Shareholder Letter

 

Dear Shareholder

Our tobacco operating companies own the leading premium brands in the largest and most profitable domestic tobacco categories: cigarettes, smokeless tobacco and machine-made large cigars.

I am pleased to report that Altria delivered another year of strong results and returns for our shareholders in 2013. Altria grew its full-year 2013 adjusted diluted earnings per share (EPS) by 7.7%. Our total shareholder return of 28.6% for the full year outperformed the S&P 500’s Food, Beverage and Tobacco sector. Learn more

Our results were driven by our employees’ continued focus on our Mission to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. How we conduct business is as important as the results we achieve. Our people work each day to deliver results with integrity, passion, creativity and quality execution that is visible in our companies’ premium brands. Marlboro, Black & Mild, Copenhagen and Skoal continue to be market leaders in the tobacco industry.

Our tobacco operating companies own the leading premium brands in the largest and most profitable domestic tobacco categories: cigarettes, smokeless tobacco and machinemade large cigars. In 2013, our core tobacco companies grew their operating companies income (OCI) and maintained market leadership in their respective categories, while building a foundation for future growth in innovative tobacco products.

Altria made significant progress in 2013 against our four core strategies to Invest in Leadership, Align with Society, Satisfy Adult Consumers and Create Substantial Value for Shareholders. We highlight some examples of our actions in the pages that follow.

Strengthening Our Core Business

In the smokeable products segment, Philip Morris USA Inc. (PM USA) and John Middleton Co. (Middleton) focused on their strategy of maximizing income while maintaining modest share momentum on Marlboro and Black & Mild over time. In 2012, PM USA rolled out a new brand architecture for Marlboro, enabling PM USA to expand the brand’s reach among adult smokers. Through this architecture each of Marlboro’s four flavor families, Red, Gold, Green and Black, expresses the brand’s essence and values in unique ways, allowing Marlboro to expand the breadth and relevance of its equity-building programs. In 2013, PM USA continued to invest in the architecture and expanded distribution of Marlboro NXT and Marlboro Edge for the Black family and Marlboro Southern Cut for the Gold family. In the cigar space, Middleton expanded Black & Mild Jazz nationally in 2013, helping strengthen Black & Mild’s position in the category.

In the smokeless products segment, U.S. Smokeless Tobacco Company LLC’s (USSTC) strategy is to increase income by growing its volume at or ahead of the category growth rate, while maintaining modest share momentum on Copenhagen and Skoal combined. For 2013, USSTC grew volume and OCI, led by the strong performance of Copenhagen.

Ste. Michelle Wine Estates Ltd. (Ste. Michelle) delivered strong volume and OCI growth in 2013 through its focus on distributing premium wines and the success of the 14 Hands brand. Ste. Michelle is one of the fastest growing premium wine companies in the United States.

Innovation

Altria and its companies took important steps toward its goal of delivering new, innovative products to meet the evolving preferences of adult tobacco consumers. We formed Nu Mark LLC (Nu Mark) to develop such products that exceed adult tobacco consumers’ expectations. Nu Mark has deep expertise in premium brand building and supply chain management and uses the industry-leading capabilities of our service companies. In 2013, Nu Mark introduced MarkTen e-cigarettes in test markets in Indiana and Arizona.

Altria also entered into strategic agreements with Philip Morris International Inc. (PMI) in December 2013. These agreements create an important opportunity to commercialize Nu Mark’s e-vapor products internationally through PMI. They also provide Altria with an exclusive license to commercialize in the United States two heated tobacco products that PMI is developing.

In addition to developing product plans and partnerships to accelerate innovation, we also sharpened our focus in 2013 on enhancing our innovation system and culture across the family of Altria companies.

Returning Value To Shareholders

We have significantly enhanced our productivity and reduced costs across the Altria family of companies over the past several years. In 2013, we completed our goal of $400 million in annualized savings versus previously planned spending. This completes the second of two cost management programs totaling nearly $2 billion over the past several years.

Altria maintained its target of returning approximately 80% of Altria’s adjusted diluted EPS to shareholders through dividends, paying more than $3.6 billion in cash dividends in 2013. In August, Altria’s Board increased the regular quarterly dividend by 9.1% — our 47th dividend increase in the last 44 years.

