Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
Cash Used in Financing Activities
|
|
|
|
|
Repurchases of common stock
|
|
$
|
(950
|
)
|
|
$
|
(1,600
|
)
|
Dividends paid on common stock
|
|
(2,585
|
)
|
|
(2,369
|
)
|
Other
|
|
(25
|
)
|
|
(47
|
)
|
Cash used in financing activities
|
|
(3,560
|
)
|
|
(4,016
|
)
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
Increase (decrease)
|
|
209
|
|
|
(2,317
|
)
|
Balance at beginning of period
|
|
1,314
|
|
|
4,651
|
|
Balance at end of period
|
|
$
|
1,523
|
|
|
$
|
2,334
|
|
|
|
|
|
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s condensed consolidated balance sheets:
|
|
|
At
June 30,
2018
|
|
At
December 31,
2017
|
Cash and cash equivalents
|
|
$
|
1,430
|
|
|
$
|
1,253
|
|
Restricted cash included in other current assets
(1)
|
|
57
|
|
|
25
|
|
Restricted cash included in other assets
(1)
|
|
36
|
|
|
36
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
1,523
|
|
|
$
|
1,314
|
|
(1)
Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See
Note 9
.
Contingencies
.
See notes to condensed consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1
. Background and Basis of Presentation:
Background
At
June 30, 2018
, Altria Group, Inc.’s (“Altria”) wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged 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; Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), which are engaged in the manufacture and sale of super premium cigarettes and the sale of premium cigars; 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’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 wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria and its subsidiaries. Altria’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, 2018
, Altria’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, 2018
, Altria had an approximate
10.1%
ownership of Anheuser-Busch InBev SA/NV (“AB InBev”), which Altria accounts for under the equity method of accounting using a one-quarter lag. Altria receives cash dividends on its interest in AB InBev if and when AB InBev pays such dividends.
Dividends and Share Repurchases
During the first quarter of 2018, Altria’s Board of Directors (the “Board of Directors”) approved a
6.1%
increase in the quarterly dividend rate to
$0.70
per share of Altria common stock versus the previous rate of
$0.66
per share. The current annualized dividend rate is
$2.80
per share. Future dividend payments remain subject to the discretion of the Board of Directors.
In July 2015, the Board of Directors authorized a
$1.0 billion
share repurchase program that it expanded to
$3.0 billion
in October 2016 and to
$4.0 billion
in July 2017 (as expanded, the “July 2015 share repurchase program”). In January 2018, Altria completed the July 2015 share repurchase program. Under this program, Altria repurchased a total of
58.7 million
shares of its common stock at an average price of
$68.15
per share (including
0.3 million
shares at an average price of
$71.68
in January 2018).
Following the completion of the July 2015 share repurchase program, the Board of Directors authorized a new
$1.0 billion
share repurchase program in January 2018 that it expanded to
$2.0 billion
in May 2018 (as expanded, the “January 2018 share repurchase program”). During the six and three months ended June 30, 2018, Altria repurchased
15.3 million
shares and
7.6 million
shares, respectively, of its common stock (at an aggregate cost of approximately
$932 million
and
$437 million
, respectively, and at an average price of
$60.89
per share and
$57.65
per share, respectively) under the January 2018 share repurchase program. At June 30, 2018, Altria had approximately
$1,068 million
remaining in the January 2018 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. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Altria’s share repurchase activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions, except per share data)
|
Total number of shares repurchased
|
|
15.6
|
|
|
22.1
|
|
|
7.6
|
|
|
14.4
|
|
Aggregate cost of shares repurchased
|
|
$
|
950
|
|
|
$
|
1,600
|
|
|
$
|
437
|
|
|
$
|
1,049
|
|
Average price per share of shares repurchased
|
|
$
|
61.07
|
|
|
$
|
72.47
|
|
|
$
|
57.65
|
|
|
$
|
72.85
|
|
Basis of Presentation
The interim condensed consolidated financial statements of Altria are unaudited. It is the opinion of Altria’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’s Annual Report on Form 10-K for the year ended
December 31, 2017
.
On January 1, 2018, Altria adopted the following Accounting Standards Updates (“ASU”):
|
|
▪
|
ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
and all related ASU amendments (collectively “ASU No. 2014-09”);
|
|
|
▪
|
ASU No. 2016-01,
Financial Instruments-Overall (Subtopic 825-10)
:
Recognition and Measurement of Financial Assets and Financial Liabilities
and the related ASU amendment (collectively “ASU No. 2016-01”);
|
|
|
▪
|
ASU No. 2016-15,
Statement of Cash Flows
(Topic 230)
:
Classification of Certain Cash Receipts and Cash Payments
(“ASU No. 2016-15”);
|
|
|
▪
|
ASU No. 2016-18,
Statement of Cash Flows (Topic 230)
:
Restricted Cash
(“ASU No. 2016-18”); and
|
|
|
▪
|
ASU No. 2017-07,
Compensation-Retirement Benefits (Topic 715)
:
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
(“ASU No. 2017-07”).
|
Altria has reclassified certain prior-period amounts to conform with the current period’s presentation due to Altria’s adoptions of ASU No. 2016-18 and ASU No. 2017-07.
ASU No. 2014-09 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. Altria has elected to apply the guidance using the modified retrospective transition method. For further discussion, see
Note 2
.
Revenues from Contracts with Customers
.
ASU No. 2016-01 addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The adoption of ASU No. 2016-01 did not impact Altria’s condensed consolidated financial statements.
ASU No. 2016-15 addresses how eight specific cash flow issues are to be presented and classified in the statement of cash flows. The adoption of ASU 2016-15 did not impact Altria’s condensed consolidated statements of cash flows. In addition, Altria made an accounting policy election to continue to classify distributions received from equity method investees using the nature of distribution approach.
ASU No. 2016-18, which Altria adopted retrospectively, requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. As a result of the adoption, restricted cash of
$93 million
,
$79 million
,
$61 million
and
$82 million
at June 30, 2018, June 30, 2017, December 31, 2017 and December 31, 2016, respectively, was included in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
ASU No. 2017-07 requires an employer to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item or items as other compensation costs arising from services rendered by employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the statement of earnings separately from the service cost component and outside the subtotal of operating income. Additionally, only the service cost component is eligible for capitalization. Altria retrospectively adopted the guidance for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of earnings, and prospectively adopted the capitalization of service cost. Altria used the practical expedient provided in ASU No. 2017-07 that permits Altria to use the amounts disclosed in its benefit plans note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. For the six months ended June 30, 2017, the adoption of ASU No. 2017-07 resulted in a reclassification of net periodic benefit income of
$8 million
and
$11 million
from cost of sales and marketing, administration and research costs, respectively, to net periodic benefit income, excluding service cost in Altria’s condensed consolidated statement of earnings. For the three months ended June 30, 2017, the adoption of ASU No. 2017-07 resulted in a reclassification of net periodic benefit income of
$5 million
and
$6 million
from cost of sales and marketing, administration and research costs, respectively, to net periodic benefit income, excluding service cost in Altria’s condensed consolidated statement of earnings. In addition, certain prior-period segment data has been reclassified to conform with the current period’s presentation. For further discussion, see
Note 6
.
Segment Reporting
.
For a description of recently issued accounting guidance applicable to, but not yet adopted by, Altria, see
Note 11
.
Recent Accounting Guidance Not Yet Adopted
.
Note 2
. Revenues from Contracts with Customers:
On January 1, 2018, Altria adopted ASU No. 2014-09, which 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. Altria elected to apply the guidance using the modified retrospective transition method. The adoption of this guidance had no impact on the amount and timing of revenue recognized by Altria’s businesses; therefore,
no
adjustments were recorded to Altria’s condensed consolidated financial statements.
Altria’s businesses generate substantially all of their revenue from sales contracts with customers. While Altria’s businesses enter into separate sales contracts with each customer for each product type, all sales contracts are similarly structured. These contracts create an obligation to transfer product to the customer. Contract durations do not exceed
one year
; therefore, there is
no
significant financing component, costs to obtain contracts are expensed as incurred and unsatisfied performance obligations are not disclosed.
Altria’s businesses define net revenues as revenues, which include excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns (also referred to as returned goods) and sales incentives. Altria’s businesses exclude from the transaction price, sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on cigarettes, cigars, smokeless tobacco or wine).
Altria’s businesses recognize revenues from sales contracts with customers upon shipment of goods when control of such products is obtained by the customer. Altria’s businesses determine that a customer obtains control of the product upon shipment when title of such product and risk of loss transfers to the customer. Altria’s businesses account for shipping and handling costs as fulfillment costs and such amounts are classified as part of cost of sales in Altria’s condensed consolidated statements of earnings. Altria’s businesses record an allowance for returned goods, based principally on historical volume and return rates, which is included in other accrued liabilities on Altria’s condensed consolidated balance sheets. Altria’s businesses record sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction to revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers and consumers at the end of a period) based principally on historical volume, utilization and redemption rates. Expected payments for sales incentives are included in accrued marketing liabilities on Altria’s condensed consolidated balance sheets.
Payment terms vary depending on product type. Altria’s businesses consider payments received in advance of product shipment as deferred revenue, which is included in other accrued liabilities on Altria’s condensed consolidated balance sheets until revenue is recognized. PM USA receives payment in advance of a customer obtaining control of the product. USSTC receives substantially all payments within
one
business day of the customer obtaining control of the product. Ste. Michelle
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
receives substantially all payments from customers within
45 days
of the customer obtaining control of the product. Amounts due from customers are included in receivables on Altria’s condensed consolidated balance sheets.
Altria’s businesses promote their products with consumer incentives, trade promotions and consumer engagement programs. These consumer incentive and trade promotion activities, which include discounts, coupons, rebates, in-store display incentives and volume-based incentives, do not create a distinct deliverable and are, therefore, recorded as a reduction of revenues. Consumer engagement program payments are made to third parties. Altria’s businesses expense these consumer engagement programs, which include event marketing, as incurred and such expenses are included in marketing, administration and research costs on Altria’s condensed consolidated statements of earnings. For interim reporting purposes, Altria’s businesses charge consumer engagement programs and certain consumer incentive expenses to operations as a percentage of sales, based on estimated sales and related expenses for the full year.
Altria disaggregates net revenues based on product type. For further discussion, see
Note 6
.
Segment Reporting
.
