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8-K/A - FORM 8-K AMENDMENT - LORILLARD, LLCd681383d8ka.htm

Exhibit 99.1

Revised Lorillard, Inc. Fourth Quarter and Full Year 2013 Results

The following changes to Lorillard’s press release providing information on its results of operations for the three months and fiscal year ended December 31, 2013 (the “Earnings Release”), which was issued on February 12, 2014, reflect the impact of the subsequent event described in Item 2.02 of the Amended Form 8-K filed on February 21, 2014. On February 14, 2014, the Florida Supreme Court declined review of the intermediate appellate court decision in the Mrozek case. Based on this information, Lorillard has accrued $20.0 million as of December 31, 2013 for Mrozek, which is recorded as a charge to selling, general and administrative expenses in 2013. This subsequent event occurred after Lorillard’s issuance of the Earnings Release, but prior to the filing of its Annual Report on Form 10-K for the year ended December 31, 2013. Lorillard’s adjusted (Non-GAAP) results for the quarter and year ended December 31, 2013 contained in the Earnings Release remain unchanged. Other than as set forth below and in Item 2.02 of the Amended Form 8-K, the information contained in the Original Form 8-K shall remain unchanged.

Fourth Quarter 2013

 

    Consolidated Results

 

    Reported selling, general and administrative costs were $164 million, changed from $144 million.

 

    Reported operating income was $495 million, changed from $515 million.

 

    Reported net income was $281 million, changed from $293 million.

 

    Reported diluted earnings per share was $0.76, changed from $0.80.

 

    Cigarettes Segment Results

 

    Reported selling, general and administrative costs were $139 million, changed from $119 million.

 

    Reported operating income was $504 million, changed from $524 million.

Full Year 2013

 

    Consolidated Results

 

    Reported selling, general and administrative costs were $665 million, changed from $645 million.

 

    Reported operating income was $2.054 billion, changed from $2.074 billion.

 

    Reported net income was $1.180 billion, changed from $1.192 billion.

 

    Reported diluted earnings per share was $3.15, changed from $3.18.

 

    Cigarettes Segment Results

 

    Reported selling, general and administrative costs were $595 million, changed from $575 million.

 

    Reported operating income was $2.054 billion, changed from $2.074 billion.


Lorillard, Inc. and Subsidiaries

Consolidated Condensed Statements of Income

 

     Three Months
Ended December 31,
    Year
Ended December 31,
 
     2013     2012     2013     2012  
(Amounts in millions, except per share data)    (Unaudited)  

Net sales (a)

   $ 1,743      $ 1,704      $ 6,950      $ 6,623   

Cost of sales (a) (b)

     1,084        1,060        4,231        4,241   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     659        644        2,719        2,382   

Selling, general and administrative

     164        122        665        504   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     495        522        2,054        1,878   

Investment income

     1        1        2        4   

Interest expense

     (45     (39     (172     (154
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     451        484        1,884        1,728   

Income taxes

     170        175        704        629   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 281      $ 309      $ 1,180      $ 1,099   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

      

Basic

   $ 0.77      $ 0.80      $ 3.15      $ 2.82   

Diluted

   $ 0.76      $ 0.80      $ 3.15      $ 2.81   

Weighted average number of shares outstanding:

      

Basic

     366.53        384.87        372.96        389.27   

Diluted

     367.19        385.59        373.71        390.13   

Segment data:

      

Net sales

      

Cigarettes (a)

   $ 1,689      $ 1,665      $ 6,720      $ 6,562   

Electronic cigarettes

     54        39        230        61   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,743      $ 1,704      $ 6,950      $ 6,623   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

      

Cigarettes

   $ 504      $ 515      $ 2,054      $ 1,877   

Electronic cigarettes

     (9     7        —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 495      $ 522      $ 2,054      $ 1,878   
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental information:

      

(a) Includes excise taxes.