We also repurchase stock when we conclude that it is the best use of cash to maximize shareholder value. In August 2013, Altria’s Board authorized the expansion of our current share repurchase program from $300 million to $1 billion. For the full year of 2013, Altria repurchased approximately $600 million of its shares.


Adjusted Diluted EPS Growth*
 

* Further explanations and reconciliations of adjusted measures to corresponding GAAP financial measures can be accessed in the Financials section below.

Annualized Dividend Growth ($)
 

Source: Altria company reports

Shareholder Return
(Dec. 31 2012 - Dec. 31, 2013)

Note: Assumes quarterly reinvestment of dividends as of ex-dividend date.
Source: Bloomberg Daily Return


Managing Our Businesses Responsibly

Altria and its companies continue to enhance their culture of compliance and responsibility, and our efforts are being recognized externally. Altria was named to the Dow Jones Sustainability North America Index for the second consecutive year. Altria was also recognized as one of America’s most community-minded companies in The Civic 50, an annual initiative that recognizes companies for their commitment to improve the quality of life in the communities where they do business. Click here to view our awards and recognition.

Our companies continue to support reasonable solutions to the issues surrounding our businesses while defending themselves against unreasonable regulation, legislation and litigation. We expect each of these areas to continue to pose risks and we remain committed to actively managing and seeking to mitigate these risks.

On a personal note, it is a privilege to serve as Altria’s Chairman and CEO. Thank you for your continuing interest and commitment to our great company. I also am grateful to our talented employees whose passion and hard work drive our results.

On our website you’ll find all the information from our print report, including financial statements and a progress report against our core strategies. You’ll also find highlights about our company and why it’s an exciting and dynamic time at Altria.

Martin J. Barrington
Chairman of the Board
and Chief Executive Officer
March 3, 2014

About Altria

 
 

Our Mission

Our Mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products.

Our Strategies support our Mission.

  • Invest In Leadership
     

    We will invest in excellent people, leading brands and external stakeholders important to our businesses’ success.

    Invest in Developing Leaders Learn more

    Attracting, developing and retaining talented employees is an important component to our long-term success. In 2013, we created a new executive leadership development program for senior leaders to enhance their skills and reinforce Altria’s Mission and Leadership Model. The program focuses on better preparing executives to manage the core business while innovating for the future. We also advanced several initiatives to better foster diversity and inclusion among our companies. These included forming an executive diversity council, launching three new employee resource groups and broadly engaging the organization to promote a culture where all are welcome and challenged to contribute.

    Invest in Brand Leadership Learn more

    We believe Marlboro, Black & Mild, Copenhagen and Skoal are the best tobacco brands in their respective categories. Today, Altria earns the largest share of the U.S. tobacco profit pool, and its tobacco operating companies hold leading positions in the most profitable segments.

    Invest in Communities Learn more

    Altria and its companies are committed to helping make the communities where we live and work leading environments where we all can succeed. Over the last 10 years, we have donated nearly $1 billion in cash and in-kind contributions to hundreds of non-profit organizations. In 2013, our companies provided more than $4.4 million to arts and cultural organizations in Richmond, VA and Washington, D.C., and our employees volunteered over 34,000 hours of service. In addition, in 2013 our funding helped establish the Smithsonian’s National Museum of African American History and Culture. The museum will help develop a better understanding of American history and celebrate the historical and cultural contributions of African Americans.

     
  • Align With Society
     

    We will actively participate in resolving societal concerns that are relevant to our businesses.

    Help Reduce Underage Product Use Learn more

    Underage tobacco use has shown a historic decline to the lowest level in a generation. According to the National Survey on Drug Use and Health, the rate of current use of any tobacco product among 12-17 year olds declined to 8.6% in 2012, down from 15.2% in 2002. PM USA, USSTC and Middleton remain focused on helping to contribute to further progress on this issue.

    Our companies continued to invest in the Success 360° program, which helps organizations better deliver effective programs to middle school kids promoting healthy development and avoiding risky behaviors like tobacco use. In 2013, we invested more than $21 million in leading organizations who offered such programs.