Altria’s businesses offer cash discounts to customers for prompt payment and calculate cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms. Altria’s businesses record an allowance for cash discounts, which is included as a contra-asset against receivables on Altria’s condensed consolidated balance sheets. There was
no
allowance for cash discounts at
June 30, 2018
and
December 31, 2017
, and there were
no
differences between amounts recorded as an allowance for cash discounts and cash discounts subsequently given to customers.
Altria’s businesses that receive payments in advance of product shipment record such payments as deferred revenue. These payments are included in other accrued liabilities on Altria’s condensed consolidated balance sheets until control of such products is obtained by the customer. Deferred revenue was
$390 million
and
$267 million
at
June 30, 2018
and
December 31, 2017
, respectively. When cash is received in advance of product shipment, Altria’s businesses satisfy their performance obligations within
three days
of receiving payment. At June 30, 2018 and December 31, 2017, there were
no
differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.
Receivables, which primarily reflect sales of wine produced and/or distributed by Ste. Michelle, were
$144 million
and
$142 million
at
June 30, 2018
and
December 31, 2017
, respectively. At June 30, 2018 and December 31, 2017, there were
no
expected differences between amounts recorded and subsequently received, and Altria’s businesses did not record an allowance for doubtful accounts against these receivables.
Altria’s businesses record an allowance for returned goods, which is included in other accrued liabilities on Altria’s condensed consolidated balance sheets. While all of Altria’s tobacco operating companies sell tobacco products with dates relative to freshness as printed on product packaging, due to the limited shelf life of USSTC’s smokeless tobacco products, it is USSTC’s policy to accept authorized sales returns from its customers for products that have passed such dates. Altria’s businesses record estimated sales returns, which are based principally on historical volume and return rates, as a reduction to revenues. Actual sales returns will differ from estimated sales returns to the extent actual results differ from estimated assumptions. Altria’s businesses reflect differences between actual and estimated sales returns in the period in which the actual amounts become known. These differences, if any, have not had a significant impact on Altria’s condensed consolidated financial statements. All returned goods are destroyed upon return and not included in inventory. Consequently, Altria’s businesses do not record an asset for their right to recover goods from customers upon return.
Sales incentives include variable payments related to goods sold by Altria’s businesses. Altria’s businesses include estimates of variable consideration as a reduction to revenues upon shipment of goods to customers. The sales incentives that require significant estimates and judgments are as follows:
Price promotion payments-
Altria’s businesses make price promotion payments, substantially all of which are made to their retail partners to incent the promotion of certain product offerings in select geographic areas.
Wholesale and retail participation payments-
Altria’s businesses make payments to their wholesale and retail partners to incent merchandising and sharing of sales data in accordance with each business’s trade agreements.
These estimates primarily include estimated wholesale to retail sales volume and historical acceptance rates. Actual payments will differ from estimated payments to the extent actual results differ from estimated assumptions. Differences between actual
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
and estimated payments are reflected in the period such information becomes available. These differences, if any, have not had a significant impact on Altria’s condensed consolidated financial statements.
Note 3
. Benefit Plans:
Components of Net Periodic Benefit Cost (Income)
Net periodic benefit cost (income) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
Pension
|
|
Postretirement
|
|
Pension
|
|
Postretirement
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Service cost
|
$
|
41
|
|
|
$
|
38
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
20
|
|
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Interest cost
|
138
|
|
|
144
|
|
|
37
|
|
|
40
|
|
|
70
|
|
|
72
|
|
|
18
|
|
|
20
|
|
Expected return on
plan assets
|
(292
|
)
|
|
(300
|
)
|
|
(9
|
)
|
|
—
|
|
|
(146
|
)
|
|
(150
|
)
|
|
(4
|
)
|
|
—
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
112
|
|
|
98
|
|
|
17
|
|
|
16
|
|
|
55
|
|
|
48
|
|
|
8
|
|
|
8
|
|
Prior service
cost (credit)
|
2
|
|
|
2
|
|
|
(21
|
)
|
|
(19
|
)
|
|
1
|
|
|
1
|
|
|
(11
|
)
|
|
(10
|
)
|
Net periodic benefit
cost (income)
|
$
|
1
|
|
|
$
|
(18
|
)
|
|
$
|
33
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
16
|
|
|
$
|
23
|
|
Employer Contributions
Altria 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 (“IRS”) regulations. Employer contributions of
$11 million
were made to Altria’s pension plans during the
six months ended June 30, 2018
. Currently, Altria anticipates making additional employer contributions to its pension plans during the remainder of
2018
of up to approximately $
30 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, changes in interest rates or other considerations. In December 2017, Altria made a contribution of
$270 million
to a trust to fund certain postretirement benefits. Prior to this contribution, Altria’s postretirement plans were not funded. Altria did not make any employer contributions to its postretirement plans during the
six months ended June 30, 2018
. Currently, Altria anticipates making employer contributions to its postretirement plans of up to approximately $
70 million
in 2018. 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 postretirement assets or other considerations.
Note 4
. Earnings Per Share:
Basic and diluted earnings per share (“EPS”) were calculated using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions)
|
Net earnings attributable to Altria
|
|
$
|
3,770
|
|
|
$
|
3,390
|
|
|
$
|
1,876
|
|
|
$
|
1,989
|
|
Less: Distributed and undistributed earnings attributable to share-based awards
|
|
(5
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Earnings for basic and diluted EPS
|
|
$
|
3,765
|
|
|
$
|
3,385
|
|
|
$
|
1,873
|
|
|
$
|
1,986
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares for basic and diluted EPS
|
|
1,895
|
|
|
1,933
|
|
|
1,891
|
|
|
1,928
|
|
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5
. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018
|
|
|
Benefit Plans
|
|
AB InBev
|
|
Currency
Translation
Adjustments and Other
|
|
Accumulated
Other
Comprehensive
Losses
|
|
|
(in millions)
|
Balances, December 31, 2017
|
|
$
|
(1,839
|
)
|
|
$
|
(54
|
)
|
|
$
|
(4
|
)
|
|
$
|
(1,897
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (losses) before reclassifications
|
|
—
|
|
|
225
|
|
|
(2
|
)
|
|
223
|
|
Deferred income taxes
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
|
(50
|
)
|
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes
|
|
—
|
|
|
175
|
|
|
(2
|
)
|
|
173
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net earnings
|
|
118
|
|
|
(20
|
)
|
|
—
|
|
|
98
|
|
Deferred income taxes
|
|
(31
|
)
|
|
5
|
|
|
—
|
|
|
(26
|
)
|
Amounts reclassified to net earnings, net of deferred income taxes
|
|
87
|
|
|
(15
|
)
|
|
—
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (losses), net of deferred income taxes
|
|
87
|
|
|
160
|
|
(1
|
)
|
(2
|
)
|
|
245
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2018
|
|
$
|
(1,752
|
)
|
|
$
|
106
|
|
|
$
|
(6
|
)
|
|
$
|
(1,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
|
|
Benefit Plans
|
|
AB InBev
|
|
Currency
Translation
Adjustments and Other
|
|
Accumulated
Other
Comprehensive
Losses
|
|
|
(in millions)
|
Balances, March 31, 2018
|
|
$
|
(1,794
|
)
|
|
$
|
(129
|
)
|
|
$
|
(4
|
)
|
|
$
|
(1,927
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (losses) before reclassifications
|
|
—
|
|
|
306
|
|
|
(2
|
)
|
|
304
|
|
Deferred income taxes
|
|
—
|
|
|
(66
|
)
|
|
—
|
|
|
(66
|
)
|
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes
|
|
—
|
|
|
240
|
|
|
(2
|
)
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net earnings
|
|
57
|
|
|
(7
|
)
|
|
—
|
|
|
50
|
|
Deferred income taxes
|
|
(15
|
)
|
|
2
|
|
|
—
|
|
|
(13
|
)
|
Amounts reclassified to net earnings, net of deferred income taxes
|
|
42
|
|
|
(5
|
)
|
|
—
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (losses), net of deferred income taxes
|
|
42
|
|
|
235
|
|
(1
|
)
|
(2
|
)
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2018
|
|
$
|
(1,752
|
)
|
|
$
|
106
|
|
|
$
|
(6
|
)
|
|
$
|
(1,652
|
)
|
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2017
|
|
|
Benefit Plans
|
|
AB InBev
|
|
Currency
Translation
Adjustments and Other
|
|
Accumulated
Other
Comprehensive
Losses
|
|
|
(in millions)
|
Balances, December 31, 2016
|
|
$
|
(2,048
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(2,052
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings before reclassifications
|
|
—
|
|
|
225
|
|
|
1
|
|
|
226
|
|
Deferred income taxes
|
|
—
|
|
|
(78
|
)
|
|
—
|
|
|
(78
|
)
|
Other comprehensive earnings before reclassifications, net of deferred income taxes
|
|
—
|
|
|
147
|
|
|
1
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net earnings
|
|
106
|
|
|
2
|
|
|
—
|
|
|
108
|
|
Deferred income taxes
|
|
(41
|
)
|
|
(1
|
)
|
|
—
|
|
|
(42
|
)
|
Amounts reclassified to net earnings, net of deferred income taxes
|
|
65
|
|
|
1
|
|
|
—
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings, net of deferred
income taxes
|
|
65
|
|
|
148
|
|
(1
|
)
|
1
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2017
|
|
$
|
(1,983
|
)
|
|
$
|
148
|
|
|
$
|
(3
|
)
|
|
$
|
(1,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2017
|
|
|
Benefit Plans
|
|
AB InBev
|
|
Currency
Translation
Adjustments and Other
|
|
Accumulated
Other
Comprehensive
Losses
|
|
|
(in millions)
|
Balances, March 31, 2017
|
|
$
|
(2,016
|
)
|
|
$
|
(192
|
)
|
|
$
|
(4
|
)
|
|
$
|
(2,212
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings before reclassifications
|
|
—
|
|
|
521
|
|
|
1
|
|
|
522
|
|
Deferred income taxes
|
|
—
|
|
|
(182
|
)
|
|
—
|
|
|
(182
|
)
|
Other comprehensive earnings before reclassifications, net of deferred income taxes
|
|
—
|
|
|
339
|
|
|
1
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net earnings
|
|
52
|
|
|
2
|
|
|
—
|
|
|
54
|
|
Deferred income taxes
|
|
(19
|
)
|
|
(1
|
)
|
|
—
|
|
|
(20
|
)
|
Amounts reclassified to net earnings, net of deferred income taxes
|
|
33
|
|
|
1
|
|
|
—
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings, net of deferred income taxes
|
|
33
|
|
|
340
|
|
(1
|
)
|
1
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2017
|
|
$
|
(1,983
|
)
|
|
$
|
148
|
|
|
$
|
(3
|
)
|
|
$
|
(1,838
|
)
|
(1)
Primarily reflects currency translation adjustments.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions)
|
Benefit Plans:
(1)
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
137
|
|
|
$
|
123
|
|
|
$
|
67
|
|
|
$
|
61
|
|
Prior service cost/credit
|
|
(19
|
)
|
|
(17
|
)
|
|
(10
|
)
|
|
(9
|
)
|
|
|
118
|
|
|
106
|
|
|
57
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
AB InBev
(2)
|
|
(20
|
)
|
|
2
|
|
|
(7
|
)
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings
|
|
$
|
98
|
|
|
$
|
108
|
|
|
$
|
50
|
|
|
$
|
54
|
|
(1)
Amounts are included in net defined benefit plan costs. For further details, see
Note 3
.
