ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Virginia | 13-3260245 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6601 West Broad Street, Richmond, Virginia | 23230 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | þ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Page No. | ||||
PART I - | FINANCIAL INFORMATION | |||
Item 1. | Financial Statements (Unaudited) | |||
Item 2. | ||||
Item 3. | ||||
Item 4. | ||||
PART II - | OTHER INFORMATION | |||
Item 1. | ||||
Item 1A. | ||||
Item 2. | ||||
Item 6. | ||||
Signature |
June 30, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 819 | $ | 2,369 | ||||
Receivables | 122 | 124 | ||||||
Inventories: | ||||||||
Leaf tobacco | 836 | 957 | ||||||
Other raw materials | 180 | 181 | ||||||
Work in process | 391 | 444 | ||||||
Finished product | 563 | 449 | ||||||
1,970 | 2,031 | |||||||
Deferred income taxes | 1,188 | 1,175 | ||||||
Other current assets | 501 | 387 | ||||||
Total current assets | 4,600 | 6,086 | ||||||
Property, plant and equipment, at cost | 4,866 | 4,877 | ||||||
Less accumulated depreciation | 2,904 | 2,895 | ||||||
1,962 | 1,982 | |||||||
Goodwill | 5,285 | 5,285 | ||||||
Other intangible assets, net | 12,047 | 12,028 | ||||||
Investment in SABMiller | 5,877 | 5,483 | ||||||
Finance assets, net | 1,155 | 1,239 | ||||||
Other assets | 398 | 360 | ||||||
Total Assets | $ | 31,324 | $ | 32,463 |
June 30, 2016 | December 31, 2015 | |||||||
Liabilities | ||||||||
Current portion of long-term debt | $ | — | $ | 4 | ||||
Accounts payable | 193 | 400 | ||||||
Accrued liabilities: | ||||||||
Marketing | 726 | 695 | ||||||
Employment costs | 169 | 198 | ||||||
Settlement charges | 2,264 | 3,590 | ||||||
Other | 1,053 | 1,081 | ||||||
Dividends payable | 1,107 | 1,110 | ||||||
Total current liabilities | 5,512 | 7,078 | ||||||
Long-term debt | 12,837 | 12,843 | ||||||
Deferred income taxes | 5,659 | 5,663 | ||||||
Accrued pension costs | 1,426 | 1,277 | ||||||
Accrued postretirement health care costs | 2,296 | 2,245 | ||||||
Other liabilities | 415 | 447 | ||||||
Total liabilities | 28,145 | 29,553 | ||||||
Contingencies (Note 11) | ||||||||
Redeemable noncontrolling interest | 36 | 37 | ||||||
Stockholders’ Equity | ||||||||
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued) | 935 | 935 | ||||||
Additional paid-in capital | 5,851 | 5,813 | ||||||
Earnings reinvested in the business | 27,915 | 27,257 | ||||||
Accumulated other comprehensive losses | (3,340 | ) | (3,280 | ) | ||||
Cost of repurchased stock (851,955,312 shares at June 30, 2016 and 845,901,836 shares at December 31, 2015) | (28,221 | ) | (27,845 | ) | ||||
Total stockholders’ equity attributable to Altria Group, Inc. | 3,140 | 2,880 | ||||||
Noncontrolling interests | 3 | (7 | ) | |||||
Total stockholders’ equity | 3,143 | 2,873 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 31,324 | $ | 32,463 |
For the Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Net revenues | $ | 12,587 | $ | 12,417 | ||||
Cost of sales | 3,798 | 3,801 | ||||||
Excise taxes on products | 3,176 | 3,270 | ||||||
Gross profit | 5,613 | 5,346 | ||||||
Marketing, administration and research costs | 1,105 | 1,253 | ||||||
Asset impairment and exit costs | 121 | 4 | ||||||
Operating income | 4,387 | 4,089 | ||||||
Interest and other debt expense, net | 392 | 404 | ||||||
Loss on early extinguishment of debt | — | 228 | ||||||
Earnings from equity investment in SABMiller | (265 | ) | (359 | ) | ||||
Gain on derivative financial instrument | (157 | ) | — | |||||
Earnings before income taxes | 4,417 | 3,816 | ||||||
Provision for income taxes | 1,545 | 1,349 | ||||||
Net earnings | 2,872 | 2,467 | ||||||
Net earnings attributable to noncontrolling interests | (2 | ) | (1 | ) | ||||
Net earnings attributable to Altria Group, Inc. | $ | 2,870 | $ | 2,466 | ||||
Per share data: | ||||||||
Basic and diluted earnings per share attributable to Altria Group, Inc. | $ | 1.47 | $ | 1.25 | ||||
Dividends declared | $ | 1.13 | $ | 1.04 |
For the Three Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Net revenues | $ | 6,521 | $ | 6,613 | ||||
Cost of sales | 1,924 | 2,004 | ||||||
Excise taxes on products | 1,640 | 1,738 | ||||||
Gross profit | 2,957 | 2,871 | ||||||
Marketing, administration and research costs | 546 | 643 | ||||||
Asset impairment and exit costs | 1 | 4 | ||||||
Operating income | 2,410 | 2,224 | ||||||
Interest and other debt expense, net | 192 | 195 | ||||||
Earnings from equity investment in SABMiller | (199 | ) | (225 | ) | ||||
Gain on derivative financial instrument | (117 | ) | — | |||||
Earnings before income taxes | 2,534 | 2,254 | ||||||
Provision for income taxes | 880 | 805 | ||||||
Net earnings | 1,654 | 1,449 | ||||||
Net earnings attributable to noncontrolling interests | (1 | ) | (1 | ) | ||||
Net earnings attributable to Altria Group, Inc. | $ | 1,653 | $ | 1,448 | ||||
Per share data: | ||||||||
Basic and diluted earnings per share attributable to Altria Group, Inc. | $ | 0.84 | $ | 0.74 | ||||
Dividends declared | $ | 0.565 | $ | 0.52 |
For the Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Net earnings | $ | 2,872 | $ | 2,467 | ||||
Other comprehensive earnings (losses), net of deferred income taxes: | ||||||||
Currency translation adjustments | 1 | (1 | ) | |||||
Benefit plans | (144 | ) | 81 | |||||
SABMiller | 83 | (276 | ) | |||||
Other comprehensive losses, net of deferred income taxes | (60 | ) | (196 | ) | ||||
Comprehensive earnings | 2,812 | 2,271 | ||||||
Comprehensive earnings attributable to noncontrolling interests | (2 | ) | (1 | ) | ||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 2,810 | $ | 2,270 |
For the Three Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Net earnings | $ | 1,654 | $ | 1,449 | ||||
Other comprehensive earnings (losses), net of deferred income taxes: | ||||||||
Benefit plans | 30 | 39 | ||||||
SABMiller | (43 | ) | 28 | |||||
Other comprehensive (losses) earnings, net of deferred income taxes | (13 | ) | 67 | |||||
Comprehensive earnings | 1,641 | 1,516 | ||||||
Comprehensive earnings attributable to noncontrolling interests | (1 | ) | (1 | ) | ||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 1,640 | $ | 1,515 |
Attributable to Altria Group, Inc. | ||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Earnings Reinvested in the Business | Accumulated Other Comprehensive Losses | Cost of Repurchased Stock | Non-controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||
Balances, December 31, 2014 | $ | 935 | $ | 5,735 | $ | 26,277 | $ | (2,682 | ) | $ | (27,251 | ) | $ | (4 | ) | $ | 3,010 | |||||||||||
Net earnings (losses) (1) | — | — | 5,241 | — | — | (3 | ) | 5,238 | ||||||||||||||||||||
Other comprehensive losses, net of deferred income taxes | — | — | — | (598 | ) | — | — | (598 | ) | |||||||||||||||||||
Stock award activity | — | 78 | — | — | (40 | ) | — | 38 | ||||||||||||||||||||
Cash dividends declared ($2.17 per share) | — | — | (4,261 | ) | — | — | — | (4,261 | ) | |||||||||||||||||||
Repurchases of common stock | — | — | — | — | (554 | ) | — | (554 | ) | |||||||||||||||||||
Balances, December 31, 2015 | 935 | 5,813 | 27,257 | (3,280 | ) | (27,845 | ) | (7 | ) | 2,873 | ||||||||||||||||||
Net earnings (1) | — | — | 2,870 | — | — | — | 2,870 | |||||||||||||||||||||
Other comprehensive losses, net of deferred income taxes | — | — | — | (60 | ) | — | — | (60 | ) | |||||||||||||||||||
Stock award activity | — | 48 | — | — | (35 | ) | — | 13 | ||||||||||||||||||||
Cash dividends declared ($1.13 per share) | — | — | (2,212 | ) | — | — | — | (2,212 | ) | |||||||||||||||||||
Repurchases of common stock | — | — | — | — | (341 | ) | — | (341 | ) | |||||||||||||||||||
Other | — | (10 | ) | — | — | — | 10 | — | ||||||||||||||||||||
Balances, June 30, 2016 | $ | 935 | $ | 5,851 | $ | 27,915 | $ | (3,340 | ) | $ | (28,221 | ) | $ | 3 | $ | 3,143 |
(1) | Amounts attributable to noncontrolling interests for the six months ended June 30, 2016 and for the year ended December 31, 2015 exclude net earnings of $2 million and $5 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section in the condensed consolidated balance sheets at June 30, 2016 and December 31, 2015. |
For the Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Cash Provided by (Used in) Operating Activities | ||||||||
Net earnings | $ | 2,872 | $ | 2,467 | ||||
Adjustments to reconcile net earnings to operating cash flows: | ||||||||
Depreciation and amortization | 98 | 100 | ||||||
Deferred income tax provision | 15 | 28 | ||||||
Earnings from equity investment in SABMiller | (265 | ) | (359 | ) | ||||
Gain on derivative financial instrument | (157 | ) | — | |||||
Asset impairment and exit costs, net of cash paid | 91 | 2 | ||||||
Loss on early extinguishment of debt | — | 228 | ||||||
Cash effects of changes: | ||||||||
Receivables | 3 | 19 | ||||||
Inventories | 72 | 105 | ||||||
Accounts payable | (233 | ) | (154 | ) | ||||
Income taxes | (53 | ) | (153 | ) | ||||
Accrued liabilities and other current assets | (133 | ) | 74 | |||||
Accrued settlement charges | (1,326 | ) | (1,294 | ) | ||||
Pension plan contributions | (6 | ) | (9 | ) | ||||
Pension provisions and postretirement, net | (43 | ) | 55 | |||||
Other | 123 | 138 | ||||||
Net cash provided by operating activities | 1,058 | 1,247 | ||||||
Cash Provided by (Used in) Investing Activities | ||||||||
Capital expenditures | $ | (77 | ) | $ | (99 | ) | ||
Proceeds from finance assets | 56 | 185 | ||||||
Other | (42 | ) | 1 | |||||
Net cash (used in) provided by investing activities | (63 | ) | 87 | |||||
Cash Provided by (Used in) Financing Activities | ||||||||
Long-term debt repaid | — | (793 | ) | |||||
Repurchases of common stock | (341 | ) | (455 | ) | ||||
Dividends paid on common stock | (2,215 | ) | (2,050 | ) | ||||
Premiums and fees related to early extinguishment of debt | — | (226 | ) | |||||
Other | 11 | (8 | ) | |||||
Net cash used in financing activities | (2,545 | ) | (3,532 | ) | ||||
Cash and cash equivalents: | ||||||||
Decrease | (1,550 | ) | (2,198 | ) | ||||
Balance at beginning of period | 2,369 | 3,321 | ||||||
Balance at end of period | $ | 819 | $ | 1,123 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
Total number of shares repurchased | 5.5 | 8.8 | 2.7 | 5.2 | ||||||||||||
Aggregate cost of shares repurchased | $ | 341 | $ | 455 | $ | 173 | $ | 263 | ||||||||
Average price per share of shares repurchased | $ | 61.90 | $ | 51.63 | $ | 64.06 | $ | 50.64 |
For the Six Months Ended June 30, 2016 | For the Three Months Ended June 30, 2016 | ||||||||||||||||||||||
Asset Impairment and Exit Costs (1) | Implementation Costs | Total | Asset Impairment and Exit Costs | Implementation Costs | Total | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Smokeable products | $ | 98 | $ | 3 | $ | 101 | $ | 1 | $ | 1 | $ | 2 | |||||||||||
Smokeless products | 13 | — | 13 | — | — | — | |||||||||||||||||
All other | 5 | — | 5 | — | — | — | |||||||||||||||||
General corporate | 5 | — | 5 | — | — | — | |||||||||||||||||
Total | $ | 121 | $ | 3 | $ | 124 | $ | 1 | $ | 1 | $ | 2 |
For the Six Months Ended June 30, 2016 | |||
(in millions) | |||
Charges | $ | 101 | |
Cash spent | (29 | ) | |
Balances at June 30, 2016 | $ | 72 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | ||||||||||||||||||||||||||||||
Pension | Postretirement | Pension | Postretirement | ||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||
Service cost | $ | 37 | $ | 43 | $ | 8 | $ | 9 | $ | 19 | $ | 22 | $ | 4 | $ | 5 | |||||||||||||||
Interest cost | 141 | 168 | 40 | 51 | 70 | 84 | 19 | 25 | |||||||||||||||||||||||
Expected return on plan assets | (277 | ) | (270 | ) | — | — | (139 | ) | (135 | ) | — | — | |||||||||||||||||||
Amortization: | |||||||||||||||||||||||||||||||
Net loss | 87 | 117 | 16 | 23 | 43 | 58 | 9 | 11 | |||||||||||||||||||||||
Prior service cost (credit) | 2 | 4 | (19 | ) | (20 | ) | 1 | 2 | (9 | ) | (10 | ) | |||||||||||||||||||
Termination and curtailment | 20 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Net periodic benefit cost (income) | $ | 10 | $ | 62 | $ | 45 | $ | 63 | $ | (6 | ) | $ | 31 | $ | 23 | $ | 31 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Net earnings attributable to Altria Group, Inc. | $ | 2,870 | $ | 2,466 | $ | 1,653 | $ | 1,448 | ||||||||
Less: Distributed and undistributed earnings attributable to unvested restricted shares and restricted stock units | (5 | ) | (5 | ) | (3 | ) | (3 | ) | ||||||||
Earnings for basic and diluted EPS | $ | 2,865 | $ | 2,461 | $ | 1,650 | $ | 1,445 | ||||||||
Weighted-average shares for basic and diluted EPS | 1,955 | 1,964 | 1,954 | 1,962 |
For the Six Months Ended June 30, 2016 | ||||||||||||||||
Currency Translation Adjustments | Benefit Plans | SABMiller | Accumulated Other Comprehensive Losses | |||||||||||||
(in millions) | ||||||||||||||||
Balances, December 31, 2015 | $ | (5 | ) | $ | (2,010 | ) | $ | (1,265 | ) | $ | (3,280 | ) | ||||
Other comprehensive earnings (losses) before reclassifications | 1 | (318 | ) | 110 | (207 | ) | ||||||||||
Deferred income taxes | — | 122 | (39 | ) | 83 | |||||||||||
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | 1 | (196 | ) | 71 | (124 | ) | ||||||||||
Amounts reclassified to net earnings | — | 85 | 19 | 104 | ||||||||||||
Deferred income taxes | — | (33 | ) | (7 | ) | (40 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | — | 52 | 12 | 64 | ||||||||||||
Other comprehensive earnings (losses), net of deferred income taxes | 1 | (144 | ) | 83 | (1) | (60 | ) | |||||||||
Balances, June 30, 2016 | $ | (4 | ) | $ | (2,154 | ) | $ | (1,182 | ) | $ | (3,340 | ) |
For the Three Months Ended June 30, 2016 | ||||||||||||||||
Currency Translation Adjustments | Benefit Plans | SABMiller | Accumulated Other Comprehensive Losses | |||||||||||||
(in millions) | ||||||||||||||||
Balances, March 31, 2016 | $ | (4 | ) | $ | (2,184 | ) | $ | (1,139 | ) | $ | (3,327 | ) | ||||
Other comprehensive losses before reclassifications | — | — | (72 | ) | (72 | ) | ||||||||||
Deferred income taxes | — | — | 25 | 25 | ||||||||||||
Other comprehensive losses before reclassifications, net of deferred income taxes | — | — | (47 | ) | (47 | ) | ||||||||||
Amounts reclassified to net earnings | — | 49 | 7 | 56 | ||||||||||||
Deferred income taxes | — | (19 | ) | (3 | ) | (22 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | — | 30 | 4 | 34 | ||||||||||||
Other comprehensive earnings (losses), net of deferred income taxes | — | 30 | (43 | ) | (1) | (13 | ) | |||||||||
Balances, June 30, 2016 | $ | (4 | ) | $ | (2,154 | ) | $ | (1,182 | ) | $ | (3,340 | ) |
For the Six Months Ended June 30, 2015 | ||||||||||||||||
Currency Translation Adjustments | Benefit Plans | SABMiller | Accumulated Other Comprehensive Losses | |||||||||||||
(in millions) | ||||||||||||||||
Balances, December 31, 2014 | $ | (2 | ) | $ | (2,040 | ) | $ | (640 | ) | $ | (2,682 | ) | ||||
Other comprehensive losses before reclassifications | (1 | ) | — | (434 | ) | (435 | ) | |||||||||
Deferred income taxes | — | — | 151 | 151 | ||||||||||||
Other comprehensive losses before reclassifications, net of deferred income taxes | (1 | ) | — | (283 | ) | (284 | ) | |||||||||
Amounts reclassified to net earnings | — | 134 | 9 | 143 | ||||||||||||
Deferred income taxes | — | (53 | ) | (2 | ) | (55 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | — | 81 | 7 | 88 | ||||||||||||
Other comprehensive (losses) earnings, net of deferred income taxes | (1 | ) | 81 | (276 | ) | (1) | (196 | ) | ||||||||
Balances, June 30, 2015 | $ | (3 | ) | $ | (1,959 | ) | $ | (916 | ) | $ | (2,878 | ) |
For the Three Months Ended June 30, 2015 | ||||||||||||||||
Currency Translation Adjustments | Benefit Plans | SABMiller | Accumulated Other Comprehensive Losses | |||||||||||||
(in millions) | ||||||||||||||||
Balances, March 31, 2015 | $ | (3 | ) | $ | (1,998 | ) | $ | (944 | ) | $ | (2,945 | ) | ||||
Other comprehensive earnings before reclassifications | — | — | 37 | 37 | ||||||||||||
Deferred income taxes | — | — | (13 | ) | (13 | ) | ||||||||||
Other comprehensive earnings before reclassifications, net of deferred income taxes | — | — | 24 | 24 | ||||||||||||
Amounts reclassified to net earnings | — | 66 | 5 | 71 | ||||||||||||
Deferred income taxes | — | (27 | ) | (1 | ) | (28 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | — | 39 | 4 | 43 | ||||||||||||
Other comprehensive earnings, net of deferred income taxes | — | 39 | 28 | (1) | 67 | |||||||||||
Balances, June 30, 2015 | $ | (3 | ) | $ | (1,959 | ) | $ | (916 | ) | $ | (2,878 | ) |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Benefit Plans: (1) | ||||||||||||||||
Net loss | $ | 112 | $ | 150 | $ | 57 | $ | 74 | ||||||||
Prior service cost/credit | (27 | ) | (16 | ) | (8 | ) | (8 | ) | ||||||||
85 | 134 | 49 | 66 | |||||||||||||
SABMiller (2) | 19 | 9 | 7 | 5 | ||||||||||||
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings | $ | 104 | $ | 143 | $ | 56 | $ | 71 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Smokeable products | $ | 11,251 | $ | 11,195 | $ | 5,829 | $ | 5,974 | ||||||||
Smokeless products | 1,002 | 911 | 523 | 481 | ||||||||||||
Wine | 316 | 295 | 171 | 161 | ||||||||||||
All other | 18 | 16 | (2 | ) | (3 | ) | ||||||||||
Net revenues | $ | 12,587 | $ | 12,417 | $ | 6,521 | $ | 6,613 | ||||||||
Earnings before income taxes: | ||||||||||||||||
Operating companies income (loss): | ||||||||||||||||
Smokeable products | $ | 3,869 | $ | 3,710 | $ | 2,118 | $ | 2,024 | ||||||||
Smokeless products | 618 | 544 | 338 | 293 | ||||||||||||
Wine | 62 | 62 | 34 | 35 | ||||||||||||
All other | (54 | ) | (104 | ) | (33 | ) | (63 | ) | ||||||||
Amortization of intangibles | (10 | ) | (10 | ) | (5 | ) | (5 | ) | ||||||||
General corporate expenses | (93 | ) | (113 | ) | (42 | ) | (60 | ) | ||||||||
Corporate asset impairment and exit costs | (5 | ) | — | — | — | |||||||||||
Operating income | 4,387 | 4,089 | 2,410 | 2,224 | ||||||||||||
Interest and other debt expense, net | (392 | ) | (404 | ) | (192 | ) | (195 | ) | ||||||||
Loss on early extinguishment of debt | — | (228 | ) | — | — | |||||||||||
Earnings from equity investment in SABMiller | 265 | 359 | 199 | 225 | ||||||||||||
Gain on derivative financial instrument | 157 | — | 117 | — | ||||||||||||
Earnings before income taxes | $ | 4,417 | $ | 3,816 | $ | 2,534 | $ | 2,254 |
For the Six Months Ended June 30, 2016 | |||
(in millions) | |||
Smokeable products segment | $ | 12 | |
Interest and other debt expense, net | 6 | ||
Total | $ | 18 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Smokeable products segment | $ | 27 | $ | 48 | $ | 1 | $ | 5 | ||||||||
Interest and other debt expense, net | 16 | — | 4 | — | ||||||||||||
Total | $ | 43 | $ | 48 | $ | 5 | $ | 5 |
For the Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Balance at beginning of the year | $ | 42 | $ | 42 | ||||
Decrease to allowance | (6 | ) | — | |||||
Balance at June 30 | $ | 36 | $ | 42 |
June 30, 2016 | December 31, 2015 | |||||||
(in millions) | ||||||||
Credit Rating by Standard & Poor’s/Moody’s: | ||||||||
“AAA/Aaa” to “A-/A3” | $ | 214 | $ | 212 | ||||
“BBB+/Baa1” to “BBB-/Baa3” | 584 | 702 | ||||||
“BB+/Ba1” and Lower | 393 | 367 | ||||||
Total | $ | 1,191 | $ | 1,281 |
July 22, 2016 | July 24, 2015 | July 18, 2014 | |||
Individual Smoking and Health Cases (2) | 62 | 65 | 67 | ||
Smoking and Health Class Actions and Aggregated Claims Litigation (3) | 5 | 5 | 5 | ||
Health Care Cost Recovery Actions (4) | 1 | 1 | 1 | ||
“Lights/Ultra Lights” Class Actions | 9 | 12 | 14 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
Accrued liability for tobacco and health litigation items at beginning of period | $ | 132 | $ | 39 | $ | 153 | $ | 77 | |||||||
Pre-tax charges for: | |||||||||||||||
Tobacco and health judgments | 5 | 5 | 1 | 5 | |||||||||||
Related interest costs | 6 | — | 4 | — | |||||||||||
Agreement to resolve federal Engle progeny cases | — | 43 | — | — | |||||||||||
Agreement to resolve Aspinall including related interest costs | 32 | — | — | — | |||||||||||
Payments | (145 | ) | (10 | ) | (128 | ) | (5 | ) | |||||||
Accrued liability for tobacco and health litigation items at end of period | $ | 30 | $ | 77 | $ | 30 | $ | 77 |
▪ | 2003 NPM Adjustment. With one exception (Montana), the courts have ruled that the states’ claims of diligent enforcement are to be submitted to arbitration. PM USA and other PMs entered into an agreement with most of the MSA states and territories concerning the 2003 NPM Adjustment, under which such states and territories would receive a partial liability reduction of 20% for the 2003 NPM Adjustment in the event the arbitration panel determined that they did not diligently enforce during 2003. The Montana state courts ruled that Montana may litigate its diligent enforcement claims in state court, rather than in arbitration. In June 2012, the PMs and Montana entered a consent decree pursuant to which Montana would not be subject to the 2003 NPM Adjustment. |
▪ | 2004 and Subsequent NPM Adjustments. PM USA believes that the MSA requires the states’ diligent enforcement claims for 2004 and thereafter to be determined in multi-state arbitrations, although a number of non-signatory states filed motions in their state courts contending that the claims are to be determined in separate arbitrations for individual states or that there is no arbitrable dispute for 2004. In September 2015, a Missouri intermediate appellate court ruled that Missouri was entitled to a single-state arbitration to determine whether Missouri diligently enforced for 2004. PM USA appealed this ruling, and the Supreme Court of Missouri granted review. No assurance can be given that the outcome of such appeal will be favorable to PM USA. In December 2015, a Wisconsin trial court ruled that Wisconsin must arbitrate its claim of diligent enforcement for 2004, and Wisconsin has since agreed to join the 2004 diligent enforcement arbitration. |
▪ | defendants falsely denied, distorted and minimized the significant adverse health consequences of smoking; |
▪ | defendants hid from the public that cigarette smoking and nicotine are addictive; |
▪ | defendants falsely denied that they control the level of nicotine delivered to create and sustain addiction; |
▪ | defendants falsely marketed and promoted “low tar/light” cigarettes as less harmful than full-flavor cigarettes; |
▪ | defendants falsely denied that they intentionally marketed to youth; |
▪ | defendants publicly and falsely denied that ETS is hazardous to non-smokers; and |
▪ | defendants suppressed scientific research. |
▪ | its application to defendants’ subsidiaries; |
▪ | the prohibition on the use of express or implied health messages or health descriptors, but only to the extent of extraterritorial application; |
▪ | its point-of-sale display provisions; and |
▪ | its application to Brown & Williamson Holdings. |
▪ | Aspinall: In August 2004, the Massachusetts Supreme Judicial Court affirmed the class certification order. In August 2006, the trial court denied PM USA’s motion for summary judgment and granted plaintiffs’ cross-motion for summary judgment on the defenses of federal preemption and a state law exemption to Massachusetts’ consumer protection statute. On motion of the parties, the trial court subsequently reported its decision to deny summary judgment to the appeals court for review and stayed further proceedings pending completion of the appellate review. In March 2009, the Massachusetts Supreme Judicial Court affirmed the order denying summary judgment to PM USA and granting the plaintiffs’ cross-motion. In January 2010, plaintiffs moved for partial summary judgment as to liability claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit described above). In March 2012, the trial court denied plaintiffs’ motion. In February 2013, the trial court, upon agreement of the parties, dismissed without prejudice plaintiffs’ claims against Altria Group, Inc. PM USA is now the sole defendant in the case. In September 2013, the case was transferred to the Business Litigation Session of the Massachusetts Superior Court. Also in September 2013, plaintiffs filed a motion for partial summary judgment on the scope of remedies available in the case, which the Massachusetts Superior Court denied in February 2014, concluding that plaintiffs cannot obtain disgorgement of profits as an equitable remedy and that their recovery is limited to actual damages or $25 per class member if they cannot prove actual damages greater than $25. Plaintiffs filed a motion asking the trial court to report its February 2014 ruling to the Massachusetts Appeals Court for review, which the trial court denied. In March 2014, plaintiffs petitioned the Massachusetts Appeals Court for review of the ruling, which the appellate court denied. In August 2015, the trial court denied various pre-trial motions filed by PM USA, including a motion for summary judgment on the ground that plaintiffs have no proof of injury. Trial began in October 2015 and concluded in November 2015. In December 2015, PM USA filed a motion to decertify the class. In February 2016, the trial court issued its “Findings of Fact and Conclusions of Law,” finding that (1) PM USA violated Massachusetts consumer protection laws in marketing Marlboro “Lights” and (2) plaintiffs proved that class members were economically injured, but did not prove a specific measure of damages. As a result, the court awarded statutory damages of $25 per class member, for a |
▪ | Larsen: In August 2005, a Missouri Court of Appeals affirmed the class certification order. In December 2009, the trial court denied plaintiffs’ motion for reconsideration of the period during which potential class members can qualify to become part of the class. The class period remains 1995-2003. In June 2010, PM USA’s motion for partial summary judgment regarding plaintiffs’ request for punitive damages was denied. In April 2010, plaintiffs moved for partial summary judgment as to an element of liability in the case, claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit described above). The plaintiffs’ motion was denied in December 2010. In June 2011, PM USA filed various summary judgment motions challenging the plaintiffs’ claims. In August 2011, the trial court granted PM USA’s motion for partial summary judgment, ruling that plaintiffs could not present a damages claim based on allegations that Marlboro Lights are more dangerous than Marlboro Reds. The trial court denied PM USA’s remaining summary judgment motions. Trial in the case began in September 2011 and, in October 2011, the court declared a mistrial after the jury failed to reach a verdict. In January 2014, the trial court reversed its prior ruling granting partial summary judgment against plaintiffs’ “more dangerous” claim and allowed plaintiffs to pursue that claim. In October 2014, PM USA filed motions to decertify the class and for partial summary judgment on plaintiffs’ “more dangerous” claim, which the court denied in June 2015. Upon retrial, in April 2016, the jury returned a verdict in favor of PM USA. In May 2016, plaintiffs filed a motion for a new trial, which PM USA opposed in June 2016. |
▪ | Miner: In June 2007, the United States Supreme Court reversed the lower court rulings in Miner (formerly known as Watson) that denied plaintiffs’ motion to have the case heard in a state, as opposed to federal, trial court. The Supreme Court rejected defendants’ contention that the case must be tried in federal court under the “federal officer” statute. Following remand, the case was removed again to federal court in Arkansas and transferred to the MDL proceeding discussed above. In November 2010, the district court in the MDL proceeding remanded the case to Arkansas state court. In December 2011, plaintiffs voluntarily dismissed their claims against Altria Group, Inc. without prejudice. In March 2013, plaintiffs filed a class certification motion. In November 2013, the trial court granted class certification. The certified class includes those individuals who, from November 1, 1971 through June 22, 2010, purchased Marlboro Lights and Marlboro Ultra Lights for personal consumption in Arkansas. PM USA filed a notice of appeal of the class certification ruling to the Arkansas Supreme Court in December 2013. In February 2015, the Arkansas Supreme Court affirmed the trial court’s class certification order. In May 2015, PM USA filed a motion for partial summary judgment seeking to foreclose any recovery for cigarette purchases prior to 1999, when a private right of action was added to the consumer protection statute under which plaintiffs are suing. The trial court denied the motion in July 2015. In June 2016, the trial court granted PM USA’s motion for partial summary judgment to limit any damages claimed by the plaintiffs’ class to purchases made prior to May 2003. Trial is currently scheduled to begin on August 2, 2016. |
▪ | the date, if any, on which PM USA consolidates with or merges into Altria Group, Inc. or any successor; |
▪ | the date, if any, on which Altria Group, Inc. or any successor consolidates with or merges into PM USA; |
▪ | the payment in full of the Obligations pertaining to such Guarantees; and |
▪ | the rating of Altria Group, Inc.’s long-term senior unsecured debt by Standard & Poor’s of A or higher. |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 766 | $ | 1 | $ | 52 | $ | — | $ | 819 | ||||||||||
Receivables | — | 9 | 113 | — | 122 | |||||||||||||||
Inventories: | ||||||||||||||||||||
Leaf tobacco | — | 463 | 373 | — | 836 | |||||||||||||||
Other raw materials | — | 114 | 66 | — | 180 | |||||||||||||||
Work in process | — | 5 | 386 | — | 391 | |||||||||||||||
Finished product | — | 182 | 381 | — | 563 | |||||||||||||||
— | 764 | 1,206 | — | 1,970 | ||||||||||||||||
Due from Altria Group, Inc. and subsidiaries | 57 | 2,198 | 1,495 | (3,750 | ) | — | ||||||||||||||
Deferred income taxes | — | 1,276 | 10 | (98 | ) | 1,188 | ||||||||||||||
Other current assets | 312 | 159 | 62 | (32 | ) | 501 | ||||||||||||||
Total current assets | 1,135 | 4,407 | 2,938 | (3,880 | ) | 4,600 | ||||||||||||||
Property, plant and equipment, at cost | — | 3,057 | 1,809 | — | 4,866 | |||||||||||||||
Less accumulated depreciation | — | 2,144 | 760 | — | 2,904 | |||||||||||||||
— | 913 | 1,049 | — | 1,962 | ||||||||||||||||
Goodwill | — | — | 5,285 | — | 5,285 | |||||||||||||||
Other intangible assets, net | — | 2 | 12,045 | — | 12,047 | |||||||||||||||
Investment in SABMiller | 5,877 | — | — | — | 5,877 | |||||||||||||||
Investment in consolidated subsidiaries | 11,175 | 2,716 | — | (13,891 | ) | — | ||||||||||||||
Finance assets, net | — | — | 1,155 | — | 1,155 | |||||||||||||||
Due from Altria Group, Inc. and subsidiaries | 4,790 | — | — | (4,790 | ) | — | ||||||||||||||
Other assets | 20 | 570 | 144 | (336 | ) | 398 | ||||||||||||||
Total Assets | $ | 22,997 | $ | 8,608 | $ | 22,616 | $ | (22,897 | ) | $ | 31,324 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Accounts payable | $ | 1 | $ | 70 | $ | 122 | $ | — | $ | 193 | ||||||||||
Accrued liabilities: | ||||||||||||||||||||
Marketing | — | 614 | 112 | — | 726 | |||||||||||||||
Employment costs | 69 | 9 | 91 | — | 169 | |||||||||||||||
Settlement charges | — | 2,257 | 7 | — | 2,264 | |||||||||||||||
Other | 368 | 458 | 325 | (98 | ) | 1,053 | ||||||||||||||
Income taxes | 32 | — | — | (32 | ) | — | ||||||||||||||
Dividends payable | 1,107 | — | — | — | 1,107 | |||||||||||||||
Due to Altria Group, Inc. and subsidiaries | 3,441 | 243 | 66 | (3,750 | ) | — | ||||||||||||||
Total current liabilities | 5,018 | 3,651 | 723 | (3,880 | ) | 5,512 | ||||||||||||||
Long-term debt | 12,837 | — | — | — | 12,837 | |||||||||||||||
Deferred income taxes | 1,686 | — | 4,309 | (336 | ) | 5,659 | ||||||||||||||
Accrued pension costs | 204 | — | 1,222 | — | 1,426 | |||||||||||||||
Accrued postretirement health care costs | — | 1,471 | 825 | — | 2,296 | |||||||||||||||
Due to Altria Group, Inc. and subsidiaries | — | — | 4,790 | (4,790 | ) | — | ||||||||||||||
Other liabilities | 112 | 166 | 137 | — | 415 | |||||||||||||||
Total liabilities | 19,857 | 5,288 | 12,006 | (9,006 | ) | 28,145 | ||||||||||||||
Contingencies | ||||||||||||||||||||
Redeemable noncontrolling interest | — | — | 36 | — | 36 | |||||||||||||||
Stockholders’ Equity | ||||||||||||||||||||
Common stock | 935 | — | 9 | (9 | ) | 935 | ||||||||||||||
Additional paid-in capital | 5,851 | 3,310 | 11,235 | (14,545 | ) | 5,851 | ||||||||||||||
Earnings reinvested in the business | 27,915 | 280 | 1,148 | (1,428 | ) | 27,915 | ||||||||||||||
Accumulated other comprehensive losses | (3,340 | ) | (270 | ) | (1,821 | ) | 2,091 | (3,340 | ) | |||||||||||
Cost of repurchased stock | (28,221 | ) | — | — | — | (28,221 | ) | |||||||||||||
Total stockholders’ equity attributable to Altria Group, Inc. | 3,140 | 3,320 | 10,571 | (13,891 | ) | 3,140 | ||||||||||||||
Noncontrolling interests | — | — | 3 | — | 3 | |||||||||||||||
Total stockholders’ equity | 3,140 | 3,320 | 10,574 | (13,891 | ) | 3,143 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 22,997 | $ | 8,608 | $ | 22,616 | $ | (22,897 | ) | $ | 31,324 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 2,313 | $ | — | $ | 56 | $ | — | $ | 2,369 | ||||||||||
