Altria Group. Inc. Announces Plans By Its Tobacco Subsidiaries To Optimize Wordwide Cigarette Production
Philip Morris International (PMI) to replace U.S.-sourced cigarettes with increased production at European facilities by third quarter of 2008
Philip Morris USA (PM USA) to consolidate cigarette manufacturing in Richmond, VA and close Cabarrus, NC manufacturing facility by end of 2010
Program expected to generate total annual pre-tax cost savings of approximately $335 million by 2011, with cumulative total expenses of approximately $670 million, of which $440 million will be paid in cash
PM USA to take initial pre-tax charge related to program of approximately $325 million or $0.10 per Altria share in second quarter of 2007
Altria Group, Inc. (NYSE: MO) today announced plans by its tobacco subsidiaries to optimize worldwide cigarette production by moving U.S.-based cigarette production for non-U.S. markets to PMI facilities in Europe. Due to declining U.S. cigarette volume, as well as PMI’s decision to re-source its production, PM USA will close its Cabarrus, NC manufacturing facility and consolidate manufacturing for the U.S. market at its Richmond, VA Manufacturing Center.
Altria Group, Inc. said that it expects PM USA to record an initial pre-tax charge of approximately $325 million or $0.10 per Altria share in the second quarter of 2007 for costs related to the program, primarily for employee separation, with additional estimated charges of approximately $50 million for the remainder of 2007.
The program is expected to generate pre-tax cost savings beginning in 2008, with total estimated annual cost savings of approximately $335 million by 2011, of which $179 million will be realized by PMI and $156 million by PM USA. Cumulative total expenses through 2011 are estimated at approximately $670 million, all of which will be at PM USA. Expenses are summarized in the following table:
Summary of Estimated Expenses by 2011
Accelerated depreciation $143
Employee separation $353
*Includes employee relocation costs and relocation of equipment and installation costs, partially offset by estimated gains on sales of land and buildings.
**Approximately 66% of the total expenses or $440 million will be paid in cash. In addition, the program will entail capital expenditures of approximately $230 million at PM USA and $50 million at PMI.
PMI is expected to shift sourcing of approximately 57 billion cigarettes from Cabarrus to PMI facilities in Europe by the third quarter of 2008, and PM USA will close its Cabarrus manufacturing facility by the end of 2010. The Cabarrus facility currently employs approximately 2,500 people. PM USA and PMI are significant purchasers of U.S. leaf tobacco and will continue to purchase U.S. tobacco for future production. Looking ahead, PM USA said that it plans to source its production of cigarettes sold in the U.S. from its manufacturing facility in Richmond.
“PM USA recognizes the profound impact the closing of the Cabarrus cigarette manufacturing facility has on employees and their families. As the company works to reduce manufacturing overcapacity, it will address the adverse impact on employees by relocating as many as possible to jobs in Richmond and offering separation benefits to those it cannot relocate,” said Mike Szymanczyk, chairman and chief executive officer of PM USA. “It is my hope that the majority of employees at Cabarrus will be able to relocate to Richmond.”
As a result of increased production requirements at its operations in Richmond, coupled with ongoing retirements of current Richmond-based employees, PM USA expects to be able to offer positions in Richmond to most North Carolina-based hourly employees and many salaried employees. PM USA employees who are displaced by the changes will be eligible for three to twenty months of severance pay and benefits, depending on length of service, as well as job outplacement counseling.
Altria Group, Inc. Profile
As of March 31, 2007, Altria Group, Inc. owned 100% of Philip Morris International Inc., Philip Morris USA Inc. and Philip Morris Capital Corporation, and approximately 28.6% of SABMiller plc. The brand portfolio of Altria Group, Inc.’s tobacco operating companies includes such well-known names as Marlboro, L&M, Parliament and Virginia Slims. Altria Group, Inc. recorded 2006 net revenues (ex-Kraft) from continuing operations of $67.1 billion.
Trademarks and service marks mentioned in this release are the registered property of, or licensed by, the subsidiaries of Altria Group, Inc.
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