    Help Reasonable Regulation Succeed Learn more

    Altria supports comprehensive, meaningful and effective Food and Drug Administration (FDA) regulation of all tobacco products. We continue to work constructively with FDA by sharing our experience and knowledge, and to focus on compliance with all laws and regulations governing our businesses.

    We support FDA’s efforts to extend its regulatory authority to all tobacco products. We also believe that FDA has an unprecedented opportunity to advance public health goals by recognizing that some types of tobacco products may have significantly lower risk than others. We believe FDA should adopt a regulatory framework that recognizes the differences in tobacco products and fosters innovation that could benefit public health.

    Reduce Environmental Impact Learn more

    Our agriculture-based operating companies understand the effect that nature, including changes to our climate, can have on their business and how they operate. We also know that our environmental impact extends beyond our facilities, from seed to post consumer disposal.

    Our companies are working toward long term environmental goals to reduce their environmental impact. In 2013, USSTC and PM USA began replacing existing coal-fired boilers with more efficient natural gas boilers. Altria also supported the National Fish and Wildlife Foundation’s Western Waters Initiative for restoration projects in the Walla Walla and Yakima Basins, where many of Ste. Michelle’s vineyards are located. Our support helped conserve 1.3 billion gallons of water.

     
  • Satisfy Adult Consumers
     

    We will convert our deep understanding of adult tobacco and wine consumers into better and more creative products that satisfy their preferences. Learn more

    Deliver Superior Branded Products and Experiences – Marlboro

    In 2012, PM USA began investing in Marlboro’s new brand architecture to continue the brand’s momentum. The architecture allows the brand to more effectively engage both loyal and competitive adult smokers. Each of Marlboro’s four flavor families, Red, Gold, Green and Black, expresses the brand’s positioning and values in a unique way, allowing the brand to broaden its offerings.

    PM USA communicates Marlboro’s flavor families in equity campaigns and promotions. At retail, PM USA features the flavor families on the fixture, in point-of-sale signage and on packs. PM USA continues to develop products and brand experiences that exceed adult consumer expectations.

    Deliver Superior Branded Products and Experiences – Smokeless

    USSTC continues to invest in Copenhagen and Skoal, the two leading premium moist smokeless tobacco brands. Over the last few years, USSTC focused on profitably expanding Copenhagen’s forms and taste profiles to appeal to more adult dippers. In 2013, Copenhagen continued to enhance its offerings through the expansion of Copenhagen Southern Blend and reintroduced one of its seasonal offerings, Copenhagen Black.

    Deliver Superior Branded Products and Experiences – New Products

    Altria took important steps in 2013 to develop and commercialize innovative products for adult tobacco consumers. Nu Mark is leading our efforts to develop innovative products. Nu Mark’s launch of MarkTen e-cigarettes in Indiana and Arizona have generated valuable insights into adult e-vaper preferences and evolving category dynamics.

    Deliver Superior Branded Products and Experiences – Wine

    Ste. Michelle is one of the fastest growing premium wine companies in the United States. Ste. Michelle’s distinctive collection of wines continues to receive broad acclaim. Ste. Michelle’s portfolio earned 221 ratings of 90 or higher from wine magazines in 2013. Chateau Ste. Michelle earned its 19th ‘Winery of the Year’ award, the most awarded American winery by Wine & Spirits magazine.

     
  • Create Substantial Value For Shareholders
     

    We will execute our business plans to create sustainable growth and generate substantial returns for shareholders. Learn more

    Reward Shareholders

    Altria delivered total shareholder return of 28.6% in 2013 through stock price appreciation and a strong dividend. From December 31, 2010 through December 31, 2013, Altria outperformed the S&P 500 and the S&P Food, Beverage and Tobacco Indexes.

    We provided significant cash returns to our shareholders in 2013. We increased our dividend by 9.1% in 2013 – our 47th dividend increase in the last 44 years – and paid shareholders more than $3.6 billion in dividends.

    Altria also repurchased shares totaling $600 million in 2013 and had approximately $457 million remaining in the current $1 billion program as of December 31, 2013. We expect to complete the program by the end of the third quarter of 2014.

