UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 17, 2015
Lorillard, Inc.
(Exact
name of registrant as specified in its charter)
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DELAWARE |
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001-34097 |
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13-1911176 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
714 Green Valley Road
Greensboro, North Carolina 27408-7018
(Address of principal executive offices, including zip code)
(336) 335-7000
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. |
Results of Operations and Financial Conditions. |
On April 17, 2015, Lorillard, Inc. issued a press
release providing information on its results of operations for the three months ended March 31, 2015. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K (the Form 8-K).
The information disclosed under this Item 2.02 of this Form 8-K, including Exhibit 99.1 hereto, is being furnished and shall not be deemed
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filing under the Securities Act of
1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. |
Financial Statements and Exhibits. |
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99.1 |
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Press release dated April 17, 2015. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
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LORILLARD, INC. |
(Registrant) |
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By: |
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/s/ David H. Taylor |
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David H. Taylor |
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Executive Vice President, Finance and Planning and Chief Financial Officer |
Dated: April 17, 2015
Exhibit 99.1
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Contact: |
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Robert Bannon Director, Investor Relations
(336) 335-7665 |
LORILLARD, INC. REPORTS FIRST QUARTER RESULTS
GREENSBORO, NC, April 17, 2015 Lorillard, Inc. (NYSE: LO) announced today its results for the quarter ended March 31, 2015.
First Quarter Highlights
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First quarter net sales increased 4.8% to $1.668 billion behind a 3.1% increase in wholesale cigarette unit volume. |
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First quarter 2015 reported (GAAP) diluted earnings per share increased 2.7% over first quarter 2014 to $0.76. |
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First quarter 2015 adjusted (Non-GAAP) diluted earnings per share increased 18.8% over first quarter 2014 to $0.82. |
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First quarter 2015 Cigarettes adjusted operating income (Non-GAAP) increased 18.6% over first quarter 2014 and adjusted operating margin increased 3.4 percentage points. |
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Total Lorillard retail market share of cigarettes for the first quarter of 2015 was a record 15.5%, increasing 0.3 share point compared to the corresponding period of 2014. |
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Newport retail market share for the first quarter 2015 was a record 13.3%, increasing 0.3 share point versus first quarter 2014. |
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The Company still expects to close the merger with Reynolds American in the first half of 2015, subject to regulatory approval and other customary closing conditions. |
Financial Results Summary*
(Amounts in Millions, Except Per Share Data)
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Three Months Ended March 31, |
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2015 |
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2014 |
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% Chg |
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Net sales |
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$ |
1,668 |
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$ |
1,592 |
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4.8 |
% |
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Operating income |
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Reported (GAAP) |
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$ |
487 |
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$ |
472 |
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3.2 |
% |
Adjusted (Non-GAAP) |
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518 |
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447 |
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15.9 |
% |
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Net income |
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Reported (GAAP) |
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$ |
275 |
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$ |
271 |
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1.5 |
% |
Adjusted (Non-GAAP) |
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296 |
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252 |
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17.5 |
% |
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Diluted earnings per share |
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Reported (GAAP) |
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$ |
0.76 |
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$ |
0.74 |
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2.7 |
% |
Adjusted (Non-GAAP) |
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0.82 |
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0.69 |
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18.8 |
% |
* |
See Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) results table included with this release. |
Consolidated Results
Net sales increased by $76
million, or 4.8%, to $1.668 billion in the first quarter of 2015 due to a 6.4% increase in net sales of cigarettes, partially offset by a decrease in net sales of electronic cigarettes.
Reported diluted earnings per share increased $0.02, or 2.7%, to $0.76 in the first quarter of 2015 compared to the first quarter of 2014.
Adjusted diluted earnings per share increased $0.13, or 18.8%, to $0.82 in the first quarter of 2015, due to the strong operating performance in the
Cigarettes segment and the impact of share repurchases in prior quarters. As detailed in the reconciliation table, adjusted diluted earnings per share excludes accrued costs related to Engle Progeny cases, accrued costs related to the Zippo
litigation and other special items.