Benefit Plans.
(2)
Amounts are primarily included in earnings from equity investment in AB InBev.
Note 6
. Segment Reporting:
The products of Altria’s subsidiaries include smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA and Nat Sherman, machine-made large cigars and pipe tobacco manufactured and sold by Middleton and premium cigars sold by Nat Sherman; smokeless tobacco products, consisting of moist smokeless tobacco and snus products manufactured and sold by USSTC; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria’s reportable segments of smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in all other.
As discussed in
Note 1
.
Background and Basis of Presentation
, on January 1, 2018, Altria adopted ASU 2017-07, which resulted in a change to prior-period operating income. As a result, certain immaterial prior-period operating companies income (loss) data has been reclassified to conform with the current period’s presentation.
Altria’s chief operating decision maker (the “CODM”) 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, net periodic benefit cost/income, excluding service cost, 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 the CODM.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Segment data were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions)
|
Net revenues:
|
|
|
|
|
|
|
|
|
Smokeable products
|
|
$
|
10,960
|
|
|
$
|
11,380
|
|
|
$
|
5,546
|
|
|
$
|
5,922
|
|
Smokeless products
|
|
1,104
|
|
|
1,030
|
|
|
579
|
|
|
564
|
|
Wine
|
|
308
|
|
|
290
|
|
|
166
|
|
|
150
|
|
All other
|
|
41
|
|
|
46
|
|
|
14
|
|
|
27
|
|
Net revenues
|
|
$
|
12,413
|
|
|
$
|
12,746
|
|
|
$
|
6,305
|
|
|
$
|
6,663
|
|
Earnings before income taxes:
|
|
|
|
|
|
|
|
|
Operating companies income (loss):
|
|
|
|
|
|
|
|
|
Smokeable products
|
|
$
|
4,239
|
|
|
$
|
4,260
|
|
|
$
|
2,201
|
|
|
$
|
2,224
|
|
Smokeless products
|
|
715
|
|
|
593
|
|
|
377
|
|
|
347
|
|
Wine
|
|
44
|
|
|
46
|
|
|
27
|
|
|
25
|
|
All other
|
|
(83
|
)
|
|
(21
|
)
|
|
(57
|
)
|
|
(8
|
)
|
Amortization of intangibles
|
|
(10
|
)
|
|
(10
|
)
|
|
(5
|
)
|
|
(5
|
)
|
General corporate expenses
|
|
(91
|
)
|
|
(101
|
)
|
|
(45
|
)
|
|
(55
|
)
|
Operating income
|
|
4,814
|
|
|
4,767
|
|
|
2,498
|
|
|
2,528
|
|
Interest and other debt expense, net
|
|
(344
|
)
|
|
(356
|
)
|
|
(178
|
)
|
|
(177
|
)
|
Net periodic benefit income, excluding service cost
|
|
16
|
|
|
19
|
|
|
9
|
|
|
11
|
|
Earnings from equity investment in AB InBev
|
|
570
|
|
|
163
|
|
|
228
|
|
|
140
|
|
(Loss) gain on AB InBev/SABMiller business combination
|
|
(33
|
)
|
|
408
|
|
|
—
|
|
|
408
|
|
Earnings before income taxes
|
|
$
|
5,023
|
|
|
$
|
5,001
|
|
|
$
|
2,557
|
|
|
$
|
2,910
|
|
The comparability of operating companies income for the reportable segments was affected by the following:
Non-Participating Manufacturer (“NPM”) Adjustment Items
- Pre-tax (income) expense for NPM adjustment items was recorded in Altria’s condensed consolidated statements of earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions)
|
Smokeable products segment
|
|
$
|
(145
|
)
|
|
$
|
(8
|
)
|
|
$
|
(77
|
)
|
|
$
|
—
|
|
Interest and other debt expense, net
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
(145
|
)
|
|
$
|
(1
|
)
|
|
$
|
(77
|
)
|
|
$
|
—
|
|
NPM adjustment items result from the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in
Health Care Cost Recovery Litigation - NPM Adjustment Disputes
in
Note 9
.
Contingencies
)
.
The amounts shown in the table above for the smokeable products segment were recorded by PM USA as reductions to cost of sales, which increased operating companies income in the smokeable products segment.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Tobacco and Health Litigation Items
- Pre-tax charges related to certain tobacco and health litigation items were recorded in Altria’s condensed consolidated statements of earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(in millions)
|
Smokeable products segment
|
|
$
|
84
|
|
|
$
|
16
|
|
|
$
|
60
|
|
|
$
|
15
|
|
Interest and other debt expense, net
|
|
14
|
|
|
2
|
|
|
10
|
|
|
2
|
|
Total
|
|
$
|
98
|
|
|
$
|
18
|
|
|
$
|
70
|
|
|
$
|
17
|
|
During the six and three months ended June 30, 2018, PM USA recorded pre-tax charges of
$84 million
and
$60 million
, respectively, in marketing, administration and research costs, all of which related to
Engle
progeny cases. In addition, during the six and three months ended June 30, 2018, PM USA recorded
$14 million
and
$10 million
, respectively, in interest costs, all of which related to these cases. For further discussion, see
Note 9
.
Contingencies
.
During the second quarter of 2017, PM USA recorded pre-tax charges of
$15 million
in marketing, administration and research costs and
$2 million
in interest costs, all of which related to
Engle
progeny cases. For further discussion, see
Note 9
.
Contingencies
.
Smokeless Products Recall
- During the first quarter of
2017, USSTC voluntarily recalled certain smokeless tobacco products manufactured at its Franklin Park, Illinois facility due to a product tampering incident (the “Recall”). USSTC estimated that the Recall reduced smokeless products segment operating companies income by approximately
$60 million
in the first quarter of 2017.
Asset Impairment, Exit and Implementation Costs
- In October 2016, Altria announced the consolidation of certain of its operating companies’ manufacturing facilities to streamline operations and achieve greater efficiencies. In the first quarter of 2018, Middleton completed the transfer of its Limerick, Pennsylvania operations to the Manufacturing Center site in Richmond, Virginia (“Richmond Manufacturing Center”), and USSTC completed the transfer of its Franklin Park, Illinois operations to its Nashville, Tennessee facility and the Richmond Manufacturing Center. The pre-tax charges related to the consolidation are substantially complete.
Pre-tax asset impairment, exit and implementation costs recorded in connection with the facilities consolidation consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018
|
|
For the Six Months Ended June 30, 2017
|
|
Asset Impairment and Exit Costs
|
|
Implementation Costs
(1)
|
|
Total
|
|
Asset Impairment and Exit Costs
|
|
Implementation Costs
(1)
|
|
Total
|
|
(in millions)
|
Smokeable products
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
12
|
|
|
$
|
14
|
|
Smokeless products
|
3
|
|
|
3
|
|
|
6
|
|
|
14
|
|
|
28
|
|
|
42
|
|
Total
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
16
|
|
|
$
|
40
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
|
For the Three Months Ended June 30, 2017
|
|
Asset Impairment and Exit Costs
|
|
Implementation Costs
(1)
|
|
Total
|
|
Asset Impairment and Exit Costs
|
|
Implementation Costs
(1)
|
|
Total
|
|
(in millions)
|
Smokeable products
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
8
|
|
Smokeless products
|
1
|
|
|
3
|
|
|
4
|
|
|
11
|
|
|
10
|
|
|
21
|
|
Total
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The pre-tax implementation costs were included in cost of sales in Altria’s condensed consolidated statements of earnings.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7
. Debt:
At
June 30, 2018
and
December 31, 2017
, Altria had
no
short-term borrowings.
Long-term Debt
Altria’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’s total long-term debt at
June 30, 2018
and
December 31, 2017
, was
$14.3 billion
and
$15.3 billion
, respectively, as compared with its carrying value of
$13.9 billion
for each period.
At June 30, 2018 and December 31, 2017, accrued interest on long-term debt of
$219 million
was included in other accrued liabilities on Altria’s condensed consolidated balance sheets.
Note 8
. Income Taxes:
On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The main provisions of the Tax Reform Act that impact Altria include: (i) a reduction in the U.S. federal statutory corporate income tax rate from
35%
to
21%
effective January 1, 2018, and (ii) changes in the treatment of foreign-source income, commonly referred to as a modified territorial tax system. The transition to a modified territorial tax system required Altria to record a deemed repatriation tax and an associated tax basis benefit in 2017. Substantially all of the deemed repatriation tax was related to Altria’s share of AB InBev’s accumulated earnings. Dividends received from AB InBev beginning in 2017, to the extent that such dividends represent previously taxed income attributable to the deemed repatriation tax, result in an associated tax basis expense, which reverses the tax basis benefit recorded in 2017. The Tax Reform Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries. Altria made an accounting policy election to treat taxes due under the GILTI provision as a current period expense.
