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Section 1: 10-Q (10-Q)

mo-20200930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File Number 1-08940
Altria Group, Inc.
(Exact name of registrant as specified in its charter)
Virginia 13-3260245
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
6601 West Broad Street,Richmond,Virginia23230
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (804) 274-2200 
 Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
               Title of each class               
Trading SymbolsName of each exchange on which registered
Common Stock, $0.33 1/3 par value
MONew York Stock Exchange
1.000% Notes due 2023
MO23ANew York Stock Exchange
1.700% Notes due 2025
MO25New York Stock Exchange
2.200% Notes due 2027
MO27New York Stock Exchange
3.125% Notes due 2031
MO31New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   þ     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þAccelerated filer
Non-accelerated filer   Smaller reporting company  
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    No   þ
At October 21, 2020, there were 1,858,419,165 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.


Table of Contents    


ALTRIA GROUP, INC.
TABLE OF CONTENTS
 
      Page No.
PART I -  FINANCIAL INFORMATION  
Item 1.  Financial Statements (Unaudited)  
    
    
    
    
    
Item 2.    
Item 3.    
Item 4.    
PART II -  OTHER INFORMATION  
Item 1.    
Item 1A.    
Item 2.
Item 6.    
Signature    

2

Table of Contents    
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
 
September 30, 2020December 31, 2019
Assets
Cash and cash equivalents$4,123 $2,117 
Receivables151 152 
Inventories:
Leaf tobacco754 874 
Other raw materials206 192 
Work in process450 696 
Finished product452 531 
1,862 2,293 
Other current assets263 262 
Total current assets6,399 4,824 
Property, plant and equipment, at cost5,173 5,074 
Less accumulated depreciation3,164 3,075 
2,009 1,999 
Goodwill5,177 5,177 
Other intangible assets, net12,633 12,687 
Investments in equity securities19,408 23,581 
Other assets1,025 1,003 
Total Assets$46,651 $49,271 
 
See notes to condensed consolidated financial statements.
3

Table of Contents    
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars, except share and per share data)
(Unaudited)
 
September 30, 2020December 31, 2019
Liabilities
Current portion of long-term debt$1,500 $1,000 
Accounts payable348 325 
Accrued liabilities:
Marketing521 393 
Settlement charges3,206 3,346 
Other1,113 1,545 
Dividends payable1,602 1,565 
Total current liabilities8,290 8,174 
Long-term debt27,755 27,042 
Deferred income taxes4,724 5,083 
Accrued pension costs404 473 
Accrued postretirement health care costs1,798 1,797 
Other liabilities409 345 
Total liabilities43,380 42,914 
Contingencies (Note 12)
Redeemable noncontrolling interest39 38 
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share
(2,805,961,317 shares issued)
935 935 
Additional paid-in capital5,973 5,970 
Earnings reinvested in the business34,356 36,539 
Accumulated other comprehensive losses(3,781)(2,864)
Cost of repurchased stock
(947,542,152 shares at September 30, 2020 and
947,979,763 shares at December 31, 2019)
(34,344)(34,358)
Total stockholders’ equity attributable to Altria
3,139 6,222 
Noncontrolling interests93 97 
Total stockholders’ equity
3,232 6,319 
Total Liabilities and Stockholders’ Equity
$46,651 $49,271 
See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
 