During the first quarter, Lorillard continued its strong momentum from 2014 by once again delivering
industry-leading cigarette operating profit growth and record high retail market shares, stated Murray S. Kessler, Lorillard Chairman, President and CEO. Increased unit volumes, robust pricing realization and continued tight cost
controls in our Cigarettes segment drove double-digit increases in first quarter adjusted operating income and EPS. Notably, these outstanding results were achieved despite continued domestic and international investments in our Electronic
Cigarettes category and without the benefit of ongoing share repurchases, which were discontinued as a result of our pending acquisition.
All
in all, we are extremely pleased with the first quarter performance of our Cigarettes segment and our flagship Newport brand, as well as with the position of our Electronic Cigarettes segment as blu eCigs continues to deliver a unique and innovative
product portfolio to adult consumers seeking alternatives to traditional tobacco products, Mr. Kessler continued.
Finally, the Company
continues to believe its previously-announced combination with Reynolds American will close in the first half of 2015. Once completed, the transaction will deliver significant and immediate value to Lorillard shareholders, Mr. Kessler
concluded.
The following is a discussion of first quarter performance of Lorillards two operating segments, Cigarettes and Electronic Cigarettes.
Cigarettes Segment Results*
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Three Months Ended March 31, |
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2015 |
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2014 |
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% Chg |
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Net sales |
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$ |
1,640 |
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$ |
1,541 |
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6.4 |
% |
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Gross profit |
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Reported (GAAP) |
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$ |
661 |
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$ |
603 |
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9.6 |
% |
Adjusted (Non-GAAP) |
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658 |
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572 |
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15.0 |
% |
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Selling, general and administrative |
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Reported (GAAP) |
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$ |
142 |
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$ |
120 |
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18.3 |
% |
Adjusted (Non-GAAP) |
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122 |
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120 |
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1.7 |
% |
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Operating income |
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Reported (GAAP) |
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$ |
519 |
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$ |
483 |
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7.5 |
% |
Adjusted (Non-GAAP) |
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536 |
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452 |
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18.6 |
% |
* |
See Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) results table included with this release. |
First Quarter 2015 - Cigarettes
Cigarette net sales
increased $99 million, or 6.4%, to $1.640 billion in the first quarter of 2015, compared to $1.541 billion in the first quarter of 2014. The increase in cigarette net sales resulted from higher average net cigarette selling prices as well as higher
cigarette unit sales volume.
Total Lorillard wholesale cigarette unit volume, which includes Puerto Rico and U.S. Possessions, increased 3.1% for the
first quarter of 2015 compared to the corresponding period of 2014. Puerto Rico and U.S. Possessions increased 6.5% compared to the year ago period. Domestic wholesale cigarette unit volume, which excludes Puerto Rico and U.S. Possessions, increased
3.0% for the first quarter of 2015 compared to the corresponding period of 2014. The Company estimates total cigarette industry domestic wholesale shipments increased approximately 0.5% for the first quarter of 2015 compared to the first quarter of
2014, marking a meaningful improvement in trend versus the first half of 2014.
Total wholesale unit volume, including Puerto Rico and U.S. Possessions,
for Newport, the Companys flagship brand, increased 3.9% for the first quarter of 2015 compared to the corresponding period of 2014. Domestic wholesale cigarette
Page 2 of 12
unit volume for Newport, which excludes Puerto Rico and U.S. Possessions, also increased 3.9% for the quarter versus year ago. Domestic wholesale shipments for Maverick, the Companys
leading discount brand, decreased 1.1% for the first quarter of 2015 compared to the first quarter of 2014, a sequential improvement over the 3.1% decline experienced in the fourth quarter of 2014.
Based on Lorillards proprietary retail shipment database administered by Management Science Associates, Inc., which measures shipments from wholesale to
retail, Lorillards first quarter 2015 domestic retail market share increased 0.3 share point versus year ago to 15.5%, its fifth consecutive quarter over 15%. Newports domestic retail market share was 13.3%, an increase of 0.3 share
point compared to the first quarter of 2014. Lorillards domestic retail share of the menthol market for the first quarter of 2015 was flat versus the corresponding quarter of 2014 at 40.7%. Gains in Newports domestic retail market share
were primarily attributable to the continued strengthening of Newport Menthol in its core geographies, continued success in expansion markets and the volume impact from the growth of Newport Non-Menthol.