The income tax rate of
24.9%
for the six months ended June 30, 2018 decreased
7.3
percentage points from the six months ended June 30, 2017. The income tax rate of
26.6%
for the three months ended June 30, 2018 decreased
5.0
percentage points from the three months ended June 30, 2017. These decreases were due primarily to the following:
|
|
▪
|
a reduction in tax expense in 2018 from the decrease in the U.S. federal statutory corporate income tax rate as a result of the Tax Reform Act;
|
partially offset by:
|
|
▪
|
tax benefits of
$152 million
in 2017 related primarily to the effective settlement in June 2017 of the IRS audit of Altria and its consolidated subsidiaries’ 2010-2013 tax years, of which
$110 million
was recorded in the second quarter of 2017;
|
|
|
▪
|
tax expense of
$82 million
in 2018, resulting from a partial reversal of the tax basis benefit associated with the deemed repatriation tax, of which
$41 million
was recorded in the second quarter of 2018; and
|
|
|
▪
|
tax expense of
$34 million
in the second quarter of 2018 for a valuation allowance on foreign tax credit carryforwards that are not realizable as a result of updates to the provisional estimates recorded in 2017 for the Tax Reform Act.
|
During the six and three months ended June 30, 2018, Altria recorded net tax expense of
$2 million
and
$13 million
, respectively, as adjustments to the provisional estimates recorded in 2017 for the tax basis adjustment and the deemed repatriation tax attributable to the Tax Reform Act. Altria may be required to adjust these provisional estimates based on (i) additional guidance related to, or interpretation of, the Tax Reform Act and associated tax laws and (ii) additional information to be received from AB InBev, including information regarding AB InBev’s accumulated earnings and associated taxes for the 2016 and 2017 tax years. This additional guidance and information could result in increases or decreases to the provisional estimates, which may be significant in relation to these estimates. Altria will record any such adjustments in 2018.
Altria 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. At
June 30, 2018
, Altria’s total unrecognized tax benefits were
$68 million
. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at
June 30, 2018
was
$43 million
, along with
$25 million
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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
$39 million
. At December 31, 2017, Altria’s total unrecognized tax benefits were
$66 million
. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2017 was
$43 million
, along with
$23 million
affecting deferred taxes.
Note 9
. Contingencies:
Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria 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, have ranged 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 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 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 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. States, including Florida, may also seek to repeal or alter bond cap statutes through legislation. Although Altria cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria, 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 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 9
.
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 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, 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 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 and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria to do so.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Overview of Altria 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 and, in some instances, Altria as of July 23, 2018, July 24, 2017 and July 22, 2016:
|
|
|
|
|
|
|
|
July 23, 2018
|
|
July 24, 2017
|
|
July 22, 2016
|
Individual Smoking and Health Cases
(1)
|
97
|
|
90
|
|
62
|
Smoking and Health Class Actions and Aggregated Claims Litigation
(2)
|
3
|
|
4
|
|
5
|
Health Care Cost Recovery Actions
(3)
|
1
|
|
1
|
|
1
|
“Lights/Ultra Lights” Class Actions
|
3
|
|
4
|
|
9
|
(1)
Includes
27
cases filed in Massachusetts and
38
non-
Engle
cases filed in Florida. 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 (these
Engle
progeny cases are discussed below in
Smoking and Health Litigation - Engle Class Action
). Also does not include
1,491
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. In March 2018,
923
of these cases were voluntarily dismissed without prejudice.
(2)
The 2016 and 2017 pending cases include as one case the
30
civil actions that were to be tried in
six
consolidated trials in West Virginia (
In re: Tobacco Litigation
). PM USA was a defendant in
nine
of the
30
cases. The parties agreed to resolve the cases for an immaterial amount and in the second quarter of 2018, the court dismissed all
30
cases.
(3)
See
Health Care Cost Recovery Litigation - Federal Government’s Lawsuit
below.
International Tobacco-Related Cases
As of July 23, 2018, PM USA is a named defendant in
10
health care cost recovery actions in Canada,
eight
of which also name Altria as a defendant. PM USA and Altria 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 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 23, 2018,
10
Engle
progeny cases are set for trial through September 30, 2018. In addition, there is
one
individual smoking and health case against PM USA set for trial during this period. Cases against other companies in the tobacco industry may also be 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
63
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
42
of the
63
cases. These
42
cases were tried in Alaska (
1
), California (
7
), Connecticut (
1
), 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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
new trial was granted in
one
of the cases in Florida and in the case in Alaska.
In the Alaska case (
Hunter
), the jury returned a verdict in favor of PM USA in April 2018 in the third trial of this case. In May 2018, plaintiff filed a motion for a new trial, which the court denied.
Of the
21
non-
Engle
progeny cases in which verdicts were returned in favor of plaintiffs,
19
have reached final resolution.
As of July 23, 2018,
121
state and federal
Engle
progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s
Engle
decision as follows:
66
verdicts were returned in favor of plaintiffs;
45
verdicts were returned in favor of PM USA.
Eight
verdicts that were initially returned in favor of plaintiff were reversed post-trial or on appeal and remain pending and
two
verdicts in favor of PM USA were reversed for a new trial. See
Smoking and Health Litigation - Engle Progeny Trial 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 settlements (including related costs and fees) totaling approximately
$571 million
and interest totaling approximately
$194 million
as of June 30, 2018. These amounts include payments for
Engle
progeny judgments (and related costs and fees) totaling approximately
$179 million
, interest totaling approximately
$32 million
and payment of approximately
$43 million
in connection with the Federal
Engle
Agreement, discussed below.
The changes in Altria’s accrued liability for tobacco and health litigation items, including related interest costs, for the periods specified below are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
For the Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Accrued liability for tobacco and health litigation items at beginning of period
(1)
|
$
|
106
|
|
|
$
|
47
|
|
|
$
|
111
|
|
|
$
|
47
|
|
Pre-tax charges for:
|
|
|
|
|
|
|
|
Tobacco and health judgments
|
84
|
|
|
16
|
|
|
60
|
|
|
15
|
|
Related interest costs
|
14
|
|
|
2
|
|
|
10
|
|
|
2
|
|
Payments
(1)
|
(97
|
)
|
|
(18
|
)
|
|
(74
|
)
|
|
(17
|
)
|
Accrued liability for tobacco and health litigation items at end of period
(1)
|
$
|
107
|
|
|
$
|
47
|
|
|
$
|
107
|
|
|
$
|
47
|
|
(1)
Includes amounts related to the costs of implementing the corrective communications remedy related to the
Federal Government’s Lawsuit
discussed below.
The accrued liability for tobacco and health litigation items, including related interest costs, was included in liabilities on Altria’s condensed consolidated balance sheets. Pre-tax charges for tobacco and health judgments were included in marketing, administration and research costs on Altria’s condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria’s condensed consolidated statements of earnings.
Security for Judgments
To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of
June 30, 2018
, PM USA has posted appeal bonds totaling approximately
$93 million
, which have been collateralized with cash deposits that are included in assets on the condensed consolidated balance sheet.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 2018 in which a verdict was returned in favor of plaintiff and against PM USA. Charts listing certain verdicts for plaintiffs in the
Engle
progeny cases can be found in
Smoking and Health Litigation - Engle Progeny Trial Results
below.
Gentile
: In October 2017, a jury in a Florida state court returned a verdict in favor of plaintiff, awarding approximately
$7.1 million
in compensatory damages and allocating
75%
of the fault to PM USA (an amount of approximately
$5.3 million
). Subsequently, in October 2017, PM USA filed various post-trial motions. In April 2018, the trial court denied defendant’s post-trial motions and entered final judgment in favor of plaintiff. Also in April 2018, PM USA posted a bond in the amount of approximately
$8 million
. In May 2018, PM USA filed a notice of appeal to the Florida Fourth District Court of Appeal.
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. On appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed the judgment. In the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$1 million
for the judgment, interest and associated costs. In the first quarter of 2018, PM USA paid this amount, 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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 and plaintiffs sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion. 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. In May 2007, defendants filed a petition for
writ of certiorari
with the United States Supreme Court, which was denied. In February 2008, the trial court decertified the class.
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 23, 2018, approximately
2,300
state court cases were pending against PM USA or Altria asserting individual claims by or on behalf of approximately
3,000
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 23, 2018, approximately
8
cases were pending against PM USA in federal court representing the cases excluded from that agreement.
Agreement to Resolve Federal Engle Progeny Cases
In 2015, PM USA, R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and Lorillard Tobacco Company (“Lorillard”) resolved approximately
415
pending federal
Engle
progeny cases (the “Federal
Engle
Agreement”). Under the terms of the Federal
Engle
Agreement, PM USA paid approximately
$43 million
. Federal cases that were in trial and those that previously reached final verdict were not included in the Federal
Engle
Agreement.
Engle Progeny Trial Results
As of July 23, 2018,
121
federal and state
Engle
progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court
Engle
decision.
Sixty-six
verdicts were returned in favor of plaintiffs and
eight
verdicts (
Skolnick
,
Calloway
,
Pollari
,
McCoy
,
Duignan
,
Caprio,
Oshinsky-Blacker
and
McCall
) that were initially returned in favor of plaintiffs were reversed post-trial or on appeal and remain pending.
Skolnick
was remanded for a new trial on plaintiff’s concealment and conspiracy claims;
Calloway
was reversed and remanded for a new trial on an appellate finding that improper arguments by plaintiff’s counsel deprived defendants of a fair trial;
Pollari
and
McCoy
were reversed and remanded for a new trial on an appellate finding that the trial court erred in admitting certain materials into evidence that deprived defendants of a fair trial;
Duignan
was reversed and remanded for a new trial on an appellate finding that the trial judge erred in responding to a question from the jury during deliberations;
Caprio
was reversed post-trial after defendants agreed to voluntarily dismiss their appeal in exchange for a full retrial;
Oshinsky-Blacker
was reversed post-trial based on plaintiff’s counsel’s improper arguments at trial; and
McCall
was reversed based on an appellate finding that the trial judge erred in instructing the jury on the warning labels on cigarette packs.
Forty-five
verdicts were returned in favor of PM USA, of which
36
were state cases. In addition, there have been a number of mistrials, only some of which have resulted in new trials as of July 23, 2018.
Two
verdicts (
D. Cohen
and
Collar
) that were returned in favor of PM USA were subsequently reversed for new trials. 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. The first chart lists such cases that are pending as of July 23, 2018; the second chart lists such cases that
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
were pending within the previous 12 months, but that are now concluded. Unless otherwise noted for a particular case, the jury’s award for compensatory damages will not be reduced by any finding of plaintiff’s comparative fault (see
Engle Progeny Appellate Issues
below for a discussion of the Florida Supreme Court’s decision in
Schoeff
).
