Virginia | 1-08940 | 13-3260245 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
6601 West Broad Street, Richmond, Virginia | 23230 |
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Emerging growth company | o |
ALTRIA GROUP, INC. | ||
By: | /s/ W. HILDEBRANDT SURGNER, JR. | |
Name: | W. Hildebrandt Surgner, Jr. | |
Title: | Vice President, Corporate Secretary and | |
Associate General Counsel |
Altria Headline Financials1 |
($ in millions, except per share data) | Q2 2018 | Change vs. Q2 2017 | First Half 2018 | Change vs. First Half 2017 | |
Net revenues | $6,305 | (5.4)% | $12,413 | (2.6)% | |
Revenues net of excise taxes | $4,879 | (3.7)% | $9,549 | (1.1)% | |
Tax rate: | |||||
Reported tax rate | 26.6% | (5.0) pp | 24.9% | (7.3) pp | |
Adjusted tax rate | 22.9% | (12.6) pp | 23.1% | (12.5) pp | |
Per share data: | |||||
Reported diluted EPS | $0.99 | (3.9)% | $1.99 | 13.7% | |
Adjusted diluted EPS | $1.01 | 18.8% | $1.96 | 24.1% |
Cash Returns to Shareholders |
• | Altria paid over $1.3 billion in dividends in the second quarter. |
• | Altria’s current annualized dividend rate is $2.80 per share, representing an annualized dividend yield of 4.9% as of July 20, 2018. |
• | Altria expects to maintain a dividend payout ratio target of approximately 80% of adjusted diluted EPS. Future dividend payments remain subject to the discretion of Altria’s Board of Directors (Board). |
• | Altria repurchased 7.6 million shares in the second quarter at an average price of $57.65, for a cost of approximately $437 million. |
• | In May 2018, the Board authorized a $1 billion expansion to the previous $1 billion share repurchase program. |
• | As of June 30, 2018, Altria had slightly more than $1 billion remaining in the current $2 billion share repurchase program, which Altria expects to complete by the end of the second quarter of 2019. The timing of share repurchases depends upon marketplace conditions and other factors, and this program remains subject to the discretion of the Board. |
Innovation |
• | In May, Altria announced a new corporate structure to accelerate its innovation pipeline and maximize its core tobacco businesses. |
• | USSTC submitted premarket tobacco product applications to the U.S. Food and Drug Administration (FDA) for VERVE Discs and VERVE Chews. |
• | Nu Mark grew e-vapor volume by approximately 16% in the quarter, reflecting its expansion of MarkTen Elite to over 23,000 retail stores. |
• | PM USA’s initial lead market plans for IQOS are ready to deploy upon FDA authorization. |
Other Notable Events |
• | In July, Altria submitted its comments for the three advance notices of proposed rulemaking (ANPRM) that were published by the FDA in the first quarter. The comments are available at www.altria.com. |
2018 Full-Year Guidance |
Financial Performance |
• | Net revenues declined 5.4% to $6.3 billion, primarily due to lower net revenues in the smokeable products segment. Revenues net of excise taxes declined 3.7% to approximately $4.9 billion. |
• | Reported diluted EPS decreased 3.9% to $0.99, primarily driven by the 2017 gain on the AB InBev/SABMiller business combination, higher investment spending in the innovative tobacco products businesses and lower reported operating companies income (OCI) in the smokeable products segment. These results were partially offset by lower income taxes, higher reported equity earnings from AB InBev (which included AB InBev special items), fewer shares outstanding and higher reported OCI in the smokeless products segment. |
• | Adjusted diluted EPS increased 18.8% to $1.01, primarily driven by lower income taxes and fewer shares outstanding, partially offset by lower adjusted OCI in the smokeable products segment and higher investment spending in the innovative tobacco products businesses. |
• | Net revenues declined 2.6% to $12.4 billion, as lower net revenues in the smokeable products segment were partially offset by higher net revenues in the smokeless products segment. Revenues net of excise taxes declined 1.1% to approximately $9.5 billion. |
• | Reported diluted EPS increased 13.7% to $1.99, primarily driven by lower income taxes, higher reported equity earnings from AB InBev (which included AB InBev special items), fewer shares outstanding and higher reported OCI in the smokeless products segment. These results were partially offset by the 2017 gain on the AB InBev/SABMiller business combination, higher investment spending in the innovative tobacco products businesses and lower reported OCI in the smokeable products segment. |
• | Adjusted diluted EPS increased 24.1% to $1.96, primarily driven by lower income taxes, higher adjusted equity earnings from AB InBev, fewer shares outstanding and higher adjusted OCI in the smokeless products segment, partially offset by lower adjusted OCI in the smokeable products segment and higher investment spending in the innovative tobacco products businesses. |
Table 1 - Altria’s Adjusted Results | |||||||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||
Reported diluted EPS | $ | 0.99 | $ | 1.03 | (3.9 | )% | $ | 1.99 | $ | 1.75 | 13.7 | % | |||||
NPM Adjustment Items | (0.03 | ) | — | (0.06 | ) | — | |||||||||||
Asset impairment, exit and implementation costs | — | 0.01 | — | 0.02 | |||||||||||||
Tobacco and health litigation items | 0.03 | 0.01 | 0.04 | 0.01 | |||||||||||||
AB InBev special items | (0.03 | ) | — | (0.07 | ) | 0.03 | |||||||||||
(Gain) loss on AB InBev/SABMiller business combination | — | (0.14 | ) | 0.01 | (0.14 | ) | |||||||||||
Tax items | 0.05 | (0.06 | ) | 0.05 | (0.09 | ) | |||||||||||
Adjusted diluted EPS | $ | 1.01 | $ | 0.85 | 18.8 | % | $ | 1.96 | $ | 1.58 | 24.1 | % |
Special Items |
• | In the second quarter of 2018, Altria recorded pre-tax income of $77 million (or $0.03 per share) for an NPM adjustment settlement with Pennsylvania. |
• | In the first half of 2018, Altria recorded pre-tax income of $145 million (or $0.06 per share) for NPM adjustment settlements with ten states. |
• | In the second quarter and first half of 2018, Altria recorded pre-tax charges of $70 million (or $0.03 per share) and $98 million (or $0.04 per share), respectively, for tobacco and health litigation items and related interest costs. |
• | In the second quarter of 2018, equity earnings from AB InBev included net pre-tax income of $72 million (or $0.03 per share), consisting primarily of gains related to AB InBev’s merger and acquisition activities, partially offset by Altria’s share of AB InBev’s mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments. |
• | In the first half of 2018, equity earnings from AB InBev included net pre-tax income of $189 million (or $0.07 per share), consisting primarily of Altria’s share of AB InBev’s estimated effect of the Tax Reform Act, and gains related to AB InBev’s merger and acquisition activities, partially offset by Altria’s share of AB InBev’s mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments. In the first half of 2017, equity earnings from AB InBev included net pre-tax charges of $75 million (or $0.03 per share), consisting primarily of Altria’s share of AB InBev’s mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments. |
• | In the first half of 2018, Altria recorded a pre-tax loss of $33 million (or $0.01 per share) related to AB InBev’s divestitures of certain SABMiller assets and businesses in connection with the AB InBev/SABMiller business combination. |
• | In the second quarter and first half of 2017, Altria recorded a pre-tax gain of $408 million (or $0.14 per share) related to AB InBev’s divestitures of certain SABMiller assets and businesses in connection with the AB InBev/SABMiller business combination. |
• | In the second quarter and first half of 2018, Altria recorded income tax charges of approximately $95 million (or $0.05 per share) primarily related to a tax basis adjustment to Altria’s AB InBev investment and for a valuation allowance on foreign tax credit carryforwards that are not realizable. |
• | In the second quarter and first half of 2017, Altria recorded income tax benefits of $108 million (or $0.06 per share) and $166 million (or $0.09 per share), respectively, primarily related to the effective settlement of the 2010-2013 Internal Revenue Service audit. |
Revenues and OCI |
• | Net revenues declined 6.3%, as lower volume was partially offset by higher pricing and lower promotional investments. Revenues net of excise taxes declined 4.8%. |
• | Reported OCI declined 1.0%, as lower volume and higher tobacco and health litigation items were partially offset by higher pricing, lower promotional investments and NPM Adjustment Items. |
• | Adjusted OCI declined 2.8%, primarily driven by lower volume, partially offset by higher pricing and lower promotional investments. Adjusted OCI margins increased 1.1 percentage points to 52.6%. |
• | Net revenues declined 3.7%, as lower volume was partially offset by higher pricing and lower promotional investments. Revenues net of excise taxes declined 2.3%. |
• | Reported OCI declined 0.5%, as lower volume, higher costs (including higher tobacco and health litigation items and investments in strategic initiatives) and higher resolution expenses were partially offset by higher pricing, higher NPM Adjustment Items and lower promotional investments. |
