R.J. Reynolds

(RJR)

said the

Securities and Exchange Commission

has initiated a formal investigation into the company's expense accounting to determine whether it violated federal securities laws.

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According to a filing with the SEC Friday, Reynolds said regulators issued a subpoena to the company on July 3. The subpoena and talks with the SEC indicate that the probe relates to how Reynolds accounts for certain expenses, and whether those costs should be disclosed separately or combined with other expenses.

Reynolds said it's trying to cooperate with the SEC "in a way that protects its rights." The company also said that breaking out the expenses in the manner the SEC wants "would reveal highly confidential and protected information."

The company recently reported second-quarter earnings of $70 million, or 83 cents a share, down from $211 million, or $2.29 a share, a year ago. Second-quarter 2003 earnings include a restructuring charge of 40 cents a share. Reynolds said second-quarter sales fell 16% to $1.43 billion from $1.71 billion a year ago.

Shares of R.J. Reynolds closed at $32.52 Friday on the

New York Stock Exchange

.