For the Nine Months Ended September 30,For the Three Months Ended September 30,
2020201920202019
Net revenues$19,849 $19,103 $7,123 $6,856 
Cost of sales5,909 5,367 1,961 1,915 
Excise taxes on products4,063 4,109 1,445 1,444 
Gross profit9,877 9,627 3,717 3,497 
Marketing, administration and research costs1,585 1,654 557 552 
Asset impairment and exit costs 74  1 
Operating income8,292 7,899 3,160 2,944 
Interest and other debt expense, net893 989 310 293 
Net periodic benefit income, excluding service cost(58)(40)(3)(24)
(Earnings) losses from equity investments306 (866)472 (333)
Impairment of JUUL equity securities2,600 4,500 2,600 4,500 
Loss on Cronos-related financial instruments202 1,327 105 636 
Earnings (losses) before income taxes4,349 1,989 (324)(2,128)
Provision for income taxes1,817 1,473 632 474 
Net earnings (losses)2,532 516 (956)(2,602)
Net (earnings) losses attributable to noncontrolling interests11  4 2 
Net earnings (losses) attributable to Altria$2,543 $516 $(952)$(2,600)
Per share data:
Basic earnings (losses) per share attributable to Altria$1.37 $0.27 $(0.51)$(1.39)
Diluted earnings (losses) per share attributable to Altria$1.36 $0.27 $(0.51)$(1.39)
See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
(Unaudited)
For the Nine Months Ended September 30,For the Three Months Ended September 30,
2020201920202019
Net earnings (losses)$2,532 $516 $(956)$(2,602)
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans27 84 (15)26 
ABI(928)53 (15)221 
Currency translation adjustments and other(16)8 23 (3)
Other comprehensive earnings (losses), net of deferred
income taxes
(917)145 (7)244 
Comprehensive earnings (losses)1,615 661 (963)(2,358)
Comprehensive (earnings) losses attributable to noncontrolling interests
11  4 2 
Comprehensive earnings (losses) attributable to Altria$1,626 $661 $(959)$(2,356)
See notes to condensed consolidated financial statements.
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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
for the Nine Months Ended September 30, 2020 and 2019
(in millions of dollars, except per share data)
(Unaudited)
 
 Attributable to Altria  
 Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested
in the
Business
Accumulated
Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Non
controlling
Interests
Total
Stockholders’
Equity
Balances, December 31, 2019$935 $5,970 $36,539 $(2,864)$(34,358)$97 $6,319 
Net earnings (losses) (1)
— — 2,543 — — (13)2,530 
Other comprehensive earnings (losses), net of deferred income taxes
— — — (917)— — (917)
Stock award activity— 3 — — 14 — 17 
Cash dividends declared ($2.54 per share)
— — (4,726)— — — (4,726)
Other— — — — — 9 9 
Balances, September 30, 2020$935 $5,973 $34,356 $(3,781)$(34,344)$93 $3,232 


 Attributable to Altria  
 Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested
in the
Business
Accumulated
Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Non
controlling
Interests
Total
Stockholders’
Equity
Balances, December 31, 2018$935 $5,961 $43,962 $(2,547)$(33,524)$2 $14,789 
Net earnings (losses) (1)
— — 516 — — (3)513 
Other comprehensive earnings (losses), net of deferred income taxes
— — — 145 — — 145 
Stock award activity
— (1)— — 12 — 11 
Cash dividends declared ($2.44 per share)
— — (4,568)— — — (4,568)
Repurchases of common stock— — — — (346)— (346)
Issuance of noncontrolling interest in Helix— — — — — 88 88 
Other— — — — — 5 5 
Balances, September 30, 2019$935 $5,960 $39,910 $(2,402)$(33,858)$92 $10,637 

(1)Amounts attributable to noncontrolling interests for the nine months ended September 30, 2020 and 2019 exclude net earnings of $2 million and $3 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.


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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
for the Three Months Ended September 30, 2020 and 2019
(in millions of dollars, except per share data)
(Unaudited)
 
 Attributable to Altria  
 Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested
in the
Business
Accumulated
Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Non
controlling
Interests
Total
Stockholders’
Equity
Balances, June 30, 2020$935 $5,964 $36,908 $(3,774)$(34,345)$98 $5,786 
Net earnings (losses) (1)
— — (952)— — (5)(957)
Other comprehensive earnings (losses), net of deferred income taxes
— — — (7)— — (7)
Stock award activity
— 9 — — 1 — 10 
Cash dividends declared ($0.86 per share)
— — (1,600)— — — (1,600)
Balances, September 30, 2020
$935 $5,973 $34,356 $(3,781)$(34,344)$93 $3,232 


 Attributable to Altria  
 Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested
in the
Business
Accumulated
Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Non
controlling
Interests
Total
Stockholders’
Equity
Balances, June 30, 2019$935 $5,953 $44,081 $(2,646)$(33,859)$2 $14,466 
Net earnings (losses) (1)
— — (2,600)— — (3)(2,603)
Other comprehensive earnings (losses), net of deferred income taxes
— — — 244 — — 244 
Stock award activity
— 7 — — 1 — 8 
Cash dividends declared ($0.84 per share)
— — (1,571)— — — (1,571)
Issuance of noncontrolling interest in Helix— — — — — 88 88 
Other— — — — — 5 5 
Balances, September 30, 2019$935 $5,960 $39,910 $(2,402)$(33,858)$92 $10,637 

(1) Amounts attributable to noncontrolling interests for the three months ended September 30, 2020 and 2019 exclude net earnings of $1 million due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.


