Note 16 — Related Party Transactions
RAI and RAI’s operating subsidiaries engage in transactions with affiliates of BAT, which owns approximately 42% of RAI’s outstanding common stock. The following is a summary of balances and transactions with such BAT affiliates as of and for the years ended December 31:
Balances:
| 2013 | 2012 | |||||||
|
Accounts receivable, related party |
$ | 56 | $ | 61 | ||||
|
Due to related party |
— | 1 | ||||||
|
Deferred revenue, related party |
48 | 42 | ||||||
Significant transactions:
| 2013 | 2012 | 2011 | ||||||||||
|
Net sales |
$ | 337 | $ | 342 | $ | 479 | ||||||
|
Purchases |
27 | 16 | 11 | |||||||||
|
RAI common stock purchases from B&W |
296 | 415 | 114 | |||||||||
|
Capsule royalty income |
9 | 6 | 2 | |||||||||
|
Research and development services billings |
4 | 3 | 5 | |||||||||
RAI’s operating subsidiaries, primarily RJR Tobacco, sell contract-manufactured cigarettes, tobacco leaf and processed tobacco to BAT affiliates. In December 2012, RJR Tobacco entered into an amendment to its contract manufacturing agreement with a BAT affiliate, which amendment, among other things, requires either party to provide three years’ notice to the other party to terminate the agreement without cause, with any such notice to be given no earlier than January 1, 2016. Net sales to BAT affiliates, primarily cigarettes, represented approximately 4% of RAI’s total net sales in each of 2013 and 2012, and 6% of RAI’s total net sales in 2011.
RJR Tobacco recorded deferred sales revenue relating to leaf sold to BAT affiliates that had not been delivered as of December 31, in each of 2013, 2012 and 2011, given that RJR Tobacco has a legal right to bill the BAT affiliates. Leaf sales revenue to BAT affiliates is recognized when the product is shipped to the customer. RJR Tobacco recorded royalty income from the license of capsule technology to BAT affiliates.
RJR Tobacco performs certain research and development for BAT affiliates pursuant to a joint technology sharing agreement entered into as a part of the B&W business combination. These services were billed to BAT affiliates and were recorded in RJR Tobacco’s selling, general and administrative expenses, net of associated costs.
RAI’s operating subsidiaries also purchase unprocessed leaf at market prices, and import cigarettes at prices not to exceed manufacturing costs plus 10%, from BAT affiliates.
In connection with RAI’s share repurchase program, RAI and B&W entered into an agreement on November 14, 2011, pursuant to which B&W agreed to participate in the repurchase program on a basis approximately proportionate with B&W’s 42% ownership of RAI common stock. Under this agreement, RAI repurchased 6,258,315 shares of RAI common stock from B&W during 2013 and 18,815,124 shares as of December 31, 2013.
A member of the board of directors of RAI is also a member of the board of directors of a financial institution, a subsidiary of which is a participant in RAI’s New Credit Agreement.