Exceptional first quarter volume growth of almost four percent on our Newport brand allowed it to reach its highest level of retail market share ever
during the first quarter. We believe the brand continued to benefit from its highly differentiated consumer base, unique positioning and superior product quality but in this quarter also benefited from an improved overall cigarette industry
performance tracing to improved economic conditions for the U.S. consumer and lower gasoline prices, said Mr. Kessler.
Reported gross profit
was $661 million, or 40.3% of net sales, in the first quarter of 2015 and $603 million, or 39.1% of net sales, in the first quarter of 2014. Adjusted gross profit was $658 million, or 40.1% of net sales, in the first quarter of 2015 and $572
million, or 37.1% of net sales, in the first quarter of 2014. As detailed in the reconciliation table, first quarter 2015 adjusted gross profit excludes the $3 million favorable impact on Lorillards tobacco settlement expense of the Engle
settlement. First quarter 2014 adjusted gross profit excludes the $31 million favorable impact on Lorillards tobacco settlement expense of the 2003 non-participating manufacturer award. The increase in adjusted gross profit for the first
quarter of 2015 is due to the absence of $28 million of charges to accrue obligations under the Federal Assessment for Tobacco Growers which expired in the third quarter of 2014, higher average net cigarette selling prices and higher cigarette unit
sales volume.
Reported selling, general and administrative costs increased $22 million to $142 million in the first quarter of 2015 compared to the first
quarter of 2014. Adjusted selling, general and administrative costs increased $2 million to $122 million in the first quarter of 2015 compared to the first quarter of 2014 primarily due to higher litigation related expenses. As detailed in the
reconciliation table, adjusted selling, general and administrative costs exclude certain special items.
Reported operating income for the Cigarettes
segment increased $36 million, or 7.5%, to $519 million in the first quarter of 2015 from $483 million in the first quarter of 2014. Adjusted operating income for the Cigarettes segment increased $84 million, or 18.6%, to $536 million in the first
quarter of 2015 from $452 million in the first quarter of 2014. Higher gross margins resulted in a 3.4 percentage point increase in adjusted operating income margin to 32.7% for the segment. Significant increases in operating income and operating
margin for the Cigarettes segment in the first quarter of 2015 versus the comparable period of the prior year were primarily due to the expiration of the Federal Assessment for Tobacco Growers in the third quarter of 2014, cigarette price increases
and higher unit sales volume.
The powerful combination of increased cigarette shipments, strong net pricing realization of 4.6% in the quarter,
continued cost controls and the expiration of federal tobacco growers payments resulted in robust adjusted operating income growth of almost 19 percent and a 340 basis point increase in operating margin during the first quarter. Clearly, our
Cigarettes segment is hitting on all cylinders as we enter 2015, Mr. Kessler remarked.
Electronic Cigarettes Segment Results*
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Three Months Ended March 31, |
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2015 |
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2014 |
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% Chg |
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Net sales |
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$ |
28 |
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$ |
51 |
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(45.1 |
)% |
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Gross profit |
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Reported (GAAP) |
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$ |
5 |
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$ |
16 |
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(68.8 |
)% |
Adjusted (Non-GAAP) |
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5 |
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16 |
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(68.8 |
)% |
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Selling, general and administrative |
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Reported (GAAP) |
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$ |
37 |
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$ |
27 |
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37.0 |
% |
Adjusted (Non-GAAP) |
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23 |
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21 |
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9.5 |
% |
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Operating loss |
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Reported (GAAP) |
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$ |
(32 |
) |
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$ |
(11 |
) |
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n/m |
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Adjusted (Non-GAAP) |
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(18 |
) |
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(5 |
) |
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n/m |
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* |
See Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) results table included with this release. |
Page 3 of 12
First Quarter 2015 Electronic Cigarettes
Net sales for the Electronic Cigarettes segment were $28 million for the first quarter ended March 31, 2015, compared to $51 million for the first quarter
ended March 31, 2014. The decline in sales of blu eCigs in the U.S. versus year ago reflects a decrease in unit volume, partly offset by the launch of the blu PLUS+ product line described below. The decrease in unit volume is attributed to
competitors national product launches accompanied by aggressive promotional programs.
During the first quarter of 2015, blu eCigs launched the new
blu PLUS+ Xpress rechargeable kit to retailers nationwide. The PLUS+ Xpress kit features the same innovative improvements as the PLUS+ Rechargeable kit that was launched during the fourth quarter of 2014. blu PLUS+ Xpress offers consumers the PLUS+
experience at a competitive price including batteries that last twice as long as before, enhanced proprietary flavors, and a new advanced closed tank system designed to provide more consistent and enhanced vapor production. As with all
of blu eCigs consumer-focused product innovations, the new blu PLUS+ kit, Xpress kit, and tank system is designed to increase user satisfaction without adding complexity.
Based on the Nielsen ScanTrack Database, blus domestic U.S. all-outlet dollar market share of electronic cigarettes was 23.4% for the 13 weeks ending
March 28, 2015, compared to 43.9% in the comparable period of 2014. The decline in blus market share versus the year ago 13 week period was the result of significantly increased competitive activity during the past three quarters
beginning in the second half of last year. While down significantly versus year ago, blu market share increased 0.4 points sequentially from 23.0% in the fourth quarter of 2014 to 23.4% in the first quarter of 2015 as a result of the blu PLUS+
introductions.
We are pleased that blu eCigs share stabilized in the quarter as the brand introduced a full line of innovative
next-generation disposable and rechargeable e-cigarettes, starter kits and tank products and did so while maintaining its premium positioning and avoiding discounting.
blu (U.K.), formerly known as SKYCIG, was acquired on October 1, 2013 and generated $2 million in net sales during the first quarter of 2015. The product
offering in the U.K. was re-branded as blu and launched at retail during the second quarter of 2014. The launch and retail rollout has been accompanied by introductory levels of advertising and promotional spending. Net sales are
expected to increase significantly during 2015 as a result of continued marketing of blu and expanded retail distribution.
Internationally, our
recent U.K. distribution agreement with Imperial Tobaccos electronic cigarette subsidiary is off to a good start and will provide the opportunity to significantly expand blu U.K.s presence and product visibility over the course of the
coming year, stated Mr. Kessler. With the additional scale from Imperials U.K. sales force, we believe blu U.K.s innovative product portfolio will position the brand well for continued long term success.
Based on Nielsen ScanTrack data in the U.K., blu (U.K.)s all-outlet dollar market share of electronic cigarettes was 8.3% for the 12 week period ending
March 28, 2015 after successfully re-branding the Companys e-cigarette product offerings as blu in the second quarter of 2014.
Gross profit for total electronic cigarettes was $5 million, or 17.9% of net sales, for the first quarter ended March 31, 2015. This compares to gross
profit of $16 million, or 31.4% of net sales, for the first quarter ended March 31, 2014. Gross profit and gross profit margin for the first quarter of 2015 were negatively impacted by an increase in retail promotion costs and lower U.S.
volume, partially offset by the favorable impact of new blu PLUS+ product launches.
Reported selling, general and administrative costs were $37 million
for the first quarter ended March 31, 2015, compared to $27 million for the first quarter ended March 31, 2014. Adjusted selling, general and administrative costs were $23 million for the first quarter ended March 31, 2015, compared
to $21 million for the first quarter ended March 31, 2014 and reflect incremental costs to launch the blu brand in the U.K. As detailed in the reconciliation table, adjusted selling, general and administrative costs exclude amortization of the
SKYCIG brand totaling $5 million and accrued costs related to the Zippo
Page 4 of 12
litigation of $9 million. The fair value ascribed to the SKYCIG brand in connection with the acquisition of £20 million (approximately $30 million at March 31, 2015 exchange
rates) was amortized over an estimated life of 18 months beginning October 1, 2013, and amortization ceased as of March 31, 2015.
Reported
operating loss for the Electronic Cigarettes segment was $32 million for the first quarter of 2015, compared to $11 million for the first quarter of 2014. Adjusted operating loss for the Electronic Cigarettes segment was $18 million for the first
quarter of 2015, compared to $5 million for the first quarter of 2014. blu (U.K.)s reported and adjusted operating loss was $15 million and $10 million, respectively, for the first quarter of 2015, and $9 and $3, respectively, for the first
quarter of 2014.
Additional News
In April
2015, the Company paid, or will pay, $1.133 billion under the State Settlement Agreements, primarily based on 2014 volume. Included in the payment is $93 million deposited in an interest-bearing escrow account in accordance with procedures
established in the MSA pending resolution of a claim by the Company and the other Original Participating Manufacturers that they are entitled to reduce their MSA payments based on a loss of market share to non-participating manufacturers.
The previously-announced combination with Reynolds American remains subject to regulatory approval and the additional customary closing conditions contained
in the merger agreement. Although no assurance can be given if and when the transaction will be completed because it remains subject to regulatory approval and additional customary closing conditions, the transaction is expected to close in the
first half of 2015.
About Lorillard, Inc.
Lorillard, Inc. (NYSE: LO), through its Lorillard Tobacco Company subsidiary, is the third largest manufacturer of cigarettes in the United States. Founded in
1760, Lorillard Tobacco is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard Tobaccos flagship premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S. In addition to
Newport, the Lorillard Tobacco product line has four additional cigarette brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five brands include 45 different product offerings which vary in price, taste, flavor,
length and packaging. Lorillard, Inc., through its other subsidiaries, is also a leading global electronic cigarette company, marketed under the blu eCigs brand in the U.S. and U.K. Newport, Kent, True, Maverick, Old Gold and blu eCigs are the
registered trademarks of Lorillard and its subsidiaries. Lorillard maintains its corporate headquarters and manufactures all of its traditional cigarette products in Greensboro, North Carolina.
Forward-Looking Statements
This report contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which represent the current expectations and beliefs of management of Lorillard, Inc. (Lorillard) concerning the proposed
transaction involving Reynolds American Inc. (Reynolds American) and Lorillard (the transaction) and other future events and their potential effects on Lorillard, including, but not limited to, statements relating to
anticipated financial and operating results, the companies plans, objectives, expectations and intentions, cost savings and other statements, including words such as anticipate, believe, plan,
estimate, expect, intend, will, should, may, and other similar expressions. Such statements are based upon the current beliefs and expectations of Lorillards management,
are not guarantees of future results and are subject to a significant number of risks and uncertainties. Actual results may differ materially from the results anticipated in these forward looking statements. Those factors include, without
limitation: the ability to obtain governmental approvals of the transaction or to satisfy other conditions to the transaction on the proposed terms and timeframe; the possibility that the transaction does not close when expected or at all, or that
the companies may be required to modify aspects of the transaction to achieve regulatory approval; the ability to realize the expected synergies resulting from the transaction in the amounts or in the timeframe anticipated; the ability to integrate
Lorillards businesses into those of Reynolds Americans in a timely and cost-efficient manner; the impact of regulatory initiatives, including the regulation of cigarettes and electronic cigarettes and a possible ban or regulation of the
use of menthol in cigarettes by the Food and Drug Administration, and compliance with governmental regulations; the outcome of pending or future litigation; health concerns, claims, regulations and other restrictions relating to the use of tobacco
products and exposure to environmental tobacco smoke; the effect on pricing and consumption rates of legislation, including actual and potential federal and state excise tax increases, and tobacco litigation settlements; continued intense
competition from other cigarette and electronic cigarette manufacturers; the continuing decline in volume in the domestic cigarette industry; changes in the price, quality or quantity of tobacco leaf and other raw materials available for use in
Lorillards cigarettes; reliance on a limited number of suppliers for certain raw materials; and other risks and uncertainties,
Page 5 of 12
including those detailed from time to time in Lorillards periodic reports filed with the Securities and Exchange Commission (the SEC), including Lorillards Current Reports
on Form 8-K, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. In particular, we refer you to Item 1A. Risk Factors of Lorillards 2014 Annual Report on Form 10-K, which was filed with the SEC on February 12, 2015
for additional information regarding the risks and uncertainties discussed above as well as additional risks and uncertainties that may affect Lorillards actual results. The forward-looking statements in this report are qualified by these risk
factors. Each statement speaks only as of the date of this report (or any earlier date indicated in this report) and Lorillard undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Investors, potential investors and others should give careful consideration to these risks and uncertainties.