Receivables | — | 7 | 117 | — | 124 | |||||||||||||||
Inventories: | ||||||||||||||||||||
Leaf tobacco | — | 562 | 395 | — | 957 | |||||||||||||||
Other raw materials | — | 123 | 58 | — | 181 | |||||||||||||||
Work in process | — | 5 | 439 | — | 444 | |||||||||||||||
Finished product | — | 121 | 328 | — | 449 | |||||||||||||||
— | 811 | 1,220 | — | 2,031 | ||||||||||||||||
Due from Altria Group, Inc. and subsidiaries | — | 3,821 | 1,807 | (5,628 | ) | — | ||||||||||||||
Deferred income taxes | — | 1,268 | 7 | (100 | ) | 1,175 | ||||||||||||||
Other current assets | 284 | 65 | 112 | (74 | ) | 387 | ||||||||||||||
Total current assets | 2,597 | 5,972 | 3,319 | (5,802 | ) | 6,086 | ||||||||||||||
Property, plant and equipment, at cost | — | 3,102 | 1,775 | — | 4,877 | |||||||||||||||
Less accumulated depreciation | — | 2,157 | 738 | — | 2,895 | |||||||||||||||
— | 945 | 1,037 | — | 1,982 | ||||||||||||||||
Goodwill | — | — | 5,285 | — | 5,285 | |||||||||||||||
Other intangible assets, net | — | 2 | 12,026 | — | 12,028 | |||||||||||||||
Investment in SABMiller | 5,483 | — | — | — | 5,483 | |||||||||||||||
Investment in consolidated subsidiaries | 11,648 | 2,715 | — | (14,363 | ) | — | ||||||||||||||
Finance assets, net | — | — | 1,239 | — | 1,239 | |||||||||||||||
Due from Altria Group, Inc. and subsidiaries | 4,790 | — | — | (4,790 | ) | — | ||||||||||||||
Other assets | 20 | 536 | 131 | (327 | ) | 360 | ||||||||||||||
Total Assets | $ | 24,538 | $ | 10,170 | $ | 23,037 | $ | (25,282 | ) | $ | 32,463 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | — | $ | 4 | $ | — | $ | 4 | ||||||||||
Accounts payable | 3 | 104 | 293 | — | 400 | |||||||||||||||
Accrued liabilities: | ||||||||||||||||||||
Marketing | — | 586 | 109 | — | 695 | |||||||||||||||
Employment costs | 18 | 11 | 169 | — | 198 | |||||||||||||||
Settlement charges | — | 3,585 | 5 | — | 3,590 | |||||||||||||||
Other | 354 | 616 | 285 | (174 | ) | 1,081 | ||||||||||||||
Dividends payable | 1,110 | — | — | — | 1,110 | |||||||||||||||
Due to Altria Group, Inc. and subsidiaries | 5,427 | 191 | 10 | (5,628 | ) | — | ||||||||||||||
Total current liabilities | 6,912 | 5,093 | 875 | (5,802 | ) | 7,078 | ||||||||||||||
Long-term debt | 12,831 | — | 12 | — | 12,843 | |||||||||||||||
Deferred income taxes | 1,547 | — | 4,443 | (327 | ) | 5,663 | ||||||||||||||
Accrued pension costs | 215 | — | 1,062 | — | 1,277 | |||||||||||||||
Accrued postretirement health care costs | — | 1,460 | 785 | — | 2,245 | |||||||||||||||
Due to Altria Group, Inc. and subsidiaries | — | — | 4,790 | (4,790 | ) | — | ||||||||||||||
Other liabilities | 153 | 126 | 168 | — | 447 | |||||||||||||||
Total liabilities | 21,658 | 6,679 | 12,135 | (10,919 | ) | 29,553 | ||||||||||||||
Contingencies | ||||||||||||||||||||
Redeemable noncontrolling interest | — | — | 37 | — | 37 | |||||||||||||||
Stockholders’ Equity | ||||||||||||||||||||
Common stock | 935 | — | 9 | (9 | ) | 935 | ||||||||||||||
Additional paid-in capital | 5,813 | 3,310 | 11,456 | (14,766 | ) | 5,813 | ||||||||||||||
Earnings reinvested in the business | 27,257 | 436 | 1,099 | (1,535 | ) | 27,257 | ||||||||||||||
Accumulated other comprehensive losses | (3,280 | ) | (255 | ) | (1,692 | ) | 1,947 | (3,280 | ) | |||||||||||
Cost of repurchased stock | (27,845 | ) | — | — | — | (27,845 | ) | |||||||||||||
Total stockholders’ equity attributable to Altria Group, Inc. | 2,880 | 3,491 | 10,872 | (14,363 | ) | 2,880 | ||||||||||||||
Noncontrolling interests | — | — | (7 | ) | — | (7 | ) | |||||||||||||
Total stockholders’ equity | 2,880 | 3,491 | 10,865 | (14,363 | ) | 2,873 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 24,538 | $ | 10,170 | $ | 23,037 | $ | (25,282 | ) | $ | 32,463 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Net revenues | $ | — | $ | 10,910 | $ | 1,696 | $ | (19 | ) | $ | 12,587 | |||||||||
Cost of sales | — | 3,317 | 500 | (19 | ) | 3,798 | ||||||||||||||
Excise taxes on products | — | 3,069 | 107 | — | 3,176 | |||||||||||||||
Gross profit | — | 4,524 | 1,089 | — | 5,613 | |||||||||||||||
Marketing, administration and research costs | 73 | 828 | 204 | — | 1,105 | |||||||||||||||
Asset impairment and exit costs | 5 | 95 | 21 | — | 121 | |||||||||||||||
Operating (expense) income | (78 | ) | 3,601 | 864 | — | 4,387 | ||||||||||||||
Interest and other debt expense, net | 264 | 17 | 111 | — | 392 | |||||||||||||||
Earnings from equity investment in SABMiller | (265 | ) | — | — | — | (265 | ) | |||||||||||||
Gain on derivative financial instrument | (157 | ) | — | — | — | (157 | ) | |||||||||||||
Earnings before income taxes and equity earnings of subsidiaries | 80 | 3,584 | 753 | — | 4,417 | |||||||||||||||
(Benefit) provision for income taxes | (37 | ) | 1,316 | 266 | — | 1,545 | ||||||||||||||
Equity earnings of subsidiaries | 2,753 | 140 | — | (2,893 | ) | — | ||||||||||||||
Net earnings | 2,870 | 2,408 | 487 | (2,893 | ) | 2,872 | ||||||||||||||
Net earnings attributable to noncontrolling interests | — | — | (2 | ) | — | (2 | ) | |||||||||||||
Net earnings attributable to Altria Group, Inc. | $ | 2,870 | $ | 2,408 | $ | 485 | $ | (2,893 | ) | $ | 2,870 | |||||||||
Net earnings | $ | 2,870 | $ | 2,408 | $ | 487 | $ | (2,893 | ) | $ | 2,872 | |||||||||
Other comprehensive losses, net of deferred income taxes | (60 | ) | (15 | ) | (129 | ) | 144 | (60 | ) | |||||||||||
Comprehensive earnings | 2,810 | 2,393 | 358 | (2,749 | ) | 2,812 | ||||||||||||||
Comprehensive earnings attributable to noncontrolling interests | — | — | (2 | ) | — | (2 | ) | |||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 2,810 | $ | 2,393 | $ | 356 | $ | (2,749 | ) | $ | 2,810 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Net revenues | $ | — | $ | 10,878 | $ | 1,560 | $ | (21 | ) | $ | 12,417 | |||||||||
Cost of sales | — | 3,312 | 510 | (21 | ) | 3,801 | ||||||||||||||
Excise taxes on products | — | 3,164 | 106 | — | 3,270 | |||||||||||||||
Gross profit | — | 4,402 | 944 | — | 5,346 | |||||||||||||||
Marketing, administration and research costs | 89 | 959 | 205 | — | 1,253 | |||||||||||||||
Asset impairment and exit costs | — | — | 4 | — | 4 | |||||||||||||||
Operating (expense) income | (89 | ) | 3,443 | 735 | — | 4,089 | ||||||||||||||
Interest and other debt expense, net | 292 | — | 112 | — | 404 | |||||||||||||||
Loss on early extinguishment of debt | 228 | — | — | — | 228 | |||||||||||||||
Earnings from equity investment in SABMiller | (359 | ) | — | — | — | (359 | ) | |||||||||||||
(Loss) earnings before income taxes and equity earnings of subsidiaries | (250 | ) | 3,443 | 623 | — | 3,816 | ||||||||||||||
(Benefit) provision for income taxes | (145 | ) | 1,274 | 220 | — | 1,349 | ||||||||||||||
Equity earnings of subsidiaries | 2,571 | 126 | — | (2,697 | ) | — | ||||||||||||||
Net earnings | 2,466 | 2,295 | 403 | (2,697 | ) | 2,467 | ||||||||||||||
Net earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Net earnings attributable to Altria Group, Inc. | $ | 2,466 | $ | 2,295 | $ | 402 | $ | (2,697 | ) | $ | 2,466 | |||||||||
Net earnings | $ | 2,466 | $ | 2,295 | $ | 403 | $ | (2,697 | ) | $ | 2,467 | |||||||||
Other comprehensive (losses) earnings, net of deferred income taxes | (196 | ) | 7 | 70 | (77 | ) | (196 | ) | ||||||||||||
Comprehensive earnings | 2,270 | 2,302 | 473 | (2,774 | ) | 2,271 | ||||||||||||||
Comprehensive earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 2,270 | $ | 2,302 | $ | 472 | $ | (2,774 | ) | $ | 2,270 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Net revenues | $ | — | $ | 5,645 | $ | 886 | $ | (10 | ) | $ | 6,521 | |||||||||
Cost of sales | — | 1,675 | 259 | (10 | ) | 1,924 | ||||||||||||||
Excise taxes on products | — | 1,582 | 58 | — | 1,640 | |||||||||||||||
Gross profit | — | 2,388 | 569 | — | 2,957 | |||||||||||||||
Marketing, administration and research costs | 37 | 413 | 96 | — | 546 | |||||||||||||||
Asset impairment and exit costs | — | 1 | — | — | 1 | |||||||||||||||
Operating (expense) income | (37 | ) | 1,974 | 473 | — | 2,410 | ||||||||||||||
Interest and other debt expense, net | 135 | 2 | 55 | — | 192 | |||||||||||||||
Earnings from equity investment in SABMiller | (199 | ) | — | — | — | (199 | ) | |||||||||||||
Gain on derivative financial instrument | (117 | ) | — | — | — | (117 | ) | |||||||||||||
Earnings before income taxes and equity earnings of subsidiaries | 144 | 1,972 | 418 | — | 2,534 | |||||||||||||||
Provision for income taxes | 12 | 713 | 155 | — | 880 | |||||||||||||||
Equity earnings of subsidiaries | 1,521 | 80 | — | (1,601 | ) | — | ||||||||||||||
Net earnings | 1,653 | 1,339 | 263 | (1,601 | ) | 1,654 | ||||||||||||||
Net earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Net earnings attributable to Altria Group, Inc. | $ | 1,653 | $ | 1,339 | $ | 262 | $ | (1,601 | ) | $ | 1,653 | |||||||||
Net earnings | $ | 1,653 | $ | 1,339 | $ | 263 | $ | (1,601 | ) | $ | 1,654 | |||||||||
Other comprehensive (losses) earnings, net of deferred income taxes | (13 | ) | 2 | 27 | (29 | ) | (13 | ) | ||||||||||||
Comprehensive earnings | 1,640 | 1,341 | 290 | (1,630 | ) | 1,641 | ||||||||||||||
Comprehensive earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 1,640 | $ | 1,341 | $ | 289 | $ | (1,630 | ) | $ | 1,640 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Net revenues | $ | — | $ | 5,810 | $ | 815 | $ | (12 | ) | $ | 6,613 | |||||||||
Cost of sales | — | 1,746 | 270 | (12 | ) | 2,004 | ||||||||||||||
Excise taxes on products | — | 1,684 | 54 | — | 1,738 | |||||||||||||||
Gross profit | — | 2,380 | 491 | — | 2,871 | |||||||||||||||
Marketing, administration and research costs | 47 | 494 | 102 | — | 643 | |||||||||||||||
Asset impairment and exit costs | — | — | 4 | — | 4 | |||||||||||||||
Operating (expense) income | (47 | ) | 1,886 | 385 | — | 2,224 | ||||||||||||||
Interest and other debt expense, net | 138 | 1 | 56 | — | 195 | |||||||||||||||
Earnings from equity investment in SABMiller | (225 | ) | — | — | — | (225 | ) | |||||||||||||
Earnings before income taxes and equity earnings of subsidiaries | 40 | 1,885 | 329 | — | 2,254 | |||||||||||||||
(Benefit) provision for income taxes | (2 | ) | 690 | 117 | — | 805 | ||||||||||||||
Equity earnings of subsidiaries | 1,406 | 65 | — | (1,471 | ) | — | ||||||||||||||
Net earnings | 1,448 | 1,260 | 212 | (1,471 | ) | 1,449 | ||||||||||||||
Net earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Net earnings attributable to Altria Group, Inc. | $ | 1,448 | $ | 1,260 | $ | 211 | $ | (1,471 | ) | $ | 1,448 | |||||||||
Net earnings | $ | 1,448 | $ | 1,260 | $ | 212 | $ | (1,471 | ) | $ | 1,449 | |||||||||
Other comprehensive earnings, net of deferred income taxes | 67 | 3 | 35 | (38 | ) | 67 | ||||||||||||||
Comprehensive earnings | 1,515 | 1,263 | 247 | (1,509 | ) | 1,516 | ||||||||||||||
Comprehensive earnings attributable to noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 1,515 | $ | 1,263 | $ | 246 | $ | (1,509 | ) | $ | 1,515 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Cash Provided by Operating Activities | ||||||||||||||||||||
Net cash provided by operating activities | $ | 2,823 | $ | 998 | $ | 237 | $ | (3,000 | ) | $ | 1,058 | |||||||||
Cash Provided by (Used in) Investing Activities | ||||||||||||||||||||
Capital expenditures | — | (14 | ) | (63 | ) | — | (77 | ) | ||||||||||||
Proceeds from finance assets | — | — | 56 | — | 56 | |||||||||||||||
Other | — | — | (42 | ) | — | (42 | ) | |||||||||||||
Net cash used in investing activities | — | (14 | ) | (49 | ) | — | (63 | ) | ||||||||||||
Cash Provided by (Used in) Financing Activities | ||||||||||||||||||||
Repurchases of common stock | (341 | ) | — | — | — | (341 | ) | |||||||||||||
Dividends paid on common stock | (2,215 | ) | — | — | — | (2,215 | ) | |||||||||||||
Changes in amounts due to/from Altria Group, Inc. and subsidiaries | (1,833 | ) | 1,581 | 252 | — | — | ||||||||||||||
Cash dividends paid to parent | — | (2,564 | ) | (436 | ) | 3,000 | — | |||||||||||||
Other | 19 | — | (8 | ) | — | 11 | ||||||||||||||
Net cash used in financing activities | (4,370 | ) | (983 | ) | (192 | ) | 3,000 | (2,545 | ) | |||||||||||
Cash and cash equivalents: | ||||||||||||||||||||
(Decrease) increase | (1,547 | ) | 1 | (4 | ) | — | (1,550 | ) | ||||||||||||
Balance at beginning of period | 2,313 | — | 56 | — | 2,369 | |||||||||||||||
Balance at end of period | $ | 766 | $ | 1 | $ | 52 | $ | — | $ | 819 |
Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||||
Cash Provided by Operating Activities | ||||||||||||||||||||
Net cash provided by operating activities | $ | 2,316 | $ | 1,312 | $ | 311 | $ | (2,692 | ) | $ | 1,247 | |||||||||
Cash Provided by (Used in) Investing Activities | ||||||||||||||||||||
Capital expenditures | — | (25 | ) | (74 | ) | — | (99 | ) | ||||||||||||
Proceeds from finance assets | — | — | 185 | — | 185 | |||||||||||||||
Other | — | 10 | (9 | ) | — | 1 | ||||||||||||||
Net cash (used in) provided by investing activities | — | (15 | ) | 102 | — | 87 | ||||||||||||||
Cash Provided by (Used in) Financing Activities | ||||||||||||||||||||
Long-term debt repaid | (793 | ) | — | — | — | (793 | ) | |||||||||||||
Repurchases of common stock | (455 | ) | — | — | — | (455 | ) | |||||||||||||
Dividends paid on common stock | (2,050 | ) | — | — | — | (2,050 | ) | |||||||||||||
Changes in amounts due to/from Altria Group, Inc. and subsidiaries | (996 | ) | 820 | 176 | — | — | ||||||||||||||
Premiums and fees related to early extinguishment of debt | (226 | ) | — | — | — | (226 | ) | |||||||||||||
Cash dividends paid to parent | — | (2,119 | ) | (573 | ) | 2,692 | — | |||||||||||||
Other | — | — | (8 | ) | — | (8 | ) | |||||||||||||
Net cash used in financing activities | (4,520 | ) | (1,299 | ) | (405 | ) | 2,692 | (3,532 | ) | |||||||||||
Cash and cash equivalents: | ||||||||||||||||||||
(Decrease) increase | (2,204 | ) | (2 | ) | 8 | — | (2,198 | ) | ||||||||||||
Balance at beginning of period | 3,281 | 3 | 37 | — | 3,321 | |||||||||||||||
Balance at end of period | $ | 1,077 | $ | 1 | $ | 45 | $ | — | $ | 1,123 |
Standards | Description | Effective Date for Public Entity | Effect on financial statements and other significant matters |
ASU Nos. 2014-09; 2015-14; 2016-08; 2016-10; 2016-12 Revenue from Contracts with Customers (Topic 606) | The guidance establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. | The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. | Altria Group, Inc. is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures. |
ASU No. 2015-17 Balance Sheet Classification of Deferred Taxes (Topic 740) | The guidance simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance does not change the current requirement that deferred tax liabilities and assets for each tax-paying jurisdiction be offset and presented as a single amount. The guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. | The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. | Under the new guidance, at June 30, 2016, current deferred income tax assets of approximately $1.2 billion would have been reclassified to noncurrent deferred income tax liabilities ($1.0 billion) and noncurrent deferred income tax assets ($0.2 billion). Altria Group, Inc. will adopt the new guidance by the first quarter of 2017. |
ASU No. 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10) | The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. | The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption of the guidance is not permitted, except for a certain provision of the guidance. | Altria Group, Inc. is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures. |
ASU No. 2016-02 Leases (Topic 842) | The guidance increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. | The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. | Altria Group, Inc. is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures. |
ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting (Topic 718) | The guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. | The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period. | Altria Group, Inc. is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures. |
Standards | Description | Effective Date for Public Entity | Effect on financial statements and other significant matters |
ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326) | The guidance replaces the current incurred loss impairment methodology for recognizing credit losses for financial assets with a methodology that reflects the entity’s current estimate of all expected credit losses and requires consideration of a broader range of reasonable and supportable information for estimating credit losses. | The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. | Altria Group, Inc. is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures. |
Net Earnings | Diluted EPS | ||||||
(in millions, except per share data) | |||||||
For the six months ended June 30, 2015 | $ | 2,466 | $ | 1.25 | |||
2015 Tobacco and health litigation items | 30 | 0.02 | |||||
2015 SABMiller special items | 58 | 0.03 | |||||
2015 Loss on early extinguishment of debt | 143 | 0.07 | |||||
2015 Asset impairment, exit and integration costs, and tax items | 9 | 0.01 | |||||
Subtotal 2015 special items | 240 | 0.13 | |||||
2016 NPM Adjustment Items | (11 | ) | (0.01 | ) | |||
2016 Asset impairment, exit, implementation and acquisition-related costs | (82 | ) | (0.04 | ) | |||
2016 Tobacco and health litigation items | (27 | ) | (0.01 | ) | |||
2016 SABMiller special items | (122 | ) | (0.06 | ) | |||
2016 Gain on derivative financial instrument | 100 | 0.05 | |||||
2016 Tax items | 16 | 0.01 | |||||
Subtotal 2016 special items | (126 | ) | (0.06 | ) | |||
Operations | 290 | 0.15 | |||||
For the six months ended June 30, 2016 | $ | 2,870 | $ | 1.47 | |||
▪ | higher income from the smokeable products and smokeless products segments; |
▪ | lower investment spending in the innovative tobacco products businesses; |
▪ | lower interest and other debt expense, net; and |
▪ | higher operating results from the financial services business. |
Net Earnings | Diluted EPS | ||||||
(in millions, except per share data) | |||||||
For the three months ended June 30, 2015 | $ | 1,448 | $ | 0.74 | |||
2015 Tobacco and health litigation items | 3 | — | |||||
2015 SABMiller special items | 2 | — | |||||
2015 Asset impairment, exit and integration costs | 5 | — | |||||
2015 Tax items | 2 | — | |||||
Subtotal 2015 special items | 12 | — | |||||
2016 Asset impairment, exit, implementation and acquisition-related costs | (4 | ) | — | ||||
2016 Tobacco and health litigation items | (3 | ) | — | ||||
2016 SABMiller special items | (14 | ) | (0.01 | ) | |||
2016 Gain on derivative financial instrument | 74 | 0.03 | |||||
2016 Tax items | 17 | 0.01 | |||||
Subtotal 2016 special items | 70 | 0.03 | |||||
Operations | 123 | 0.07 | |||||
For the three months ended June 30, 2016 | $ | 1,653 | $ | 0.84 | |||
▪ | higher income from the smokeable products and smokeless products segments; |
▪ | higher operating results from the financial services business; and |
▪ | lower investment spending in the innovative tobacco products businesses. |
Expense (Income), Net Excluded from Adjusted Diluted EPS | |||||||
2016 | 2015 | ||||||
NPM Adjustment Items | $ | 0.01 | $ | (0.03 | ) | ||
Asset impairment, exit and implementation costs | 0.05 | — | |||||
Tobacco and health litigation items | 0.01 | 0.05 | |||||
SABMiller special items | 0.06 | 0.04 | |||||
Loss on early extinguishment of debt | — | 0.07 | |||||
Gain on derivative financial instrument | (0.05 | ) | — | ||||
Tax items | (0.01 | ) | — | ||||
$ | 0.07 | $ | 0.13 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Smokeable products | $ | 11,251 | $ | 11,195 | $ | 5,829 | $ | 5,974 | ||||||||
Smokeless products | 1,002 | 911 | 523 | 481 | ||||||||||||
Wine | 316 | 295 | 171 | 161 | ||||||||||||
All other | 18 | 16 | (2 | ) | (3 | ) | ||||||||||
Net revenues | $ | 12,587 | $ | 12,417 | $ | 6,521 | $ | 6,613 | ||||||||
Excise taxes on products: | ||||||||||||||||
Smokeable products | $ | 3,098 | $ | 3,194 | $ | 1,599 | $ | 1,699 | ||||||||
Smokeless products | 67 | 66 | 35 | 34 | ||||||||||||
Wine | 11 | 10 | 6 | 5 | ||||||||||||
Excise taxes on products | $ | 3,176 | $ | 3,270 | $ | 1,640 | $ | 1,738 | ||||||||
Operating income: | ||||||||||||||||
Operating companies income (loss): | ||||||||||||||||
Smokeable products | $ | 3,869 | $ | 3,710 | $ | 2,118 | $ | 2,024 | ||||||||
Smokeless products | 618 | 544 | 338 | 293 | ||||||||||||
Wine | 62 | 62 | 34 | 35 | ||||||||||||
All other | (54 | ) | (104 | ) | (33 | ) | (63 | ) | ||||||||
Amortization of intangibles | (10 | ) | (10 | ) | (5 | ) | (5 | ) | ||||||||
General corporate expenses | (93 | ) | (113 | ) | (42 | ) | (60 | ) | ||||||||
Corporate asset impairment and exit costs | (5 | ) | — | — | — | |||||||||||
Operating income | $ | 4,387 | $ | 4,089 | $ | 2,410 | $ | 2,224 |
▪ | NPM Adjustment Items: Pre-tax expense for NPM Adjustment Items was recorded in Altria Group, Inc.’s condensed consolidated statement of earnings as follows: |
For the Six Months Ended June 30, 2016 | ||||
(in millions) | ||||
Smokeable products segment | $ | 12 | ||
Interest and other debt expense, net | 6 | |||
Total | $ | 18 |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Smokeable products segment | $ | 27 | $ | 48 | $ | 1 | $ | 5 | ||||||||
Interest and other debt expense, net | 16 | — | 4 | — | ||||||||||||
Total | $ | 43 | $ | 48 | $ | 5 | $ | 5 |
▪ | Asset Impairment, Exit and Implementation Costs: In January 2016, Altria Group, Inc. 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 infrastructure and implements a leaner organizational structure, is expected to deliver approximately $300 million in annualized productivity savings by the end of 2017. As a result of this initiative, Altria Group, Inc. expects to incur total pre-tax restructuring charges of approximately $140 million, substantially all of which are expected to be recorded in 2016 and result in cash expenditures. |
For the Six Months Ended June 30, 2016 | For the Three Months Ended June 30, 2016 | ||||||||||||||||||||||
Asset Impairment and Exit Costs | Implementation Costs | Total | Asset Impairment and Exit Costs | Implementation Costs | Total | ||||||||||||||||||
(in millions) | (in millions) | ||||||||||||||||||||||
Smokeable products | $ | 98 | $ | 3 | $ | 101 | $ | 1 | $ | 1 | $ | 2 | |||||||||||
Smokeless products | 13 | — | 13 | — | — | — | |||||||||||||||||
All other | 5 | — | 5 | — | — | — | |||||||||||||||||
General corporate | 5 | — | 5 | — | — | — | |||||||||||||||||
Total | $ | 121 | $ | 3 | $ | 124 | $ | 1 | $ | 1 | $ | 2 |
▪ | Loss on Early Extinguishment of Debt: During the first quarter of 2015, Altria Group, Inc. completed a debt tender offer to purchase for cash $793 million aggregate principal amount of its senior unsecured 9.700% notes due 2018. As a result of the debt tender offer, during the first quarter of 2015, Altria Group, Inc. recorded a pre-tax loss on early extinguishment of debt of $228 million, which included premiums and fees of $226 million and the write-off of the related unamortized debt discount and debt issuance costs of $2 million. |
▪ | Gain on Derivative Financial Instrument: For the six and three months ended June 30, 2016, Altria Group, Inc. recorded a pre-tax gain of $157 million and $117 million, respectively, for the change in the fair value of its derivative financial instrument entered into in connection with the proposed AB InBev and SABMiller business combination. For further discussion, see Note 4. Investment in SABMiller to the condensed consolidated financial statements in Item 1 (“Note 4”). |
▪ | SABMiller Special Items: Altria Group, Inc.’s earnings from its equity investment in SABMiller for the six months ended June 30, 2016 included pre-tax charges of $187 million, consisting primarily of Altria Group, Inc.’s share of |
▪ | Tax Items: Tax items for the six and three months ended June 30, 2016 of $16 million and $17 million, respectively, were due primarily to the reversal of tax accruals no longer required. |
▪ | pending and threatened litigation and bonding requirements; |
▪ | the requirement to issue “corrective statements” in various media in connection with the federal government’s lawsuit; |
▪ | restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), and restrictions and requirements that have been, and in the future will be, imposed by the U.S. Food and Drug Administration (“FDA”); |
▪ | actual and proposed excise tax increases, as well as changes in tax structures and tax stamping requirements; |
▪ | bans and restrictions on tobacco use imposed by governmental entities and private establishments and employers; |
▪ | other federal, state and local government actions, including: |
▪ | increases in the minimum age to purchase tobacco products above the current federal minimum age of 18; |
▪ | restrictions on the sale of tobacco products by certain retail establishments, the sale of certain tobacco products with certain characterizing flavors and the sale of tobacco products in certain package sizes; |
▪ | additional restrictions on the advertising and promotion of tobacco products; |
▪ | other actual and proposed tobacco product legislation and regulation; and |
▪ | governmental investigations; |
▪ | the diminishing prevalence of cigarette smoking and increased efforts by tobacco control advocates and others (including employers and retail establishments) to further restrict tobacco use; |
▪ | changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as economic conditions, excise taxes and price gap relationships, may result in adult tobacco consumers switching to discount products or other lower priced tobacco products; |
▪ | the highly competitive nature of the tobacco categories in which our tobacco subsidiaries operate, including competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation; |
▪ | illicit trade in tobacco products; and |
▪ | potential adverse changes in tobacco leaf price, availability and quality. |
▪ | FSPTCA and FDA Regulation; |
▪ | Excise Taxes; |
▪ | International Treaty on Tobacco Control; |
▪ | State Settlement Agreements; |
▪ | Other Federal, State and Local Regulation and Activity; |
▪ | Illicit Trade in Tobacco Products; |
▪ | Price, Availability and Quality of Agricultural Products; and |
▪ | Timing of Sales. |
▪ | imposes restrictions on the advertising, promotion, sale and distribution of tobacco products, including at retail; |
▪ | bans descriptors such as “light,” “mild” or “low” or similar descriptors when used as descriptors of modified risk unless expressly authorized by the FDA; |
▪ | requires extensive product disclosures to the FDA and may require public disclosures; |
▪ | prohibits any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without FDA authorization; |
▪ | imposes reporting obligations relating to contraband activity and grants the FDA authority to impose recordkeeping and other obligations to address illicit trade in tobacco products; |
▪ | changes the language of the cigarette and smokeless tobacco product health warnings, enlarges their size and requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for Other Tobacco Products, and gives the FDA the authority to require new warnings for any type of tobacco products; |
▪ | authorizes the FDA to adopt product regulations and related actions, including imposing tobacco product standards that are appropriate for the protection of the public health (e.g., related to the use of menthol in cigarettes, nicotine yields and other constituents or ingredients) and imposing manufacturing standards for tobacco products; |
▪ | establishes pre-market review pathways for new and modified tobacco products for the FDA to follow, including: |
▪ | subjecting cigarettes, cigarette tobacco and smokeless tobacco products modified or first introduced into the market after March 22, 2011, and Other Tobacco Products modified or first introduced into the market after August 8, 2016, to new tobacco product application and pre-market review and authorization requirements unless a manufacturer can demonstrate they are “substantially equivalent” to products commercially marketed as of February 15, 2007, and possibly to deny any such new tobacco product application, thereby preventing the distribution and sale of any product affected by such denial; |
▪ | determining that cigarettes, cigarette tobacco and smokeless tobacco products modified or introduced into the market for the first time between February 15, 2007 and March 22, 2011 for which a manufacturer submitted a substantial equivalence report are not “substantially equivalent” to products commercially marketed as of February 15, 2007, in which case the FDA could require the removal of such products from the marketplace (see FDA Regulatory Actions - Substantial Equivalence and Other New Product Processes/Pathways below); |
▪ | determining that Other Tobacco Products modified or introduced into the market for the first time between February 15, 2007 and August 8, 2016 for which a manufacturer submits a substantial equivalence report by February 8, 2018 are not “substantially equivalent” to products commercially marketed as of February 15, 2007, or to reject a new tobacco product application submitted by a manufacturer by August 8, 2018, both of which could require the removal of such products from the marketplace (see FDA Regulatory Actions - Substantial Equivalence and Other New Product Processes/Pathways below); and |
▪ | equips the FDA with a variety of investigatory and enforcement tools, including the authority to inspect tobacco product manufacturing and other facilities. |
▪ | impact the consumer acceptability of tobacco products; |
▪ | delay, discontinue or prevent the sale or distribution of existing, new or modified tobacco products; |
▪ | limit adult tobacco consumer choices; |
▪ | impose restrictions on communications with adult tobacco consumers; |
▪ | create a competitive advantage or disadvantage for certain tobacco companies; |
▪ | impose additional manufacturing, labeling or packaging requirements; |
▪ | impose additional restrictions at retail; |
▪ | result in increased illicit trade in tobacco products; or |
▪ | otherwise significantly increase the cost of doing business. |
▪ | bans the use of color and graphics in cigarette and smokeless tobacco product labeling and advertising; |
▪ | prohibits the sale of cigarettes, smokeless tobacco and covered tobacco products to persons under the age of 18; |
▪ | restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products; |
▪ | requires the sale of cigarettes and smokeless tobacco in direct, face-to-face transactions; |
▪ | prohibits sampling of cigarettes and covered tobacco products and prohibits sampling of smokeless tobacco products except in qualified adult-only facilities; |
▪ | prohibits gifts or other items in exchange for buying cigarettes or smokeless tobacco products; |
▪ | prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos; and |
▪ | prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or cultural event, or any entry or team in any event. |
For the Six Months Ended June 30, | ||||||||||||||||
Net Revenues | Operating Companies Income | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Smokeable products | $ | 11,251 | $ | 11,195 | $ | 3,869 | $ | 3,710 | ||||||||
Smokeless products | 1,002 | 911 | 618 | 544 | ||||||||||||
Total smokeable and smokeless products | $ | 12,253 | $ | 12,106 | $ | 4,487 | $ | 4,254 |
For the Three Months Ended June 30, | ||||||||||||||||
Net Revenues | Operating Companies Income | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Smokeable products | $ | 5,829 | $ | 5,974 | $ | 2,118 | $ | 2,024 | ||||||||
Smokeless products | 523 | 481 | 338 | 293 | ||||||||||||
Total smokeable and smokeless products | $ | 6,352 | $ | 6,455 | $ | 2,456 | $ | 2,317 |
Shipment Volume | |||||||||||||||||
For the Six Months Ended June 30, | For the Three Months Ended June 30, | ||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||
(sticks in millions) | |||||||||||||||||
Cigarettes: | |||||||||||||||||
Marlboro | 52,294 | 53,615 | (2.5 | )% | 26,933 | 28,498 | (5.5 | )% | |||||||||
Other premium | 3,174 | 3,345 | (5.1 | )% | 1,660 | 1,767 | (6.1 | )% | |||||||||
Discount | 5,541 | 5,362 | 3.3 | % | 2,877 | 2,859 | 0.6 | % | |||||||||
Total cigarettes | 61,009 | 62,322 | (2.1 | )% | 31,470 | 33,124 | (5.0 | )% | |||||||||
Cigars: | |||||||||||||||||
Black & Mild | 671 | 623 | 7.7 | % | 354 | 325 | 8.9 | % | |||||||||
Other | 15 | 13 | 15.4 | % | 5 | 9 | (44.4 | )% | |||||||||
Total cigars | 686 | 636 | 7.9 | % | 359 | 334 | 7.5 | % | |||||||||
Total smokeable products | 61,695 | 62,958 | (2.0 | )% | 31,829 | 33,458 | (4.9 | )% |
Retail Share | |||||||||||||||||
For the Six Months Ended June 30, | For the Three Months Ended June 30, | ||||||||||||||||
2016 | 2015 | Percentage Point Change | 2016 | 2015 | Percentage Point Change | ||||||||||||
Cigarettes: | |||||||||||||||||
Marlboro | 44.1 | % | 44.1 | % | — | 44.1 | % | 44.2 | % | (0.1 | ) | ||||||
