an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
From tobacco company
To tobacco harm reduction company
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Altria Group, Inc. | 6601 W. Broad Street | Richmond, VA 23230-1723 | altria.com
2020
Altria Group, Inc.
Annual Report
Altria 2020 Annual Report | Andra Design Studio | Tuesday, February 2, 2021 9:00amAltria 2020 Annual Report | Andra Design Studio | Tuesday, February 2, 2021 9:00am
Dear Fellow Shareholders
March 11, 2021
Altria delivered outstanding results in 2020 and made steady progress toward our 10-Year Vision (Vision) despite the many challenges
we faced. Our tobacco businesses were resilient and our employees rose to the challenge together to navigate the COVID-19 pandemic,
political and social unrest, and an uncertain economic outlook. Altria’s full-year adjusted diluted earnings per share (EPS) grew 3.6% driven
primarily by strong performance of our tobacco businesses, and we increased our dividend for the 55th time in 51 years.
Moving Beyond Smoking: Progress Toward Our 10-Year Vision
Building on our long history of industry leadership, our Vision is to responsibly lead the transition of adult smokers to a non-combustible
future. Altria is Moving Beyond Smoking and leading the way by taking actions to transition millions to potentially less harmful choices
— a substantial opportunity for adult tobacco consumers 21+, Altria’s businesses, and society.
To achieve our Vision, we are building a deep understanding of evolving adult tobacco consumer preferences, expanding awareness and
availability of our non-combustible portfolio, and, when authorized by FDA, educating adult smokers about the benefits of switching to
alternative products.
We have seen rapid growth in the oral tobacco category, driven primarily by oral nicotine pouches. We believe on! is well positioned
for success with its satisfying range of nicotine strengths and flavors. At year-end 2020, on! was available in more than 78,000 stores
nationally, greater than five times the year-end 2019 store count.
The heated tobacco category showed encouraging signs of adult smoker interest, though it remains in early stages. PM USA is focused
on expanding the availability and awareness of IQOS and Marlboro HeatSticks, communicating to adult smokers the FDA-authorized
reduced exposure claim, and bringing the improved IQOS 3 device to market. We believe PM USA has the right approach to maximize its
first mover advantage while responsibly positioning the U.S. heated tobacco category for long-term growth and profitability.
Strong Traditional Tobacco Businesses
Altria’s traditional tobacco businesses delivered strong business performance in 2020. The smokeable products segment grew adjusted
operating companies income (OCI) by 10.2%, with continued strength of Marlboro and Black & Mild.
The oral tobacco products segment grew adjusted OCI by 7.3%. Segment volume growth was driven by on!, and Copenhagen remains the
leading oral tobacco brand and once again delivered strong volume and profit performance.
Leading Responsibly
Responsibility is core to how we do business and the cornerstone of our Vision. The pursuit of our Vision is about creating a more sustainable
enterprise that is aligned with stakeholder expectations for responsibly managing our businesses. In 2020, we performed a materiality
assessment to identify the environmental, social and governance (ESG) issues that we believe are critical to Altria’s long-term sustainability
and success. These focus areas include: reducing the harm of tobacco products; preventing underage use; protecting the environment;
driving responsibility through our value chain; supporting our people and communities; and engaging and leading responsibly. We
established multi-year goals for each focus area and will share more this year through a series of issue-specific responsibility reports.
Our responsibility efforts are already being recognized. In 2020, Altria was among the top 1% of companies awarded a double ‘A’ rating
by CDP for efforts to address climate change and protect water security. Altria also received numerous recognitions for community
engagement and inclusion and diversity, including recognition as a Great Place to Work-Certified™ company. We have established a multi-
year investment plan behind our commitment to addressing racial and economic inequities and we are working with leading organizations
that are advancing black-owned business development and criminal justice reform.
Resiliency of Our People
Despite the challenges we all faced in 2020, our employees rallied as a team and continued to move Altria forward. Through hard work
and dedication, they balanced multiple personal and business priorities while making meaningful contributions to our company and
communities. They are leading the way in making Altria a more diverse, inclusive and equitable workplace and the credit for our success
belongs to each of them.
Thank you, as always, for your continued support of Altria.
Thomas F. Farrell II, Chairman of the Board
William F. Gifford, Jr., Chief Executive Officer
For explanations and reconciliations of adjusted measures to corresponding GAAP financial measures used herein, see Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations in Part II of the enclosed Annual Report on Form 10-K.
Altria 2020 10-K | Andra Design Studio | Saturday, February 27, 2021 | 10:00 AM
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Washington, D.C. 20549
FORM 10-K
FORM 10-K
For the fiscal year ended December 31, 2020
For the fiscal year ended December 31, 2020
OR
For the fiscal year ended December 31, 2020
OR
OR
For the transition period from to
For the transition period from to
Commission File Number 1-08940
For the transition period from to
Commission File Number 1-08940
Commission File Number 1-08940
ALTRIA GROUP, INC.
ALTRIA GROUP, INC.
(Exact name of registrant as specified in its charter)
ALTRIA GROUP, INC.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
Virginia
Virginia
(State or other jurisdiction of
Virginia
incorporation or organization)
(State or other jurisdiction of
incorporation or organization)
6601 West Broad Street,
(State or other jurisdiction of
incorporation or organization)
6601 West Broad Street,
6601 West Broad Street,
(Address of principal executive offices)
(Address of principal executive offices)
(Address of principal executive offices)
Richmond, Virginia
Richmond, Virginia
Richmond, Virginia
13-3260245
13-3260245
(I.R.S. Employer
13-3260245
Identification No.)
(I.R.S. Employer
Identification No.)
23230
(I.R.S. Employer
Identification No.)
23230
(Zip Code)
23230
(Zip Code)
(Zip Code)
804-274-2200
804-274-2200
(Registrant’s telephone number, including area code)
804-274-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbols
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbols
MO
Trading Symbols
MO
MO23A
MO
MO23A
MO25
MO23A
MO25
MO27
MO25
MO27
MO31
MO27
MO31
MO31
Name of each exchange on which registered
Name of each exchange on which registered
New York Stock Exchange
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Title of each class
Title of each class
Common Stock, $0.33 1/3 par value
Title of each class
Common Stock, $0.33 1/3 par value
1.000% Notes due 2023
Common Stock, $0.33 1/3 par value
1.000% Notes due 2023
1.700% Notes due 2025
1.000% Notes due 2023
1.700% Notes due 2025
2.200% Notes due 2027
1.700% Notes due 2025
2.200% Notes due 2027
3.125% Notes due 2031
2.200% Notes due 2027
3.125% Notes due 2031
3.125% Notes due 2031
Securities registered pursuant to Section 12(g) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ No
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No
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
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No
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
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 þ Yes ¨ No
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 þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
requirements for the past 90 days þ Yes ¨ 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
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) þ Yes ¨ No
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) þ Yes ¨ 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
files) þ Yes ¨ 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
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
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.
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.
þ
company” in Rule 12b-2 of the Exchange Act.
þ
☐
þ
☐
☐
Large accelerated filer
Large accelerated filer
Non-accelerated filer
Large accelerated filer
Non-accelerated filer
Non-accelerated filer
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
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. ¨
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes þ No
prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes þ No
As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $73 billion
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐Yes þ No
As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $73 billion
based on the closing sale price of the common stock as reported on the New York Stock Exchange.
As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $73 billion
based on the closing sale price of the common stock as reported on the New York Stock Exchange.
based on the closing sale price of the common stock as reported on the New York Stock Exchange.
Common Stock, $0.33 1/3 par value
Common Stock, $0.33 1/3 par value
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS INCORPORATED BY REFERENCE
Common Stock, $0.33 1/3 par value
Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May 20, 2021,
Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on
to be filed with the Securities and Exchange Commission on or about April 8, 2021, are incorporated by reference into Part III hereof.
May 20, 2021, to be filed with the Securities and Exchange Commission on or about April 8, 2021, are incorporated by reference into
Part III hereof.
Outstanding at February 15, 2021
Outstanding at February 15, 2021
Outstanding at February 15, 2021
1,858,689,654 shares
1,858,689,654 shares
1,858,689,654 shares
Class
Class
Class
Accelerated filer
Accelerated filer
Smaller reporting company
Accelerated filer
Smaller reporting company
Emerging growth company
Smaller reporting company
Emerging growth company
Emerging growth company
☐
☐
☐
☐
☐
☐
☐
☐
☐
Altria 2020 10-K | Andra Design Studio | Saturday, February 27, 2021 | 10:00 AM
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PART I
PART I
TABLE OF CONTENTS
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1.
Item 1A.
Business
Risk Factors
Business
Risk Factors
Item 1B.