Page 6 of 12
Lorillard, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
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Three Months Ended March 31, |
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2015 |
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2014 |
|
(Amounts in millions, except per share data) |
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Net sales (a) |
|
$ |
1,668 |
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|
$ |
1,592 |
|
Cost of sales (a) (b) |
|
|
1,002 |
|
|
|
973 |
|
|
|
|
|
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|
Gross profit |
|
|
666 |
|
|
|
619 |
|
Selling, general and administrative |
|
|
179 |
|
|
|
147 |
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|
|
|
|
|
|
|
|
|
Operating income |
|
|
487 |
|
|
|
472 |
|
Investment income |
|
|
1 |
|
|
|
8 |
|
Interest expense |
|
|
(45 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
443 |
|
|
|
435 |
|
Income taxes |
|
|
168 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
275 |
|
|
$ |
271 |
|
|
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|
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|
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|
|
|
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|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.76 |
|
|
$ |
0.75 |
|
Diluted |
|
$ |
0.76 |
|
|
$ |
0.74 |
|
|
|
|
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
359.23 |
|
|
|
362.12 |
|
Diluted |
|
|
359.91 |
|
|
|
362.71 |
|
|
|
|
Segment data: |
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
Cigarettes (a) |
|
$ |
1,640 |
|
|
$ |
1,541 |
|
Electronic cigarettes |
|
|
28 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,668 |
|
|
$ |
1,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
Cigarettes |
|
$ |
519 |
|
|
$ |
483 |
|
Electronic cigarettes |
|
|
(32 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
487 |
|
|
$ |
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
(a) Includes excise taxes. |
|
$ |
458 |
|
|
$ |
445 |
|
|
|
|
(b) Cost of sales includes: |
|
|
|
|
|
|
|
|
|
|
|
Charges to accrue obligations under the State Settlement Agreements |
|
|
339 |
|
|
|
286 |
|
|
|
|
Charges to accrue obligations under the Federal Assessment for Tobacco Growers |
|
|
|
|
|
|
28 |
|
|
|
|
Charges to accrue Food and Drug Administration user fees |
|
|
20 |
|
|
|
19 |
|
Page 7 of 12
Lorillard, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
|
|
(Unaudited) |
|
|
|
|
(In millions, except share and per share data) |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,920 |
|
|
$ |
1,308 |
|
Short-term investments |
|
|
329 |
|
|
|
324 |
|
Accounts receivable, less allowances of $2 and $2 |
|
|
25 |
|
|
|
13 |
|
Other receivables |
|
|
29 |
|
|
|
35 |
|
Inventories |
|
|
455 |
|
|
|
404 |
|
Deferred income taxes |
|
|
517 |
|
|
|
522 |
|
Other current assets |
|
|
33 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,308 |
|
|
|
2,634 |
|
Plant and equipment, net |
|
|
298 |
|
|
|
308 |
|
Long-term investments |
|
|
154 |
|
|
|
167 |
|
Goodwill |
|
|
98 |
|
|
|
100 |
|
Intangible assets |
|
|
58 |
|
|
|
63 |
|
Deferred income taxes |
|
|
140 |
|
|
|
142 |
|
Other assets |
|
|
98 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,154 |
|
|
$ |
3,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Deficit: |
|
|
|
|
|
|
|
|
Accounts and drafts payable |
|
$ |
36 |
|
|
$ |
31 |
|
Accrued liabilities |
|
|
454 |
|
|
|
357 |
|
Settlement costs |
|
|
1,525 |
|
|
|
1,187 |
|
Income taxes |
|
|
158 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,173 |
|
|
|
1,583 |
|
Long-term debt |
|
|
3,567 |
|
|
|
3,561 |
|
Postretirement pension, medical and life insurance benefits |
|
|
472 |
|
|
|
473 |
|
Other liabilities |
|
|
76 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,288 |
|
|
|
5,690 |
|
|
|
|
|
|
|
|
|
|
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 383 million and 383 million shares
(outstanding 360 million and 360 million shares) |
|
|
4 |
|
|
|
4 |
|
Additional paid-in capital |
|
|
295 |
|
|
|
287 |
|
Accumulated deficit |
|
|
(1,103 |
) |
|
|
(1,140 |
) |
