RJR Tobacco Guaranteed, Unsecured Notes - Condensed Consolidating Financial Statements (Tables)

6 Months Ended

Jun. 30, 2017

Condensed Consolidating Statements of Income

Condensed Consolidating Statements of Income

(Dollars in Millions)

	Parent Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
For the Three Months Ended June 30, 2017
Net sales	$	—		$	3,261		$	54		$	(25	)	$	3,290
Net sales, related party		—			28			—			—			28
Net sales		—			3,289			54			(25	)		3,318
Cost of products sold		—			1,252			53			(27	)		1,278
Selling, general and administrative expenses		12			445			21			—			478
Amortization expense		—			6			—			—			6
Operating income (loss)		(12	)		1,586			(20	)		2			1,556
Interest and debt expense		148			13			4			(15	)		150
Interest income		(15	)		(2	)		(1	)		15			(3	)
Other expense (income), net		1			(11	)		9			12			11
Income (loss) before income taxes		(146	)		1,586			(32	)		(10	)		1,398
Provision for (benefit from) income taxes		(50	)		533			(4	)		—			479
Equity income from subsidiaries		1,015			(8	)		—			(1,007	)		—
Net income (loss)	$	919		$	1,045		$	(28	)	$	(1,017	)	$	919
For the Three Months Ended June 30, 2016
Net sales	$	—		$	3,122		$	48		$	(29	)	$	3,141
Net sales, related party		—			54			—			—			54
Net sales		—			3,176			48			(29	)		3,195
Cost of products sold		—			1,254			52			(31	)		1,275
Selling, general and administrative expenses		6			457			34			2			499
Amortization expense		—			6			—			—			6
Operating income (loss)		(6	)		1,459			(38	)		—			1,415
Interest and debt expense		149			22			2			(21	)		152
Interest income		(21	)		(2	)		—			21			(2	)
Other expense (income), net		—			(9	)		(3	)		11			(1	)
Income (loss) before income taxes		(134	)		1,448			(37	)		(11	)		1,266
Provision for (benefit from) income taxes		(48	)		532			(14	)		—			470
Equity income from subsidiaries		882			2			—			(884	)		—
Net income (loss)	$	796		$	918		$	(23	)	$	(895	)	$	796

Condensed Consolidating Statements of Income

(Dollars in Millions)

	Parent Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2017
Net sales	$	—		$	6,164		$	102		$	(65	)	$	6,201
Net sales, related party		—			66			—			—			66
Net sales		—			6,230			102			(65	)		6,267
Cost of products sold		—			2,446			96			(65	)		2,477
Selling, general and administrative expenses		27			819			50			—			896
Amortization expense		—			11			1			—			12
Operating income (loss)		(27	)		2,954			(45	)		—			2,882
Interest and debt expense		295			31			8			(35	)		299
Interest income		(35	)		(4	)		(1	)		35			(5	)
Other expense (income), net		2			(21	)		12			22			15
Income (loss) before income taxes		(289	)		2,948			(64	)		(22	)		2,573
Provision for (benefit from) income taxes		(125	)		1,013			(14	)		—			874
Equity income from subsidiaries		1,863			(13	)		—			(1,850	)		—
Net income (loss)	$	1,699		$	1,922		$	(50	)	$	(1,872	)	$	1,699
For the Six Months Ended June 30, 2016
Net sales	$	—		$	5,961		$	97		$	(55	)	$	6,003
Net sales, related party		—			109			—			—			109
Net sales		—			6,070			97			(55	)		6,112
Cost of products sold		—			2,403			95			(58	)		2,440
Selling, general and administrative expenses		22			858			82			2			964
Gain on divestiture		—			(4,843	)		(16	)		(2	)		(4,861	)
Amortization expense		—			12			—			—			12
Operating income (loss)		(22	)		7,640			(64	)		3			7,557
Interest and debt expense		323			45			4			(46	)		326
Interest income		(47	)		(4	)		—			46			(5	)
Other expense (income), net		240			(15	)		4			22			251
Income (loss) before income taxes		(538	)		7,614			(72	)		(19	)		6,985
Provision for (benefit from) income taxes		(190	)		2,840			(26	)		—			2,624
Equity income from subsidiaries		4,709			2			—			(4,711	)		—
Net income (loss)	$	4,361		$	4,776		$	(46	)	$	(4,730	)	$	4,361

Condensed Consolidating Statements of Comprehensive Income

Condensed Consolidating Statements of Comprehensive Income

(Dollars in Millions)

