- Altria’s 2016 first-quarter reported
diluted earnings per share (EPS) increased 19.2% to $0.62, as
comparisons were affected by special items.
- Altria’s 2016 first-quarter adjusted
diluted EPS, which excludes the impact of special items, increased
14.3% to $0.72.
- Altria reaffirms its 2016 full-year
adjusted diluted EPS guidance to be in a range of $3.00 to $3.05,
representing a growth rate of 7% to 9% from an adjusted diluted EPS
base of $2.80 in 2015.
Altria Group, Inc. (Altria) (NYSE: MO) today announced its 2016
first-quarter business results and reaffirmed its guidance for 2016
full-year adjusted diluted EPS.
“Altria is off to an excellent start in 2016, growing adjusted
diluted earnings per share by 14.3% despite a tough 2015
comparison,” said Marty Barrington, Altria’s Chairman, Chief
Executive Officer and President. “Our first-quarter results
illustrate the strength of our core tobacco businesses and our
focus on execution. And Altria paid shareholders over $1.1 billion
in dividends during the quarter.”
“The smokeable products segment continued its outstanding
performance with contributions across the brand portfolio. In
smokeless products, USSTC continues to execute its strategies,
including the successful national expansion of its innovative
Copenhagen Mint.”
“We also have made significant progress against the $300 million
productivity initiative we announced on January 28th. Among other
actions, we completed the realignment of our organization in the
quarter,” said Mr. Barrington.
Conference Call
As previously announced, a conference call with the investment
community and news media will be webcast on April 28, 2016 at 9:00
a.m. Eastern Time. Access to the webcast is available at
www.altria.com/webcasts and via the Altria Investor app.
Cash Returns to Shareholders -
Dividends and Share Repurchase Program
In February 2016, Altria’s Board of Directors (Board) declared a
regular quarterly dividend of $0.565 per share. The current
annualized dividend rate is $2.26 per share. As of April 22, 2016,
Altria’s annualized dividend yield was 3.7%. Altria paid over $1.1
billion in dividends in the first quarter and expects to continue
to return a large amount of cash to shareholders in the form of
dividends by maintaining a dividend payout ratio target of
approximately 80% of its adjusted diluted EPS. Future dividend
payments remain subject to the discretion of the Board.
During the first quarter, Altria repurchased 2.8 million shares
at an average price of $59.81 for a total of $168 million. As of
March 31, 2016, Altria had approximately $797 million remaining in
the current $1 billion share repurchase program, which it expects
to complete by the end of 2016. The timing of share repurchases
depends upon marketplace conditions and other factors. This program
remains subject to the discretion of the Board.
Innovative Tobacco
Products
In e-vapor, Nu Mark, LLC continued to expand distribution of
MarkTen XL, as early marketplace results have been encouraging in
lead markets. On the heated tobacco platform, Altria’s work with
Philip Morris International Inc. on an application for a modified
risk tobacco product claim remains on track to be submitted to the
U.S. Food and Drug Administration (FDA) by the end of 2016.
Anheuser-Busch InBev’s Proposed
Business Combination with SABMiller
On November 11, 2015, Anheuser-Busch InBev SA/NV (AB InBev) and
SABMiller plc (SABMiller) jointly announced that they had reached
agreement on the terms of AB InBev’s offer to effect a business
combination with SABMiller.
As previously announced, when the transaction is completed,
Altria expects to exchange its approximate 27% economic and voting
interest in SABMiller into an approximate 10.5% equity interest in
the new, combined company and receive approximately $2.5 billion in
pre-tax cash. Further, the announced transaction will provide
Altria with two seats on the new company’s board of directors and
continued use of equity accounting for the beer asset’s
contribution to Altria’s earnings. These benefits are subject to
any proration that may occur. Finally, Altria anticipates the
transaction structure to provide tax efficiency.
Productivity Initiative
In January 2016, Altria announced a productivity initiative
designed to maintain its operating companies’ leadership and cost
competitiveness. The initiative, which reduces spending on certain
selling, general and administrative (SG&A) infrastructure and
implements a leaner organizational structure, is expected to
deliver approximately $300 million in annualized productivity
savings by the end of 2017.
