Background and Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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:


(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.