Edgar Filing: ALTRIA GROUP, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

2014 FORM 10-Q (Q2 2014)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-08940

Altria Group, Inc.

(Exact name of registrant as specified in its charter)




Virginia		13-3260245
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6601 West Broad Street, Richmond, Virginia		23230
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (804) 274-2200

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

At July 14, 2014, there were 1,983,448,803 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.

Table of Contents

ALTRIA GROUP, INC.

TABLE OF CONTENTS




		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013	3

	Condensed Consolidated Statements of Earnings for the Six Months Ended June 30, 2014 and 2013	5

	Three Months Ended June 30, 2014 and 2013	6

	Condensed Consolidated Statements of Comprehensive Earnings for the Six Months Ended June 30, 2014 and 2013	7

	Three Months Ended June 30, 2014 and 2013	8

	Condensed Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2013 and the Six Months Ended June 30, 2014	9

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013	10

	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65

Item 4.	Controls and Procedures	96

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	97

Item 1A.	Risk Factors	97

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 6.	Exhibits	98

Signature	Signature	99

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Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)



	June 30, 2014		December 31, 2013
Assets
Cash and cash equivalents	$	1,193	$	3,175
Receivables	105		115
Inventories:
Leaf tobacco	842		933
Other raw materials	187		180
Work in process	335		394
Finished product	486		372
	1,850		1,879
Deferred income taxes	1,101		1,100
Other current assets	226		321
Total current assets	4,475		6,590
Property, plant and equipment, at cost	4,816		4,817
Less accumulated depreciation	2,819		2,789
	1,997		2,028
Goodwill	5,285		5,174
Other intangible assets, net	12,059		12,058
Investment in SABMiller	7,033		6,455
Finance assets, net	1,783		1,997
Other assets	650		557
Total Assets	$	33,282	$	34,859

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share and per share data)

(Unaudited)



	June 30, 2014			December 31, 2013
Liabilities
Current portion of long-term debt	$	—		$	525
Accounts payable	311			409
Accrued liabilities:
Marketing	521			512
Employment costs	101			255
Settlement charges	2,044			3,391
Other	1,115			1,007
Dividends payable	954			959
Total current liabilities	5,046			7,058
Long-term debt	13,993			13,992
Deferred income taxes	6,970			6,854
Accrued pension costs	213			212
Accrued postretirement health care costs	2,152			2,155
Other liabilities	481			435
Total liabilities	28,855			30,706
Contingencies (Note 9)
Redeemable noncontrolling interest	34			35
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935			935
Additional paid-in capital	5,692			5,714
Earnings reinvested in the business	25,698			25,168
Accumulated other comprehensive losses	(1,229		)	(1,378		)
Cost of repurchased stock (822,512,514 shares in 2014 and 812,482,035 shares in 2013)	(26,701		)	(26,320		)
Total stockholders’ equity attributable to Altria Group, Inc.	4,395			4,119
Noncontrolling interests	(2		)	(1		)
Total stockholders’ equity	4,393			4,118
Total Liabilities and Stockholders’ Equity	$	33,282		$	34,859

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)



	For the Six Months Ended June 30,
	2014			2013
Net revenues	$	11,773		$	11,833
Cost of sales	3,720			3,271
Excise taxes on products	3,194			3,334
Gross profit	4,859			5,228
Marketing, administration and research costs	1,158			1,074
Asset impairment and exit costs	(8		)	1
Operating income	3,709			4,153
Interest and other debt expense, net	383			525
Earnings from equity investment in SABMiller	(425		)	(483		)
Earnings before income taxes	3,751			4,111
Provision for income taxes	1,314			1,460
Net earnings	2,437			2,651
Net earnings attributable to noncontrolling interests	—			—
Net earnings attributable to Altria Group, Inc.	$	2,437		$	2,651
Per share data:
Basic and diluted earnings per share attributable to Altria Group, Inc.	$	1.23		$	1.32
Dividends declared	$	0.96		$	0.88

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)



	For the Three Months Ended June 30,
	2014			2013
Net revenues	$	6,256		$	6,305
Cost of sales	1,968			1,972
Excise taxes on products	1,685			1,779
Gross profit	2,603			2,554
Marketing, administration and research costs	638			552
Asset impairment and exit costs	(10		)	1
Operating income	1,975			2,001
Interest and other debt expense, net	230			264
Earnings from equity investment in SABMiller	(200		)	(227		)
Earnings before income taxes	1,945			1,964
Provision for income taxes	683			698
Net earnings	1,262			1,266
Net earnings attributable to noncontrolling interests	—			—
Net earnings attributable to Altria Group, Inc.	$	1,262		$	1,266
Per share data:
Basic and diluted earnings per share attributable to Altria Group, Inc.	$	0.64		$	0.63
Dividends declared	$	0.48		$	0.44

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2014		2013
Net earnings	$	2,437	$	2,651
Other comprehensive earnings (losses), net of deferred income taxes:
Currency translation adjustments	1		(1		)
Benefit plans	49		113
SABMiller	99		(402		)
Other comprehensive earnings (losses), net of deferred income taxes	149		(290		)

Comprehensive earnings	2,586		2,361
Comprehensive earnings attributable to noncontrolling interests	—		—
Comprehensive earnings attributable to Altria Group, Inc.	$	2,586	$	2,361

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)



	For the Three Months Ended June 30,
	2014		2013
Net earnings	$	1,262	$	1,266
Other comprehensive earnings (losses), net of deferred income taxes:
Currency translation adjustments	1		(1		)
Benefit plans	24		47
SABMiller	64		(308		)
Other comprehensive earnings (losses), net of deferred income taxes	89		(262		)

Comprehensive earnings	1,351		1,004
Comprehensive earnings attributable to noncontrolling interests	—		—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,351	$	1,004

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the Year Ended December 31, 2013 and

the Six Months Ended June 30, 2014

(in millions of dollars, except per share data)

(Unaudited)



	Attributable to Altria Group, Inc.
	Common Stock		Additional Paid-in Capital			Earnings Reinvested in the Business			Accumulated Other Comprehensive Losses			Cost of Repurchased Stock			Non-controlling Interests			Total Stockholders’ Equity
Balances, December 31, 2012	$	935	$	5,688		$	24,316		$	(2,040	)	$	(25,731	)	$	2		$	3,170
Net earnings (losses)⁽¹⁾	—		—			4,535			—			—			(3		)	4,532
Other comprehensive earnings, net of deferred income taxes	—		—			—			662			—			—			662
Stock award activity	—		26			—			—			11			—			37
Cash dividends declared ($1.84 per share)	—		—			(3,683		)	—			—			—			(3,683		)
Repurchases of common stock	—		—			—			—			(600		)	—			(600		)
Balances, December 31, 2013	935		5,714			25,168			(1,378		)	(26,320		)	(1		)	4,118
Net earnings (losses) ⁽¹⁾	—		—			2,437			—			—			(1		)	2,436
Other comprehensive earnings, net of deferred income taxes	—		—			—			149			—			—			149
Stock award activity	—		(22		)	—			—			23			—			1
Cash dividends declared ($0.96 per share)	—		—			(1,907		)	—			—			—			(1,907		)
Repurchases of common stock	—		—			—			—			(404		)	—			(404		)
Balances, June 30, 2014	$	935	$	5,692		$	25,698		$	(1,229	)	$	(26,701	)	$	(2	)	$	4,393

⁽¹⁾

Net losses attributable to noncontrolling interests for the six months ended June 30, 2014 and for the year ended December 31, 2013 exclude net earnings of $1 million and $3 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section in the condensed consolidated balance sheets at June 30, 2014 and December 31, 2013.

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2014			2013
Cash Provided by (Used in) Operating Activities
Net earnings	$	2,437		$	2,651
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	100			106
Deferred income tax (benefit) provision	(21		)	50
Earnings from equity investment in SABMiller	(425		)	(483		)
Cash effects of changes, net of the effects from acquisition of Green Smoke:
Receivables, net	12			79
Inventories	38			45
Accounts payable	(121		)	(211		)
Income taxes	(5		)	89
Accrued liabilities and other current assets	12			(87		)
Accrued settlement charges	(1,347		)	(1,528		)
Pension plan contributions	(8		)	(365		)
Pension provisions and postretirement, net	15			94
Other	72			1
Net cash provided by operating activities	759			441

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2014			2013
Cash Provided by (Used in) Investing Activities
Capital expenditures	$	(60	)	$	(41	)
Acquisition of Green Smoke, net of acquired cash	(93		)	—
Proceeds from finance assets	189			274
Other	66			6
Net cash provided by investing activities	102			239
Cash Provided by (Used in) Financing Activities
Long-term debt issued	—			996
Long-term debt repaid	(525		)	—
Repurchases of common stock	(404		)	(226		)
Dividends paid on common stock	(1,912		)	(1,769		)
Financing fees and debt issuance costs	—			(8		)
Other	(2		)	(2		)
Net cash used in financing activities	(2,843		)	(1,009		)
Cash and cash equivalents:
Decrease	(1,982		)	(329		)
Balance at beginning of period	3,175			2,900
Balance at end of period	$	1,193		$	2,571

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation:

Background

At June 30, 2014, Altria Group, Inc.’s wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes and certain smokeless tobacco products in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless tobacco products and wine. Altria Group, Inc.’s other operating companies included Nu Mark LLC (“Nu Mark”), a wholly-owned subsidiary, which is engaged in the manufacture and sale of innovative tobacco products, and Philip Morris Capital Corporation (“PMCC”), a wholly-owned subsidiary, which maintains a portfolio of leveraged and direct finance leases. Other Altria Group, Inc. wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to Altria Group, Inc.’s operating subsidiaries, and Altria Client Services Inc., which provides various support services, such as legal, regulatory, finance, human resources and external affairs, to Altria Group, Inc.’s operating subsidiaries. Altria Group, Inc.’s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At June 30, 2014, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

At June 30, 2014, Altria Group, Inc. also held approximately 27% of the economic and voting interest of SABMiller plc (“SABMiller”), which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends.

Share Repurchases

Altria Group, Inc.’s share repurchase activity was as follows:



	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
	(in millions, except per share data)
Total number of shares repurchased	10.8		5.4		3.3		3.7
Aggregate cost of shares repurchased	$	404	$	192	$	132	$	135
Average price per share of shares repurchased	$	37.40	$	35.58	$	40.72	$	36.27

Altria Group, Inc.’s Board of Directors (the “Board of Directors”) authorized a $1.0 billion share repurchase program in October 2011 and expanded it to $1.5 billion in October 2012 (as expanded, the “October 2011 share repurchase program”). During the first quarter of 2013, Altria Group, Inc. completed the October 2011 share repurchase program. Under the October 2011 share repurchase program, Altria Group, Inc. repurchased a total of 48.3 million shares of its common stock at an average price of $31.06 per share.

The Board of Directors authorized a $300 million share repurchase program in April 2013 and expanded it to $1.0 billion in August 2013 (as expanded, the “April 2013 share repurchase program”). At June 30, 2014, Altria Group, Inc. had approximately $53 million remaining in the April 2013 share repurchase program. Additionally, in July 2014, the Board of Directors authorized a new $1.0 billion share repurchase program that Altria Group, Inc. intends to commence upon the completion of the April 2013 share repurchase program. The timing of share repurchases under Altria Group, Inc.’s share repurchase programs depends upon marketplace conditions and other factors, and the programs remain subject to the discretion of the Board of Directors.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Basis of Presentation

The interim condensed consolidated financial statements of Altria Group, Inc. are unaudited. It is the opinion of Altria Group, Inc.’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.

These statements should be read in conjunction with the consolidated financial statements and related notes, which appear in Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013.

Certain prior-period amounts have been reclassified to conform with the current-period presentation, due primarily to the reclassification of changes in book overdrafts on Altria Group, Inc.’s condensed consolidated statements of cash flows to operating activities. These amounts were previously classified as financing activities.

Note 2. Acquisition of Green Smoke:

On April 1, 2014, Nu Mark acquired the e-vapor business of Green Smoke, Inc. and its affiliates (“Green Smoke”) for a total purchase price of up to approximately $130 million, which includes contingent consideration and is subject to post-closing adjustments. The acquisition complements Nu Mark’s capabilities and enhances its competitive position by adding e-vapor experience, broadening product offerings and strengthening supply chain capabilities.

Green Smoke’s financial position and results of operations have been consolidated with Altria Group, Inc. as of April 1, 2014.

Pro forma results, as well as net revenues and net earnings for Green Smoke subsequent to the acquisition, have not been presented because the acquisition of Green Smoke is not material to Altria Group, Inc.’s consolidated results of operations.

The following amounts represent the fair value of identifiable assets acquired and liabilities assumed in the Green Smoke acquisition, and are subject to post-closing adjustments, which are expected to be finalized during 2014:



	(in millions)
Cash and cash equivalents	$	3
Inventory and other current assets	12
Indefinite-lived intangible asset - trademark	10
Definite-lived intangible assets	1
Current liabilities	(8		)
Other assets and liabilities, net	1
Total identifiable net assets	19
Total purchase price	130
Goodwill	$	111

Costs incurred to effect the acquisition, as well as integration costs, are being recognized as expenses in the periods in which the costs are incurred. For the six and three months ended June 30, 2014, Altria Group, Inc. incurred $9 million of integration and acquisition-related costs, consisting primarily of transaction costs and inventory adjustments, which were included in Altria Group, Inc.’s condensed consolidated statements of earnings.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 3. Benefit Plans:

Subsidiaries of Altria Group, Inc. sponsor noncontributory defined benefit pension plans covering the majority of all employees of Altria Group, Inc. However, employees hired on or after a date specific to their employee group are not eligible to participate in these noncontributory defined benefit pension plans but are instead eligible to participate in a defined contribution plan with enhanced benefits. This transition for new hires occurred from October 1, 2006 to January 1, 2008. In addition, effective January 1, 2010, certain employees of UST and Middleton who were participants in noncontributory defined benefit pension plans ceased to earn additional benefit service under those plans and became eligible to participate in a defined contribution plan with enhanced benefits. Altria Group, Inc. and its subsidiaries also provide health care and other benefits to the majority of retired employees.

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:



	For the Six Months Ended June 30,						For the Three Months Ended June 30,
	2014			2013			2014			2013
	(in millions)
Service cost	$	34		$	43		$	17		$	22
Interest cost	172			157			86			79
Expected return on plan assets	(260		)	(247		)	(130		)	(124		)
Amortization:
Net loss	75			136			37			67
Prior service cost	5			5			2			2
Net periodic pension cost	$	26		$	94		$	12		$	46

Employer Contributions

Altria Group, Inc. makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service regulations. Employer contributions of $8 million were made to Altria Group, Inc.’s pension plans during the six months ended June 30, 2014. Currently, Altria Group, Inc. anticipates making additional employer contributions to its pension plans during the remainder of 2014 of approximately $10 million to $40 million based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following:



	For the Six Months Ended June 30,						For the Three Months Ended June 30,
	2014			2013			2014			2013
	(in millions)
Service cost	$	8		$	10		$	4		$	5
Interest cost	54			51			27			26
Amortization:
Net loss	14			28			7			14
Prior service credit	(21		)	(22		)	(10		)	(11		)
Net postretirement health care costs	$	55		$	67		$	28		$	34

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,
	2014			2013			2014			2013
	(in millions)
Net earnings attributable to Altria Group, Inc.	$	2,437		$	2,651		$	1,262		$	1,266
Less: Distributed and undistributed earnings attributable to unvested restricted and deferred shares	(6		)	(7		)	(3		)	(3		)
Earnings for basic and diluted EPS	$	2,431		$	2,644		$	1,259		$	1,263

Weighted-average shares for basic and diluted EPS	1,983			2,003			1,980			2,002

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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 Group, Inc.:



	For the Six Months Ended June 30, 2014
	Currency Translation Adjustments		Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2013	$	—	$	(1,273	)	$	(105	)		$	(1,378	)

Other comprehensive earnings before reclassifications	1		—			150				151
Deferred income taxes	—		—			(53		)		(53		)
Other comprehensive earnings before reclassifications, net of deferred income taxes	1		—			97				98

Amounts reclassified to net earnings	—		80			3				83
Deferred income taxes	—		(31		)	(1		)		(32		)
Amounts reclassified to net earnings, net of deferred income taxes	—		49			2				51

Other comprehensive earnings, net of deferred income taxes	1		49			99			⁽¹⁾	149

Balances, June 30, 2014	$	1	$	(1,224	)	$	(6	)		$	(1,229	)



	For the Three Months Ended June 30, 2014
	Currency Translation Adjustments		Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, March 31, 2014	$	—	$	(1,248	)	$	(70	)		$	(1,318	)

Other comprehensive earnings before reclassifications	1		—			99				100
Deferred income taxes	—		—			(35		)		(35		)
Other comprehensive earnings before reclassifications, net of deferred income taxes	1		—			64				65

Amounts reclassified to net earnings	—		39			—				39
Deferred income taxes	—		(15		)	—				(15		)
Amounts reclassified to net earnings, net of deferred income taxes	—		24			—				24

Other comprehensive earnings, net of deferred income taxes	1		24			64			⁽¹⁾	89

Balances, June 30, 2014	$	1	$	(1,224	)	$	(6	)		$	(1,229	)

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)



	For the Six Months Ended June 30, 2013
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2012	$	2		$	(2,414	)	$	372			$	(2,040	)

Other comprehensive (losses) earnings before reclassifications	(1		)	30			(619		)		(590		)
Deferred income taxes	—			(13		)	216				203
Other comprehensive (losses) earnings before reclassifications, net of deferred income taxes	(1		)	17			(403		)		(387		)

Amounts reclassified to net earnings	—			156			1				157
Deferred income taxes	—			(60		)	—				(60		)
Amounts reclassified to net earnings, net of deferred income taxes	—			96			1				97

Other comprehensive (losses) earnings, net of deferred income taxes	(1		)	113			(402		)	⁽¹⁾	(290		)

Balances, June 30, 2013	$	1		$	(2,301	)	$	(30	)		$	(2,330	)



	For the Three Months Ended June 30, 2013
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, March 31, 2013	$	2		$	(2,348	)	$	278			$	(2,068	)

Other comprehensive losses before reclassifications	(1		)	—			(476		)		(477		)
Deferred income taxes	—			—			166				166
Other comprehensive losses before reclassifications, net of deferred income taxes	(1		)	—			(310		)		(311		)

Amounts reclassified to net earnings	—			77			3				80
Deferred income taxes	—			(30		)	(1		)		(31		)
Amounts reclassified to net earnings, net of deferred income taxes	—			47			2				49

Other comprehensive (losses) earnings, net of deferred income taxes	(1		)	47			(308		)	⁽¹⁾	(262		)

Balances, June 30, 2013	$	1		$	(2,301	)	$	(30	)		$	(2,330	)

⁽¹⁾ For the six and three months ended June 30, 2014 and 2013, Altria Group, Inc.’s proportionate share of SABMiller’s other comprehensive earnings/losses consisted primarily of currency translation adjustments.

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Notes to Condensed Consolidated Financial Statements

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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,
	2014			2013			2014			2013
	(in millions)
Benefit Plans: ⁽¹⁾
Net loss	$	96		$	173		$	47		$	86
Prior service cost/credit	(16		)	(17		)	(8		)	(9		)
	80			156			39			77

SABMiller ⁽²⁾	3			1			—			3

Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	83		$	157		$	39		$	80

⁽¹⁾ Amounts are included in net defined benefit plan costs. For further details, see Note 3. Benefit Plans.

⁽²⁾ Amounts are included in earnings from equity investment in SABMiller.

Note 6. Segment Reporting:

The products of Altria Group, Inc.’s subsidiaries include smokeable products comprised of cigarettes manufactured and sold by PM USA and machine-made large cigars and pipe tobacco manufactured and sold by Middleton; smokeless products manufactured and sold by USSTC and PM USA; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of smokeable products, smokeless products and wine. The financial services and the alternative products businesses are included in all other.

Altria Group, Inc.’s chief operating decision maker reviews operating companies income to evaluate the performance of and allocate resources to the segments. Operating companies income for the segments excludes general corporate expenses and amortization of intangibles. Interest and other debt expense, net, and provision for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s chief operating decision maker.

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Segment data were as follows:



	For the Six Months Ended June 30,						For the Three Months Ended June 30,
	2014			2013			2014			2013
	(in millions)
Net revenues:
Smokeable products	$	10,569		$	10,646		$	5,611		$	5,678
Smokeless products	879			848			464			458
Wine	275			263			146			137
All other	50			76			35			32
Net revenues	$	11,773		$	11,833		$	6,256		$	6,305
Earnings before income taxes:
Operating companies income:
Smokeable products	$	3,320		$	3,646		$	1,789		$	1,726
Smokeless products	524			492			285			270
Wine	50			45			28			25
All other	(54		)	93			(53		)	43
Amortization of intangibles	(10		)	(10		)	(5		)	(5		)
General corporate expenses	(121		)	(113		)	(69		)	(58		)
Operating income	3,709			4,153			1,975			2,001
Interest and other debt expense, net	(383		)	(525		)	(230		)	(264		)
Earnings from equity investment in SABMiller	425			483			200			227
Earnings before income taxes	$	3,751		$	4,111		$	1,945		$	1,964

The comparability of operating companies income for the reportable segments was affected by the following items:

Non-Participating Manufacturer (“NPM”) Adjustment Items - For the six and three months ended June 30, 2014 and 2013, pre-tax income for NPM adjustment items was recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:



	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014			2013
	(in millions)
Smokeable products segment	$	43	$	519	$	43		$	36
Interest and other debt expense, net	47		—		(17		)	—
Total	$	90	$	519	$	26		$	36

These adjustments resulted from the settlement of, and determinations made in connection with, disputes with certain states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (the “MSA”) for the years 2003 - 2012 (such settlements and determinations are referred to collectively as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - Possible Adjustments in MSA Payments for 2003 - 2013 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.

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Notes to Condensed Consolidated Financial Statements

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Tobacco and Health Litigation Items - For the six and three months ended June 30, 2014 and 2013, pre-tax charges related to certain tobacco and health litigation items were recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:



	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
	(in millions)
Smokeable products segment	$	19	$	5	$	16	$	—
General corporate expenses	15		—		15		—
Interest and other debt expense, net	1		1		—		—
Total	$	35	$	6	$	31	$	—

During the second quarter of 2014, Altria Group, Inc. and PM USA recorded an aggregate pre-tax charge of $31 million in marketing, administration and research costs for the estimated costs of implementing the corrective communications remedy in connection with the federal government’s lawsuit against Altria Group, Inc. and PM USA. For further discussion, see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit in Note 9. Contingencies.

Asset Impairment and Exit Costs - During the second quarter of 2014, PM USA sold its Cabarrus, North Carolina manufacturing facility for approximately $66 million in connection with the previously completed manufacturing optimization program associated with PM USA’s closure of the manufacturing facility in 2009. As a result, during the second quarter of 2014, PM USA recorded a pre-tax gain of $10 million.

Note 7. Finance Assets, net:

In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Accordingly, PMCC’s operating companies income will fluctuate over time as investments mature or are sold.

At June 30, 2014, finance assets, net, of $1,783 million were comprised of investments in finance leases of $1,825 million, reduced by the allowance for losses of $42 million. At December 31, 2013, finance assets, net, of $1,997 million were comprised of investments in finance leases of $2,049 million, reduced by the allowance for losses of $52 million.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. PMCC believes that, as of June 30, 2014, the allowance for losses of $42 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may increase or decrease its allowance for losses if such conditions change in the future.

The activity in the allowance for losses on finance assets for the six months ended June 30, 2014 and 2013 was as follows:



	For the Six Months Ended June 30,
	2014			2013
	(in millions)
Balance at beginning of the year	$	52		$	99
Decrease to allowance	(10		)	(47		)
Balance at June 30	$	42		$	52

During the six months ended June 30, 2014 and 2013, PMCC determined that its allowance for losses exceeded the amounts required based on management’s assessment of the credit quality and size of PMCC’s leasing portfolio. As a result, PMCC reduced its allowance for losses by $10 million for the six months ended June 30, 2014, and by $47 million and $27 million for the six and three months ended June 30, 2013, respectively. These decreases to the allowance for losses were recorded as reductions to marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statements of earnings.

All PMCC lessees were current on their lease payment obligations as of June 30, 2014.

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The credit quality of PMCC’s investments in finance leases as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at June 30, 2014 and December 31, 2013 was as follows:



	June 30, 2014		December 31, 2013
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	434	$	464
“BBB+/Baa1” to “BBB-/Baa3”	782		927
“BB+/Ba1” and Lower	609		658
Total	$	1,825	$	2,049

Note 8. Debt:

At June 30, 2014 and December 31, 2013, Altria Group, Inc. had no short-term borrowings.

Long-term Debt

During the first quarter of 2014, Altria Group, Inc. repaid in full at maturity senior unsecured notes in the aggregate principal amount of $525 million.

Altria Group, Inc.’s estimate of the fair value of its debt is based on observable market information derived from a third party pricing source and is classified in Level 2 of the fair value hierarchy. The aggregate fair value of Altria Group, Inc.’s total long-term debt at June 30, 2014 and December 31, 2013, was $16.2 billion and $16.1 billion, respectively, as compared with its carrying value of $14.0 billion and $14.5 billion, respectively.

Note 9. Contingencies:

Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees. Various types of claims may be raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors or distributors.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, range in the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria Group, Inc. or its subsidiaries may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, Altria Group, Inc. or its subsidiaries under certain circumstances may have to pay more than their proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria Group, Inc. or its subsidiaries may also be required to pay interest and attorneys’ fees.

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 45 states and Puerto Rico limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although Altria Group, Inc. cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

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Altria Group, Inc. and its subsidiaries record provisions in the condensed consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 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. Legal defense costs are expensed as incurred.

Altria Group, Inc. and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Altria Group, Inc. and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so.

Overview of Altria Group, Inc. and/or PM USA Tobacco-Related Litigation

Types and Number of Cases

Claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding; (iii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits; (iv) class action suits alleging that the uses of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment, breach of warranty or violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); and (v) other tobacco-related litigation described below. Plaintiffs’ theories of recovery and the defenses raised in pending smoking and health, health care cost recovery and “Lights/Ultra Lights” cases are discussed below.

The table below lists the number of certain tobacco-related cases pending in the United States against PM USA and, in some instances, Altria Group, Inc. as of July 18, 2014, July 22, 2013 and July 23, 2012.



Type of Case	Number of Cases Pending as of July 18, 2014	Number of Cases Pending as of July 22, 2013	Number of Cases Pending as of July 23, 2012
Individual Smoking and Health Cases⁽¹⁾	67	73	78
Smoking and Health Class Actions and Aggregated Claims Litigation ⁽²⁾	5	6	7
Health Care Cost Recovery Actions ⁽³⁾	1	1	1
“Lights/Ultra Lights” Class Actions	14	15	16

⁽¹⁾ Does not include 2,572 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 allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action).

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⁽²⁾ Includes as one case the 600 civil actions (of which 346 were actions against PM USA) that were to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution did not preclude a trial in two phases in this case. Issues related to defendants’ conduct and whether punitive damages are permissible were tried in the first phase. Trial in the first phase of this case began in April 2013. In May 2013, the jury returned a verdict in favor of defendants on the claims for design defect, negligence, failure to warn, breach of warranty, and concealment and declined to find that the defendants’ conduct warranted punitive damages. Plaintiffs prevailed on their claim that ventilated filter cigarettes should have included use instructions for the period 1964 - 1969. The second phase, if any, will consist of individual trials to determine liability and compensatory damages on that claim only. In August 2013, the trial court denied all post-trial motions. The trial court entered final judgment in October 2013 and, in November 2013, plaintiffs filed their notice of appeal to the West Virginia Supreme Court of Appeals.

⁽³⁾ See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below.

International Tobacco-Related Cases

As of July 18, 2014, PM USA is a named defendant in Israel in one “Lights” class action. PM USA is a named defendant in nine health care cost recovery actions in Canada, seven of which also name Altria Group, Inc. as a defendant. PM USA and Altria Group, Inc. are also named defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.

Tobacco-Related Cases Set for Trial

As of July 18, 2014, 23 Engle progeny cases and no individual smoking and health cases against PM USA are set for trial in 2014. Cases against other companies in the tobacco industry are also scheduled for trial in 2014. Trial dates are subject to change.

Trial Results

Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 56 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 38 of the 56 cases. These 38 cases were tried in Alaska (1), California (6), Florida (10), Louisiana (1), Massachusetts (1), Mississippi (1), Missouri (3), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2) and West Virginia (2). A motion for a new trial was granted in one of the cases in Florida and in the case in Alaska. In the Alaska case (Hunter), the trial court withdrew its order for a new trial upon PM USA’s motion for reconsideration. Oral argument of plaintiff’s appeal of this ruling is scheduled for September 9, 2014. See Types and Number of Cases above for a discussion of the trial results in In re: Tobacco Litigation (West Virginia consolidated cases).

Of the 18 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 14 have reached final resolution. A verdict against defendants in one health care cost recovery case (Blue Cross/Blue Shield) was reversed and all claims were dismissed with prejudice. In addition, a verdict against defendants in a purported “Lights” class action in Illinois (Price) was reversed and the case was dismissed with prejudice in December 2006, but plaintiff is seeking to reinstate the verdict, which an intermediate appellate court ordered on April 29, 2014. PM USA filed a petition for leave to appeal, which automatically stayed the April 29, 2014 order. See “Lights/Ultra Lights” Cases - The Price Case below for a discussion of developments in Price.

As of July 18, 2014, 59 state and federal Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s Engle decision. Twenty-nine verdicts were returned in favor of plaintiffs and 30 verdicts were returned in favor of PM USA. In one case, not reflected in these numbers, the plaintiff obtained a favorable verdict, but the trial court vacated the verdict and ordered a new trial, which is not yet scheduled. See Smoking and Health Litigation - Engle Progeny Trial Court Results below for a discussion of these verdicts.

Judgments Paid and Provisions Related to Tobacco and Health Litigation (Including Engle Progeny Litigation)

After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid in the aggregate judgments (and related costs and fees) totaling approximately $263 million and interest totaling approximately $143 million as of July 18, 2014. These amounts include payments for Engle

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progeny judgments (and related costs and fees) totaling approximately $10.6 million and interest totaling approximately $1.8 million.

The changes in Altria Group, Inc.’s accrued liability for provisions related to tobacco and health litigation, including related interest costs, for the periods specified below were as follows:



	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2014			2013		2014			2013
	(in millions)
Accrued liability for tobacco and health litigation at beginning of period	$	3		$	—	$	7		$	6
Pre-tax charges for tobacco and health judgments	3			5		—			—
Pre-tax charges for judgment-related interest costs	1			1		—			—
Pre-tax charges related to implementation of corrective communications remedy pursuant to the federal government’s lawsuit	31			—		31			—
Payments	(4		)	—		(4		)	—
Accrued liability for tobacco and health litigation at end of period	$	34		$	6	$	34		$	6

The accrued liability for tobacco and health litigation, including related interest costs, was included in liabilities on Altria Group, Inc.’s condensed consolidated balance sheets. Pre-tax charges for tobacco and health judgments and corrective communications were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria Group, Inc.’s condensed consolidated statements of earnings.

Security for Judgments

To obtain stays of judgments pending current appeals, as of June 30, 2014, PM USA has posted various forms of security totaling approximately $42 million, the majority of which has been collateralized with cash deposits that are included in other assets on the condensed consolidated balance sheet.

Smoking and Health Litigation

Overview

Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

Non-Engle Progeny Trial Results

Summarized below are the non-Engle progeny smoking and health cases pending during 2014 in which verdicts were returned in favor of plaintiffs and against PM USA. Charts listing the verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Court Results below.

Mulholland: In July 2013, a jury in the U.S. District Court for the Southern District of New York returned a verdict in favor of plaintiff and awarded $5.5 million in compensatory damages against PM USA. In August 2013, after taking into

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account a prior recovery by the plaintiff against third parties, the court entered final judgment in the amount of $4.9 million. In September 2013, PM USA filed a renewed motion for judgment as a matter of law and plaintiff moved to modify the amount of the judgment. In December 2013, the trial court denied the parties’ post-trial motions. In January 2014, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit, plaintiff cross-appealed and PM USA posted a bond in the amount of $5.5 million.

