Right about the time a good chunk of North America pitched into yesterday's 4 p.m. heart of darkness (boy, was it dark), R.J. Reynolds (NYSE:RJR) gets slapped with a smoldering subpoena. Of all the rotten luck.

Think about it: Historic outages spawn monster, anxiety-driven outdoor carnivals of sorts -- just the opportunity to light up during a long walk home in the fresh city air -- and R.J. Reynolds can't even pause to enjoy the parade.

The SEC reported late yesterday that it filed for federal enforcement of an earlier subpoena filed against the company July 3. That first subpoena requested that the second-largest roll 'em-and-smoke 'em tobacco merchant cough up documents detailing its accounting practices.

The burning issue: How does R.J. Reynolds account for its copious litigation costs? This inquiry is part of a larger, formal investigation, in which the SEC is seeking out possible securities law violations.

Ever belligerent, R.J. Reynolds refuses to hand over the documents on grounds that the information is confidential and, if disclosed, could harm the company's legal stance and strategy. The SEC wants details of litigation fees and expenses on a monthly, quarterly, and annual basis. Reynolds says it wants a guarantee the information will remain confidential.

Meanwhile, investors have plenty of other reasons to pace the den. R.J. Reynolds -- maker of Camel, Salem, Doral, and others -- sells 25% of our nation's cigarettes, but sales and free cash flow (FCF) have been eaten alive, not by swarming locusts, but by low-priced competition and state excise taxes. Take a look since 1999:

    1999   2000   2001   2002   YTD (to 6/30)
    Sales  $7.4B    6.0    6.2    6.2    2.6FCF     neg.  $614M    552    378    neg.Sales in billions, Free Cash Flow in millions.

Reynolds is expected to earn $2.84 per share this year, nearly $1 less than its annual $3.80 per share (or $320 million) dividend. After getting sliced in half in the last 12 months, the $31 stock yields a giant 11.80%, making Altria's (NYSE:MO) 6.30% look downright rank.

Given Reynold's $1.2 billion in cash and equivalents (against $1.7 billion debt) and steady net income, the dividend appears safe for now. But seeing how the pesky Department of Justice has a potential $289 billion charge hanging over the tobacco industry, what happens in the coming years is anyone's guess.

Vegas, horse tracks, cards, and cigarettes (or their stocks) go together for a reason: They're all a form of gambling.

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