Sarah Knakmuhs - VP, IR Marty Barrington - Chairman, President and CEO Billy Gifford - CFO.

Bonnie Herzog - Wells Fargo Securities Judy Hong - Goldman Sachs Matthew Grainger - Morgan Stanley Owen Bennett - Nomura Michael Lavery - CLSA Chris Growe - Stifel, Nicolaus Steven Marascia - Capitol Securities Management DeAndre Parks - Western Asset Nikhil Nichani - RBC Capital Markets Vivien Azer - Cowen & Company Chuck Maguy - Wall Street Journal.

Good day, and welcome to the Altria Group’s 2015 Fourth Quarter and Full Year Earnings Conference Call. Today's conference call is scheduled to last about one hour, including remarks by Altria's management and a question-and-answer session.

[Operator Instructions] Representatives of the investment community and media on the call will be able to ask questions, following the conclusion of the prepared remarks. I would now like to turn the call over to Ms. Sarah Knakmuhs, Vice President, Investor Relations for Altria Client Services. Please go ahead, ma'am..

Thank you. Good morning, and thank you for joining us. We're here this morning with Marty Barrington, Altria's CEO and Billy Gifford, Altria's CFO to discuss Altria's 2015 fourth quarter and full year business results. Earlier today, we issued a Press Release regarding these results.

For detailed review, please see the earnings release on our Web site at altria.com or through the Altria investor app. During our call today, unless otherwise stated, we're comparing results to the same period in 2014. Our remarks contain forward-looking and cautionary statements and projections of future results.

Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of Altria's Board.

The timing of share repurchases depends on marketplace conditions and other factors. Altria reports its financial results in accordance with the U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis, which excludes items that affect the comparability of reported results.

Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release, which is available on our Web site and via the Altria investor app. Now I'll turn the call over to Marty..

Thanks, Sarah and good morning, everyone. Altria had yet another year of excellent business results and outstanding shareholder returns in 2015. We continue to deliver against our two long-term financial goals. First, Altria grew adjusted diluted earnings per share by nearly 9% in line with our long-term growth objective.

Second, Altria paid nearly $4.2 billion in dividends to our shareholders, consistent with our goal of paying out approximately 80% of adjusted diluted EPS. Also during the year we raised our dividend per share by 8.7%, aligned with our goal to raise the dividend in line with adjusted diluted EPS growth.

This was the 49th time we have raised the dividend in the last 46 years. We also completed our $1 billion share repurchase program and announced a new $1 billion program that we expect to complete by the end of 2016.

In Altria, SABMiller’s largest shareholder supported the approximately $107 billion business combination between Anheuser-Busch InBev and SABMiller which will create the first truly global beer company.

We strongly believe that the deal is in the best interest of our shareholders, offering a significant premium on our very larger beer investment and continued participation in the global beer profit pool on attractive terms.

The size of the premium we capture will ultimately depend on final closing prices, exchange rates and any proration that might occur, but as an example, as of the date of the agreement in November the terms of the partial share alternative represented an approximate 43% premium to SABMiller’s share price on September 14, 2015.

For 2015, Altria delivered a total shareholder return of more than 23%, significantly outperforming both the S&P 500 and the Food Beverage and Tobacco index, and as a reminder our total shareholder returned was 29% in 2013 and 35% in 2014. So let's turn to the businesses that supported those results.

Our core tobacco companies delivered on their objectives by growing income and strengthening their market leadership positions. The smokeable product segment had a very strong 2015 with double-digit income growth and Marlboro's fourth consecutive year of modest retail share growth in line with its strategy.

Adjusted OCI grew nearly 11%, driven primarily by higher pricing, volume growth and the benefit of the federal tobacco quota buyout expiration. Fourth quarter adjusted OCI growth was more modest due primarily to trade inventory movements and lapping the end of the quota buyout payments.

The segment also expanded adjusted OCI margins in both periods with full year margins of more than 46%. Marlboro strengthened in 2015, gaining two-tenths of retail share in both the fourth quarter and the full year.