    In 2013, Altria’s strong balance sheet and favorable capital market conditions allowed us to tender for high coupon debt and replace it with new, lower cost debt. These transactions, along with scheduled debt maturities, improved our debt maturity profile and lowered our future interest expense.

    We also delivered on our cost reduction commitments. Altria completed its cost reduction program in the fourth quarter of 2013 by achieving $400 million in annualized savings versus previously planned spending.

    Responsibly Maximize Profitability

    In 2013, Altria’s smokeable products segment grew full-year adjusted OCI by 2.4% to $6.4 billion and increased adjusted OCI margins by 1.0 percentage point to 42.2%. The smokeless products segment grew adjusted OCI by 7.0% to over $1 billion and increased adjusted OCI margins by 1.5 percentage points to 62.3%. The wine segment OCI increased 13.5% to $118 million for the full year.

     

Our Values guide our behavior as we pursue our Mission and our business strategies.

Altria's Operating Companies

 

Board of Directors

 

The primary responsibility of the Board of Directors is to foster the long-term success of the Company. In fulfilling this role, each director exercises his or her good faith business judgment of the best interests of the Company. The Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management, which is responsible for the day-to-day operations of the Company. Learn more


Gerald L. Baliles 2,3,5,6
Director and Chief Executive Officer,
Miller Center of Public Affairs at the University of Virginia and former Governor of the Commonwealth of Virginia Director since 2008

Martin J. Barrington 3
Chairman of the Board
and Chief Executive Officer, Altria Group, Inc. Director since 2012

John T. Casteen III 1,5,6
President Emeritus,
University of Virginia Director since 2010

Dinyar S. Devitre 1,4,5
Special Advisor,
General Atlantic Partners Retired Senior Vice President
and Chief Financial Officer, Altria Group, Inc. Director since 2008

Thomas F. Farrell II 2,3,6
Chairman, President and
Chief Executive Officer, Dominion Resources, Inc. Director since 2008

Thomas W. Jones 1,2,3,4
Senior Partner, TWJ Capital LLC
Director since 2002

Debra J. Kelly-Ennis 5,6
Retired President and
Chief Executive Officer, Diageo Canada, Inc. Director since 2013

W. Leo Kiely III 2,3,4,5
Retired Chief Executive Officer,
MillerCoors LLC Director since 2011

Kathryn B. McQuade 1,2,4
Retired Executive Vice President
and Chief Financial Officer, Canadian Pacific Railway Limited Director since 2012

George Muñoz 1,3,4,6
Principal, Muñoz Investment
Banking Group, LLC Partner, Tobin & Muñoz
Director since 2004

Nabil Y. Sakkab 3,4,5,6
Retired Senior Vice President,
Corporate Research and Development, The Procter & Gamble Company Director since 2008

Committees

  • Presiding Director,
    Thomas F. Farrell II
  1. Member of Audit Committee,
    George Muñoz, Chair
  2. Member of Compensation Committee,
    W. Leo Kiely III, Chair
  3. Member of Executive Committee,
    Martin J. Barrington, Chair
  4. Member of Finance Committee,
    Thomas W. Jones, Chair
  5. Member of Innovation Committee,
    Nabil Y. Sakkab, Chair
  6. Member of Nominating,
    Corporate Governance and Social Responsibility Committee,
    Gerald L. Baliles, Chair

Financials

 
Click here to view the pdf version of the Form 10-K report and Adjusted Financial Measures

Consolidated Results (dollars in millions, except per share data)

2013 2012 Change
Net Revenues $24,466 $24,618 (0.6)%
Operating income 8,084 7,253 11.5%
Net earnings 4,535 4,183 8.4%
Net earnings attributable to Altria Group, Inc. 4,535 4,180 8.5%
Basic and diluted earnings per share attributable to Altria Group, Inc. 2.26 2.06 9.7%
Cash dividends declared per share 1.84 1.70 8.2%

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Results by Reportable Segment

2013 2012 Change
Smokeable Products      
   Net revenues $21,868 $22,216 (1.6)%
   Operating companies income 7,063 6,239 13.2%

Smokeless Products      
   Net revenues $1,778 $1,691 5.1%
   Operating companies income 1,023 931 9.9%

Wine      
   Net revenues $609 $561 8.6%
   Operating companies income 118 104 13.5%

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The chief operating decision maker of Altria Group, Inc. (Altria) reviews operating companies income (OCI) to evaluate the performance of and allocate resources to the segments. OCI for the segments is defined as operating income before amortization of intangibles and general corporate expenses. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various segments. For a reconciliation of OCI to operating income, see Note 15. Segment Reporting to the consolidated financial statements in Item 8 of the enclosed Annual Report on Form 10-K.