Item 1B.
Unresolved Staff Comments
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 2.
Item 3.
Item 4.
Properties
Properties
Legal Proceedings
Legal Proceedings
Mine Safety Disclosures
Mine Safety Disclosures
PART II
PART II
Item 5.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 6.
Item 7.
Item 7A.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Equity Securities
Selected Financial Data
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 8.
Item 9.
Item 9A.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Item 9B.
Item 9B.
Other Information
Other Information
PART III
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
Directors, Executive Officers and Corporate Governance
Item 11.
Item 11.
Executive Compensation
Executive Compensation
Item 12.
Item 12.
Item 13.
Item 13.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Item 14.
Principal Accounting Fees and Services
Principal Accounting Fees and Services
PART IV
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
Exhibits and Financial Statement Schedules
Item 16.
Item 16.
Form 10-K Summary
Form 10-K Summary
Signatures
Signatures
Altria 2020 10-K | Andra Design Studio | Saturday, February 27, 2021 | 10:00 AM
b
Part I
Item 1. Business.
General Development of Business
When used in this Annual Report on Form 10-K (“Form 10-K”), the terms “Altria,” “we,” “us” and “our” refers to Altria Group, Inc.
and its subsidiaries, unless the context requires otherwise.
Altria’s 10-Year Vision is to responsibly lead the transition of adult smokers to a non-combustible future (“Vision”). Altria is Moving
Beyond Smoking, leading the way in moving adult smokers away from cigarettes by taking action to transition millions to potentially less
harmful choices - believing it is a substantial opportunity for adult tobacco consumers, Altria’s businesses and society.
At December 31, 2020, 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 (including super premium cigarettes previously manufactured and sold by
Sherman Group 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 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 December 31, 2020, 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 (“ALCS”), which provides various support services in areas such as legal, regulatory, consumer engagement, finance, human
resources and external affairs to Altria and its subsidiaries.
In 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 owned an 80% interest in Helix, for which Altria
paid $353 million in 2019.
In the first quarter of 2020, Altria renamed its smokeless products segment as the oral tobacco products segment. Altria’s reportable
segments are smokeable products, oral tobacco products and wine. The financial services and the innovative tobacco products
businesses are included in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial
contribution of Altria’s innovative tobacco products businesses to Altria’s consolidated results. For further information, see Note 15.
Segment Reporting to the consolidated financial statements in Item 8. Financial Statements and Supplementary Data of this Form 10-K
(“Item 8”).
At December 31, 2020, 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.
At December 31, 2020, Altria had a 10.0% ownership interest in ABI.
In December 2018, Altria made an investment in JUUL by purchasing shares of non-voting convertible common stock of JUUL
representing a 35% ownership interest. JUUL is engaged in the manufacture and sale of e-vapor products in the U.S. and certain
international markets. In November 2020, Altria exercised its rights to convert its non-voting shares to voting shares (“Share
Conversion”). 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 U.S.
Federal Trade Commission (“FTC”) administrative complaint. At December 31, 2020, Altria had a 35% ownership interest in JUUL.
In March 2019, Altria acquired a 45% ownership interest in Cronos, a global cannabinoid company headquartered in Toronto, Canada.
At December 31, 2020, Altria had a 43.5% ownership interest in Cronos.
For further discussion of Altria’s investments in equity securities, see Note 6. Investments in Equity Securities to the consolidated
financial statements in Item 8 (“Note 6”).
Description of Business
Portions of the information relating to this Item are included in Operating Results by Business Segment in Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K (“Item 7”).
Tobacco Space
Altria’s tobacco operating companies include PM USA, USSTC and other subsidiaries of UST, Middleton and Helix. Altria Group
Distribution Company provides sales and distribution services to Altria’s tobacco operating companies.
The products of Altria’s tobacco subsidiaries include (i) smokeable tobacco products, consisting of combustible cigarettes manufactured
and sold by PM USA (including super premium cigarettes previously manufactured and sold by Nat Sherman) and machine-made large
b
1
1
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM cigars and pipe tobacco manufactured and sold by Middleton; and (ii) oral tobacco products, consisting of MST and snus products
manufactured and sold by USSTC and oral nicotine pouches manufactured and sold by Helix.
Cigarettes: PM USA is the largest cigarette company in the United States. Marlboro, the principal cigarette brand of PM
▪
USA, has been the largest-selling cigarette brand in the United States for over 45 years. Total smokeable products segment’s cigarettes
shipment volume in the United States was 101.4 billion units in 2020, a decrease of 0.4% from 2019.
Cigars: Middleton is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco. Middleton contracts
▪
with a third-party importer to supply a majority of its cigars and sells substantially all of its cigars to customers in the United States.
Black & Mild is the principal cigar brand of Middleton. Total smokeable products segment’s cigars shipment volume was approximately
1.8 billion units in 2020, an increase of 9.0% from 2019.
Oral tobacco products: USSTC is the leading producer and marketer of MST products. The oral tobacco products segment
▪
includes the premium brands, Copenhagen and Skoal, and value brands, Red Seal and Husky, sold by USSTC. In addition, the oral
tobacco products segment includes on! oral nicotine pouches sold by Helix. Substantially all of the oral tobacco products are
manufactured and sold to customers in the United States. Total oral tobacco products segment’s shipment volume was 819.6 million
units in 2020, an increase of 1.2% from 2019, primarily driven by on!. The oral tobacco products category volume increased in 2020
driven primarily by growth in oral nicotine pouches.
▪
Innovative tobacco products: In December 2013, Altria’s subsidiaries entered into a series of agreements with Philip Morris
International Inc. (“PMI”), including an agreement that grants Altria an exclusive right to commercialize certain of PMI’s heated tobacco
products in the United States, subject to the United States Food and Drug Administration’s (“FDA”) authorization of the applicable
products. PMI submitted a pre-market tobacco product application (“PMTA”) and modified risk tobacco product application with the
FDA for its electronically heated tobacco products, comprising the IQOS Tobacco Heating System. In April 2019, the FDA authorized
the PMTA for the IQOS Tobacco Heating System and in July 2020, the FDA authorized the marketing of this system as a modified risk
tobacco product with a reduced exposure claim. In December 2020, the FDA authorized the PMTA for a new generation of the IQOS
Tobacco Heating System, IQOS 3. The modified risk tobacco product application for the original IQOS Tobacco Heating System does
not apply to IQOS 3. Future generations of the IQOS Tobacco Heating System will require separate PMTA and modified risk tobacco
production application authorization from the FDA.
▪
wholesalers (including distributors) and large retail organizations, including chain stores.
Distribution, Competition and Raw Materials: Altria’s tobacco subsidiaries sell their tobacco products principally to
The market for tobacco products is highly competitive, characterized by brand recognition and loyalty, with product quality, taste, price,
product innovation, marketing, packaging and distribution constituting the significant methods of competition. Promotional activities
include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions, product
promotions, coupons and other discounts.
The Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) provides the FDA with broad authority to regulate the design,
manufacture, packaging, advertising, promotion, sale and distribution of tobacco products; the authority to require disclosures of related
information; and the authority to enforce the FSPTCA and related regulations.
In the United States, under a contract growing program, PM USA purchases the majority of its burley and flue-cured leaf tobaccos
directly from domestic tobacco growers. Under the terms of this program, PM USA agrees to purchase the amount of tobacco specified
in the grower contracts that meets PM USA’s grade and quality standards. PM USA also purchases a portion of its tobacco requirements
through leaf merchants.
USSTC purchases dark fire-cured, dark air-cured and burley leaf tobaccos from domestic tobacco growers under a contract growing
program. Under the terms of this program, USSTC agrees to purchase the amount of tobacco specified in the grower contracts that
meets USSTC’s grade and quality standard.
Middleton purchases burley, dark air-cured and flue-cured leaf tobaccos through leaf merchants. Middleton does not have a contract
growing program.
Altria’s tobacco subsidiaries believe there is an adequate supply of tobacco in the world markets to satisfy their current and anticipated
production requirements.
For further discussion of the foregoing matters, the tobacco business environment, trends in market demand and competitive conditions,
and related risks, see Item 1A. Risk Factors of this Form 10-K (“Item 1A”) and Tobacco Space - Business Environment in Item 7.
Wine
Ste. Michelle is a producer and supplier of premium varietal and blended table wines and of sparkling wines. Ste. Michelle is a leading
producer of Washington state wines, primarily Chateau Ste. Michelle and 14 Hands, and owns wineries in or distributes wines from
several other domestic and foreign wine regions. Ste. Michelle’s total 2020 wine shipment volume of approximately 7.3 million cases
decreased 12.0% from 2019.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Ste. Michelle holds an 85% ownership interest in Michelle-Antinori, LLC, which owns Stag’s Leap Wine Cellars in Napa Valley. Ste.