	Parent Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
For the Three Months Ended June 30, 2017
Net income (loss)	$	919		$	1,045		$	(28	)	$	(1,017	)	$	919
Other comprehensive income (loss), net of tax:
Retirement benefits		13			29			(15	)		(14	)		13
Cumulative translation adjustment and other		11			12			16			(28	)		11
Comprehensive income (loss)	$	943		$	1,086		$	(27	)	$	(1,059	)	$	943
For the Three Months Ended June 30, 2016
Net income (loss)	$	796		$	918		$	(23	)	$	(895	)	$	796
Other comprehensive income (loss), net of tax:
Retirement benefits		39			40			(1	)		(39	)		39
Long-term investments		4			4			—			(4	)		4
Cumulative translation adjustment and other		(5	)		(5	)		(7	)		12			(5	)
Comprehensive income (loss)	$	834		$	957		$	(31	)	$	(926	)	$	834
For the Six Months Ended June 30, 2017
Net income (loss)	$	1,699		$	1,922		$	(50	)	$	(1,872	)	$	1,699
Other comprehensive income (loss), net of tax:
Retirement benefits		9			26			(14	)		(12	)		9
Cumulative translation adjustment and other		14			15			20			(35	)		14
Comprehensive income (loss)	$	1,722		$	1,963		$	(44	)	$	(1,919	)	$	1,722
For the Six Months Ended June 30, 2016
Net income (loss)	$	4,361		$	4,776		$	(46	)	$	(4,730	)	$	4,361
Other comprehensive income (loss), net of tax:
Retirement benefits		33			34			(1	)		(33	)		33
Long-term investments		3			3			—			(3	)		3
Hedging instruments		11			—			—			—			11
Cumulative translation adjustment and other		17			17			26			(43	)		17
Comprehensive income (loss)	$	4,425		$	4,830		$	(21	)	$	(4,809	)	$	4,425

Reclassification Out of Accumulated Other Comprehensive Income Net of Tax

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the three months ended June 30, 2017, were as follows:

Components	Amounts Reclassified													Affected Line Item
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(5	)	$	—	$	—	$	(5	)	Cost of products sold
Amortization of prior service    credit		—			(4	)		—		—		(4	)	Selling, general and administrative expenses
		—			(9	)		—		—		(9	)	Operating income (loss)
Deferred taxes		—			2			—		—		2		Provision for (benefit from) income taxes
Net of tax		—			(7	)		—		—		(7	)	Net income (loss)
Equity income from subsidiaries		(7	)		—			—		7		—		Equity income from subsidiaries
Total reclassifications	$	(7	)	$	(7	)	$	—	$	7	$	(7	)	Net income (loss)

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the three months ended June 30, 2016, were as follows:

Components	Amounts Reclassified													Affected Line Item
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(5	)	$	—	$	—	$	(5	)	Cost of products sold
Amortization of prior service    credit		—			(5	)		—		—		(5	)	Selling, general and administrative expenses
		—			(10	)		—		—		(10	)	Operating income (loss)
Deferred taxes		—			4			—		—		4		Provision for (benefit from) income taxes
Net of tax		—			(6	)		—		—		(6	)	Net income (loss)
Equity income from subsidiaries		(6	)		—			—		6		—		Equity income from subsidiaries
Total reclassifications	$	(6	)	$	(6	)	$	—	$	6	$	(6	)	Net income (loss)

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the six months ended June 30, 2017, were as follows:

Components	Amounts Reclassified													Affected Line Item
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(9	)	$	—	$	—	$	(9	)	Cost of products sold
Amortization of prior service    credit		—			(8	)		—		—		(8	)	Selling, general and administrative expenses
		—			(17	)		—		—		(17	)	Operating income (loss)
Deferred taxes		—			6			—		—		6		Provision for (benefit from) income taxes
Net of tax		—			(11	)		—		—		(11	)	Net income (loss)
Equity income from subsidiaries		(11	)		—			—		11		—		Equity income from subsidiaries
Total reclassifications	$	(11	)	$	(11	)	$	—	$	11	$	(11	)	Net income (loss)

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the six months ended June 30, 2016, were as follows:

Components	Amounts Reclassified														Affected Line Item
	Parent Issuer			Guarantors			Non-Guarantors		Eliminations			Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(10	)	$	—	$	—		$	(10	)	Cost of products sold
Amortization of prior service    credit		—			(10	)		—		—			(10	)	Selling, general and administrative expenses
		—			(20	)		—		—			(20	)	Operating income (loss)
Deferred taxes		—			8			—		—			8		Provision for (benefit from) income taxes
Net of tax		—			(12	)		—		—			(12	)	Net income (loss)
Long-term investments:
Realized gain on long-term    investments		—			(3	)		—		—			(3	)	Other expense (income), net
Deferred taxes		—			1			—		—			1		Provision for (benefit from) income taxes
Net of tax		—			(2	)		—		—			(2	)	Net income (loss)
Hedging instruments:
Forward starting interest rate    contracts		16			—			—		—			16		Other expense (income), net
Amortization of realized loss		1			—			—		—			1		Interest and debt expense
		17			—			—		—			17		Income (loss) before income taxes
Deferred taxes		(6	)		—			—		—			(6	)	Provision for (benefit from) income taxes
Net of tax		11			—			—		—			11		Net income (loss)
Cumulative translation    adjustment and other:
Derecognition of cumulative    translation adjustment		—			—			27		—			27		Gain on divestiture
Equity income from subsidiaries		13			27			—		(40	)		—		Equity income from subsidiaries
Total reclassifications	$	24		$	13		$	27	$	(40	)	$	24		Net income (loss)

