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Altria Reports 2012 Third-Quarter And Nine-Month Results; Reaffirms 2012 EPS Guidance; Expands Share Repurchase Program By $500 Million

The smokeless products segment's 2012 third-quarter and nine-month reported OCI increased 0.4% and 2.7%, respectively, primarily due to higher pricing, higher volume and effective cost management, partially offset by growth in products introduced in recent years at a lower, popular price, higher restructuring charges related to the current cost reduction program and higher promotional investments. Adjusted OCI, which is calculated excluding special items identified in Table 7, grew 3.3% for the third quarter of 2012, and increased 6.2% for the first nine months of 2012.

         
Table 7 - Smokeless Products: Revenues and OCI ($ in millions)
                   
Third Quarter Nine Months Ended

September 30,

  2012     2011       Change   2012     2011     Change  
Net revenues   $     437     $     426      

 

2.6

%   $   1,243     $   1,209    

 

2.8

%
Excise taxes  

 

(29

)    

 

(28

)    

 

(83

)    

 

(81

)  
Revenues net of excise taxes  

$

    408       $     398     2.5 %   $   1,160       $   1,128     2.8 %
 
Reported OCI

 

$

246

$

245

0.4 %

$

678

$

660

2.7 %
Asset impairment, exit, integration and implementation costs

 

8

 

1

 

27

 

3

UST acquisition-related costs  

 

     

 

     

 

     

 

1

   
Adjusted OCI   $     254       $     246     3.3 %   $   705       $   664     6.2 %
Adjusted OCI margins*  

 

62.3

%    

 

61.8

%   0.5 pp  

 

60.8

%    

 

58.9

%   1.9 pp
         

*Adjusted OCI margins are calculated as adjusted OCI divided by revenues net of excise taxes.

For the third quarter of 2012, USSTC and PM USA's combined reported domestic smokeless products shipment volume increased 5.9% as volume growth for Copenhagen and Skoal was partially offset by volume declines in Other portfolio brands. For the first nine months of 2012, reported domestic smokeless products shipment volume grew 1.9% as volume growth on Copenhagen was partially offset by volume declines on the balance of the portfolio.

Copenhagen's 2012 third-quarter and nine-month volume grew 12.1% and 10.2%, respectively, as the brand continued to benefit from new products introduced in recent years, including the May 2012 expansion of Copenhagen Southern Blend into select geographies. Skoal's volume increased 2.8% for the third quarter of 2012 and declined 2.3% for the first nine months of 2012. Skoal's third-quarter and nine-month volume comparisons were impacted by competitive activity and Copenhagen's strong performance. Skoal's nine-month volume comparison was also impacted by last year's de-listing of seven stock-keeping units (SKU) and the introduction of Skoal X-TRA.

After adjusting for changes in trade inventories and other factors, USSTC and PM USA estimate that their combined 2012 third-quarter domestic smokeless products shipment volume grew approximately 5%. USSTC and PM USA also believe that the smokeless category's volume grew at an estimated rate of approximately 5% over the twelve months ended September 2012. USSTC and PM USA's combined volume performance for smokeless products is summarized in Table 8.

 
Table 8 - Smokeless Products: Shipment Volume (cans and packs in millions)
           
Third Quarter

Nine Months Ended September 30,

  2012     2011     Change     2012     2011     Change  
                   
Copenhagen 100.9 90.0 12.1 % 284.9 258.5 10.2 %
Skoal   72.9       70.9     2.8 %   210.0       214.9     (2.3 )%
Copenhagen and Skoal 173.8 160.9 8.0 % 494.9 473.4 4.5 %
Other   20.5       22.6     (9.3 )%   61.0       71.9     (15.2 )%
Total smokeless products   194.3       183.5     5.9 %   555.9       545.3     1.9 %
 

Note: Other includes certain USSTC and PM USA smokeless products. Volume includes cans and packs sold, as well as promotional units, but excludes international volume. New types of smokeless products, as well as new packaging configurations of existing smokeless products, may or may not be equivalent to existing moist smokeless tobacco (MST) products on a can for can basis. To calculate volumes of cans and packs shipped, USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST.

Copenhagen and Skoal's combined retail share for the third quarter and first nine months of 2012 increased 1.6 and 1.8 share points, respectively. Copenhagen's 2012 third-quarter and nine-month retail share grew 2.3 and 2.4 share points, respectively, as the brand continued to benefit from new products introduced over the past several years.

Skoal's 2012 third-quarter retail share declined 0.7 share points primarily due to competitive activity and Copenhagen's strong performance, partially offset by share gains on its Skoal X-TRA products. Skoal's 2012 nine-month retail share decreased 0.6 share points primarily due to the de-listing of seven SKUs in the second quarter of 2011, competitive activity and Copenhagen's strong performance, partially offset by share gains on its Skoal X-TRA products.

USSTC and PM USA's combined retail share for the third quarter and first nine months of 2012 increased 0.4 and 0.5 share points, respectively, as Copenhagen's share gains were partially offset by share losses on the balance of the portfolio. USSTC and PM USA's combined smokeless products retail share performance is summarized in Table 9.

 
Table 9 - Smokeless Products: Retail Share (percent)
             

Third Quarter

Nine Months Ended September 30,

  2012     2011    

Percentage point change

    2012     2011    

Percentage point change

 
                   
Copenhagen 28.8 % 26.5 % 2.3 28.2 % 25.8 % 2.4
Skoal   22.1 %     22.8 %     (0.7)     22.3 %     22.9 %     (0.6)  
Copenhagen and Skoal 50.9 % 49.3 % 1.6 50.5 % 48.7 % 1.8
Other   4.6 %     5.8 %     (1.2)     4.9 %     6.2 %     (1.3)  
Total smokeless products   55.5 %     55.1 %     0.4     55.4 %     54.9 %     0.5  
 

Note: Retail share performance is based on data from the SymphonyIRI InfoScan Smokeless Tobacco Database for Food, Drug, Mass Merchandisers (excluding Walmart) and Convenience trade classes, which tracks smokeless products market share performance based on the number of cans and packs sold. Smokeless Products is defined by SymphonyIRI as moist smokeless and spit-less tobacco products. Other includes certain USSTC and PM USA smokeless products. New types of smokeless products, as well as new packaging configuration of existing smokeless products, may or may not be equivalent to existing MST products on a can for can basis. USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST. All other products are considered to be equivalent on a can for can basis. It is SymphonyIRI's standard practice to periodically refresh its InfoScan syndicated services, which could restate retail share results that were previously released.

WINE

Ste. Michelle delivered strong 2012 third-quarter and nine-month adjusted OCI results through higher pricing, higher shipment volume and improved premium mix.

10 of 15

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