)	1,097)	2,539)
Debt issuance costs and financing fees	(8)	(70)	(79)	(18)	(22)
Borrowings under revolving credit facility	—)	1,400)	1,000)	—)	—)
Repayments of borrowings under revolving credit facility	—)	(1,400)	(1,000)	—)	—)
Principal borrowings under term-loan credit facility	—)	—)	—)	500)	750)
Repayments under term-loan credit facility	—)	—)	—)	(500)	(750)
Excess tax benefit on stock-based compensation plans	28)	17)	12)	14)	39)
Payment to settle forward starting interest rate contracts	—)	—)	—)	—)	(23)
Net cash flows from (used in) financing activities	(6,866)	11,438)	(1,918)	(2,207)	(971)
Effect of exchange rate changes on cash and cash equivalents	(8)	(28)	(34)	10)	3)
Net change in cash and cash equivalents	(516)	1,601)	(534)	(1,002)	546)
Cash and cash equivalents at beginning of year	2,567)	966)	1,500)	2,502)	1,956)
Cash and cash equivalents at end of year	2,051)	2,567)	966)	1,500)	2,502)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

The financial trajectory from 2012 to 2016 is characterized by a significant escalation in net income, which grew from 1,272 million US dollars to 6,073 million US dollars. However, this growth in profitability is not mirrored in the net cash flows from operating activities, which remained relatively stagnant between 2012 and 2014, crashed to 196 million US dollars in 2015, and recovered to 1,280 million US dollars in 2016. This divergence indicates that the surge in net income during the latter part of the period was driven primarily by non-cash items rather than core operational efficiency.

Operating Cash Flow Quality: A notable decline in the quality of earnings is evident in 2015 and 2016. Despite reporting record net income, the company recorded substantial negative adjustments to reconcile net income to operating cash flow, specifically -3,057 million US dollars in 2015 and -4,793 million US dollars in 2016. These adjustments were predominantly driven by large non-cash gains on divestitures, totaling 3,181 million US dollars and 4,861 million US dollars respectively, suggesting that the reported profits were heavily influenced by asset sales rather than organic operational growth.
Investment and Strategic Asset Management: The investing activities reflect a period of major corporate restructuring. In 2015, a massive net cash outflow of 10,005 million US dollars occurred, primarily due to an acquisition totaling 17,220 million US dollars, which was partially offset by 7,056 million US dollars in proceeds from divestitures. By 2016, the trend reversed to a net cash inflow of 5,078 million US dollars, driven by continued divestiture proceeds of 5,015 million US dollars, indicating a strategic pivot toward asset liquidation following the 2015 acquisition.
Financing and Debt Obligations: Financing activities demonstrate a volatile cycle of debt issuance and repayment. The company heavily leveraged its balance sheet in 2015, issuing 8,975 million US dollars in long-term debt to support its acquisition strategy. This was followed by aggressive debt reduction in 2016, featuring an early extinguishment of debt totaling 3,650 million US dollars and further repayments of 500 million US dollars, resulting in a net financing outflow of 6,866 million US dollars for that year.
Shareholder Return Patterns: There is a clear shift in the method of returning value to shareholders. Dividends paid on common stock showed a steady upward trend, increasing from 1,307 million US dollars in 2012 to 2,369 million US dollars in 2016. Conversely, the repurchase of common stock declined sharply from 1,101 million US dollars in 2012 to just 226 million US dollars in 2016, indicating a strategic preference for consistent dividend payments over share buybacks.

Overall, the period concludes with a cash position of 2,051 million US dollars. The data reveals a company that transitioned through a high-capital acquisition phase in 2015, subsequently utilizing divestitures and debt restructuring in 2016 to stabilize its financial position while maintaining an increasing commitment to dividend distributions.

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