Condensed Consolidating Statements of Cash Flows

Condensed Consolidating Statements of Cash Flows

(Dollars in Millions)

	Parent Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2017
Cash flows from (used in) operating activities	$	1,714		$	606		$	(37	)	$	(1,006	)	$	1,277
Cash flows from (used in) investing activities:
Capital expenditures		—			(65	)		(1	)		—			(66	)
Return of intercompany investments		145			—			—			(145	)		—
Other, net		205			12			—			(216	)		1
Net cash flows from (used in) investing activities		350			(53	)		(1	)		(361	)		(65	)
Cash flows from (used in) financing activities:
Dividends paid on common stock		(1,384	)		(985	)		—			985			(1,384	)
Repurchase of common stock		(139	)		—			—			—			(139	)
Borrowings under revolving credit facility		500			—			—			—			500
Repayments of borrowings under revolving credit facility		(500	)		—			—			—			(500	)
Dividends paid on preferred stock		(21	)		—			—			21			—
Distribution of equity		—			(145	)		—			145			—
Other, net		(11	)		(250	)		45			216			—
Net cash flows from (used in) financing activities		(1,555	)		(1,380	)		45			1,367			(1,523	)
Effect of exchange rate changes on cash and cash    equivalents		—			—			18			—			18
Net change in cash and cash equivalents		509			(827	)		25			—			(293	)
Cash and cash equivalents at beginning of period		726			997			328			—			2,051
Cash and cash equivalents at end of period	$	1,235		$	170		$	353		$	—		$	1,758

Condensed Consolidating Statements of Cash Flows

(Dollars in Millions)

	Parent Issuer			Guarantors			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2016
Cash flows from (used in) operating activities	$	(1,012	)	$	603		$	(23	)	$	(293	)	$	(725	)
Cash flows from (used in) investing activities:
Capital expenditures		—			(89	)		(5	)		—			(94	)
Proceeds from settlement of investments		—			182			—			—			182
Proceeds from divestiture		5,015			—			—			—			5,015
Return of intercompany investments		412			26			—			(438	)		—
Other, net		260			11			—			(271	)		—
Net cash flows from (used in) investing activities		5,687			130			(5	)		(709	)		5,103
Cash flows from (used in) financing activities:
Dividends paid on common stock		(1,113	)		(247	)		(25	)		272			(1,113	)
Repurchase of common stock		(149	)		—			—			—			(149	)
Early extinguishment of debt		(3,642	)		(8	)		—			—			(3,650	)
Premiums paid for early extinguishment of debt		(206	)		(1	)		—			—			(207	)
Proceeds from termination of interest rate swaps		—			66			—			—			66
Debt financing fees		(7	)		—			—			—			(7	)
Excess tax benefit on stock-based compensation plans		26			—			—			—			26
Dividends paid on preferred stock		(21	)		—			—			21			—
Distribution of equity		—			(412	)		(26	)		438			—
Other, net		(11	)		(260	)		—			271			—
Net cash flows used in financing activities		(5,123	)		(862	)		(51	)		1,002			(5,034	)
Effect of exchange rate changes on cash and cash    equivalents		—			—			7			—			7
Net change in cash and cash equivalents		(448	)		(129	)		(72	)		—			(649	)
Cash and cash equivalents at beginning of period		575			1,544			448			—			2,567
Cash and cash equivalents at end of period	$	127		$	1,415		$	376		$	—		$	1,918

Condensed Consolidating Balance Sheets

Condensed Consolidating Balance Sheets

(Dollars in Millions)

	Parent Issuer		Guarantors		Non- Guarantors			Eliminations			Consolidated
June 30, 2017
Assets
Cash and cash equivalents	$	1,235	$	170	$	353		$	—		$	1,758
Accounts receivable		—		118		5			—			123
Accounts receivable, related party		—		1		—			—			1
Other receivables		60		1,128		88			(1,265	)		11
Inventories		—		1,400		50			(2	)		1,448
Other current assets		13		287		4			(9	)		295
Total current assets		1,308		3,104		500			(1,276	)		3,636
Property, plant and equipment, net      of accumulated depreciation		2		1,303		33			—			1,338
Trademarks and other intangible assets, net     of accumulated amortization		—		29,420		14			(2	)		29,432
Goodwill		—		15,976		16			—			15,992
Long-term intercompany notes receivable		1,184		138		—			(1,322	)		—
Investment in subsidiaries		34,501		339		—			(34,840	)		—
Other assets and deferred charges		70		44		64			(113	)		65
Total assets	$	37,065	$	50,324	$	627		$	(37,553	)	$	50,463
Liabilities and shareholders’ equity
Accounts payable	$	2	$	182	$	9		$	—		$	193
Tobacco settlement accruals		—		1,833		—			—			1,833
Due to related party		—		—		—			—			—
Deferred revenue, related party		—		106		—			—			106
Current maturities of long-term debt		1,695		53		—			—			1,748
Dividends payable on common stock		727		—		—			—			727
Other current liabilities		1,378		756		78			(1,277	)		935
Total current liabilities		3,802		2,930		87			(1,277	)		5,542
Long-term intercompany notes payable		138		650		534			(1,322	)		—
Long-term debt (less current maturities)		11,134		256		—			—			11,390
Long-term deferred income taxes, net		—		9,725		—			(111	)		9,614
Long-term retirement benefits (less current    portion)		58		1,587		123			—			1,768
Long-term deferred revenue, related party		—		19		—			—			19
Other noncurrent liabilities		47		194		3			—			244
Shareholders' equity (deficit)		21,886		34,963		(120	)		(34,843	)		21,886
Total liabilities and shareholders’ equity	$	37,065	$	50,324	$	627		$	(37,553	)	$	50,463

Condensed Consolidating Balance Sheets

(Dollars in Millions)

	Parent Issuer		Guarantors		Non- Guarantors			Eliminations			Consolidated
December 31, 2016
Assets
Cash and cash equivalents	$	726	$	997	$	328		$	—		$	2,051
Accounts receivable		—		62		4			—			66
Accounts receivable, related party		—		113		—			—			113
Other receivables		63		3,572		17			(3,642	)		10
Inventories		—		1,604		43			(2	)		1,645
Other current assets		112		238		—			3			353
Total current assets		901		6,586		392			(3,641	)		4,238
Property, plant and equipment, net      of accumulated depreciation		2		1,314		32			—			1,348
Trademarks and other intangible assets, net     of accumulated amortization		—		29,432		14			(2	)		29,444
Goodwill		—		15,976		16			—			15,992
Long-term intercompany notes receivable		1,390		148		—			(1,538	)		—
Investment in subsidiaries		36,865		333		—			(37,198	)		—
Other assets and deferred charges		80		52		37			(96	)		73
Total assets	$	39,238	$	53,841	$	491		$	(42,475	)	$	51,095
Liabilities and shareholders’ equity
Accounts payable	$	1	$	213	$	7		$	—		$	221
Tobacco settlement accruals		—		2,498		—			—			2,498
Due to related party		—		7		—			—			7
Deferred revenue, related party		—		66		—			—			66
Current maturities of long-term debt		448		53		—			—			501
Dividends payable on common stock		656		—		—			—			656
Other current liabilities		3,767		871		40			(3,642	)		1,036
Total current liabilities		4,872		3,708		47			(3,642	)		4,985
Long-term intercompany notes payable		148		900		490			(1,538	)		—
Long-term debt (less current maturities)		12,404		260		—			—			12,664
Long-term deferred income taxes, net		—		9,700		—			(93	)		9,607
Long-term retirement benefits (less current portion)		59		1,767		43			—			1,869
Long-term deferred revenue, related party		—		39		—			—			39
Other noncurrent liabilities		44		176		—			—			220
Shareholders' equity (deficit)		21,711		37,291		(89	)		(37,202	)		21,711
Total liabilities and shareholders’ equity	$	39,238	$	53,841	$	491		$	(42,475	)	$	51,095

RJR Tobacco

Condensed Consolidating Statements of Income

Condensed Consolidating Statements of Income

(Dollars in Millions)

