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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 March 31, 2021
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 April 20, 2021, there were 1,850,637,974 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

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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)
______________________________
 
March 31, 2021December 31, 2020
Assets
Cash and cash equivalents$5,792 $4,945 
Receivables142 137 
Inventories:
Leaf tobacco754 844 
Other raw materials186 200 
Work in process471 502 
Finished product537 420 
1,948 1,966 
Other current assets147 69 
Total current assets8,029 7,117 
Property, plant and equipment, at cost5,154 5,150 
Less accumulated depreciation3,172 3,138 
1,982 2,012 
Goodwill5,177 5,177 
Other intangible assets, net12,598 12,615 
Investments in equity securities ($1,778 million and $1,868 million at March 31, 2021 and December 31, 2020, respectively, measured at fair value)
20,133 19,529 
Other assets857 964 
Total Assets$48,776 $47,414 
 
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)
________________________________________________
 
March 31, 2021December 31, 2020
Liabilities
Current portion of long-term debt$1,500 $1,500 
Accounts payable271 380 
Accrued liabilities:
Marketing546 523 
Settlement charges4,539 3,564 
Other1,550 1,494 
Dividends payable1,598 1,602 
Total current liabilities10,004 9,063 
Long-term debt28,180 27,971 
Deferred income taxes4,727 4,532 
Accrued pension costs481 551 
Accrued postretirement health care costs1,952 1,951 
Other liabilities397 381 
Total liabilities45,741 44,449 
Contingencies (Note 10)
Redeemable noncontrolling interest40 40 
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share
(2,805,961,317 shares issued)
935 935 
Additional paid-in capital5,905 5,910 
Earnings reinvested in the business34,507 34,679 
Accumulated other comprehensive losses(3,774)(4,341)
Cost of repurchased stock
(954,184,118 shares at March 31, 2021 and
947,542,152 shares at December 31, 2020)
(34,660)(34,344)
Total stockholders’ equity attributable to Altria
2,913 2,839 
Noncontrolling interests82 86 
Total stockholders’ equity
2,995 2,925 
Total Liabilities and Stockholders’ Equity
$48,776 $47,414 
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 Three Months Ended March 31,20212020
Net revenues$6,036 $6,359 
Cost of sales1,608 2,173 
Excise taxes on products1,156 1,313 
Gross profit3,272 2,873 
Marketing, administration and research costs582 537 
Operating income2,690 2,336 
Interest and other debt expense, net308 275 
Loss on early extinguishment of debt649  
Net periodic benefit (income) cost, excluding service cost(43)(27)
(Income) losses from equity investments(51)(157)
(Gain) loss on Cronos-related financial instruments(110)137 
Earnings before income taxes1,937 2,108 
Provision for income taxes516 558 
Net earnings1,421 1,550 
Net (earnings) losses attributable to noncontrolling interests3 2 
Net earnings attributable to Altria$1,424 $1,552 
Per share data:
Basic and diluted earnings per share attributable to Altria$0.77 $0.83 
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 Three Months Ended March 31,20212020
Net earnings$1,421 $1,550 
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans28 21 
ABI517 298 
Currency translation adjustments and other22 12 
Other comprehensive earnings (losses), net of deferred
income taxes
567 331 
Comprehensive earnings (losses)1,988 1,881 
Comprehensive (earnings) losses attributable to noncontrolling interests3 2 
Comprehensive earnings (losses) attributable to Altria$1,991 $1,883 
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 March 31, 2021 and 2020
(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, 2020$935 $5,910 $34,679 $(4,341)$(34,344)$86 $2,925 
Net earnings (1)
  1,424   (4)1,420 
Other comprehensive earnings (losses), net of deferred income taxes
   567   567 
Stock award activity (5)  9  4 
Cash dividends declared ($0.86 per share)
  (1,596)   (1,596)
Repurchases of common stock    (325) (325)
Balances, March 31, 2021$935 $5,905 $34,507 $(3,774)$(34,660)$82 $2,995 


 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 (1)
— — 1,552 — — (3)1,549 
Other comprehensive earnings (losses), net of deferred income taxes
— — — 331 — — 331 
Stock award activity
— (11)— — 12 — 1 
Cash dividends declared ($0.84 per share)
— — (1,563)— — — (1,563)
Balances, March 31, 2020$935 $5,959 $36,528 $(2,533)$(34,346)$94 $6,637 

(1)Amounts attributable to noncontrolling interests for the three months ended March 31, 2021 and 2020 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 Three Months Ended March 31,20212020
Cash Provided by (Used in) Operating Activities
Net earnings$1,421 $1,550 
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization63 65 
Deferred income tax provision (benefit)65 26 
(Income) losses from equity investments(51)(157)
(Gain) loss on Cronos-related financial instruments(110)137 
Loss on early extinguishment of debt649  
Cash effects of changes:
Receivables(5)5 
Inventories18 (5)
Accounts payable(98)(45)
Income taxes396 495 
Accrued liabilities and other current assets(307)(421)
Accrued settlement charges975 1,073 
Pension plan contributions(3)(4)
Pension provisions and postretirement, net(32)(20)
Other, net (1)
59 430 
Net cash provided by (used in) operating activities3,040 3,129 
Cash Provided by (Used in) Investing Activities
Capital expenditures(26)(52)
Other, net(3) 
Net cash provided by (used in) investing activities$(29)$(52)
(1) 2020 reflects inventory-related amounts associated with the Wine Business Strategic Reset. For further discussion, see Note 8. Segment Reporting.
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 Three Months Ended March 31,20212020
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings$ $3,000 
Long-term debt issued5,472  
Long-term debt repaid(5,042)(1,000)
Repurchases of common stock(325) 
Dividends paid on common stock(1,601)(1,563)
Premiums and fees related to early extinguishment of debt(623) 
Other, net(53)(10)
Net cash provided by (used in) financing activities(2,172)427 
Cash, cash equivalents and restricted cash:
Increase (decrease)839 3,504 
Balance at beginning of period5,006 2,160 
Balance at end of period$5,845 $5,664 
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 March 31, 2021At December 31, 2020
Cash and cash equivalents$5,792 $4,945 
Restricted cash included in other current assets (1)
5 1 
Restricted cash included in other assets (1)
48 60 
Cash, cash equivalents and restricted cash$5,845 $5,006 
(1)Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See Note 10. 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
When used in these notes, the term Altria,” refers to Altria Group, Inc. and its subsidiaries, unless the context requires otherwise.
Background: At March 31, 2021, Altria’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; 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 products (“MST”), 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, at March 31, 2021, Altria owned an 80% interest in Helix Innovations LLC (“Helix”), which is engaged in the manufacture and sale of on! oral nicotine pouches in the United States and Canada. As a result of transactions in December 2020 and April 2021 to purchase the remaining 20% interest in (i) the on! international rest of world business (“Helix ROW”) and (ii) Helix’s on! business in the United States and Canada, respectively, Altria now owns 100% of the global on! business. The total purchase price of the December 2020 and April 2021 transactions was approximately $250 million.
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 March 31, 2021, Altria’s significant wholly owned subsidiaries were not limited by contractual obligations in their ability to pay cash dividends or make other distributions with respect to their equity interests.
At March 31, 2021, Altria’s investments in equity securities consisted of Anheuser-Busch InBev SA/NV (“ABI”), Cronos Group Inc. (“Cronos”) and JUUL Labs, Inc. (“JUUL”). Altria accounts for its investments in ABI and Cronos under the equity method of accounting using a one-quarter lag. Altria accounts for its equity investment in JUUL under the fair value option.
For further discussion of Altria’s investments in equity securities, see Note 3. Investments in Equity Securities.
Share Repurchases: In July 2019, Altria’s Board of Directors (the “Board of Directors” or “Board”) authorized a $1.0 billion share repurchase program. In April 2020, the Board 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. Altria did not repurchase any shares in 2020.
In January 2021, the Board authorized a new $2.0 billion share repurchase program. At March 31, 2021, Altria had $1,675 million remaining in this program. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board.
Altria’s share repurchase activity for the three months ended March 31, 2021 was as follows:
(in millions, except per share data)2021
Total number of shares repurchased
6.9 
Aggregate cost of shares repurchased
$325 
Average price per share of shares repurchased
$47.02 
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, 2020 (the “2020 Form 10-K”).
On January 1, 2021, Altria adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the
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Accounting for Income Taxes (“ASU No. 2019-12”). This guidance removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU No. 2019-12 did not have a material impact on Altria’s condensed consolidated financial statements.
Additionally, on January 1, 2021, Altria adopted ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU No. 2020-01”). This guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The adoption of ASU No. 2020-01 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 11. 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 8. Segment Reporting.
A majority of 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. Beginning in the first quarter of 2021, USSTC began calculating cash discounts as a flat rate per unit, based on agreed-upon payment terms. Altria’s businesses record receivables net of the cash discounts on Altria’s condensed consolidated balance sheets.
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 $264 million and $301 million at March 31, 2021 and December 31, 2020, respectively. When cash is received in advance of product shipment, Altria’s businesses satisfy their performance obligations within three days of receiving payment. At March 31, 2021 and December 31, 2020, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.
Receivables were $142 million and $137 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, 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.