Michelle also owns Conn Creek in Napa Valley, Patz & Hall in Sonoma and Erath in Oregon. In addition, Ste. Michelle imports and
markets Antinori wine and Champagne Nicolas Feuillatte products in the United States.
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Distribution, Competition and Raw Materials: Key elements of Ste. Michelle’s strategy are expanded domestic distribution
of its wines, especially in certain retail channels categories such as restaurants, wholesale clubs, supermarkets, wine shops and mass
merchandisers, and a focus on improving product mix to higher-priced, premium products.
Ste. Michelle uses grapes harvested from its own vineyards or purchased from independent growers, as well as bulk wine purchased
from other sources. At the present time, Ste. Michelle believes there is a sufficient supply of grapes and bulk wine available in the
market to satisfy its current and expected production requirements.
For further discussion of the foregoing matters, the wine business environment, trends in market demand and competitive conditions,
and related risks, see Item 1A and Wine Segment - Business Environment in Item 7.
Financial Services Business
In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to
maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Altria expects to complete the
wind-down of this business by the end of 2022.
Other Matters
Customers: For a discussion of PM USA, USSTC, Helix and Middleton’s largest customers, including their percentages of
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Altria’s consolidated net revenues for the years ended December 31, 2020, 2019 and 2018, see Note 15. Segment Reporting to the
consolidated financial statements in Item 8 (“Note 15”).
Executive Officers of Altria: The disclosure regarding executive officers is included in Item 10. Directors, Executive Officers
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and Corporate Governance - Information about Our Executive Officers as of February 15, 2021 of this Form 10-K.
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Human Capital Resources: We believe our workforce is critical to achieving our Vision. Attracting, developing and retaining
the best talent with the skills to make significant progress against our Vision is a key business priority. Moreover, we recognize the
importance of doing business the right way. We believe culture influences employee actions and decision-making. This is why we
dedicate resources to promoting a vibrant, inclusive workplace; attracting, developing and retaining talented, diverse employees;
promoting a culture of compliance and integrity; creating a safe workplace; and rewarding and recognizing employees for both the
results they deliver and, importantly, how they deliver them.
Oversight and Management
Our Human Resources department is responsible for managing employment-related matters, including recruiting and hiring, onboarding,
compensation design and implementation, performance management, advancement and succession planning and professional and
learning development. Our inclusion and diversity (“I&D”) programs are managed by our Corporate Citizenship department. Our
Board of Directors (“Board of Directors” or “Board”) and two of our Board’s committees provide oversight of human capital matters.
The Compensation and Talent Development Committee reviews initiatives and programs related to corporate culture and enterprise-wide
talent development, including our I&D initiatives. The Nominating, Corporate Governance and Social Responsibility Committee
reviews our social responsibility initiatives and goals, which include our efforts to work with diverse, high-quality suppliers and to
address societal issues within our companies’ supply chains.
Inclusion and Diversity
We recognize the critical importance of I&D in pursuing our Vision and believe in the value of a workforce composed of a broad
spectrum of backgrounds and cultures. In 2020, we established the following aspirational I&D aiming points to help guide our efforts
over the next 10 years:
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Be an inclusive place to work for all employees, regardless of level, demographic group or work function.
Have equal numbers of men and women among our vice president and director-level employees.
Increase our vice president and director-level employees who are Asian, Black, Hispanic or two or more races to at least 30%.
Increase our vice president and director-level employees who are LGBTQ+, a person with a disability or a veteran.
Have diverse functional leadership teams that reflect the organizations they lead.
We also believe in the importance of diverse suppliers throughout our companies’ supply chains, including minority, women, veteran
and LGBTQ+-owned businesses.
Compensation and Benefits
Our compensation and benefits programs are designed to help us attract, retain and motivate strong talent. However, we recognize that
the decreasing social acceptance of tobacco usage may impact our ability to attract and retain talent. We work to manage this risk by,
among other things, targeting total compensation packages to be above peer companies for which we compete for talent. Depending on
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM employee level, total compensation includes different elements – base salary, annual cash incentives, long-term equity and cash
incentives and benefits. Our goal is to provide total compensation packages between the 50th and 75th percentiles of total compensation
packages paid to employees in comparable positions at our peer companies upon attainment of business and individual goals.
We are committed to pay equity across our companies. Based on the most recent annual analysis we conducted in November 2020, for
employees performing the same or similar duties, salaries of our female employees were 98.2% of those of our male employees, and
salaries of our non-white employees were 98.5% of those of our white employees. After adjusting for factors generally considered to be
legitimate differentiators of salary, such as performance and tenure, the percentages increased to 99.4% and 99.6%, respectively.
In addition to cash and equity compensation, we offer generous employee benefits such as significant company contributions to deferred
profit sharing plans, consumer-driven health plan coverage, vacation and holiday pay, up to 12 weeks paid parental and family leave for
birth, adoption and foster placement, and disability and life insurance. Our benefits also include wellness benefits and family creation
assistance benefits, such as adoption assistance and coverage for fertility treatments. In response to the COVID-19 pandemic, for 2020
and 2021, we expanded dependent care coverage to include $5,000 employee reimbursement for remote learning and other dependent
care costs. While there is some variability in employee benefits across our companies, the examples we provide are available to most
employees.
We are also committed to investing in the educational development of our workforce through an unlimited tuition refund program for
job-related courses or company-related degrees.
Attracting, Developing and Retaining Talent
Our salaried entry-level recruitment efforts focus on recruiting relationships with universities, internship opportunities and partnerships
with organizations that support diverse students. We complement these recruiting efforts with hiring experienced employees with
demonstrated leadership capabilities.
To help our employees succeed in their roles and develop in their careers, we emphasize ongoing training and leadership development
opportunities. Building skills that drive innovation and aligning our employees to our Vision is important for our long-term success. The
Human Resources department leads our learning and development efforts partnering with learning professionals embedded in functions
throughout our operating and services companies. Employees have access to a wide variety of development programs, including new
employee onboarding, classroom and self-guided training programs, technical training and our educational refund program for
continuing education.
We regularly conduct anonymous employee engagement surveys to seek feedback on a variety of topics, including employee
satisfaction, confidence in company leadership, corporate culture and culture of compliance. In addition, in 2020, we conducted
employee surveys to gauge employee well-being in light of the COVID-19 pandemic and altered work environments, including working
from home. Survey results, including comparisons to prior results, are shared with our employees and our Board and are used to modify
or enhance our human capital management programs.
Workplace Safety
Our safety goal is for all employees to have an injury-free career. We regularly update our policies, procedures and equipment as new
developments occur in safety and health standards and communicate safety messages and provide safety training as appropriate
throughout our companies. Our most recent OSHA recordable injury rate of 1.9% from 2019 is lower than the benchmark for companies
in the U.S. Beverage and Tobacco Product Manufacturing industry classification.
In response to the COVID-19 pandemic, we rapidly implemented safety measures to help protect our employees, including remote work
for non-manufacturing salaried employees and, at our manufacturing locations, social distancing protocols, daily temperature checks and
additional cleaning and sanitation practices.
Number of Employees and Labor Relations
At December 31, 2020, we employed approximately 7,100 people. Twenty-seven percent of those employees were hourly manufacturing
employees and members of labor unions subject to collective bargaining agreements. We believe we engage and collaborate effectively
with our hourly employees, as demonstrated by the positive working relationship between our companies and the unions. We also have
long-term agreements that resolve any collective bargaining dispute through binding arbitration, which further demonstrates the trust-
based relationship with the unions.
Supply Chain Human Capital Matters
In addition to supplier diversity efforts referenced above, we support efforts to address human capital concerns in the tobacco supply
chain. For example, in our domestic tobacco supply chain, we use on-farm good agricultural practices assessments to assess growers’
compliance with practices related to labor management. Our tobacco companies also establish contract terms and conditions with
tobacco growers addressing child and forced labor and conduct social compliance audits in high-risk tobacco growing regions.
More information about efforts discussed in this section can be found in our Corporate Responsibility Progress Report at
www.altria.com/responsibility.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
Intellectual Property: Trademarks are of material importance to Altria and its operating companies, and are protected by
registration or otherwise. In addition, as of December 31, 2020, the portfolio of United States patents owned by Altria’s businesses, as a
whole, was material to Altria and its tobacco businesses. However, no one patent or group of related patents was material to Altria’s
business or its tobacco businesses as of December 31, 2020. Altria’s businesses also have proprietary trade secrets, technology, know-
how, processes and other intellectual property rights that are protected by appropriate confidentiality measures. Certain trade secrets are
material to Altria and its tobacco and wine businesses.
