Condensed Consolidating Financial Information

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information:

PM USA, which is a 100% owned subsidiary of Altria, has guaranteed Altria’s obligations under its outstanding debt securities, borrowings under its Credit Agreement and amounts outstanding under its commercial paper program (the “Guarantees”). Pursuant to the Guarantees, PM USA fully and unconditionally guarantees, as primary obligor, the payment and performance of Altria’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release under certain customary circumstances as noted below.

The Guarantees provide that PM USA guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations. The liability of PM USA under the Guarantees is absolute and unconditional irrespective of: any lack of validity, enforceability or genuineness of any provision of any agreement or instrument relating thereto; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from any agreement or instrument relating thereto; any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Obligations; or any other circumstance that might otherwise constitute a defense available to, or a discharge of, Altria or PM USA.

The obligations of PM USA under the Guarantees are limited to the maximum amount as will not result in PM USA’s obligations under the Guarantees constituting a fraudulent transfer or conveyance, after giving effect to such maximum amount and all other contingent and fixed liabilities of PM USA that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Guarantees. For this purpose, “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.

PM USA will be unconditionally released and discharged from the Obligations upon the earliest to occur of:

▪ the date, if any, on which PM USA consolidates with or merges into Altria or any successor;

▪ the date, if any, on which Altria or any successor consolidates with or merges into PM USA;

▪ the payment in full of the Obligations pertaining to such Guarantees; and

▪ the rating of Altria’s long-term senior unsecured debt by Standard & Poor’s Ratings Services of A or higher.

At June 30, 2018, the respective principal 100% owned subsidiaries of Altria and PM USA were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their equity interests.

The following sets forth the condensed consolidating balance sheets as of June 30, 2018 and December 31, 2017, condensed consolidating statements of earnings and comprehensive earnings for the six and three months ended June 30, 2018 and 2017, and condensed consolidating statements of cash flows for the six months ended June 30, 2018 and 2017 for Altria, PM USA and, collectively, Altria’s other subsidiaries that are not guarantors of Altria’s debt instruments (the “Non-Guarantor Subsidiaries”). The financial information is based on Altria’s understanding of the Securities and Exchange Commission (“SEC”) interpretation and application of Rule 3-10 of SEC Regulation S-X.

The financial information may not necessarily be indicative of results of operations or financial position had PM USA and the Non-Guarantor Subsidiaries operated as independent entities. Altria and PM USA account for investments in their subsidiaries under the equity method of accounting.

Condensed Consolidating Balance Sheets

June 30, 2018

(in millions of dollars)

	Altria		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	1,393	$	1	$	36	$	—		$	1,430
Receivables	—		9		135		—			144
Inventories:
Leaf tobacco	—		456		354		—			810
Other raw materials	—		114		77		—			191
Work in process	—		5		496		—			501
Finished product	—		170		451		—			621
	—		745		1,378		—			2,123
Due from Altria and subsidiaries	12		3,673		1,057		(4,742		)	—
Income taxes	190		39		—		(47		)	182
Other current assets	48		144		60		—			252
Total current assets	1,643		4,611		2,666		(4,789		)	4,131
Property, plant and equipment, at cost	—		2,896		1,922		—			4,818
Less accumulated depreciation	—		2,085		855		—			2,940
	—		811		1,067		—			1,878
Goodwill	—		—		5,307		—			5,307
Other intangible assets, net	—		2		12,403		—			12,405
Investment in AB InBev	18,178		—		—		—			18,178
Investment in consolidated subsidiaries	14,176		2,835		—		(17,011		)	—
Finance assets, net	—		—		856		—			856
Due from Altria and subsidiaries	4,790		—		—		(4,790		)	—
Other assets	52		690		153		(473		)	422
Total Assets	$	38,839	$	8,949	$	22,452	$	(27,063	)	$	43,177

Condensed Consolidating Balance Sheets (Continued)