   $ 490      $ 495      $ 1,978      $ 1,987   

(b) Cost of sales includes:

        

– Charges to accrue obligations under the State Settlement Agreements

     353        334        1,241        1,379   

– Charges to accrue obligations under the Federal Assessment for Tobacco Growers

     28        29        120        118   

– Charges to accrue Food and Drug Administration user fees

     18        16        72        66   


Lorillard, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

 

     December 31,
2013
    December 31,
2012
 
(In millions, except share and per share data)    (Unaudited)        

Assets:

    

Cash and cash equivalents

   $ 1,454      $ 1,720   

Short-term investments

     157        —     

Accounts receivable, less allowances of $3 and $3

     19        18   

Other receivables

     29        52   

Inventories

     499        410   

Deferred income taxes

     555        557   

Other current assets

     23        20   
  

 

 

   

 

 

 

Total current assets

     2,736        2,777   

Plant and equipment, net

     316        298   

Long-term investments

     93        —     

Goodwill

     102        64   

Intangible assets

     87        57   

Deferred income taxes

     51        48   

Other assets

     151        152   
  

 

 

   

 

 

 

Total assets

   $ 3,536      $ 3,396   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Deficit:

    

Accounts and drafts payable

   $ 42      $ 39   

Accrued liabilities

     377        356   

Settlement costs

     1,224        1,183   

Income taxes

     8        23   
  

 

 

   

 

 

 

Total current liabilities

     1,651        1,601   

Long-term debt

     3,560        3,111   

Postretirement pension, medical and life insurance benefits

     305        409   

Other liabilities

     84        52   
  

 

 

   

 

 

 

Total liabilities

     5,600        5,173   
  

 

 

   

 

 

 

Commitments and Contingent Liabilities

    

Shareholders’ Deficit:

    

Preferred stock, $0.01 par value, authorized 10 million shares

     —          —     

Common stock:

    

Authorized – 600 million shares; par value – $0.01 per share

    

Issued – 382 million and 525 million shares (outstanding 365 million and 382 million shares)

     4        5   

Additional paid-in capital

     256        298   

Accumulated (deficit)/Retained earnings

     (1,438     2,351   

Accumulated other comprehensive loss

     (130     (241

Treasury stock at cost, 17 million and 143 million shares

     (756     (4,190
  

 

 

   

 

 

 

Total shareholders’ deficit

     (2,064     (1,777
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 3,536      $ 3,396   
  

 

 

   

 

 

 


Cigarettes Segment Results*

 

     Three Months     Year  
     Ended December 31,     Ended December 31,  
     2013      2012      % Chg     2013      2012      % Chg  

Net sales

   $ 1,689       $ 1,665         1.4   $ 6,720       $ 6,562         2.4

Gross profit

                

Reported (GAAP)

   $ 643       $ 628         2.4   $ 2,649       $ 2,361         12.2

Adjusted (Non-GAAP)

     643         620         3.7     2,494         2,360         5.7

Selling, general and administrative

                

Reported (GAAP)

   $ 139       $ 113         23.0   $ 595       $ 484         22.9

Adjusted (Non-GAAP)

     117         113         3.5     470         479         (1.9 %) 

Operating income

                

Reported (GAAP)

   $ 504       $ 515         (2.1 %)    $ 2,054       $ 1,877         9.4

Adjusted (Non-GAAP)

     526         507         3.7     2,024         1,881         7.6

 

* See Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Operating Income by Segment table included herein.


Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Results

(Amounts in millions, except per share data)

The reconciliation provided below reconciles the non-GAAP financial measures adjusted gross profit, adjusted operating income, adjusted net income and adjusted diluted earnings per share with the most directly comparable GAAP financial measures, reported gross profit, reported operating income, reported net income and reported diluted earnings per share available to Lorillard common stockholders, for the three months and year ended December 31, 2013. Lorillard management uses adjusted (non-GAAP) measurements to set performance goals and to measure the performance of the overall company, and believes that investors’ understanding of the underlying performance of the company’s continuing operations is enhanced through the disclosure of these metrics. Adjusted (non-GAAP) results are not, and should not be viewed as, substitutes for reported (GAAP) results.