Schwarz: In March 2002, an Oregon jury awarded $168,500 in compensatory damages and $150 million in punitive damages against PM USA. In May 2002, the trial court reduced the punitive damages award to $100 million. In May 2006, the Oregon Court of Appeals affirmed the compensatory damages verdict, reversed the award of punitive damages and remanded the case to the trial court for a second trial to determine the amount of punitive damages, if any. In June 2006, plaintiff petitioned the Oregon Supreme Court to review the portion of the court of appeals’ decision reversing and remanding the case for a new trial on punitive damages. In June 2010, the Oregon Supreme Court affirmed the court of appeals’ decision and remanded the case to the trial court for a new trial limited to the question of punitive damages. In December 2010, the Oregon Supreme Court reaffirmed its earlier ruling and awarded PM USA approximately $500,000 in costs. In March 2011, PM USA filed a claim against the plaintiff for its costs and disbursements on appeal, plus interest. Trial on the amount of punitive damages began in January 2012. In February 2012, the jury awarded plaintiff $25 million in punitive damages. In September 2012, PM USA filed a notice of appeal from the trial court’s judgment with the Oregon Court of Appeals. In January 2014, plaintiff filed a motion to certify the appeal to the Oregon Supreme Court, which the Oregon Court of Appeals denied in March 2014. Oral argument at the Oregon Court of Appeals is scheduled for September 9, 2014.

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 healthcare cost recovery case.

Engle Class Action

In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA appealed.

In May 2001, the trial court approved a stipulation providing that execution of the punitive damages component of the Engle judgment will remain stayed against PM USA and the other participating defendants through the completion of all judicial review. As a result of the stipulation, PM USA placed $500 million into an interest-bearing escrow account that, regardless of the outcome of the judicial review, was to be paid to the court and the court was to determine how to allocate or distribute it consistent with Florida Rules of Civil Procedure. In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs petitioned the Florida Supreme Court for further review.

In July 2006, the Florida Supreme Court ordered that the punitive damages award be vacated, that the class approved by the trial court be decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the mandate. The court further declared the following Phase I findings are entitled to res judicata effect in such individual actions brought within one year of the issuance of the mandate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to misrepresent information regarding the health effects or addictive nature of cigarettes with the intention of causing the public to rely on this information to their detriment; (vi) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vii) that all defendants sold or supplied cigarettes that were defective; and (viii) that defendants were negligent. The court also reinstated compensatory damages awards totaling approximately $6.9 million to two individual plaintiffs and found that a third plaintiff’s claim was barred by the statute of limitations. In February 2008, PM USA paid approximately $3 million, representing its share of compensatory damages and interest, to the two individual plaintiffs identified in the Florida Supreme Court’s order.

In August 2006, PM USA sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion, including the ruling (described above) that certain jury findings have res judicata effect in subsequent individual trials timely

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brought by Engle class members. The rehearing motion also asked, among other things, that legal errors that were raised but not expressly ruled upon in the Florida Third District Court of Appeal or in the Florida Supreme Court now be addressed. Plaintiffs also filed a motion for rehearing in August 2006 seeking clarification of the applicability of the statute of limitations to non-members of the decertified class. In December 2006, the Florida Supreme Court refused to revise its July 2006 ruling, except that it revised the set of Phase I findings entitled to res judicata effect by excluding finding (v) listed above (relating to agreement to misrepresent information), and added the finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations of fact made by defendants. In January 2007, the Florida Supreme Court issued the mandate from its revised opinion. Defendants then filed a motion with the Florida Third District Court of Appeal requesting that the court address legal errors that were previously raised by defendants but have not yet been addressed either by the Florida Third District Court of Appeal or by the Florida Supreme Court. In February 2007, the Florida Third District Court of Appeal denied defendants’ motion. In May 2007, defendants’ motion for a partial stay of the mandate pending the completion of appellate review was denied by the Florida Third District Court of Appeal. In May 2007, defendants filed a petition for writ of certiorari with the United States Supreme Court. In October 2007, the United States Supreme Court denied defendants’ petition. In November 2007, the United States Supreme Court denied defendants’ petition for rehearing from the denial of their petition for writ of certiorari.

In February 2008, the trial court decertified the class, except for purposes of the May 2001 bond stipulation, and formally vacated the punitive damages award pursuant to the Florida Supreme Court’s mandate. In April 2008, the trial court ruled that certain defendants, including PM USA, lacked standing with respect to allocation of the funds escrowed under the May 2001 bond stipulation and would receive no credit at that time from the $500 million paid by PM USA against any future punitive damages awards in cases brought by former Engle class members.

In May 2008, the trial court, among other things, decertified the limited class maintained for purposes of the May 2001 bond stipulation and, in July 2008, severed the remaining plaintiffs’ claims except for those of Howard Engle. The only remaining plaintiff in the Engle case, Howard Engle, voluntarily dismissed his claims with prejudice.

Engle Progeny Cases

The deadline for filing Engle progeny cases, as required by the Florida Supreme Court’s Engle decision, expired in January 2008. As of July 18, 2014, approximately 3,100 state court cases were pending against PM USA or Altria Group, Inc. asserting individual claims by or on behalf of approximately 4,200 state court plaintiffs. Furthermore, as of July 18, 2014, approximately 1,000 cases were pending against PM USA in federal district court asserting individual claims by or on behalf of a similar number of federal court plaintiffs. Most of these federal cases are pending in the U.S. District Court for the Middle District of Florida (Jacksonville). Because of a number of factors, including, but not limited to, docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates.

In July 2013, the district court issued an order transferring, for case management purposes, all the Middle District of Florida Engle progeny cases to a judge presiding in the District of Massachusetts. The order directed that the cases will remain in the Middle District of Florida and that such judge will be designated a judge of that district for purposes of managing the cases. The U.S. District Court for the Middle District of Florida (Jacksonville) dismissed 847 cases in 2013 and, as of July 18, 2014, has dismissed 174 cases in 2014. Plaintiffs appealed 521 of the 2013 dismissals, which appeals were consolidated and heard by the U.S. Court of Appeals for the Eleventh Circuit on June 5, 2014. All remaining cases pending in the Middle District of Florida have been activated or are scheduled to be activated by May 2015.

Engle Progeny Trial Court Results

As of July 18, 2014, 59 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Twenty-nine verdicts were returned in favor of plaintiffs, which does not include one case, Sammarco, in which the trial court vacated the verdict in favor of the plaintiff and ordered a new trial.

Thirty verdicts were returned in favor of PM USA (Gelep, Kalyvas, Gil de Rubio, Warrick, Willis, Russo (formerly Frazier), C. Campbell, Rohr, Espinosa, Oliva, Weingart, Junious, Szymanski, Gollihue, McCray, Denton, Hancock, Wilder, D. Cohen, LaMotte, J. Campbell, Dombey, Haldeman, Jacobson, Blasco, Gonzalez, Reider, Banks, Surico and Davis). In addition, there have been a number of mistrials, only some of which have resulted in new trials as of July 18,

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2014. 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. In the Russo case (formerly Frazier), however, the Florida Third District Court of Appeal reversed the judgment in defendants’ favor in April 2012 and remanded the case for a new trial. Defendants sought review of the case in the Florida Supreme Court, which was granted in September 2013. Oral argument occurred on April 30, 2014 in the Florida Supreme Court on the question of whether the statute of repose applies in Engle progeny cases.