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Note 3. Investments in Equity Securities
Altria’s investments consisted of the following:
Carrying Amount
(in millions)March 31, 2021December 31, 2020
ABI$17,390 $16,651 
JUUL
1,505 1,705 
Cronos (1)
1,238 1,173 
Total
$20,133 $19,529 
(1) March 31, 2021 included Altria’s equity method investment in Cronos ($965 million), the Cronos warrant ($235 million) and the Fixed-price Preemptive Rights ($38 million), (collectively, “Investment in Cronos”). The Investment in Cronos at December 31, 2020 included Altria’s equity method investment in Cronos ($1,010 million), the Cronos warrant ($139 million) and the Fixed-price Preemptive Rights ($24 million). See below for further discussion.
Income (losses) from equity investments accounted for under the equity method of accounting and fair value option consisted of the following:
For the Three Months Ended March 31,
(in millions)20212020
ABI $318 $134 
Cronos(67)23 
Income (losses) from investments under equity method of accounting251 157 
JUUL(200) 
Income (losses) from equity investments$51 $157 
Investment in ABI
At March 31, 2021, Altria had a 10.0% ownership interest in ABI, consisting of 185 million restricted shares of ABI (the “Restricted Shares”) and 12 million ordinary shares of ABI. The Restricted Shares:
are unlisted and not admitted to trading on any stock exchange;
are subject to a five-year lock-up (subject to limited exceptions) ending October 10, 2021;
are convertible into ordinary shares of ABI on a one-for-one basis after the end of this five-year lock-up period;
rank equally with ordinary shares of ABI with regards to dividends and voting rights; and
have director nomination rights with respect to ABI.
Altria accounts for its investment in ABI under the equity method of accounting because Altria has the ability to exercise significant influence over the operating and financial policies of ABI, including having active representation on ABI’s board of directors and certain ABI board committees. Through this representation, Altria participates in ABI policy making processes.
Altria reports its share of ABI’s results using a one-quarter lag because ABI’s results are not available in time for Altria to record them in the concurrent period.
The fair value of Altria’s equity investment in ABI is based on (i) unadjusted quoted prices in active markets for ABI’s ordinary shares and was classified in Level 1 of the fair value hierarchy and (ii) observable inputs other than Level 1 prices, such as quoted prices for similar assets for the Restricted Shares, and was classified in Level 2 of the fair value hierarchy. Altria may, in certain instances, pledge or otherwise grant a security interest in all or part of its Restricted Shares. If the pledgee or security interest holder forecloses on the Restricted Shares, the relevant Restricted Shares will be automatically converted, one-for-one, into ordinary shares. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.
The fair value of Altria’s equity investment in ABI at March 31, 2021 and December 31, 2020 was $12.4 billion (carrying value of $17.4 billion) and $13.8 billion (carrying value of $16.7 billion), respectively, which was less than its carrying value by approximately 28% and 17%, respectively. In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and has not recovered. Altria has evaluated the factors related to the fair value decline, including the impact on the fair value of ABI’s shares during the COVID-19 pandemic, which has negatively impacted ABI’s business. Altria has evaluated the duration and magnitude of the fair value decline at March 31, 2021, ABI’s financial condition and near-term prospects, and Altria’s intent and ability to hold its investment in ABI until recovery. Altria concluded, both at
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March 31, 2021 and December 31, 2020, that the decline in fair value of its investment in ABI below its carrying value was temporary and, therefore, no impairment was recorded.
Investment in JUUL
In December 2018, Altria made an investment in JUUL and received a 35% economic interest in JUUL through non-voting shares, which were convertible at Altria’s election into voting shares (“Share Conversion”), and a security convertible into additional non-voting or voting shares, as applicable, upon settlement or exercise of certain JUUL convertible securities (the “JUUL Transaction”).
Altria received a broad preemptive right to purchase JUUL shares, exercisable each quarter upon dilution, to maintain its ownership percentage and is subject to a standstill restriction under which it may not acquire additional JUUL shares above its 35% interest. Furthermore, Altria agreed not to sell or transfer any of its JUUL shares until December 20, 2024.
On April 1, 2020, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion, see Note 10. Contingencies - Antitrust Litigation.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares into voting shares. Altria does not currently intend to exercise its additional governance rights obtained upon Share Conversion, including the right to elect directors to JUUL’s board or to vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint. At March 31, 2021, Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares do not have a readily determinable fair value, Altria elected to measure its investment in JUUL at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There were no upward or downward adjustments to the carrying value of Altria’s investment in JUUL resulting from observable price changes in orderly transactions since the JUUL Transaction through the date of Share Conversion. In addition, prior to Share Conversion, Altria reviewed its investment in JUUL for impairment by performing a qualitative assessment of impairment indicators on a quarterly basis in connection with the preparation of its financial statements. If this qualitative assessment indicated that Altria’s investment in JUUL may be impaired, a quantitative assessment was performed. If the quantitative assessment indicated the fair value of the investment was less than its carrying value, the investment was written down to its fair value. During the three months ended March 31, 2020, Altria did not record an impairment charge on its investment in JUUL.
Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity method investment in JUUL under the fair value option. Under this option, Altria’s condensed consolidated statements of earnings include any cash dividends received from its investment in JUUL and any changes in the fair value of its investment, which is calculated quarterly. Altria believes the fair value option provides quarterly transparency to investors as to the fair market value of Altria’s investment in JUUL, given the changes and volatility in the e-vapor category since Altria’s initial investment, as well as the lack of publicly available information regarding JUUL’s business or a market-derived valuation.
Altria recorded a non-cash pre-tax unrealized loss of $200 million for the three months ended March 31, 2021 as a result of a decrease in the fair value of its investment in JUUL. The decrease in fair value was primarily driven by (i) Altria’s projections of lower JUUL revenues in the U.S. over time due to lower JUUL volume assumptions resulting from a continuation of heightened competitive dynamics in the U.S. e-vapor category and (ii) an increase in the discount rate due to a change in market factors.
Altria uses an income approach to estimate the fair value of its investment in JUUL. The income approach reflects the discounting of future cash flows for the U.S. and international markets at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing future cash flows. Future cash flows were based on a range of scenarios that consider various potential regulatory and market outcomes.
The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, which is classified in Level 3 of the fair value hierarchy:
Investment
(in millions)Balance
Balance at December 31, 2020$1,705 
Unrealized gains (losses) included in income (losses) from equity investments(200)
Balance at March 31, 2021$1,505 