Currently-Pending Engle Cases
_______________________________________________________________________________________________________________________________
Plaintiff:
Kaplan
Date:
June 2018
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of approximately
$2.1 million
. The jury also awarded
$2.3 million
in punitive damages against PM USA.
Post-Trial Developments:
In July 2018, the trial court entered final judgment in favor of plaintiff and defendants filed various post-trial motions, including motions for a new trial and to set aside the verdict.
_______________________________________________________________________________________________________________________________
Plaintiff:
Landi
Date:
June 2018
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$8 million
. The jury also awarded
$5 million
in punitive damages against PM USA.
Post-Trial Developments:
In June 2018, the trial court entered final judgment in favor of plaintiff and defendants filed various post-trial motions, including motions for a new trial and to set aside the verdict.
_______________________________________________________________________________________________________________________________
Plaintiff:
Theis
Date:
May 2018
Verdict:
A Sarasota County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$7 million
. The jury also awarded
$10 million
in punitive damages against PM USA.
Post-Trial Developments:
In June 2018, the trial court entered final judgment in favor of plaintiff and defendants filed various post-trial motions, including motions to set aside various portions of the verdict and for a new trial or, in the alternative, for
remittitur
of the damages awards.
_______________________________________________________________________________________________________________________________
Plaintiff:
Freeman
Date:
March 2018
Verdict:
An Alachua County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of
$4 million
. The jury did not award any punitive damages.
Post-Trial Developments:
In March 2018, the trial court entered final judgment in favor of plaintiff and PM USA filed various post-trial motions, including motions to enter judgment in defendant’s favor and for a new trial. In April 2018, the trial court denied all post-trial motions. In May 2018, PM USA filed a notice of appeal to the Florida First District Court of Appeal and posted a bond in the amount of
$4 million
.
_______________________________________________________________________________________________________________________________
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Plaintiff:
Gloger
Date:
February 2018
Verdict:
A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$7.5 million
. The jury also awarded
$5 million
in punitive damages against PM USA.
Post-Trial Developments:
In February 2018, the trial court entered final judgment in favor of plaintiff and defendants filed various post-trial motions, including motions to enter judgment in defendants’ favor and for a new trial, which the trial court denied in May 2018. Also in February 2018, defendants filed a notice of appeal to the Florida Third District Court of Appeal and posted a bond in the amount of
$2.5 million
.
______________________________________________________________________________________________________
Plaintiff:
Bryant
Date:
December 2017
Verdict:
An Escambia County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of
$581,000
. The jury also awarded
$225,000
in punitive damages against PM USA.
Post-Trial Developments:
In December 2017, PM USA filed various post-trial motions, including motions to enter judgment in its favor and for a new trial. Plaintiff also filed a motion for a new trial on the amount of punitive damages. In February 2018, the trial court denied all post-trial motions and entered final judgment in favor of plaintiff. In March 2018, PM USA filed a notice of appeal to the Florida First District Court of Appeal and posted a bond in the amount of
$681,000
.
_______________________________________________________________________________________________________________________________
Plaintiff:
R. Douglas
Date:
November 2017
Verdict:
A Duval County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of
$131,371
and allocating
4%
of the fault to PM USA (an amount of
$5,255
).
Post-Trial Developments:
In November 2017, PM USA filed a motion to set aside the verdict, and plaintiff filed a motion for a new trial or, in the alternative, for an
additur
of the damages award. In February 2018, the trial court denied the parties’ post-trial motions.
________________________________________________________________________________________________________________________________
Plaintiff:
Wallace
Date:
October 2017
Verdict:
A Brevard County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$12 million
. The jury also awarded plaintiff
$16 million
in punitive damages against PM USA.
Post-Trial Developments:
In November 2017, defendants filed post-trial motions, including for a new trial or
remittitur
of the damages awards. In December 2017, the court denied certain post-trial motions. In January 2018, the court denied the remaining post-trial motions and entered final judgment against PM USA and R.J. Reynolds. In February 2018, defendants filed a notice of appeal to the Florida Fifth District Court of Appeal and posted a bond in the amount of approximately
$3 million
, and plaintiff cross-appealed.
________________________________________________________________________________________________________________________________
Plaintiff:
L. Martin
Date:
May 2017
Verdict:
A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of
$1.1 million
and allocating
55%
of the fault to PM USA (an amount of
$605,000
). The jury also awarded plaintiff
$1.3 million
in punitive damages against PM USA.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Post-Trial Developments:
In May 2017, PM USA filed various post-trial motions, including motions to set aside the verdict and for a new trial. In June 2017, the trial court entered final judgment in favor of plaintiff with a deduction for plaintiff’s comparative fault. In August 2017, the court denied PM USA’s post-trial motions and PM USA filed a notice of appeal to the Florida Third District Court of Appeal and posted a bond in the amount of approximately
$1.9 million
. In September 2017, plaintiff cross-appealed.
________________________________________________________________________________________________________________________________
Plaintiff:
Sommers
Date:
April 2017
Verdict:
A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA awarding compensatory damages of
$1 million
. The court dismissed the punitive damages claim prior to trial.
Post-Trial Developments:
In April 2017, PM USA filed motions for a new trial and for a directed verdict, and plaintiff filed a motion for a new trial on punitive damages. In January 2018, the trial court granted plaintiff’s motion for a new trial on punitive damages, denied PM USA’s post-trial motions, and PM USA filed a notice of appeal to the Florida Third District Court of Appeal. In February 2018, plaintiff cross-appealed. In April 2018, the trial court entered an amended final judgment in favor of plaintiff. In May 2018, PM USA filed a notice of appeal to the Florida Third District Court of Appeal to review the amended final judgment and posted a bond in the amount of
$1 million
.
________________________________________________________________________________________________________________________________
Plaintiff:
Santoro
Date:
March 2017
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Liggett Group LLC (“Liggett Group”) awarding compensatory damages of
$1.6 million
. The jury also awarded plaintiff
$100,000
in punitive damages against PM USA.
Post-Trial Developments:
In April 2017, the trial court entered final judgment in favor of plaintiff with a 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 December 2017, the trial court granted defendants’ motion to set aside the verdict as to all claims except plaintiff’s conspiracy claim. In January 2018, plaintiff filed a motion to amend the final judgment to award the full compensatory damages without reduction for plaintiff’s comparative fault. In May 2018, the trial court denied defendants’ remaining post-trial motions, but set aside the punitive damages award. The trial court also granted plaintiff’s motion to amend the final judgment to award full compensatory damages. In June 2018, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff filed a notice of cross-appeal. PM USA subsequently posted a bond in the amount of
$535,000
.
________________________________________________________________________________________________________________________________
Plaintiff:
J. Brown
Date:
February 2017
Verdict:
A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$5.4 million
. The jury also awarded plaintiff
$200,000
in punitive damages against PM USA.
Post-Trial Developments:
In March 2017, defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial. In August 2017, the trial court denied defendants’ post-trial motions and entered final judgment in favor of plaintiff. In September 2017, defendants filed a notice of appeal to the Florida Second District Court of Appeal and posted a bond in the amount of
$2.5 million
.
________________________________________________________________________________________________________________________________
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Plaintiff:
Pardue
Date:
December 2016
Verdict:
An Alachua County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of approximately
$5.9 million
. The jury also awarded plaintiff
$6.75 million
in punitive damages against PM USA.
Post-Trial Developments:
In December 2016, the trial court entered final judgment in favor of plaintiff. In January 2017, PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial or, in the alternative, for
remittitur
of the jury’s damages awards. In February 2017, the court granted defendants’ alternative motion for
remittitur
, reducing the compensatory damages award against PM USA and R.J. Reynolds to approximately
$5.2 million
. Also in February 2017, defendants filed a renewed motion to alter or amend the judgment, which the court denied in April 2017. In March 2017, defendants filed a notice of appeal to the Florida First District Court of Appeal and plaintiff cross-appealed. In April 2017, PM USA posted a bond in the amount of
$2.5 million
. In June 2018, the Florida First District Court of Appeal issued a
per curiam
decision affirming the trial court’s judgment against defendants. In the second quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$9 million
for the judgment and interest.
________________________________________________________________________________________________________________________________
Plaintiff:
S. Martin
Date:
November 2016
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of approximately
$5.4 million
and allocating
46%
of the fault to PM USA (an amount of approximately
$2.48 million
). The jury also awarded plaintiff
$450,000
in punitive damages against PM USA.
Post-Trial Developments:
In December 2016, the trial court entered final judgment in favor of plaintiff with a deduction for plaintiff’s comparative fault and PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial. In January 2017, the trial court denied all post-trial motions. In February 2017, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff cross-appealed. Also in February 2017, PM USA posted a bond in the amount of
$2.9 million
.
________________________________________________________________________________________________________________________________
Plaintiff:
Oshinsky-Blacker
Date:
September 2016
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$6.155 million
and allocating
60%
of the fault to PM USA (an amount of
$3.7 million
). The jury also awarded plaintiff
$1 million
in punitive damages against PM USA.
Post-Trial Developments:
In October 2016, PM USA and R.J. Reynolds filed motions to set aside the verdict and for a directed verdict. In March 2017, the trial court vacated the verdict, ordered a new trial based on plaintiff’s counsel’s improper arguments at trial and denied defendants’ remaining post-trial motions. Also in March 2017, plaintiff filed a notice of appeal to the Florida Fourth District Court of Appeal and defendants cross-appealed. In July 2018, the Florida Fourth District Court of Appeal affirmed the trial court’s grant of a new trial.
________________________________________________________________________________________________________________________________
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.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Post-Trial Developments:
In July 2016, plaintiff filed a motion for a new trial or, in the alternative, for an
additur
of the damages awards. In February 2018, the trial court denied plaintiff’s post-trial motions.
________________________________________________________________________________________________________________________________
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. In December 2017, the Florida Fourth District Court of Appeal reversed the judgment and remanded the case for a new trial on an appellate finding that the trial judge erred in instructing the jury on the warning labels on cigarette packs.
______________________________________________________________________________________________________________________________
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. 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, which the trial court granted. 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. In July 2017, the Florida First District Court of Appeal affirmed the trial court’s order granting a new trial on non-economic compensatory damages, but reinstated the jury’s punitive damages award.