In November PM USA expanded distribution of Marlboro Midnight menthol nationally, offering adult menthol smokers a bold unique menthol flavor. Voluntarily, we expect Marlboro Midnight menthol to build on the very positive momentum we've seen from the Marlboro Black Family, which now has grown for 20 consecutive quarters.

Higher cigar shipment volume contributed to the smokeable segment’s performance in both periods. Middleton grew Black & Milds volume by over 5% in the quarter and nearly 4% for the year, continuing to build on the brand’s strength in a more profitable kicked segment.

In our smokeless product segment, USSTC once again delivered on its strategy to increase income by growing volume and maintain modest share momentum on Copenhagen and Skoal combined. Adjusted OCI grew more than 8% in the fourth quarter and nearly 5% for the full year.

For the full year higher pricing more than offset higher promotional spending and cost. Copenhagen and Skoal increased their combined retail share by three-tenths for the year. We are pleased with Copenhagen's continued strength which grew nearly a full share point in 2015. Last year Copenhagen was the fastest growing smokeless brand in the category.

And to build on the strength, USSTC is planning to expand Copenhagen Mint nationally later this quarter. Copenhagen Mint will be available at a popular price and USSTC will support its expansion with a strong awareness and trial generating plan.

In innovative tobacco products, Nu Mark continued building a portfolio of tobacco products using its strong internal capabilities and its partnership with Philip Morris International.

In November, based on encouraging results from lead markets, Nu Mark continued its disciplined expansion of Mark 10 XL e-vapor products to additional select retail chains.

With respect to heat-not-burn products, we continue to support PMI as it prepares for a 2016 product application to the FDA for a modified risk tobacco product designation and we look forward to discussing more about our plans for U.S. commercialization at the appropriate time. The wine business continued to perform well. Ste.

Michelle grew OCI almost 4% in the fourth quarter and more than 13% for the year. Ste. Michelle's premium wines continued to be recognized as leaders in the industry, garnering more than 250 90 plus ratings in 2015, up nearly 40% from last year. So 2015 was an excellent year for our premium brands, our company and our shareholders.

Turning to 2016 and beyond, Altria is implementing a productivity initiative designed to maintain its operating company's leadership and cost competitiveness, this initiative is expected to deliver approximately $300 million in annual productivity savings by the end of 2017, and as a result of reinvesting some of those savings strengthen our business capability.

The savings will come from reduced spending on certain SG&A infrastructure and a leaner organization. Some of the productivity savings will be invested in important initiatives such as brand building, harm reduction and regulatory capabilities.

Continually challenging our cost structure and investing in the future remain important for us as we focus on delivering strong results for the long-term. As to guidance, in 2016 Altria expects to deliver full year adjusted diluted EPS in the range of $3 to $3.05 representing growth of 7% to 9% from our 2015 adjusted diluted EPS base of $2.80.

This guidance does not include any impact from the proposed AB InBev and SABMiller business combination as the transaction remains subject to certain approvals and the closing date has not yet been determined. And now I will turn things over to Billy for more detail on our performance..

Thanks, Marty and good morning, everyone. I'll start with the smokeable product segment. The smokeable product segment increased adjusted OCI margins by eight-tenths of a percentage of point in the fourth quarter to 44.7% due primarily to higher pricing.

For the full year, adjusted OCI margins in the segment expanded 2.3 points to 46.4% as higher pricing and the exploration of the federal tobacco quota buy-out payments more than offset high promotional spending and higher cost.

PM USA's reported cigarette shipment volume in the fourth quarter declined about 2.5% as elevated trade inventory levels at the end of the third quarter moderated in the fourth quarter. For the full year PM USA's reported cigarette shipment volume increased 0.5%.

When adjusted for trade inventory changes and other factors, PM USA estimates its shipment volume increased 0.5% in both the fourth and for the full year. PM USA estimates the total industry cigarette volume was essentially unchanged in the fourth and decreased by 0.5% for the full year.