 

Shareholder Information

 

Shareholder Response Center:

Computershare Trust Company, N.A. (Computershare), our transfer agent, will be happy to answer questions about your accounts, certificates, dividends or the Direct Stock Purchase and Dividend Reinvestment Plan.

Within the U.S. and Canada, shareholders may call toll-free: 1-800-442-0077

From outside the U.S. or Canada, shareholders may call: 1-781-575-3572

Postal address:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078

E-mail address: altria@computershare.com

To eliminate duplicate mailings, please contact Computershare (if you are a registered shareholder) or your broker (if you hold your stock through a brokerage firm).

Direct Stock Purchase and Dividend Reinvestment Plan:

Altria Group, Inc. offers a Direct Stock Purchase and Dividend Reinvestment Plan, administered by Computershare. For more information, or to purchase shares directly through the Plan, please contact Computershare.

Shareholder Publications:

Altria Group, Inc. makes a variety of publications and reports available. These include the Annual Report, news releases and other publications. For copies, please visit our website at: www.altria.com/investors

Altria Group, Inc. makes available free of charge its filings (such as proxy statements and Reports on Form 10-K, 10-Q and 8-K) with the U.S. Securities and Exchange Commission (SEC).

For copies, please visit our website at: www.altria.com/SECfilings

If you do not have Internet access, you may call: 1-804-484-8222

Internet Access Helps Reduce Costs:

As a convenience to shareholders and an important cost-reduction and environmentally friendly measure, you can register to receive future shareholder materials (i.e., Annual Report and proxy statement) electronically. Shareholders also can vote their proxies electronically.

For complete instructions, please visit our website at: www.altria.com/investors

2014 Annual Meeting:

The Altria Group, Inc. Annual Meeting of Shareholders will be held at 9:00 a.m. ET on Wednesday, May 14, 2014, at The Greater Richmond Convention Center, 403 North Third Street, Richmond, VA 23219. For further information, call: 1-804-484-8838.

MO Listed NYSEStock Exchange Listing:

The principal stock exchange on which Altria Group, Inc.’s common stock (par value $0.331⁄3 per share) is listed, is the New York Stock Exchange (ticker symbol: MO). As of January 31, 2014, there were approximately 78,000 holders of record of Altria Group, Inc.’s common stock.

Additional Information:

The information on the respective websites of Altria Group, Inc. and its subsidiaries is not, and shall not be deemed to be, a part of this report or incorporated into any other filings Altria Group, Inc. makes with the SEC.

Trademarks and service marks in this report are the registered property of or licensed by Altria Group, Inc. or its subsidiaries.

Mailing Addresses:

Altria Group, Inc.
6601 W. Broad Street
Richmond, VA 23230-1723
altria.com

Philip Morris USA Inc.
P.O. Box 26603
Richmond, VA 23261-6603
philipmorrisusa.com

U.S. Smokeless Tobacco
Company LLC

P.O. Box 85107
Richmond, VA 23285-5107
ussmokeless.com

John Middleton Co.
6601 W. Broad Street
Richmond, VA 23230-1723
johnmiddletonco.com

Ste. Michelle Wine
Estates Ltd.

P.O. Box 1976
Woodinville, WA 98072-1976
smwe.com

Philip Morris
Capital Corporation

225 High Ridge Road
Suite 300 West
Stamford, CT 06905-3000
philipmorriscapitalcorp.com

Nu Mark LLC
6603 West Broad Street
Richmond, VA 23230-1723
nu-mark.com

Independent Auditors:

PricewaterhouseCoopers LLP
1021 E. Cary St., Suite 1250
Richmond, VA 23219


Transfer Agent and Registrar:

Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078

 

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