Document

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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, 2019



☐	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,	Virginia	23230
(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 Symbols	Name of each exchange on which registered
Common Stock, $0.33 1/3 par value	MO	New York Stock Exchange
1.000% Notes due 2023	MO23A	New York Stock Exchange
1.700% Notes due 2025	MO25	New York Stock Exchange
2.200% Notes due 2027	MO27	New York Stock Exchange
3.125% Notes due 2031	MO31	New 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.

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 22, 2019, there were 1,868,126,510 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)

	Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Earnings for the Nine and Three Months Ended September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Comprehensive Earnings for the Nine and Three Months Ended September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018	7

	Three Months Ended September 30, 2019 and 2018	8

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	9

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	82

Item 4.	Controls and Procedures	83

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	83

Item 1A.	Risk Factors	83

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 6.	Exhibits	86

Signature	Signature	87

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, 2019		December 31, 2018
Assets
Cash and cash equivalents	$	1,604	$	1,333
Receivables	165		142
Inventories:
Leaf tobacco	820		940
Other raw materials	201		186
Work in process	598		647
Finished product	569		558
	2,188		2,331
Income taxes	15		167
Other current assets	319		326
Total current assets	4,291		4,299
Property, plant and equipment, at cost	5,009		4,950
Less accumulated depreciation	3,047		3,012
	1,962		1,938
Goodwill	5,262		5,196
Other intangible assets, net	12,688		12,279
Investments in equity securities	27,346		30,496
Other assets	1,364		1,430
Total Assets	$	52,913	$	55,638

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share and per share data)

(Unaudited)



	September 30, 2019			December 31, 2018
Liabilities
Short-term borrowings	$	—		$	12,704
Current portion of long-term debt	1,000			1,144
Accounts payable	246			399
Accrued liabilities:
Marketing	554			586
Settlement charges	3,094			3,454
Other	1,195			1,403
Dividends payable	1,573			1,503
Total current liabilities	7,662			21,193
Long-term debt	26,903			11,898
Deferred income taxes	5,240			5,172
Accrued pension costs	352			544
Accrued postretirement health care costs	1,764			1,749
Other liabilities	316			254
Total liabilities	42,237			40,810
Contingencies (Note 13)
Redeemable noncontrolling interest	39			39
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935			935
Additional paid-in capital	5,960			5,961
Earnings reinvested in the business	39,910			43,962
Accumulated other comprehensive losses	(2,402		)	(2,547		)
Cost of repurchased stock (937,835,860 shares at September 30, 2019 and 931,903,722 shares at December 31, 2018)	(33,858		)	(33,524		)
Total stockholders’ equity attributable to Altria	10,545			14,787
Noncontrolling interests	92			2
Total stockholders’ equity	10,637			14,789
Total Liabilities and Stockholders’ Equity	$	52,913		$	55,638

See notes to condensed consolidated financial statements.

Table of Contents

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,
	2019			2018			2019			2018
Net revenues	$	19,103		$	19,250		$	6,856		$	6,837
Cost of sales	5,367			5,509			1,915			2,037
Excise taxes on products	4,109			4,409			1,444			1,545
Gross profit	9,627			9,332			3,497			3,255
Marketing, administration and research costs	1,654			1,959			552			700
Asset impairment and exit costs	74			2			1			(2		)
Operating income	7,899			7,371			2,944			2,557
Interest and other debt expense, net	989			503			293			159
Net periodic benefit income, excluding service cost	(40		)	(37		)	(24		)	(21		)
Earnings from equity investments	(866		)	(759		)	(333		)	(189		)
Impairment of JUUL equity securities	4,500			—			4,500			—
Loss on Cronos-related financial instruments	1,327			—			636			—
Loss on ABI/SABMiller business combination	—			33			—			—
Earnings (losses) before income taxes	1,989			7,631			(2,128		)	2,608
Provision for income taxes	1,473			1,915			474			664
Net earnings (losses)	516			5,716			(2,602		)	1,944
Net (earnings) losses attributable to noncontrolling interests	—			(3		)	2			(1		)
Net earnings (losses) attributable to Altria	$	516		$	5,713		$	(2,600	)	$	1,943
Per share data:
Basic and diluted earnings (losses) per share attributable to Altria	$	0.27		$	3.02		$	(1.39	)	$	1.03

See notes to condensed consolidated financial statements.