In addition to retail share gains of Marlboro L&M and the discount gained share allowing PM USA's total retail share to reach 51.4% in the quarter and 51.3% for 2013.

In the smokeless product segment, fourth quarter adjusted OCI margins expanded 1.4 percentage points to 61.4% driven by higher pricing, partially offset by higher promotional investments.

For the year adjusted OCI margins expanded three-tenths of a percentage point to 63.7% as higher pricing more than offset higher promotional investments and higher cost. The smokeless segment’s reported shipments increased 4% in the fourth quarter and 2.5% for 2015.

After adjusting for trade inventory movements and other factors USSTC estimates that its volume grew 3% in the fourth quarter and 2.5% for the full year, while estimated smokeless industry volume grew 2.5% for the past six months. For both time periods Copenhagen volume growth was partially offset by declines for Skoal and other brands.

In wine OCI margin narrowed by eight-tenths of a percentage point to 24.8% in the fourth quarter but expanded by 1.2 percentage points to 22.8% for the year. Reported shipment volumes grew 5.9% in the fourth quarter and 6.2% for the year.

Altria recorded -- reported equity earnings from our SABMiller investment of $211 million in the fourth quarter and $757 million for the year. Unfavorable foreign currency and special items were the primary drivers of the full year 2015 decline.

In addition to the EPS guidance Marty provided for next year, we expect that full year 2016 effective tax rate from operations to be 35.3%. Additionally, we forecast capital expenditures to be in the range of $140 million to $180 million. That wraps up our results. Marty and I will now take your questions.

While the calls are being compiled, I'll direct your attention to altria.com. Along with today's earnings release, for your reference we have posted a list of quarterly metrics including pricing, inventory and other housekeeping items.

Operator, do we have any questions?.

Thank you. [Operator Instructions] Our first question comes from the line of Bonnie Herzog of Wells Fargo..

My first question is regarding your cost savings program, I guess it was a -- give us a little more color on what some of the productivity initiatives are that you're going to be implementing? And then what portion of the $300 million annualized savings will be reinvested and how much if any could flow to the bottom-line? And then do you expect to realize any savings this year?.

Let me make a comment about that and then I'll ask Billy perhaps to comment on the detail, I think the great detail we're going to provide on the topic is in the release body as you can appreciate.

I think we've laid out there the areas that we're going to work on and certainly dimensionalize the amount of the productivity savings that we expect to gain but for competitive reasons I don't want to lay out in any greater detail where and what we're going to do with it.

We do reference the fact that we have important issues that we're investing in for our growth as you know we're investing in reduced harm products, that requires regulatory capability and we always invest in our brands.

So, I think that's the way to understand it and as the year flows through I think you'll see more -- Billy do you want to comment about timing?.

Yes I think the only thing I would add to that Bonnie is that we have incorporated those savings that we expect in this year into our guidance that we provided earlier..

Okay. So there is and you just spelled out that the 300 million would be reached by FY17, so I wanted to clarify that there's going to be some that you'll realize this year..

Okay..

Second question is on menthol, I guess I was hoping you could give us a sense of how the menthol category performed in the quarter and specifically how Marlboro menthol performed?.

Yes, the menthol segment continues to grow moderately as you know and we continue to grow our share of the menthol segment where we're under indexed and have opportunity. So, we're pretty pleased with our menthol performance..

So, overall Marlboro menthol is taking share or just like you said where it’s under indexed possibly in certain regions?.

Yes, what I said is that the segment continues to grow modestly and that we continue to grow our share of it and obviously Marlboro is a key way that we do that..

Okay. And then Marty, if I may just my final question is on….

Sure….

…total tobacco consumption for the industry last year given the strong industry cigarette volume and then the decelerating smokeless volume, do you have a sense of the underlying total tobacco consumption when considering both of these categories, I guess for last year and then how sustainable do you think the strong underlying cigarette volume trends are, what are your expectations for industry cigarette volumes in 2016?.

Yes I am familiar with the number for total tobacco volume, I think for the last government figures I've seen, but I haven't seen them yet for 2015, so I don’t want to hazard guess on that although obviously we know that the cigarette volume flattened because of the effects that we talked about in 2015.