In Lukacs, a case that was tried to verdict before the Florida Supreme Court Engle decision, the Florida Third District Court of Appeal in March 2010 affirmed per curiam the trial court decision without issuing an opinion. Under Florida procedure, further review of a per curiam affirmance without opinion by the Florida Supreme Court is generally prohibited. Subsequently in 2010, after defendants’ petition for rehearing with the Court of Appeal was denied, defendants paid the judgment.

The charts below list the verdicts and post-trial developments in certain Engle progeny cases in which verdicts were returned in favor of plaintiffs (including Hancock, where the verdict originally was returned in favor of PM USA). The first chart lists such cases that are currently pending; the second chart lists such cases that were pending earlier in 2014 but that are now concluded.

Currently-Pending Cases

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Plaintiff: Griffin

Date: June 2014

Verdict:

On June 25, 2014, a jury in the U.S. District Court for the Middle District of Florida (Jacksonville) returned a verdict in favor of plaintiff and against PM USA awarding $1,268,402 in compensatory damages and allocating 50% of the fault to PM USA (an amount of $634,201).

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Plaintiff: Burkhart

Date: May 2014

Verdict:

On May 15, 2014, a jury in the U.S. District Court for the Middle District of Florida (Orlando) returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and Lorillard Tobacco Company (“Lorillard”) awarding $5 million in compensatory damages and allocating 15% of the fault to PM USA. The court declined defendants’ request to reduce the compensatory damages award by the jury’s assessment of comparative fault, imposing joint and several liability. The following day, the jury awarded plaintiff $2.5 million in punitive damages, allocating $750,000 to PM USA.

Post-Trial Developments:

On July 9, 2014, defendants filed post-trial motions.

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Plaintiff: Bowden

Date: March 2014

Verdict:

In March 2014, a Duval County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded plaintiff $5 million in compensatory damages and allocated 30% of the fault to PM USA (an amount of $1.5 million).

Post-Trial Developments:

The court entered final judgment against defendants in March 2014. In April 2014, defendants filed post-trial motions, including motions for a new trial and to set aside the verdict. On May 21, 2014, the court denied defendants’ post-trial motions. On June 9, 2014, defendants filed a notice of appeal to the Florida First District Court of Appeal and, on June 18, 2014, PM USA posted a bond in the amount of $1.5 million.

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Plaintiff: Goveia

Date: February 2014

Verdict:

An Orange County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. In February 2014, the jury awarded $850,000 in compensatory damages and allocated 35% of the fault against each defendant (an amount of $297,500). The jury also awarded $2.25 million in punitive damages against each defendant.

Post-Trial Developments:

In February 2014, defendants filed post-trial motions, including motions to set aside the verdict and for a new trial. In April 2014, the court denied defendants’ motions and entered final judgment against defendants. On April 25, 2014, defendants filed a notice of appeal to the Florida Fifth District Court of Appeal. On May 2, 2014, PM USA posted a bond in the amount of $2.5 million.

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Plaintiff: Cuculino

Date: January 2014

Verdict:

In January 2014, a Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded plaintiff $12.5 million in compensatory damages and allocated 40% of the fault to PM USA (an amount of $5 million).

Post-Trial Developments:

In January 2014, the court entered final judgment against PM USA, and PM USA filed post-trial motions, including motions to set aside the verdict and for a new trial. In March 2014 and April 2014, the court denied PM USA’s post-trial motions. Also in April 2014, PM USA filed a notice of appeal to the Florida Third District Court of Appeal, plaintiff cross-appealed and PM USA posted a bond in the amount of $5 million.

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Plaintiff: Rizzuto

Date: August 2013

Verdict:

In August 2013, a Hernando County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group LLC (“Liggett Group”). The jury awarded plaintiff $12.55 million in compensatory damages.

Post-Trial Developments:

In September 2013, defendants filed post-trial motions, including a motion to reduce damages. In September 2013, the court granted a remittitur in part on economic damages, which the court reduced from $2.55 million to $1.1 million for a total award of $11.1 million in compensatory damages. The court declined defendants’ request to reduce the compensatory damages award by the jury’s assessment of comparative fault, imposing joint and several liability for the compensatory damages. The court denied all other motions except for defendants’ motion for a juror interview, which was granted. In October 2013, defendants filed a notice of appeal to the Florida Fifth District Court of Appeal, which ordered resolution of the juror issue prior to appeal. In December 2013, subsequent to the juror interview, the court entered an order that granted no relief with respect to the alleged misconduct of the juror. Plaintiff agreed to waive the bond for the appeal.

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Plaintiff: Skolnick

Date: June 2013

Verdict:

In June 2013, 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 court entered final judgment against defendants in July 2013. 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 plaintiffs cross-appealed

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in December 2013. Also in December 2013, PM USA posted a bond in the amount of $766,500.

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Plaintiff: Starr-Blundell

Date: June 2013

Verdict:

In June 2013, 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, final judgment was entered in favor of plaintiff affirming the compensatory damages award. In December 2013, plaintiff filed a notice of appeal to the Florida First District Court of Appeal, and defendants cross-appealed. Plaintiff agreed to waive the bond for the appeal.

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Plaintiff: Ruffo

Date: May 2013

Verdict:

In May 2013, a Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA and Lorillard. The jury awarded plaintiff $1.5 million in compensatory damages and allocated 12% of the fault to PM USA (an amount of $180,000).

Post-Trial Developments:

In May 2013, defendants filed several post-trial motions, including motions for a new trial and to set aside the verdict, which the trial court denied in October 2013 and entered final judgment in favor of plaintiff. In October 2013, PM USA and Lorillard appealed to the Florida Third District Court of Appeal, and PM USA posted a bond in the amount of $180,000.

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Plaintiff: Graham

Date: May 2013

Verdict:

In May 2013, a jury in the U.S. District Court for the Middle District of Florida (Jacksonville) 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. In October 2013, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit, and PM USA posted a bond in the amount of $277,750.

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Plaintiff: Searcy

Date: April 2013

Verdict:

In April 2013, a jury in the U.S. District Court for the Middle District of Florida (Orlando) 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 declining defendants’ request to reduce the compensatory damages award by the jury’s assessment of comparative fault and imposing joint and several liability for the compensatory damages. 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. Plaintiffs filed a motion to reconsider the

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district court’s remittitur and, in the alternative, to certify the issue to the U.S. Court of Appeals for the Eleventh Circuit, both of which the court denied in October 2013. In November 2013, defendants filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In December 2013, defendants filed an amended notice of appeal after the district court corrected a clerical error in the final judgment, and PM USA posted a bond in the amount of approximately $2.2 million.