Other premium | 2.7 | 2.8 | (0.1 | ) | 2.7 | 2.8 | (0.1 | ) | |||||||||
Discount | 4.6 | 4.4 | 0.2 | 4.6 | 4.4 | 0.2 | |||||||||||
Total cigarettes | 51.4 | % | 51.3 | % | 0.1 | 51.4 | % | 51.4 | % | — | |||||||
Cigars: | |||||||||||||||||
Black & Mild | 26.0 | % | 27.1 | % | (1.1 | ) | 26.3 | % | 27.5 | % | (1.2 | ) | |||||
Other | 0.5 | 0.3 | 0.2 | 0.4 | 0.3 | 0.1 | |||||||||||
Total cigars | 26.5 | % | 27.4 | % | (0.9 | ) | 26.7 | % | 27.8 | % | (1.1 | ) |
▪ | Effective May 15, 2016, PM USA increased the list price on all of its cigarette brands by $0.07 per pack. |
▪ | Effective November 15, 2015, PM USA increased the list price on all of its cigarette brands by $0.07 per pack. |
▪ | Effective May 17, 2015, PM USA increased the list price on all of its cigarette brands by $0.07 per pack. |
Shipment Volume | ||||||||||||||||||
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||
(cans and packs in millions) | ||||||||||||||||||
Copenhagen | 258.8 | 231.3 | 11.9 | % | 134.0 | 121.2 | 10.6 | % | ||||||||||
Skoal | 131.1 | 133.4 | (1.7 | )% | 66.6 | 69.4 | (4.0 | )% | ||||||||||
Copenhagen and Skoal | 389.9 | 364.7 | 6.9 | % | 200.6 | 190.6 | 5.2 | % | ||||||||||
Other | 34.1 | 35.4 | (3.7 | )% | 17.3 | 18.4 | (6.0 | )% | ||||||||||
Total smokeless products | 424.0 | 400.1 | 6.0 | % | 217.9 | 209.0 | 4.3 | % |
Retail Share | ||||||||||||||||||
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||||
2016 | 2015 | Percentage Point Change | 2016 | 2015 | Percentage Point Change | |||||||||||||
Copenhagen | 33.2 | % | 31.3 | % | 1.9 | 34.0 | % | 31.2 | % | 2.8 | ||||||||
Skoal | 18.8 | 19.8 | (1.0 | ) | 18.5 | 19.8 | (1.3 | ) | ||||||||||
Copenhagen and Skoal | 52.0 | 51.1 | 0.9 | 52.5 | 51.0 | 1.5 | ||||||||||||
Other | 3.5 | 3.7 | (0.2 | ) | 3.3 | 3.7 | (0.4 | ) | ||||||||||
Total smokeless products | 55.5 | % | 54.8 | % | 0.7 | 55.8 | % | 54.7 | % | 1.1 |
▪ | Effective May 10, 2016, USSTC increased the list price on all its brands by $0.07 per can. |
▪ | Effective December 8, 2015, USSTC increased the list price on Copenhagen and Skoal popular price products by $0.12 per can. In addition, USSTC increased the list price on all its brands, except for Copenhagen and Skoal popular price products, by $0.07 per can. |
▪ | Effective May 5, 2015, USSTC increased the list price on all its brands by $0.07 per can. |
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 316 | $ | 295 | $ | 171 | $ | 161 | ||||||||
Operating companies income | $ | 62 | $ | 62 | $ | 34 | $ | 35 |
▪ | higher payments for tobacco and health litigation items during the first six months of 2016; |
▪ | the timing of payments related to accounts payable and other working capital requirements; and |
▪ | higher settlement payments during the first six months of 2016; |
▪ | higher net revenues in the smokeless products and smokeable products segments during the first six months of 2016. |
▪ | debt tender offer completed during the first quarter of 2015, which resulted in the repurchase of $793 million of senior unsecured long-term notes and a $226 million payment of premiums and fees, as more fully described in Note 9. Debt to the condensed consolidated financial statements in Item 1; and |
▪ | lower share repurchases during the first six months of 2016; |
▪ | higher dividends paid during the first six months of 2016. |
Short-term Debt | Long-term Debt | Outlook | |||
Moody’s 1 | P-2 | A3 | Stable | ||
Standard & Poor’s 2 | A-1 | A- | Stable | ||
Fitch Ratings Ltd. | F2 | BBB+ | Stable | ||
▪ | promote brand equity successfully; |
▪ | anticipate and respond to new and evolving adult consumer preferences; |
▪ | develop, manufacture, market and distribute products that appeal to adult consumers (including, where appropriate, through arrangements with, or investments in, third parties); |
▪ | improve productivity; and |
▪ | protect or enhance margins through cost savings and price increases. |
Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||
April 1 - 30, 2016 | 581,274 | $ | 61.90 | 576,900 | $ | 761,202,777 | ||||||||
May 1 - 31, 2016 | 876,542 | $ | 63.72 | 868,278 | $ | 705,875,074 | ||||||||
June 1- 30, 2016 | 1,269,627 | $ | 65.30 | 1,257,100 | $ | 623,790,257 | ||||||||
For the Quarter Ended June 30, 2016 | 2,727,443 | $ | 64.07 | 2,702,278 |
(1) | The total number of shares purchased include (a) shares purchased under the July 2015 share repurchase program (which totaled 576,900 shares in April, 868,278 shares in May and 1,257,100 shares in June) and (b) shares withheld by Altria Group, Inc. in an amount equal to the statutory withholding taxes for holders who vested in restricted stock units, and forfeitures of restricted stock for which consideration was paid in connection with termination of employment of certain employees (which totaled 4,374 shares in April, 8,264 shares in May and 12,527 shares in June). |
12 | Statements regarding computation of ratios of earnings to fixed charges. |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
99.1 | Certain Litigation Matters. |
99.2 | Trial Schedule for Certain Cases. |
99.3 | Definitions of Terms Related to Financial Covenants included in Altria Group, Inc.’s Amended and Restated 5-Year Revolving Credit Agreement, dated as of August 19, 2013. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 (File No. 1-08940). |
Exhibit 12 | ||||
Altria Group, Inc. and Subsidiaries | ||||
Computation of Ratios of Earnings to Fixed Charges | ||||
(in millions of dollars) | ||||
For the Six Months Ended June 30, 2016 | ||||
Earnings before income taxes | $ | 4,417 | ||
Add (deduct): | ||||
Equity in net earnings of less than 50% owned affiliates | (267 | ) | ||
Fixed charges | 394 | |||
Interest capitalized, net of amortization | 7 | |||
Earnings available for fixed charges | $ | 4,551 | ||
Fixed charges: | ||||
Interest incurred (1) | $ | 386 | ||
Portion of rent expense deemed to represent interest factor | 8 | |||
Fixed charges | $ | 394 | ||
Ratio of earnings to fixed charges | 11.6 | |||
(1) Altria Group, Inc. includes interest relating to uncertain tax positions in its provision for income taxes, therefore such amounts are not included in fixed charges in the computation. | ||||
Altria Group, Inc. and Subsidiaries | |||||||||||||||||||
Computation of Ratios of Earnings to Fixed Charges | |||||||||||||||||||
(in millions of dollars) | |||||||||||||||||||
For the Years Ended December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Earnings before income taxes | $ | 8,078 | $ | 7,774 | $ | 6,942 | $ | 6,477 | $ | 5,582 | |||||||||
Add (deduct): | |||||||||||||||||||
Equity in net earnings of less than 50% owned affiliates | (755 | ) | (1,011 | ) | (993 | ) | (1,229 | ) | (741 | ) | |||||||||
Dividends from less than 50% owned affiliates | 495 | 459 | 443 | 404 | 374 | ||||||||||||||
Fixed charges | 821 | 879 | 1,104 | 1,165 | 1,254 | ||||||||||||||
Interest capitalized, net of amortization | 14 | 6 | (7 | ) | (4 | ) | (2 | ) | |||||||||||
Earnings available for fixed charges | $ | 8,653 | $ | 8,107 | $ | 7,489 | $ | 6,813 | $ | 6,467 | |||||||||
Fixed charges: | |||||||||||||||||||
Interest incurred (1) | $ | 805 | $ | 861 | $ | 1,087 | $ | 1,148 | $ | 1,233 | |||||||||
Portion of rent expense deemed to represent interest factor | 16 | 18 | 17 | 17 | 21 | ||||||||||||||
Fixed charges | $ | 821 | $ | 879 | $ | 1,104 | $ | 1,165 | $ | 1,254 | |||||||||
Ratio of earnings to fixed charges | 10.5 | 9.2 | 6.8 | 5.8 | 5.2 | ||||||||||||||
(1) Altria Group, Inc. includes interest relating to uncertain tax positions in its provision for income taxes, therefore such amounts are not included in fixed charges in the computation. |
1. | I have reviewed this quarterly report on Form 10-Q of Altria Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ MARTIN J. BARRINGTON | |
Martin J. Barrington | |
Chairman, Chief Executive Officer and President |
1. | I have reviewed this quarterly report on Form 10-Q of Altria Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ WILLIAM F. GIFFORD, JR. | |
William F. Gifford, Jr. | |
Executive Vice President and Chief Financial Officer |
July | 0 |
August | 3 |
September | 4 |
July | 0 |
August | 0 |
September | 0 |
July | 0 |
August | 1 |
September | 0 |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jul. 18, 2016 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | mo | |
Entity Registrant Name | ALTRIA GROUP, INC. | |
Entity Central Index Key | 0000764180 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,953,854,575 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (usd per share) | $ 0.3333 | $ 0.3333 |
Common stock, shares issued | 2,805,961,317 | 2,805,961,317 |
Cost of repurchased stock, shares | 851,955,312 | 845,901,836 |
Condensed Consolidated Statements of Comprehensive Earnings - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net earnings | $ 1,654 | $ 1,449 | $ 2,872 | $ 2,467 |
Other comprehensive earnings (losses), net of deferred income taxes: | ||||
Currency translation adjustments | 1 | (1) | ||
Benefit plans | 30 | 39 | (144) | 81 |
SABMiller | (43) | 28 | 83 | (276) |
Other comprehensive (losses) earnings, net of deferred income taxes | (13) | 67 | (60) | (196) |
Comprehensive earnings | 1,641 | 1,516 | 2,812 | 2,271 |
Comprehensive earnings attributable to noncontrolling interests | (1) | (1) | (2) | (1) |
Comprehensive earnings attributable to Altria Group, Inc. | $ 1,640 | $ 1,515 | $ 2,810 | $ 2,270 |
Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Millions |
Total |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Earnings Reinvested in the Business [Member] |
Accumulated Other Comprehensive Losses [Member] |
Cost of Repurchased Stock [Member] |
Noncontrolling Interests [Member] |
|||
---|---|---|---|---|---|---|---|---|---|---|
Beginning balance at Dec. 31, 2014 | $ 3,010 | $ 935 | $ 5,735 | $ 26,277 | $ (2,682) | $ (27,251) | $ (4) | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||
Net earnings (losses) | [1] | 5,238 | 5,241 | (3) | ||||||
Other comprehensive losses, net of deferred income taxes | (598) | (598) | ||||||||
Stock award activity | 38 | 78 | (40) | |||||||
Cash dividends declared | (4,261) | (4,261) | ||||||||
Repurchases of common stock | (554) | (554) | ||||||||
Ending balance at Dec. 31, 2015 | 2,873 | 935 | 5,813 | 27,257 | (3,280) | (27,845) | (7) | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||
Net earnings (losses) | [1] | 2,870 | 2,870 | |||||||
Other comprehensive losses, net of deferred income taxes | (60) | (60) | ||||||||
Stock award activity | 13 | 48 | (35) | |||||||
Cash dividends declared | (2,212) | (2,212) | ||||||||
Repurchases of common stock | (341) | (341) | ||||||||
Other | (10) | 10 | ||||||||
Ending balance at Jun. 30, 2016 | $ 3,143 | $ 935 | $ 5,851 | $ 27,915 | $ (3,340) | $ (28,221) | $ 3 | |||
|
Condensed Consolidated Statements of Stockholders' Equity (Parenthetical) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Statement of Stockholders' Equity [Abstract] | ||
Net earnings Attributable to noncontrolling interests | $ 2 | $ 5 |
Dividends declared (usd per share) | $ 1.13 | $ 2.17 |
Background and Basis of Presentation |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Background and Basis of Presentation | Background and Basis of Presentation: Background At June 30, 2016, Altria Group, Inc.’s wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged predominantly in the manufacture and sale of cigarettes in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless tobacco products and wine. Altria Group, Inc.’s other operating companies included Nu Mark LLC (“Nu Mark”), a wholly-owned subsidiary that is engaged in the manufacture and sale of innovative tobacco products, and Philip Morris Capital Corporation (“PMCC”), a wholly-owned subsidiary that maintains a portfolio of finance assets, substantially all of which are leveraged leases. Other Altria Group, Inc. wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to certain Altria Group, Inc. operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas, such as legal, regulatory, finance, human resources and external affairs, to Altria Group, Inc. and its subsidiaries. Altria Group, Inc.’s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At June 30, 2016, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their equity interests. At June 30, 2016, Altria Group, Inc. also held approximately 27% of the economic and voting interest of SABMiller plc (“SABMiller”), which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. In November 2015, Anheuser-Busch InBev SA/NV (“AB InBev”) announced its firm offer to effect a business combination with SABMiller in a cash and stock transaction. For further discussion, see Note 4. Investment in SABMiller. Share Repurchases In July 2014, Altria Group, Inc.’s Board of Directors (the “Board of Directors”) authorized a $1.0 billion share repurchase program (the “July 2014 share repurchase program”). During the third quarter of 2015, Altria Group, Inc. completed the July 2014 share repurchase program, under which Altria Group, Inc. repurchased a total of 20.4 million shares of its common stock at an average price of $48.90 per share. In July 2015, the Board of Directors authorized a $1.0 billion share repurchase program (the “July 2015 share repurchase program”). At June 30, 2016, Altria Group, Inc. had approximately $624 million remaining in the July 2015 share repurchase program. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board of Directors. Altria Group, Inc.’s share repurchase activity was as follows:
Basis of Presentation The interim condensed consolidated financial statements of Altria Group, Inc. are unaudited. It is the opinion of Altria Group, Inc.’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected in the interim condensed consolidated financial statements. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the consolidated financial statements and related notes, which appear in Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”). On January 1, 2016, Altria Group, Inc. adopted Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge (an asset). As a result of the adoption, $69 million of debt issuance costs have been presented on Altria Group, Inc.’s condensed consolidated balance sheet at June 30, 2016 as a deduction from the carrying amount of long-term debt. In addition, $72 million of debt issuance costs were reclassified from other assets to long-term debt on Altria Group, Inc.’s condensed consolidated balance sheet at December 31, 2015. For a description of recently issued accounting guidance that Altria Group, Inc. has not yet adopted, see Note 13. Recent Accounting Guidance Not Yet Adopted. |
Asset Impairment, Exit and Implementation Costs |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Impairment, Exit and Implementation Costs | Asset Impairment, Exit and Implementation Costs: In January 2016, Altria Group, Inc. announced a productivity initiative designed to maintain its operating companies’ leadership and cost competitiveness. The initiative reduces spending on certain selling, general and administrative infrastructure and implements a leaner organizational structure. As a result of this initiative, Altria Group, Inc. expects to incur total pre-tax restructuring charges of approximately $140 million, or $0.05 per share, substantially all of which are expected to be recorded in 2016 and result in cash expenditures. The charges consist of employee separation costs of approximately $120 million and other associated costs of approximately $20 million. Pre-tax restructuring charges for the six and three months ended June 30, 2016 of $124 million, or $0.04 per share, and $2 million, respectively, recorded in connection with the productivity initiative consisted of the following:
(1) Includes termination and curtailment costs of $20 million. See Note 3. Benefit Plans. The movement in the restructuring liabilities (excluding termination and curtailment costs), substantially all of which are severance liabilities, was as follows:
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Benefit Plans |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit Plans | Benefit Plans: Subsidiaries of Altria Group, Inc. sponsor noncontributory defined benefit pension plans covering the majority of all employees of Altria Group, Inc. and its subsidiaries. However, employees hired on or after a date specific to their employee group are not eligible to participate in these noncontributory defined benefit pension plans but are instead eligible to participate in a defined contribution plan with enhanced benefits. This transition for new hires occurred from October 1, 2006 to January 1, 2008. In addition, effective January 1, 2010, certain employees of UST’s subsidiaries and Middleton who were participants in noncontributory defined benefit pension plans ceased to earn additional benefit service under those plans and became eligible to participate in a defined contribution plan with enhanced benefits. Altria Group, Inc. and its subsidiaries also provide postretirement health care and other benefits to the majority of retired employees. Components of Net Periodic Benefit Cost Net periodic benefit cost (income) consisted of the following:
Termination and curtailment costs shown in the table above were related to the productivity initiative discussed in Note 2. Asset Impairment, Exit and Implementation Costs. In conjunction with the curtailment, in the first quarter of 2016 Altria Group, Inc. remeasured the pension benefit obligations, pension plan assets and postretirement benefit obligations of its impacted benefit plans. This remeasurement resulted in an increase to the liabilities for accrued pension costs and accrued postretirement health care costs of approximately $250 million and $70 million, respectively, and a corresponding increase to accumulated other comprehensive losses. Employer Contributions Altria Group, Inc. makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service regulations. Employer contributions of $6 million were made to Altria Group, Inc.’s pension plans during the six months ended June 30, 2016. Currently, Altria Group, Inc. anticipates making additional employer contributions to its pension plans during the remainder of 2016 of approximately $25 million to $70 million, based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates. |
Investment in SABMiller |
6 Months Ended |
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Jun. 30, 2016 | |
Business Combinations [Abstract] | |
Investment in SABMiller | Investment in SABMiller: At June 30, 2016, Altria Group, Inc. held approximately 27% of the economic and voting interest of SABMiller. Altria Group, Inc. accounts for its investment in SABMiller under the equity method of accounting. AB InBev and SABMiller Business Combination In November 2015, AB InBev announced its firm offer to effect a business combination with SABMiller in a cash and stock transaction valued at approximately $107 billion. Under the November 2015 terms of the transaction, SABMiller shareholders would have received 44 British pounds (“GBP”) in cash for each SABMiller share, with a partial share alternative (“PSA”) available for approximately 41% of the SABMiller shares. On July 26, 2016, AB InBev announced its revised and final offer to SABMiller for the proposed business combination (the “Revised and Final Offer”) under which the all-cash offer was increased from 44 GBP to 45 GBP per SABMiller share and the cash element of the PSA was increased from 3.7788 GBP to 4.6588 GBP per SABMiller share. The equity component of the PSA remains unchanged. Altria Group, Inc. has committed to elect the PSA. Under the Revised and Final Offer of the PSA, SABMiller shareholders may elect to receive for each SABMiller share held (i) 0.483969 restricted shares (the “Restricted Shares”) in a newly formed Belgian company (“NewCo”) that will own the combined SABMiller and AB InBev business plus (ii) 4.6588 GBP in cash. If the transaction is completed, NewCo will acquire SABMiller and, following the closing of that acquisition, AB InBev will merge into NewCo. Under the Revised and Final Offer, Altria Group, Inc. expects to exchange its approximate 27% economic and voting interest in SABMiller for an interest that will be converted into Restricted Shares representing an approximate 10.5% economic and voting interest in NewCo plus, including the anticipated impact of the derivative financial instrument discussed below, approximately $3.0 billion in pre-tax cash (subject to proration as described in the 2015 Form 10-K). The Revised and Final Offer increases the cash element of the PSA for Altria Group, Inc. by approximately $500 million based on the July 26, 2016 GBP to United States dollar (“USD”) exchange rate. Upon closing of the transaction, Altria Group, Inc. estimates, based on the Revised and Final Offer, that it will record a one-time pre-tax accounting gain of approximately $13 billion, or $8.5 billion after-tax. This estimate is based on the AB InBev share price, GBP to USD exchange rate and book value of Altria Group, Inc.’s investment in SABMiller at June 30, 2016. The actual gain recorded at closing may vary significantly from this estimate based on changes to these factors, the impact of dispositions related to the transaction and any proration of Restricted Shares. Altria Group, Inc. expects to account for its economic and voting interest in NewCo under the equity method of accounting because Altria Group, Inc. anticipates having the ability to exercise significant influence over the operating and financial policies of NewCo. This conclusion is based on the fact that Altria Group, Inc. expects to have active representation on NewCo’s Board of Directors (“NewCo Board”) and its Committees. In addition, through NewCo Board and Committee representation, Altria Group, Inc. anticipates participating in NewCo policy making processes. The transaction is subject to certain closing conditions, including shareholder approvals of both SABMiller and AB InBev, and receipt of the required regulatory approvals. Derivative Financial Instrument In November 2015, Altria Group, Inc. entered into a derivative financial instrument in the form of a put option (the “option”) to hedge Altria Group, Inc.’s exposure to foreign currency exchange rate movements for the GBP, in relation to the initial USD pre-tax cash consideration of approximately $2.5 billion that Altria Group, Inc. expected to receive under the PSA. Altria Group, Inc. has the ability to exercise or terminate the option up to its expiration date of May 11, 2017. The notional amount of the option is $2,467 million (1,625 million GBP). The option does not qualify for hedge accounting; therefore, changes in the fair value of the option will be recorded as a pre-tax gain or loss in Altria Group, Inc.’s consolidated statement of earnings for the periods in which the changes occur. For the six and three months ended June 30, 2016, Altria Group, Inc. recorded a pre-tax gain of $157 million and $117 million, respectively, for the change in the fair value of the option, which was included in gain on derivative financial instrument in Altria Group, Inc.’s condensed consolidated statements of earnings. The fair value of the option is determined using a binomial option pricing model, which reflects the contractual terms of the option and other observable market-based inputs, and is classified in Level 2 of the fair value hierarchy. At June 30, 2016 and December 31, 2015, the fair value of the option of $309 million and $152 million, respectively, was recorded in other current assets on Altria Group, Inc.’s condensed consolidated balance sheets. |
Earnings Per Share |
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Earnings Per Share | Earnings Per Share: Basic and diluted earnings per share (“EPS”) were calculated using the following:
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Other Comprehensive Earnings/Losses |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Earnings/Losses | Other Comprehensive Earnings/Losses: The following tables set forth the changes in each component of accumulated other comprehensive losses, net of deferred income taxes, attributable to Altria Group, Inc.:
(1) For the six and three months ended June 30, 2016 and 2015, Altria Group, Inc.’s proportionate share of SABMiller’s other comprehensive earnings/losses consisted primarily of currency translation adjustments. The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings:
(1) Amounts are included in net defined benefit plan costs. For further details, see Note 3. Benefit Plans. (2) Amounts are included in earnings from equity investment in SABMiller. |
Segment Reporting |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Segment Reporting: The products of Altria Group, Inc.’s subsidiaries include smokeable tobacco products, consisting of cigarettes manufactured and sold by PM USA and machine-made large cigars and pipe tobacco manufactured and sold by Middleton; smokeless tobacco products, substantially all of which are manufactured and sold by USSTC; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in all other. Altria Group, Inc.’s chief operating decision maker reviews operating companies income to evaluate the performance of, and allocate resources to, the segments. Operating companies income for the segments is defined as operating income before general corporate expenses and amortization of intangibles. Interest and other debt expense, net, and provision for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s chief operating decision maker. Segment data were as follows:
The comparability of operating companies income for the reportable segments was affected by the following: Non-Participating Manufacturer (“NPM”) Adjustment Items - Pre-tax expense for NPM adjustment items was recorded in Altria Group, Inc.’s condensed consolidated statement of earnings as follows:
NPM adjustment items result from the settlement of, and determinations made in connection with, disputes with certain states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such settlements and determinations are referred to collectively as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 11. Contingencies). The amount shown in the table above for the smokeable products segment was recorded by PM USA as an increase to cost of sales, which decreased operating companies income in the smokeable products segment. Tobacco and Health Litigation Items - Pre-tax charges related to certain tobacco and health litigation items were recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:
During the first quarter of 2016, PM USA recorded pre-tax charges, primarily related to the Aspinall case, of $26 million in marketing, administration and research costs and $12 million in interest costs. During the first quarter of 2015, PM USA and certain other cigarette manufacturers reached an agreement to resolve approximately 415 pending federal Engle progeny cases. As a result of the agreement, during the first quarter of 2015, PM USA recorded a pre-tax provision of approximately $43 million in marketing, administration and research costs. For further discussion, see Note 11. Contingencies. Asset Impairment, Exit and Implementation Costs - See Note 2. Asset Impairment, Exit and Implementation Costs for a breakdown of these costs by segment. |
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Finance Assets, net | Finance Assets, net: In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Accordingly, PMCC’s operating companies income will fluctuate over time as investments mature or are sold. At June 30, 2016, finance assets, net, of $1,155 million were comprised of investments in finance leases of $1,191 million, reduced by the allowance for losses of $36 million. At December 31, 2015, finance assets, net, of $1,239 million were comprised of investments in finance leases of $1,281 million, reduced by the allowance for losses of $42 million. During the second quarter of 2016 and 2015, as a result of updated market value information, PMCC determined that the estimated unguaranteed residual values on certain aircraft should be reduced by $28 million and $35 million, respectively. These decreases in unguaranteed residual values resulted in a reduction to PMCC’s net revenues of $18 million and $29 million in the second quarter of 2016 and 2015, respectively. PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. PMCC believes that, as of June 30, 2016, the allowance for losses of $36 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may increase or decrease its allowance for losses if such conditions change in the future. The activity in the allowance for losses on finance assets was as follows:
All PMCC lessees were current on their lease payment obligations as of June 30, 2016. The credit quality of PMCC’s investments in finance leases as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at June 30, 2016 and December 31, 2015 was as follows:
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Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
Debt | Debt: At June 30, 2016 and December 31, 2015, Altria Group, Inc. had no short-term borrowings. Long-term Debt With respect to $3.4 billion aggregate principal amount of Altria Group, Inc.’s senior unsecured long-term notes issued in 2008 and 2009, the interest rate payable on each series of notes was subject to adjustment from time to time if the rating assigned to the notes of such series by Moody’s or Standard & Poor’s was downgraded (or subsequently upgraded) as and to the extent set forth in the terms of the notes. As a result of credit rating upgrades by both Moody’s and Standard & Poor’s in the first quarter of 2016, this provision terminated in accordance with its terms. On January 1, 2016, Altria Group, Inc. adopted ASU No. 2015-03. For further discussion, see Note 1. Background and Basis of Presentation. During the first quarter of 2015, Altria Group, Inc. completed a debt tender offer to purchase for cash $793 million aggregate principal amount of its senior unsecured 9.700% notes due 2018. As a result of the debt tender offer, during the first quarter of 2015, Altria Group, Inc. recorded a pre-tax loss on early extinguishment of debt of $228 million, which included premiums and fees of $226 million and the write-off of the related unamortized debt discount and debt issuance costs of $2 million. Altria Group, Inc.’s estimate of the fair value of its debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy. The aggregate fair value of Altria Group, Inc.’s total long-term debt at June 30, 2016 and December 31, 2015, was $15.8 billion and $14.5 billion, respectively, as compared with its carrying value of $12.8 billion for each period. |
Income Taxes |
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Jun. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes: Altria Group, Inc. is subject to income taxation in many jurisdictions. Uncertain tax positions reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria Group, Inc. At June 30, 2016, Altria Group, Inc.’s total unrecognized tax benefits were $175 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at June 30, 2016 was $81 million, along with $94 million affecting deferred taxes. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $140 million. At December 31, 2015, Altria Group, Inc.’s total unrecognized tax benefits were $158 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2015 was $76 million, along with $82 million affecting deferred taxes. |
Contingencies |
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Contingencies | Contingencies: Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees. Various types of claims may be raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors or distributors. Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, range in the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria Group, Inc. or its subsidiaries may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, Altria Group, Inc. or its subsidiaries under certain circumstances may have to pay more than their proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria Group, Inc. or its subsidiaries may also be required to pay interest and attorneys’ fees. Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although Altria Group, Inc. cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges. Altria Group, Inc. and its subsidiaries record provisions in the condensed consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 11. Contingencies: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending tobacco-related cases; and (iii) accordingly, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred. Altria Group, Inc. and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Altria Group, Inc. and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so. Overview of Altria Group, Inc. and/or PM USA Tobacco-Related Litigation Types and Number of Cases Claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding; (iii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits; (iv) class action suits alleging that the uses of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment, breach of warranty or violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); and (v) other tobacco-related litigation described below. Plaintiffs’ theories of recovery and the defenses raised in pending smoking and health, health care cost recovery and “Lights/Ultra Lights” cases are discussed below. The table below lists the number of certain tobacco-related cases pending in the United States against PM USA(1) and, in some instances, Altria Group, Inc. as of July 22, 2016, July 24, 2015 and July 18, 2014:
(1) Does not include 24 cases filed on the asbestos docket in the Circuit Court for Baltimore City, Maryland, which seek to join PM USA and other cigarette-manufacturing defendants in complaints previously filed against asbestos companies. (2) Does not include 2,494 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages, but prohibited them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action). (3) Includes as one case the 600 civil actions (of which 344 were actions against PM USA) that were to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution did not preclude a trial in two phases in this case. Issues related to defendants’ conduct and whether punitive damages are permissible were tried in the first phase. Trial in the first phase of this case began in April 2013. In May 2013, the jury returned a verdict in favor of defendants on the claims for design defect, negligence, failure to warn, breach of warranty, and concealment and declined to find that the defendants’ conduct warranted punitive damages. Plaintiffs prevailed on their claim that ventilated filter cigarettes should have included use instructions for the period 1964 - 1969. The second phase will consist of trials to determine liability and compensatory damages. In November 2014, the West Virginia Supreme Court of Appeals affirmed the final judgment. In July 2015, the trial court entered an order that will result in the entry of final judgment in favor of defendants and against all but 30 plaintiffs who potentially have a claim against one or more defendants that may be pursued in a second phase of trial. The court intends to try the claims of these 30 plaintiffs in six consolidated trials, each with a group of five plaintiffs. The first trial is currently scheduled to begin May 1, 2018. Dates for the five remaining consolidated trials have not been scheduled. (4) See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below. International Tobacco-Related Cases As of July 22, 2016, PM USA is a named defendant in 10 health care cost recovery actions in Canada, eight of which also name Altria Group, Inc. as a defendant. PM USA and Altria Group, Inc. are also named defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products. Tobacco-Related Cases Set for Trial As of July 22, 2016, seven Engle progeny cases are set for trial through September 30, 2016. There is one “Lights/Ultra Lights” class action and no medical monitoring cases or individual smoking and health cases against PM USA set for trial during this period. Cases against other companies in the tobacco industry are scheduled for trial during this period. Trial dates are subject to change. Trial Results Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 61 smoking and health, “Lights/Ultra Lights” and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 41 of the 61 cases. These 41 cases were tried in Alaska (1), California (7), Florida (10), Louisiana (1), Massachusetts (2), Mississippi (1), Missouri (4), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2) and West Virginia (2). A motion for a new trial was granted in one of the cases in Florida and in the case in Alaska. In the Alaska case (Hunter), the trial court withdrew its order for a new trial upon PM USA’s motion for reconsideration. In December 2015, the Alaska Supreme Court reversed the trial court decision and remanded the case with directions for the trial court to reassess whether to grant a new trial. In March 2016, the trial court granted a new trial and PM USA filed a petition for review of that order with the Alaska Supreme Court, which the court denied in July 2016. The retrial currently is scheduled to begin October 17, 2016. See Types and Number of Cases above for a discussion of the trial results in In re: Tobacco Litigation (West Virginia consolidated cases). Of the 20 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 17 have reached final resolution. A verdict against defendants in one health care cost recovery case (Blue Cross/Blue Shield) was reversed and all claims were dismissed with prejudice. In addition, a verdict against defendants in a purported “Lights” class action in Illinois (Price) was reversed and the case was dismissed with prejudice in December 2006. See “Lights/Ultra Lights” Cases - The Price Case below for a discussion of subsequent developments in Price. As of July 22, 2016, 100 state and federal Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s Engle decision as follows: 56 verdicts were returned in favor of plaintiffs; 42 verdicts were returned in favor of PM USA. Two verdicts that were initially returned in favor of plaintiff were reversed on appeal. One was remanded for a new trial; the other is now subject to en banc review in the appellate court. See Smoking and Health Litigation - Engle Progeny Trial Court Results below for a discussion of these verdicts. Judgments Paid and Provisions for Tobacco and Health Litigation Items (Including Engle Progeny Litigation) After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid in the aggregate judgments (and related costs and fees) totaling approximately $428 million and interest totaling approximately $183 million as of July 22, 2016. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $82 million, interest totaling approximately $21 million and payment of approximately $43 million in connection with the Federal Engle Agreement, discussed below. The changes in Altria Group, Inc.’s accrued liability for tobacco and health litigation items, including related interest costs, for the periods specified below are as follows:
The accrued liability for tobacco and health litigation items, including related interest costs, was included in liabilities on Altria Group, Inc.’s condensed consolidated balance sheets. Pre-tax charges for tobacco and health judgments, the agreement to resolve federal Engle progeny cases and the agreement to resolve the Aspinall case (excluding related interest costs of approximately $10 million) were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria Group, Inc.’s condensed consolidated statements of earnings. Security for Judgments To obtain stays of judgments pending current appeals, as of June 30, 2016, PM USA has posted various forms of security totaling approximately $104 million, the majority of which has been collateralized with cash deposits that are included in other assets on the condensed consolidated balance sheet. Smoking and Health Litigation Overview Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act. Non-Engle Progeny Litigation Summarized below are the non-Engle progeny smoking and health cases pending during 2016 in which verdicts were returned in favor of plaintiffs and against PM USA. Charts listing the verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below. Bullock: In December 2015, a jury in the U.S. District Court for the Central District of California returned a verdict in favor of plaintiff, awarding $900,000 in compensatory damages. In January 2016, the plaintiff moved for a new trial, which the district court denied in February 2016. In March 2016, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit and plaintiff cross-appealed. Schwarz: In March 2002, an Oregon jury awarded $168,500 in compensatory damages and $150 million in punitive damages against PM USA. In May 2002, the trial court reduced the punitive damages award to $100 million. In May 2006, the Oregon Court of Appeals affirmed the compensatory damages verdict, reversed the award of punitive damages and remanded the case to the trial court for a second trial to determine the amount of punitive damages, if any. In June 2010, the Oregon Supreme Court affirmed the court of appeals’ decision and remanded the case to the trial court for a new trial limited to the question of punitive damages. In December 2010, the Oregon Supreme Court reaffirmed its earlier ruling and awarded PM USA approximately $500,000 in costs. Trial on the amount of punitive damages began in January 2012. In February 2012, the jury awarded plaintiff $25 million in punitive damages. In July 2015, the Oregon Court of Appeals affirmed the judgment in favor of plaintiff and in September 2015, PM USA filed a petition for review with the Oregon Supreme Court, which the court denied in November 2015. In the fourth quarter of 2015, PM USA recorded a provision on its consolidated balance sheet of approximately $34 million for the judgment plus interest and associated costs. In February 2016, PM USA filed a petition for writ of certiorari with the United States Supreme Court, which the court denied in May 2016. In June 2016, PM USA paid the final judgment plus interest and associated costs of approximately $34 million, concluding this litigation. Federal Government’s Lawsuit: See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America health care cost recovery case. Engle Class Action In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA appealed. In May 2001, the trial court approved a stipulation providing that execution of the punitive damages component of the Engle judgment will remain stayed against PM USA and the other participating defendants through the completion of all judicial review. As a result of the stipulation, PM USA placed $500 million into an interest-bearing escrow account that, regardless of the outcome of the judicial review, was to be paid to the court and the court was to determine how to allocate or distribute it consistent with Florida Rules of Civil Procedure. In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs petitioned the Florida Supreme Court for further review. In July 2006, the Florida Supreme Court ordered that the punitive damages award be vacated, that the class approved by the trial court be decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the mandate. The court further declared the following Phase I findings are entitled to res judicata effect in such individual actions brought within one year of the issuance of the mandate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to misrepresent information regarding the health effects or addictive nature of cigarettes with the intention of causing the public to rely on this information to their detriment; (vi) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vii) that all defendants sold or supplied cigarettes that were defective; and (viii) that defendants were negligent. The court also reinstated compensatory damages awards totaling approximately $6.9 million to two individual plaintiffs and found that a third plaintiff’s claim was barred by the statute of limitations. In February 2008, PM USA paid approximately $3 million, representing its share of compensatory damages and interest, to the two individual plaintiffs identified in the Florida Supreme Court’s order. In August 2006, PM USA sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion, including the ruling (described above) that certain jury findings have res judicata effect in subsequent individual trials timely brought by Engle class members. The rehearing motion also asked, among other things, that legal errors that were raised but not expressly ruled upon in the Florida Third District Court of Appeal or in the Florida Supreme Court now be addressed. Plaintiffs also filed a motion for rehearing in August 2006 seeking clarification of the applicability of the statute of limitations to non-members of the decertified class. In December 2006, the Florida Supreme Court refused to revise its July 2006 ruling, except that it revised the set of Phase I findings entitled to res judicata effect by excluding finding (v) listed above (relating to agreement to misrepresent information), and added the finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations of fact made by defendants. In January 2007, the Florida Supreme Court issued the mandate from its revised opinion. Defendants then filed a motion with the Florida Third District Court of Appeal requesting that the court address legal errors that were previously raised by defendants but have not yet been addressed either by the Florida Third District Court of Appeal or by the Florida Supreme Court. In February 2007, the Florida Third District Court of Appeal denied defendants’ motion. In May 2007, defendants’ motion for a partial stay of the mandate pending the completion of appellate review was denied by the Florida Third District Court of Appeal. In May 2007, defendants filed a petition for writ of certiorari with the United States Supreme Court, which the United States Supreme Court denied later in 2007. In February 2008, the trial court decertified the class, except for purposes of the May 2001 bond stipulation, and formally vacated the punitive damages award pursuant to the Florida Supreme Court’s mandate. In April 2008, the trial court ruled that certain defendants, including PM USA, lacked standing with respect to allocation of the funds escrowed under the May 2001 bond stipulation and would receive no credit at that time from the $500 million paid by PM USA against any future punitive damages awards in cases brought by former Engle class members. In May 2008, the trial court, among other things, decertified the limited class maintained for purposes of the May 2001 bond stipulation and, in July 2008, severed the remaining plaintiffs’ claims except for those of Howard Engle. The only remaining plaintiff in the Engle case, Howard Engle, voluntarily dismissed his claims with prejudice. Engle Progeny Cases The deadline for filing Engle progeny cases, as required by the Florida Supreme Court’s Engle decision, expired in January 2008. As of July 22, 2016, approximately 2,800 state court cases were pending against PM USA or Altria Group, Inc. asserting individual claims by or on behalf of approximately 3,600 state court plaintiffs. Because of a number of factors, including, but not limited to, docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates. While the Federal Engle Agreement (discussed below) resolved nearly all Engle progeny cases pending in federal court, as of July 22, 2016, approximately 14 cases were pending against PM USA in federal court representing the cases excluded from that agreement. Agreement to Resolve Federal Engle Progeny Cases In February 2015, PM USA, R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and Lorillard Tobacco Company (“Lorillard”) reached a tentative agreement to resolve approximately 415 pending federal Engle progeny cases (the “Federal Engle Agreement”). Under the terms of the Federal Engle Agreement, PM USA paid into escrow approximately $43 million in March 2015. PM USA recorded a pre-tax provision of approximately $43 million in the first quarter of 2015. Federal cases that were in trial as of February 25, 2015 and those that previously reached final verdict were not included in the Federal Engle Agreement. The Federal Engle Agreement was conditioned on approval by all federal court plaintiffs in the cases resolved by the Federal Engle Agreement or as the parties otherwise agree. The parties satisfied all conditions and, in December 2015, the cases subject to the Federal Engle Agreement were dismissed, and the escrow funds were moved to the plaintiffs’ settlement fund. Engle Progeny Trial Results As of July 22, 2016, 100 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Fifty-six verdicts were returned in favor of plaintiffs and two verdicts (Graham and Skolnick) that were initially returned in favor of plaintiffs were reversed on appeal and remain pending. Graham is now subject to en banc appellate review; Skolnick was remanded for a new trial. Forty-two verdicts were returned in favor of PM USA, of which 33 were state cases (Gelep, Kalyvas, Gil de Rubio, Warrick, Willis, Russo (formerly Frazier), C. Campbell, Rohr, Espinosa, Oliva, Weingart, Junious, Szymanski, Hancock, D. Cohen, LaMotte, J. Campbell, Dombey, Haldeman, Blasco, Gonzalez, Banks, Surico, Baum, Bishop, Vila, McMannis, Collar, Suarez, Shulman, Ewing, E. Smith and Mooney) and 9 were federal cases (Gollihue, McCray, Denton, Wilder, Jacobson, Reider, Davis, Starbuck and Sowers). In addition, there have been a number of mistrials, only some of which have resulted in new trials as of July 22, 2016. The juries in the Reider and Banks cases returned zero damages verdicts in favor of PM USA. The juries in the Weingart and Hancock cases returned verdicts against PM USA awarding no damages, but the trial court in each case granted an additur. The charts below list the verdicts and post-trial developments in certain Engle progeny cases in which verdicts were returned in favor of plaintiffs (including Hancock, where the verdict originally was returned in favor of PM USA). The first chart lists such cases that are pending as of July 22, 2016; the second chart lists such cases that were pending within the previous 12 months, but that are now concluded. Currently-Pending Cases ________________________________________________________________________________________________________________________________ Plaintiff: Varner Date: July 2016 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of $1.5 million and allocating 25% of the fault to PM USA (an amount of $375,000). ________________________________________________________________________________________________________________________________ Plaintiff: Sermons Date: July 2016 Verdict: A Duval County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of $65,000 and allocating 15% of the fault to PM USA (an amount of $9,750). The jury also awarded plaintiff $51,225 in punitive damages against PM USA. Post-Trial Developments: In July 2016, plaintiff filed a motion for a new trial or, in the alternative, for an additur. ________________________________________________________________________________________________________________________________ Plaintiff: Purdo Date: April 2016 Verdict: A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of $21 million and allocating 12% of the fault to PM USA (an amount of $2.52 million). The jury also awarded plaintiff $6.25 million in punitive damages against each defendant. Post-Trial Developments: In May 2016, PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial, all of which the court denied and entered final judgment in favor of plaintiff with a deduction for plaintiff’s comparative fault. In June 2016, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and PM USA posted a bond in the amount of approximately $1.5 million. ________________________________________________________________________________________________________________________________ Plaintiff: McCall Date: March 2016 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of $350,000 and allocating 25% of the fault to PM USA (an amount of $87,500). Post-Trial Developments: In March 2016, PM USA filed a motion to set aside the verdict and to enter judgment in its favor, which the court denied in May 2016. Also in March 2016, plaintiff filed a motion for a new trial on punitive damages, citing the Soffer decision (allowing Engle progeny plaintiffs to seek punitive damages on their negligence and strict liability claims) discussed below under Engle Progeny Appellate Issues, which the court granted in May 2016. In June 2016, PM USA filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff cross-appealed. ________________________________________________________________________________________________________________________________ Plaintiff: Ahrens Date: February 2016 Verdict: A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $9 million in compensatory damages and allocating 24% of the fault to PM USA. The jury also awarded plaintiff $2.5 million in punitive damages against each defendant. Post-Trial Developments: In February 2016, the trial court entered final judgment against PM USA and R.J. Reynolds without any deduction for plaintiff’s comparative fault and defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial. In March 2016, the trial court denied defendants’ post-trial motions. In April 2016, defendants filed a notice of appeal to the Florida Second District Court of Appeal and PM USA posted a bond in the amount of $2.5 million. ________________________________________________________________________________________________________________________________ Plaintiff: Ledoux Date: December 2015 Verdict: A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $10 million in compensatory damages and allocating 47% of the fault to PM USA. The jury also awarded plaintiff $12.5 million in punitive damages against each defendant. Post-Trial Developments: In January 2016, PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial, and the trial court entered final judgment against PM USA and R.J. Reynolds without any deduction for plaintiff’s comparative fault. In February 2016, the trial court denied defendants’ post-trial motions. In March 2016, defendants filed a notice of appeal to the Florida Third District Court of Appeal and PM USA posted a bond in the amount of $2.5 million. ________________________________________________________________________________________________________________________________ Plaintiff: Barbose Date: November 2015 Verdict: A Pasco County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $10 million in compensatory damages and allocating 42.5% of the fault to PM USA. The jury also awarded plaintiff $500,000 in punitive damages against each defendant. Post-Trial Developments: In November 2015, the court entered final judgment in favor of plaintiff without any deduction for plaintiff’s comparative fault and in December 2015, PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial, which the court denied in January 2016. In February 2016, PM USA posted a bond in the amount of $2.5 million and filed a notice of appeal to the Florida Second District Court of Appeal. ________________________________________________________________________________________________________________________________ Plaintiff: Tognoli Date: November 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA awarding $1.05 million in compensatory damages and allocating 15% of the fault to PM USA (an amount of $157,500). Post-Trial Developments: In December 2015, PM USA filed a motion to set aside the verdict and for judgment in accordance with its motion for directed verdict. In January 2016, the trial court entered final judgment against PM USA with a deduction for plaintiff’s comparative fault and plaintiff filed an appeal to the Florida Fourth District Court of Appeal. Additionally, the trial court denied PM USA’s post-trial motions and PM USA cross-appealed. ________________________________________________________________________________________________________________________________ Plaintiff: Danielson Date: November 2015 Verdict: An Escambia County jury returned a verdict in favor of plaintiff and against PM USA awarding $325,000 in compensatory damages and allocating 49% of the fault to PM USA. The jury also awarded plaintiff $325,000 in punitive damages. Post-Trial Developments: In November 2015, plaintiff filed a motion to enforce the parties’ pretrial stipulation of $2.3 million in economic damages. The plaintiff also filed a motion for an additur or, in the alternative, for a new trial and PM USA filed post-trial motions, including a motion concerning the proper form of judgment and for a new trial. In December 2015, the trial court granted plaintiff’s motion for a new trial on damages and denied PM USA’s post-trial motions. In January 2016, PM USA filed a notice of appeal to the Florida First District Court of Appeal. ________________________________________________________________________________________________________________________________ Plaintiff: Marchese Date: October 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $1 million in compensatory damages and allocating 22.5% of the fault to PM USA (an amount of $225,000). The jury also awarded plaintiff $250,000 in punitive damages against each defendant. Post-Trial Developments: In October 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial. In November 2015, the court entered final judgment in favor of plaintiff. In May 2016, the court denied defendants’ post-trial motions and amended the final judgment to apply the comparative fault deduction. In June 2016, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff cross-appealed. Also in June 2016, PM USA posted a bond in the amount of approximately $475,000. ________________________________________________________________________________________________________________________________ Plaintiff: Duignan Date: September 2015 Verdict: A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $6 million in compensatory damages and allocating 37% of the fault to PM USA. The jury also awarded plaintiff $3.5 million in punitive damages against PM USA. Post-Trial Developments: In September 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault, and PM USA filed various post-trial motions, including motions to set aside the verdict and for a new trial, which the court denied in October 2015. In November 2015, PM USA and R.J. Reynolds filed a notice of appeal to the Florida Second District Court of Appeal and PM USA posted a bond in the amount of approximately $2.7 million. ________________________________________________________________________________________________________________________________ Plaintiff: Cooper Date: September 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $4.5 million in compensatory damages and allocating 10% of the fault to PM USA (an amount of $450,000). Post-Trial Developments: In September 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a directed verdict. In January 2016, the trial court denied PM USA’s post-trial motions. In February 2016, the trial court entered final judgment in favor of plaintiff, reducing the compensatory damages award against PM USA to approximately $300,000. In March 2016, PM USA and R.J. Reynolds filed a notice of appeal in the Florida Fourth District Court of Appeal and plaintiff cross-appealed. Also in March 2016, PM USA posted a bond in the amount of approximately $300,000. ________________________________________________________________________________________________________________________________ Plaintiff: Jordan Date: August 2015 Verdict: A Duval County jury returned a verdict in favor of plaintiff and against PM USA awarding approximately $7.8 million in compensatory damages and allocating 60% of the fault to PM USA. The jury also awarded approximately $3.2 million in punitive damages. Post-Trial Developments: In August 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault, but reduced the compensatory damages to approximately $6.4 million. PM USA filed various post-trial motions, including motions to set aside the verdict and for a new trial, which the court denied in December 2015. PM USA subsequently filed a notice of appeal to the Florida First District Court of Appeal and plaintiff cross-appealed. ________________________________________________________________________________________________________________________________ Plaintiff: Merino Date: July 2015 Verdict: A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA awarding $8 million in compensatory damages and allocating 70% of the fault to PM USA. The jury also awarded $6.5 million in punitive damages. Post-Trial Developments: In August 2015, the trial court denied all post-trial motions, including motions to set aside the verdict and for a new trial, and entered final judgment without any deduction for plaintiff’s comparative fault. In September 2015, PM USA filed a notice of appeal to the Florida Third District Court of Appeal and posted a bond in the amount of $5 million. ________________________________________________________________________________________________________________________________ Plaintiff: McCoy Date: July 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Lorillard awarding $1.5 million in compensatory damages and allocating 20% of the fault to PM USA (an amount of $300,000). The jury also awarded $3 million in punitive damages against each defendant. Post-Trial Developments: In July 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial. In August 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In January 2016, the trial court denied defendants’ post-trial motions and amended the final judgment to apply the comparative fault deduction. Subsequently, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal, PM USA posted a bond in the amount of approximately $1.65 million and plaintiff filed a notice of cross-appeal. ________________________________________________________________________________________________________________________________ Plaintiff: M. Brown Date: May 2015 Verdict: In May 2015, a Duval County jury returned a verdict in favor of plaintiff and against PM USA in a partial retrial. In 2013, a jury returned a partial verdict against PM USA, but was deadlocked as to (i) the amount of compensatory damages, (ii) whether punitive damages should be awarded and, if so, (iii) the amount of punitive damages. In the partial retrial, the jury was asked to address these issues. In May 2015, the jury awarded $6.375 million in compensatory damages, but did not award any punitive damages. Post-Trial Developments: In May 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault, and PM USA posted a bond in the amount of $5 million. Additionally, PM USA filed post-trial motions, including motions to set aside the verdict and for a new trial, as well as filed a notice of appeal to the Florida First District Court of Appeal. In August 2015, the trial court denied the last of PM USA’s post-trial motions and plaintiff cross-appealed. ________________________________________________________________________________________________________________________________ Plaintiff: Gore Date: March 2015 Verdict: An Indian River County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $2 million in compensatory damages and allocating 23% of the fault to PM USA (an amount of $460,000). Post-Trial Developments: In April 2015, defendants filed post-trial motions, including motions to set aside the verdict and for a new trial. In September 2015, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. In October 2015, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and PM USA subsequently posted a bond in the amount of $460,000. ________________________________________________________________________________________________________________________________ Plaintiff: Pollari Date: March 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $10 million in compensatory damages and allocating 42.5% of the fault to PM USA (an amount of $4.25 million). The jury also awarded $1.5 million in punitive damages against each defendant. Post-Trial Developments: In April 2015, defendants filed post-trial motions, including motions to set aside the verdict and for a new trial, and the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In January 2016, the trial court denied defendants’ post-trial motions and amended the final judgment to apply the comparative fault deduction. Also in January 2016, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and PM USA posted a bond in the amount of $2.5 million. In February 2016, plaintiff cross-appealed. ________________________________________________________________________________________________________________________________ Plaintiff: Zamboni Date: February 2015 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $340,000 in compensatory damages and allocating 10% of the fault to PM USA (an amount of $34,000). Post-Trial Developments: In April 2015, PM USA and R.J. Reynolds filed a motion for judgment in defendants’ favor in accordance with the Eleventh Circuit’s decision in Graham. In June 2015, the trial court stayed the case pending the Eleventh Circuit’s final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Caprio Date: February 2015 Verdict: A Broward County jury returned a partial verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group LLC (“Liggett Group”). The jury found against defendants on class membership, allocating 25% of the fault to PM USA. The jury also found $559,172 in economic damages. The jury deadlocked with respect to the intentional torts, certain elements of compensatory damages and punitive damages. Post-Trial Developments: In March 2015, PM USA filed post-trial motions, including motions to set aside the partial verdict