	Parent Guarantor			Issuer			Guarantor			Non- Guarantors			Eliminations			Consolidated
For the Three Months Ended June 30, 2017
Net sales	$	—		$	2,677		$	—		$	651		$	(38	)	$	3,290
Net sales, related party		—			28			—			—			—			28
Net sales		—			2,705			—			651			(38	)		3,318
Cost of products sold		—			1,069			—			248			(39	)		1,278
Selling, general and administrative expenses, net		12			1,507			—			(1,042	)		1			478
Amortization expense		—			4			—			2			—			6
Operating income (loss)		(12	)		125			—			1,443			—			1,556
Interest and debt expense		148			2			—			17			(17	)		150
Interest income		(15	)		(2	)		(2	)		(1	)		17			(3	)
Other expense (income), net		1			—			(10	)		9			11			11
Income (loss) before income taxes		(146	)		125			12			1,418			(11	)		1,398
Provision for (benefit from) income taxes		(50	)		46			—			483			—			479
Equity income from subsidiaries		1,015			735			813			—			(2,563	)		—
Net income	$	919		$	814		$	825		$	935		$	(2,574	)	$	919
For the Three Months Ended June 30, 2016
Net sales	$	—		$	2,626		$	—		$	557		$	(42	)	$	3,141
Net sales, related party		—			54			—			—			—			54
Net sales		—			2,680			—			557			(42	)		3,195
Cost of products sold		—			1,108			—			210			(43	)		1,275
Selling, general and administrative expenses, net		6			714			—			(223	)		2			499
Amortization expense		—			5			—			1			—			6
Operating income (loss)		(6	)		853			—			569			(1	)		1,415
Interest and debt expense		149			3			—			22			(22	)		152
Interest income		(21	)		(1	)		(1	)		(1	)		22			(2	)
Other expense (income), net		—			2			(10	)		(4	)		11			(1	)
Income (loss) before income taxes		(134	)		849			11			552			(12	)		1,266
Provision for (benefit from) income taxes		(48	)		325			—			193			—			470
Equity income from subsidiaries		882			220			746			—			(1,848	)		—
Net income	$	796		$	744		$	757		$	359		$	(1,860	)	$	796

Condensed Consolidating Statements of Income

(Dollars in Millions)

	Parent Guarantor			Issuer			Guarantor			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2017
Net sales	$	—		$	5,053		$	—		$	1,238		$	(90	)	$	6,201
Net sales, related party		—			66			—			—			—			66
Net sales		—			5,119			—			1,238			(90	)		6,267
Cost of products sold		—			2,094			—			472			(89	)		2,477
Selling, general and administrative expenses, net		27			2,826			(1	)		(1,957	)		1			896
Amortization expense		—			8			—			4			—			12
Operating income (loss)		(27	)		191			1			2,719			(2	)		2,882
Interest and debt expense		295			4			—			37			(37	)		299
Interest income		(35	)		(3	)		(2	)		(2	)		37			(5	)
Other expense (income), net		2			1			(21	)		12			21			15
Income (loss) before income taxes		(289	)		189			24			2,672			(23	)		2,573
Provision for (benefit from) income taxes		(125	)		84			—			915			—			874
Equity income from subsidiaries		1,863			1,378			1,479			—			(4,720	)		—
Net income	$	1,699		$	1,483		$	1,503		$	1,757		$	(4,743	)	$	1,699
For the Six Months Ended June 30, 2016
Net sales	$	—		$	5,009		$	—		$	1,081		$	(87	)	$	6,003
Net sales, related party		—			109			—			—			—			109
Net sales		—			5,118			—			1,081			(87	)		6,112
Cost of products sold		—			2,125			—			404			(89	)		2,440
Selling, general and administrative expenses, net		22			1,349			—			(409	)		2			964
Gain on divestiture		—			—			—			(4,861	)		—			(4,861	)
Amortization expense		—			9			—			3			—			12
Operating income (loss)		(22	)		1,635			—			5,944			—			7,557
Interest and debt expense		323			3			—			48			(48	)		326
Interest income		(47	)		(3	)		(2	)		(1	)		48			(5	)
Other expense (income), net		240			6			(20	)		3			22			251
Income (loss) before income taxes		(538	)		1,629			22			5,894			(22	)		6,985
Provision for (benefit from) income taxes		(190	)		652			—			2,162			—			2,624
Equity income from subsidiaries		4,709			404			1,402			—			(6,515	)		—
Net income	$	4,361		$	1,381		$	1,424		$	3,732		$	(6,537	)	$	4,361

Condensed Consolidating Statements of Comprehensive Income

Condensed Consolidating Statements of Comprehensive Income

(Dollars in Millions)