• | Adjusted OCI declined 2.4%, primarily driven by lower volume, higher costs (including investments in strategic initiatives) and higher resolution expenses, partially offset by higher pricing and lower promotional investments. Adjusted OCI margins were unchanged at 51.2%. |
Table 2 - Smokeable Products: Revenues and OCI ($ in millions) | |||||||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||
Net revenues | $ | 5,546 | $ | 5,922 | (6.3 | )% | $ | 10,960 | $ | 11,380 | (3.7 | )% | |||||
Excise taxes | (1,388 | ) | (1,556 | ) | (2,789 | ) | (3,016 | ) | |||||||||
Revenues net of excise taxes | $ | 4,158 | $ | 4,366 | (4.8 | )% | $ | 8,171 | $ | 8,364 | (2.3 | )% | |||||
Reported OCI | $ | 2,201 | $ | 2,224 | (1.0 | )% | $ | 4,239 | $ | 4,260 | (0.5 | )% | |||||
NPM Adjustment Items | (77 | ) | — | (145 | ) | (8 | ) | ||||||||||
Asset impairment, exit, implementation and acquisition-related costs | 2 | 9 | 3 | 15 | |||||||||||||
Tobacco and health litigation items | 60 | 15 | 84 | 16 | |||||||||||||
Adjusted OCI | $ | 2,186 | $ | 2,248 | (2.8 | )% | $ | 4,181 | $ | 4,283 | (2.4 | )% | |||||
Adjusted OCI margins 1 | 52.6 | % | 51.5 | % | 1.1 pp | 51.2 | % | 51.2 | % | — |
Shipment Volume |
• | Smokeable products segment reported domestic cigarette shipment volume declined 10.8%, primarily driven by trade inventory movements, the industry’s rate of decline and retail share losses. |
• | When adjusted for trade inventory movements, smokeable products segment domestic cigarette shipment volume decreased by an estimated 5%. |
• | Total domestic cigarette industry volumes declined by an estimated 3.5%. |
• | Reported cigar shipment volume increased 2.7%. |
• | Smokeable products segment reported domestic cigarette shipment volume declined 7.6%, primarily driven by the industry’s rate of decline, trade inventory movements and retail share losses. |
• | When adjusted for trade inventory movements, smokeable products segment domestic cigarette shipment volume decreased by an estimated 5.5%. |
• | Total domestic cigarette industry volumes declined by an estimated 4.5%. |
• | Reported cigar shipment volume increased 2.8%. |
Table 3 - Smokeable Products: Shipment Volume (sticks in millions) | |||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||
Cigarettes: | |||||||||||||
Marlboro | 23,529 | 26,157 | (10.0 | )% | 47,182 | 50,852 | (7.2 | )% | |||||
Other premium | 1,404 | 1,550 | (9.4 | )% | 2,813 | 3,000 | (6.2 | )% | |||||
Discount | 2,333 | 2,862 | (18.5 | )% | 4,793 | 5,444 | (12.0 | )% | |||||
Total cigarettes | 27,266 | 30,569 | (10.8 | )% | 54,788 | 59,296 | (7.6 | )% | |||||
Cigars: | |||||||||||||
Black & Mild | 414 | 402 | 3.0 | % | 789 | 765 | 3.1 | % | |||||
Other | 3 | 4 | (25.0 | )% | 6 | 8 | (25.0 | )% | |||||
Total cigars | 417 | 406 | 2.7 | % | 795 | 773 | 2.8 | % | |||||
Total smokeable products | 27,683 | 30,975 | (10.6 | )% | 55,583 | 60,069 | (7.5 | )% |
Retail Share and Brand Activity |
• | Marlboro retail share declined 0.3 share points to 43.2%. Marlboro retail share was stable sequentially from the first quarter. |
• | Smokeable products segment total cigarette retail share declined 0.7 share points to 50.2%, and declined 0.1 share point sequentially. |
• | Nat Sherman expanded Nat’s into 13 additional states across the western U.S. in mid-June. |
• | Marlboro retail share declined 0.4 share points to 43.2%, driven in part by continued effects from the April 2017 California state excise tax increase. |
• | Smokeable products segment total cigarette retail share declined 0.8 share points to 50.2%. |
Table 4 - Smokeable Products: Cigarettes Retail Share (percent) | ||||||||||||
Second Quarter | Six Months Ended June 30, | |||||||||||
2018 | 2017 | Percentage point change | 2018 | 2017 | Percentage point change | |||||||
Cigarettes: | ||||||||||||
Marlboro | 43.2 | % | 43.5 | % | (0.3 | ) | 43.2 | % | 43.6 | % | (0.4) | |
Other premium | 2.6 | 2.7 | (0.1 | ) | 2.6 | 2.7 | (0.1) | |||||
Discount | 4.4 | 4.7 | (0.3 | ) | 4.4 | 4.7 | (0.3) | |||||
Total cigarettes | 50.2 | % | 50.9 | % | (0.7 | ) | 50.2 | % | 51.0 | % | (0.8) |
Revenues and OCI |
• | Net revenues increased 2.7%, primarily driven by higher pricing partially offset by lower volume. Revenues net of excise taxes increased 2.8%. |
• | Reported OCI increased 8.6%, primarily driven by higher pricing and lower asset impairment, exit and implementation costs, partially offset by lower volume. |
• | Adjusted OCI increased 3.5%, primarily driven by higher pricing partially offset by lower volume. Adjusted OCI margins increased 0.5 percentage points to 69.9%. |
• | Net revenues increased 7.2%, primarily driven by higher pricing and the impact of the 2017 voluntary recall, partially offset by lower volume. Revenues net of excise taxes increased 7.5%. |
• | Reported OCI increased 20.6%, primarily driven by higher pricing, the impact of the 2017 voluntary recall and lower asset impairment, exit and implementation costs, partially offset by lower volume. |
• | Adjusted OCI increased 13.5%, primarily driven by higher pricing and the impact of the 2017 voluntary recall, partially offset by lower volume. Adjusted OCI margins increased 3.8 percentage points to 69.5%. |
Table 5 - Smokeless Products: Revenues and OCI ($ in millions) | |||||||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||
Net revenues | $ | 579 | $ | 564 | 2.7 | % | $ | 1,104 | $ | 1,030 | 7.2 | % | |||||
Excise taxes | (34 | ) | (34 | ) | (66 | ) | (64 | ) | |||||||||
Revenues net of excise taxes | $ | 545 | $ | 530 | 2.8 | % | $ | 1,038 | $ | 966 | 7.5 | % | |||||
Reported OCI | $ | 377 | $ | 347 | 8.6 | % | $ | 715 | $ | 593 | 20.6 | % | |||||
Asset impairment, exit and implementation costs | 4 | 21 | 6 | 42 | |||||||||||||
Adjusted OCI | $ | 381 | $ | 368 | 3.5 | % | $ | 721 | $ | 635 | 13.5 | % | |||||
Adjusted OCI margins 1 | 69.9 | % | 69.4 | % | 0.5 pp | 69.5 | % | 65.7 | % | 3.8 pp |
Shipment Volume |
• | Smokeless products segment reported domestic shipment volume declined 2.4% primarily driven by the industry’s rate of decline and retail share losses. Adjusted shipment volume comparisons are not provided due to the unusual effects of the 2017 recall. |
• | Smokeless products segment reported domestic shipment volume declined 1.3% primarily driven by the industry’s rate of decline. When adjusted for calendar differences, the smokeless products segment shipment volume declined approximately 1.5%. |
• | The smokeless industry volume declined an estimated 1% over the past six months. |
Table 6 - Smokeless Products: Shipment Volume (cans and packs in millions) | |||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||
Copenhagen | 138.1 | 137.5 | 0.4 | % | 262.5 | 262.0 | 0.2 | % | |||||
Skoal | 59.8 | 65.8 | (9.1 | )% | 114.8 | 121.4 | (5.4 | )% | |||||
Copenhagen and Skoal | 197.9 | 203.3 | (2.7 | )% | 377.3 | 383.4 | (1.6 | )% | |||||
Other | 17.8 | 17.7 | 0.6 | % | 34.1 | 33.4 | 2.1 | % | |||||
Total smokeless products | 215.7 | 221.0 | (2.4 | )% | 411.4 | 416.8 | (1.3 | )% |
Retail Share and Brand Activity |
• | Copenhagen retail share was unchanged at 34.3% and Skoal retail share declined 0.4 share points to 16.4%. |
• | Copenhagen and Skoal combined retail share decreased 0.4 share points to 50.7%. |
• | Smokeless products segment total retail share declined 0.2 share points to 54.1%. |
• | Copenhagen retail share grew 0.5 share points to 34.3% and Skoal retail share declined 0.7 share points to 16.3%. |
• | Copenhagen and Skoal combined retail share decreased 0.2 share points to 50.6%. |
• | Smokeless products segment total retail share was unchanged at 54.0%. |
Table 7 - Smokeless Products: Retail Share (percent) | |||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||
2018 | 2017 | Percentage point change | 2018 | 2017 | Percentage point change | ||||||
Copenhagen | 34.3 | % | 34.3 | % | — | 34.3 | % | 33.8 | % | 0.5 | |
Skoal | 16.4 | 16.8 | (0.4) | 16.3 | 17.0 | (0.7) | |||||
Copenhagen and Skoal | 50.7 | 51.1 | (0.4) | 50.6 | 50.8 | (0.2) | |||||
Other | 3.4 | 3.2 | 0.2 | 3.4 | 3.2 | 0.2 | |||||
Total smokeless products | 54.1 | % | 54.3 | % | (0.2) | 54.0 | % | 54.0 | % | — |
• | Net revenues increased 10.7%, primarily driven by favorable mix and higher shipment volume. |
• | Reported and adjusted OCI increased 8.0%, primarily driven by higher volume and favorable mix, partially offset by increased costs. |
• | Reported wine shipment volume grew 6.3% to approximately 1.9 million cases. |
• | Net revenues increased 6.2%, primarily driven by higher shipment volume. |
• | Reported and adjusted OCI declined 4.3%, primarily driven by higher costs, including one-time employee bonuses, partially offset by higher shipment volume. |
• | Reported wine shipment volume grew 6.2% to approximately 3.7 million cases. |
Table 8 - Wine: Revenues and OCI ($ in millions) | |||||||||||||||||
Second Quarter | Six Months Ended June 30, | ||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||||||||
Net revenues | $ | 166 | $ | 150 | 10.7 | % | $ | 308 | $ | 290 | 6.2 | % | |||||
Excise taxes | (4 | ) | (5 | ) | (9 | ) | (9 | ) | |||||||||
Revenues net of excise taxes | $ | 162 | $ | 145 | 11.7 | % | $ | 299 | $ | 281 | 6.4 | % | |||||
Reported and Adjusted OCI | $ | 27 | $ | 25 | 8.0 | % | $ | 44 | $ | 46 | (4.3 | )% | |||||
OCI margins 1 | 16.7 | % | 17.2 | % | (0.5) pp | 14.7 | % | 16.4 | % | (1.7) pp |
Altria's Profile |
Basis of Presentation |
Forward-Looking and Cautionary Statements |
Schedule 1 | ||
ALTRIA GROUP, INC. | ||
and Subsidiaries | ||
Consolidated Statements of Earnings | ||
For the Quarters Ended June 30, | ||
(dollars in millions, except per share data) | ||
(Unaudited) |
2018 | 2017 | % Change | ||||||||
Net revenues | $ | 6,305 | $ | 6,663 | (5.4 | )% | ||||
Cost of sales 1 | 1,738 | 1,954 | ||||||||
Excise taxes on products 1 | 1,426 | 1,595 | ||||||||
Gross profit | 3,141 | 3,114 | 0.9 | % | ||||||
Marketing, administration and research costs | 591 | 514 | ||||||||
Asset impairment and exit costs | 2 | 12 | ||||||||
Operating companies income | 2,548 | 2,588 | (1.5 | )% | ||||||
Amortization of intangibles | 5 | 5 | ||||||||
General corporate expenses | 45 | 55 | ||||||||
Operating income | 2,498 | 2,528 | (1.2 | )% | ||||||
Interest and other debt expense, net | 178 | 177 | ||||||||
Net periodic benefit income, excluding service cost | (9 | ) | (11 | ) | ||||||
Earnings from equity investment in AB InBev | (228 | ) | (140 | ) | ||||||
Gain on AB InBev/SABMiller business combination | — | (408 | ) | |||||||
Earnings before income taxes | 2,557 | 2,910 | (12.1 | )% | ||||||
Provision for income taxes | 680 | 920 | ||||||||
Net earnings | 1,877 | 1,990 | (5.7 | )% | ||||||
Net earnings attributable to noncontrolling interests | (1 | ) | (1 | ) | ||||||
Net earnings attributable to Altria | $ | 1,876 | $ | 1,989 | (5.7 | )% | ||||
Per share data: | ||||||||||
Basic and diluted earnings per share attributable to Altria | $ | 0.99 | $ | 1.03 | (3.9 | )% | ||||
Weighted-average diluted shares outstanding | 1,891 | 1,928 | (1.9 | )% | ||||||
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 5. | ||||||||||
Note: As a result of the January 1, 2018 adoption of Accounting Standards Update (“ASU”) No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU No. 2017-07”), certain immaterial prior-year amounts have been reclassified to conform with the current period’s presentation. | ||||||||||
Schedule 2 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Selected Financial Data | |||||||||||||||
For the Quarters Ended June 30, | |||||||||||||||
(dollars in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Net Revenues | |||||||||||||||
Smokeable Products | Smokeless Products | Wine | All Other | Total | |||||||||||
2018 | $ | 5,546 | $ | 579 | $ | 166 | $ | 14 | $ | 6,305 | |||||
2017 | 5,922 | 564 | 150 | 27 | 6,663 | ||||||||||
% Change | (6.3 | )% | 2.7 | % | 10.7 | % | (48.1 | )% | (5.4 | )% | |||||
Reconciliation: | |||||||||||||||
For the quarter ended June 30, 2017 | $ | 5,922 | $ | 564 | $ | 150 | $ | 27 | $ | 6,663 | |||||
Operations | (376 | ) | 15 | 16 | (13 | ) | (358 | ) | |||||||
For the quarter ended June 30, 2018 | $ | 5,546 | $ | 579 | $ | 166 | $ | 14 | $ | 6,305 | |||||
Operating Companies Income (Loss) | |||||||||||||||
Smokeable Products | Smokeless Products | Wine | All Other | Total | |||||||||||
2018 | $ | 2,201 | $ | 377 | $ | 27 | $ | (57 | ) | $ | 2,548 | ||||
2017 | 2,224 | 347 | 25 | (8 | ) | 2,588 | |||||||||
% Change | (1.0 | )% | 8.6 | % | 8.0 | % | (100.0)%+ | (1.5 | )% | ||||||
Reconciliation: | |||||||||||||||
For the quarter ended June 30, 2017 | $ | 2,224 | $ | 347 | $ | 25 | $ | (8 | ) | $ | 2,588 | ||||
Asset impairment, exit, implementation and acquisition-related costs - 2017 | 9 | 21 | — | — | 30 | ||||||||||
Tobacco and health litigation items - 2017 | 15 | — | — | — | 15 | ||||||||||
24 | 21 | — | — | 45 | |||||||||||
NPM Adjustment Items - 2018 | 77 | — | — | — | 77 | ||||||||||
Asset impairment, exit and implementation costs - 2018 | (2 | ) | (4 | ) | — | — | (6 | ) | |||||||
Tobacco and health litigation items - 2018 | (60 | ) | — | — | — | (60 | ) | ||||||||
15 | (4 | ) | — | — | 11 | ||||||||||
Operations | (62 | ) | 13 | 2 | (49 | ) | (96 | ) | |||||||
For the quarter ended June 30, 2018 | $ | 2,201 | $ | 377 | $ | 27 | $ | (57 | ) | $ | 2,548 | ||||
Note: As a result of the January 1, 2018 adoption of ASU No. 2017-07, certain immaterial prior-year operating companies income (loss) amounts have been reclassified to conform with the current period’s presentation. |
Schedule 3 | ||||||||||
ALTRIA GROUP, INC. | ||||||||||
and Subsidiaries | ||||||||||
Consolidated Statements of Earnings | ||||||||||
For the Six Months Ended June 30, | ||||||||||
(dollars in millions, except per share data) | ||||||||||
(Unaudited) | ||||||||||
2018 | 2017 | % Change | ||||||||
Net revenues | $ | 12,413 | $ | 12,746 | (2.6 | )% | ||||
Cost of sales 1 | 3,472 | 3,767 | ||||||||