In terms of cigarette volume, the long-term trends 3 to 5 long-term trends tend to persist over the long-term, we know that ’15 was a little bit different for a variety of factors.

I think the question for ’16 Bonnie is, if you expect it to revert back to historical levels, at what pace? We continue to see a stronger adult tobacco consumer right now, so we'll have to see what that pace is. But I think overtime, you would expect for it to return to long-term trend..

Okay so, if I am hearing you correctly 2016 maybe above historical trends, but as the year progresses and maybe as we lookout in the future would return to that minus 3, minus 4 decline rate?.

What I mean to say is that I think the long-term trends tend to revert to the main. The long-term trend has been 3 to 4. The pace at which it returns to 3 to 4 in ’16 and beyond, I think is just hard to estimate because of the anomaly of the 2015 factors..

Your next question comes from the line of Judy Hong of Goldman Sachs..

Just following up on Bonnie's question a little bit, just in terms of as you think about all the positive macro drivers that helped the industry broadly in 2015, I just wanted to get your color just in terms of what do you think and how do you think those macro drivers will play out in 2016 and the industry fundamentals compared to really 2015?.

Yes, that's good question because I think you do have to distinguish the year-over-year effect from what the status of the consumer is. We go into the year believing as a whole that the adult tobacco consumer continues to feel better going into ’16 as they did in ’15. Obviously unemployment is down, housing starts are up.

The effective gasoline prices we see improved adult tobacco consumer confidence.

Now of course that effect was felt in ’15 and we doubt that we're going to see the same effect as year-over-year to ’16 but I think it's good news I think that we think that the adult tobacco consumer goes into 2016 with those positive feelings, there's always changes that could happen in the macro-environment, you see speculation in some quarters about recession clouds looming that obviously would change everything, but we went into the year feeling pretty about the adult tobacco consumer..

Okay. And then Marty just on the pricing environment obviously that's been another positive trend at the manufacturer level where we've seen a pretty healthy price increases in the past few quarters.

If I look at the price gap versus discount brands, it's still at one of the lowest levels in history, so wanted to just get your perspective on kind of more pricing upside opportunity particularly as the adult tobacco consumers are in a relatively healthy shape?.

Yes, I mean, our desire as you know is to continue grow income in that segment while maintaining modest share momentum on Marlboro. If you look at the net pricing for the year Judy it's almost 5% which is at the higher end of the historical range.

I had occasion to go back and look at the four year average, it's about four in the quarter, and so that works. We are always mindful of the price gap and there is competition in the industry.

So with that kind of net pricing realization and attention to cost management, growing some share and the diverse business platform we have, we think that's kind of the Altria story and we like the way that's been played out over the last several years where you've seen really consistent EPS growth at about 8% through thick and thin and we think that's the model that we should stick with..

Okay.

And just my last question is on the STC obviously we've seen a little bit of a pick in the second half, so your outlook for 2016 in terms of the STC environment?.

We are always cautious at the beginning of the year. We saw more activity actually last year didn’t? We than we had seen in the last previous years, we took eight I think memory serves we took eight STC increases last year.

So there are always puts and takes with them we know that there are going to be lots of proposals, we have a very talented government affairs team which tries to advocate on behalf of our consumers. So we'll have to see as we go into the year..

Your next question comes from the line of Matthew Grainger of Morgan Stanley..

Marty, I wanted to ask a follow-up question on the productivity initiative, in the past when you have had similar programs usually it's been in response to factor like the STC increase that necessitated rightsizing the Company to account for I guess a lower level of volumes and volume trends have obviously been very stable recently, so I guess what precipitated the decision to implement a cost savings program today as opposed to just incorporating some normal course charges into the P&L?.

The charges are to grow our business for the long-term and to reallocate our resources against growth initiatives.