June 30, 2018

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	864		$	—		$	—		$	—		$	864
Accounts payable	3			71			135			—			209
Accrued liabilities:
Marketing	—			574			125			—			699
Employment costs	13			11			84			—			108
Settlement charges	—			2,098			7			—			2,105
Other	281			576			268			(47		)	1,078
Dividends payable	1,325			—			—			—			1,325
Due to Altria and subsidiaries	4,283			368			91			(4,742		)	—
Total current liabilities	6,769			3,698			710			(4,789		)	6,388
Long-term debt	13,036			—			—			—			13,036
Deferred income taxes	2,925			—			2,924			(473		)	5,376
Accrued pension costs	202			—			121			—			323
Accrued postretirement health care costs	—			1,214			775			—			1,989
Due to Altria and subsidiaries	—			—			4,790			(4,790		)	—
Other liabilities	111			29			90			—			230
Total liabilities	23,043			4,941			9,410			(10,052		)	27,342
Contingencies
Redeemable noncontrolling interest	—			—			37			—			37
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,948			3,310			12,221			(15,531		)	5,948
Earnings reinvested in the business	43,369			958			2,206			(3,164		)	43,369
Accumulated other comprehensive losses	(1,652		)	(260		)	(1,433		)	1,693			(1,652		)
Cost of repurchased stock	(32,804		)	—			—			—			(32,804		)
Total stockholders’ equity attributable  to Altria	15,796			4,008			13,003			(17,011		)	15,796
Noncontrolling interests	—			—			2			—			2
Total stockholders’ equity	15,796			4,008			13,005			(17,011		)	15,798
Total Liabilities and Stockholders’ Equity	$	38,839		$	8,949		$	22,452		$	(27,063	)	$	43,177

Condensed Consolidating Balance Sheets

December 31, 2017

(in millions of dollars)

	Altria		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	1,203	$	1	$	49	$	—		$	1,253
Receivables	1		10		131		—			142
Inventories:
Leaf tobacco	—		579		362		—			941
Other raw materials	—		111		59		—			170
Work in process	—		5		555		—			560
Finished product	—		128		426		—			554
	—		823		1,402		—			2,225
Due from Altria and subsidiaries	2		2,413		1,022		(3,437		)	—
Income taxes	—		542		17		(98		)	461
Other current assets	11		147		105		—			263
Total current assets	1,217		3,936		2,726		(3,535		)	4,344
Property, plant and equipment, at cost	—		2,930		1,949		—			4,879
Less accumulated depreciation	—		2,086		879		—			2,965
	—		844		1,070		—			1,914
Goodwill	—		—		5,307		—			5,307
Other intangible assets, net	—		2		12,398		—			12,400
Investment in AB InBev	17,952		—		—		—			17,952
Investment in consolidated subsidiaries	13,111		2,818		—		(15,929		)	—
Finance assets, net	—		—		899		—			899
Due from Altria and subsidiaries	4,790		—		—		(4,790		)	—
Other assets	34		671		157		(476		)	386
Total Assets	$	37,104	$	8,271	$	22,557	$	(24,730	)	$	43,202

Condensed Consolidating Balance Sheets (Continued)

December 31, 2017

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	864		$	—		$	—		$	—		$	864
Accounts payable	2			91			281			—			374
Accrued liabilities:
Marketing	—			578			117			—			695
Employment costs	21			14			153			—			188
Settlement charges	—			2,437			5			—			2,442
Other	389			433			247			(98		)	971
Dividends payable	1,258			—			—			—			1,258
Due to Altria and subsidiaries	3,040			317			80			(3,437		)	—
Total current liabilities	5,574			3,870			883			(3,535		)	6,792
Long-term debt	13,030			—			—			—			13,030
Deferred income taxes	2,809			—			2,914			(476		)	5,247
Accrued pension costs	206			—			239			—			445
Accrued postretirement health care costs	—			1,214			773			—			1,987
Due to Altria and subsidiaries	—			—			4,790			(4,790		)	—
Other liabilities	108			49			126			—			283
Total liabilities	21,727			5,133			9,725			(8,801		)	27,784
Contingencies
Redeemable noncontrolling interest	—			—			38			—			38
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,952			3,310			12,045			(15,355		)	5,952
Earnings reinvested in the business	42,251			96			2,243			(2,339		)	42,251
Accumulated other comprehensive losses	(1,897		)	(268		)	(1,506		)	1,774			(1,897		)
Cost of repurchased stock	(31,864		)	—			—			—			(31,864		)
Total stockholders’ equity attributable to Altria	15,377			3,138			12,791			(15,929		)	15,377
Noncontrolling interests	—			—			3			—			3
Total stockholders’ equity	15,377			3,138			12,794			(15,929		)	15,380
Total Liabilities and Stockholders’ Equity	$	37,104		$	8,271		$	22,557		$	(24,730	)	$	43,202

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Six Months Ended June 30, 2018