	Parent Guarantor			Issuer			Guarantor			Non- Guarantors			Eliminations			Consolidated
For the Three Months Ended June 30, 2017
Net income	$	919		$	814		$	825		$	935		$	(2,574	)	$	919
Other comprehensive income (loss), net of tax:
Retirement benefits		13			32			31			(18	)		(45	)		13
Cumulative translation adjustment and other		11			12			12			12			(36	)		11
Comprehensive income	$	943		$	858		$	868		$	929		$	(2,655	)	$	943
For the Three Months Ended June 30, 2016
Net income	$	796		$	744		$	757		$	359		$	(1,860	)	$	796
Other comprehensive income (loss), net of tax:
Retirement benefits		39			44			42			(3	)		(83	)		39
Long-term investments		4			4			4			—			(8	)		4
Cumulative translation adjustment and other		(5	)		(4	)		(5	)		(5	)		14			(5	)
Comprehensive income	$	834		$	788		$	798		$	351		$	(1,937	)	$	834
For the Six Months Ended June 30, 2017
Net income	$	1,699		$	1,483		$	1,503		$	1,757		$	(4,743	)	$	1,699
Other comprehensive income (loss), net of tax:
Retirement benefits		9			29			28			(17	)		(40	)		9
Cumulative translation adjustment and other		14			14			15			15			(44	)		14
Comprehensive income	$	1,722		$	1,526		$	1,546		$	1,755		$	(4,827	)	$	1,722
For the Six Months Ended June 30, 2016
Net income	$	4,361		$	1,381		$	1,424		$	3,732		$	(6,537	)	$	4,361
Other comprehensive income (loss), net of tax:
Retirement benefits		33			38			36			(3	)		(71	)		33
Long-term investments		3			3			3			—			(6	)		3
Hedging instruments		11			—			—			—			—			11
Cumulative translation adjustment and other		17			17			17			17			(51	)		17
Comprehensive income	$	4,425		$	1,439		$	1,480		$	3,746		$	(6,665	)	$	4,425

Reclassification Out of Accumulated Other Comprehensive Income Net of Tax

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the three months ended June 30, 2017, were as follows:  

Components	Amounts Reclassified																Affected Line Item
	Parent Guarantor			Issuer			Guarantor			Non- Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(5	)	$	—		$	—	$	—	$	(5	)	Cost of products sold
Amortization of prior service    credit		—			(4	)		—			—		—		(4	)	Selling, general and administrative expenses, net
		—			(9	)		—			—		—		(9	)	Operating income (loss)
Deferred taxes		—			2			—			—		—		2		Provision for (benefit from) income taxes
Net of tax		—			(7	)		—			—		—		(7	)	Net income
Equity income from    subsidiaries		(7	)		—			(7	)		—		14		—		Equity income from subsidiaries
Total reclassifications	$	(7	)	$	(7	)	$	(7	)	$	—	$	14	$	(7	)	Net income

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the three months ended June 30, 2016, were as follows:

Components	Amounts Reclassified																Affected Line Item
	Parent Guarantor			Issuer			Guarantor			Non- Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(5	)	$	—		$	—	$	—	$	(5	)	Cost of products sold
Amortization of prior service    credit		—			(5	)		—			—		—		(5	)	Selling, general and administrative expenses, net
		—			(10	)		—			—		—		(10	)	Operating income (loss)
Deferred taxes		—			4			—			—		—		4		Provision for (benefit from) income taxes
Net of tax		—			(6	)		—			—		—		(6	)	Net income
Equity income from    subsidiaries		(6	)		—			(6	)		—		12		—		Equity income from subsidiaries
Total reclassifications	$	(6	)	$	(6	)	$	(6	)	$	—	$	12	$	(6	)	Net income

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the six months ended June 30, 2017, were as follows:  

Components	Amounts Reclassified																Affected Line Item
	Parent Guarantor			Issuer			Guarantor			Non- Guarantors		Eliminations		Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(9	)	$	—		$	—	$	—	$	(9	)	Cost of products sold
Amortization of prior service    credit		—			(8	)		—			—		—		(8	)	Selling, general and administrative expenses, net
		—			(17	)		—			—		—		(17	)	Operating income (loss)
Deferred taxes		—			6			—			—		—		6		Provision for (benefit from) income taxes
Net of tax		—			(11	)		—			—		—		(11	)	Net income
Equity income from    subsidiaries		(11	)		—			(11	)		—		22		—		Equity income from subsidiaries
Total reclassifications	$	(11	)	$	(11	)	$	(11	)	$	—	$	22	$	(11	)	Net income

Details about the reclassifications out of accumulated other comprehensive loss and the affected line items in the condensed consolidating statements of income (unaudited) for the six months ended June 30, 2016, were as follows:

Components	Amounts Reclassified																Affected Line Item
	Parent Guarantor			Issuer			Guarantor		Non- Guarantors		Eliminations			Consolidated
Defined benefit pension and    postretirement plans:
Amortization of prior service    credit	$	—		$	(10	)	$	—	$	—	$	—		$	(10	)	Cost of products sold
Amortization of prior service    credit		—			(10	)		—		—		—			(10	)	Selling, general and administrative expenses, net
		—			(20	)		—		—		—			(20	)	Operating income (loss)
Deferred taxes		—			8			—		—		—			8		Provision for (benefit from) income taxes
Net of tax		—			(12	)		—		—		—			(12	)	Net income
Long-term investments:
Realized gain on long-term    investments		—			(3	)		—		—		—			(3	)	Other expense (income), net
Deferred taxes		—			1			—		—		—			1		Provision for (benefit from) income taxes
Net of tax		—			(2	)		—		—		—			(2	)	Net income
Loss on hedging instruments:
Forward starting interest rate    contracts		16													16		Other expense (income), net
Amortization of realized loss		1			—			—		—		—			1		Interest and debt expense
		17			—			—		—		—			17		Income (loss) before income taxes
Deferred taxes		(6	)		—			—		—		—			(6	)	Provision for (benefit from) income taxes
Net of tax		11			—			—		—		—			11		Net income
Cumulative translation    adjustment and other:
Derecognition of cumulative    translation adjustment		—			—			—		27		—			27		Gain on divestiture
Equity income from    subsidiaries		13			27			13		—		(53	)		—		Equity income from subsidiaries
Total reclassifications	$	24		$	13		$	13	$	27	$	(53	)	$	24		Net income