I think that you always have to be mindful of costs overtime, if you have opportunities to improve in your infrastructure or to improve your organization and to invest those savings in your brands or in your products for the future or in the way you can go to the market you should do that and I think it's one of the reasons Matt, that Altria has been successful over decades and while these programs are never easy to accomplish that's how you grow overtime and when you see Altria's growth overtime it is because we do these programs often from strength and that is the case today, our business is strong but we believe we should invest in several of these initiatives now and after this..

And then just one additional question just on the smokeable segment margins, you addressed this to some extent, they were up here in the fourth quarter but less so than we saw in the first nine months and you called out the lapping of the quota buy-out but just curious whether there were any other specific areas of the business where you felt there was an opportunity to specifically reinvest here in the fourth quarter?.

Yes, Matt I'll take that because it is -- thanks for the question.

I think when you look at margins in the smokeable category, you really have to think about there were two kind of primary factors, one we've talked about on a regular basis and that was the pension remember we've dated the mortality table at the end of last year and that gave us a bit of a drag on the expense side of that as we went through the year so that was still present.

From an equity standpoint you saw us investing, we showed some of that at Investor Day around some of the digital innovations, some of the mobile couponing efforts that we have underway, those would be the primary factors that I would point out..

[Operator Instructions] Your next question comes from the line of Owen Bennett of Nomura..

Just one question I just wanted to know have you seen any real significant change in the competitive dynamics over the last quarter and obviously we have gone old time looking to place some of the new construction out and then imperial obviously not in the marketplace in a larger scale, but just wondering if any of those competitive dynamics have changed significantly? Thank you..

I think the answer is nothing that we haven't contemplated. The brands have some new owners and owners talked about their plans about what to do with the brands at retail we fully contemplated that but we haven't seen anything that I'd call out as significant or material..

You next question comes from the line of Michael Lavery of CLSA..

Just wanted to see if you could give a couple of clarifications on the cost savings, two in particular one you called out the 90 million in savings on the pension and that's completely unrelated to the productivity initiative is that correct?.

Yes it is correct Michael..

And then just second, a little bit of a follow-up on Bonnie's question, I realized there is competitive sensitivity and so nothing obviously too detailed but just compared to the program from about three or four years ago your -- I guess a little question on finance, you've referred to that as a cost savings program I think, I hear using the word productivity which sounds a little more like ordinary type efforts, is there any difference in terms of very broadly how you think about these two initiatives or is it just a revisit of ordinary -- things that you can do periodically to update your cost base and words and semantics aren’t meaningful, how should we think about from just at a very high level this versus the last program?.

Well I think the way to think about it is you constantly want to look at your resources you want to make sure that they're allocated to the best possible way, if you can find productivity to invest in your growth areas while becoming more efficient in other areas you should do that for the long-term health of the business.

That's how we think about productivity and we do it all the time but from time-to-time we have opportunities to take bigger steps and we're going to be implementing this productivity initiative over 2016 and 2017 so that we can invest in some of these important initiatives that we've identified in the release..

And then just one more looking at the vapor business in some of your investments there, obviously that category has slowed pretty considerably, but how do you think about the level of investment that's appropriate there going forward?.

With discipline, I think you have to -- you really do, I mean you have to be disciplined about it, the category is a very interesting emerging category, we know that there is consumer interest, so you want to have products there, and you want to be investing and you want to be learning, but you always want to do that with discipline because we're trying to do it within the guidance that we're trying to provide about how we're growing all of our businesses long-term and I think we've done a better job with that, with MarkTen recently and especially with MarkTen XL, it's a better product Michael, it's been very well received by the consumer.

We're getting good results in our lead markets and so we're rolling out on and expanding with discipline and trying to spend appropriately but not overspending..

Your next question comes from the line of Chris Growe of Stifel..

I just had a question if I could on just to understand the trade inventory movements, we knew those were coming, they were a little larger than I expected and just to get a sense of how you exit the year and where inventory levels are? I guess then related to that with volume being so strong throughout 2015 inventory levels as we exit the year, I'd be surprised if they were lower is there any reason why those need to be up a little bit where they are even versus the prior year given the strengthened volume throughout the year?.