Accumulated other comprehensive loss |
|
|
(260 |
) |
|
|
(263 |
) |
Treasury stock at cost, 23 million and 23 million shares |
|
|
(1,070 |
) |
|
|
(1,070 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders deficit |
|
|
(2,134 |
) |
|
|
(2,182 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit |
|
$ |
4,154 |
|
|
$ |
3,508 |
|
|
|
|
|
|
|
|
|
|
Page 8 of 12
Lorillard, Inc. and Subsidiaries
Wholesale Cigarette Shipments
Information regarding unit
volume shipped by Lorillard Tobacco Company to its direct buying customers by brand follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(All units in thousands) |
|
2015 |
|
|
2014 |
|
|
% Chg |
|
|
|
|
|
Full Price Brands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newport |
|
|
7,844,592 |
|
|
|
7,550,721 |
|
|
|
3.9 |
% |
Kent |
|
|
27,174 |
|
|
|
31,554 |
|
|
|
-13.9 |
% |
True |
|
|
31,032 |
|
|
|
34,662 |
|
|
|
-10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Full Price Brands |
|
|
7,902,798 |
|
|
|
7,616,937 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/Value Brands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Gold |
|
|
85,524 |
|
|
|
90,054 |
|
|
|
-5.0 |
% |
Maverick |
|
|
1,119,138 |
|
|
|
1,131,162 |
|
|
|
-1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Price/Value Brands |
|
|
1,204,662 |
|
|
|
1,221,216 |
|
|
|
-1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic Cigarettes |
|
|
9,107,460 |
|
|
|
8,838,153 |
|
|
|
3.0 |
% |
|
|
|
|
Total Puerto Rico and U.S. Possessions |
|
|
125,598 |
|
|
|
117,972 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total Cigarettes |
|
|
9,233,058 |
|
|
|
8,956,125 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
1. |
This information is not adjusted for returns or the impact of wholesale trade inventory fluctuations. |
2. |
Domestic unit volume includes units sold as well as promotional units and excludes volumes for Puerto Rico and U.S. Possessions. |
3. |
Unit volume for a quarter is not necessarily indicative of unit volume for any subsequent period. |
4. |
Unit volume is not necessarily indicative of the level of revenues for any period. |
Page 9 of 12
Lorillard, Inc. and Subsidiaries
Selected Domestic Retail Cigarette Unit Market Share Data (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
Pt Chg |
|
|
|
|
|
Lorillard |
|
|
15.5 |
% |
|
|
15.2 |
% |
|
|
0.3 |
|
Newport |
|
|
13.3 |
% |
|
|
13.0 |
% |
|
|
0.3 |
|
Total Industry Menthol |
|
|
32.1 |
% |
|
|
31.8 |
% |
|
|
0.3 |
|
Lorillard Share of Menthol Segment |
|
|
40.7 |
% |
|
|
40.7 |
% |
|
|
0.0 |
|
Newport Share of Menthol Segment |
|
|
37.5 |
% |
|
|
37.5 |
% |
|
|
0.0 |
|
(1) |
Based on Lorillards proprietary retail shipment database, administered by Management Science Associates, Inc. |
blu Domestic Retail Electronic Cigarette Dollar Market Share Data (2)
13 Week Reporting Periods Ended:
|
|
|
|
|
March 23, 2013 |
|
|
35.3 |
% |
June 22, 2013 |
|
|
42.0 |
% |
September 28, 2013 |
|
|
44.7 |
% |
December 21, 2013 |
|
|
45.0 |
% |
March 15, 2014 |
|
|
43.9 |
% |
July 5, 2014 |
|
|
39.3 |
% |
September 27, 2014 |
|
|
28.3 |
% |
December 27, 2014 |
|
|
23.0 |
% |
March 28, 2015 |
|
|
23.4 |
% |
(2) |
Based on Nielsen, ScanTrack Database All Outlets Combined. |
Page 10 of 12
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 quarters ended March 31, 2015 and 2014. 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 Companys 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 Engle settlement on Lorillards tobacco settlement expense in cost of sales; (2) amortization of the SKYCIG brand included in selling,
general and administrative expenses; (3) costs related to the RAI merger agreement included in selling, general and administrative expenses; (4) accrued costs related to certain Engle Progeny cases included in selling, general and
administrative expenses; (5) accrued costs related to the Zippo litigation included in selling, general and administrative expenses; and (6) the favorable impact of the 2003 non-participating manufacturer award as a result of the September