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In determining the fair value of its investment in JUUL, as of March 31, 2021 and December 31, 2020, Altria made various judgments, estimates and assumptions, the most significant of which were sales volume, operating margins, discount rates and perpetual growth rates. All significant inputs used in the valuation are classified in Level 3 of the fair value hierarchy. Additionally, in determining these significant assumptions, Altria made judgments regarding the (i) likelihood and extent of various potential regulatory actions and the continued adverse public perception impacting the e-vapor category and specifically JUUL, (ii) risk created by the number and types of legal cases pending against JUUL, and (iii) expectations for the future state of the e-vapor category, including competitive dynamics.
Investment in Cronos
At March 31, 2021, Altria had a 42.1% ownership interest in Cronos, consisting of 156.6 million shares, which Altria accounts for under the equity method of accounting. Altria’s ownership percentage decreased from 43.5% at December 31, 2020 due to the issuance of additional shares by Cronos. Altria reports its share of Cronos’s results using a one-quarter lag because Cronos’s results are not available in time for Altria to record them in the concurrent period.
As part of its Investment in Cronos, at March 31, 2021, Altria owned:
anti-dilution protections to purchase Cronos common shares, exercisable each quarter upon dilution, to maintain its ownership percentage. Certain of the anti-dilution protections provide Altria the ability to purchase additional Cronos common shares at a per share exercise price of Canadian dollar (“CAD”) $16.25 upon the occurrence of specified events (“Fixed-price Preemptive Rights”). Based on Altria’s assumptions as of March 31, 2021, Altria estimates the Fixed-price Preemptive Rights allows Altria to purchase up to an additional approximately 24 million common shares of Cronos; and
a warrant providing Altria the ability to purchase up to an additional 10% of common shares of Cronos (approximately 83 million common shares at March 31, 2021) at a per share exercise price of CAD $19.00, which expires on March 8, 2023.
If exercised in full, the exercise prices for the warrant and Fixed-price Preemptive Rights are approximately CAD $1.6 billion and CAD $0.4 billion (approximately USD $1.3 billion and $0.3 billion, respectively, based on the CAD to USD exchange rate on April 26, 2021). At March 31, 2021, upon full exercise of the Fixed-price Preemptive Rights, to the extent such rights become available, and the warrant, Altria would own approximately 53% of the outstanding common shares of Cronos.
For a discussion of derivatives related to the Investment in Cronos, including Altria’s accounting for changes in the fair value of these derivatives, see Note 4. Financial Instruments.
The fair value of Altria’s equity method investment in Cronos is based on unadjusted quoted prices in active markets for Cronos’s common shares and was classified in Level 1 of the fair value hierarchy. The fair value of Altria’s equity method investment in Cronos at March 31, 2021 and December 31, 2020 was $1.5 billion (carrying value of $1.0 billion) and $1.1 billion (carrying value of $1.0 billion), respectively, which exceeded its carrying value by approximately 53% and 8% at March 31, 2021 and December 31, 2020, respectively.

