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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | 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
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☐ | 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)
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Virginia | | | 13-3260245 | |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) | |
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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:
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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.
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Large accelerated filer | | þ | | Accelerated filer | | ☐ |
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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.
ALTRIA GROUP, INC.
TABLE OF CONTENTS
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PART I - | | FINANCIAL INFORMATION | | |
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Item 1. | | Financial Statements (Unaudited) | | |
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Item 2. | | | | |
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Item 3. | | | | |
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Item 4. | | | | |
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PART II - | | OTHER INFORMATION | | |
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Item 1. | | | | |
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Item 1A. | | | | |
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Item 2. | | | | |
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Item 6. | | | | |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
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| | September 30, 2020 | | December 31, 2019 |
Assets | | | | |
Cash and cash equivalents | | $ | 4,123 | | | $ | 2,117 | |
Receivables | | 151 | | | 152 | |
Inventories: | | | | |
Leaf tobacco | | 754 | | | 874 | |
Other raw materials | | 206 | | | 192 | |
Work in process | | 450 | | | 696 | |
Finished product | | 452 | | | 531 | |
| | 1,862 | | | 2,293 | |
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Other current assets | | 263 | | | 262 | |
Total current assets | | 6,399 | | | 4,824 | |
Property, plant and equipment, at cost | | 5,173 | | | 5,074 | |
Less accumulated depreciation | | 3,164 | | | 3,075 | |
| | 2,009 | | | 1,999 | |
Goodwill | | 5,177 | | | 5,177 | |
Other intangible assets, net | | 12,633 | | | 12,687 | |
Investments in equity securities | | 19,408 | | | 23,581 | |
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Other assets | | 1,025 | | | 1,003 | |
Total Assets | | $ | 46,651 | | | $ | 49,271 | |
See notes to condensed consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars, except share and per share data)
(Unaudited)
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| | September 30, 2020 | | December 31, 2019 |
Liabilities | | | | |
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Current portion of long-term debt | | $ | 1,500 | | | $ | 1,000 | |
Accounts payable | | 348 | | | 325 | |
Accrued liabilities: | | | | |
Marketing | | 521 | | | 393 | |
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Settlement charges | | 3,206 | | | 3,346 | |
Other | | 1,113 | | | 1,545 | |
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Dividends payable | | 1,602 | | | 1,565 | |
Total current liabilities | | 8,290 | | | 8,174 | |
Long-term debt | | 27,755 | | | 27,042 | |
Deferred income taxes | | 4,724 | | | 5,083 | |
Accrued pension costs | | 404 | | | 473 | |
Accrued postretirement health care costs | | 1,798 | | | 1,797 | |
Other liabilities | | 409 | | | 345 | |
Total liabilities | | 43,380 | | | 42,914 | |
Contingencies (Note 12) | | | | |
Redeemable noncontrolling interest | | 39 | | | 38 | |
Stockholders’ Equity | | | | |
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued) | | 935 | | | 935 | |
Additional paid-in capital | | 5,973 | | | 5,970 | |
Earnings reinvested in the business | | 34,356 | | | 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 interests | | 93 | | | 97 | |
Total stockholders’ equity | | 3,232 | | | 6,319 | |
Total Liabilities and Stockholders’ Equity | | $ | 46,651 | | | $ | 49,271 | |
See notes to condensed consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
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| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Net revenues | | $ | 19,849 | | | $ | 19,103 | | | $ | 7,123 | | | $ | 6,856 | |
Cost of sales | | 5,909 | | | 5,367 | | | 1,961 | | | 1,915 | |
Excise taxes on products | | 4,063 | | | 4,109 | | | 1,445 | | | 1,444 | |
Gross profit | | 9,877 | | | 9,627 | | | 3,717 | | | 3,497 | |
Marketing, administration and research costs | | 1,585 | | | 1,654 | | | 557 | | | 552 | |
Asset impairment and exit costs | | — | | | 74 | | | — | | | 1 | |
Operating income | | 8,292 | | | 7,899 | | | 3,160 | | | 2,944 | |
Interest and other debt expense, net | | 893 | | | 989 | | | 310 | | | 293 | |
Net periodic benefit income, excluding service cost | | (58) | | | (40) | | | (3) | | | (24) | |
(Earnings) losses from equity investments | | 306 | | | (866) | | | 472 | | | (333) | |
Impairment of JUUL equity securities | | 2,600 | | | 4,500 | | | 2,600 | | | 4,500 | |
Loss on Cronos-related financial instruments | | 202 | | | 1,327 | | | 105 | | | 636 | |
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Earnings (losses) before income taxes | | 4,349 | | | 1,989 | | | (324) | | | (2,128) | |
Provision for income taxes | | 1,817 | | | 1,473 | | | 632 | | | 474 | |
Net earnings (losses) | | 2,532 | | | 516 | | | (956) | | | (2,602) | |
Net (earnings) losses attributable to noncontrolling interests | | 11 | | | — | | | 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.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
(Unaudited)
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| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Net earnings (losses) | | $ | 2,532 | | | $ | 516 | | | $ | (956) | | | $ | (2,602) | |
Other comprehensive earnings (losses), net of deferred income taxes: | | | | | | | | |
Benefit plans | | 27 | | | 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 | |
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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.