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	10,528		$	1,903		$	(18	)	$	12,413
Cost of sales	—			2,930			560			(18		)	3,472
Excise taxes on products	—			2,754			110			—			2,864
Gross profit	—			4,844			1,233			—			6,077
Marketing, administration and research costs	77			909			273			—			1,259
Asset impairment and exit costs	—			—			4			—			4
Operating (expense) income	(77		)	3,935			956			—			4,814
Interest and other debt expense (income), net	251			(17		)	110			—			344
Net periodic benefit cost (income), excluding service cost	2			(15		)	(3		)	—			(16		)
Earnings from equity investment in AB InBev	(570		)	—			—			—			(570		)
Loss on AB InBev/SABMiller business combination	33			—			—			—			33
Earnings before income taxes and equity earnings of subsidiaries	207			3,967			849			—			5,023
Provision for income taxes	46			998			207			—			1,251
Equity earnings of subsidiaries	3,609			191			—			(3,800		)	—
Net earnings	3,770			3,160			642			(3,800		)	3,772
Net earnings attributable to noncontrolling interests	—			—			(2		)	—			(2		)
Net earnings attributable to Altria	$	3,770		$	3,160		$	640		$	(3,800	)	$	3,770
Net earnings	$	3,770		$	3,160		$	642		$	(3,800	)	$	3,772
Other comprehensive earnings, net of deferred income taxes	245			8			73			(81		)	245
Comprehensive earnings	4,015			3,168			715			(3,881		)	4,017
Comprehensive earnings attributable to noncontrolling interests	—			—			(2		)	—			(2		)
Comprehensive earnings attributable to Altria	$	4,015		$	3,168		$	713		$	(3,881	)	$	4,015

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Six Months Ended June 30, 2017

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	10,984		$	1,780		$	(18	)	$	12,746
Cost of sales	—			3,220			565			(18		)	3,767
Excise taxes on products	—			2,982			107			—			3,089
Gross profit	—			4,782			1,108			—			5,890
Marketing, administration and research costs	79			801			227			—			1,107
Asset impairment and exit costs	—			—			16			—			16
Operating (expense) income	(79		)	3,981			865			—			4,767
Interest and other debt expense (income), net	253			(6		)	109			—			356
Net periodic benefit cost (income), excluding service cost	1			(14		)	(6		)				(19		)
Earnings from equity investment in AB InBev	(163		)	—			—			—			(163		)
Gain on AB InBev/SABMiller business combination	(408		)	—			—			—			(408		)
Earnings before income taxes and equity earnings of subsidiaries	238			4,001			762			—			5,001
(Benefit) provision for income taxes	(40		)	1,397			252			—			1,609
Equity earnings of subsidiaries	3,112			152			—			(3,264		)	—
Net earnings	3,390			2,756			510			(3,264		)	3,392
Net earnings attributable to noncontrolling interests	—			—			(2		)	—			(2		)
Net earnings attributable to Altria	$	3,390		$	2,756		$	508		$	(3,264	)	$	3,390
Net earnings	$	3,390		$	2,756		$	510		$	(3,264	)	$	3,392
Other comprehensive earnings, net of deferred income taxes	214			7			56			(63		)	214
Comprehensive earnings	3,604			2,763			566			(3,327		)	3,606
Comprehensive earnings attributable to noncontrolling interests	—			—			(2		)	—			(2		)
Comprehensive earnings attributable to Altria	$	3,604		$	2,763		$	564		$	(3,327	)	$	3,604

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Three Months Ended June 30, 2018

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	5,314		$	999		$	(8	)	$	6,305
Cost of sales	—			1,443			303			(8		)	1,738
Excise taxes on products	—			1,371			55			—			1,426
Gross profit	—			2,500			641			—			3,141
Marketing, administration and research costs	39			460			142			—			641
Asset impairment and exit costs	—			—			2			—			2
Operating (expense) income	(39		)	2,040			497			—			2,498
Interest and other debt expense (income), net	129			(8		)	57			—			178
Net periodic benefit cost (income), excluding service cost	1			(9		)	(1		)	—			(9		)
Earnings from equity investment in AB InBev	(228		)	—			—			—			(228		)
Earnings before income taxes and equity earnings of subsidiaries	59			2,057			441			—			2,557
Provision for income taxes	59			516			105			—			680
Equity earnings of subsidiaries	1,876			102			—			(1,978		)	—
Net earnings	1,876			1,643			336			(1,978		)	1,877
Net earnings attributable to noncontrolling interests	—			—			(1		)	—			(1		)
Net earnings attributable to Altria	$	1,876		$	1,643		$	335		$	(1,978	)	$	1,876
Net earnings	$	1,876		$	1,643		$	336		$	(1,978	)	$	1,877
Other comprehensive earnings, net of deferred income taxes	275			4			34			(38		)	275
Comprehensive earnings	2,151			1,647			370			(2,016		)	2,152
Comprehensive earnings attributable to noncontrolling interests	—			—			(1		)	—			(1		)
Comprehensive earnings attributable to Altria	$	2,151		$	1,647		$	369		$	(2,016	)	$	2,151