______________________________________________________________________________________________________________________________
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. 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 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
. In November 2017, the Florida Second District Court of Appeal reversed the judgment against PM USA and R.J. Reynolds and ordered a new trial on an appellate finding that the trial judge erred in responding to a question from the jury during deliberations. Also in November 2017, plaintiff filed a motion for rehearing with the Florida Second District Court of Appeal, which the court denied in January 2018.
________________________________________________________________________________________________________________________________
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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 to 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
. In January 2018, the Florida Fourth District Court of Appeal affirmed the judgment in favor of plaintiff and granted plaintiff a new trial on punitive damages.
________________________________________________________________________________________________________________________________
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. The jury also awarded approximately
$3.2 million
in punitive damages.
Post-Trial Developments:
In August 2015, the trial court entered final judgment against PM USA and 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. In April 2018, the Florida First District Court of Appeal issued a
per curiam
decision affirming the trial court’s judgment in favor of plaintiff and PM USA filed a motion for rehearing, which the court denied in May 2018. In the second quarter of 2018, PM USA posted a bond in the amount of approximately
$9.6 million
and recorded a provision on its condensed consolidated balance sheet of approximately
$11 million
for the judgment and interest.
______________________________________________________________________________________________________
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. In November 2017, the Florida Fourth District Court of Appeal reversed the judgment against PM USA and R.J. Reynolds and ordered a new trial on an appellate finding that the trial court erred in admitting certain materials into evidence that deprived defendants of a fair trial. In December 2017, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court and the case was stayed pending the Florida Supreme Court’s decision in
Pollari
, discussed below.
______________________________________________________________________________________________________________________________
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.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Post-Trial Developments:
In May 2015, the trial court entered final judgment 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. In April 2018, the Florida First District Court of Appeal issued a
per curiam
decision affirming the trial court’s judgment against PM USA. In May 2018, PM USA filed a motion for rehearing, rehearing
en banc
or for certification of a question to the Florida Supreme Court, which the court denied. In the second quarter of 2018, PM USA increased its bond by approximately
$1.4 million
and recorded a provision on its condensed consolidated balance sheet of approximately
$7 million
for the judgment and interest.
________________________________________________________________________________________________________________________________
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.
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 against PM USA and R.J. Reynolds. In October 2015, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff cross-appealed. PM USA subsequently posted a bond in the amount of
$460,000
. In February 2018, the Florida Fourth District Court of Appeal affirmed the judgment in favor of plaintiff and granted plaintiff leave to seek a new trial on punitive damages. In the first quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$1 million
for the judgment and interest. In July 2018, the trial court entered final judgment on the compensatory damages award and reserved jurisdiction for plaintiff to seek punitive damages.
______________________________________________________________________________________________________
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. In August 2017, the Florida Fourth District Court of Appeal reversed the original judgment against PM USA and ordered a new trial on an appellate finding that the trial court erred in admitting certain materials into evidence that deprived defendants of a fair trial. In September 2017, plaintiff moved for rehearing, rehearing
en banc
, or certification of a question to the Florida Supreme Court, which the Florida Fourth District Court of Appeal denied in November 2017. In December 2017, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court.
________________________________________________________________________________________________________________________________
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. 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.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. In January 2017, the defendants agreed to voluntarily dismiss their appeal in exchange for a full retrial and the court dismissed the 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. 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.
In January 2017,
the Florida Fourth District Court of Appeal issued a decision largely affirming the trial court’s judgment against PM USA, but remanded the case to the trial court to amend the final judgment to apply the comparative fault deduction to the compensatory damages award. In February 2017, PM USA filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court; plaintiff also filed a notice to invoke the jurisdiction of the Florida Supreme Court challenging the comparative fault reduction. In March 2017, the Florida Supreme Court stayed the appeal pending its decisions in
Marotta
and
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In April 2017, the Florida Supreme Court rejected R.J. Reynolds’s federal preemption defense in
Marotta
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. As a result, in the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$20 million
for the judgment and interest. In February 2018, PM USA increased its bond by
$10 million
. In June 2018, the Florida Supreme Court denied PM USA’s and plaintiff’s request for review, thereby reinstating the comparative fault reduction and PM USA decreased the provision recorded on its consolidated balance sheet to approximately
$17 million
. In June 2018, plaintiff filed a motion for rehearing in the Florida Supreme Court seeking to remove the comparative fault reduction.
______________________________________________________________________________________________________
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. The jury also awarded plaintiff
$9 million
in punitive damages.
Post-Trial Developments:
In February 2015, the trial court entered final judgment. 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
and
Searcy
cases, discussed below under
Engle Progeny Appellate Issues
.
______________________________________________________________________________________________________________________________
Plaintiff:
Perrotto
Date:
November 2014
Verdict:
A Palm Beach County jury returned a verdict against PM USA, R.J. Reynolds and Lorillard awarding plaintiff approximately
$4.1 million
in compensatory damages and allocating
25%
of the fault to PM USA (an amount of approximately
$1 million
).
Post-Trial Developments:
In December 2014, 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
. In September 2016, the
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
court denied defendants’ post-trial motions. In June 2018, a jury returned a verdict on punitive damages in favor of PM USA; PM USA posted a bond in the amount of approximately
$1 million
and plaintiff filed a motion for a new trial. In July 2018, the court entered final judgment awarding plaintiff approximately
$1 million
in compensatory damages against PM USA.
______________________________________________________________________________________________________________________________
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 plaintiff cross-appealed. PM USA posted a bond in the amount of
$3.98 million
. In April 2017, the Florida Second District Court of Appeal rejected PM USA’s grounds for appeal and affirmed the judgment, but ruled that the trial court should not have applied the comparative fault deduction. The court remanded the case to the trial court to amend the judgment to award plaintiff the full amount of the jury’s compensatory damages award and also separately ruled that plaintiff is entitled to attorneys’ fees. In May 2017, defendants filed notices to invoke the discretionary jurisdiction of the Florida Supreme Court on the merits and on the attorneys’ fees issue. The Florida Supreme Court stayed consideration of its jurisdiction on the merits appeal pending its ruling in
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. In February 2018, PM USA requested that the Florida Supreme Court remand the case to the Second District Court of Appeal for further consideration and PM USA increased its bond by approximately
$11 million
. In June 2018, the Florida Supreme Court denied PM USA’s request to remand the case for further consideration. In the second quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$41 million
for the judgment and interest.
______________________________________________________________________________________________________________________________
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. 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. 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
. In June 2017, the trial court lifted the stay on the post-trial motions and, in June 2018, denied defendants’ post-trial motions. In July 2018, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit.
______________________________________________________________________________________________________________________________
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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. In August 2016, the trial court denied plaintiff’s motion to reinstate the jury’s punitive damages or to order a new trial and, in September 2016, plaintiff cross-appealed. In June 2017, the U.S. Court of Appeals for the Eleventh Circuit lifted the stay on the appeal.
______________________________________________________________________________________________________________________________
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.
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 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
. In February 2018, the trial court lifted the stay on the post-trial proceedings.
________________________________________________________________________________________________________________________________
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:
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 and
$10 million
in punitive damages against each defendant.
Post-Trial Developments:
In June 2013, the trial court entered final judgment. 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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit arguing that application of the
Engle
findings to the
Engle
progeny plaintiffs’ concealment and conspiracy claims violated defendants’ due process rights. 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
. In January 2018, the U.S. Court of Appeals for the Eleventh Circuit ordered supplemental briefing on the due process issue.
________________________________________________________________________________________________________________________________
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. 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. 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, a panel of 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
. In September 2016, the Florida Fourth District Court of Appeal, ruling
en banc
, reversed the judgment against PM USA and R.J. Reynolds in its entirety on the grounds that improper arguments by plaintiff’s counsel deprived defendants of a fair trial, and ordered a new trial. In October 2016, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, which the court denied in March 2017. In June 2017, plaintiff filed a petition for
writ of certiorari
with the United States Supreme Court seeking review of the 2016
en banc
ruling by the Florida Fourth District Court of Appeal, which the court denied in October 2017.
______________________________________________________________________________________________________
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
. 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. In August 2016, the Florida Fourth District Court of Appeal reinstated the jury’s punitive damages verdict and reaffirmed that the compensatory damages award was excessive, remanding the case to the trial court to reduce the compensatory damages. In
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
May 2017, the trial court ruled that the 2010 jury award of
$15.1 million
in compensatory damages was excessive and reduced the award to
$225,000
. In June 2017, plaintiff requested a new trial on compensatory damages.
_______________________________________________________________________________________________________________________________
Engle Cases Concluded Within Past 12 Months
_______________________________________________________________________________________________________________________________
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 a notice of 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. In June 2017, the Florida Fourth District Court of Appeal issued a
per curiam
affirmance of the final judgment against PM USA. In July 2017, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court and, in August 2017, the Florida Supreme Court stayed the case pending
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. As a result, in the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$1 million
for the judgment and interest. In March 2018, the Florida Supreme Court accepted jurisdiction of plaintiff’s petition for review and remanded the case for reconsideration in light of the
Schoeff
decision. Also in March 2018, PM USA posted a bond in the amount of
$157,500
. In April 2018, the Fourth District Court of Appeal reversed and remanded the case to the trial court to amend the final judgment to award plaintiff the full amount of the jury’s compensatory damages. PM USA paid the judgment and interest in the amount of approximately
$1 million
in May 2018.
______________________________________________________________________________________________________
Plaintiff:
Howles
Date:
November 2016
Verdict:
A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding compensatory damages of
$4 million
and allocating
50%
of the fault to PM USA (an amount of
$2 million
). The jury also awarded plaintiff
$3 million
in punitive damages against PM USA.
Post-Trial Developments:
In November 2016, 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 December 2016. Also in December 2016, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal. In March 2018, the Florida Fourth District Court of Appeal affirmed the judgment in favor of plaintiff. In the first quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$6 million
for the judgment, interest and associated costs and paid this amount in May 2018.
________________________________________________________________________________________________________________________________
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
. In August 2017, the Florida Fourth District Court of Appeal
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
affirmed the final judgment in favor of plaintiff. In September 2017, defendants petitioned the Florida Fourth District Court of Appeal for panel rehearing or for rehearing
en banc
, which the court denied in October 2017
.
In November 2017, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, which was denied in March 2018. In the first quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$10 million
for the judgment, interest and associated costs and increased its bond by approximately
$3 million
. PM USA paid the judgment, interest and associated costs in the amount of approximately
$10 million
in May 2018.