Note 4. Financial Instruments
Altria enters into derivative financial instruments to mitigate the potential impact of certain market risks, including foreign currency exchange rate risk. Altria uses various types of derivative financial instruments, including forward contracts, options and swaps. Altria does not enter into or hold derivative financial instruments for trading or speculative purposes.
Altria’s investment in ABI, whose functional currency is the Euro, exposes Altria to foreign currency exchange risk on the carrying value of its investment. To manage this risk, Altria designates certain foreign exchange contracts, including cross-currency swap contracts and forward contracts (collectively, “foreign currency contracts”), and Euro denominated unsecured long-term notes (“foreign currency denominated debt”) as net investment hedges of Altria’s investment in ABI.
The following table provides (i) the aggregate notional amounts of foreign currency contracts and (ii) the aggregate carrying value and fair value of foreign currency denominated debt:
(in millions)March 31, 2021December 31, 2020
Foreign currency contracts (notional amounts)$567 $1,066 
Foreign currency denominated debt
Carrying value4,965 5,171 
Fair value5,372 5,687 
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Altria’s estimates of the fair values of its foreign currency contracts are determined using valuation models with significant inputs that are readily available in public markets, or can be derived from observable market transactions, and therefore are classified in Level 2 of the fair value hierarchy. An adjustment for credit risk and nonperformance risk is included in the fair values of foreign currency contracts.
The following table provides the aggregate carrying value and fair value of Altria’s total long-term debt:
(in millions)March 31, 2021December 31, 2020
Carrying value$29,680 $29,471 
Fair value32,377 34,682 
Altria’s estimate of the fair value of its total long-term debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy.
The Fixed-price Preemptive Rights and Cronos warrant, which are further discussed in Note 3. Investments in Equity Securities, are derivative financial instruments, which are required to be recorded at fair value. The fair values of the Fixed-price Preemptive Rights and Cronos warrant are estimated using Black-Scholes option-pricing models, adjusted for observable inputs (which are classified in Level 1 of the fair value hierarchy), including share price, and unobservable inputs, including probability factors and weighting of expected life, volatility levels and risk-free interest rates (which are classified in Level 3 of the fair value hierarchy) based on the following assumptions at:
March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Fixed-price Preemptive RightsCronos Warrant
Share price (1)
C$11.88C$8.84C$11.88C$8.84
Expected life (2)
0.97 years1.05 years1.93 years2.18 years
Expected volatility (3)
81.54%80.68%81.54%80.68%
Risk-free interest rate (4)(5)
0.15%0.13%0.22%0.21%
Expected dividend yield (6)
%%%%
(1) Based on the closing market price for Cronos common stock on the Toronto Stock Exchange on the date indicated.
(2) Based on the weighted-average expected life of the Fixed-price Preemptive Rights (with a range from approximately 0.25 year to 4.5 years at March 31, 2021 and 0.25 year to 5 years at December 31, 2020) and the March 8, 2023 expiration date of the Cronos warrant.
(3) Based on a blend of historical volatility of the underlying equity security and implied volatility from traded options on the underlying equity security at March 31, 2021. Based on a blend of historical volatility levels of the underlying equity security and peer companies at December 31, 2020.
(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues (with a range from approximately 0.09% to 0.87% at March 31, 2021 and 0.06% to 0.39% at December 31, 2020) weighted for the remaining expected life of the Fixed-price Preemptive Rights.
(5) Based on the implied yield currently available on Canadian Treasury zero coupon issues and the expected life of the Cronos warrant.
(6) Based on Cronos’s expected dividend payments.
The following table provides a reconciliation of the beginning and ending balance of the Fixed-price Preemptive Rights and Cronos warrant, which are classified in Level 3 of the fair value hierarchy:
(in millions)
Balance at December 31, 2019$303 
Pre-tax earnings (losses) recognized in net earnings(140)
Balance at December 31, 2020163 
Pre-tax earnings (losses) recognized in net earnings110 
Balance at March 31, 2021$273 
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Altria elects to record the gross assets and liabilities of derivative financial instruments executed with the same counterparty on its condensed consolidated balance sheets. The fair values of Altria’s derivative financial instruments on a gross basis included on the condensed consolidated balance sheets were as follows:
Fair Value of AssetsFair Value of Liabilities
(in millions)
Balance Sheet ClassificationMarch 31, 2021December 31, 2020Balance Sheet ClassificationMarch 31, 2021December 31, 2020
Derivatives designated as hedging instruments:
    Foreign currency contracts
Other current assets
$ $ 
Other accrued liabilities
$18 $87 
    Foreign currency contracts
Other assets
  