Yes, good question, listen they go up and they go down for us but they usually washout over the year as you know and I think that's what happened in ’15. When we look at wholesale inventory we really don't see anything remarkable in comparing yearend ’15, against yearend ’14.

As a matter of fact, if you refer I think Chris to the sheet that we provide, you see the numbers that about spot on. You did see some depletion during the fourth quarter which we predicated, I think in the third quarter call.

But honestly I think as we go into 2016, we just don't see anything remarkable and as I mentioned earlier, we will have to see how the volume plays out throughout the year..

And then I just wanted to understand and I don’t know you have given this yet I didn’t hear it, but just the contribution to profitability from SAB in 2016 from that and I know assuming it will soon -- it doesn’t change and the ABI deal doesn’t occur, we know there is a currency drag so just trying to get a sense of do you expect it to be a contributor to profitability in the year?.

Hi Chris, this is Billy. Thanks for the question. When you think about SAB it's always a contributor to profitability, right. We have earnings that flow though to them.

As far as whether it's going to be larger or smaller than last year, we don’t go to that level of detail, know that from a currency standpoint, we looked at how currency impacted us in ’15. We incorporate that in to our guidance for ’16, so we feel comfortable with what we have in and so yes, it will be a contributor to profitability..

Your next question comes from the line of Steven Marascia of Capitol Securities Management..

A couple of quick questions, number one, have you retail chains given you any kind of idea whether the expected e-cig sales growth has been going according to expectations or have you had to adjust your expectation levels? And secondly if you could, I forgot what the schedule was but when you guys expect the feds will call out some type of new regulations on the e-cig market?.

Yes, let me take the second one first. Thanks for those. As you know FDA has been working on a steaming regulations it's our understanding that they over at OMB and that the process is now is now between OMB and FDA.

And they have not said when they expect to announce, they had said that they expected it to be in 2015, but of course we're now in ’16 and that hasn't happened. So I am afraid, I can't give you much more color than that, the process is a little opaque.

I want to make sure I understand the question you had about retail, if you're asking about our product MarkTen XL and our lead markets, our retailers are very excited about that product, it's been selling very well and it's got a good response. I couldn't quite tell if that's what you're asking about or if you're asking something more general..

No, more general in terms of the overall e-cig market?.

Yes, it slowed a little bit. It had very mediocre as a category growth when it first came out, it was up over 100% year-over-year and then 50% the year after that and then the last year we estimated the category growth in dollar sales was about 25%, but a lot of that was in the first half as it slowed in the second.

So the category growth has slowed down, but it still remains interesting to adult tobacco consumers and interesting enough for us to want to compete there..

Your next question comes from the line of DeAndre Parks of Western Asset..

Could you give us some color on it relates to some of your high coupon debt, what your thought process is behind and how you look at that, I know you guys actually tendered for some back in the past and especially given the effect that there may be some gains, how do you look at that process, what do you do and do not?.

Sure, thanks for the question. Look we're always assessing both marketplace conditions and where we stand from a overall capital position within that company.

We feel very comfortable with where we're at, but we're always assessed the marketplace for opportunities to take advantage of and to your point we took advance of some of that in the beginning of the year with a debt tender that we did in the first quarter of ’15.

So we assess it overall what are the cash needs of the business and what are the marketplace conditions when we make those decisions..

We will now open the call for questions from the media. [Operator Instructions] Your next question comes from the line of Nik Modi of RBC Capital Markets..

Hi this is actually Nikhil Nichani on Nik Modi’s behalf.

Just one quick question, if the ABI SAB deal got close and you guys do get some incremental benefits from that deal, how are you thinking about that in terms of letting that drop to the bottom-line or reinvesting into the business, and if you do chose to invest some of those what would be the priorities? Thank you..

Well, I can appreciate the question, but you can appreciate that I can't tell you that right now. We don’t even have the closing date for the transaction. We're not sure when it's going to close. And so you just forgive me, I don’t want to get ahead of those parties’ transaction by speculating about the benefit to us.

