Debt

6 Months Ended

Jun. 30, 2019

Debt:

Short-term Borrowings and Borrowing Arrangements

At June 30, 2019, Altria had no short-term borrowings. At December 31, 2018, Altria had $12.7 billion of short-term borrowings, net of $96 million of debt issuance costs, under the term loan agreement discussed below.

On December 20, 2018, Altria entered into a senior unsecured term loan agreement in connection with its investments in JUUL and Cronos (the “Term Loan Agreement”). At December 31, 2018, Altria had aggregate short-term borrowings under the Term Loan Agreement of $12.8 billion. Borrowings under the Term Loan Agreement were set to mature on December 19, 2019. In February 2019, Altria repaid all of the outstanding $12.8 billion of short-term borrowings under the Term Loan Agreement with net proceeds from the issuance of long-term senior unsecured notes. See Long-term Debt below. Upon repayment, the Term Loan Agreement terminated in accordance with its terms. In the first quarter of 2019, Altria recorded $96 million of pre-tax acquisition-related costs for the write-off of the debt issuance costs related to the Term Loan Agreement, which were recorded in interest and other debt expense, net in Altria’s condensed consolidated statement of earnings.

At December 31, 2018, Altria’s estimate of the fair value of its short-term borrowings was derived from discounted future cash flows based on the contractual terms of the Term Loan Agreement and observable interest rates and was classified in Level 2 of the fair value hierarchy. The fair value of Altria’s short-term borrowings at December 31, 2018 approximated its carrying value.

At December 31, 2018, accrued interest on short-term borrowings of $15 million was included in other accrued liabilities on Altria’s condensed consolidated balance sheet.

Long-term Debt

In February 2019, Altria issued USD denominated and Euro denominated long-term senior unsecured notes in the aggregate principal amounts of $11.5 billion and €4.25 billion, respectively (collectively, the “Notes”). Altria immediately converted the proceeds of the Euro denominated notes into USD of $4.8 billion. The net proceeds from the Euro notes and a portion of the net proceeds from the USD notes were used to repay in full the $12.8 billion of short-term borrowings under the Term Loan Agreement, which were incurred to fund Altria’s investment in JUUL. The remaining net proceeds from the USD notes were used to fund Altria’s investment in Cronos in the first quarter of 2019 and for other general corporate purposes. The Notes contain the following terms:

USD denominated notes


▪	$1.0 billion at 3.490%, due 2022, interest payable semiannually beginning August 14, 2019;


▪	$1.0 billion at 3.800%, due 2024, interest payable semiannually beginning August 14, 2019;


▪	$1.5 billion at 4.400%, due 2026, interest payable semiannually beginning August 14, 2019;


▪	$3.0 billion at 4.800%, due 2029, interest payable semiannually beginning August 14, 2019;


▪	$2.0 billion at 5.800%, due 2039, interest payable semiannually beginning August 14, 2019;


▪	$2.5 billion at 5.950%, due 2049, interest payable semiannually beginning August 14, 2019; and


▪	$0.5 billion at 6.200%, due 2059, interest payable semiannually beginning August 14, 2019.

Euro denominated notes


▪	€1.25 billion at 1.000%, due 2023, interest payable annually beginning February 15, 2020;


▪	€0.75 billion at 1.700%, due 2025, interest payable annually beginning June 15, 2020;


▪	€1.0 billion at 2.200%, due 2027, interest payable annually beginning June 15, 2020; and


▪	€1.25 billion at 3.125%, due 2031, interest payable annually beginning June 15, 2020.

The Notes are Altria’s senior unsecured obligations and rank equally in right of payment with all of Altria’s existing and future senior unsecured indebtedness. Upon the occurrence of both (i) a change of control of Altria and (ii) the notes ceasing to be

rated investment grade by each of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings Ltd. within a specified time period, Altria will be required to make an offer to purchase the notes at a price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest to the date of repurchase as and to the extent set forth in the terms of the Notes.

Altria designated its Euro denominated notes as a net investment hedge of its investment in ABI. For further discussion, see Note 5. Financial Instruments.

The obligations of Altria under the Notes are guaranteed by PM USA. For further discussion, see Note 13. Condensed Consolidating Financial Information.

Altria’s estimate of the fair value of its 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 aggregate fair value of Altria’s total long-term debt at June 30, 2019 and December 31, 2018, was $31.1 billion and $12.5 billion, respectively, as compared with its carrying value of $29.2 billion and $13.0 billion, respectively.

At June 30, 2019 and December 31, 2018, accrued interest on long-term debt of $464 million and $207 million, respectively, was included in other accrued liabilities on Altria’s condensed consolidated balance sheets.