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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
 For the Nine Months Ended September 30,
 20202019
Cash Provided by (Used in) Operating Activities
Net earnings (losses)$2,532 $516 
Adjustments to reconcile net earnings (losses) to operating cash flows:
Depreciation and amortization192 163 
Deferred income tax provision (benefit)(111)(261)
(Earnings) losses from equity investments306 (866)
Dividends from ABI108 221 
Loss on Cronos-related financial instruments202 1,327 
Impairment of JUUL equity securities2,600 4,500 
Asset impairment and exit costs, net of cash paid(42)(33)
Cash effects of changes:
Receivables1 (21)
Inventories136 147 
Accounts payable24 (157)
Income taxes 174 
Accrued liabilities and other current assets(504)(359)
Accrued settlement charges(140)(360)
Pension plan contributions(16)(51)
Pension provisions and postretirement, net(35)(42)
Other, net591 376 
Net cash provided by (used in) operating activities5,844 5,274 
Cash Provided by (Used in) Investing Activities
Capital expenditures(162)(160)
Investment in Cronos (1,863)
Acquisitions of businesses and assets (421)
Other, net55 32 
Net cash provided by (used in) investing activities$(107)$(2,412)

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
 For the Nine Months Ended
September 30,
 20202019
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings$3,000 $ 
Repayment of short-term borrowings(3,000)(12,800)
Long-term debt issued1,993 16,265 
Long-term debt repaid(1,000)(1,144)
Repurchases of common stock (346)
Dividends paid on common stock(4,690)(4,498)
Other, net(16)(127)
Net cash provided by (used in) financing activities(3,713)(2,650)
Cash, cash equivalents and restricted cash:
Increase (decrease)2,024 212 
Balance at beginning of period2,160 1,433 
Balance at end of period$4,184 $1,645 
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s condensed consolidated balance sheets:
At September 30, 2020At December 31, 2019
Cash and cash equivalents$4,123 $2,117 
Restricted cash included in other current assets (1)
1  
Restricted cash included in other assets (1)
60 43 
Cash, cash equivalents and restricted cash$4,184 $2,160 
(1)Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See Note 12. Contingencies.

See notes to condensed consolidated financial statements.
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Altria Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Background and Basis of Presentation:

Background

When used in these notes, the term "Altria” refers to Altria Group, Inc. and its subsidiaries, unless otherwise specified or unless otherwise required.

At September 30, 2020, Altria Group, Inc.’s wholly owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes in the United States (including super premium cigarettes previously manufactured and sold by Sherman Holdings, LLC and its subsidiaries (“Nat Sherman”)); John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly owned subsidiary of PM USA; UST LLC (“UST”), which through its wholly owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of moist smokeless tobacco (“MST”) and snus products and wine; and Philip Morris Capital Corporation (“PMCC”), which maintains a portfolio of finance assets, substantially all of which are leveraged leases. In addition, Altria owned an 80% interest in Helix Innovations LLC (“Helix”), which is engaged in the manufacture and sale of oral nicotine pouches. Other Altria wholly owned subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria and its subsidiaries. Altria’s access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At September 30, 2020, Altria’s significant wholly owned subsidiaries were not limited by contractual obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.

At September 30, 2020, Altria had a 10.0% ownership in Anheuser-Busch InBev SA/NV (“ABI”), which Altria accounts for under the equity method of accounting using a one-quarter lag. Altria receives cash dividends on its interest in ABI and will continue to do so as long as ABI pays dividends.

At September 30, 2020, Altria had a 35% economic interest in JUUL Labs, Inc. (“JUUL”), which Altria accounts for as an investment in an equity security. JUUL is engaged in the manufacture and sale of e-vapor products in the U.S. and certain international markets.

During the third quarter of 2019, Helix acquired Burger Söhne Holding and its subsidiaries as well as certain affiliated companies (the “Burger Group”) that are engaged in the manufacture and sale of on! oral nicotine pouches. At closing, Altria indirectly owned an 80% interest in Helix, for which Altria paid $353 million in third quarter of 2019. The financial results of Helix are included in Altria’s condensed consolidated financial statements as part of its oral tobacco products segment (formerly smokeless products segment), with the 20% minority ownership interest in Helix (held by the former shareholders of the Burger Group) included as a non-controlling interest. The purchase price allocation has been completed, and there were no changes subsequent to the acquisition date.