Altria estimates total pre-tax restructuring charges in
connection with the initiative of approximately $140 million.
During the first quarter, Altria recorded pre-tax charges of $122
million and expects the remaining charges to be incurred during the
remainder of 2016. These charges, substantially all of which will
result in cash expenditures, consist of employee separation costs
of approximately $120 million and other associated costs of
approximately $20 million.
2016 Full-Year Guidance
Altria reaffirms its guidance for 2016 full-year adjusted
diluted EPS to be in a range of $3.00 to $3.05. This range
represents a growth rate of 7% to 9% from an adjusted diluted EPS
base of $2.80 in 2015 shown in Table 1 below. This range excludes
the 2016 special items shown in Table 2. This guidance does not
include any impact from the anticipated AB InBev and SABMiller
business combination, as the transaction remains subject to certain
approvals and the closing date has not yet been determined.
Altria continues to expect that its 2016 full-year effective tax
rate on operations will be approximately 35.3%.
The factors described in the Forward-Looking and Cautionary
Statements section of this release represent continuing risks to
Altria’s forecast.
Table 1 - Altria’s 2015 Adjusted
Results Full Year 2015 Reported
diluted EPS $ 2.67 NPM Adjustment Items (0.03 )
Tobacco and health litigation items 0.05 SABMiller special items
0.04 Loss on early extinguishment of debt 0.07
Adjusted
diluted EPS $ 2.80
ALTRIA GROUP,
INC.
Altria reports its financial results in accordance with U.S.
generally accepted accounting principles (GAAP). Altria’s
management reviews operating companies income (OCI), which is
defined as operating income before general corporate expenses and
amortization of intangibles, to evaluate the performance of, and
allocate resources to, the segments. Altria’s management also
reviews OCI, operating margins and diluted EPS on an adjusted
basis, which excludes certain income and expense items that
management believes are not part of underlying operations. These
items may include, for example, loss on early extinguishment of
debt, restructuring charges, SABMiller special items, certain tax
items, charges associated with tobacco and health litigation items,
and settlements of, and determinations made in connection with,
certain non-participating manufacturer (NPM) adjustment disputes
(such settlements and determinations are referred to collectively
as NPM Adjustment Items). Altria’s management does not view any of
these special items to be part of Altria’s sustainable results as
they may be highly variable, are difficult to predict and can
distort underlying business trends and results. Altria’s management
also reviews income tax rates on an adjusted basis. Altria’s
effective tax rate on operations may exclude certain tax items from
its reported effective tax rate. Altria’s management believes that
adjusted financial measures provide useful insight into underlying
business trends and results and provide a more meaningful
comparison of year-over-year results. Altria’s management uses
adjusted financial measures for planning, forecasting and
evaluating business and financial performance, including allocating
resources and evaluating results relative to employee compensation
targets. These adjusted financial measures are not consistent with
GAAP and may not be calculated the same as similarly titled
measures used by other companies. These adjusted financial measures
should thus be considered as supplemental in nature and not
considered in isolation or as a substitute for the related
financial information prepared in accordance with GAAP.
Reconciliations of historical adjusted financial measures to
corresponding GAAP measures are provided in this release.
Altria’s full-year adjusted diluted EPS guidance and full-year
forecast for its effective tax rate on operations exclude the
impact of certain income and expense items, including those items
noted in the preceding paragraph. Altria’s management cannot
estimate on a forward-looking basis the impact of these items on
its reported diluted EPS and its reported effective tax rate
because these items, which could be significant, are difficult to
predict and may be highly variable. As a result, Altria does not
provide a corresponding GAAP measure for, or reconciliation to, its
adjusted diluted EPS guidance or its effective tax rate on
operations forecast.
Altria’s reportable segments are smokeable products,
manufactured and sold by Philip Morris USA Inc. (PM USA) and John
Middleton Co. (Middleton); smokeless products, substantially all of
which are manufactured and sold by U.S. Smokeless Tobacco Company
LLC (USSTC); and wine, produced and/or distributed by Ste. Michelle
Wine Estates Ltd. (Ste. Michelle).
Comparisons are to the corresponding prior-year period unless
otherwise stated.