______________________________________________________________________________________________________
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
. In September 2017, the Eleventh Circuit lifted the stay on the appeal. In the second quarter of 2017, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$1 million
for the judgment, interest and associated costs. In April 2018, the Eleventh Circuit affirmed the judgment. PM USA paid the judgment, interest and associated costs in the amount of approximately
$1 million
in May 2018.
________________________________________________________________________________________________________________________________
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. 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. 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
. In October 2017, the Florida Third District Court of Appeal affirmed the final judgment in favor of plaintiff. In November 2017, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, contending that the final judgment conflicts with
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. As a result, in the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$20 million
for the judgment, interest and associated costs. In February 2018, PM USA increased its bond by
$5 million
. In March 2018, the Florida Supreme Court denied defendants’ petition for review in light of the
Schoeff
decision. PM USA paid the judgment, interest and associated costs in the amount of approximately
$20 million
in May 2018.
______________________________________________________________________________________________________
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. The jury also awarded plaintiff
$2.5 million
in punitive damages, allocating
$750,000
to PM USA.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. Subsequently, the trial court entered final judgment. In October 2014, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In April 2017, the Eleventh Circuit stayed the appeal pending final disposition in the
Graham
case, discussed below under
Engle Progeny Appellate Issues
. In November 2017, the Eleventh Circuit further stayed the appeal pending
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. In March 2018, the Eleventh Circuit affirmed the judgment in favor of plaintiff and defendants filed a motion for rehearing, which the court denied in May 2018. In the second quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$2 million
for the judgment, interest and associated costs and paid this amount in May 2018.
________________________________________________________________________________________________________________________________
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. 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 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. In August 2017, the Florida Second District Court of Appeal issued a
per curiam
affirmance of the final judgment against defendants and defendants filed a motion seeking a written opinion with a citation to
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In October 2017, the Florida Second District Court of Appeal issued a written opinion with a citation to
Schoeff
and granted defendants’ March 2017 motion for rehearing
en banc
or certification to the Florida Supreme Court. In November 2017, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, contending that the final judgment conflicts with
Schoeff
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. As a result, in the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$12 million
for the judgment, interest and associated costs. In February 2018, PM USA increased its bond by
$8 million
. In March 2018, the Florida Supreme Court denied defendants’ petition for review in light of the
Schoeff
decision. PM USA paid the judgment, interest and associated costs in the amount of approximately
$12 million
in May 2018.
________________________________________________________________________________________________________________________________
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. 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. 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
. In February 2017, the Florida First District Court of Appeal affirmed the trial court’s judgment. In March 2017, defendants filed a motion for rehearing
en banc
with the Florida First District Court of Appeal or for certification to the Florida Supreme Court. In June 2017, the Florida First District Court of Appeal granted defendants’ motion for rehearing
en banc
. In October 2017, the Florida First District Court of Appeal dissolved the
en banc
proceeding. In November 2017, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, which was denied in February 2018. In the first quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$10 million
for the judgment and interest and increased its bond by
$5 million
. PM USA paid the judgment and interest of approximately
$10 million
in May 2018.
________________________________________________________________________________________________________________________________
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. 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 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
. In May 2017, the Florida Second District Court of Appeal issued a
per curiam
affirmance of the final judgment against defendants and defendants filed a motion for rehearing. In July 2017, the Second District Court of Appeal withdrew its prior decision and replaced it with a written opinion affirming the trial court’s judgment, but certifying to the Florida Supreme Court a conflict with
Schoeff
, discussed below under
Engle Progeny Appellate Issues
. In August 2017, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court and the Florida Supreme Court stayed the case pending
Schoeff
. In December 2017, the Florida Supreme Court held in
Schoeff
that comparative fault does not reduce compensatory damages awards for intentional torts. As a result, in the fourth quarter of 2017, PM USA recorded a provision on its consolidated balance sheet of approximately
$7 million
for the judgment, interest and associated costs. In February 2018, PM USA increased its bond by
$5 million
. In March 2018, the Florida Supreme Court denied defendants’ petition for review in light of the
Schoeff
decision. PM USA paid the judgment, interest and associated costs in the amount of approximately
$7 million
in May 2018.
______________________________________________________________________________________________________
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, 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. In September 2016, the Florida First District Court of Appeal further remanded the case in light of
Soffer
. In March 2018, in a new trial on punitive damages, the jury found in favor of defendants and did not award any punitive damages. In the first quarter of 2018, PM USA recorded an additional provision on its condensed consolidated balance sheet of approximately
$40,000
and in the same quarter paid the judgment, interest and associated costs of approximately
$100,000
.
______________________________________________________________________________________________________
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
).
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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
, discussed below under
Engle Progeny Appellate Issues.
In June 2015, the trial court stayed the case pending the Eleventh Circuit’s final disposition in the
Graham
case. In January 2018, the United States Supreme Court denied PM USA’s petition for
writ of certiorari
in
Graham.
In February 2018, the trial court entered final judgment in favor of plaintiff. In the first quarter of 2018, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$34,000
for the judgment and interest and paid this amount in March 2018.
________________________________________________________________________________________________________________________________
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. In May 2017, the U.S. Court of Appeals for the Eleventh Circuit affirmed the final judgment entered in plaintiff’s favor, rejecting defendants’ preemption and due process arguments. In the second quarter of 2017, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$500,000
for the judgment, interest and associated costs. In September 2017, defendants filed a petition for
writ of certiorari
with the United States Supreme Court on due process and federal preemption grounds, which the court denied in January 2018. PM USA paid the judgment, interest and associated costs in the amount of approximately
$1 million
in January 2018
.
________________________________________________________________________________________________________________________________
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. In April 2017, the Fourth District Court of Appeal issued a
per curiam
decision affirming the trial court’s judgment against PM USA. In the second quarter of 2017, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$13.2 million
for the judgment, interest and associated costs, and increased its bond by
$6.2 million
. In September 2017, PM USA filed a petition for
writ of certiorari
with the United States Supreme Court on due process and federal preemption grounds, which PM USA dismissed
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
after the court denied PM USA’s petition in
Graham
. PM USA paid the judgment, interest and associated costs in the amount of approximately
$13.5 million
in January 2018.
______________________________________________________________________________________________________
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
. In August 2016, the Florida Second District Court of Appeal affirmed the judgment entered in favor of the plaintiff. In September 2016, defendants filed a petition to invoke the discretionary jurisdiction of the Florida Supreme Court and the Florida Supreme Court stayed the proceedings pending final disposition in the
Marotta
case, discussed below under
Engle Progeny Appellate Issues
. In June 2017, the Florida Supreme Court denied PM USA’s petition to invoke the court’s discretionary jurisdiction. In the second quarter of 2017, PM USA recorded a provision on its condensed consolidated balance sheet of approximately
$2.3 million
for the judgment, interest and associated costs. In September 2017, defendants filed a petition for
writ of certiorari
with the United States Supreme Court on due process and federal preemption grounds, which PM USA dismissed after the court denied PM USA’s petition in
Graham
. PM USA paid the judgment, interest and associated costs in the amount of approximately
$2.5 million
in January 2018.
________________________________________________________________________________________________________________________________
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
. In November 2017, the Florida Fourth District Court of Appeal rejected defendants’ appeal, granted plaintiff’s cross-appeal finding that the trial court erred in applying the comparative fault deduction and remanded the case to the trial court with directions to enter an amended final judgment. In the fourth quarter of 2017, PM USA recorded a provision of approximately
$1 million
on its consolidated balance sheet for the judgment and interest and paid this amount in January 2018.
________________________________________________________________________________________________________________________________
Engle Progeny Appellate Issues
In
Douglas
, an
Engle
progeny case against PM USA and R.J. Reynolds, 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’s subsequent petition for
writ of certiorari
with the United States Supreme Court was unsuccessful.
In
Graham
, an
Engle
progeny case against PM USA and R.J. Reynolds, in April 2015, the U.S. Court of Appeals for the Eleventh Circuit found in favor of defendants on the basis of federal preemption, reversing the trial court’s denial of judgment
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
as a matter of law. Thereafter, plaintiff filed a petition for rehearing
en banc
, which the Eleventh Circuit granted in January 2016. In May 2017, the U.S. Court of Appeals for the Eleventh Circuit rejected defendants’ preemption and due process arguments and affirmed the final judgment entered in plaintiff’s favor. In September 2017, defendants filed a petition for
writ of certiorari
with the United States Supreme Court on due process and federal preemption grounds, which the court denied in January 2018. 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
and in April 2017, affirmed the Fourth District Court of Appeal’s ruling on preemption.
In
Searcy
and
Burkhart
,
Engle
progeny cases 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. In January 2018, in
Searcy
, a panel of the Eleventh Circuit ordered supplemental briefing on the due process issues. In March 2018, in
Burkhart
, a different panel of the Eleventh Circuit rejected defendants’ due process arguments and affirmed the final judgment entered in plaintiff’s favor. Defendants filed a motion for rehearing challenging that decision, which the Eleventh Circuit denied.
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 now generally seek punitive damages in connection with all of their claims in
Engle
progeny cases.
In
Schoeff
, an
Engle
progeny case against R.J. Reynolds, the Florida Fourth District Court of Appeal held that comparative fault findings should apply to reduce all compensatory damage awards, including awards based on intentional fraud claims. The Florida Supreme Court accepted jurisdiction over plaintiff’s appeal of the Florida Fourth District Court of Appeal’s decision. In December 2017, the Florida Supreme Court reversed the Court of Appeal’s decision, finding that comparative fault does not reduce compensatory damages awards for intentional torts.
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
with 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.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
From time to time, legislation has been presented to the Florida legislature that would repeal the 2009 appeal bond cap statute; however to date, no legislation repealing the statute has passed.
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
61
smoking and health class actions involving PM USA in Arkansas (
1
), California (
1
), Delaware (
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 23, 2018, PM USA and Altria 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 and PMI that provides for indemnities for certain liabilities concerning tobacco products.
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.
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.