Government Regulations: Altria and its subsidiaries are subject to various federal, state and local laws and regulations. For
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discussion of laws and regulations impacting Altria’s tobacco operating companies, see Tobacco Space - Business Environment in Item
7. For discussion of laws and regulations impacting the wine segment, see Wine Segment - Business Environment in Item 7.
Altria and its subsidiaries (and former subsidiaries) are also subject to various federal, state and local laws and regulations concerning
the discharge of materials into the environment, or otherwise related to environmental protection, including, in the United States: The
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act (commonly known as “Superfund”), which can impose joint and several liability on each responsible
party. Subsidiaries (and former subsidiaries) of Altria are involved in several matters subjecting them to potential costs of remediation
and natural resource damages under Superfund or other laws and regulations. Altria’s subsidiaries expect to continue to make capital
and other expenditures in connection with environmental laws and regulations. As discussed in Note 2. Summary of Significant
Accounting Policies to the consolidated financial statements in Item 8 (“Note 2”), Altria provides for expenses associated with
environmental remediation obligations on an undiscounted basis when such amounts are probable and can be reasonably estimated.
Such accruals are adjusted as new information develops or circumstances change. Other than those amounts, it is not possible to
reasonably estimate the cost of any environmental remediation and compliance efforts that subsidiaries of Altria may undertake in the
future. In the opinion of management, however, compliance with environmental laws and regulations, including the payment of any
remediation costs or damages and the making of related expenditures, has not had, and is not expected to have, a material adverse effect
on Altria’s consolidated results of operations, capital expenditures, financial position or cash flows.
Available Information
Altria is required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”).
Altria makes available free of charge on or through its website (www.altria.com) its Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after Altria electronically files such material
with, or furnishes it to, the SEC. Investors can access Altria’s filings with the SEC by visiting www.altria.com/secfilings.
The information on the respective websites of Altria and its subsidiaries is not, and shall not be deemed to be, a part of this Form 10-K or
incorporated into any other filings Altria makes with the SEC.
Item 1A. Risk Factors.
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements
contained in this Form 10-K. Any of the following risks could materially adversely affect our business, our results of operations, our
cash flows, our financial position and the actual outcome of matters as to which forward-looking statements are made in this Form 10-
K.
We may from time to time make written or oral forward-looking statements, including earnings guidance and other statements contained
in filings with the SEC, reports to security holders, press releases and investor webcasts. You can identify these forward-looking
statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,”
“forecasts,” “intends,” “projects,” “goals,” “objectives,” “guidance,” “targets” and other words of similar meaning. You can also identify
them by the fact that they do not relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans,
estimates and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions that may prove to be
inaccurate. Should known or unknown risks or uncertainties materialize, or should underlying estimates or assumptions prove
inaccurate, actual results could vary materially from those anticipated, estimated or projected. You should bear this in mind as you
consider forward-looking statements and whether to invest in or remain invested in Altria’s securities. In connection with the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in
the aggregate, could cause actual results and outcomes to differ materially from those contained in, or implied by, any forward-looking
statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and
other risks we face throughout this Form 10-K particularly in the “Business Environment” sections preceding our discussion of the
operating results of our subsidiaries’ businesses below in Item 7. You should understand that it is not possible to predict or identify all
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We
do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.
Risks Related to Litigation, Legislative or Regulatory Action
Unfavorable litigation outcomes could materially adversely affect the consolidated results of operations, cash flows or financial
position of Altria or the businesses of one or more of its subsidiaries or investees.
Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against
Altria and its subsidiaries, including PM USA and USSTC, as well as their respective indemnitees, indemnitors and Altria’s investees.
Various types of claims may be raised in these proceedings, including product liability, unfair trade practices, antitrust, tax, contraband-
related claims, patent infringement, employment matters, claims for contribution and claims of competitors, shareholders and
distributors. Legislative action, such as changes to tort law, also may expand the types of claims and remedies available to plaintiffs.
Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An
unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional
litigation. Damages claimed in some tobacco-related or other litigation are significant and, in certain cases, have ranged in the billions
of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims,
demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome.
In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria or its subsidiaries may face the risk
that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate
or jury-allocated share of a judgment. As a result, Altria or its subsidiaries under certain circumstances may have to pay more than their
proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria or
its subsidiaries may also be required to pay interest and attorneys’ fees.
Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs
from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable
in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico now limit the dollar amount of bonds or
require no bond at all. As discussed in Note 18. Contingencies to the consolidated financial statements in Item 8 (“Note 18”), tobacco
litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state
bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court.
Although we cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or
financial position of Altria, or the businesses of one or more of its subsidiaries or investees, could be materially adversely affected in a
particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.
In certain litigation, Altria, its subsidiaries and its investees may face potentially significant non-monetary remedies that could have a
material adverse effect on our businesses. For example, in the lawsuit brought by the United States Department of Justice discussed in
Note 18, the district court did not impose monetary penalties but ordered significant non-monetary remedies, including the issuance of
“corrective statements.” In the patent lawsuit pending before the United States International Trade Commission (“ITC”) discussed in
Note 18, the plaintiffs seek a prohibition on the importation of the IQOS electronic device, HeatSticks and component parts into the
United States. Additionally the on! transaction, discussed in Note 1. Background and Basis of Presentation to the consolidated financial
statements in Item 8 (“Note 1”), had been the subject of an arbitration, which the parties agreed to settle for an immaterial amount to
Altria in February 2021. An adverse outcome in the arbitration could have adversely affected Helix’s ability to compete effectively with
oral nicotine pouches.
In 2019, we determined that our investment in JUUL was impaired in part due to the increase in the number and type of legal cases
pending against JUUL. Altria and PM USA are also defendants in many of these cases. In addition, in April 2020 the FTC issued an
administrative complaint against Altria and JUUL alleging that Altria’s 35% investment in JUUL and the associated agreements
constitute unreasonable restraint on trade. E-vapor litigation and the FTC action, including the remedies the FTC is seeking, are further
discussed in Note 18.
Altria and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty, and
significant challenges remain.
It is possible that the consolidated results of operations, cash flows or financial position of Altria, or the businesses of one or more of its
subsidiaries or investees, could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or
settlement of certain pending litigation. Altria and each of its subsidiaries named as a defendant believe, and each has been so advised
by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of
adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However,
Altria and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria to do
so. See Item 3. Legal Proceedings (“Item 3”), Note 18 and Exhibits 99.1 and 99.2 to this Form 10-K for a discussion of pending
tobacco-related litigation.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Significant federal, state and local governmental actions, including actions by the FDA, and various private sector actions may
continue to have an adverse impact on us and our tobacco subsidiaries’ or our investees’ businesses and sales volumes.
As described in Tobacco Space - Business Environment in Item 7, PM USA faces significant governmental and private sector actions,
including efforts aimed at reducing the incidence of tobacco use and efforts seeking to hold PM USA responsible for the adverse health
effects associated with both smoking and exposure to environmental tobacco smoke. These actions, combined with the diminishing
social acceptance of smoking, have resulted in reduced cigarette industry volume, and we expect that these factors will continue to
reduce cigarette consumption levels.
More broadly, actions by the FDA and other federal, state or local governments or agencies, including those specific actions described in
Tobacco Space - Business Environment in Item 7, may (i) impact the adult tobacco consumer acceptability of or access to tobacco
products (for example, through nicotine or constituent limits or menthol or other flavor bans), (ii) limit adult tobacco consumer choices,
(iii) delay or prevent the launch of new or modified tobacco products or products with claims of reduced risk, (iv) require the recall or
other removal of tobacco products from the marketplace (for example as a result of (a) product contamination, (b) legislation and
rulemaking that bans menthol or other flavors, (c) a determination by the FDA that one or more tobacco products do not satisfy the
statutory requirements for substantial equivalence, (d) because the FDA requires that a currently marketed tobacco product proceed
through the pre-market review process or (e) because the FDA does not authorize a PMTA or otherwise determines that removal is
necessary for the protection of public health), (v) restrict communications to adult tobacco consumers, (vi) restrict the ability to
differentiate tobacco products, (vii) create a competitive advantage or disadvantage for certain tobacco companies, (viii) impose
additional manufacturing, labeling or packing requirements, (ix) interrupt manufacturing or otherwise significantly increase the cost of
doing business or (x) restrict or prevent the use of specified tobacco products in certain locations or the sale of tobacco products by
certain retail establishments. Any one or more of these actions may have a material adverse impact on the business, consolidated results
of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting Altria’s investment in
JUUL. See Tobacco Space - Business Environment in Item 7 for a more detailed discussion.
Tobacco products are subject to substantial taxation, which could have an adverse impact on sales of the tobacco products of
Altria’s tobacco subsidiaries.
Tobacco products are subject to substantial excise taxes, and significant increases in tobacco product-related taxes or fees have been
proposed or enacted and are likely to continue to be proposed or enacted within the United States at the federal, state and local levels.
The frequency and magnitude of excise tax increases can be influenced by various factors, including federal and state budgets (which
have been negatively impacted by the COVID-19 pandemic) and the composition of executive and legislative bodies. Tax increases are
expected to continue to have an adverse impact on sales of the tobacco products of our tobacco subsidiaries through lower consumption
levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments or to other low-
priced or low-taxed tobacco products or to counterfeit and contraband products. Such shifts may also have an adverse impact on the
reported share performance of tobacco products of Altria’s tobacco subsidiaries. For further discussion, see Tobacco Space - Business
Environment - Excise Taxes in Item 7.
Unfavorable outcomes of any governmental investigations could materially affect the businesses of Altria and its subsidiaries or
its investees.
From time to time, Altria, its subsidiaries and its investees are subject to federal and state governmental investigations on a range of
matters. For further discussion of current pending investigations, see Tobacco Space - Business Environment - Other International,
Federal, State and Local Regulation and Governmental and Private Activity in Item 7. We cannot predict the outcome of any such
investigation, and it is possible that our business or the businesses of our investees could be materially adversely affected by an
unfavorable outcome of any current or future investigation.
A challenge to our tax positions or an increase in the income tax rate could adversely affect our earnings or cash flow.
Tax laws and regulations, such as the 2017 Tax Cuts and Jobs Act (the “Tax Reform Act”), are complex and subject to varying
interpretations. A successful challenge to one or more of Altria’s tax positions (which could give rise to additional liabilities, including
interest and potential penalties) or an increase in the corporate income tax rate could adversely affect our earnings or cash flow.
International business operations subject Altria and its subsidiaries to various United States and foreign laws and regulations,
and violations of such laws or regulations could result in reputational harm, legal challenges and/or significant costs.
While Altria and its subsidiaries are primarily engaged in business activities in the United States, they do engage (directly or indirectly)
in certain international business activities that are subject to various United States and foreign laws and regulations, such as foreign
privacy laws, the U.S. Foreign Corrupt Practices Act and other laws prohibiting bribery and corruption. Although we have a Code of
Conduct and a compliance system designed to prevent and detect violations of applicable law, no system can provide assurance that it
will always protect against improper actions by employees, investees or third parties. Violations of these laws, or allegations of such
violations, could result in reputational harm, legal challenges and/or significant costs.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Risks Related to Our Businesses
Altria, its subsidiaries and its investees face various risks related to health epidemics and pandemics, including the COVID-19
pandemic and similar outbreaks, which could have a material adverse effect on the business, consolidated results of operations,
cash flows or financial position of Altria and its subsidiaries and investees.
Altria’s, its subsidiaries’ and its investees’ business and financial results, consolidated results of operations, cash flows or financial
position could be negatively impacted by health epidemics, pandemics and similar outbreaks. The spreading COVID-19 pandemic could
have negative impacts, such as (i) a global or U.S. recession or other economic crisis, including a financial crisis, (ii) credit and capital
markets volatility (and access to these markets, including by those in the distribution and supply chains), (iii) significant volatility in
demand for our tobacco and wine subsidiaries’ and investees’ products, (iv) changes in adult consumer accessibility to those products,
including due to government action, (v) changes in adult consumer behavior and preferences, including trading down to lower-priced
products or cessation of product use due to public health actions or concerns and economic conditions (including those stemming from
potential changes in government stimulus or reductions in unemployment payments or other benefits), and (vi) extended or multiple
disruptions in our subsidiaries’ or investees’ manufacturing operations, or in their distribution and supply chains. In addition, our
subsidiaries’ and investees’ operations may incur increased costs and otherwise be negatively affected if significant portions of their
respective workforces (or the workforces within their respective distribution or supply chains) are unable to work or work effectively,
including because of illness, unavailability of personal protective equipment, quarantines, government actions, facility closures or other
restrictions.
The impact of the COVID-19 pandemic depends on factors beyond our knowledge or control, including the duration and severity of the
outbreak, increases in the number of cases in future periods, and actions taken to contain its spread and mitigate the public health effects.
We cannot at this time predict the impact of the COVID-19 pandemic on our or our investees’ future financial or operational results, but
the impact could be material over time. See the risks below related to extended disruptions at a facility, of a distributor or in service by a
service provider and the risks related to our investment in ABI and the earnings from and carrying value of that investment. For further
discussion on the impact of the COVID-19 pandemic on the tobacco and wine businesses, see Tobacco Space - Business Environment
and Wine Segment - Business Environment in Item 7.
Our tobacco businesses face significant competition (including across categories) and their failure to compete effectively could
have an adverse effect on the consolidated results of operations or cash flows of Altria, or the business of Altria’s tobacco
subsidiaries.
Each of Altria’s tobacco subsidiaries operates in highly competitive tobacco categories. This competition also exists across categories as
adult tobacco consumer preferences evolve. Significant methods of competition include product quality, taste, price, product innovation,
marketing, packaging, distribution and promotional activities. This highly competitive environment could negatively impact the
profitability, market share and shipment volume of our tobacco subsidiaries, which could have an adverse effect on the consolidated
results of operations or cash flows of Altria. See Tobacco Space - Business Environment - Summary in Item 7 for additional discussion
concerning evolving adult tobacco consumer preferences. Growth of the e-vapor product category and other innovative tobacco
products, including oral nicotine pouches, has further contributed to reductions in cigarette consumption levels and cigarette industry
sales volume and has adversely affected the growth rates of other tobacco products, including smokeless tobacco. In addition, growth of
unregulated synthetic nicotine products, which may not be subject to the same regulatory restrictions (including marketing restrictions
and FDA pre-marketing requirements) as the tobacco-derived oral nicotine products of Altria’s tobacco subsidiaries, could negatively
impact the growth of our oral nicotine pouch products. Continued growth in these categories could have a material adverse impact on the
business, results of operations, cash flows or financial position of Altria and its tobacco subsidiaries.
PM USA also faces competition from lower-priced brands sold by certain United States and foreign manufacturers that have cost
advantages because they are not parties to settlements of certain tobacco litigation in the United States and, as such, are not required to
make annual settlement payments as required by the parties to the settlements. These settlement payments are significant for PM USA,
as described in Debt and Liquidity - Payments under State Settlement Agreements and FDA Regulation in Item 7. These settlements,
among other factors, resulted in substantial cigarette price increases to help cover the cost of the settlement payments. Manufacturers
not party to the settlements are subject to state escrow legislation requiring escrow deposits. Such manufacturers may avoid these
escrow obligations by concentrating on certain states where escrow deposits are not required or are required on fewer than all such
manufacturers’ cigarettes sold in such states. Additional competition has resulted from diversion into the United States market of
cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third
parties over the Internet and by other means designed to avoid collection of applicable taxes, and imports of foreign lower-priced brands.
USSTC faces significant competition in the smokeless tobacco category and has experienced consumer down-trading to lower-priced
competitive brands.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria and its subsidiaries may be unsuccessful in anticipating changes in adult consumer preferences, responding to changes in
consumer purchase behavior or managing through difficult competitive and economic conditions, which could have an adverse
effect on the consolidated results of operations and cash flows of Altria or the business of Altria’s tobacco and wine subsidiaries.
Each of our tobacco and wine subsidiaries is subject to intense competition and changes in adult consumer preferences. To be
successful, they must continue to:
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promote brand equity successfully;
anticipate and respond to new and evolving adult consumer preferences;
develop, manufacture, market and distribute new and innovative products that appeal to adult consumers (including, where
appropriate, through arrangements with, or investments in, third parties);
improve productivity; and
protect or enhance margins through cost savings and price increases.
See Tobacco Space - Business Environment - Summary in Item 7 and the immediately preceding risk factor for additional discussion
concerning evolving adult tobacco consumer preferences, specifically the growth of e-vapor and other innovative tobacco products and
the effects on our tobacco operating companies.
See Wine Segment - Business Environment - Summary in Item 7 for additional discussion concerning evolving adult alcohol consumer
preferences; specifically the slowing of the premium wine category and the effects on our wine subsidiaries.
The willingness of adult consumers to purchase premium consumer product brands depends in part on economic conditions. In periods
of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-
priced tobacco products, which could have a material adverse effect on the business, consolidated results of operations, cash flows or
financial position of Altria and its subsidiaries. While our tobacco and wine subsidiaries work to broaden their brand portfolios to
compete effectively with lower-priced products, the failure to do so could negatively impact our companies’ ability to compete in these
circumstances.
Our financial services business (conducted through PMCC) holds investments in finance leases, principally in transportation (including
aircraft), power generation, real estate and manufacturing equipment. Its lessees are subject to significant competition and uncertain
economic conditions. If parties to PMCC’s leases fail to manage through difficult economic and competitive conditions, PMCC may
have to increase its allowance for losses, which would adversely affect our earnings.
Altria’s tobacco subsidiaries and investees may be unsuccessful in developing and commercializing adjacent products or
processes, including innovative tobacco products that may reduce the health risks associated with certain other tobacco products
and that appeal to adult tobacco consumers, which may have an adverse effect on their ability to grow new revenue streams and/
or put them at a competitive disadvantage.
Altria and its subsidiaries have growth strategies involving moves and potential moves into adjacent products or processes, including
innovative tobacco products. Some innovative tobacco products may reduce the health risks associated with certain other tobacco
products, while continuing to offer adult tobacco consumers (within and outside the United States) products that meet their taste
expectations and evolving preferences. Examples include tobacco-containing and nicotine-containing products that reduce or eliminate
exposure to cigarette smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco
products, oral nicotine pouches, and e-vapor products.
In addition to internal product development, these efforts include arrangements with, or investments in, third parties such as our
arrangement with PMI to commercialize IQOS and related HeatStick products in the United States, which is governed by an exclusive
license and distribution agreement. The initial 5-year term of this agreement expires in April 2024 and renews at our option for an
additional 5-year period so long as we achieve certain performance objectives. The initial term performance objectives are based on
achieving 0.5% dollar share of the cigarette category within a certain period of time in a certain number of geographic areas. In addition,
to maintain our exclusive distribution rights as to PMI during the term of the agreement, we must achieve certain performance objectives
within a specified time period by April 2022. The exclusive distribution rights performance objectives are based on achieving 0.5%
dollar share of the cigarette category within a certain period of time in a single geographic area. While we believe Altria will meet the
initial term and exclusive distribution rights performance objectives, it is possible that we may not meet them or that we may have a
disagreement with PMI as to whether those objectives have been met. In either case, it could result in the loss of (i) our unilateral right
to extend the agreement for the additional 5-year period, and therefore we would no longer be able to commercialize IQOS and related
HeatStick products after April 2024, or (ii) our exclusive distribution rights as to PMI.
Additionally, our investment in JUUL subjects us to non-competition obligations restricting us from investing or engaging in the e-vapor
business other than through JUUL, subject to certain exceptions.
Our tobacco subsidiaries and investees may not succeed in their efforts to develop and commercialize these adjacent products, which
would have an adverse effect on the ability to grow new revenue streams.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Further, we cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products
(including products with claims of reduced risk to adult consumers), the speed with which they may make such determinations or
whether regulators will impose an unduly burdensome regulatory framework on such products. In addition, the FDA could, for a variety
of reasons, determine that innovative products currently on the market but pending FDA review of the associated PMTA (such as on!
oral nicotine pouches), or those that have previously received authorization, including with a claim of reduced exposure (such as IQOS),
are not appropriate for the public health and the FDA could require such products be taken off the market. See Tobacco Space - Business
Environment - FSPTCA and FDA Regulation in Item 7 for further discussion. We also cannot predict whether these products will appeal
to adult tobacco consumers or whether adult tobacco consumers’ purchasing decisions would be affected by reduced-risk claims on such
products if permitted. Adverse developments on any of these matters could negatively impact the commercial viability of such products.
If our tobacco subsidiaries or investees do not succeed in their efforts to develop and commercialize innovative tobacco products or to
obtain regulatory approval for the marketing or sale of products, including with claims of reduced risk, but one or more of their
competitors does succeed, our tobacco subsidiaries or investees may be at a competitive disadvantage, which could have an adverse
effect on their financial performance.
Significant changes in price, availability or quality of tobacco, other raw materials or component parts could have an adverse
effect on the profitability and business of Altria’s tobacco subsidiaries and investees.
Any significant change in prices, quality or availability of tobacco, other raw materials or component parts, including as a result of the
COVID-19 pandemic, could adversely affect our tobacco subsidiaries’ and our investees’ profitability and business. The COVID-19
pandemic also may impact the availability of direct materials necessary for our tobacco subsidiaries and JUUL to remain compliant with
FDA and other regulatory requirements for tobacco products. For further discussion, see Tobacco Space - Business Environment - Price,
Availability and Quality of Tobacco, Other Raw Materials and Component Parts in Item 7.
Altria’s subsidiaries rely on a few significant facilities and a small number of key suppliers, distributors and distribution chain
service providers. An extended disruption at a facility or in service by a supplier, distributor or distribution chain service
provider could have a material adverse effect on the business, the consolidated results of operations, cash flows or financial
position of Altria and its tobacco and wine subsidiaries and investees.
Altria’s subsidiaries face risks inherent in reliance on a few significant manufacturing facilities and a small number of key suppliers,
distributors and distribution chain service providers. A natural or man-made disaster or other disruption that affects the manufacturing
operations of any of Altria’s tobacco or wine subsidiaries or investees, the operations of any key supplier, distributor or distribution
chain service provider of any of Altria’s tobacco or wine subsidiaries or investees or any other disruption in the supply or distribution of
goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or
services to a tobacco company) could adversely impact the operations of the affected subsidiaries and investees. For example, in March
2020, the COVID-19 pandemic resulted in a temporary suspension of operations at PM USA’s Richmond, Virginia manufacturing
facility, which is the primary facility for manufacturing PM USA cigarettes. Some state governors also have issued executive orders
requiring that certain businesses temporarily suspend operations for varying periods of time while the COVID-19 pandemic persists.
Operations of our subsidiaries, suppliers, distributors and distribution chain service providers and those of our investees could be
suspended temporarily once or multiple times, or closed permanently, depending on various factors, including how long the COVID-19
pandemic persists and the extent to which state, local and federal governments, as well as foreign countries, impose restrictions on the
operation of facilities or otherwise place limits on the supply and distribution chains. An extended disruption in operations experienced
by one or more of Altria’s subsidiaries, investees or in the supply or distribution of goods or services by one or more key suppliers,
distributors or distribution chain service providers could have a material adverse effect on the business, the consolidated results of
operations, cash flows or financial position of Altria and its tobacco and wine subsidiaries and investees.
Altria’s subsidiaries could decide or be required to recall products, which could have a material adverse effect on the business,
reputation, consolidated results of operations, cash flows or financial position of Altria and its subsidiaries.
In addition to a recall required by the FDA, as referenced above, our subsidiaries could decide, or other laws or regulations could require
them, to recall products due to the failure to meet quality standards or specifications, suspected or confirmed and deliberate or
unintentional product contamination, or other adulteration, product misbranding or product tampering. Product recalls could have a
material adverse effect on the business, reputation, consolidated results of operations, cash flows or financial position of Altria and its
subsidiaries.
The failure of Altria’s information systems or service providers’ information systems to function as intended, or cyber-attacks or
security breaches, could have a material adverse effect on the business, reputation, consolidated results of operations, cash flows
or financial position of Altria and its subsidiaries.
Altria and its subsidiaries rely extensively on information systems, many of which are managed by third-party service providers (such as
cloud providers), to support a variety of business processes and activities, including: complying with regulatory, legal, financial
reporting and tax requirements; engaging in marketing and e-commerce activities; managing and improving the effectiveness of our
operations; manufacturing and distributing our products; collecting and storing sensitive data and confidential information; and
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM communicating internally and externally with employees, investors, suppliers, trade customers, adult consumers and others. We
continue to make investments in administrative, technical and physical safeguards to protect our information systems and data from
cyber-threats, including human error and malicious acts. Our safeguards include employee training, testing and auditing protocols,
backup systems and business continuity plans, maintenance of security policies and procedures, monitoring of networks and systems,
and third-party risk management.
To date, interruptions of our information systems have been infrequent and have not had a material impact on our operations. However,
because technology is increasingly complex and cyber-attacks are increasingly sophisticated and more frequent, there can be no
assurance that such incidents will not have a material adverse effect on us in the future. Failure of our systems or service providers’
systems to function as intended, or cyber-attacks or security breaches, could result in loss of revenue, assets, personal data, intellectual
property, trade secrets or other sensitive and confidential data, violation of applicable privacy and data security laws, damage to the
reputation of our companies and their brands, operational disruptions, legal challenges and significant remediation and other costs to
Altria and its subsidiaries.
Altria may be unable to attract and retain the best talent due to the impact of decreasing social acceptance of tobacco usage,
tobacco control actions and other factors.
Our ability to implement our strategy of attracting and retaining the best talent may be impaired by the impact of decreasing social
acceptance of tobacco usage and tobacco regulation and control actions. The tobacco industry competes for talent with the consumer
products industry and other companies that may enjoy greater societal acceptance and fewer longer-term challenges. As a result, we
may be unable to attract and retain the best talent.
Altria may be required to write down intangible assets, including goodwill, due to impairment, which could have a material
adverse effect on our results of operations or financial position.
We periodically calculate the fair value of our reporting units and intangible assets to test for impairment. This calculation may be
affected by several factors, including general economic conditions (such as continued uncertainty of the COVID-19 pandemic),
regulatory developments, changes in category growth rates as a result of changing adult consumer preferences, success of planned new
product expansions, competitive activity and income and excise taxes. Certain events also can trigger an immediate review of intangible
assets. If an impairment is determined to exist in either situation, we will incur impairment losses, which could have a material adverse
effect on our results of operations or financial position. For further discussion, see Discussion and Analysis - Critical Accounting
Policies and Estimates in Item 7.
Competition, changes in adult consumer preferences, unfavorable changes in grape supply and new governmental regulations or
revisions to existing governmental regulations could adversely affect Ste. Michelle’s wine business.
Ste. Michelle’s business is impacted by evolving adult consumer preferences. Shifts away from the wine category to other alcohol
categories or shifts to lower-priced wines have resulted, and could continue to result, in slowing growth in Ste. Michelle’s sales and
increased inventory levels and have a material adverse effect on Ste. Michelle’s wine business. As discussed in Note 5. Asset
Impairment, Exit and Implementation Costs to the consolidated financial statements in Item 8 (“Note 5”), during the year ended
December 31, 2020, as a result of inventory levels significantly exceeding long-term forecasted demand, Ste. Michelle recorded pre-tax
charges of $411 million in cost of sales, including a $292 million inventory write off, $100 million in estimated losses on future non-
cancelable grape purchase commitments and $19 million in inventory disposal costs and other charges. Evolving adult consumer
preferences, an economic downturn or recession or other factors could result in a further slowdown in the wine category and otherwise
have a material adverse effect on Ste. Michelle’s wine business.
The adequacy of Ste. Michelle’s grape supply is influenced by consumer demand for wine in relation to industry-wide production levels
as well as by weather and crop conditions, particularly in eastern Washington. Supply shortages or surpluses related to any one or more
of these factors could impact production costs and wine prices, which ultimately may have a negative impact on Ste. Michelle’s sales. In
addition, Ste. Michelle’s business is subject to significant competition, including from many large, well-established domestic and
international companies. Federal, state and local governmental agencies also regulate the alcohol beverage industry through various
means, including licensing requirements, pricing, labeling and advertising restrictions, and distribution and production policies. New
regulations or revisions to existing regulations, resulting in further restrictions or taxes on the manufacture and sale of alcoholic
beverages may have an adverse effect on Ste. Michelle’s wine business. For further discussion see Wine Segment - Business
Environment in Item 7.
Risks Related to the Capital Markets and Financing
Acquisitions or other events may adversely affect Altria’s credit rating, and Altria may not achieve its anticipated strategic or
financial objectives of a transaction.
From time to time, Altria considers acquisitions, investments or dispositions and may engage in confidential negotiations that are not
publicly announced unless and until those negotiations result in a definitive agreement. Although we seek to maintain or improve our
credit ratings over time, it is possible that completing a given acquisition, investment, disposition or the occurrence of other events could
negatively impact our investment grade credit ratings or the outlook for those ratings as occurred following our investment in JUUL.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Any such change in ratings or outlook may negatively affect the amount of credit available to us and also may increase our costs and
adversely affect our earnings or our dividend rate. Furthermore, acquisition opportunities are limited, and acquisitions present risks of
failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There
can be no assurance that we will be able to acquire attractive businesses on favorable terms or that we will realize any of the anticipated
benefits from an acquisition or an investment. Additionally, there can be no assurance that we will be able to dispose of our businesses
or investments on favorable terms, which may result in a loss in Altria’s consolidated statements of earnings (losses).
Disruption and uncertainty in the credit and capital markets could adversely affect Altria’s access to these markets, earnings
and dividend rate.
Access to the credit and capital markets is important for us to satisfy our liquidity and financing needs. For example, we typically access
the commercial paper market early in the second quarter to help fund payments under the Master Settlement Agreement, tax obligations
and shareholder dividends. Disruption and uncertainty in these markets and any resulting adverse impact on credit availability, pricing,
credit terms or credit rating may negatively affect the amount of credit available to us and may also increase our costs and adversely
affect our earnings or our dividend rate.
Altria may be unable to attract investors due to the impact of decreasing social acceptance of tobacco usage.
There is increasing investor focus on environmental, social and governance (“ESG”) matters. Organizations that provide ESG
information to investors have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are
used by some investors to inform their investment and voting decisions. Decreasing social acceptance of tobacco products or
unfavorable ESG ratings may lead to increased negative investor sentiment toward Altria, which could result in shareholders choosing to
divest their ownership in Altria stock or choosing not to invest in our stock and could have a negative impact on the market performance
of our stock.
Risks Related to Our Investments
A challenge to our investment in JUUL, if successful, could result in a broad range of resolutions, including divestiture of the
investment or rescission of the transaction.
A challenge to our investment in JUUL, if successful, could result in a broad range of resolutions such as divestiture of the investment or
rescission of the transaction. In April 2020, the FTC issued an administrative complaint against Altria and JUUL alleging that Altria’s
35% investment in JUUL and the associated agreements constitute an unreasonable restraint of trade in violation of Section 1 of the
Sherman Act and Section 5 of the FTC Act, and substantially lessened competition in violation of Section 7 of the Clayton Act. The
FTC seeks a broad range of remedies, including divestiture of Altria’s investment in JUUL, rescission of the transaction and prohibition
against any officer or director of either Altria or JUUL serving on the other’s board of directors or attending meetings. The
administrative trial will take place before an FTC administrative law judge and is currently scheduled to begin June 2021. Any ruling by
the FTC is subject to review by the FTC Commissioners and subsequently by a federal appellate court if appealed.
Also, various putative class action lawsuits have been filed against Altria (and in some cases, subsidiaries of Altria) and JUUL. The
lawsuits cite the FTC administrative complaint referenced above and allege claims similar to those made by the FTC. Plaintiffs in these
lawsuits are seeking various remedies, including treble damages, attorneys’ fees, a declaration that the agreements between Altria and
JUUL are invalid, divestiture of Altria’s investment in JUUL and rescission of the transaction.
A successful challenge by the FTC or the plaintiffs in the lawsuits to the investment would adversely affect us, including by eliminating,
or substantially limiting, our rights with respect to our investment in JUUL. For further discussion see Note 18.
The expected benefits of the JUUL transaction may not materialize in the expected manner or timeframe or at all.
Regardless of whether antitrust clearance is obtained, the expected benefits of the JUUL transaction may not materialize in the expected
manner or timeframe or at all, including due to the risks encountered by JUUL in its business, such as operational risks, competitive
risks and regulatory and legislative risks at the international, federal, state and local levels, including actions by the FDA, and adverse
publicity due to underage use of e-vapor products and other factors; unanticipated impacts on JUUL’s relationships with employees,
customers, suppliers and other third parties; potential disruptions to JUUL’s management or current or future plans and operations; or
domestic or international litigation developments, investigations, or otherwise. As discussed in Note 18, JUUL and Altria and/or its
subsidiaries, including PM USA, are named as defendants in various individual and class action lawsuits. JUUL also is named in a
significant number of additional individual and class action lawsuits to which neither Altria nor its subsidiaries is a party. See Tobacco
Space - Business Environment in Item 7 for a discussion of certain FDA-related regulatory risks applicable to the e-vapor category,
including the potential removal of certain e-vapor products from the market as a result of FDA enforcement action and the potential
denial of new tobacco product applications for e-vapor products. Failure to realize the expected benefits of our JUUL investment could
adversely affect the value of the investment.
As discussed in Investments in Equity Securities in Note 6, as part of the preparation of our financial statements for the quarters ended
September 30, 2019, December 31, 2019 and September 30, 2020, we performed valuations of our investment in JUUL as a result of the
existence of impairment indicators. As a result, we determined that our investment in JUUL was impaired and recorded total non-cash
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM pre-tax impairment charges of $11.2 billion. 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 consolidated statements of earnings (losses)
include any cash dividends received from its investment in JUUL and any changes in the fair value of its investment, which is calculated
quarterly. While we believe the December 31, 2020 valuation of $1.7 billion is the appropriate current fair value of our investment, the
risks identified in this paragraph, some of which are also further discussed in Discussion and Analysis - Investments in JUUL and
Tobacco Space - Business Environment in Item 7 and in Note 18, are ongoing with respect to the current fair value. Quarterly fair value
changes could create volatility in Altria’s consolidated financial position and earnings and, if the fair value of our investment in JUUL
decreases, it could have a material adverse effect on Altria’s consolidated financial position or earnings.
