This excerpt taken from the RAI 10-K filed Feb 27, 2007.
Cigarette Industry Overview
RJR Tobacco conducts its business in the highly competitive U.S. cigarette market, which has a few large manufacturers and many smaller participants. The U.S. cigarette market is a mature market in which overall consumer demand has declined since 1987 and is expected to continue to decline. U.S. cigarette shipments as tracked by Management Science Associates, Inc., referred to as MSAi, report that shipments declined 2.4% in 2006, to 372.5 billion cigarettes, 3.4% in 2005 and 1.8% in 2004.
In addition to decreases in consumption, profitability of the U.S. cigarette industry and RJR Tobacco continues to be adversely impacted by increases in state excise taxes and governmental regulations and restrictions, such as marketing limitations, product standards and ingredients legislation.