Altria’s net revenues increased 4.5% to $6.1 billion in the
first quarter, reflecting higher net revenues in all reportable
segments. Altria’s revenues net of excise taxes increased 6.0% to
$4.5 billion.
Altria’s 2016 first-quarter reported diluted EPS increased 19.2%
to $0.62, primarily driven by the 2015 loss on early extinguishment
of debt and higher reported OCI in the smokeable and smokeless
products segments, which included the restructuring charges
associated with the productivity initiative. These factors were
partially offset by lower earnings from Altria’s equity investment
in SABMiller. Altria’s first-quarter adjusted diluted EPS, which
excludes the special items shown in Table 2, grew 14.3% to $0.72,
primarily driven by higher adjusted OCI in the smokeable and
smokeless products segments and lower interest and other debt
expense.
Table 2 - Altria’s Adjusted Results
First Quarter 2016 2015
Change Reported diluted EPS $ 0.62
$ 0.52 19.2 % NPM Adjustment Items 0.01
— Tobacco and health litigation items 0.01 0.01 SABMiller special
items 0.05 0.03 Loss on early extinguishment of debt — 0.07 Asset
impairment, exit and implementation costs 0.04 — Gain on derivative
financial instrument (0.01 ) —
Adjusted diluted EPS
$ 0.72 $ 0.63 14.3
%
NPM Adjustment Items
During the first quarter of 2016, PM USA recorded a pre-tax
charge of $18 million, comprised of an increase to cost of sales of
$12 million and a decrease to interest income of $6 million related
to changes to previously recorded NPM Adjustment Items related to a
dispute with the State of Maryland. The EPS impact of the NPM
Adjustment Items is shown in Table 2 and Schedule 4.
Tobacco and Health Litigation
Items
In the first quarter of 2016, PM USA recorded pre-tax charges
for tobacco and health litigation items of $38 million, primarily
related to an April 2016 agreement to resolve the Aspinall
case. The Aspinall settlement remains subject to court
approval and includes $4.9 million in statutory damages awarded at
trial, $10 million in interest costs and other fees and
costs. During the first quarter of 2015, PM USA recorded a
pre-tax charge of $43 million that PM USA paid to resolve
approximately 415 Engle progeny lawsuits pending in federal court.
The EPS impact of these charges including interest costs is shown
in Table 2 and Schedule 4.
SABMiller Special Items
In the first quarter of 2016 and 2015, Altria’s share of
SABMiller pre-tax special items totaled $166 million and $86
million, respectively, primarily reflecting asset impairment
charges. The EPS impact of the SABMiller special items is shown in
Table 2 and Schedule 4.
Loss on Early Extinguishment of
Debt
In March 2015, Altria completed a cash tender offer for
approximately $793 million aggregate principal amount of its senior
unsecured 9.700% notes due in 2018. The transaction resulted in a
one-time, pre-tax charge against reported earnings of $228 million
in the first quarter of 2015. The EPS impact of loss on early
extinguishment of debt is shown in Table 2 and Schedule 4.
Asset Impairment, Exit and
Implementation Costs
During the first quarter of 2016, Altria recorded a pre-tax
charge of $122 million for asset impairment, exit and
implementation costs in connection with the productivity initiative
discussed above. The EPS impact of these costs is shown in Table 2
and Schedule 4.
Gain on Derivative Financial
Instrument
During the first quarter of 2016, Altria recorded a pre-tax gain
of $40 million for the change in the fair value of an option that
hedges Altria’s British pound exposure related to the cash
consideration that Altria expects to receive from the AB InBev and
SABMiller business combination. The EPS impact of this gain is
shown in Table 2 and Schedule 4.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered adjusted OCI and
adjusted OCI margin growth in the first quarter, primarily through
higher pricing. PM USA grew its total cigarette retail share.
The smokeable products segment’s net revenues increased 3.8% in
the quarter primarily driven by higher pricing and higher volume,
partially offset by higher promotional investments. Revenues net of
excise taxes increased 5.3%.
The smokeable products segment’s 2016 first-quarter reported OCI
increased 3.9%, primarily due to higher pricing, higher volume and
lower SG&A and manufacturing costs. These factors were
partially offset by restructuring costs in connection with the
productivity initiative, higher resolution expenses and higher
promotional investments. Adjusted OCI, which is calculated
excluding the special items identified in Table 3, grew 9.2%, and
adjusted OCI margins expanded 1.7 percentage points to 48.1%.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions) First
Quarter 2016 2015 Change
Net revenues $ 5,422 $ 5,221
3.8
%
Excise taxes (1,499 ) (1,495 )
Revenues net of excise taxes
$ 3,923 $ 3,726
5.3
%
Reported OCI $ 1,751 $
1,686 3.9
%
NPM Adjustment Items 12 — Asset impairment, exit and implementation
costs 99 — Tobacco and health litigation items 26 43
Adjusted OCI $ 1,888 $
1,729 9.2
%
Adjusted OCI margins 1 48.1 %
46.4 %
1.7
pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
PM USA’s reported domestic cigarettes shipment volume increased
1.2% in the first quarter of 2016, as an extra shipping day, trade
inventory movements and retail share gains more than offset
industry volume decline. When adjusted for an extra shipping day,
trade inventory movements and other factors, PM USA estimates that
its domestic cigarettes shipment volume decreased by approximately
0.5%. PM USA estimates that total industry cigarette volumes
decreased approximately 1%.
Middleton’s reported cigars shipment volume increased 8.3% in
the first quarter, driven primarily by Black & Mild in the
tipped cigars segment. Table 4 summarizes smokeable products
segment shipment volume performance.
Table 4 - Smokeable Products: Shipment Volume
(sticks in millions) First
Quarter 2016 2015 Change
Cigarettes: Marlboro 25,361 25,117 1.0 %
Other
premium 1,514 1,578 (4.1 )%
Discount 2,664 2,503
6.4 %
Total cigarettes 29,539
29,198 1.2 % Cigars:
Black & Mild 317 298 6.4 %
Other 10 4
100.0
% +
Total cigars 327 302 8.3
% Total smokeable products
29,866 29,500 1.2 %
Note: Cigarettes volume includes units sold as well as
promotional units, but excludes units sold for distribution to and
in Puerto Rico, and units sold in U.S. Territories, to overseas
military and by Philip Morris Duty Free Inc., none of which,
individually or in the aggregate, is material to the smokeable
products segment.
Marlboro’s retail share remained at 44.0% in the first quarter.
PM USA grew its total retail share by 0.3 points driven by L&M
in Discount. In the machine-made large cigars category, while Black
& Mild’s overall retail share declined by 0.7 points, Black
& Mild maintained its retail share in the more profitable
tipped cigars segment. Table 5 summarizes retail share performance
by PM USA in cigarettes and Middleton in machine-made large
cigars.
Table 5 - Smokeable Products: Retail Share (percent)
First Quarter 2016
2015
Percentagepoint change
Cigarettes: Marlboro 44.0 % 44.0 % —
Other
premium 2.7 2.8 (0.1)
Discount 4.7 4.3
0.4
Total cigarettes 51.4 % 51.1
% 0.3 Cigars: Black &
Mild 25.9 % 26.6 % (0.7)
Other 0.5 0.3
0.2
Total cigars 26.4 % 26.9
% (0.5)
Note: Retail share results for cigarettes are based on data from
IRI/MSAi, a tracking service that uses a sample of stores and
certain wholesale shipments to project market share and depict
share trends. Retail share results for cigars are based on data
from IRI InfoScan, a tracking service that uses a sample of stores
to project market share and depict share trends. Both services
track sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes. For other trade classes selling cigarettes, retail share
is based on shipments from wholesalers to retailers (STARS). These
services are not designed to capture sales through other channels,
including the Internet, direct mail and some illicitly
tax-advantaged outlets. Retail share results for cigars are based
on data for machine-made large cigars. Middleton defines
machine-made large cigars as cigars, made by machine, that weigh
greater than three pounds per thousand, except cigars sold at
retail in packages of 20 cigars. Because the cigars service
represents retail share performance only in key trade channels, it
should not be considered a precise measurement of actual retail
share. It is IRI’s standard practice to periodically refresh its
services, which could restate retail share results that were
previously released in these services.
