8-KOther Events

ALTRIA GROUP, INC. 8-K Report (May 8, 2001)

Filed May 8, 2001For Securities:MO

Summary

This 8-K filing from Philip Morris Companies Inc. (now Altria Group, Inc.) on May 7, 2001, details a significant development in the 'Engle' smoking and health class action lawsuit in Florida. The company's domestic tobacco subsidiary, Philip Morris USA, along with other defendants, has secured trial court approval for a Stipulation and Agreed Order. This agreement effectively stays the enforcement of the punitive damages component of the judgment against Philip Morris USA throughout all judicial review processes. This provides a period of certainty regarding this specific litigation risk while appeals are processed. To secure this stay, Philip Morris USA will deposit $1.2 billion into an interest-bearing escrow account, in addition to a previously posted $100 million bond. Furthermore, an additional $500 million will be placed in a separate escrow account, the allocation of which will be determined by the court if Philip Morris USA prevails on appeal. The company will also record a $500 million pre-tax charge in its first quarter 2001 earnings, approximately $300 million after-tax, for accounting purposes. Importantly, this charge is not expected to impact the company's underlying net earnings for the quarter or its previously projected underlying EPS growth rates for 2001, although currency fluctuations and other factors remain risks to these projections.

Key Highlights

  • 1Philip Morris USA has obtained court approval for a Stipulation and Agreed Order in the Florida 'Engle' smoking and health class action lawsuit.
  • 2The Stipulation stays the enforcement of punitive damages from the judgment pending completion of all judicial review.
  • 3Philip Morris USA will place $1.2 billion into an interest-bearing escrow account, in addition to a $100 million bond, as part of the agreement.
  • 4An additional $500 million will be placed in a separate interest-bearing escrow account, with its future distribution subject to court determination if the company prevails on appeal.
  • 5The company will record a $500 million pre-tax charge (approx. $300 million after-tax) to restate its first quarter 2001 consolidated earnings.
  • 6This charge is not expected to affect the underlying net earnings for Q1 2001 or projected underlying EPS growth rates for 2001.
  • 7The company's Form 10-Q for the quarter ended March 31, 2001, will provide further details on the accounting treatment.

Frequently Asked Questions

The 'Engle' class action lawsuit refers to a significant smoking and health class action case in Florida against tobacco companies, including Philip Morris USA. The initial judgment in this case involved substantial damages, including punitive damages.

The Stipulation allows Philip Morris USA and other 'Engle defendants' to halt the collection of punitive damages from the judgment while the company pursues appeals. This provides a period of financial and operational stability by deferring a significant potential cash outflow.

Philip Morris Companies Inc. will record a one-time pre-tax charge of $500 million (approximately $300 million after-tax) in its first quarter 2001 financial statements. This charge is for accounting purposes related to the escrow deposits and does not reflect a reduction in the company's core operating profitability or its underlying earnings projections for the year.

According to the filing, the restatement of Q1 earnings will not affect the company's previously disclosed projected growth rates for 2001 underlying earnings per share and underlying cash earnings per share. However, the company cautions that adverse currency movements and other factors mentioned in its forward-looking statements could still impact these projections.