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 in Israel (dismissed), the Marshall Islands (dismissed) and Canada (
10
cases), 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
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
reimbursement claims against cigarette manufacturers. PM USA is named as a defendant in the British Columbia and Quebec cases, while both Altria 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 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 tobacco product manufacturers entered into the 1998 Master Settlement Agreement (the “MSA”) with
46
states, the District of Columbia and certain U.S. territories to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other 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 certain brands, 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, 2018 and 2017, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately
$1.0 billion
and
$1.2 billion
, respectively. For the six months ended June 30, 2018 and 2017, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately
$2.0 billion
and
$2.3 billion
, respectively. These amounts include PM USA’s estimate of amounts related to NPM Adjustments discussed below.
The State Settlement Agreements also include advertising and marketing restrictions, require public disclosure of certain industry documents, limit challenges to certain tobacco control and underage use laws, and restrict lobbying activities.
NPM Adjustment Disputes
PM USA is participating in proceedings regarding the NPM Adjustment for 2003-2017. The “NPM Adjustment” is a reduction in MSA payments made by the OPMs and those manufacturers that are subsequent signatories to the MSA (collectively, the “participating manufacturers” or “PMs”) that applies if the PMs collectively lose at least a specified level of market share to non-participating manufacturers since 1997, subject to certain conditions and defenses. The independent auditor (the “IA”) appointed under the MSA calculates the maximum amount of the NPM Adjustment, if any, for each year.
NPM Adjustment Disputes - Settlement with 36 States and Territories and Settlement with New York
.
PM USA has entered into
two
settlements of NPM Adjustment disputes with a total of
37
states and territories, one with
36
states and territories (the “multi-state settlement”) and the other with the State of New York. The multi-state settlement was originally entered into in 2012 with
19
states and territories and to date has been expanded to include a total of
36
of the
52
MSA states and territories (the “signatory states”). In the multi-state settlement, PM USA by the end of October 2017 had settled the NPM Adjustment disputes for 2003-2015 with
26
states in exchange for a total of
$740 million
. In 2018, there have been three principal developments with respect to this settlement. First, in the first quarter of 2018, PM USA settled the NPM Adjustment disputes for 2004-2017 with the states of Alaska, Colorado, Delaware, Hawaii, Maine, North Dakota, South Dakota, Utah and Vermont. As a result of these additional
nine
states joining the multi-state settlement, PM USA will receive approximately
$81 million
for 2004-2017 (
$13 million
of which relates to the 2015-2017 “transition years”),
$68 million
of which it received in April 2018. In connection with this settlement, PM USA recorded a reduction to cost of sales in the amount of
$81 million
in the first quarter of 2018. Second, in the second quarter of 2018, Pennsylvania joined the multi-state settlement for 2004-2017. As a result, PM USA will receive approximately
$90 million
for 2004-2017 (
$13 million
of which relates to the 2015-2017 “transition years”). In connection with this settlement, PM USA recorded a reduction to cost of sales in the amount of
$90 million
in the second quarter of 2018. Third, in the second quarter of 2018, PM USA agreed to settle the NPM Adjustment disputes for 2016 and 2017 with the
26
signatory states mentioned above. As a result, PM USA will receive approximately
$77 million
for 2016 and 2017. In connection with this settlement, PM USA recorded a reduction to cost of sales in the amount of
$38 million
for the 2017 NPM Adjustment in the second quarter of 2018, having previously recorded a reduction to cost of sales in the amount of
$39 million
for the 2016 NPM Adjustment in the third quarter of 2017 based on PM USA’s then best estimate regarding 2016.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the NPM Adjustment settlement with New York, which was entered into in 2015, PM USA has received a total of approximately
$217 million
for 2004-2016. Both the New York settlement and the multi-state settlement also contain provisions resolving certain disputes regarding the application of the NPM Adjustment going forward, although the applicability of those provisions with respect to the signatory states that joined the multi-state settlement after 2017 is contingent on satisfaction, in the PMs’ sole discretion, of certain conditions.
2003 and Subsequent NPM Adjustments - Continuing Disputes with States that have not Settled
.
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2003 NPM Adjustment.
In September 2013, an arbitration panel issued rulings regarding the
15
states and territories that remained in the arbitration, ruling that
six
of them did not establish valid defenses to the NPM Adjustment for 2003.
Two
of these states later joined the first settlement discussed above. With respect to the remaining
four
states, following the outcome of challenges in state courts, PM USA ultimately recorded
$74 million
primarily as a reduction to cost of sales.
Two
potential disputes remain outstanding regarding the amount of interest and there is no assurance that PM USA will prevail in either of these disputes.
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2004 and Subsequent NPM Adjustments.
PM USA has continued to pursue the NPM Adjustments for 2004 and subsequent years in multi-state arbitrations against the states that did not join either of the settlements discussed above. New Mexico is currently appealing a trial court ruling that the state must participate in the multi-state arbitration for 2004. The Montana state courts ruled that Montana may litigate its claims in state court, rather than participate in arbitration and the PMs have agreed not to contest the applicability of the 2004 NPM Adjustment to Montana.
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The 2004 multi-state arbitration is currently proceeding with all of the states that have not settled other than Montana and New Mexico. Decisions are not expected until the middle of 2019 at the earliest.
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 IA has calculated that PM USA’s share of the maximum potential NPM Adjustments for 2004-2016 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;
$214 million
for 2012;
$224 million
for 2013;
$253 million
for 2014;
$300 million
for 2015;
$295 million
for 2016 and
$288 million
for 2017. These maximum amounts will be reduced, likely substantially, to reflect the settlements with the signatory states and New York, and potentially for current and future calculation disputes and other developments. Finally, PM USA’s recovery of these amounts, even as reduced, is dependent upon subsequent determinations regarding state-specific defenses and disputes with other PMs.
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 and related settlements, have been and may continue to be affected by R.J. Reynolds’ acquisition of Lorillard and its related sale of certain cigarette brands to ITG (the “ITG brands”). In particular, R.J. Reynolds and ITG have asserted that they do not have to make payments on the ITG brands under the Florida, Minnesota and Texas State Settlement Agreements or include the ITG brands for purposes of certain calculations under the State Settlement Agreements. PM USA believes that R.J. Reynolds’ and ITG’s position violates the State Settlement Agreements and applicable law. PM USA further believes that these actions: (i) improperly increased PM USA’s payments for 2015-2017; (ii) may improperly increase PM USA’s payments for subsequent years; (iii) may improperly decrease PM USA’s share of the 2015-2017 NPM Adjustments and the settlements of related disputes; and (iv) may improperly decrease PM USA’s share of NPM Adjustments and related settlements for subsequent years.
PM USA and the State of Florida each filed a motion in Florida state court against R.J. Reynolds and ITG seeking to enforce the Florida State Settlement Agreement. In December 2017, the Florida trial court ruled that R.J. Reynolds (and not ITG) must make settlement payments under the Florida State Settlement Agreement on the ITG brands. In May 2018, the Florida trial court issued an order stating that, for purposes of the Florida Settlement Agreement, R.J. Reynolds’ settlement payment on the ITG brands should be calculated as if R.J. Reynolds is continuing to sell those brands. The Florida court’s rulings are subject to further proceedings, which may result in further modifications to PM USA’s settlement payments under the Florida State Settlement Agreement.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In March 2018, PM USA and the State of Minnesota filed pleadings in Minnesota state court asserting claims against R.J. Reynolds and ITG seeking to enforce the Minnesota State Settlement Agreement.
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, 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. The case ultimately proceeded only under the civil provisions of RICO, and the trial ended in June 2005. In August 2006, the district court entered judgment in favor of the government. The court held that certain defendants, including Altria 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:
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defendants falsely denied, distorted and minimized the significant adverse health consequences of smoking;
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defendants hid from the public that cigarette smoking and nicotine are addictive;
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▪
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defendants falsely denied that they control the level of nicotine delivered to create and sustain addiction;
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▪
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defendants falsely marketed and promoted “low tar/light” cigarettes as less harmful than full-flavor cigarettes;
|
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▪
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defendants falsely denied that they intentionally marketed to youth;
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defendants publicly and falsely denied that ETS is hazardous to non-smokers; and
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defendants suppressed scientific research.
|
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 ETS; (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 (“D.C. Court of Appeals”) largely affirmed the trial court’s remedial order, but vacated the following aspects of the order:
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its application to defendants’ subsidiaries;
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the prohibition on the use of express or implied health messages or health descriptors, but only to the extent of extraterritorial application;
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its point-of-sale display provisions; and
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its application to Brown & Williamson Holdings.
|
The appellate panel remanded the case for the trial court to reconsider these four aspects of the injunction and to reformulate its remedial order accordingly.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In November 2012, the district court issued its order specifying the content of the corrective communications described above and defendants appealed. In April 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, which the district court approved in June 2014. In May 2015, the D.C. Court of Appeals affirmed in part and reversed in part the appeal on the content of the corrective communications, concluding that certain portions of the statements exceeded the district court’s jurisdiction under RICO, but upheld other portions challenged by defendants. The D.C. Court of Appeals remanded the case to the trial court for further proceedings.
In February 2016, the district court issued an order adopting modified corrective statements. Defendants appealed and, in April 2017, the D.C. Court of Appeals reversed in part the district court’s decision on the content of the corrective communications, striking certain content and remanding to the district court the decision on how to revise certain other content. In June 2017, the district court issued an order adopting modified corrective statements. In October 2017, the court approved the parties’ proposed consent order implementing the corrective communications remedy for newspapers and television. The corrective statements began appearing in newspapers and on television in the fourth quarter of 2017. In January 2018, the parties submitted a status report and a request for a status conference to address open issues regarding onsert and website implementation details. The defendants also filed a motion in the U.S. District Court for the District of Columbia seeking to mediate the remaining implementation details and for an order clarifying that the DOJ may not enforce the previous consent order with respect to onserts and websites prior to resolution of all implementation details. In February 2018, the U.S. District Court agreed not to enforce the previous consent order and, in April 2018, the parties reached agreement on the implementation details of the corrective communications remedy for onserts and websites. The corrective statements began appearing on websites in the second quarter of 2018 and the onserts will begin appearing in the fourth quarter of 2018.
In the second quarter of 2014, Altria 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.
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 May 2018, the parties submitted a joint status report on point-of-sale signage to the district court and the court approved the parties’ proposed briefing schedule.
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 have sought certification of their cases as class actions, alleging 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 have sought 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 or its other 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 23, 2018, a total of
three
such cases are pending in various U.S. state courts, none of which is active.
State “Lights” Cases Dismissed, Not Certified or Ordered De-Certified
As of July 23, 2018,
21
state courts in
22
“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.
Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)