SMOKELESS
PRODUCTS
The smokeless products segment grew adjusted OCI and expanded
adjusted OCI margins in the first quarter of 2016. USSTC also
increased Copenhagen and Skoal’s combined retail share.
The smokeless products segment’s net revenues increased 11.4%,
primarily driven by higher pricing and higher volume, partially
offset by higher promotional investments. Revenues net of excise
taxes increased 12.3%.
Reported OCI increased 11.6% in the first quarter primarily due
to higher pricing and higher volume, partially offset by
restructuring costs in connection with the productivity initiative
and higher promotional investments. Adjusted OCI, which is
calculated excluding the special items identified in Table 6, grew
16.7%. Adjusted OCI margins for the smokeless products segment
increased 2.4 percentage points to 65.5%. Table 6 summarizes
revenues and OCI for the smokeless products segment.
Table 6 - Smokeless Products: Revenues and
OCI ($ in millions) First
Quarter 2016 2015 Change
Net revenues $ 479 $ 430
11.4
%
Excise taxes (32 ) (32 )
Revenues net of excise taxes
$ 447 $ 398 12.3
%
Reported OCI $ 280 $ 251
11.6
%
Asset impairment and exit costs 13 —
Adjusted
OCI $ 293 $ 251
16.7
%
Adjusted OCI margins 1 65.5 %
63.1 %
2.4
pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
The smokeless products segment’s reported domestic shipment
volume increased 7.8% in the first quarter, driven by Copenhagen
and Skoal, partially offset by declines in Other portfolio brands.
Copenhagen and Skoal’s combined reported shipment volume increased
8.7%, partially driven by the national expansion of Copenhagen
Mint.
After adjusting for trade inventory movements, including
Copenhagen Mint pipeline volume, and other factors, USSTC estimates
that its domestic smokeless products shipment volume grew
approximately 3% in the first quarter. USSTC estimates that the
smokeless products category volume grew approximately 2.5% over the
past six months.
Table 7 summarizes shipment volume performance for the smokeless
products segment.
Table 7 - Smokeless Products: Shipment Volume (cans and
packs in millions) First Quarter
2016 2015 Change Copenhagen
124.8 110.1 13.4 %
Skoal 64.5 64.0 0.8 %
Copenhagen and Skoal 189.3 174.1
8.7 % Other 16.8 17.0 (1.2 )%
Total smokeless products 206.1 191.1
7.8 %
Note: Other includes certain USSTC and PM USA smokeless
products. Volume includes cans and packs sold, as well as
promotional units, but excludes international volume, which is not
material to the smokeless products segment. New types of smokeless
products, as well as new packaging configurations of existing
smokeless products, may or may not be equivalent to existing moist
smokeless tobacco (MST) products on a can-for-can basis. To
calculate volumes of cans and packs shipped, one pack of snus,
irrespective of the number of pouches in the pack, is assumed to be
equivalent to one can of MST.
Copenhagen and Skoal’s combined retail share increased 0.5 share
points in the first quarter to 51.6%. Copenhagen’s retail share
grew 1.1 share points and Skoal’s retail share declined 0.6 share
points.
Total smokeless products retail share increased by 0.2 share
points to 55.1% in the first quarter. Table 8 summarizes smokeless
products retail share performance.
Table 8 - Smokeless Products: Retail Share (percent)
First Quarter 2016
2015
Percentagepoint change
Copenhagen 32.4 % 31.3 % 1.1
Skoal 19.2
19.8 (0.6)
Copenhagen and Skoal 51.6
51.1 0.5 Other 3.5 3.8 (0.3)
Total smokeless products 55.1 % 54.9
% 0.2
Note: Retail share results for smokeless products are based on
data from IRI InfoScan, a tracking service that uses a sample of
stores to project market share and depict share trends. The service
tracks sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes on the number of cans and packs sold. Smokeless products is
defined by IRI as moist smokeless and spit-free tobacco products.
Other includes certain USSTC and PM USA smokeless products. New
types of smokeless products, as well as new packaging
configurations of existing smokeless products, may or may not be
equivalent to existing MST products on a can-for-can basis. For
example, one pack of snus, irrespective of the number of pouches in
the pack, is assumed to be equivalent to one can of MST. Because
this service represents retail share performance only in key trade
channels, it should not be considered a precise measurement of
actual retail share. It is IRI’s standard practice to periodically
refresh its InfoScan services, which could restate retail share
results that were previously released in this service.