and for a new trial. In May 2015, the court denied all of PM USA’s post-trial motions and defendants filed a notice of appeal to the Florida Fourth District Court of Appeal. ________________________________________________________________________________________________________________________________ Plaintiff: McKeever Date: February 2015 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA awarding approximately $5.8 million in compensatory damages and allocating 60% of the fault to PM USA. The jury also awarded plaintiff approximately $11.63 million in punitive damages. However, the jury found in favor of PM USA on the statute of repose defense to plaintiff’s intentional tort and punitive damages claims. Post-Trial Developments: In March 2015, PM USA filed various post-trial motions, including motions to set aside the verdict and motions for a new trial. In April 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In June 2015, the trial court denied PM USA’s post-trial motions, and PM USA posted a bond in the amount of $5 million. PM USA also filed a notice of appeal to the Florida Fourth District Court of Appeal in June 2015. ________________________________________________________________________________________________________________________________ Plaintiff: D. Brown Date: January 2015 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict against PM USA awarding plaintiff approximately $8.3 million in compensatory damages and allocating 55% of the fault to PM USA. The jury also awarded plaintiff $9 million in punitive damages. Post-Trial Developments: In February 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In March 2015, PM USA filed various post-trial motions, including motions to alter or amend the judgment and for a new trial or, in the alternative, remittitur of the damages awards, all of which the court denied. In July 2015, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In August 2015, the Court of Appeals granted PM USA’s motion to stay the appeal pending final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Allen Date: November 2014 Verdict: A Duval County jury returned a verdict against PM USA and R.J. Reynolds awarding plaintiff approximately $3.1 million in compensatory damages and allocating 6% of the fault to PM USA. The jury also awarded approximately $7.76 million in punitive damages against each defendant. This was a retrial of a 2011 trial that awarded plaintiff $6 million in compensatory damages and $17 million in punitive damages against each defendant. Post-Trial Developments: In December 2014, defendants filed various post-trial motions, including motions to set aside the verdict and motions for a new trial, which the court denied in July 2015. In August 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. Defendants filed a notice of appeal to the Florida First District Court of Appeal in September 2015 and PM USA posted a bond in the amount of approximately $2.5 million. ________________________________________________________________________________________________________________________________ Plaintiff: Perrotto Date: November 2014 Verdict: A Palm Beach County jury returned a verdict against PM USA, R.J. Reynolds, Lorillard and Liggett Group awarding plaintiff approximately $4.1 million in compensatory damages and allocating 25% of the fault to PM USA (an amount of approximately $1.02 million). Post-Trial Developments: In December 2014, the trial court entered final judgment with a deduction for plaintiff’s comparative fault, and plaintiff filed a motion for a new trial. In May 2016, the court granted plaintiff’s motion for a new trial on punitive damages, citing the Soffer decision, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Boatright Date: November 2014 Verdict: A Polk County jury returned a verdict against PM USA and Liggett Group awarding plaintiff $15 million in compensatory damages and allocating 85% of the fault to PM USA (an amount of approximately $12.75 million). In addition, in November 2014, the jury awarded plaintiff approximately $19.7 million in punitive damages against PM USA and $300,000 in punitive damages against Liggett Group. Post-Trial Developments: In November 2014, PM USA filed various post-trial motions and, in January 2015, the trial court denied PM USA’s motions for a new trial and for remittitur, but entered final judgment with a deduction for plaintiff’s comparative fault. In February 2015, defendants filed a notice of appeal to the Florida Second District Court of Appeal, and PM USA posted a bond in the amount of $3.98 million. ________________________________________________________________________________________________________________________________ Plaintiff: Kerrivan Date: October 2014 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict against PM USA and R.J. Reynolds awarding plaintiff $15.8 million in compensatory damages and allocating 50% of the fault to PM USA. The jury also awarded plaintiff $25.3 million in punitive damages and allocated $15.7 million to PM USA. Post-Trial Developments: The trial court entered final judgment without any deduction for plaintiff’s comparative fault. In December 2014, defendants filed various post-trial motions, including a renewed motion for judgment or for a new trial. Plaintiff agreed to waive the bond for the appeal. In May 2015, the trial court deferred further briefing on the post-trial motions pending the Eleventh Circuit’s final disposition in the Graham and Searcy cases, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Lourie Date: October 2014 Verdict: A Hillsborough County jury returned a verdict against PM USA, R.J. Reynolds and Lorillard awarding plaintiff approximately $1.37 million in compensatory damages and allocating 27% of the fault to PM USA (an amount of approximately $370,000). Post-Trial Developments: In October 2014, defendants filed a motion for judgment and a motion for a new trial. In November 2014, the trial court denied defendants’ post-trial motions and entered final judgment with a deduction for plaintiff’s comparative fault. Later in November 2014, defendants filed a notice of appeal to the Florida Second District Court of Appeal, and PM USA posted a bond in the amount of $370,318. ________________________________________________________________________________________________________________________________ Plaintiff: Berger Date: September 2014 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict against PM USA awarding plaintiff $6.25 million in compensatory damages and allocating 60% of the fault to PM USA. The jury also awarded $20.76 million in punitive damages. Post-Trial Developments: The trial court entered final judgment in September 2014 without any deduction for plaintiff’s comparative fault. In October 2014, plaintiff agreed to waive the bond for the appeal. Also in October 2014, PM USA filed a motion for a new trial or, in the alternative, remittitur of the jury’s damages awards. In April 2015, the trial court granted PM USA’s post-verdict motion in part and vacated the punitive damages award. In November 2015, the court entered final judgment with a deduction for plaintiff’s comparative fault. In April 2016, plaintiff filed a motion to reinstate the jury’s punitive damages award or, alternatively, for a new trial on punitive damages, citing the Soffer decision, discussed below under Engle Progeny Appellate Issues. Also in April 2016, PM USA filed a motion to stay post-trial proceedings pending the Eleventh Circuit’s final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. In May 2016, (i) the trial court denied PM USA’s remaining post-trial motions and (ii) PM USA filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit and a motion to stay the appeal pending Graham, which the court granted in June 2016. ________________________________________________________________________________________________________________________________ Plaintiff: Harris Date: July 2014 Verdict: The U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Lorillard awarding approximately $1.73 million in compensatory damages and allocating 15% of the fault to PM USA. Post-Trial Developments: Defendants filed motions for a defense verdict because the jury’s findings indicated that plaintiff was not a member of the Engle class. In December 2014, the trial court entered final judgment without any deduction for plaintiff’s comparative fault and, in January 2015, defendants filed a renewed motion for judgment as a matter of law or, in the alternative, a motion for a new trial. Defendants also filed a motion to alter or amend the final judgment. In April 2015, the trial court stayed the post-trial proceedings pending the Eleventh Circuit’s final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Griffin Date: June 2014 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA awarding approximately $1.27 million in compensatory damages and allocating 50% of the fault to PM USA (an amount of approximately $630,000). Post-Trial Developments: The trial court entered final judgment against PM USA in July 2014 with a deduction for plaintiff’s comparative fault. In August 2014, PM USA filed a motion to amend the judgment to reduce plaintiff’s damages by the amount paid by collateral sources, which the court denied in September 2014. In October 2014, PM USA posted a bond in the amount of $640,543 and filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In May 2015, the Eleventh Circuit stayed the appeal pending final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Burkhart Date: May 2014 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Lorillard awarding $5 million in compensatory damages and allocating 15% of the fault to PM USA. The jury also awarded plaintiff $2.5 million in punitive damages, allocating $750,000 to PM USA. Post-Trial Developments: In July 2014, defendants filed post-trial motions, including a renewed motion for judgment or, alternatively, for a new trial or remittitur of the damages awards, which the court denied in September 2014. The trial court entered final judgment without any deduction for plaintiff’s comparative fault. In October 2014, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. ________________________________________________________________________________________________________________________________ Plaintiff: Skolnick Date: June 2013 Verdict: A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded plaintiff $2.555 million in compensatory damages and allocated 30% of the fault to each defendant (an amount of $766,500). Post-Trial Developments: In June 2013, defendants and plaintiff filed post-trial motions. The trial court entered final judgment with a deduction for plaintiff’s comparative fault. In November 2013, the trial court denied plaintiff’s post-trial motion and, in December 2013, denied defendants’ post-trial motions. Defendants filed a notice of appeal to the Florida Fourth District Court of Appeal, and plaintiff cross-appealed in December 2013. Also in December 2013, PM USA posted a bond in the amount of $766,500. In July 2015, the District Court of Appeal reversed the compensatory damages award and ordered judgment in favor of defendants on the strict liability and negligence claims, but remanded plaintiff’s conspiracy and concealment claims for a new trial. In August 2015, defendants filed a motion for rehearing, and plaintiff filed a motion for clarification, which the District Court of Appeal denied in September 2015. ________________________________________________________________________________________________________________________________ Plaintiff: Starr-Blundell Date: June 2013 Verdict: A Duval County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded plaintiff $500,000 in compensatory damages and allocated 10% of the fault to each defendant (an amount of $50,000). Post-Trial Developments: In June 2013, the defendants filed a motion to set aside the verdict and to enter judgment in accordance with their motion for directed verdict or, in the alternative, for a new trial, which was denied in October 2013. In November 2013, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. In December 2013, plaintiff filed a notice of appeal to the Florida First District Court of Appeal. Plaintiff agreed to waive the bond for the appeal. In May 2015, the Florida First District Court of Appeal affirmed the final judgment. In June 2015, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In July 2015, the Florida Supreme Court stayed the case pending the outcome of Soffer, discussed below under Engle Progeny Appellate Issues. In April 2016, the Florida Supreme Court ordered defendants to show cause as to why the case should not be remanded in light of the Soffer decision. In the first quarter of 2016, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $55,000 for the judgment plus interest and associated costs. In May 2016, the Florida Supreme Court accepted jurisdiction of plaintiff’s petition for review and remanded the case for reconsideration in light of the Soffer decision. ________________________________________________________________________________________________________________________________ Plaintiff: Graham Date: May 2013 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $2.75 million in compensatory damages and allocated 10% of the fault to PM USA (an amount of $275,000). Post-Trial Developments: In June 2013, defendants filed several post-trial motions, including motions for judgment as a matter of law and for a new trial, which the trial court denied in September 2013. The trial court entered final judgment with a deduction for plaintiff’s comparative fault. In October 2013, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit arguing that Engle progeny plaintiffs’ product liability claims are impliedly preempted by federal law, and PM USA posted a bond in the amount of $277,750. In April 2015, the U.S. Court of Appeals for the Eleventh Circuit found in favor of defendants on the basis of federal preemption, reversed the trial court’s denial of judgment as a matter of law, and plaintiff filed a petition for rehearing en banc or panel rehearing. In January 2016, the Eleventh Circuit granted a rehearing en banc on both the preemption and due process issues. ________________________________________________________________________________________________________________________________ Plaintiff: Searcy Date: April 2013 Verdict: A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $6 million in compensatory damages (allocating 30% of the fault to each defendant) and $10 million in punitive damages against each defendant. Post-Trial Developments: In June 2013, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In July 2013, defendants filed various post-trial motions, including motions requesting reductions in damages. In September 2013, the district court reduced the compensatory damages award to $1 million and the punitive damages award to $1.67 million against each defendant. The district court denied all other post-trial motions. Plaintiff filed a motion to reconsider the district court’s remittitur and, in the alternative, to certify the issue to the U.S. Court of Appeals for the Eleventh Circuit, both of which the court denied in October 2013. In November 2013, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In December 2013, defendants filed an amended notice of appeal after the district court corrected a clerical error in the final judgment, and PM USA posted a bond in the amount of approximately $2.2 million. ________________________________________________________________________________________________________________________________ Plaintiff: Hancock Date: August 2012 Verdict: A Broward County jury returned a verdict in the amount of zero damages and allocated 5% of the fault to each of the defendants (PM USA and R.J. Reynolds). The trial court granted an additur of approximately $110,000, which is subject to the jury’s comparative fault finding. Post-Trial Developments: In August 2012, defendants moved to set aside the verdict and to enter judgment in accordance with their motion for directed verdict. Defendants also moved to reduce damages, which motion the court granted. The trial court granted defendants’ motion to set off the damages award by the amount of economic damages paid by third parties, which will reduce further any final award. In October 2012, the trial court entered final judgment with a deduction for plaintiff’s comparative fault (PM USA’s portion of the damages was approximately $700) and PM USA filed a motion to amend the judgment to award PM USA attorneys’ fees of approximately $20,000. In November 2012, both sides filed notices of appeal to the Florida Fourth District Court of Appeal. Plaintiff agreed to waive the bond for the appeal. In April 2015, the Florida Fourth District Court of Appeal affirmed the trial court’s verdict. In May 2015, plaintiff filed a motion for rehearing and for a written opinion and rehearing en banc, which the Court of Appeal denied in June 2015. PM USA’s motion for a fee award remains pending. ________________________________________________________________________________________________________________________________ Plaintiff: Calloway Date: May 2012 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group. The jury awarded approximately $21 million in compensatory damages and allocated 25% of the fault against PM USA. The jury also awarded approximately $17 million in punitive damages against PM USA, approximately $17 million in punitive damages against R.J. Reynolds, approximately $13 million in punitive damages against Lorillard and approximately $8 million in punitive damages against Liggett Group. Post-Trial Developments: In May and June 2012, defendants filed motions to set aside the verdict and for a new trial. In August 2012, the trial court denied the remaining post-trial motions, reduced the compensatory damages to $16.1 million and entered final judgment without any deduction for plaintiff’s comparative fault. In September 2012, PM USA posted a bond in an amount of $1.5 million and defendants filed a notice of appeal to the Florida Fourth District Court of Appeal. In August 2013, plaintiff filed a motion to determine the sufficiency of the bond in the trial court on the ground that the bond cap statute is unconstitutional, which the court denied. In January 2016, the Florida Fourth District Court of Appeal vacated the punitive damages award and remanded the case for retrial on plaintiff’s claims of concealment and conspiracy, and punitive damages. The court also found that the trial court should have applied the comparative fault deduction, reducing the compensatory damages against PM USA to $4.025 million. In February 2016, defendants and plaintiff filed respective motions for rehearing and rehearing en banc. In March 2016, plaintiff filed a notice of supplemental authority citing the Soffer decision, discussed below under Engle Progeny Appellate Issues. ________________________________________________________________________________________________________________________________ Plaintiff: Putney Date: April 2010 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Liggett Group. The jury awarded approximately $15.1 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of approximately $2.3 million). The jury also awarded $2.5 million in punitive damages against PM USA. Post-Trial Developments: In August 2010, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and, in November 2010, posted a $1.6 million bond. In June 2013, the Fourth District Court of Appeal reversed and remanded the case for further proceedings, holding that the trial court erred in (1) not reducing the compensatory damages award as excessive and (2) not instructing the jury on the statute of repose in connection with plaintiff’s conspiracy claim that resulted in the $2.5 million punitive damages award. In July 2013, plaintiff filed a motion for rehearing, which the Fourth District Court of Appeal denied in August 2013. In September 2013, both parties filed notices to invoke the discretionary jurisdiction of the Florida Supreme Court. In December 2013, the Florida Supreme Court stayed the appeal pending the outcome of the Hess case. In April 2015, the Florida Supreme Court rejected the statute of repose defense in Hess, and PM USA moved for a rehearing. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition in Hess. The case remains subject to further proceedings on compensatory damages in the trial court. In February 2016, the Florida Supreme Court upheld the trial court’s decision in favor of plaintiff and, in March 2016, clarified that its February 2016 order reinstated the trial court’s decision on the statute of repose only. ________________________________________________________________________________________________________________________________ Plaintiff: Naugle Date: November 2009 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded approximately $56.6 million in compensatory damages and $244 million in punitive damages. The jury allocated 90% of the fault to PM USA. Post-Trial Developments: In March 2010, the trial court entered final judgment reflecting a reduced award of approximately $13 million in compensatory damages and $26 million in punitive damages, but without any deduction for plaintiff’s comparative fault. In April 2010, PM USA filed its notice of appeal and posted a $5 million bond. In June 2012, the Fourth District Court of Appeal affirmed the final judgment (as amended to correct a clerical error) in the amount of approximately $12.3 million in compensatory damages and approximately $24.5 million in punitive damages. In December 2012, the Fourth District withdrew its prior decision, reversed the verdict as to compensatory and punitive damages and returned the case to the trial court for a new trial on the question of damages. Upon retrial, in October 2013, the new jury awarded approximately $3.7 million in compensatory damages and $7.5 million in punitive damages. PM USA filed post-trial motions, which the trial court denied in April 2014. In May 2014, PM USA filed a notice of appeal to the Fourth District Court of Appeal and plaintiff cross-appealed. Also in May 2014, PM USA filed a rider with the Florida Supreme Court to make the previously-posted Naugle bond applicable to the retrial judgment. In January 2016, the Fourth District Court of Appeal reversed the trial court’s decision and remanded the case to the trial court to conduct a juror interview. In April 2016, PM USA moved for a new trial following the juror interview, which the court denied. In May 2016, PM USA filed a notice of appeal to the Fourth District Court of Appeal. _______________________________________________________________________________________________________________________________ Concluded Cases ________________________________________________________________________________________________________________________________ Plaintiff: R. Cohen Date: March 2010 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $10 million in compensatory damages and allocated 33 1/3% of the fault to PM USA (an amount of approximately $3.3 million). The jury also awarded a total of $20 million in punitive damages, assessing separate $10 million awards against each defendant. Post-Trial Developments: In July 2010, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. In August 2010, PM USA filed its notice of appeal. In October 2010, PM USA posted a $2.5 million bond. In September 2012, the Florida Fourth District Court of Appeal affirmed the compensatory damages award but reversed and remanded the punitive damages verdict. The Fourth District returned the case to the trial court for a new jury trial on plaintiff’s fraudulent concealment claim. In January 2013, plaintiff and defendants each filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In February 2013, the Fourth District granted defendants’ motion to stay the mandate. In March 2013, plaintiff filed a motion for review of the stay order with the Florida Supreme Court, which was denied in April 2013. In June 2013, plaintiff moved to consolidate with Hess and Kayton, which defendants did not oppose, but in October 2013, plaintiff withdrew the motion for consolidation. In February 2014, the Florida Supreme Court stayed the appeal pending the outcome of the Hess case. In April 2015, the Florida Supreme Court rejected the statute of repose defense in Hess, and PM USA moved for a rehearing. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition in Hess. In the third quarter of 2015, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $17.9 million for the judgment plus interest and associated costs. In January 2016, the Florida Supreme Court upheld the trial court’s decision in favor of plaintiff. In February 2016, PM USA posted a rider increasing the amount of its bond to $7.5 million. In April 2016, PM USA filed a motion in the trial court with regard to Florida’s bond cap statute, seeking to confirm that the stay on executing the judgment remains in effect through the completion of United States Supreme Court writ of certiorari review or until the time for moving for such review has expired, which the court granted. See additional discussion below under Florida Bond Statute. In June 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $19.1 million. ________________________________________________________________________________________________________________________________ Plaintiff: Buchanan Date: December 2012 Verdict: A Leon County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group. The jury awarded $5.5 million in compensatory damages and allocated 37% of the fault to each of the defendants. Post-Trial Developments: In December 2012, defendants filed several post-trial motions, including motions for a new trial and to set aside the verdict. In March 2013, the trial court denied all motions and entered final judgment against PM USA and Liggett Group without any deduction for plaintiff’s comparative fault. In April 2013, defendants filed a notice of appeal to the Florida First District Court of Appeal, and PM USA posted a bond in the amount of $2.5 million. In July 2014, the Florida First District Court of Appeal affirmed the judgment, but certified to the Florida Supreme Court the issue of the statute of repose, which was before the court in Hess. In August 2014, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In September 2014, the Florida Supreme Court stayed the case pending the outcome of Hess. In April 2015, the Florida Supreme Court rejected the statute of repose defense in Hess, and PM USA moved for a rehearing. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition in Hess. In the third quarter of 2015, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $4.1 million for the judgment plus interest and associated costs. In February 2016, the Florida Supreme Court declined to accept jurisdiction of PM USA’s petition for review and PM USA posted a rider increasing the amount of its bond to $5.5 million. In June 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $4.4 million. ________________________________________________________________________________________________________________________________ Plaintiff: Hallgren Date: January 2012 Verdict: A Highland County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded approximately $2 million in compensatory damages and allocated 25% of the fault to PM USA (an amount of approximately $500,000). The jury also awarded $750,000 in punitive damages against each of the defendants. Post-Trial Developments: The trial court entered final judgment in March 2012 with a deduction for plaintiff’s comparative fault. In April 2012, PM USA posted a bond in an amount of approximately $1.25 million. In May 2012, defendants filed a notice of appeal to the Florida Second District Court of Appeal. In October 2013, the Second District Court of Appeal affirmed the judgment. In November 2013, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In June 2014, the Florida Supreme Court stayed the case pending the outcome of Russo (presenting the same statute of repose issue as Hess). In April 2015, the Florida Supreme Court rejected the statute of repose defense in the Hess and Russo cases, and defendants moved for a rehearing. Additionally, in April 2015, the Florida Supreme Court stayed the case pending the outcome of Soffer, discussed below under Engle Progeny Appellate Issues. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition in Hess and Russo. In October 2015, the Florida Supreme Court lifted its stay of the case and ordered defendants to show cause why the court should not decline to exercise jurisdiction, to which defendants responded. In January 2016, the Florida Supreme Court denied defendants’ petition for discretionary review, and PM USA amended its bond to post an additional amount of approximately $500,000. In the first quarter of 2016, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.2 million for the judgment plus interest and associated costs. In June 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $2.3 million. ________________________________________________________________________________________________________________________________ Plaintiff: Kayton (formerly Tate) Date: July 2010 Verdict: A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $8 million in compensatory damages and allocated 64% of the fault to PM USA (an amount of approximately $5.1 million). The jury also awarded approximately $16.2 million in punitive damages against PM USA. Post-Trial Developments: In August 2010, the trial court entered final judgment with a deduction for plaintiff’s comparative fault, and PM USA filed its notice of appeal and posted a $5 million bond. In November 2012, the Florida Fourth District Court of Appeal reversed the punitive damages award and remanded the case for a new trial on plaintiff’s conspiracy claim. PM USA filed a motion for rehearing, which was denied in January 2013. In January 2013, plaintiff and defendant each filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In June 2013, the Florida Supreme Court stayed the appeal pending the outcome of Hess. In April 2015, the Florida Supreme Court rejected the statute of repose defense in Hess, and PM USA moved for a rehearing. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition in Hess. In the third quarter of 2015, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $28.2 million for the judgment plus interest and associated costs. In February 2016, the Florida Supreme Court upheld the trial court’s decision in favor of plaintiff, and PM USA posted a rider increasing the amount of its bond to $15 million. In April 2016, PM USA filed a motion in the trial court with regard to Florida’s bond cap statute, seeking to confirm that the stay on executing the judgment remains in effect through the completion of United States Supreme Court writ of certiorari review or until the time for moving for such review has expired, which the court granted. See additional discussion below under Florida Bond Statute. In June 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $30.1 million. ________________________________________________________________________________________________________________________________ Plaintiff: Bowden Date: March 2014 Verdict: A Duval County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded plaintiff $5 million in compensatory damages and allocated 30% of the fault to PM USA (an amount of $1.5 million). Post-Trial Developments: The trial court entered final judgment in March 2014 with a deduction for plaintiff’s comparative fault. In April 2014, defendants filed post-trial motions, including motions for a new trial and to set aside the verdict. In May 2014, the court denied defendants’ post-trial motions. In June 2014, defendants filed a notice of appeal to the Florida First District Court of Appeal, and PM USA posted a bond in the amount of $1.5 million. In February 2016, the Florida First District Court of Appeal affirmed the trial court’s decision in favor of plaintiff. In the first quarter of 2016, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $1.6 million for the judgment plus interest. In June 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $2.7 million. ________________________________________________________________________________________________________________________________ Plaintiff: Hess Date: February 2009 Verdict: A Broward County jury found in favor of plaintiff and against PM USA. The jury awarded $3 million in compensatory damages and allocated 42% of the fault to PM USA (an amount of approximately $1.2 million). The jury also awarded $5 million in punitive damages. Post-Trial Developments: In June 2009, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. PM USA filed a notice of appeal to the Florida Fourth District Court of Appeal and posted a $7 million bond in July 2009. In May 2012, the Fourth District reversed and vacated the punitive damages award on the basis that it was barred by the statute of repose and affirmed the judgment in all other respects, upholding the compensatory damages award of $1.26 million. In June 2012, both parties filed rehearing motions with the Fourth District, which were denied in September 2012. In October 2012, PM USA and plaintiff filed notices to invoke the Florida Supreme Court’s discretionary jurisdiction. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $3.2 million for the compensatory damages component of the judgment plus interest and associated costs. In June 2013, the Florida Supreme Court accepted jurisdiction of plaintiff’s petition for review, but declined to accept jurisdiction of PM USA’s petition. In April 2015, the Florida Supreme Court rejected the statute of repose defense and reinstated the punitive damages award against PM USA, and PM USA moved for a rehearing. In September 2015, the Florida Supreme Court denied PM USA’s rehearing petition. In the third quarter of 2015, PM USA recorded an additional provision on its condensed consolidated balance sheet of approximately $6.6 million for the punitive damages component of the judgment plus interest and associated costs. In February 2016, PM USA paid the judgment plus interest and associated costs in the amount of approximately $10.6 million. In June 2016, PM USA paid an additional $843,261 in interest on the judgment, an amount that had been disputed between the parties. ________________________________________________________________________________________________________________________________ Plaintiff: Greene (formerly Rizzuto) Date: August 2013 Verdict: A Hernando County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group. The jury awarded plaintiff $12.55 million in compensatory damages and allocated 55% of the fault to PM USA. Post-Trial Developments: In September 2013, defendants filed post-trial motions, including a motion to reduce damages. In September 2013, the trial court granted a remittitur in part on economic damages, which the court reduced from $2.55 million to $1.1 million for a total award of $11.1 million in compensatory damages. The trial court entered final judgment without a deduction for plaintiff’s comparative fault. In July 2015, the Florida Fifth District Court of Appeal found that the trial court should have applied the comparative fault deduction to the compensatory damages award. As a result, the judgment against PM USA was reduced to approximately $6.1 million. In September 2015, the Fifth District Court of Appeal denied PM USA’s motion for rehearing. In October 2015, PM USA posted a bond in the amount of $6.1 million. In the third quarter of 2015, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $6.7 million for the judgment plus interest and associated costs. In February 2016, PM USA paid the judgment plus interest in the amount of approximately $6.8 million. In April 2016, PM USA paid fees of approximately $1.45 million. ________________________________________________________________________________________________________________________________ Plaintiff: Goveia Date: February 2014 Verdict: An Orange County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $850,000 in compensatory damages and allocated 35% of the fault against each defendant. The jury also awarded $2.25 million in punitive damages against each defendant. Post-Trial Developments: In February 2014, defendants filed post-trial motions, including motions to set aside the verdict and for a new trial. In April 2014, the court denied defendants’ motions without a deduction for plaintiff’s comparative fault. In April 2014, defendants filed a notice of appeal to the Florida Fifth District Court of Appeal. In May 2014, PM USA posted a bond in the amount of $2.5 million. In June 2015, the Fifth District Court of Appeal affirmed without opinion the trial court’s judgment in favor of plaintiff. On August 3, 2015, the Fifth District Court of Appeal denied PM USA’s motion to issue a written opinion. In the third quarter of 2015, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $3.2 million for the judgment plus interest and associated costs, and paid this amount in August 2015. ________________________________________________________________________________________________________________________________ Engle Progeny Appellate Issues Three Florida federal district courts (in the Merlob, B. Brown and Burr cases) ruled in 2008 that the findings in the first phase of the Engle proceedings cannot be used to satisfy elements of plaintiffs’ claims, and two of those rulings (B. Brown and Burr) were certified by the trial court for interlocutory review. The certification in both cases was granted by the U.S. Court of Appeals for the Eleventh Circuit and the appeals were consolidated. The appeal in Burr was dismissed for lack of prosecution, and the case was ultimately dismissed on statute of limitations grounds. In July 2010, the Eleventh Circuit ruled in B. Brown that, as a matter of Florida law, plaintiffs do not have an unlimited right to use the findings from the original Engle trial to meet their burden of establishing the elements of their claims at trial. The Eleventh Circuit did not reach the issue of whether the use of the Engle findings violates defendants’ due process rights. Rather, the court held that plaintiffs may only use the findings to establish those specific facts, if any, that they demonstrate with a reasonable degree of certainty were actually decided by the original Engle jury. The Eleventh Circuit remanded the case to the district court to determine what specific factual findings the Engle jury actually made. After the remand of B. Brown, several state appellate rulings superseded the Eleventh Circuit’s ruling on Florida state law. These cases include Martin, a case against R.J. Reynolds in Escambia County, and J. Brown, a case against R.J. Reynolds in Broward County. In December 2011, petitions for writ of certiorari were filed with the United States Supreme Court by R.J. Reynolds in Campbell, Martin, Gray and Hall and by PM USA and Liggett Group in Campbell. The United States Supreme Court denied defendants’ certiorari petitions in March 2012. In Douglas, in March 2012, the Florida Second District Court of Appeal issued a decision affirming the judgment of the trial court in favor of the plaintiff and upholding the use of the Engle jury findings with respect to strict liability claims but certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. In March 2013, the Florida Supreme Court affirmed the final judgment entered in favor of plaintiff upholding the use of the Engle jury findings with respect to strict liability and negligence claims. PM USA filed its petition for writ of certiorari with the United States Supreme Court in August 2013, which the court denied in October 2013. Meanwhile, in the Waggoner case, the U.S. District Court for the Middle District of Florida ruled in December 2011 that application of the Engle findings to establish the wrongful conduct elements of plaintiffs’ claims consistent with Martin or J. Brown did not violate defendants’ due process rights. PM USA and the other defendants sought appellate review of the due process ruling. In February 2012, the district court denied the motion for interlocutory appeal, but did apply the ruling to all active pending federal Engle progeny cases. As a result, R.J. Reynolds appealed the rulings in the Walker and Duke cases to the Eleventh Circuit, which ultimately rejected the due process defense. In March 2014, R.J. Reynolds filed petitions for writ of certiorari to the United States Supreme Court in the Walker and Duke cases, as well as in J. Brown. Defendants filed petitions for writ of certiorari in eight other Engle progeny cases that were tried in Florida state courts, including one case, Barbanell, in which PM USA was the defendant. In these eight petitions, defendants asserted questions similar to those in Walker, Duke and J. Brown. In June 2014, the United States Supreme Court denied defendants’ petitions for writ of certiorari in all 11 cases. In Graham, an Engle progeny case against PM USA and R.J. Reynolds on appeal to the U.S. Court of Appeals for the Eleventh Circuit, in April 2015 the court, found in favor of defendants on the basis of federal preemption, reversing the trial court’s denial of judgment as a matter of law. Thereafter, plaintiff filed a petition for rehearing en banc, which the Eleventh Circuit granted in January 2016. The Eleventh Circuit directed the parties to file briefs and argue both the federal preemption and due process issues. Also in January 2016, in Marotta, a case against R.J. Reynolds on appeal to the Florida Fourth District Court of Appeal, the court rejected R.J. Reynolds’s federal preemption defense, but noted the conflict with Graham and certified the preemption question to the Florida Supreme Court. In March 2016, the Florida Supreme Court accepted review of Marotta. In Searcy, an Engle progeny case against PM USA and R.J. Reynolds on appeal to the Eleventh Circuit, defendants argued that application of the Engle findings to the Engle progeny plaintiffs’ concealment and conspiracy claims violated defendants’ due process rights. The appeal is pending. In Soffer, an Engle progeny case against R.J. Reynolds, the Florida First District Court of Appeal held that Engle progeny plaintiffs can recover punitive damages only on their intentional tort claims. The Florida Supreme Court accepted jurisdiction over plaintiff’s appeal from the Florida First District Court of Appeal’s decision and, in March 2016, held that Engle progeny plaintiffs can recover punitive damages in connection with all of their claims. Plaintiffs have increasingly relied on this Florida Supreme Court decision at the trial and appellate court levels in seeking punitive damages in connection with all of their claims. In Ciccone, an Engle progeny case against R.J. Reynolds, the Florida Fourth District Court of Appeal held that Engle progeny plaintiffs could establish class membership by showing that they developed symptoms during the Engle class period that could, in hindsight, be attributed to their smoking-related disease. The court certified a conflict with Castleman, a Florida First District Court of Appeal decision, which held that manifestation requires Engle progeny plaintiffs to have been aware during the class period that they had a disease caused by smoking in order to establish class membership. The Florida Supreme Court accepted jurisdiction in the Ciccone case and, in March 2016, ruled in favor of plaintiff, approving the Fourth District Court of Appeal’s definition. Florida Bond Statute In June 2009, Florida amended its existing bond cap statute by adding a $200 million bond cap that applies to all state Engle progeny lawsuits in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. Plaintiffs in three state Engle progeny cases against R.J. Reynolds in Alachua County, Florida (Alexander, Townsend and Hall) and one case in Escambia County (Clay) challenged the constitutionality of the bond cap statute. The Florida Attorney General intervened in these cases in defense of the constitutionality of the statute. Trial court rulings were rendered in Clay, Alexander, Townsend and Hall rejecting the plaintiffs’ bond cap statute challenges in those cases. The plaintiffs unsuccessfully appealed these rulings. In Alexander, Clay and Hall, the District Court of Appeal for the First District of Florida affirmed the trial court decisions and certified the decision in Hall for appeal to the Florida Supreme Court, but declined to certify the question of the constitutionality of the bond cap statute in Clay and Alexander. The Florida Supreme Court granted review of the Hall decision, but, in September 2012, the court dismissed the appeal as moot. In October 2012, the Florida Supreme Court denied the plaintiffs’ rehearing petition. In August 2013, in Calloway, discussed further above, plaintiff filed a motion in the trial court to determine the sufficiency of the bond posted by defendants on the ground that the bond cap statute is unconstitutional, which was denied. In February 2016, in the Sikes case against R.J. Reynolds, the trial court held that Florida’s bond cap statute does not stay the execution of judgment after a case is final in the Florida judicial system and before the defendant files a petition for writ of certiorari in the United States Supreme Court. The District Court of Appeal for the First District of Florida issued an order staying execution of the judgment and requesting that plaintiff show cause why the stay should not remain in effect through the completion of United States Supreme Court writ of certiorari review or until the time for moving for such review has expired. In April 2016, the District Court of Appeal held that the bond cap applies to the period between a Florida Supreme Court ruling and completion of United States Supreme Court writ of certiorari review. In April 2016, PM USA filed motions in the trial court in the R. Cohen and Kayton cases seeking confirmation that the stay on executing the judgment remains in effect through the completion of United States Supreme Court writ of certiorari review or until the time for moving for such review has expired, which the court granted. No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engle progeny cases tried in federal court. Other Smoking and Health Class Actions Since the dismissal in May 1996 of a purported nationwide class action brought on behalf of allegedly addicted smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal courts. In general, these cases purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well. Class certification has been denied or reversed by courts in 60 smoking and health class actions involving PM USA in Arkansas (1), California (1), the District of Columbia (2), Florida (2), Illinois (3), Iowa (1), Kansas (1), Louisiana (1), Maryland (1), Michigan (1), Minnesota (1), Nevada (29), New Jersey (6), New York (2), Ohio (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Puerto Rico (1), South Carolina (1), Texas (1) and Wisconsin (1). As of July 22, 2016, PM USA and Altria Group, Inc. are named as defendants, along with other cigarette manufacturers, in seven class actions filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan, British Columbia (two separate cases) and Ontario, plaintiffs seek class certification on behalf of individuals who suffer or have suffered from various diseases, including chronic obstructive pulmonary disease, emphysema, heart disease or cancer, after smoking defendants’ cigarettes. In the actions filed in Alberta, Manitoba and Nova Scotia, plaintiffs seek certification of classes of all individuals who smoked defendants’ cigarettes. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products. Medical Monitoring Class Actions In medical monitoring actions, plaintiffs seek to recover the cost for, or otherwise the implementation of, court-supervised programs for ongoing medical monitoring purportedly on behalf of a class of individual plaintiffs. Plaintiffs in these cases seek to impose liability under various product-based causes of action and the creation of a court-supervised program providing members of the purported class Low Dose CT (“LDCT”) scanning in order to identify and diagnose lung cancer. Plaintiffs in these cases do not seek punitive damages, although plaintiffs in Donovan sought permission from the court to seek to treble any damages awarded, which the court denied. The future defense of these cases may be negatively impacted by evolving medical standards and practice. One medical monitoring class action is currently pending against PM USA. In Donovan, filed in December 2006 in the U.S. District Court for the District of Massachusetts, plaintiffs purportedly brought the action on behalf of the state’s residents who are: age 50 or older; have smoked the Marlboro brand for 20 pack-years or more; and have neither been diagnosed with lung cancer nor are under investigation by a physician for suspected lung cancer. The Supreme Judicial Court of Massachusetts, in answering questions certified to it by the district court, held in October 2009 that under certain circumstances state law recognizes a claim by individual smokers for medical monitoring despite the absence of an actual injury. The court also ruled that whether or not the case is barred by the applicable statute of limitations is a factual issue to be determined at trial. The case was remanded to federal court for further proceedings. In June 2010, the district court granted in part the plaintiffs’ motion for class certification, certifying the class as to plaintiffs’ claims for breach of implied warranty and violation of the Massachusetts Consumer Protection Act, but denying certification as to plaintiffs’ negligence claim. In July 2010, PM USA petitioned the U.S. Court of Appeals for the First Circuit for appellate review of the class certification decision. The petition was denied in September 2010. As a remedy, plaintiffs have proposed a 28-year medical monitoring program with a cost in excess of $190 million. In October 2011, PM USA filed a motion for class decertification, which motion was denied in March 2012. In February 2013, the district court amended the class definition to extend to individuals who satisfy the class membership criteria through February 26, 2013, and to exclude any individual who was not a Massachusetts resident as of February 26, 2013. In July 2015, both parties filed various motions, including motions for partial summary judgment and to exclude certain evidence. In October 2015, the district court granted PM USA’s motion for partial summary judgment holding that e-vapor products may not be deemed an alternative design for ordinary cigarettes. In February 2016, the trial court jury returned a verdict in favor of PM USA on the warranty claim. In March 2016, PM USA filed a motion for judgment on plaintiffs’ Massachusetts Consumer Protection Act claim based on the jury’s verdict, which the court denied in April 2016, ruling that it will function as the finder of fact with respect to the Massachusetts Consumer Protection Act. Health Care Cost Recovery Litigation Overview In the health care cost recovery litigation, governmental entities seek reimbursement of health care cost expenditures allegedly caused by tobacco products and, in some cases, of future expenditures and damages. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees. The claims asserted include the claim that cigarette manufacturers were “unjustly enriched” by plaintiffs’ payment of health care costs allegedly attributable to smoking, as well as claims of indemnity, negligence, strict liability, breach of express and implied warranty, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under federal and state statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under federal and state anti-racketeering statutes. Defenses raised include lack of proximate cause, remoteness of injury, failure to state a valid claim, lack of benefit, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), lack of antitrust standing and injury, federal preemption, lack of statutory authority to bring suit and statutes of limitations. In addition, defendants argue that they should be entitled to “set off” any alleged damages to the extent the plaintiffs benefit economically from the sale of cigarettes through the receipt of excise taxes or otherwise. Defendants also argue that these cases are improper because plaintiffs must proceed under principles of subrogation and assignment. Under traditional theories of recovery, a payor of medical costs (such as an insurer) can seek recovery of health care costs from a third party solely by “standing in the shoes” of the injured party. Defendants argue that plaintiffs should be required to bring any actions as subrogees of individual health care recipients and should be subject to all defenses available against the injured party. Although there have been some decisions to the contrary, most judicial decisions in the United States have dismissed all or most health care cost recovery claims against cigarette manufacturers. Nine federal circuit courts of appeals and eight state appellate courts, relying primarily on grounds that plaintiffs’ claims were too remote, have ordered or affirmed dismissals of health care cost recovery actions. The United States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five circuit courts of appeals. Individuals and associations have also sued in purported class actions or as private attorneys general under the Medicare as Secondary Payer (“MSP”) provisions of the Social Security Act to recover from defendants Medicare expenditures allegedly incurred for the treatment of smoking-related diseases. Cases were brought in New York (2), Florida (2) and Massachusetts (1). All were dismissed by federal courts. In addition to the cases brought in the United States, health care cost recovery actions have also been brought against tobacco industry participants, including PM USA and Altria Group, Inc., in Israel (dismissed), the Marshall Islands (dismissed) and Canada (10), and other entities have stated that they are considering filing such actions. In September 2005, in the first of several health care cost recovery cases filed in Canada, the Canadian Supreme Court ruled that legislation passed in British Columbia permitting the lawsuit is constitutional, and, as a result, the case, which had previously been dismissed by the trial court, was permitted to proceed. PM USA’s and other defendants’ challenge to the British Columbia court’s exercise of jurisdiction was rejected by the Court of Appeals of British Columbia and, in April 2007, the Supreme Court of Canada denied review of that decision. Since the beginning of 2008, the Canadian Provinces of British Columbia, New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia have brought health care reimbursement claims against cigarette manufacturers. PM USA is named as a defendant in the British Columbia and Quebec cases, while both Altria Group, Inc. and PM USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia cases. The Nunavut Territory and Northwest Territory have passed similar legislation. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products. Settlements of Health Care Cost Recovery Litigation In November 1998, PM USA and certain other United States tobacco product manufacturers entered into the 1998 Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously entered into agreements to settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements require that the original participating manufacturers or “OPMs” (now PM USA and R.J. Reynolds and, with respect to the brands it acquired from R.J. Reynolds and Lorillard, ITG Brands, LLC (“ITG”)) make annual payments of approximately $9.4 billion, subject to adjustments for several factors, including inflation, market share and industry volume. In addition, the OPMs are required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. For the three months ended June 30, 2016 and 2015, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $1.2 billion for each period. For the six months ended June 30, 2016 and 2015, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $2.3 billion for each period. The amount for the six months ended June 30, 2016 included an increase to cost of sales of approximately $12 million related to NPM Adjustment Items discussed below. The State Settlement Agreements also include provisions relating to advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to certain tobacco control and underage use laws, restrictions on lobbying activities and other provisions. NPM Adjustment Disputes PM USA is participating in proceedings regarding potential downward adjustments (the “NPM Adjustment”) to MSA payments made by manufacturers that are signatories to the MSA (the “participating manufacturers” or “PMs”) for 2003-2015. The NPM Adjustment is a reduction in MSA payments that applies if the PMs collectively lose at least a specified level of market share to non-participating manufacturers (“NPMs”) between 1997 and the year at issue, subject to certain conditions and defenses. The independent auditor appointed under the MSA calculates the maximum amount, if any, of the NPM Adjustment for any year in respect of which such NPM Adjustment is potentially applicable. 2003-2014 NPM Adjustment Disputes - Settlement with 24 States and Territories and Settlement with New York PM USA has settled the NPM Adjustment disputes for the years 2003-2012 with 24 of the 52 MSA states and territories (these 24 states and territories are referred to as the “signatory states,” and the remaining MSA states and territories are referred to as the “non-signatory states”). Pursuant to the settlement with these 24 signatory states, PM USA has received a total of $599 million for 2003-2012 in the form of reductions to its MSA payments in 2013, 2014 and 2015. In addition, the settlement provides that the NPM Adjustment provision will be revised and streamlined as to the signatory states for the years after 2012. Under the revised provision, the 2013 and 2014 NPM Adjustments were “transition years,” for which the PMs received specified payments in settlement of the NPM Adjustments for those years. PM USA received $38 million for the 2013 transition year and $41 million for the 2014 transition year pursuant to this revised provision in the form of reductions to its MSA payments in 2014 and 2015, respectively. The revised NPM Adjustment provision in the settlement provides that, for 2015 and subsequent years, there is a potential downward adjustment to the PMs’ MSA payment relating to NPM sales on which state excise tax (“SET”) is paid. Pursuant to such adjustment, each signatory state will pay an amount to the OPMs tied to the number of NPM cigarettes sold during the year at issue on which that state collected its SET (or, potentially, on which a comparable tax was collected) but on which that state did not collect escrow (“non-compliant NPM sales”). These payments will be made in the form of future reductions to MSA payments by the OPMs. This adjustment for SET-paid NPM sales is subject to certain exceptions and to a “safe harbor” under which a state does not owe any payment if the number or percentage of non-compliant NPM sales is below certain stated benchmarks. In addition, the settlement further provides that the NPM Adjustment for 2015 and subsequent years will continue to apply to the signatory states, subject to certain defenses, but that those states will receive a partial liability reduction tied to the percentage of NPM sales nationwide during the year at issue on which either an MSA state has collected SET (or potentially a comparable tax is collected) or, potentially, Mississippi, Florida, Texas or Minnesota collected an equity fee (as defined in the settlement) on cigarettes sold by NPMs in those respective states. The amount (if any) of the potential adjustment relating to SET-paid NPM sales for 2015 and the amount of the partial liability reduction for 2015 have not yet been determined. In addition, proceedings to determine the availability of and defenses to the 2015 NPM Adjustment as to the signatory states will likely not take place for a considerable period of time. In the meantime, pursuant to the settlement, the OPMs and the signatory states have agreed to split the NPM Adjustment amount for 2015 and each subsequent year thereafter pending the ultimate outcome of the applicable proceedings. As a result, in the second quarter of 2016, approximately $43 million was returned to PM USA related to the 2015 NPM Adjustment. This amount was included in other liabilities on the condensed consolidated balance sheet at June 30, 2016 and, once the proceedings to determine the amount of the 2015 NPM Adjustment are concluded, it will either be paid to the signatory states or retained by PM USA (in each case, without interest) as part of the ultimately determined amount payable. The OPMs have agreed that the amounts they receive under the settlement for the 2013-2014 transition years and for subsequent years from the signatory states will be allocated among them pursuant to a formula that modifies the MSA allocation formula in a manner favorable to PM USA. The extent to which it remains favorable to PM USA will depend upon future developments, as well as upon the resolution of certain disputes among the OPMs discussed below. Many of the non-signatory states objected to the settlement before the arbitration panel hearing the 2003 NPM Adjustment dispute. In March 2013, the panel issued a stipulated partial settlement and award (the “Stipulated Award”) rejecting the objections and permitting the settlement to proceed. In the Stipulated Award, the arbitration panel also ruled that the total 2003 NPM Adjustment would be reduced pro rata by the aggregate allocable share of the signatory states to determine the maximum amount of the 2003 NPM Adjustment potentially available from the non-signatory states whose diligent enforcement claims the PMs continued to contest (the “pro rata judgment reduction”). Fourteen of the non-signatory states filed motions in their state courts to vacate and/or modify the Stipulated Award in whole or part. Decisions by the Pennsylvania, Missouri and Maryland courts on such motions, and the subsequent appeals of those rulings, are discussed below. One state’s motion was denied without an appeal by the state. Another state’s motions remain pending in its state trial court. As for the remaining states, rulings rejecting their motions to vacate the Stipulated Award have been affirmed on appeal, or the motions have been voluntarily dismissed or stayed pending further state action. In October 2015, PM USA, along with the other PMs, settled the 2004-2014 NPM Adjustment disputes with New York. The New York settlement is separate from the settlement with the 24 signatory states and is different from that settlement in certain respects. Pursuant to the New York settlement, PM USA received approximately $126 million for 2004-2014 in the form of a reduction to its MSA payment in 2016. PM USA previously recorded $126 million as a reduction to cost of sales in the third quarter of 2015 to reflect the New York settlement in its estimate of MSA expenses related to prior years. In addition, the New York settlement provides that the NPM Adjustment provision will be revised as to New York for the years after 2014. The revised provision with respect to NPM cigarettes on which New York SET is paid is largely similar to the revised provision in the settlement with the 24 signatory states with respect to an adjustment relating to SET-paid NPM sales. As to other NPM cigarettes, the New York settlement provides that, in lieu of the NPM Adjustment provision for years after 2014, New York will make annual payments to the PMs tied to the number of NPM cigarettes on which New York did not collect SET that were sold on or through Native American reservations located in New York (or otherwise met the standard in the settlement agreement) during the year at issue to New York consumers. These annual payments will be made in the form of reductions to future MSA payments by the PMs, beginning with the MSA payment in 2017. The OPMs have agreed that the amounts they receive under the New York settlement for the years after 2014 will be allocated among them pursuant to a formula that modifies the MSA allocation formula in a manner favorable to PM USA, although the extent to which it remains favorable to PM USA will depend upon future developments, as well as upon the resolution of certain disputes among the OPMs discussed below. Under the New York settlement, in return for the payments described above and other consideration described in the New York settlement, the PMs have released New York from the NPM Adjustment provision for all years except as provided in the New York settlement. 2003 and Subsequent NPM Adjustment Disputes - Continuing Disputes with Non-Signatory States other than New York PM USA has continued to pursue the NPM Adjustments for 2003 and subsequent years with respect to the non-signatory states other than New York. Under the MSA, once all conditions for the NPM Adjustment for a particular year are met (including the condition that the disadvantages of the MSA were a “significant factor” contributing to the PMs’ collective loss of market share), each state may avoid an NPM Adjustment to its share of the PMs’ MSA payments for that year by establishing that it diligently enforced a qualifying escrow statute during the entirety of that year. Such a state’s share of the NPM Adjustment would then be reallocated to any states that are found not to have diligently enforced for that year. For 2003-2014, all conditions for the NPM Adjustment have been met, either by determination or agreement among the parties (although the parties’ agreement provides that the “significant factor” condition for 2014 will become effective in February 2017).