2013 arbitration panel determination that six states failed to diligently enforce escrow provisions applicable to non-participating manufacturers included as an offset to tobacco settlement expense in cost of sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015 |
|
|
|
Gross Profit |
|
|
Operating Income |
|
|
Net Income |
|
|
Diluted EPS |
|
|
|
|
|
|
Reported (GAAP) results |
|
$ |
666 |
|
|
$ |
487 |
|
|
$ |
275 |
|
|
$ |
0.76 |
|
|
|
|
|
|
GAAP results include the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Favorable impact of the Engle settlement on tobacco settlement expense |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
(2) Amortization of SKYCIG brand |
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
0.01 |
|
|
|
|
|
|
(3) Costs related to RAI merger agreement |
|
|
|
|
|
|
5 |
|
|
|
3 |
|
|
|
0.01 |
|
|
|
|
|
|
(4) Accrued costs related to Engle Progeny cases |
|
|
|
|
|
|
15 |
|
|
|
9 |
|
|
|
0.03 |
|
|
|
|
|
|
(5) Accrued costs related to Zippo litigation |
|
|
|
|
|
|
9 |
|
|
|
6 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (Non-GAAP) results |
|
$ |
663 |
|
|
$ |
518 |
|
|
$ |
296 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
|
|
|
Gross Profit |
|
|
Operating Income |
|
|
Net Income |
|
|
Diluted EPS |
|
|
|
|
|
|
Reported (GAAP) results |
|
$ |
619 |
|
|
$ |
472 |
|
|
$ |
271 |
|
|
$ |
0.74 |
|
|
|
|
|
|
GAAP results include the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) 2003 non-participating manufacturer arbitration award |
|
|
(31 |
) |
|
|
(31 |
) |
|
|
(24 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
(2) Amortization of SKYCIG brand |
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (Non-GAAP) results |
|
$ |
588 |
|
|
$ |
447 |
|
|
$ |
252 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 11 of 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 second largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard Tobacco is the oldest continuously operating tobacco company in the United States. Newport, Lorillard
Tobaccos flagship 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 ended March 31, 2015 and 2014. In addition to the
Newport brand, the Lorillard Tobacco product line has four additional brand families marketed under the Kent, True, Maverick and Old Gold brand names. These five cigarette brands include 45 different product offerings which vary in price, taste,
flavor, length and packaging.
The Electronic Cigarettes segment consists of the operations of LOEC, Inc. (d/b/a blu eCigs), Cygnet U.K. Trading Limited
(t/a blu (U.K.)) 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 (now known as blu (U.K.)), a United Kingdom based electronic cigarette business, on October 1, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015 |
|
|
|
Cigarettes |
|
|
Electronic Cigarettes |
|
|
Total |
|
|
|
|
|
Reported (GAAP) operating income (loss) |
|
$ |
519 |
|
|
$ |
(32 |
) |
|
$ |
487 |
|
|
|
|
|
GAAP results include the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Favorable impact of the Engle settlement on tobacco settlement expense |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
(2) Amortization of SKYCIG brand |
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
(3) Costs related to RAI merger agreement |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
(4) Accrued costs related to Engle Progeny cases |
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
(5) Accrued costs related to Zippo litigation |
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (Non-GAAP) operating income (loss) |
|
$ |
536 |
|
|
$ |
(18 |
) |
|
$ |
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
|
|
|
Cigarettes |
|
|
Electronic Cigarettes |
|
|
Total |
|
|
|
|
|
Reported (GAAP) operating income (loss) |
|
$ |
483 |
|
|
$ |
(11 |
) |
|
$ |
472 |
|
|
|
|
|
GAAP results include the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) 2003 non-participating manufacturer arbitration award |
|
|
(31 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
(2) Amortization of SKYCIG brand |
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted (Non-GAAP) operating income (loss) |
|
$ |
452 |
|
|
$ |
(5 |
) |
|
$ |
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 12 of 12