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SEC Filings

8-K
ALTRIA GROUP, INC. filed this Form 8-K on 02/01/2018
Entire Document
 

Altria Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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with its carrying value of $18.0 billion and $17.9 billion, respectively.
Prior to the completion of the Transaction on October 10, 2016, Altria Group, Inc. held an approximate 27% ownership of SABMiller that was accounted for under the equity method of accounting.
Pre-tax earnings from Altria Group, Inc.’s equity investment in SABMiller were $795 million and $757 million for the years ended December 31, 2016 and 2015, respectively. Altria Group, Inc.’s earnings from its equity investment in SABMiller for the year ended December 31, 2016 included a pre-tax non-cash gain of $309 million, reflecting Altria Group, Inc.’s share of SABMiller’s increase to shareholders’ equity, resulting from the completion of the SABMiller, The Coca-Cola Company and Gutsche Family Investments transaction, combining bottling operations in Africa. As a result of the timing of the completion of the Transaction, Altria Group, Inc.’s pre-tax earnings from its equity investment in SABMiller for the year ended December 31, 2016 included its share of approximately nine months of SABMiller’s earnings.
    Summary financial data of SABMiller is as follows:
 
For the Years Ended December 31,
(in millions)
2016 (1)

 
2015

Net revenues
$
14,543

 
$
20,188

Operating profit
$
2,099

 
$
3,690

Net earnings attributable to SABMiller
$
1,803

 
$
2,838

(1) As a result of the timing of the completion of the Transaction, summary financial data of SABMiller for the year ended December 31, 2016 included approximately nine months of SABMiller’s results.
AB InBev and SABMiller Business Combination: On October 10, 2016, Legacy AB InBev completed the Transaction, and AB InBev became the holding company for the combined SABMiller and Legacy AB InBev businesses. Under the terms of the Transaction, SABMiller shareholders received 45 British pounds (“GBP”) in cash for each SABMiller share held, with a partial share alternative (“PSA”), which was subject to proration, available for approximately 41% of the SABMiller shares. Altria Group, Inc. elected the PSA.
Upon completion of the Transaction and taking into account proration, Altria Group, Inc. received, in respect of its 430,000,000 SABMiller shares, (i) an interest that was converted into the Restricted Shares, representing a 9.6% ownership of AB InBev based on AB InBev’s shares outstanding at October 10, 2016, and (ii) approximately $4.8 billion in pre-tax cash as the cash component of the PSA. Additionally, Altria Group, Inc. received pre-tax cash proceeds of approximately $0.5 billion from exercising the derivative financial instruments discussed below, which, together with the pre-tax cash from the Transaction, totaled approximately $5.3 billion in pre-tax cash. Subsequently, Altria Group, Inc. purchased approximately 12 million ordinary shares of AB InBev for a total cost of approximately $1.6 billion, thereby increasing Altria Group, Inc.’s ownership of AB InBev to approximately 10.2% at December 31, 2016.
 
The Restricted Shares:
are unlisted and not admitted to trading on any stock exchange;
are subject to a five-year lock-up (subject to limited exceptions) ending October 10, 2021;
are convertible into ordinary shares of AB InBev on a one-for-one basis after the end of this five-year lock-up period;
rank equally with ordinary shares of AB InBev with regards to dividends and voting rights; and
have director nomination rights with respect to AB InBev.
As a result of the Transaction, for the year ended December 31, 2016, Altria Group, Inc. recorded a pre-tax gain of approximately $13.9 billion, or $9.0 billion after-tax, which was based on the following:
the Legacy AB InBev share price as of October 10, 2016;
the book value of Altria Group, Inc.’s investment in SABMiller, including Altria Group, Inc.’s accumulated other comprehensive losses directly attributable to SABMiller, at October 10, 2016;
the gains on the derivative financial instruments discussed below; and
the impact of AB InBev’s divestitures of certain SABMiller assets and businesses in connection with Legacy AB InBev obtaining necessary regulatory clearances for the Transaction (“AB InBev divestitures”) that occurred by December 31, 2016.
For the year ended December 31, 2017, Altria Group, Inc. recorded pre-tax gains of $445 million related to the planned completion of the remaining AB InBev divestitures in gain on AB InBev/SABMiller business combination in Altria Group, Inc.’s consolidated statement of earnings.
Altria Group, Inc.’s gain on the Transaction was deferred for United States corporate income tax purposes, except to the extent of the cash consideration received.
Derivative Financial Instruments: In November 2015 and August 2016, Altria Group, Inc. entered into a derivative financial instrument, each in the form of a put option (together the “options”) to hedge Altria Group, Inc.’s exposure to foreign currency exchange rate movements in the GBP to the United States dollar, in relation to the pre-tax cash consideration that Altria Group, Inc. expected to receive under the PSA pursuant to the revised and final offer announced by Legacy AB InBev on July 26, 2016. The notional amounts of the November 2015 and August 2016 options were $2,467 million (1,625 million GBP) and $480 million (378 million GBP), respectively. The options did not qualify for hedge accounting; therefore, changes in the fair values of the options were recorded as gains or losses in Altria Group, Inc.’s consolidated statements of earnings in the periods in which the changes occurred. For the year ended December 31, 2016, Altria Group, Inc. recorded pre-tax gains associated with the November 2015 and August


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