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)
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| | 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) | |
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Other | | — | | | — | | | — | | | — | | | — | | | 9 | | | 9 | |
Balances, September 30, 2020 | | $ | 935 | | | $ | 5,973 | | | $ | 34,356 | | | $ | (3,781) | | | $ | (34,344) | | | $ | 93 | | | $ | 3,232 | |
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| | 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 | |
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(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.
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)
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| | 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) | |
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Balances, September 30, 2020 | | $ | 935 | | | $ | 5,973 | | | $ | 34,356 | | | $ | (3,781) | | | $ | (34,344) | | | $ | 93 | | | $ | 3,232 | |
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| | 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 |
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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 | |
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(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.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
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| | For the Nine Months Ended September 30, |
| | 2020 | | 2019 |
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 amortization | | 192 | | | 163 | |
Deferred income tax provision (benefit) | | (111) | | | (261) | |
(Earnings) losses from equity investments | | 306 | | | (866) | |
Dividends from ABI | | 108 | | | 221 | |
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Loss on Cronos-related financial instruments | | 202 | | | 1,327 | |
Impairment of JUUL equity securities | | 2,600 | | | 4,500 | |
Asset impairment and exit costs, net of cash paid | | (42) | | | (33) | |
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Cash effects of changes: | | | | |
Receivables | | 1 | | | (21) | |
Inventories | | 136 | | | 147 | |
Accounts payable | | 24 | | | (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, net | | 591 | | | 376 | |
Net cash provided by (used in) operating activities | | 5,844 | | | 5,274 | |
Cash Provided by (Used in) Investing Activities | | | | |
Capital expenditures | | (162) | | | (160) | |
Investment in Cronos | | — | | | (1,863) | |
Acquisitions of businesses and assets | | — | | | (421) | |
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Other, net | | 55 | | | 32 | |
Net cash provided by (used in) investing activities | | $ | (107) | | | $ | (2,412) | |
See notes to condensed consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
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| | For the Nine Months Ended September 30, |
| | 2020 | | 2019 |
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 issued | | 1,993 | | | 16,265 | |
Long-term debt repaid | | (1,000) | | | (1,144) | |
Repurchases of common stock | | — | | | (346) | |
Dividends paid on common stock | | (4,690) | | | (4,498) | |
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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 period | | 2,160 | | | 1,433 | |
Balance at end of period | | $ | 4,184 | | | $ | 1,645 | |
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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, 2020 | | At 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.
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
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:
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(in millions, except per share data) | | For the Nine Months Ended September 30, 2019 | | | | For 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.
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 $362 million at September 30, 2020 and December 31, 2019, respectively. When cash is received in advance of product shipment, Altria’s businesses satisfy their performance obligations within three days of receiving payment. At September 30, 2020 and December 31, 2019, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.
Receivables, which primarily reflect sales of wine produced and/or distributed by Ste. Michelle, were $151 million and $152 million at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020 and December 31, 2019, there were no expected differences between amounts recorded and subsequently received, and Altria’s businesses did not record an allowance for doubtful accounts against these receivables.
Altria’s businesses record an allowance for returned goods, which is included in other accrued liabilities on Altria’s condensed consolidated balance sheets. While all of Altria’s tobacco operating companies sell tobacco products with dates relative to freshness as printed on product packaging, it is USSTC’s policy to accept authorized sales returns from its customers for products that have passed such dates due to the limited shelf life of USSTC’s MST and snus products. Altria’s businesses record estimated sales returns, which are based principally on historical volume and return rates, as a reduction to revenues. Actual sales returns will differ from estimated sales returns to the extent actual results differ from estimated assumptions. Altria’s businesses reflect differences between actual and estimated sales returns in the period in which the actual amounts become known. These differences, if any, have not had a material impact on Altria’s condensed consolidated financial statements. All returned goods are destroyed upon return and not included in inventory. Consequently, Altria’s businesses do not record an asset for their right to recover goods from customers upon return.
Sales incentives include variable payments related to goods sold by Altria’s businesses. Altria’s businesses include estimates of variable consideration as a reduction to revenues upon shipment of goods to customers. The sales incentives that require significant estimates and judgments are as follows:
Price promotion payments- Altria’s businesses make price promotion payments, substantially all of which are made to their retail partners, to incent the promotion of certain product offerings in select geographic areas.
Wholesale and retail participation payments- Altria’s businesses make payments to their wholesale and retail partners to incent merchandising and sharing of sales data in accordance with each business’s trade agreements.
These estimates primarily include estimated wholesale to retail sales volume and historical acceptance rates. Actual payments will differ from estimated payments to the extent actual results differ from estimated assumptions. Differences between actual and estimated payments are reflected in the period such information becomes available. These differences, if any, have not had a material impact on Altria’s condensed consolidated financial statements.
Note 3. Asset Impairment, Exit and Implementation Costs:
Pre-tax asset impairment, exit and implementation costs consisted of the following: