Revenues from Contracts with Customers

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenues from Contracts with Customers

Revenues from Contracts with Customers

We disaggregate net revenues based on product type. For further discussion, see Note 8. Segment Reporting.

We calculate substantially all cash discounts, offered to customers for prompt payment, as a flat rate per unit based on agreed-upon payment terms. Prior to the first quarter of 2021 for USSTC and the third quarter of 2021 for PM USA, cash discounts were calculated as a percentage of the list price based on historical experience and agreed-upon payment terms. We record receivables net of the cash discounts on our condensed consolidated balance sheets.

We record payments received in advance of product shipment as deferred revenue. These payments are included in other accrued liabilities on our condensed consolidated balance sheets until control of such products is obtained by the customer. Deferred revenue was $247 million and $287 million at March 31, 2022 and December 31, 2021, respectively. When cash is received in advance of product shipment, we satisfy our performance obligations within three days of receiving payment. At March 31, 2022 and December 31, 2021, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.

Receivables were $46 million and $47 million at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022 and December 31, 2021, there were no expected differences between amounts recorded and subsequently received, and we did not record an allowance for doubtful accounts against these receivables.

We record an allowance for returned goods, which is included in other accrued liabilities on our condensed consolidated balance sheets. While all of our 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. We 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. We 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 our condensed consolidated financial statements. All returned goods are destroyed upon return and not included in inventory. Consequently, we do not record an asset for their right to recover goods from customers upon return.

Sales incentives include variable payments related to goods sold. We 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- We make price promotion payments, substantially all of which are made to our retail partners, to incent the promotion of certain product offerings in select geographic areas.

Wholesale and retail participation payments- We make payments to our wholesale and retail partners to incent merchandising and sharing of sales data in accordance with our 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 our condensed consolidated financial statements.