Table of Contents

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,
	2019		2018			2019			2018
Net earnings (losses)	$	516	$	5,716		$	(2,602	)	$	1,944
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans	84		126			26			39
ABI	53		(262		)	221			(422		)
Currency translation adjustments and other	8		(1		)	(3		)	1
Other comprehensive earnings (losses), net of deferred income taxes	145		(137		)	244			(382		)

Comprehensive earnings (losses)	661		5,579			(2,358		)	1,562
Comprehensive (earnings) losses attributable to noncontrolling interests	—		(3		)	2			(1		)
Comprehensive earnings (losses) attributable to Altria	$	661	$	5,576		$	(2,356	)	$	1,561

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, 2019 and 2018

(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, 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



	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, 2017	$	935	$	5,952	$	42,251		$	(1,897	)	$	(31,864	)	$	3		$	15,380
Net earnings (losses) ⁽¹⁾	—		—		5,713			—			—			—			5,713
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—			(137		)	—			—			(137		)
Stock award activity	—		7		—			—			10			—			17
Cash dividends declared ($2.20 per share)	—		—		(4,159		)	—			—			—			(4,159		)
Repurchases of common stock	—		—		—			—			(1,317		)	—			(1,317		)
Other	—		—		—			—			—			(1		)	(1		)
Balances, September 30, 2018	$	935	$	5,959	$	43,805		$	(2,034	)	$	(33,171	)	$	2		$	15,496

⁽¹⁾ Amounts attributable to noncontrolling interests for the nine months ended September 30, 2019 and 2018 exclude net earnings of $3 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.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the Three Months Ended September 30, 2019 and 2018

(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, 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



	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, 2018	$	935	$	5,948	$	43,369		$	(1,652	)	$	(32,804	)	$	2	$	15,798
Net earnings (losses) ⁽¹⁾	—		—		1,943			—			—			—		1,943
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—			(382		)	—			—		(382		)
Stock award activity	—		11		—			—			—			—		11
Cash dividends declared ($0.80 per share)	—		—		(1,507		)	—			—			—		(1,507		)
Repurchases of common stock	—		—		—			—			(367		)	—		(367		)
Balances, September 30, 2018	$	935	$	5,959	$	43,805		$	(2,034	)	$	(33,171	)	$	2	$	15,496

⁽¹⁾ Amounts attributable to noncontrolling interests for the three months ended September 30, 2019 and 2018 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.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)



	For the Nine Months Ended September 30,
	2019			2018
Cash Provided by (Used in) Operating Activities
Net earnings (losses)	$	516		$	5,716
Adjustments to reconcile net earnings (losses) to operating cash flows:
Depreciation and amortization	163			168
Deferred income tax provision (benefit)	(261		)	215
Earnings from equity investments	(866		)	(759		)
Dividends from ABI	221			477
Loss on ABI/SABMiller business combination	—			33
Loss on Cronos-related financial instruments	1,327			—
Impairment of JUUL equity securities	4,500			—
Asset impairment and exit costs, net of cash paid	(33		)	(24		)
Cash effects of changes:
Receivables	(21		)	(45		)
Inventories	147			147
Accounts payable	(157		)	(79		)
Income taxes	174			308
Accrued liabilities and other current assets	(359		)	(319		)
Accrued settlement charges	(360		)	757
Pension plan contributions	(51		)	(19		)
Pension provisions and postretirement, net	(42		)	(19		)
Other, net	376