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Three Months Ended June 30, 2017

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	5,713		$	960		$	(10	)	$	6,663
Cost of sales	—			1,681			283			(10		)	1,954
Excise taxes on products	—			1,536			59			—			1,595
Gross profit	—			2,496			618			—			3,114
Marketing, administration and research costs	39			419			116			—			574
Asset impairment and exit costs	—			—			12			—			12
Operating (expense) income	(39		)	2,077			490			—			2,528
Interest and other debt expense (income), net	130			(6		)	53			—			177
Net periodic benefit cost (income), excluding service cost	1			(9		)	(3		)	—			(11		)
Earnings from equity investment in AB InBev	(140		)	—			—			—			(140		)
Gain on AB InBev/SABMiller business combination	(408		)	—			—			—			(408		)
Earnings before income taxes and equity earnings of subsidiaries	378			2,092			440			—			2,910
Provision for income taxes	32			734			154			—			920
Equity earnings of subsidiaries	1,643			80			—			(1,723		)	—
Net earnings	1,989			1,438			286			(1,723		)	1,990
Net earnings attributable to noncontrolling interests	—			—			(1		)	—			(1		)
Net earnings attributable to Altria	$	1,989		$	1,438		$	285		$	(1,723	)	$	1,989
Net earnings	$	1,989		$	1,438		$	286		$	(1,723	)	$	1,990
Other comprehensive earnings, net of deferred income taxes	374			4			28			(32		)	374
Comprehensive earnings	2,363			1,442			314			(1,755		)	2,364
Comprehensive earnings attributable to noncontrolling interests	—			—			(1		)	—			(1		)
Comprehensive earnings attributable to Altria	$	2,363		$	1,442		$	313		$	(1,755	)	$	2,363

Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2018

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by Operating Activities
Net cash provided by operating activities	$	2,681		$	3,549		$	595		$	(2,975	)	$	3,850
Cash Provided by (Used in) Investing Activities
Capital expenditures	—			(10		)	(62		)	—			(72		)
Other	8			—			(17		)	—			(9		)
Net cash provided by (used in) investing activities	8			(10		)	(79		)	—			(81		)
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	(950		)	—			—			—			(950		)
Dividends paid on common stock	(2,585		)	—			—			—			(2,585		)
Changes in amounts due to/from Altria and subsidiaries	1,057			(1,209		)	152			—			—
Cash dividends paid to parent	—			(2,298		)	(677		)	2,975			—
Other	(21		)	—			(4		)	—			(25		)
Net cash used in financing activities	(2,499		)	(3,507		)	(529		)	2,975			(3,560		)
Cash, cash equivalents and restricted cash (1):
Increase (decrease)	190			32			(13		)	—			209
Balance at beginning of period	1,203			62			49			—			1,314
Balance at end of period	$	1,393		$	94		$	36		$	—		$	1,523

⁽¹⁾ Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See Note 9. Contingencies.

Condensed Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2017

(in millions of dollars)

	Altria			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by Operating Activities
Net cash provided by operating activities	$	3,508		$	1,424		$	397		$	(3,384	)	$	1,945
Cash Provided by (Used in) Investing Activities
Capital expenditures	—			(13		)	(78		)	—			(91		)
Proceeds from finance assets	—			—			45			—			45
Other	(4		)	—			(196		)	—			(200		)
Net cash used in investing activities	(4		)	(13		)	(229		)	—			(246		)
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	(1,600		)	—			—			—			(1,600		)
Dividends paid on common stock	(2,369		)	—			—			—			(2,369		)
Changes in amounts due to/from Altria and subsidiaries	(1,813		)	1,158			655			—			—
Cash dividends paid to parent	—			(2,572		)	(812		)	3,384			—
Other	(40		)	—			(7		)	—			(47		)
Net cash used in financing activities	(5,822		)	(1,414		)	(164		)	3,384			(4,016		)
Cash, cash equivalents and restricted cash (1):
(Decrease) increase	(2,318		)	(3		)	4			—			(2,317		)
Balance at beginning of period	4,521			83			47			—			4,651
Balance at end of period	$	2,203		$	80		$	51		$	—		$	2,334

⁽¹⁾ Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See Note 9. Contingencies.