01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Altria Group, Inc. (MO) filed its 2008 10-K report on February 26, 2009, detailing its business operations and financial condition as of December 31, 2008.
A significant event discussed is the acquisition of UST Inc. on January 6, 2009, for approximately $11.7 billiona. This strategic move significantly expands Altria's footprint in the smokeless tobacco market, complementing its existing strong position in cigarettes and cigars. The report highlights the company's core tobacco businesses, primarily through Philip Morris USA (PM USA) for cigarettes and John Middleton Co. (Middleton) for cigars.
PM USA continues to dominate the U.S. cigarette market with its flagship Marlboro brand. Despite an overall slight decline in cigarette shipments, the company maintained its market share.
The company also continued its dividend payouts and share repurchases, although a significant share repurchase program was suspended in January 2009 to preserve financial flexibility amidst economic uncertainty. Investors should note the ongoing risks associated with tobacco litigation and increasing excise taxes, which remain material factors for the company's operating environment.
02—Key points
Key Highlights
- Acquisition of UST Inc. for approximately $11.7 billion, significantly expanding Altria's presence in the smokeless tobacco market.
- Philip Morris USA (PM USA) maintained its leading position in the U.S. cigarette market, with Marlboro remaining the top-selling brand.
- Despite a 3.2% decrease in U.S. cigarette shipments, Altria managed to hold its overall retail market share at 50.7%.
- John Middleton Co. (Middleton) saw increased cigar shipment volume and market share for its leading brand, Black & Mild.
- Altria suspended its $4.0 billion share repurchase program in January 2009 to enhance financial flexibility.
- The company recorded a $404 million pre-tax gain on the sale of its New York City corporate headquarters.
- Significant ongoing legal proceedings related to tobacco litigation, with numerous cases pending across various categories.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Altria Group, Inc. kept $0.25.
- Revenue$19.36B100.0%
- Cost of revenue−$11.67B60.3%
- Gross profit$7.69B39.7%
- Operating costs−$2.81B14.5%
- Operating income$4.88B25.2%
- Interest, other & tax$48.0M0.2%
- Net income$4.93B25.5%
Where FY2008 revenue went
$19.36B- Cost of revenue: $8.27B, 43% of revenue
- Other operating costs: $5.97B, 31% of revenue
- Operating income: $4.88B, 25% of revenue
- R&D: $232.0M, 1.2% of revenue
Kept 25% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $19.36B$18.66B | +3.7% |
| Cost of Revenue | $8.27B$7.83B | +5.7% |
| Gross Profit | $7.69B$7.38B | +4.1% |
| R&D Expenses | $232.00M— | — |
| Operating Income | $4.88B$4.37B | +11.6% |
| Interest Expense | $237.00M— | — |
| Net Income | $4.93B$9.79B | −49.6% |
| EPS (Basic) | $2.37$4.64 | −48.9% |
| EPS (Diluted) | $2.36$4.62 | −48.9% |
| Shares Outstanding (Basic) | 2.08B— | — |
| Shares Outstanding (Diluted) | 2.08B— | — |
05—Questions
Frequently Asked Questions
What was the financial impact of the UST acquisition on Altria?
The acquisition of UST Inc. in January 2009 was valued at approximately $11.7 billion, financed through a combination of cash and borrowings. This strategic move significantly expanded Altria's product portfolio into smokeless tobacco and wine, aiming to create a premier tobacco company in the U.S. The transaction also involved approximately $1.3 billion in assumed debt and $0.6 billion in acquisition-related costs, resulting in a total cash outlay of approximately $11 billion.
What is the status of Altria's share repurchase program?
In January 2009, Altria announced the suspension of its $4.0 billion share repurchase program (intended for 2008-2010). This decision was made to preserve financial flexibility, monitor economic impacts, and protect its investment-grade credit rating. The company stated its intention to re-evaluate share repurchases in early 2010.
What are the primary risks and challenges facing Altria as outlined in the filing?
Altria faces several significant risks and challenges, including extensive tobacco-related litigation with potentially large damage claims, increasing federal and state excise taxes on tobacco products, intense competition in all tobacco categories, and ongoing governmental investigations. Additionally, the company notes risks related to new tobacco product technologies, the success of its adjacency strategies, potential changes in tobacco leaf prices, quality, and availability, and the challenges of attracting and retaining talent in a declining social acceptance environment for tobacco use.
How did the spin-offs of Kraft Foods and Philip Morris International affect Altria's business and dividend policy?
The report mentions that following the spin-offs of Kraft Foods Inc. in March 2007 and Philip Morris International Inc. (PMI) in March 2008, Altria adjusted its dividend rate. The dividend was lowered after each spin-off so that shareholders holding both Altria and the spun-off company's shares would, in aggregate, receive the same total dividends as they did prior to the spin-offs. The company also increased its quarterly dividend in the third quarter of 2008.
06—Continue