The adjustments to reported results summarized below remove the following items: (1) the favorable impact of the reduction in Lorillard’s MSA payments as a result of the settlement to resolve certain MSA payment adjustment disputes approved by the arbitration panel in March 2013 included as an offset to tobacco settlement expense in cost of sales (including the addition of two more states in the second quarter of 2013); (2) estimated costs to comply with the U.S. Government Case judgment included in selling, general and administrative expenses; (3) accrued costs related to compensatory damages and statutory interest to dismiss the Evans case included in selling, general and administrative expenses; (4) expenses incurred in conjunction with the acquisition of SKYCIG included in selling, general and administrative expenses; (5) amortization of the SKYCIG brand included in selling, general and administrative expenses; and (6) accrued costs related to certain Engle Progeny cases included in selling, general and administrative expenses.

 

     Three months ended December 31, 2013      Year ended December 31, 2013  
     Gross      Operating      Net      Diluted      Gross     Operating     Net     Diluted  
     Profit      Income      Income      EPS      Profit     Income     Income     EPS  

Reported (GAAP) results

   $ 659       $ 495       $ 281       $ 0.76       $ 2,719      $ 2,054      $ 1,180      $ 3.15   

GAAP results include the following:

                    

(1) Settlement to resolve certain MSA payment adjustment disputes

     —           —           —           —           (155     (155     (97     (0.26

(2) Estimated costs to comply with the U.S. Government Case judgment

     —           —           —           —           —          20        13        0.03   

(3) Accrued costs related to compensatory damages and statutory interest to dismiss Evans case

     —           —           —           —           —          79        50        0.14   

(4) SKYCIG acquisition expenses

     —           —           1         —           —          4        4        0.01   

(5) Amortization of SKYCIG brand

     —           6         5         0.02         —          6        5        0.02   

(6) Accrued costs related to Engle Progeny cases

     —           22         13         0.04         —          22        13        0.03   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted (Non-GAAP) results

   $ 659       $ 523       $ 300       $ 0.82       $ 2,564      $ 2,030      $ 1,168      $ 3.12   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 


Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Operating Income by Segment

(Amounts in millions)

Lorillard has two reportable segments, Cigarettes and Electronic Cigarettes.

The Cigarettes segment consists principally of the operations of Lorillard Tobacco Company and related entities. Lorillard Tobacco is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the United States. Newport, Lorillard’s flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette overall in the United States based on gross units sold during the quarters and year ended December 31, 2013 and 2012. In addition to the Newport brand, the Lorillard product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five cigarette brands include 43 different product offerings which vary in price, taste, flavor, length and packaging.

The Electronic Cigarettes segment consists of the operations of LOEC (d/b/a blu eCigs), Cygnet Trading (t/a SKYCIG) and related entities. blu eCigs is a leading electronic cigarette company in the United States. Lorillard acquired the blu eCigs brand and other assets used in the manufacture, distribution, development, research, marketing, advertising and sale of electronic cigarettes on April 24, 2012. Lorillard acquired all of the assets and operations of SKYCIG, a United Kingdom based electronic cigarette business, on October 1, 2013.

 

     Three months ended December 31, 2013      Year ended December 31, 2013  
            Electronic                  Electronic         
     Cigarettes      Cigarettes     Total      Cigarettes     Cigarettes      Total  

Reported (GAAP) operating income

   $ 504       $ (9   $ 495       $ 2,054      $ —         $ 2,054   

GAAP results include the following:

               

(1) Settlement to resolve certain MSA payment adjustment disputes

     —           —          —           (155     —           (155

(2) Estimated costs to comply with the U.S. Government Case judgment

     —           —          —           20        —           20   

(3) Accrued costs related to compensatory damages and statutory interest to dismiss Evans case

     —           —          —           79        —           79   

(4) SKYCIG acquisition expenses

     —           —          —           4        —           4   

(5) Amortization of SKYCIG brand

     —           6        6         —          6         6   

(6) Accrued costs related to Engle Progeny cases

     22         —          22         22        —           22   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted (Non-GAAP) operating income

   $ 526       $ (3   $ 523       $ 2,024      $ 6       $ 2,030