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Plaintiff: Buchanan

Date: December 2012

Verdict:

In December 2012, a Leon County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group. The jury awarded $5.5 million in compensatory damages and allocated 37% of the fault to each of the defendants (an amount of approximately $2 million).

Post-Trial Developments:

In December 2012, defendants filed several post-trial motions, including motions for a new trial and to set aside the verdict. In March 2013, the trial court denied all motions and entered final judgment against PM USA and Liggett Group refusing to reduce the compensatory damages award by plaintiff’s comparative fault and holding PM USA and Liggett Group jointly and severally liable for $5.5 million. In April 2013, defendants filed a notice of appeal to the Florida First District Court of Appeal, and PM USA posted a bond in the amount of $2.5 million. On July 14, 2014, the Florida First District Court of Appeal affirmed the judgment, but certified to the Florida Supreme Court the issue of the statute of repose, which is currently before the court in Hess.

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Plaintiff: Hancock

Date: August 2012

Verdict:

A Broward County jury returned a verdict in the amount of zero damages and allocated 5% of the fault to each of the defendants (PM USA and R.J. Reynolds). The trial court granted an additur of approximately $110,000, which is subject to the jury’s comparative fault finding.

Post-Trial Developments:

In August 2012, defendants moved to set aside the verdict and to enter judgment in accordance with their motion for directed verdict. Defendants also moved to reduce damages, which motion the court granted. The trial court granted defendants’ motion to set off the damages award by the amount of economic damages paid by third parties, which will reduce further any final award. In October 2012, the trial court entered final judgment. PM USA’s portion of the damages was approximately $700. In November 2012, both sides filed notices of appeal to the Florida Fourth District Court of Appeal.

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Plaintiff: Calloway

Date: May 2012

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group. The jury awarded approximately $21 million in compensatory damages and allocated 25% of the fault against PM USA, but the trial court ruled that it will not apply the comparative fault allocations because the jury found against each defendant on the intentional tort claims. 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 and entered final judgment, reducing the total compensatory damages award to $16.1 million but leaving undisturbed the separate punitive damages awards. 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.

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Plaintiff: Hallgren

Date: January 2012

Verdict:

A Highland County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded approximately $2 million in compensatory damages and allocated 25% of the fault to PM USA (an amount of approximately $500,000). The jury also awarded $750,000 in punitive damages against each of the defendants.

Post-Trial Developments:

The trial court entered final judgment in March 2012. In April 2012, PM USA posted a bond in an amount of approximately $1.25 million. In May 2012, defendants filed a notice of appeal to the Florida Second District Court of Appeal. In October 2013, the Second District Court of Appeal affirmed the judgment. In November 2013, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. On June 5, 2014, the Florida Supreme Court stayed the case pending the outcome of Russo.

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Plaintiff: Allen

Date: April 2011

Verdict:

A Duval County jury returned a verdict in favor of plaintiffs and against PM USA and R.J. Reynolds. The jury awarded a total of $6 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of $900,000). The jury also awarded $17 million in punitive damages against each of the defendants.

Post-Trial Developments:

In May 2011, the trial court entered final judgment. In October 2011, the trial court granted defendants’ motion for remittitur, reducing the punitive damages award against PM USA to $2.7 million, and denied defendants’ remaining post-trial motions. PM USA filed a notice of appeal to the Florida First District Court of Appeal and posted a bond in the amount of $1.25 million in November 2011. In May 2013, the First District Court of Appeal reversed and remanded the case for a new trial on the basis that the trial court erred in failing to submit the question of addiction causation to the jury. In June 2013, the plaintiff filed a motion for rehearing or rehearing en banc, which the First District Court of Appeal denied in July 2013. In August 2013, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court, which the court denied in February 2014. In October 2013, the $1.25 million bond was returned to PM USA as a result of the First District Court of Appeal’s remand for a new trial.

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Plaintiff: Tullo

Date: April 2011

Verdict:

A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA, Lorillard and Liggett Group. The jury awarded a total of $4.5 million in compensatory damages and allocated 45% of the fault to PM USA (an amount of $2.025 million).

Post-Trial Developments:

In April 2011, the trial court entered final judgment. In July 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted a $2 million bond. In August 2013, the Fourth District Court of Appeal affirmed the judgment. In October 2013, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court.

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Plaintiff: Kayton (formerly Tate)

Date: July 2010

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $8 million in compensatory damages and allocated 64% of the fault to PM USA (an amount of approximately $5.1 million). The jury also awarded approximately $16.2 million in punitive damages against PM USA.

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Post-Trial Developments:

In August 2010, the trial court entered final judgment, and PM USA filed its notice of appeal and posted a $5 million bond. In November 2012, the Florida Fourth District Court of Appeal reversed the punitive damages award and remanded the case for a new trial on plaintiff’s conspiracy claim. Upon retrial, if the jury finds in plaintiff’s favor on that claim, the original $16.2 million punitive damages award will be reinstated. PM USA filed a motion for rehearing, which was denied in January 2013. In January 2013, plaintiff and defendant each filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In June 2013, the Florida Supreme Court stayed the appeal pending the outcome of Hess.

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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. PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and 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.

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Plaintiff: R. Cohen

Date: March 2010

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $10 million in compensatory damages and allocated 33 1/3% of the fault to PM USA (an amount of approximately $3.3 million). The jury also awarded a total of $20 million in punitive damages, assessing separate $10 million awards against each defendant.

Post-Trial Developments:

In July 2010, the trial court entered final judgment and, in August 2010, PM USA filed its notice of appeal. In October 2010, PM USA posted a $2.5 million bond. In September 2012, the Florida Fourth District Court of Appeal affirmed the compensatory damages award but reversed and remanded the punitive damages verdict. The Fourth District returned the case to the trial court for a new jury trial on plaintiff’s fraudulent concealment claim. If the jury finds in plaintiff’s favor on that claim, the $10 million punitive damages award against each defendant will be reinstated. In January 2013, plaintiff and defendants each filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In February 2013, the Fourth District granted defendants’ motion to stay the mandate. In March 2013, plaintiff filed a motion for review of the stay order with the Florida Supreme Court, which was denied in April 2013. In June 2013, plaintiff moved to consolidate with Hess and Kayton, which defendants did not oppose, but in October 2013, plaintiff withdrew the motion for consolidation. In February 2014, the Florida Supreme Court stayed the appeal pending the outcome of the Hess case.

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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.

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Post-Trial Developments:

In March 2010