As you know we think is a very attractive transaction and we think that the combined company is going to be a terrific company and we're really pleased to be able to participate in the company going forward but I don't want to get into any more detail with that at this time if you will allow me. Thanks..

Your next question comes from the line of Vivien Azer of Cowen & Company..

So, I know you don’t like to talk about Marlboro's sub families in a great amount of detail but Marty given the significant transformation that has gone on with Marlboro in particular with the introduction of Black, could -- is it at all possible at least to kind of dimensionlize kind of the sizing of the different brands in ways as they contribute to total Marlboro?.

No, I guess it's certainly -- first I know you try on this but it's just competitively sensitive about how we do this and I think what's more, I don't mean to be cavalier like that I just mean that what we really want to look at is the overall dimensions of Marlboro, how is it doing across all of the families, how is it doing from a total equity point of view, how is it doing in terms of the price gap it can command and so forth and so on.

And I know you know all that so I won't repeat it.

Marlboro is doing exactly what we want it to do and if you look at Marlboro Black it has just added a whole new dimension for example to the brand, it's staying relevant to the current cohort of adult tobacco consumers, it commenced nice price premiums, so Marlboro's great but we're just not going to break it out at that level, I hope you'll indulge me on that..

I can’t blame you for trying but I absolutely appreciate that, no problem.

And from a regulatory standpoint, it seems like we've seen a bit of an uptick in terms activity around raising the minimum purchase age for tobacco products, do you -- at 21 and some with success like Hawaii, some not, New Jersey, I was hoping you could comment kind of high level on how you see that type of regulatory activity evolving?.

Yes, I can our position to begin with is of course there should be minimum-age laws and we were the company and went around and led the effort on that to make sure that there were minimum-age laws in place everywhere and that they were vigorously in forced and we spent an awful lot of time and energy and resources on that which is completely appropriate and we support that.

We support a minimum age of 18 and if you look at the reference points, the overwhelming majority of the states use 18.

The Master Settlement Agreement from the 1990s used 18 and when we passed the FDA bill it was 18 and further the FDA bill contemplated a process to study whether the age should be raised and they gave that pass to FDA, FDA is now doing that and our view on that is they should let FDA do that job and send a report over to Congress and then we could have an intelligent debate about whether the age should be raised or not, but this sort of ad-hoc approach of locality here or state there doesn't seem to make good public policy sense to us.

So, we believe in 18 and we also support the process that was in place from the statute to study issue..

But my last question on, just any comments on Green Smoke after the tests in 2015?.

They're encouraging, we really I think have improved the Green Smoke platform, we have it in a number of retail stores as you know, it's been very well received, it continues to be the leader in the e-commerce space and so we're working on that brand portfolio strategy now but we're glad to have Green Smoke in the portfolio and obviously the company has helped us from a supply chain point of view immensely..

[Operator Instructions] Your next question comes from the line of Chuck Maguy of Wall Street Journal..

Hi Marty, I know you declined to provide some clarity on the productivity initiative earlier when Bonnie asked about it, but looking at that term leaner organizational structure, could you interpret it as layoffs what do you mean by that and will there be layoffs, if so how many jobs would be eliminated?.

Let me begin by saying thanks for calling in by saying that we're going to speak with our organization later this morning and I hope you could appreciate that I want to speak to our organization about our plans there before I do in a public venue.

So, you've to indulge me a bit on that, but yes we intend to have a leaner organization, what lean typically means, it means in this case is we want to have an organization that has fewer layers and we have broader spans of control in our managerial ranks and if we can work towards those ends and we can then reinvest those savings in our growth initiatives we should do that, it may be that we can give you more information later in the day, after I've spoken to the organization but I don't want to get ahead of it on the call..

Thank you. At this time I would like to turn the call back over to Ms. Sarah Knakmuhs for closing comments..

Thank you, everyone for joining our call this morning. If you have any follow-up questions, please contact us at Investor Relations..

Thank you. This does conclude today's conference call. You may now disconnect..