At September 30, 2020, Altria had a 44% ownership in Cronos Group Inc. (“Cronos”), a global cannabinoid company headquartered in Toronto, Canada, which Altria accounts for under the equity method of accounting using a one-quarter lag.

For further discussion of Altria’s investments in equity securities, see Note 4. Investments in Equity Securities.

Dividends and Share Repurchases

In July 2020, Altria’s Board of Directors (the “Board of Directors”) declared a 2.4% increase in the quarterly dividend rate to $0.86 per share of Altria common stock versus the previous rate of $0.84 per share. The current annualized dividend rate is $3.44. Future dividend payments remain subject to the discretion of the Board of Directors.

In January 2018, the Board of Directors authorized a $1.0 billion share repurchase program that it expanded to $2.0 billion in May 2018 (as expanded, the “January 2018 share repurchase program”). In June 2019, Altria completed the January 2018 share
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repurchase program, under which it purchased a total of 34.0 million shares of its common stock at an average price of $58.86 per share.

In July 2019, the Board of Directors authorized a $1.0 billion share repurchase program (the “July 2019 share repurchase program”). In April 2020, the Board of Directors rescinded the $500 million remaining in this program as part of Altria’s efforts to enhance its liquidity position in response to the COVID-19 pandemic. There were no share repurchases made in 2020.

Altria’s 2019 share repurchase activity was as follows:
(in millions, except per share data)For the Nine Months Ended September 30, 2019For the Three Months Ended September 30, 2019
Total number of shares repurchased
6.4  
Aggregate cost of shares repurchased
$346 $ 
Average price per share of shares repurchased
$54.36 $ 

Basis of Presentation

The interim condensed consolidated financial statements of Altria are unaudited. It is the opinion of Altria’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected in the interim condensed consolidated financial statements. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.

Certain immaterial prior year amounts have been reclassified to conform with the current year’s presentation.

These statements should be read in conjunction with Altria’s audited consolidated financial statements and related notes, which appear in Altria’s Annual Report on Form 10-K for the year ended December 31, 2019.

In the first quarter of 2020, Altria renamed its smokeless products segment as the oral tobacco products segment.

During the second quarter of 2020, Altria began complying early, as permitted, with Regulation S-X Rules 13-01 and 13-02 regarding the financial disclosure requirements for registered debt securities with subsidiary guarantees. On October 23, 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, to reflect changes the U.S. Securities and Exchange Commission (“SEC”) has made to its disclosure rules on guaranteed debt securities offerings. The new rules replace the previously required condensed consolidating financial information with summarized financial information of the issuer and the guarantor and, among other things, require expanded qualitative disclosures. Altria has elected to provide this information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in its Quarterly Report on Form 10-Q as permitted by the new rules.

On January 1, 2020, Altria adopted ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments and all related ASU amendments (collectively “ASU No. 2016-13”). This guidance replaces the current incurred loss impairment methodology for recognizing credit losses for financial assets with a methodology that reflects the entity’s current estimate of all expected credit losses and requires consideration of a broader range of reasonable and supportable information for estimating credit losses. The adoption of ASU No. 2016-13 did not have a material impact on Altria’s condensed consolidated financial statements.

Additionally, on January 1, 2020, Altria adopted ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2018-15”). This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of ASU No. 2018-15 did not have a material impact on Altria’s condensed consolidated financial statements.

For a description of issued accounting guidance applicable to, but not yet adopted by, Altria, see Note 13. New Accounting Guidance Not Yet Adopted.
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Note 2. Revenues from Contracts with Customers:

Altria disaggregates net revenues based on product type. For further discussion, see Note 9. Segment Reporting.

Altria’s businesses offer cash discounts to customers for prompt payment and calculate cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms. Altria’s businesses record an allowance for cash discounts, which is included as a contra-asset against receivables on Altria’s condensed consolidated balance sheets. Cash discounts at September 30, 2020 and December 31, 2019 were de minimis, and there were no differences between amounts recorded as an allowance for cash discounts and cash discounts subsequently given to customers.

Altria’s businesses that receive payments in advance of product shipment record such payments as deferred revenue. These payments are included in other accrued liabilities on Altria’s condensed consolidated balance sheets until control of such products is obtained by the customer. Deferred revenue was $250 million and $