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Altria Reports 2013 Third-Quarter And Nine-Month Results; Reaffirms 2013 Full-Year EPS Guidance

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For the third quarter of 2013, the smokeable products segment’s net revenues increased 3.4% primarily due to higher pricing and higher reported shipment volume, partially offset by higher promotional investments. For the first nine months of 2013, the smokeable products segment’s net revenues decreased 1.0% primarily due to lower reported shipment volume, partially offset by higher pricing. Revenues net of excise taxes for the third quarter and first nine months of 2013 increased 4.6% and 0.5%, respectively.

The smokeable products segment’s 2013 third-quarter reported OCI increased 11.5% primarily due to higher pricing, the NPM Arbitration Panel Decision and higher reported shipment volume. These factors were partially offset by higher promotional investments, higher resolution expense and higher selling, general and administrative expenses due to the timing of spending. For the first nine months of 2013, the smokeable products segment’s reported OCI increased 16.0% primarily due to the NPM Adjustment Items and higher pricing. These factors were partially offset by lower reported shipment volume and higher resolution expense. Adjusted OCI, which is calculated excluding the special items identified in Table 4, grew 3.1% for the third quarter and 2.0% for first nine months of 2013.

Adjusted OCI margin for the smokeable products segment decreased 0.6 percentage points to 41.8% for the third quarter of 2013 and increased 0.6 percentage points to 42.2% for the first nine months of 2013. Revenues and OCI for the smokeable products segment are summarized in Table 4.

Table 4 - Smokeable Products: Revenues and OCI ($ in millions)
Third Quarter   Nine Months Ended

September 30,

2013     2012     Change 2013     2012     Change
Net revenues $     5,802 $     5,613 3.4 % $     16,448 $     16,616 (1.0 )%
Excise taxes (1,751 )     (1,742 ) (5,016 )     (5,239 )
Revenues net of excise taxes $     4,051       $     3,871   4.6 % $     11,432       $     11,377   0.5 %
Reported OCI $ 1,825 $ 1,637 11.5 % $ 5,471 $ 4,716 16.0 %
NPM Adjustment Items 1 (145 ) (664 )
Asset impairment, exit and

implementation costs, net

2 2 13
Tobacco and health judgments 13       3   18       4  
Adjusted OCI $     1,693       $     1,642   3.1 % $     4,827       $     4,733   2.0 %
Adjusted OCI margins 2 41.8 %     42.4 % (0.6) pp 42.2 %     41.6 % 0.6 pp

1 Includes the NPM Arbitration Panel Decision (third quarter and nine months) and the NPM Adjustment Settlement (nine months only).

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

PM USA’s 2013 third-quarter reported domestic cigarettes shipment volume increased 1.2% primarily due to one extra shipping day, changes in trade inventories and retail share gains, partially offset by the industry’s rate of decline. After adjusting for calendar differences and changes in trade inventories, PM USA estimates that its third-quarter 2013 domestic cigarettes shipment volume was down approximately 3% and that total cigarette category volume declined approximately 3.5% in the same period. PM USA’s cigarette volume performance for the third quarter of 2013 is summarized in Table 5.

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