Other liabilities
  
Total
$ $ $18 $87 
Derivatives not designated as hedging instruments:
Cronos warrant
Investments in equity securities
$235 $139 
Fixed-price Preemptive Rights
Investments in equity securities
38 24 
Total
$273 $163 
Total derivatives
$273 $163 $18 $87 
Altria records in its condensed consolidated statements of earnings any changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant as gains or losses on Cronos-related financial instruments in the periods in which the changes occur. For the three months ended March 31, 2021 and 2020, Altria recorded non-cash pre-tax unrealized gains (losses), representing the changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant, as follows:
For the Three Months Ended March 31,
(in millions)20212020
Fixed-price Preemptive Rights$14 $(35)
Cronos warrant96 (102)
Total$110 $(137)
Counterparties to Altria’s foreign currency contracts are domestic and international financial institutions. Altria is exposed to potential losses due to non-performance by these counterparties. Altria manages its credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure Altria has with each counterparty and monitoring the financial condition of each counterparty. The counterparty agreements contain provisions that require Altria to maintain an investment grade credit rating. In the event Altria’s credit rating falls below investment grade, counterparties to Altria’s foreign currency contracts can require Altria to post collateral. No collateral was received or posted related to derivative assets and liabilities at March 31, 2021 and December 31, 2020.
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Net Investment Hedging
The pre-tax effects of Altria’s net investment hedges on accumulated other comprehensive losses and the condensed consolidated statements of earnings were as follows:
Gain (Loss) Recognized in Accumulated Other Comprehensive LossesGain (Loss) Recognized in
Net Earnings
For the Three Months Ended March 31,
(in millions)2021202020212020
Foreign currency contracts$35 $56 $5 $14 
Foreign currency denominated debt206 77   
Total$241 $133 $5 $14 
The changes in the fair value of the foreign currency contracts and in the carrying value of the foreign currency denominated debt due to changes in the Euro to USD exchange rate were recognized in accumulated other comprehensive losses related to ABI. Gains on the foreign currency contracts arising from components excluded from effectiveness testing were recognized in interest and other debt expense, net in the condensed consolidated statements of earnings based on an amortization approach.

Note 5. Benefit Plans
Components of Net Periodic Benefit (Income) Cost
Net periodic benefit (income) cost consisted of the following:
 For the Three Months Ended March 31,
PensionPostretirement
 (in millions)2021202020212020
Service cost$17 $19 $5 $4 
Interest cost46 63 11 15 
Expected return on plan assets
(131)(126)(4)(3)
Amortization:
Net loss33 27 7