Excise taxes on products 1 | 2,864 | 3,089 | ||||||||
Gross profit | 6,077 | 5,890 | 3.2 | % | ||||||
Marketing, administration and research costs | 1,158 | 996 | ||||||||
Asset impairment and exit costs | 4 | 16 | ||||||||
Operating companies income | 4,915 | 4,878 | 0.8 | % | ||||||
Amortization of intangibles | 10 | 10 | ||||||||
General corporate expenses | 91 | 101 | ||||||||
Operating income | 4,814 | 4,767 | 1.0 | % | ||||||
Interest and other debt expense, net | 344 | 356 | ||||||||
Net periodic benefit income, excluding service cost | (16 | ) | (19 | ) | ||||||
Earnings from equity investment in AB InBev | (570 | ) | (163 | ) | ||||||
Loss (gain) on AB InBev/SABMiller business combination | 33 | (408 | ) | |||||||
Earnings before income taxes | 5,023 | 5,001 | 0.4 | % | ||||||
Provision for income taxes | 1,251 | 1,609 | ||||||||
Net earnings | 3,772 | 3,392 | 11.2 | % | ||||||
Net earnings attributable to noncontrolling interests | (2 | ) | (2 | ) | ||||||
Net earnings attributable to Altria | $ | 3,770 | $ | 3,390 | 11.2 | % | ||||
Per share data: | ||||||||||
Basic and diluted earnings per share attributable to Altria | $ | 1.99 | $ | 1.75 | 13.7 | % | ||||
Weighted-average diluted shares outstanding | 1,895 | 1,933 | (2.0 | )% | ||||||
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 5. | ||||||||||
Note: As a result of the January 1, 2018 adoption of ASU No. 2017-07, certain immaterial prior-year amounts have been reclassified to conform with the current period’s presentation. |
Schedule 4 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Selected Financial Data | |||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||
(dollars in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
Net Revenues | |||||||||||||||
Smokeable Products | Smokeless Products | Wine | All Other | Total | |||||||||||
2018 | $ | 10,960 | $ | 1,104 | $ | 308 | $ | 41 | $ | 12,413 | |||||
2017 | 11,380 | 1,030 | 290 | 46 | 12,746 | ||||||||||
% Change | (3.7 | )% | 7.2 | % | 6.2 | % | (10.9 | )% | (2.6 | )% | |||||
Reconciliation: | |||||||||||||||
For the six months ended June 30, 2017 | $ | 11,380 | $ | 1,030 | $ | 290 | $ | 46 | $ | 12,746 | |||||
Operations | (420 | ) | 74 | 18 | (5 | ) | (333 | ) | |||||||
For the six months ended June 30, 2018 | $ | 10,960 | $ | 1,104 | $ | 308 | $ | 41 | $ | 12,413 | |||||
Operating Companies Income (Loss) | |||||||||||||||
Smokeable Products | Smokeless Products | Wine | All Other | Total | |||||||||||
2018 | $ | 4,239 | $ | 715 | $ | 44 | $ | (83 | ) | $ | 4,915 | ||||
2017 | 4,260 | 593 | 46 | (21 | ) | 4,878 | |||||||||
% Change | (0.5 | )% | 20.6 | % | (4.3 | )% | (100.0)%+ | 0.8 | % | ||||||
Reconciliation: | |||||||||||||||
For the six months ended June 30, 2017 | $ | 4,260 | $ | 593 | $ | 46 | $ | (21 | ) | $ | 4,878 | ||||
NPM Adjustment Items - 2017 | (8 | ) | — | — | — | (8 | ) | ||||||||
Asset impairment, exit, implementation and acquisition-related costs - 2017 | 15 | 42 | — | — | 57 | ||||||||||
Tobacco and health litigation items - 2017 | 16 | — | — | — | 16 | ||||||||||
23 | 42 | — | — | 65 | |||||||||||
NPM Adjustment Items - 2018 | 145 | — | — | — | 145 | ||||||||||
Asset impairment, exit and implementation costs - 2018 | (3 | ) | (6 | ) | — | — | (9 | ) | |||||||
Tobacco and health litigation items - 2018 | (84 | ) | — | — | — | (84 | ) | ||||||||
58 | (6 | ) | — | — | 52 | ||||||||||
Operations | (102 | ) | 86 | (2 | ) | (62 | ) | (80 | ) | ||||||
For the six months ended June 30, 2018 | $ | 4,239 | $ | 715 | $ | 44 | $ | (83 | ) | $ | 4,915 |
Schedule 5 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Supplemental Financial Data | |||||||||||||||
(dollars in millions) | |||||||||||||||
(Unaudited) | |||||||||||||||
For the Quarters Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
The segment detail of excise taxes on products sold is as follows: | |||||||||||||||
Smokeable products | $ | 1,388 | $ | 1,556 | $ | 2,789 | $ | 3,016 | |||||||
Smokeless products | 34 | 34 | 66 | 64 | |||||||||||
Wine | 4 | 5 | 9 | 9 | |||||||||||
$ | 1,426 | $ | 1,595 | $ | 2,864 | $ | 3,089 | ||||||||
The segment detail of charges for resolution expenses related to state settlement agreements included in cost of sales is as follows: | |||||||||||||||
Smokeable products | $ | 961 | $ | 1,184 | $ | 1,978 | $ | 2,264 | |||||||
Smokeless products | 2 | 2 | 4 | 4 | |||||||||||
$ | 963 | $ | 1,186 | $ | 1,982 | $ | 2,268 | ||||||||
The segment detail of FDA user fees included in cost of sales is as follows: | |||||||||||||||
Smokeable products | $ | 72 | $ | 68 | $ | 141 | $ | 136 | |||||||
Smokeless products | 1 | 1 | 2 | 2 | |||||||||||
$ | 73 | $ | 69 | $ | 143 | $ | 138 | ||||||||
Schedule 6 | |||||||
ALTRIA GROUP, INC. | |||||||
and Subsidiaries | |||||||
Net Earnings and Diluted Earnings Per Share - Attributable to Altria Group, Inc. | |||||||
For the Quarters Ended June 30, | |||||||
(dollars in millions, except per share data) | |||||||
(Unaudited) | |||||||
Net Earnings | Diluted EPS | ||||||
2018 Net Earnings | $ | 1,876 | $ | 0.99 | |||
2017 Net Earnings | $ | 1,989 | $ | 1.03 | |||
% Change | (5.7 | )% | (3.9 | )% | |||
Reconciliation: | |||||||
2017 Net Earnings | $ | 1,989 | $ | 1.03 | |||
2017 Tobacco and health litigation items | 11 | 0.01 | |||||
2017 AB InBev special items | 1 | — | |||||
2017 Asset impairment, exit, implementation and acquisition-related costs | 17 | 0.01 | |||||
2017 Gain on AB InBev/SABMiller business combination | (265 | ) | (0.14 | ) | |||
2017 Tax items | (108 | ) | (0.06 | ) | |||
Subtotal 2017 special items | (344 | ) | (0.18 | ) | |||
2018 NPM Adjustment Items | 58 | 0.03 | |||||
2018 AB InBev special items | 57 | 0.03 | |||||
2018 Asset impairment, exit and implementation costs | (5 | ) | — | ||||
2018 Tobacco and health litigation items | (53 | ) | (0.03 | ) | |||
2018 Tax items | (94 | ) | (0.05 | ) | |||
Subtotal 2018 special items | (37 | ) | (0.02 | ) | |||
Fewer shares outstanding | — | 0.02 | |||||
Change in tax rate | 311 | 0.16 | |||||
Operations | (43 | ) | (0.02 | ) | |||
2018 Net Earnings | $ | 1,876 | $ | 0.99 |
Schedule 7 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Reconciliation of GAAP and non-GAAP Measures | |||||||||||||||
For the Quarters Ended June 30, | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
Earnings before Income Taxes | Provision for Income Taxes | Net Earnings | Net Earnings Attributable to Altria | Diluted EPS | |||||||||||
2018 Reported | $ | 2,557 | $ | 680 | $ | 1,877 | $ | 1,876 | $ | 0.99 | |||||
NPM Adjustment Items | (77 | ) | (19 | ) | (58 | ) | (58 | ) | (0.03 | ) | |||||
AB InBev special items | (72 | ) | (15 | ) | (57 | ) | (57 | ) | (0.03 | ) | |||||
Asset impairment, exit and implementation costs | 6 | 1 | 5 | 5 | — | ||||||||||
Tobacco and health litigation items | 70 | 17 | 53 | 53 | 0.03 | ||||||||||
Tax items | — | (94 | ) | 94 | 94 | 0.05 | |||||||||
2018 Adjusted for Special Items | $ | 2,484 | $ | 570 | $ | 1,914 | $ | 1,913 | $ | 1.01 | |||||
2017 Reported | $ | 2,910 | $ | 920 | $ | 1,990 | $ | 1,989 | $ | 1.03 | |||||
Tobacco and health litigation items | 17 | 6 | 11 | 11 | 0.01 | ||||||||||
AB InBev special items | 2 | 1 | 1 | 1 | — | ||||||||||
Asset impairment, exit, implementation and acquisition-related costs | 30 | 13 | 17 | 17 | 0.01 | ||||||||||
Gain on AB InBev/SABMiller business combination | (408 | ) | (143 | ) | (265 | ) | (265 | ) | (0.14 | ) | |||||
Tax items | — | 108 | (108 | ) | (108 | ) | (0.06 | ) | |||||||
2017 Adjusted for Special Items | $ | 2,551 | $ | 905 | $ | 1,646 | $ | 1,645 | $ | 0.85 | |||||
2018 Reported Net Earnings | $ | 1,876 | $ | 0.99 | |||||||||||
2017 Reported Net Earnings | $ | 1,989 | $ | 1.03 | |||||||||||
% Change | (5.7 | )% | (3.9 | )% | |||||||||||
2018 Net Earnings Adjusted for Special Items | $ | 1,913 | $ | 1.01 | |||||||||||
2017 Net Earnings Adjusted for Special Items | $ | 1,645 | $ | 0.85 | |||||||||||
% Change | 16.3 | % | 18.8 | % |
Schedule 8 | |||||||
ALTRIA GROUP, INC. | |||||||
and Subsidiaries | |||||||
Net Earnings and Diluted Earnings Per Share - Attributable to Altria Group, Inc. | |||||||
For the Six Months Ended June 30, | |||||||
(dollars in millions, except per share data) | |||||||
(Unaudited) | |||||||
Net Earnings | Diluted EPS | ||||||
2018 Net Earnings | $ | 3,770 | $ | 1.99 | |||
2017 Net Earnings | $ | 3,390 | $ | 1.75 | |||
% Change | 11.2 | % | 13.7 | % | |||
Reconciliation: | |||||||
2017 Net Earnings | $ | 3,390 | $ | 1.75 | |||
2017 NPM Adjustment Items | (1 | ) | — | ||||
2017 Tobacco and health litigation items | 12 | 0.01 | |||||
2017 AB InBev special items | 49 | 0.03 | |||||
2017 Asset impairment, exit, implementation and acquisition-related costs | 36 | 0.02 | |||||
2017 Gain on AB InBev/SABMiller business combination | (265 | ) | (0.14 | ) | |||
2017 Tax items | (166 | ) | (0.09 | ) | |||
Subtotal 2017 special items | (335 | ) | (0.17 | ) | |||
2018 NPM Adjustment Items | 109 | 0.06 | |||||
2018 Tobacco and health litigation items | (73 | ) | (0.04 | ) | |||
2018 AB InBev special items | 149 | 0.07 | |||||
2018 Asset impairment, exit and implementation costs | (7 | ) | — | ||||
2018 Loss on AB InBev/SABMiller business combination | (26 | ) | (0.01 | ) | |||
2018 Tax items | (95 | ) | (0.05 | ) | |||
Subtotal 2018 special items | 57 | 0.03 | |||||
Fewer shares outstanding | — | 0.04 | |||||
Change in tax rate | 604 | 0.31 | |||||
Operations | 54 | 0.03 | |||||
2018 Net Earnings | $ | 3,770 | $ | 1.99 | |||
Schedule 9 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Reconciliation of GAAP and non-GAAP Measures | |||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
Earnings before Income Taxes | Provision for Income Taxes | Net Earnings | Net Earnings Attributable to Altria | Diluted EPS | |||||||||||
2018 Reported | $ | 5,023 | $ | 1,251 | $ | 3,772 | $ | 3,770 | $ | 1.99 | |||||
NPM Adjustment Items | (145 | ) | (36 | ) | (109 | ) | (109 | ) | (0.06 | ) | |||||
Tobacco and health litigation items | 98 | 25 | 73 | 73 | 0.04 | ||||||||||
AB InBev special items | (189 | ) | (40 | ) | (149 | ) | (149 | ) | (0.07 | ) | |||||
Asset impairment, exit and implementation costs | 9 | 2 | 7 | 7 | — | ||||||||||
Loss on AB InBev/SABMiller business combination | 33 | 7 | 26 | 26 | 0.01 | ||||||||||
Tax items | — | (95 | ) | 95 | 95 | 0.05 | |||||||||
2018 Adjusted for Special Items | $ | 4,829 | $ | 1,114 | $ | 3,715 | $ | 3,713 | $ | 1.96 | |||||
2017 Reported | $ | 5,001 | $ | 1,609 | $ | 3,392 | $ | 3,390 | $ | 1.75 | |||||
NPM Adjustment Items | (1 | ) | — | (1 | ) | (1 | ) | — | |||||||
Tobacco and health litigation items | 18 | 6 | 12 | 12 | 0.01 | ||||||||||
AB InBev special items | 75 | 26 | 49 | 49 | 0.03 | ||||||||||
Asset impairment, exit, implementation and acquisition-related costs | 60 | 24 | 36 | 36 | 0.02 | ||||||||||
Gain on AB InBev/SABMiller business combination | (408 | ) | (143 | ) | (265 | ) | (265 | ) | (0.14 | ) | |||||
Tax items | — | 166 | (166 | ) | (166 | ) | (0.09 | ) | |||||||
2017 Adjusted for Special Items | $ | 4,745 | $ | 1,688 | $ | 3,057 | $ | 3,055 | $ | 1.58 | |||||
2018 Reported Net Earnings | $ | 3,770 | $ | 1.99 | |||||||||||
2017 Reported Net Earnings | $ | 3,390 | $ | 1.75 | |||||||||||
% Change | 11.2 | % | 13.7 | % | |||||||||||
2018 Net Earnings Adjusted for Special Items | $ | 3,713 | $ | 1.96 | |||||||||||
2017 Net Earnings Adjusted for Special Items | $ | 3,055 | $ | 1.58 | |||||||||||
% Change | 21.5 | % | 24.1 | % | |||||||||||
Schedule 10 | |||||||||||||||
ALTRIA GROUP, INC. | |||||||||||||||
and Subsidiaries | |||||||||||||||
Reconciliation of GAAP and non-GAAP Measures | |||||||||||||||
For the Year Ended December 31, 2017 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
Earnings before Income Taxes | (Benefit) Provision for Income Taxes | Net Earnings | Net Earnings Attributable to Altria | Diluted EPS | |||||||||||
2017 Reported | $ | 9,828 | $ | (399 | ) | $ | 10,227 | $ | 10,222 | $ | 5.31 | ||||
NPM Adjustment Items | 4 | 2 | 2 | 2 | — | ||||||||||
Tobacco and health litigation items | 80 | 30 | 50 | 50 | 0.03 | ||||||||||
AB InBev special items | 160 | 55 | 105 | 105 | 0.05 | ||||||||||
Asset impairment, exit, implementation and acquisition-related costs | 89 | 34 | 55 | 55 | 0.03 | ||||||||||
Gain on AB InBev/SABMiller business combination | (445 | ) | (156 | ) | (289 | ) | (289 | ) | (0.15 | ) | |||||
Settlement charge for lump sum pension payments | 81 | 32 | 49 | 49 | 0.03 | ||||||||||
Tax items | — | 3,674 | (3,674 | ) | (3,674 | ) | (1.91 | ) | |||||||
2017 Adjusted for Special Items | $ | 9,797 | $ | 3,272 | $ | 6,525 | $ | 6,520 | $ | 3.39 | |||||
Schedule 11 | |||||||
ALTRIA GROUP, INC. | |||||||
and Subsidiaries | |||||||
Condensed Consolidated Balance Sheets | |||||||
(dollars in millions) | |||||||
(Unaudited) | |||||||
June 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 1,430 | $ | 1,253 | |||
Inventories | 2,123 | 2,225 | |||||
Other current assets | 578 | 866 | |||||
Property, plant and equipment, net | 1,878 | 1,914 | |||||
Goodwill and other intangible assets, net | 17,712 | 17,707 | |||||
Investment in AB InBev | 18,178 | 17,952 | |||||
Finance assets, net | 856 | 899 | |||||
Other long-term assets | 422 | 386 | |||||
Total assets | $ | 43,177 | $ | 43,202 | |||
Liabilities and Stockholders’ Equity | |||||||
Current portion of long-term debt | $ | 864 | $ | 864 | |||
Accrued settlement charges | 2,105 | 2,442 | |||||
Other current liabilities | 3,419 | 3,486 | |||||
Long-term debt | 13,036 | 13,030 | |||||
Deferred income taxes | 5,376 | 5,247 | |||||
Accrued postretirement health care costs | 1,989 | 1,987 | |||||
Accrued pension costs | 323 | 445 | |||||
Other long-term liabilities | 230 | 283 | |||||
Total liabilities | 27,342 | 27,784 | |||||
Redeemable noncontrolling interest | 37 | 38 | |||||
Total stockholders’ equity | 15,798 | 15,380 | |||||
Total liabilities and stockholders’ equity | $ | 43,177 | $ | 43,202 | |||
Total debt | $ | 13,900 | $ | 13,894 | |||