Condensed Consolidating Statements of Cash Flows

Condensed Consolidating Statements of Cash Flows

(Dollars in Millions)

	Parent Guarantor			Issuer			Guarantor			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2017
Cash flows from operating activities	$	1,714		$	510		$	442		$	1,045		$	(2,434	)	$	1,277
Cash flows from (used in) investing activities:
Capital expenditures		—			(46	)		—			(20	)		—			(66	)
Return of intercompany investments		145			12			679			—			(836	)		—
Other, net		205			—			9			11			(224	)		1
Net cash flows from (used in) investing activities		350			(34	)		688			(9	)		(1,060	)		(65	)
Cash flows from (used in) financing activities:
Dividends paid on common stock		(1,384	)		(365	)		(985	)		(1,063	)		2,413			(1,384	)
Repurchase of common stock		(139	)		—			—			—			—			(139	)
Borrowings under revolving credit facility		500			—			—			—			—			500
Repayments of borrowings under revolving credit    facility		(500	)		—			—			—			—			(500	)
Dividends paid on preferred stock		(21	)		—			—			—			21			—
Distribution of equity		—			(679	)		(145	)		(12	)		836			—
Other, net		(11	)		—			—			(213	)		224			—
Net cash flows used in financing activities		(1,555	)		(1,044	)		(1,130	)		(1,288	)		3,494			(1,523	)
Effect of exchange rate changes on cash and cash    equivalents		—			—			—			18			—			18
Net change in cash and cash equivalents		509			(568	)		—			(234	)		—			(293	)
Cash and cash equivalents at beginning of period		726			670			1			654			—			2,051
Cash and cash equivalents at end of period	$	1,235		$	102		$	1		$	420		$	—		$	1,758

Condensed Consolidating Statements of Cash Flows

(Dollars in Millions)

	Parent Guarantor			Issuer			Guarantor			Non- Guarantors			Eliminations			Consolidated
For the Six Months Ended June 30, 2016
Cash flows from (used in) operating activities	$	(1,012	)	$	120		$	38		$	611		$	(482	)	$	(725	)
Cash flows from (used in) investing activities:
Capital expenditures		—			(59	)		—			(35	)		—			(94	)
Proceeds from settlement of investments		—			182			—			—			—			182
Proceeds from divestiture		5,015			—			—			—			—			5,015
Return of intercompany investments		412			495			598			—			(1,505	)		—
Other, net		260			—			8			11			(279	)		—
Net cash flows from (used in) investing activities		5,687			618			606			(24	)		(1,784	)		5,103
Cash flows from (used in) financing activities:
Dividends paid on common stock		(1,113	)		(9	)		(247	)		(205	)		461			(1,113	)
Repurchase of common stock		(149	)		—			—			—			—			(149	)
Early extinguishment of debt		(3,642	)		(8	)		—			—			—			(3,650	)
Premiums paid for early extinguishment of debt		(206	)		(1	)		—			—			—			(207	)
Proceeds from termination of interest rate swaps		—			66			—			—			—			66
Debt financing fees		(7	)		—			—			—			—			(7	)
Excess tax benefit on stock-based compensation    plans		26			—			—			—			—			26
Dividends paid on preferred stock		(21	)		—			—			—			21			—
Distribution of equity		—			(580	)		(412	)		(513	)		1,505			—
Other, net		(11	)		—			—			(268	)		279			—
Net cash flows used in financing activities		(5,123	)		(532	)		(659	)		(986	)		2,266			(5,034	)
Effect of exchange rate changes on cash and cash    equivalents		—			—			—			7			—			7
Net change in cash and cash equivalents		(448	)		206			(15	)		(392	)		—			(649	)
Cash and cash equivalents at beginning of period		575			809			19			1,164			—			2,567
Cash and cash equivalents at end of period	$	127		$	1,015		$	4		$	772		$	—		$	1,918

Condensed Consolidating Balance Sheets

Condensed Consolidating Balance Sheets

(Dollars in Millions)