WINE
In the wine segment, Ste. Michelle grew net revenues in the
first quarter of 2016 by 8.2%. Ste. Michelle’s OCI increased by
3.7%, primarily driven by increased shipments, mostly offset by
higher costs. OCI margins decreased 0.9 percentage points to 20.0%.
Table 9 summarizes revenues and OCI for the wine segment.
Table 9 - Wine: Revenues and OCI ($ in
millions) First
Quarter 2016 2015 Change
Net revenues $ 145 $
134 8.2 % Excise taxes (5 ) (5 )
Revenues
net of excise taxes $ 140 $
129 8.5 % Reported and
Adjusted OCI $ 28 $ 27
3.7 % OCI margins 1
20.0 % 20.9 % (0.9
) pp
1 OCI margins are calculated as OCI divided by revenues net of
excise taxes.
Ste. Michelle’s reported first quarter shipment volume was 1,851
thousand cases, an increase of 8.1%, primarily driven by strong
performance among its core premium brands and the timing of the
early Easter holiday.
Altria’s Profile
Altria’s wholly-owned subsidiaries include PM USA, USSTC,
Middleton, Nu Mark, Ste. Michelle and Philip Morris Capital
Corporation. Altria holds a continuing economic and voting interest
in SABMiller.
The brand portfolios of Altria’s tobacco operating companies
include Marlboro®, Black & Mild®,
Copenhagen®, Skoal®, MarkTen® and Green
Smoke®. Ste. Michelle produces and markets premium wines
sold under various labels, including Chateau Ste. Michelle®,
Columbia Crest®, 14 Hands® and Stag’s Leap Wine
Cellars™, and it imports and markets Antinori®,
Champagne Nicolas Feuillatte™, Torres® and Villa
Maria Estate™ products in the United States. Trademarks and
service marks related to Altria referenced in this release are the
property of Altria or its subsidiaries or are used with permission.
More information about Altria is available at altria.com and on the
Altria Investor app.
Forward-Looking and Cautionary
Statements
This press release contains projections of future results and
other forward-looking statements that involve a number of risks and
uncertainties and are made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
Important factors that may cause actual results and outcomes to
differ materially from those contained in the projections and
forward-looking statements included in this press release are
described in Altria’s publicly filed reports, including its Annual
Report on Form 10-K for the year ended December 31, 2015.
These factors include the following: significant competition;
changes in adult consumer preferences and demand for Altria’s
operating companies’ products; fluctuations in raw material
availability, quality and price; reliance on key facilities and
suppliers; reliance on critical information systems, many of which
are managed by third-party service providers; fluctuations in
levels of customer inventories; the effects of global, national and
local economic and market conditions; changes to income tax laws;
federal, state and local legislative activity, including actual and
potential federal and state excise tax increases; increasing
marketing and regulatory restrictions; the effects of price
increases related to excise tax increases and concluded tobacco
litigation settlements on trade inventories, consumption rates and
consumer preferences within price segments; health concerns
relating to the use of tobacco products and exposure to
environmental tobacco smoke; privately imposed smoking
restrictions; and, from time to time, governmental
investigations.
Furthermore, the results of Altria’s tobacco businesses are
dependent upon their continued ability to promote brand equity
successfully; to anticipate and respond to evolving adult consumer
preferences; to develop, manufacture, market and distribute
products that appeal to adult tobacco consumers (including, where
appropriate, through arrangements with, and investments in, third
parties); to improve productivity; and to protect or enhance
margins through cost savings and price increases.
Altria and its tobacco businesses are also subject to federal,
state and local government regulation, including broad-based
regulation of PM USA and USSTC by the FDA. Altria and its
subsidiaries continue to be subject to litigation, including risks
associated with adverse jury and judicial determinations, courts
reaching conclusions at variance with the companies’ understanding
of applicable law, bonding requirements in the limited number of
jurisdictions that do not limit the dollar amount of appeal bonds
and certain challenges to bond cap statutes.
In addition, the factors related to AB InBev’s proposed
transaction to effect a business combination with SABMiller include
the following: the risk that one or more conditions to closing the
proposed transaction may not be satisfied; the risk that a
shareholder or regulatory approval required for the proposed
transaction is not obtained or is obtained subject to conditions
that are not anticipated; AB InBev’s inability to achieve the
contemplated synergies and value creation from the proposed
transaction; the fact that Altria’s election to receive transaction
consideration in the form of equity is subject to proration, which
may result in a reduced percentage ownership of the combined
company, additional tax liabilities and/or changes in our
accounting treatment of the investment; the fact that the equity
securities to be received by Altria as transaction consideration
will be subject to restrictions on transfer lasting five years from
completion of the proposed transaction; the risk that AB InBev’s
share price, which affects the value of Altria’s transaction
consideration, will fluctuate based on a variety of factors that
are beyond Altria’s control; the fact that the strengthening of the
U.S. dollar against the British pound would adversely affect
Altria’s cash consideration as the British pound would translate
into fewer U.S. dollars; the risk that the tax treatment of
Altria’s transaction consideration is not guaranteed; and that the
tax treatment of the dividends Altria receives from the new company
may not be as favorable as dividends from SABMiller.
Altria cautions that the foregoing list of important factors is
not complete and does not undertake to update any forward-looking
statements that it may make except as required by applicable law.
All subsequent written and oral forward-looking statements
attributable to Altria or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
referenced above.
Schedule 1
ALTRIA GROUP, INC.and
SubsidiariesConsolidated Statements of EarningsFor the Quarters
Ended March 31,(dollars in millions, except per share
data)(Unaudited)
2016 2015 % Change
Net revenues $ 6,066 $
5,804 4.5 % Cost of sales 1 1,874 1,797 Excise
taxes on products 1 1,536 1,532 Gross profit 2,656
2,475 7.3 % Marketing, administration and research costs 503 552
Asset impairment and exit costs 115 —
Operating
companies income 2,038 1,923 6.0 %
Amortization of intangibles 5 5 General corporate expenses 51 53
Corporate asset impairment and exit costs 5 —
Operating income 1,977 1,865 6.0
% Interest and other debt expense, net 200 209 Loss on early
extinguishment of debt — 228 Earnings from equity investment in
SABMiller (66 ) (134 ) Gain on derivative financial instrument (40
) — Earnings before income taxes 1,883 1,562 20.6 %
Provision for income taxes 665 544
Net
earnings 1,218 1,018 19.6 % Net
earnings attributable to noncontrolling interests (1 ) —
Net earnings attributable to Altria Group, Inc. $
1,217 $ 1,018 19.5
% Per share data: Basic and diluted
earnings per share attributable to
Altria Group, Inc.
$ 0.62 $ 0.52 19.2 %
Weighted-average diluted shares outstanding 1,956 1,966 (0.5
)%
1 Cost of sales includes charges for resolution expenses related
to state settlement agreements and FDA user fees. Supplemental
information concerning those items and excise taxes on products
sold is shown in Schedule 3.
Schedule 2 ALTRIA GROUP, INC. and Subsidiaries Selected Financial
Data For the Quarters Ended March 31, (dollars in millions)
(Unaudited)
Net Revenues
Smokeable Products Smokeless Products Wine
All Other Total 2016 $ 5,422 $ 479 $ 145 $ 20 $ 6,066
2015 5,221 430 134 19 5,804 % Change 3.8 % 11.4 % 8.2 % 5.3 % 4.5 %
Reconciliation:
For the quarter ended March 31, 2015 $ 5,221
$ 430 $ 134 $ 19 $
5,804 Operations 201 49 11 1 262
For the quarter ended March 31, 2016 $
5,422 $ 479 $ 145
$ 20 $ 6,066
Operating Companies Income
(Loss) Smokeable Products Smokeless Products
Wine All Other Total 2016 $ 1,751 $ 280 $ 28 $
(21 ) $ 2,038 2015 1,686 251 27 (41 ) 1,923 % Change 3.9 % 11.6 %
3.7 % 48.8 % 6.0 %
Reconciliation:
For the quarter ended March 31, 2015 $ 1,686
$ 251 $ 27 $ (41 )
$ 1,923 Tobacco and health litigation items - 2015 43
— — — 43
43 — — — 43 NPM
Adjustment Items - 2016 (12 ) — — — (12 ) Asset impairment, exit
and implementation
costs - 2016
(99 ) (13 ) — (5 ) (117 ) Tobacco and health litigation items -
2016 (26 ) — — — (26 ) (137 ) (13 ) —
(5 ) (155 ) Operations 159 42 1 25 227
For the quarter ended March 31, 2016 $
1,751 $ 280 $ 28
$ (21 ) $ 2,038
Schedule 3 ALTRIA GROUP, INC. and Subsidiaries Supplemental
Financial Data (dollars in millions) (Unaudited)
For the Quarters EndedMarch 31, 2016
2015 The segment detail of excise taxes on products sold
is as follows: Smokeable products $ 1,499 $ 1,495
Smokeless products 32 32 Wine 5 5 $ 1,536 $ 1,532
The segment detail of charges for resolution
expenses related to state settlement agreements included in cost of
sales is as follows: Smokeable products 1 $ 1,155 $
1,049 Smokeless products 2 2 $ 1,157 $ 1,051
The segment detail of FDA user fees included in cost of
sales is
as follows:
Smokeable products $ 68 $ 67 Smokeless products 1 1 $
69 $ 68
1 Amount includes an increase to cost of sales of $12 million
for the quarter ended March 31, 2016 related to the NPM Adjustment
Items.
Schedule 4 ALTRIA GROUP, INC. and Subsidiaries Net Earnings and
Diluted Earnings Per Share - Attributable to Altria Group, Inc. For
the Quarters Ended March 31, (dollars in millions, except per share
data) (Unaudited)
Net Earnings
Diluted EPS 2016 Net Earnings $
1,217 $ 0.62 2015 Net Earnings $
1,018 $ 0.52 % Change 19.5
% 19.2 %
Reconciliation:
2015 Net Earnings $ 1,018 $ 0.52
2015 Tobacco and health litigation items 27 0.01 2015
SABMiller special items 56 0.03 2015 Loss on early extinguishment
of debt 143 0.07 2015 Tax items 2 — Subtotal 2015
special items 228 0.11 2016 NPM Adjustment
Items (11 ) (0.01 ) 2016 Tobacco and health litigation items (24 )
(0.01 ) 2016 SABMiller special items (108 ) (0.05 ) 2016 Asset
impairment, exit and implementation costs (78 ) (0.04 ) 2016 Gain
on derivative financial instrument 26 0.01 2016 Tax items (1 ) —
Subtotal 2016 special items (196 ) (0.10 ) Operations
167 0.09
2016 Net Earnings $
1,217 $ 0.62 2016 Net
Earnings Adjusted For Special Items $ 1,413
$ 0.72 2015 Net Earnings Adjusted For Special
Items $ 1,246 $ 0.63 %
Change 13.4 % 14.3 % Schedule 5
ALTRIA GROUP, INC. and Subsidiaries Condensed Consolidated Balance
Sheets (dollars in millions) (Unaudited)
March 31,
2016 December 31, 2015
Assets
Cash and cash equivalents $ 3,815 $ 2,369 Inventories 2,108 2,031
Deferred income taxes 1,175 1,175 Other current assets 400 511
Property, plant and equipment, net 1,955 1,982 Goodwill and other
intangible assets, net 17,308 17,313 Investment in SABMiller 5,743
5,483 Finance assets, net 1,165 1,239 Other long-term assets 394
360
Total assets $ 34,063
$ 32,463
Liabilities and
Stockholders’ Equity
Current portion of long-term debt $ 4 $ 4 Accrued settlement
charges 4,760 3,590 Other current liabilities 3,852 3,484 Long-term
debt 12,846 12,843 Deferred income taxes 5,606 5,663 Accrued
postretirement health care costs 2,314 2,245 Accrued pension costs
1,479 1,277 Other long-term liabilities 417 447 Total
liabilities 31,278 29,553 Redeemable noncontrolling interest 37 37
Total stockholders’ equity 2,748 2,873
Total liabilities
and stockholders’ equity $ 34,063 $
32,463 Total debt $ 12,850 $ 12,847
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