In September 2013, the arbitration panel issued rulings regarding the 15 states and territories whose diligent enforcement the PMs contested that had not as of that time joined the settlement, ruling that six of them (Indiana, Kentucky, Maryland, Missouri, New Mexico and Pennsylvania) did not diligently enforce during 2003 and that nine of them did. Based on this ruling, the PMs were entitled to receive from the six non-diligent states the entire 2003 NPM Adjustment remaining after the pro rata judgment reduction. PM USA believed it was entitled to receive an NPM Adjustment for 2003 based on this ruling, after reflecting the 20% partial liability reduction noted above, of approximately $145 million. PM USA recorded this $145 million as a reduction to cost of sales, which increased its reported pre-tax earnings in the third quarter of 2013. In addition, PM USA believed it would be entitled to interest on this amount of approximately $89 million. PM USA recorded $64 million of this amount as interest income, which reduced interest and other debt expense, net in the first quarter of 2014, but did not record the remaining $25 million based on its assessment of certain disputes concerning interest discussed below. After PM USA recorded these amounts, two of the six non-diligent states (Indiana and Kentucky) joined the settlement and became signatory states. Those two states account for (i) $37 million of the $145 million NPM Adjustment for 2003 that PM USA recorded and (ii) $17 million of the interest that PM USA recorded. PM USA has retained those amounts from the two states, and has received additional amounts as part of the settlement recoveries for the 2003-2012 NPM Adjustment disputes described above. The remaining four states account for approximately (i) $108 million of the $145 million 2003 NPM Adjustment that PM USA recorded and (ii) $66 million of the $89 million of interest to which PM USA believed it would be entitled on the $145 million (and $47 million of the $64 million of interest that PM USA recorded). Each of these four states filed a motion in its state court to (i) vacate the panel’s ruling as to its diligence and (ii) modify the pro rata judgment reduction and to substitute a reduction method more favorable to the state. These four states also raised a dispute concerning the independent auditor’s calculation of interest. In addition, another OPM has raised a dispute concerning the allocation of the interest and disputed payments account earnings among the OPMs. In April 2014, a Pennsylvania state trial court denied Pennsylvania’s motion to vacate the arbitration panel’s ruling that Pennsylvania had not diligently enforced, but granted Pennsylvania’s motion to modify, with respect to Pennsylvania, the pro rata judgment reduction. In April 2015, a Pennsylvania intermediate appellate court affirmed the trial court’s modification, with respect to Pennsylvania, of the pro rata judgment reduction. In December 2015, the Supreme Court of Pennsylvania denied PM USA’s petition for further judicial review of the Pennsylvania intermediate appellate court decision. Because the Pennsylvania state trial court ruling preceded PM USA’s 2014 MSA payment date, the total 2014 MSA payment credit PM USA received on account of the 2003 NPM Adjustment from the four states was reduced from $108 million to $79 million, and the interest PM USA received from the four states was $48 million rather than the $66 million in interest to which PM USA believed it would be entitled from those four states. As a result of the denial by the Supreme Court of Pennsylvania of PM USA’s petition for review of the intermediate appellate court ruling on the modification of the pro rata judgment reduction method, PM USA reversed $29 million of the reduction to cost of sales and $13 million of the interest income that had been previously recorded in respect of Pennsylvania for the 2003 NPM Adjustment, which reduced its reported pre-tax earnings by approximately $42 million in the fourth quarter of 2015. In April 2016, PM USA filed a petition for writ of certiorari with the United States Supreme Court. In July 2014, a Maryland state trial court denied both Maryland’s motion to vacate the arbitration panel’s ruling that Maryland had not diligently enforced and Maryland’s motion to vacate or modify the pro rata judgment reduction. Maryland appealed both decisions. In October 2015, a Maryland intermediate appellate court reversed the Maryland trial court’s ruling on the pro rata judgment reduction method and applied a judgment reduction method that is more favorable to the state. PM USA sought further discretionary review of this decision in the Maryland Court of Appeals but, in February 2016, the Court of Appeals denied PM USA’s petition. As a result, PM USA returned approximately $12 million of the 2003 NPM Adjustment and $7 million of the interest it received (plus interest on those amounts). In addition, PM USA recorded a corresponding reduction to its pre-tax earnings in the first quarter of 2016. In June 2016, PM USA filed a petition for writ of certiorari with the United States Supreme Court. In May 2014, a Missouri state trial court denied Missouri’s motion to vacate the arbitration panel’s ruling that Missouri had not diligently enforced, but granted Missouri’s motion to modify, with respect to Missouri, the pro rata judgment reduction. In September 2015, however, a Missouri intermediate appellate court reversed the Missouri state trial court’s ruling that modified the pro rata judgment reduction, effectively reinstating the application of that reduction method to Missouri. The Supreme Court of Missouri granted Missouri’s request for review of the intermediate appellate court decision. If Missouri is successful on further judicial review of the Missouri intermediate appellate court’s ruling reversing the Missouri trial court ruling, PM USA will be required to return approximately $12 million of the 2003 NPM Adjustment and $7 million of the interest it received (in each case subject to confirmation by the independent auditor), plus applicable interest, and would need to make corresponding reversals to amounts previously recorded. In connection with its appeal of the Missouri state trial court’s ruling, PM USA posted a bond in the amount of $22 million, which will remain in place despite the reversal of the Missouri state trial court’s ruling by the intermediate appellate court until all appeals are exhausted. In February 2016, PM USA and other PMs entered into an agreement with the State of Missouri to settle the NPM Adjustment disputes, contingent upon Missouri’s enactment by June 3, 2016 of certain amendments to its existing escrow statute. Because the Missouri state legislature failed to pass this legislation, the settlement did not become effective, and Missouri’s appeal on the pro rata judgment reduction issue is now proceeding before the Supreme Court of Missouri. The motions filed by the fourth state, New Mexico, remain pending in its state trial court. This and the other litigation and disputes discussed above could further reduce PM USA’s recovery on the 2003 NPM Adjustment or recovery of interest and potentially require PM USA to return amounts previously received and/or reverse amounts previously recorded. No assurance can be given that the litigation and disputes discussed above will be resolved in a manner favorable to PM USA.
In June 2015, PM USA entered into an agreement with 17 of the non-signatory states to form an arbitration panel to conduct an arbitration regarding the 2004 NPM Adjustment. Pursuant to that agreement, in July 2015 PM USA and the 17 states each appointed its respective side’s arbitrator for that arbitration panel. In December 2015, the two appointed arbitrators selected the third arbitrator for a three-arbitrator panel required by the MSA. Other PMs declined to participate in appointing the arbitrators, and instead filed motions in courts in each of the 17 states seeking to compel these states to participate in an arbitration of the 2004 NPM Adjustment dispute between the states and the PMs that would also include disputes solely between the OPMs regarding the allocation of NPM Adjustments as between them (the “inter-company disputes”). Several of the 17 states and PM USA filed cross-motions objecting to the motions filed by the other PMs and seeking to confirm the arbitrators selected by them in July 2015 as properly selected pursuant to the MSA to resolve the 2004 NPM Adjustment dispute between the 17 states and the PMs. PM USA, the 17 states and the other PMs resolved these disputes, and the 2004 diligent enforcement arbitration is underway before two separate arbitration panels, with certain states’ claims of diligent enforcement to be decided by one panel and certain other states’ claims of diligent enforcement decided by the other panel. These two arbitration panels have two arbitrators in common. In addition, Wisconsin, Pennsylvania and Maryland have agreed to join in the 2004 diligent enforcement arbitration. As part of the resolution of these disputes, the OPMs have agreed that the inter-company disputes will be heard by a separate arbitration panel. Proceedings regarding diligent enforcement claims for 2005 and subsequent years have not yet been scheduled. No assurance can be given as to when proceedings for 2005 and subsequent years will be scheduled or the precise form those proceedings will take. The independent auditor has calculated that PM USA’s share of the maximum potential NPM Adjustments for 2004-2015 is (exclusive of interest or earnings): $388 million for 2004, $181 million for 2005, $154 million for 2006, $185 million for 2007, $250 million for 2008, $211 million for 2009, $218 million for 2010, $166 million for 2011, $210 million for 2012, $218 million for 2013, $241 million for 2014 and $289 million for 2015. These maximum amounts will be reduced by a judgment reduction to reflect the settlement with the signatory states and the New York settlement. The judgment reduction for the 2004 and subsequent NPM Adjustments has not yet been determined. In addition, these maximum amounts may also be further reduced by other developments, including agreements that may be entered in the future, disputes that may arise or recalculation of the NPM Adjustment amounts by the independent auditor. Further, the maximum amount for 2004 may also be reduced due to a dispute raised by another OPM regarding the allocation of the maximum potential 2004 NPM Adjustment among the OPMs. In addition, as discussed below, PM USA believes that the amount shown above as PM USA’s share of the maximum potential NPM Adjustment for 2015 was incorrectly calculated by the independent auditor, and that PM USA’s correct share is higher. Finally, PM USA’s recovery of these amounts, even as reduced, is dependent upon subsequent determinations of state diligent enforcement claims, and is subject (in the case of signatory states found non-diligent) to the partial liability reduction under the settlement. The availability and amount of any NPM Adjustment for 2004 and subsequent years will not be finally determined in the near term. There is no assurance that PM USA will ultimately receive any adjustment as a result of these proceedings. PM USA’s receipt of amounts on account of the 2003 NPM Adjustment and interest from non-signatory states does not provide any assurance that PM USA will receive any NPM Adjustment amounts (or associated interest or earnings) for 2004 or any subsequent year. PM USA may enter into settlement discussions regarding the NPM Adjustment disputes with any state if PM USA believes it is in its best interests to do so. Other Disputes Under the State Settlement Agreements The payment obligations of the tobacco product manufacturers that are parties to the State Settlement Agreements, as well as the allocations of any NPM Adjustments received by them pursuant to the MSA or the settlements of NPM Adjustment disputes with certain states described above, as calculated by the independent auditor, have been and may continue to be affected by R.J. Reynolds’s acquisition of Lorillard and the related divestiture of certain cigarette brands by R.J. Reynolds to ITG (the “RJR-Lorillard-ITG transaction”). In that regard, PM USA disputed several recent calculations made by the independent auditor. In particular, PM USA believes that the independent auditor’s calculations incorrectly increased PM USA’s payment for 2015 due to Mississippi, Florida, Texas and Minnesota under the separate agreements with those states. In addition, PM USA believes that the calculations by the independent auditor would result in an improper decrease of PM USA’s share of the 2015 NPM Adjustments pursuant to the MSA and the settlements of the NPM Adjustment disputes, although the amount of such decrease would depend on a number of factors that cannot be determined at this time. For future years, PM USA cannot predict the amount by which its payment obligations may be increased or its allocation of NPM Adjustments decreased as a result of the RJR-Lorillard-ITG transaction. PM USA cannot provide any assurance that it will be successful in any such dispute that it has raised or may raise. Other MSA-Related Litigation Since the MSA’s inception, NPMs and/or their distributors or customers have filed a number of challenges to the MSA and related legislation. They have named as defendants the states and their officials, in an effort to enjoin enforcement of important parts of the MSA and related legislation, and/or participating manufacturers, in an effort to obtain damages. To date, no such challenge has been successful, and the U.S. Courts of Appeals for the Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth and Tenth Circuits have affirmed judgments in favor of defendants in 16 such cases. Federal Government’s Lawsuit In 1999, the United States government filed a lawsuit in the U.S. District Court for the District of Columbia against various cigarette manufacturers, including PM USA, and others, including Altria Group, Inc., asserting claims under three federal statutes, namely the Medical Care Recovery Act (“MCRA”), the MSP provisions of the Social Security Act and the civil provisions of RICO. Trial of the case ended in June 2005. The lawsuit sought to recover an unspecified amount of health care costs for tobacco-related illnesses allegedly caused by defendants’ fraudulent and tortious conduct and paid for by the government under various federal health care programs, including Medicare, military and veterans’ health benefits programs, and the Federal Employees Health Benefits Program. The complaint alleged that such costs total more than $20 billion annually. It also sought what it alleged to be equitable and declaratory relief, including disgorgement of profits that arose from defendants’ allegedly tortious conduct, an injunction prohibiting certain actions by defendants, and a declaration that defendants are liable for the federal government’s future costs of providing health care resulting from defendants’ alleged past tortious and wrongful conduct. The case ultimately proceeded only under the civil provisions of RICO. The government alleged that disgorgement by defendants of approximately $280 billion is an appropriate remedy and the trial court agreed. In February 2005, however, a panel of the U.S. Court of Appeals for the District of Columbia Circuit held that disgorgement is not a remedy available to the government under the civil provisions of RICO. In October 2005, the United States Supreme Court denied the government’s petition for writ of certiorari. In August 2006, the federal trial court entered judgment in favor of the government. The court held that certain defendants, including Altria Group, Inc. and PM USA, violated RICO and engaged in seven of the eight “sub-schemes” to defraud that the government had alleged. Specifically, the court found that:
The court did not impose monetary penalties on defendants, but ordered the following relief: (i) an injunction against “committing any act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States; (ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each; (iii) an injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes”; (iv) an injunction against conveying any express or implied health message or health descriptors on cigarette packaging or in cigarette advertising or promotional material, including “lights,” “ultra lights” and “low tar,” which the court found could cause consumers to believe one cigarette brand is less hazardous than another brand; (v) the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “light” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to environmental tobacco smoke; (vi) the disclosure on defendants’ public document websites and in the Minnesota document repository of all documents produced to the government in the lawsuit or produced in any future court or administrative action concerning smoking and health until 2021, with certain additional requirements as to documents withheld from production under a claim of privilege or confidentiality; (vii) the disclosure of disaggregated marketing data to the government in the same form and on the same schedule as defendants now follow in disclosing such data to the Federal Trade Commission (“FTC”) for a period of 10 years; (viii) certain restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette businesses within the United States; and (ix) payment of the government’s costs in bringing the action. Defendants appealed and, in May 2009, a three judge panel of the Court of Appeals for the District of Columbia Circuit issued a per curiam decision largely affirming the trial court’s judgment against defendants and in favor of the government. Although the panel largely affirmed the remedial order that was issued by the trial court, it vacated the following aspects of the order:
The Court of Appeals panel remanded the case for the trial court to reconsider these four aspects of the injunction and to reformulate its remedial order accordingly. Furthermore, the Court of Appeals panel rejected all of the government’s and intervenors’ cross-appeal arguments and refused to broaden the remedial order entered by the trial court. The Court of Appeals panel also left undisturbed its prior holding that the government cannot obtain disgorgement as a permissible remedy under RICO. In July 2009, defendants filed petitions for a rehearing before the panel and for a rehearing by the entire Court of Appeals. Defendants also filed a motion to vacate portions of the trial court’s judgment on the grounds of mootness because of the passage of the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), granting the U.S. Food and Drug Administration (the “FDA”) broad authority over the regulation of tobacco products. In September 2009, the Court of Appeals entered three per curiam rulings. Two of them denied defendants’ petitions for panel rehearing or for rehearing en banc. In the third per curiam decision, the Court of Appeals denied defendants’ suggestion of mootness and motion for partial vacatur. In February 2010, PM USA and Altria Group, Inc. filed their certiorari petitions with the United States Supreme Court. In addition, the federal government and the intervenors filed their own certiorari petitions, asking the court to reverse an earlier Court of Appeals decision and hold that civil RICO allows the trial court to order disgorgement as well as other equitable relief, such as smoking cessation remedies, designed to redress continuing consequences of prior RICO violations. In June 2010, the United States Supreme Court denied all of the parties’ petitions. In July 2010, the Court of Appeals issued its mandate lifting the stay of the trial court’s judgment and remanding the case to the trial court. As a result of the mandate, except for those matters remanded to the trial court for further proceedings, defendants are now subject to the injunction discussed above and the other elements of the trial court’s judgment. In February 2011, the government submitted its proposed corrective statements and the trial court referred issues relating to a document repository to a special master. Defendants filed a response to the government’s proposed corrective statements and filed a motion to vacate the trial court’s injunction in light of the FSPTCA, which motion was denied in June 2011. Defendants appealed the trial court’s ruling to the U.S. Court of Appeals for the District of Columbia Circuit. In July 2012, the Court of Appeals affirmed the district court’s denial of defendants’ motion to vacate the district court’s injunction. Remaining issues pending include: (i) the content of the court-ordered corrective communications and (ii) the requirements related to point-of-sale signage. In November 2012, the district court issued its order specifying the content of the corrective communications described above. The district court’s order required the parties to engage in negotiations with the special master regarding implementation of the corrective communications remedy for television, newspapers, cigarette pack onserts and websites. In January 2013, defendants filed a notice of appeal from the order on the content and vehicles of the corrective communications and a motion to hold the appeal in abeyance pending completion of the negotiations, which the U.S. Court of Appeals granted in February 2013. In January 2014, the parties submitted a motion for entry of a consent order in the district court, setting forth their agreement on the implementation details of the corrective communications remedy. The agreement provides that the “trigger date” for implementation is after the appeal on the content of the communications has been exhausted. Also in January 2014, the district court convened a hearing and ordered further briefing. A number of amici who sought modification or rejection of the agreement for a variety of reasons were given leave to appear. In April 2014, the parties filed an amended proposed consent order and accompanying submission in the district court seeking entry of a revised agreement on the implementation details of the corrective communications remedy. In June 2014, the district court approved the April 2014 proposed consent order. Also in June 2014, defendants filed a notice of appeal of the consent order solely for the purpose of perfecting the U.S. Court of Appeals’ jurisdiction over the pending appeal relating to the content and vehicles of the corrective communications and, in July 2014, defendants moved to consolidate this appeal with the appeal filed in January 2013. The U.S. Court of Appeals granted the motion to consolidate in August 2014. In May 2015, the U.S. Court of Appeals affirmed in part and reversed in part, concluding that certain portions of the statements exceeded the district court’s jurisdiction under RICO, but upheld other portions challenged by defendants. The Court of Appeals remanded the case to the trial court for further proceedings. In July 2015, the government filed a petition for panel rehearing, which the U.S. Court of Appeals denied on August 2015. In October 2015, the district court ordered further briefing on the content of the corrective communications reversed by the U.S. Court of Appeals and any implementation changes the parties propose. In February 2016, the U.S. District Court for the District of Columbia issued an order on the content of the corrective communications and ordered the parties to submit proposed changes to the consent order on the implementation details, which the parties jointly submitted and the court approved in April 2016. Also in April 2016, defendants filed a notice of appeal to the U.S. Court of Appeals for the District of Columbia Circuit on the content of the corrective communications. In May 2016, defendants filed a notice of appeal of the consent order for the purpose of perfecting the appeal of the district court’s February 2016 order on the content of the corrective communications. In the second quarter of 2014, Altria Group, Inc. and PM USA recorded provisions on each of their respective balance sheets totaling $31 million for the estimated costs of implementing the corrective communications remedy. This estimate is subject to change due to several factors, including the outcome of further proceedings, though Altria Group, Inc. and PM USA do not expect any change in this estimate to be material. The consent order approved by the district court in June 2014 did not address the requirements related to point-of-sale signage. In May 2014, the district court ordered further briefing by the parties on the issue of corrective statements on point-of-sale signage, which was completed in June 2014. In December 2011, the parties to the lawsuit entered into an agreement as to the issues concerning the document repository. Pursuant to this agreement, PM USA agreed to deposit an amount of approximately $3.1 million into the district court in installments over a five-year period. “Lights/Ultra Lights” Cases Overview Plaintiffs in certain pending matters seek certification of their cases as class actions and allege, among other things, that the uses of the terms “Lights” and/or “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment or breach of warranty, and seek injunctive and equitable relief, including restitution and, in certain cases, punitive damages. These class actions have been brought against PM USA and, in certain instances, Altria Group, Inc. or its subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes, including Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lights and Superslims, Merit Lights and Cambridge Lights. Defenses raised in these cases include lack of misrepresentation, lack of causation, injury and damages, the statute of limitations, non-liability under state statutory provisions exempting conduct that complies with federal regulatory directives, and the First Amendment. As of July 22, 2016, a total of 9 such cases are pending in various U.S. state courts. The Good Case In May 2006, a federal trial court in Maine granted PM USA’s motion for summary judgment in Good, a purported “Lights” class action, on the grounds that plaintiffs’ claims are preempted by the Federal Cigarette Labeling and Advertising Act (“FCLAA”) and dismissed the case. In December 2008, the United States Supreme Court ruled that plaintiffs’ claims are not barred by federal preemption. Although the Court rejected the argument that the FTC’s actions were so extensive with respect to the descriptors that the state law claims were barred as a matter of federal law, the Court’s decision was limited: it did not address the ultimate merits of plaintiffs’ claim, the viability of the action as a class action or other state law issues. The case was returned to the federal court in Maine and consolidated with other federal cases in the multidistrict litigation proceeding discussed below. In June 2011, the plaintiffs voluntarily dismissed the case without prejudice after the district court denied plaintiffs’ motion for class certification, concluding this litigation. Federal Multidistrict Proceeding and Subsequent Developments Since the December 2008 United States Supreme Court decision in Good, and through July 22, 2016, 26 purported “Lights” class actions were served upon PM USA and, in certain cases, Altria Group, Inc. These cases were filed in 15 states, the U.S. Virgin Islands and the District of Columbia. All of these cases either were filed in federal court or were removed to federal court by PM USA and were transferred and consolidated by the Judicial Panel on Multidistrict Litigation (“JPMDL”) before the U.S. District Court for the District of Maine for pretrial proceedings (“MDL proceeding”). In November 2010, the district court in the MDL proceeding denied plaintiffs’ motion for class certification in four cases, covering the jurisdictions of California, the District of Columbia, Illinois and Maine. These jurisdictions were selected by the parties as sample cases, with two selected by plaintiffs and two selected by defendants. Plaintiffs sought appellate review of this decision but, in February 2011, the U.S. Court of Appeals for the First Circuit denied plaintiffs’ petition for leave to appeal. Later that year, plaintiffs in 13 cases voluntarily dismissed their cases without prejudice. In April 2012, the JPMDL remanded the remaining four cases back to the federal district courts in which the suits originated. These cases were ultimately resolved in a manner favorable to PM USA. “Lights” Cases Dismissed, Not Certified or Ordered De-Certified As of July 22, 2016, in addition to the federal district court in the MDL proceeding, 20 courts in 21 “Lights” cases have refused to certify class actions, dismissed class action allegations, reversed prior class certification decisions or have entered judgment in favor of PM USA. Trial courts in Arizona, Hawaii, Illinois, Kansas, New Jersey, New Mexico, Ohio, Oregon, Tennessee, Washington and Wisconsin have refused to grant class certification or have dismissed plaintiffs’ class action allegations. Plaintiffs voluntarily dismissed a case in Michigan after a trial court dismissed the claims plaintiffs asserted under the Michigan Unfair Trade and Consumer Protection Act. Several appellate courts have issued rulings that either affirmed rulings in favor of Altria Group, Inc. and/or PM USA or reversed rulings entered in favor of plaintiffs. In Florida, an intermediate appellate court overturned an order by a trial court that granted class certification in Hines. The Florida Supreme Court denied review in January 2008. The Supreme Court of Illinois overturned a judgment that awarded damages to a certified class in the Price case. See The Price Case below for further discussion. In Louisiana, the U.S. Court of Appeals for the Fifth Circuit dismissed a purported “Lights” class action (Sullivan) on the grounds that plaintiffs’ claims were preempted by the FCLAA. In New York, the U.S. Court of Appeals for the Second Circuit overturned a trial court decision in Schwab that granted plaintiffs’ motion for certification of a nationwide class of all U.S. residents that purchased cigarettes in the United States that were labeled “Light” or “Lights.” In July 2010, plaintiffs in Schwab voluntarily dismissed the case with prejudice. In Ohio, the Ohio Supreme Court overturned class certifications in the Marrone and Phillips cases. Plaintiffs voluntarily dismissed both cases without prejudice in August 2009, but refiled in federal court as the Phillips case discussed above. The Supreme Court of Washington denied a motion for interlocutory review filed by the plaintiffs in the Davies case that sought review of an order by the trial court that refused to certify a class. Plaintiffs subsequently voluntarily dismissed the Davies case with prejudice. In August 2011, the U.S. Court of Appeals for the Seventh Circuit affirmed the Illinois federal district court’s dismissal of “Lights” claims brought against PM USA in the Cleary case. In Curtis, a certified class action, in May 2012, the Minnesota Supreme Court affirmed the trial court’s entry of summary judgment in favor of PM USA, concluding this litigation. In Lawrence, in August 2012, the New Hampshire Supreme Court reversed the trial court’s order to certify a class and subsequently denied plaintiffs’ rehearing petition. In October 2012, the case was dismissed after plaintiffs filed a motion to dismiss the case with prejudice, concluding this litigation. State Trial Court Class Certifications State trial courts have certified classes against PM USA in several jurisdictions. Over time, several such cases have been dismissed by the courts at the summary judgment stage, but others remain pending. Significant developments in these pending cases include:
Other Developments In Oregon (Pearson), a state court denied plaintiffs’ motion for interlocutory review of the trial court’s refusal to certify a class. In February 2007, PM USA filed a motion for summary judgment based on federal preemption and the Oregon statutory exemption. In September 2007, the district court granted PM USA’s motion based on express preemption under the FCLAA, and plaintiffs appealed this dismissal and the class certification denial to the Oregon Court of Appeals. In June 2013, the Oregon Court of Appeals reversed the trial court’s denial of class certification and remanded to the trial court for further consideration of class certification. In July 2013, PM USA filed a petition for reconsideration with the Oregon Court of Appeals, which was denied in August 2013. PM USA filed its petition for review to the Oregon Supreme Court in October 2013, which the court accepted in January 2014. In October 2015, the Oregon Supreme Court affirmed the trial court’s order denying class certification, thereby reversing the decision of the Oregon Court of Appeals. In November 2015, plaintiffs filed a motion for reconsideration with the Oregon Supreme Court, which the court denied. In December 2015, the Oregon Supreme Court entered its judgment denying class certification and remanding the claims of the individual plaintiffs for further proceedings. In April 2016, the parties agreed to settle plaintiffs’ individual claims for an aggregate amount of $30,000 and, pursuant to that settlement, the parties filed a stipulation of voluntary dismissal with prejudice with the Circuit Court of Multnomah County. In December 2009, the state trial court in Carroll (formerly known as Holmes) (pending in Delaware) denied PM USA’s motion for summary judgment based on an exemption provision in the Delaware Consumer Fraud Act. In January 2011, the trial court allowed the plaintiffs to file an amended complaint substituting class representatives and naming Altria Group, Inc. and PMI as additional defendants. In February 2013, the trial court approved the parties’ stipulation to the dismissal without prejudice of Altria Group, Inc. and PMI, leaving PM USA as the sole defendant in the case. In March 2015, plaintiffs moved for class certification and, in July 2015, PM USA filed a summary judgment motion seeking to dismiss plaintiffs’ claims in their entirety on preemption grounds. The Price Case Trial in Price commenced in state court in Illinois in January 2003 and, in March 2003, the judge found in favor of the plaintiff class and awarded $7.1 billion in compensatory damages and $3.0 billion in punitive damages against PM USA. In December 2005, the Illinois Supreme Court reversed the trial court’s judgment in favor of the plaintiffs. In November 2006, the United States Supreme Court denied plaintiffs’ petition for writ of certiorari and, in December 2006, the Circuit Court of Madison County enforced the Illinois Supreme Court’s mandate and dismissed the case with prejudice. In December 2008, plaintiffs filed with the trial court a petition for relief from the final judgment that was entered in favor of PM USA. Specifically, plaintiffs sought to vacate the judgment entered by the trial court on remand from the 2005 Illinois Supreme Court decision overturning the verdict on the ground that the United States Supreme Court’s December 2008 decision in Good demonstrated that the Illinois Supreme Court’s decision was “inaccurate.” PM USA filed a motion to dismiss plaintiffs’ petition and, in February 2009, the trial court granted PM USA’s motion on the basis that the petition was not timely filed. In March 2009, the Price plaintiffs filed a notice of appeal with the Fifth Judicial District of the Appellate Court of Illinois. In February 2011, the intermediate appellate court ruled that the petition was timely filed and reversed the trial court’s dismissal of the plaintiffs’ petition and, in September 2011, the Illinois Supreme Court declined PM USA’s petition for review. As a result, the case was returned to the trial court for proceedings on whether the court should grant the plaintiffs’ petition to reopen the prior judgment. In February 2012, plaintiffs filed an amended petition, which PM USA opposed. Subsequently, in responding to PM USA’s opposition to the amended petition, plaintiffs asked the trial court to reinstate the original judgment. The trial court denied plaintiffs’ petition in December 2012. In January 2013, plaintiffs filed a notice of appeal with the Fifth Judicial District. In April 2014, the Fifth Judicial District reversed and ordered reinstatement of the original $10.1 billion trial court judgment against PM USA. In May 2014, PM USA filed in the Illinois Supreme Court a petition for a supervisory order and a petition for leave to appeal. The filing of the petition for leave to appeal automatically stayed the Fifth District’s mandate pending disposition by the Illinois Supreme Court. Also in May 2014, plaintiffs filed a motion seeking recusal of Justice Karmeier, one of the Illinois Supreme Court justices, which PM USA opposed. In September 2014, the Illinois Supreme Court granted PM USA’s motion for leave to appeal and took no action on PM USA’s motion for a supervisory order. Justice Karmeier denied plaintiffs’ motion seeking his recusal. In February 2015, plaintiffs filed a new motion seeking recusal or disqualification of Justice Karmeier. In March 2015, the Illinois Supreme Court denied plaintiffs’ request that it order the disqualification of Justice Karmeier and referred the recusal request to Justice Karmeier to decide. In November 2015, the Illinois Supreme Court vacated the Fifth Judicial District’s decision, finding that the plaintiffs’ petition was improper, and dismissed the cause of action without prejudice to plaintiffs to file a motion to recall the mandate in the Illinois Supreme Court. On the same day, Justice Karmeier denied the recusal motion. Also in November 2015, the plaintiffs filed motions in the Illinois Supreme Court seeking to recall the 2005 mandate issued in PM USA’s favor and for recusal of Justice Karmeier, both of which the court denied. In January 2016, plaintiffs filed a petition for writ of certiorari with the United States Supreme Court on the question of whether Justice Karmeier should have recused himself, which the court denied in June 2016, thereby concluding this litigation. In June 2009, the plaintiff in a personal-injury individual smoker lawsuit (Kelly) brought on behalf of an alleged smoker of “Lights” cigarettes in Madison County, Illinois state court filed a motion seeking a declaration that his claims under the Illinois Consumer Fraud Act are not (i) barred by the exemption in that statute based on his assertion that the Illinois Supreme Court’s decision in Price is no longer good law in light of the decisions by the United States Supreme Court in Good and Watson, and (ii) preempted in light of the United States Supreme Court’s decision in Good. In September 2009, the court granted plaintiff’s motion as to federal preemption, but denied it with respect to the state statutory exemption. Certain Other Tobacco-Related Litigation Ignition Propensity Cases PM USA and Altria Group, Inc. are currently facing litigation alleging that a fire caused by cigarettes led to individuals’ deaths. In a Kentucky case (Walker), the federal district court denied plaintiffs’ motion to remand the case to state court and dismissed plaintiffs’ claims in February 2009. Plaintiffs subsequently filed a notice of appeal. In October 2011, the U.S. Court of Appeals for the Sixth Circuit reversed the portion of the district court decision that denied remand of the case to Kentucky state court and remanded the case to Kentucky state court. The Sixth Circuit did not address the merits of the district court’s dismissal order. Defendants’ petition for rehearing with the Sixth Circuit was denied in December 2011. Defendants filed a renewed motion to dismiss in state court in March 2013. Based on new evidence, in June 2013, defendants removed the case for a second time to the U.S. District Court for the Western District of Kentucky and re-filed their motion to dismiss in June 2013. In July 2013, plaintiffs filed a motion to remand the case to Kentucky state court, which was granted in March 2014. False Claims Act Case PM USA is a defendant in a qui tam action filed in the U.S. District Court for the District of Columbia (United States ex rel. Anthony Oliver) alleging violation of the False Claims Act in connection with sales of cigarettes to the U.S. military. The relator contends that PM USA violated “most favored customer” provisions in government contracts and regulations by selling cigarettes to non-military customers in overseas markets at more favorable prices than it sold to the U.S. military exchange services for resale on overseas military bases in those same markets. The relator has dropped Altria Group, Inc. as a defendant and has dropped claims related to post-MSA price increases on cigarettes sold to the U.S. military. In July 2012, PM USA filed a motion to dismiss, which was granted on jurisdictional grounds in June 2013, and the case was dismissed with prejudice. In July 2013, the relator appealed the dismissal to the U.S. Court of Appeals for the District of Columbia Circuit. In August 2014, the U.S. Court of Appeals reversed the jurisdictional issue and remanded the case to the district court for further proceedings, including consideration of PM USA’s alternative grounds for dismissal. In October 2014, PM USA filed a second motion to dismiss in the U.S. District Court for the District of Columbia for lack of subject matter jurisdiction based on issues left unresolved by the opinion of the U.S. Court of Appeals for the District of Columbia Circuit. In April 2015, the district court granted PM USA’s second motion to dismiss for lack of subject matter jurisdiction and again dismissed the case with prejudice. The relator appealed the latest dismissal to the U.S. Court of Appeals for the District of Columbia Circuit in May 2015. In June 2016, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the dismissal of the case on jurisdictional grounds. In July 2016, the relator filed a petition for rehearing or rehearing en banc. Argentine Grower Cases PM USA is a defendant in six cases (Hupan, Chalanuk, Rodriguez Da Silva, Aranda, Taborda and Biglia) filed in Delaware state court against multiple defendants by the parents of Argentine children born with alleged birth defects. Plaintiffs in these cases allege that they grew tobacco in Argentina under contract with Tabacos Norte S.A., an alleged subsidiary of PMI, and that they and their infant children were exposed directly and in utero to Monsanto Company’s (“Monsanto”) Roundup herbicide during the production and cultivation of tobacco. Plaintiffs seek compensatory and punitive damages against all defendants. In December 2012, Altria Group, Inc. and certain other defendants were dismissed from the Hupan, Chalanuk and Rodriguez Da Silva cases. Altria Group, Inc. and certain other defendants were dismissed from Aranda, Taborda and Biglia in May 2013, October 2013 and February 2014, respectively. The three remaining defendants in the six cases are PM USA, Philip Morris Global Brands Inc. (a subsidiary of PMI) and Monsanto. Following discussions regarding indemnification for these cases pursuant to the Distribution Agreement between PMI and Altria Group, Inc., PMI and PM USA have agreed to resolve conflicting indemnity demands after final judgments are entered. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement. In April 2014, all three defendants in the Hupan case filed motions to dismiss for failure to state a claim, and PM USA and Philip Morris Global Brands filed separate motions to dismiss based on the doctrine of forum non conveniens. All proceedings in the other five cases were stayed pending the court’s resolution of the motions to dismiss filed in Hupan. In December 2015, the trial court granted PM USA’s motion to dismiss on forum non conveniens grounds. Plaintiffs filed a motion for clarification or re-argument later in December 2015. In January 2016, plaintiffs filed an amended complaint in Hupan against Monsanto, Philip Morris Global Brands and PM USA. In February 2016, PM USA and Philip Morris Global Brands filed a motion to strike the amended complaint. In response, plaintiffs filed a second amended complaint in February 2016 against Monsanto only, striking all allegations related to PM USA and Philip Morris Global Brands. UST Litigation Claims related to smokeless tobacco products generally fall within the following categories: First, UST and/or its tobacco subsidiaries have been named in certain actions in West Virginia (See In re: Tobacco Litigation above) brought by or on behalf of individual plaintiffs against cigarette manufacturers, smokeless tobacco manufacturers and other organizations seeking damages and other relief in connection with injuries allegedly sustained as a result of tobacco usage, including smokeless tobacco products. Included among the plaintiffs are three individuals alleging use of USSTC’s smokeless tobacco products and alleging the types of injuries claimed to be associated with the use of smokeless tobacco products. USSTC, along with other non-cigarette manufacturers, has remained severed from such proceedings since December 2001. Second, UST and/or its tobacco subsidiaries has been named in a number of other individual tobacco and health suits over time. Plaintiffs’ allegations of liability in these cases are based on various theories of recovery, such as negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of implied warranty, addiction and breach of consumer protection statutes. Plaintiffs seek various forms of relief, including compensatory and punitive damages, and certain equitable relief, including but not limited to disgorgement. Defenses raised in these cases include lack of causation, assumption of the risk, comparative fault and/or contributory negligence, and statutes of limitations. USSTC was named in one such action in Florida (Vassallo). In February 2016, the trial court denied plaintiff’s motion to amend the complaint to add fraud and conspiracy claims. In July 2016, USSTC paid $240,000 to settle plaintiff’s claims against it and the case was dismissed with prejudice. Also in July 2016, USSTC and Altria Group, Inc. were named as defendants, along with other named defendants, in another such case in California (Gwynn). Nu Mark Patent Litigation In April 2016, Fontem Ventures B.V. and Fontem Holdings 1 B.V., both subsidiaries of Imperial Tobacco Group, sued Nu Mark for alleged patent infringement in the U.S. District Court for the Central District of California. The suit contends that Nu Mark’s MarkTen, MarkTen XL and Green Smoke products infringe one or more claims under eight separate Fontem patents for e-vapor products. The suit seeks recovery of an unspecified amount of money damages for alleged past infringement and an injunction against future infringement, which injunction may result in Nu Mark being enjoined from marketing one or more of the products at issue in the suit. In June 2016, Nu Mark filed ten inter partes review petitions with the U.S. Patent Trial and Appeal Board challenging the validity of all patents and claims asserted against it in the lawsuit on multiple grounds. Also in June 2016, Nu Mark filed a motion to transfer venue of the lawsuit from California to the Middle District of North Carolina. In June 2016, the same Fontem entities filed a second lawsuit against Nu Mark in the U.S. District Court for the Central District of California asserting infringement of eight additional e-vapor patents that have issued since the filing of the first case in April 2016. The second case involves the same Nu Mark products as the first case, and likewise seeks recovery of an unspecified amount of money damages for alleged past infringement and an injunction against future infringement. Environmental Regulation Altria Group, Inc. and its subsidiaries (and former subsidiaries) are subject to various federal, state and local laws and regulations concerning the discharge of materials into the environment, or otherwise related to environmental protection, including, in the United States: the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as “Superfund”), which can impose joint and several liability on each responsible party. Subsidiaries (and former subsidiaries) of Altria Group, Inc. are involved in several matters subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. Altria Group, Inc.’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations. Altria Group, Inc. provides for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change. Other than those amounts, it is not possible to reasonably estimate the cost of any environmental remediation and compliance efforts that subsidiaries of Altria Group, Inc. may undertake in the future. In the opinion of management, however, compliance with environmental laws and regulations, including the payment of any remediation costs or damages and the making of related expenditures, has not had, and is not expected to have, a material adverse effect on Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position or cash flows. Guarantees and Other Similar Matters In the ordinary course of business, certain subsidiaries of Altria Group, Inc. have agreed to indemnify a limited number of third parties in the event of future litigation. At June 30, 2016, Altria Group, Inc. and certain of its subsidiaries (i) had $62 million of unused letters of credit obtained in the ordinary course of business; (ii) were contingently liable for $24 million of guarantees, consisting primarily of surety bonds, related to their own performance; and (iii) had a redeemable noncontrolling interest of $36 million recorded on its condensed consolidated balance sheet. In addition, from time to time, subsidiaries of Altria Group, Inc. issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’s liquidity. Under the terms of a distribution agreement between Altria Group, Inc. and PMI (the “Distribution Agreement”), entered into as a result of Altria Group, Inc.’s 2008 spin-off of its former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria Group, Inc. and PM USA for liabilities related to tobacco products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for liabilities related to tobacco products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. Altria Group, Inc. does not have a related liability recorded on its condensed consolidated balance sheet at June 30, 2016 as the fair value of this indemnification is insignificant. As more fully discussed in Note 12. Condensed Consolidating Financial Information, PM USA has issued guarantees relating to Altria Group, Inc.’s obligations under its outstanding debt securities, borrowings under its $3.0 billion senior unsecured 5-year revolving credit agreement (the “Credit Agreement”) and amounts outstanding under its commercial paper program. |
Condensed Consolidating Financial Information |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Financial Information | Condensed Consolidating Financial Information: PM USA, which is a 100% owned subsidiary of Altria Group, Inc., has guaranteed Altria Group, Inc.’s obligations under its outstanding debt securities, borrowings under its Credit Agreement and amounts outstanding under its commercial paper program (the “Guarantees”). Pursuant to the Guarantees, PM USA fully and unconditionally guarantees, as primary obligor, the payment and performance of Altria Group, Inc.’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release under certain customary circumstances as noted below. The Guarantees provide that PM USA guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations. The liability of PM USA under the Guarantees is absolute and unconditional irrespective of: any lack of validity, enforceability or genuineness of any provision of any agreement or instrument relating thereto; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from any agreement or instrument relating thereto; any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Obligations; or any other circumstance that might otherwise constitute a defense available to, or a discharge of, Altria Group, Inc. or PM USA. The obligations of PM USA under the Guarantees are limited to the maximum amount as will not result in PM USA’s obligations under the Guarantees constituting a fraudulent transfer or conveyance, after giving effect to such maximum amount and all other contingent and fixed liabilities of PM USA that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Guarantees. For this purpose, “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. PM USA will be unconditionally released and discharged from the Obligations upon the earliest to occur of:
At June 30, 2016, the respective principal 100% owned subsidiaries of Altria Group, Inc. and PM USA were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their equity interests. The following sets forth the condensed consolidating balance sheets as of June 30, 2016 and December 31, 2015, condensed consolidating statements of earnings and comprehensive earnings for the six and three months ended June 30, 2016 and 2015, and condensed consolidating statements of cash flows for the six months ended June 30, 2016 and 2015 for Altria Group, Inc., PM USA and, collectively, Altria Group, Inc.’s other subsidiaries that are not guarantors of Altria Group, Inc.’s debt instruments (the “Non-Guarantor Subsidiaries”). The financial information is based on Altria Group, Inc.’s understanding of the Securities and Exchange Commission (“SEC”) interpretation and application of Rule 3-10 of SEC Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had PM USA and the Non-Guarantor Subsidiaries operated as independent entities. Altria Group, Inc. and PM USA account for investments in their subsidiaries under the equity method of accounting. Condensed Consolidating Balance Sheets June 30, 2016 (in millions of dollars)
Condensed Consolidating Balance Sheets (Continued) June 30, 2016 (in millions of dollars)
Condensed Consolidating Balance Sheets December 31, 2015 (in millions of dollars)
Condensed Consolidating Balance Sheets (Continued) December 31, 2015 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Six Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Six Months Ended June 30, 2015 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Three Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Three Months Ended June 30, 2015 (in millions of dollars)
Condensed Consolidating Statements of Cash Flows For the Six Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Cash Flows For the Six Months Ended June 30, 2015 (in millions of dollars)
|
Recent Accounting Guidance Not Yet Adopted |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Recent Accounting Guidance Not Yet Adopted | Recent Accounting Guidance Not Yet Adopted: The following table provides a description of the recently issued accounting guidance that Altria Group, Inc. has not yet adopted:
|
Contingencies (Policies) |
6 Months Ended |
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Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 11. Contingencies: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending tobacco-related cases; and (iii) accordingly, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred. |
Environmental Costs | Altria Group, Inc. provides for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change. |
Background and Basis of Presentation (Schedule of Shares Repurchased) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Shares Repurchased | Altria Group, Inc.’s share repurchase activity was as follows:
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Asset Impairment, Exit and Implementation Costs (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Impairment, Exit and Implementation Costs | Pre-tax restructuring charges for the six and three months ended June 30, 2016 of $124 million, or $0.04 per share, and $2 million, respectively, recorded in connection with the productivity initiative consisted of the following:
(1) Includes termination and curtailment costs of $20 million. |
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Schedule of Restructuring Reserve | The movement in the restructuring liabilities (excluding termination and curtailment costs), substantially all of which are severance liabilities, was as follows:
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Benefit Plans (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Periodic Benefit Costs | Net periodic benefit cost (income) consisted of the following:
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Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Basic and diluted earnings per share (“EPS”) were calculated using the following:
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Other Comprehensive Earnings/Losses (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | The following tables set forth the changes in each component of accumulated other comprehensive losses, net of deferred income taxes, attributable to Altria Group, Inc.:
(1) For the six and three months ended June 30, 2016 and 2015, Altria Group, Inc.’s proportionate share of SABMiller’s other comprehensive earnings/losses consisted primarily of currency translation adjustments. |
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Reclassifications | The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings:
(1) Amounts are included in net defined benefit plan costs. For further details, see Note 3. Benefit Plans. (2) Amounts are included in earnings from equity investment in SABMiller. |
Segment Reporting (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment | Segment data were as follows:
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Schedule of NPM Adjustment Items | Non-Participating Manufacturer (“NPM”) Adjustment Items - Pre-tax expense for NPM adjustment items was recorded in Altria Group, Inc.’s condensed consolidated statement of earnings as follows:
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Schedule of Pre-tax Tobacco and Health Litigation Items | Tobacco and Health Litigation Items - Pre-tax charges related to certain tobacco and health litigation items were recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:
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Finance Assets, net (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Allowance for Losses on Finance Assets | The activity in the allowance for losses on finance assets was as follows:
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Schedule of Credit Quality of Investments in Finance Assets | The credit quality of PMCC’s investments in finance leases as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at June 30, 2016 and December 31, 2015 was as follows:
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Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Contingencies | The table below lists the number of certain tobacco-related cases pending in the United States against PM USA(1) and, in some instances, Altria Group, Inc. as of July 22, 2016, July 24, 2015 and July 18, 2014:
(1) Does not include 24 cases filed on the asbestos docket in the Circuit Court for Baltimore City, Maryland, which seek to join PM USA and other cigarette-manufacturing defendants in complaints previously filed against asbestos companies. (2) Does not include 2,494 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages, but prohibited them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action). (3) Includes as one case the 600 civil actions (of which 344 were actions against PM USA) that were to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution did not preclude a trial in two phases in this case. Issues related to defendants’ conduct and whether punitive damages are permissible were tried in the first phase. Trial in the first phase of this case began in April 2013. In May 2013, the jury returned a verdict in favor of defendants on the claims for design defect, negligence, failure to warn, breach of warranty, and concealment and declined to find that the defendants’ conduct warranted punitive damages. Plaintiffs prevailed on their claim that ventilated filter cigarettes should have included use instructions for the period 1964 - 1969. The second phase will consist of trials to determine liability and compensatory damages. In November 2014, the West Virginia Supreme Court of Appeals affirmed the final judgment. In July 2015, the trial court entered an order that will result in the entry of final judgment in favor of defendants and against all but 30 plaintiffs who potentially have a claim against one or more defendants that may be pursued in a second phase of trial. The court intends to try the claims of these 30 plaintiffs in six consolidated trials, each with a group of five plaintiffs. The first trial is currently scheduled to begin May 1, 2018. Dates for the five remaining consolidated trials have not been scheduled. (4) See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below. The changes in Altria Group, Inc.’s accrued liability for tobacco and health litigation items, including related interest costs, for the periods specified below are as follows:
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(Condensed Consolidating Financial Information) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheets June 30, 2016 (in millions of dollars)
Condensed Consolidating Balance Sheets (Continued) June 30, 2016 (in millions of dollars)
Condensed Consolidating Balance Sheets December 31, 2015 (in millions of dollars)
Condensed Consolidating Balance Sheets (Continued) December 31, 2015 (in millions of dollars)
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Condensed Consolidating Statements of Earnings and Comprehensive Earnings | Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Six Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Six Months Ended June 30, 2015 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Three Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Earnings and Comprehensive Earnings For the Three Months Ended June 30, 2015 (in millions of dollars)
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Condensed Consolidating Statements of Cash Flows | Condensed Consolidating Statements of Cash Flows For the Six Months Ended June 30, 2016 (in millions of dollars)
Condensed Consolidating Statements of Cash Flows For the Six Months Ended June 30, 2015 (in millions of dollars)
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Recent Accounting Guidance Not Yet Adopted (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Recent Accounting Guidance Not Yet Adopted | The following table provides a description of the recently issued accounting guidance that Altria Group, Inc. has not yet adopted:
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Background and Basis of Presentation (Share Repurchase Table) (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Repurchase of common stock, shares | 2.7 | 5.2 | 5.5 | 8.8 | |
Repurchases of common stock, value | $ 173 | $ 263 | $ 341 | $ 455 | $ 554 |
Average price of repurchased shares, per share (usd per share) | $ 64.06 | $ 50.64 | $ 61.90 | $ 51.63 |
Asset Impairment, Exit and Implementation Costs (Narrative) (Details) - Productivity Initiative [Member] - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2016 |
Jan. 31, 2016 |
|
Restructuring Cost and Reserve [Line Items] | |||
Expected restructuring charges | $ 140 | ||
Expected restructuring charges, per share (usd per share) | $ 0.05 | ||
Restructuring charges | $ 2 | $ 124 | |
Restructuring charges, per share | $ 0.04 | ||
Employee Separation Costs [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Expected restructuring charges | $ 120 | ||
Other Associated Costs [Member] | |||
Restructuring Cost and Reserve [Line Items] | |||
Expected restructuring charges | $ 20 |
Asset Impairment, Exit and Implementation Costs (Restructuring Reserve) (Details) - Productivity Initiative [Member] $ in Millions |
6 Months Ended |
---|---|
Jun. 30, 2016
USD ($)
| |
Restructuring Cost and Reserve [Line Items] | |
Charges | $ 101 |
Cash spent | (29) |
Restructuring reserve, ending balance | $ 72 |
Benefit Plans (Schedule Of Components Of Net Periodic Pension and Postretirement Costs) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Pension Plan [Member] | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | $ 19 | $ 22 | $ 37 | $ 43 |
Interest cost | 70 | 84 | 141 | 168 |
Expected return on plan assets | (139) | (135) | (277) | (270) |
Amortization of net loss | 43 | 58 | 87 | 117 |
Amortization of prior service cost (credit) | 1 | 2 | 2 | 4 |
Termination and curtailment | 0 | 0 | 20 | 0 |
Net periodic benefit cost (income) | (6) | 31 | 10 | 62 |
Other Postretirement Benefit Plan [Member] | ||||
Defined Benefit Plan Disclosure [Line Items] | ||||
Service cost | 4 | 5 | 8 | 9 |
Interest cost | 19 | 25 | 40 | 51 |
Expected return on plan assets | 0 | 0 | 0 | 0 |
Amortization of net loss | 9 | 11 | 16 | 23 |
Amortization of prior service cost (credit) | (9) | (10) | (19) | (20) |
Termination and curtailment | 0 | 0 | 0 | 0 |
Net periodic benefit cost (income) | $ 23 | $ 31 | $ 45 | $ 63 |
Benefit Plans (Narrative) (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Defined Benefit Plan Disclosure [Line Items] | ||
Increase to liabilities | $ (43) | $ 55 |
Pension Plan [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Increase to liabilities | 250 | |
Employer contributions | 6 | |
Pension Plan [Member] | Minimum [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Anticipated additional employer contributions | 25 | |
Pension Plan [Member] | Maximum [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Anticipated additional employer contributions | 70 | |
Other Postretirement Benefit Plan [Member] | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Increase to liabilities | $ 70 |
Earnings Per Share (Details) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings Per Share [Abstract] | ||||
Net earnings attributable to Altria Group, Inc. | $ 1,653 | $ 1,448 | $ 2,870 | $ 2,466 |
Less: Distributed and undistributed earnings attributable to unvested restricted shares and restricted stock units | (3) | (3) | (5) | (5) |
Earnings for basic and diluted EPS | $ 1,650 | $ 1,445 | $ 2,865 | $ 2,461 |
Weighted-average shares for basic and diluted EPS | 1,954 | 1,962 | 1,955 | 1,964 |
Other Comprehensive Earnings/Losses (Reclassifications) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Earnings (loss) before income taxes | $ 2,534 | $ 2,254 | $ 4,417 | $ 3,816 |
Reclassification out of Accumulated Other Comprehensive Income [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Earnings (loss) before income taxes | 56 | 71 | 104 | 143 |
Reclassification out of Accumulated Other Comprehensive Income [Member] | SABMiller Plc [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Earnings (loss) before income taxes | 7 | 5 | 19 | 9 |
Benefit Plans [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Net Loss | 57 | 74 | 112 | 150 |
Prior service cost/credit | (8) | (8) | (27) | (16) |
Benefits plans, net | $ 49 | $ 66 | $ 85 | $ 134 |
Segment Reporting (Schedule of Pre-tax Tobacco and Health Litigation Items) (Details) - Tobacco and Health Litigation Cases [Member] - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Schedule of Pre-tax Tobacco and Health Litigation Items [Line Items] | ||||||
Provision related to litigation recorded | $ 5 | $ 5 | $ 43 | $ 48 | ||
Operating Income (Loss) [Member] | Operating Segments [Member] | Smokeable Products [Member] | ||||||
Schedule of Pre-tax Tobacco and Health Litigation Items [Line Items] | ||||||
Provision related to litigation recorded | 1 | $ 26 | 5 | $ 43 | 27 | 48 |
Interest And Other Debt Expense, Net [Member] | Segment Reconciling Items [Member] | ||||||
Schedule of Pre-tax Tobacco and Health Litigation Items [Line Items] | ||||||
Provision related to litigation recorded | $ 4 | $ 12 | $ 0 | $ 16 | $ 0 |
Finance Assets, net (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Finance assets, net | $ 1,155 | $ 1,239 | ||
Investments in finance leases | 1,191 | 1,281 | ||
Allowance for credit losses | 36 | $ 42 | 42 | $ 42 |
Residual value of leased assets adjustment | 28 | 35 | ||
Decrease in Unguaranteed Residual Value Resulting in Reduction to Net Revenues [Member] | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Leveraged lease net revenue | 18 | $ 29 | ||
Finance Leases Financing Receivable [Member] | ||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||
Investments in finance leases | $ 1,191 | $ 1,281 |
Finance Assets, net (Schedule of Allowance for Losses on Finance Assets) (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Financing Receivable, Allowance for Credit Losses [Roll Forward] | ||
Beginning balance | $ 42 | $ 42 |
(Decrease) increase to allowance | (6) | 0 |
Ending balance | $ 36 | $ 42 |
Income Taxes (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Unrecognized tax benefits | $ 175 | $ 158 |
Unrecognized tax benefits that would impact the effective tax rate | 81 | 76 |
Unrecognized tax benefits that would impact deferred taxes | 94 | $ 82 |
Possible decrease in unrecognized tax benefits | $ 140 |
Contingencies (General Information Narrative) (Details) |
Jun. 30, 2016
state
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Number of states that cap bond or require no bond | 47 |
Contingencies (Judgments Recorded and Paid) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Loss Contingency Accrual [Roll Forward] | ||||||
Accrued liability for tobacco and health litigation items at beginning of period | $ 153 | $ 132 | $ 77 | $ 39 | $ 132 | $ 39 |
Payments | (128) | (5) | (145) | (10) | ||
Accrued liability for tobacco and health litigation items at end of period | 30 | $ 153 | 77 | $ 77 | 30 | 77 |
Interest Expense Related To Litigation [Member] | ||||||
Loss Contingency Accrual [Roll Forward] | ||||||
Pre-tax charges | 4 | 0 | 6 | 0 | ||
Aspinall [Member] | ||||||
Loss Contingency Accrual [Roll Forward] | ||||||
Pre-tax charges | 0 | 0 | 32 | 0 | ||
Tobacco and Health Judgment [Member] | Litigation Cases Results [Member] | ||||||
Loss Contingency Accrual [Roll Forward] | ||||||
Pre-tax charges | 1 | 5 | 5 | 5 | ||
Engle Progeny Cases, Federal [Member] | Litigation Cases Results [Member] | ||||||
Loss Contingency Accrual [Roll Forward] | ||||||
Pre-tax charges | $ 0 | $ 0 | $ 0 | $ 43 |
Contingencies (Non-Engle Progeny Cases Trial Results Narrative) (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Dec. 31, 2010 |
Dec. 31, 2015 |
Jun. 30, 2016 |
Feb. 29, 2012 |
May 31, 2002 |
Mar. 31, 2002 |
|
Loss Contingencies [Line Items] | |||||||
Litigation settlement, amount | $ (18,000,000) | ||||||
Non-Engle Progeny Smoking and Health Case, Bullock [Member] | PM USA [Member] | |||||||
Loss Contingencies [Line Items] | |||||||
Compensatory damages awarded | $ 900,000 | ||||||
Non-Engle Progeny Smoking and Health Case, Schwarz [Member] | PM USA [Member] | |||||||
Loss Contingencies [Line Items] | |||||||
Compensatory damages awarded | $ 168,500 | ||||||
Punitive damages awarded | $ 25,000,000 | $ 100,000,000 | $ 150,000,000 | ||||
Litigation settlement, amount | $ 500,000 | ||||||
Provision related to litigation recorded | $ 34,000,000 | ||||||
Payments for settlements | $ 34,000,000 |
Contingencies (Medical Monitoring Class Actions Narrative) (Details) - PM USA [Member] $ in Millions |
1 Months Ended | |
---|---|---|
Sep. 30, 2010
USD ($)
|
Jun. 30, 2016
case
|
|
Medical Monitoring Class Actions [Member] | ||
Loss Contingencies [Line Items] | ||
Number of cases pending | case | 1 | |
Medical Monitoring Class Action, Donovan [Member] | ||
Loss Contingencies [Line Items] | ||
Damages sought, value | $ | $ 190 |
Recent Accounting Guidance Not Yet Adopted (Narrative) (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Current deferred income tax assets | $ 1,188 | $ 1,175 |
Noncurrent deferred income tax liabilities | 5,659 | $ 5,663 |
Accounting Standard Update 2015-17 [Member] | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Current deferred income tax assets | 1,200 | |
Noncurrent deferred income tax liabilities | 1,000 | |
Noncurrent deferred income tax assets | $ 200 |
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