	Parent Guarantor		Issuer		Guarantor		Non- Guarantors		Eliminations			Consolidated
June 30, 2017
Assets
Cash and cash equivalents	$	1,235	$	102	$	1	$	420	$	—		$	1,758
Accounts receivable		—		72		—		51		—			123
Accounts receivable, related party		—		1		—		—		—			1
Other receivables		60		95		17		1,158		(1,319	)		11
Inventories		—		748		—		702		(2	)		1,448
Other current assets		13		202		—		89		(9	)		295
Total current assets		1,308		1,220		18		2,420		(1,330	)		3,636
Property, plant and equipment, net     of accumulated depreciation		2		845		—		491		—			1,338
Trademarks and other intangible assets, net     of accumulated amortization		—		309		—		29,124		(1	)		29,432
Goodwill		—		3,454		9,853		2,685		—			15,992
Long-term intercompany notes receivable		1,184		—		65		138		(1,387	)		—
Investment in subsidiaries		34,501		18,674		21,098		—		(74,273	)		—
Other assets and deferred charges		70		1,141		10		14		(1,170	)		65
Total assets	$	37,065	$	25,643	$	31,044	$	34,872	$	(78,161	)	$	50,463
Liabilities and shareholders’ equity
Accounts payable	$	2	$	165	$	—	$	26	$	—		$	193
Tobacco settlement accruals		—		1,729		—		104		—			1,833
Due to related party		—		—		—		—		—			—
Deferred revenue, related party		—		106		—		—		—			106
Current maturities of long-term debt		1,695		53		—		—		—			1,748
Dividends payable on common stock		727		—		—		—		—			727
Other current liabilities		1,378		592		38		257		(1,330	)		935
Total current liabilities		3,802		2,645		38		387		(1,330	)		5,542
Long-term intercompany notes payable		138		—		—		1,249		(1,387	)		—
Long-term debt (less current maturities)		11,134		256		—		—		—			11,390
Long-term deferred income taxes, net		—		—		—		10,781		(1,167	)		9,614
Long-term retirement benefits (less current portion)		58		1,467		26		217		—			1,768
Long-term deferred revenue, related party		—		19		—		—		—			19
Other noncurrent liabilities		47		168		—		29		—			244
Shareholders' equity		21,886		21,088		30,980		22,209		(74,277	)		21,886
Total liabilities and shareholders’ equity	$	37,065	$	25,643	$	31,044	$	34,872	$	(78,161	)	$	50,463

Condensed Consolidating Balance Sheets

(Dollars in Millions)

	Parent Guarantor		Issuer		Guarantor		Non- Guarantors		Eliminations			Consolidated
December 31, 2016
Assets
Cash and cash equivalents	$	726	$	670	$	1	$	654	$	—		$	2,051
Accounts receivable		—		27		—		39		—			66
Accounts receivable, related party		—		113		—		—		—			113
Other receivables		63		5		38		4,828		(4,924	)		10
Inventories		—		812		—		835		(2	)		1,645
Other current assets		112		195		—		43		3			353
Total current assets		901		1,822		39		6,399		(4,923	)		4,238
Property, plant and equipment, net      of accumulated depreciation		2		855		—		491		—			1,348
Trademarks and other intangible assets, net     of accumulated amortization		—		317		—		29,129		(2	)		29,444
Goodwill		—		3,453		9,853		2,686		—			15,992
Long-term intercompany notes receivable		1,390		—		73		148		(1,611	)		—
Investment in subsidiaries		36,865		22,954		23,938		—		(83,757	)		—
Other assets and deferred charges		80		1,204		11		13		(1,235	)		73
Total assets	$	39,238	$	30,605	$	33,914	$	38,866	$	(91,528	)	$	51,095
Liabilities and shareholders’ equity
Accounts payable	$	1	$	190	$	—	$	30	$	—		$	221
Tobacco settlement accruals		—		2,326		—		172		—			2,498
Due to related party		—		7		—		—		—			7
Deferred revenue, related party		—		66		—		—		—			66
Current maturities of long-term debt		448		53		—		—		—			501
Dividends payable on common stock		656		—		—		—		—			656
Other current liabilities		3,767		1,923		2		268		(4,924	)		1,036
Total current liabilities		4,872		4,565		2		470		(4,924	)		4,985
Long-term intercompany notes payable		148		—		—		1,463		(1,611	)		—
Long-term debt (less current maturities)		12,404		260		—		—		—			12,664
Long-term deferred income taxes, net		—		—		—		10,839		(1,232	)		9,607
Long-term retirement benefits (less current portion)		59		1,651		28		131		—			1,869
Long-term deferred revenue, related party		—		39		—		—		—			39
Other noncurrent liabilities		44		153		—		23		—			220
Shareholders' equity		21,711		23,937		33,884		25,940		(83,761	)		21,711
Total liabilities and shareholders’ equity	$	39,238	$	30,605	$	33,914	$	38,866	$	(91,528	)	$	51,095