Our investment in JUUL includes non-competition, standstill and transfer restrictions that prevent us from gaining control of
JUUL. Furthermore, if we elect not to extend our non-competition obligations beyond December 20, 2024, we would lose certain
of our governance, consent, preemptive and other rights with respect to our investment in JUUL.
The shares of JUUL we hold generally cannot be sold or otherwise transferred until December 20, 2024, subject to limited exceptions.
We also generally agreed not to compete with JUUL in the e-vapor category until at least December 20, 2024, which may be extended at
our election. If, however, JUUL is prohibited by federal law from selling e-vapor products in the U.S. for at least one year or if Altria’s
carrying value of the JUUL investment is not more than 10% of its initial carrying value of $12.8 billion, we may elect to compete with
JUUL in the e-vapor category prior to December 20, 2024. In addition, in the event we elect to exercise our board designation rights at
JUUL, JUUL’s board of directors will include nine members, three of whom will be designated by Altria, including one independent
designee. JUUL’s strategy and its material decisions are not and will not be controlled by us, and the terms of our agreements with
JUUL mean that we are required to bear the risks associated with our investment in JUUL and are restricted from competing with JUUL
until at least December 20, 2024, subject to the exceptions mentioned above. Further, if we elect not to extend our non-competition
obligations beyond that date or to terminate such obligations in the circumstances described above, we would lose some or all of our
board designation rights, preemptive rights, consent rights and other rights with respect to our investment in JUUL. Loss of these rights
could adversely affect us by impairing our ability to influence JUUL.
Altria’s reported earnings from and carrying value of its equity investment in ABI and the dividends paid by ABI on shares
owned by Altria may be adversely affected by various factors, including foreign currency exchange rates and ABI’s business
results, including as a result of the COVID-19 pandemic, and stock price. In addition, if the carrying value of our investment in
ABI exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired, which would
result in impairment losses.
For purposes of financial reporting, the earnings from and carrying value of our equity investment in ABI are translated into U.S. dollars
(“USD”) from various local currencies. In addition, ABI pays dividends in euros, which we convert into USD. During times of a
strengthening USD against these currencies, our reported earnings from and carrying value of our equity investment in ABI will be
reduced because these currencies will translate into fewer USD and the dividends that we receive from ABI will convert into fewer USD.
Dividends and earnings from and carrying value of our equity investment in ABI are also subject to the risks encountered by ABI in its
business, its business outlook, cash flow requirements and financial performance, the state of the market and the general economic
climate, including the impact of the COVID-19 pandemic. For example, in 2020, as a result of the uncertainty, volatility and impact of
the COVID-19 pandemic on ABI’s business, ABI reduced by 50% its final 2019 dividend paid in the second quarter of 2020 and did not
pay its interim 2020 dividend that would have been paid in the fourth quarter of 2020, which resulted in a reduction of cash dividends
Altria received from ABI.
In addition, since October 2019, the carrying value of our investment in ABI has exceeded the fair value of our equity investment in
ABI. We concluded at December 31, 2020, that the decline in fair value of our investment in ABI below its carrying value continues to
be temporary. If, however, the carrying value of our investment in ABI exceeds its fair value and the loss in value is other than
temporary, the investment is considered impaired, which would result in impairment losses and could have a material adverse effect on
Altria’s consolidated financial position or earnings. We cannot provide any assurance that ABI will successfully execute its business
plans and strategies. Earnings from and carrying value of our equity investment in ABI are also subject to fluctuations in ABI’s stock
price. See Note 6 for further discussion.
We received a substantial portion of our consideration from the October 2016 SABMiller plc (“SABMiller”)/ABI business
combination (“ABI Transaction”) in the form of restricted shares subject to a five-year lock-up. Furthermore, if our percentage
ownership in ABI were to decrease below certain levels, we may be subject to additional tax liabilities, incur a reduction in the
number of directors that we can have appointed to the ABI Board of Directors and be unable to account for our investment
under the equity method of accounting.
Upon completion of the ABI Transaction, we received a substantial portion of our consideration in the form of restricted shares that
cannot be sold or transferred for a period of five years following the ABI Transaction, subject to limited exceptions. These transfer
restrictions will require us to bear the risks associated with our investment in ABI for a five-year period that expires on October 10,
2021. Further, in the event that our ownership percentage in ABI were to decrease below certain levels, (i) we may be subject to
additional tax liabilities, (ii) the number of directors that we have the right to have appointed to the ABI board of directors could be
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM reduced from two to one or zero and (iii) we may be unable to continue to account for our investment in ABI under the equity method of
accounting.
Tax authorities may challenge the tax treatment of the consideration Altria received in the ABI Transaction and the tax
treatment of the ABI investment may not be as favorable as Altria anticipates.
While we expect the tax treatment of the consideration that we received from the ABI Transaction to be respected, the statute of
limitations for the tax year in which the transaction occurred has not expired. Therefore, we cannot provide any assurance that federal
and state tax authorities will not challenge the expected tax treatment and, if they do, what the outcome of any such challenge will be. In
addition, there is a risk that the tax treatment of our investment in ABI may not be as favorable as we anticipate.
The expected benefits of the Cronos transaction may not materialize in the expected manner or timeframe or at all.
In March 2019, we acquired common shares representing a 45% equity interest in Cronos, a warrant to acquire common shares
representing an additional 10% equity interest in Cronos and anti-dilution protections to purchase Cronos shares to maintain our
ownership percentage. There can be no assurance that we will realize the expected benefits of the Cronos transaction, including due to
the risks encountered by Cronos in its business, such as operational risks and legal and regulatory risks; unanticipated impacts on
Cronos’s relationships with third parties, its management, or its current or future plans and operations due to the Cronos transaction or
other factors; or domestic or international litigation developments, tax disputes, investigations, or otherwise; or that Cronos will
successfully execute its business plans and strategies. Further, a failure by Cronos or Altria to comply with applicable laws, including
cannabis laws, could result in criminal, civil or tax liability for Altria. If the carrying value of our investment in Cronos exceeds its fair
value and the loss in value is other than temporary, the investment is considered impaired, which would result in impairment losses and
could have a material adverse effect on Altria’s consolidated financial position or earnings.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
At December 31, 2020, ALCS owned one property in Richmond, Virginia that serves as the headquarters facilities for Altria, PM USA,
USSTC, Middleton, Helix and certain other subsidiaries.
At December 31, 2020, PM USA owned and operated a manufacturing facility located in Richmond, Virginia that PM USA uses in the
manufacturing of cigarettes (smokeable products segment). PM USA leases portions of this facility to other Altria subsidiaries for use in
the manufacturing of cigars (smokeable products segment) and MST, snus and oral nicotine pouch products (oral tobacco products
segment). In addition, PM USA owned a research and technology center in Richmond, Virginia that is leased to ALCS.
At December 31, 2020, the oral tobacco products segment had various manufacturing and processing facilities, the most significant of
which are located in Nashville, Tennessee.
At December 31, 2020, the wine segment owned and operated various wine-making facilities in Washington, California and Oregon.
The plants and properties owned or leased and operated by Altria and its subsidiaries are maintained in good condition and are believed
to be suitable and adequate for present needs.
Item 3. Legal Proceedings.
The information required by this Item is included in Note 18 and Exhibits 99.1 and 99.2 to this Form 10-K. Altria’s consolidated
financial statements and accompanying notes for the year ended December 31, 2020 were filed on Form 8-K on January 28, 2021 (such
consolidated financial statements and accompanying notes are also included in Item 8). The following summarizes certain developments
in Altria’s litigation since the filing of the Form 8-K.
Recent Developments
▪
Engle Progeny Trial Results
In Berger (Cote), as a result of the Eleventh Circuit Court of Appeals’ decision affirming the punitive damages award, PM USA
recorded a pre-tax provision of $21 million, including interest, for such award in the first quarter of 2021. PM USA previously recorded
a pre-tax provision of approximately $6 million, including interest, for the compensatory damages award. PM USA paid these amounts,
plus fees in the amount of $1.5 million, in February 2021.
In Santoro, as a result of the Florida Supreme Court’s denial of PM USA’s appeal of the punitive damages award, PM USA recorded a
pre-tax provision of $0.1 million, including interest, for such award in the first quarter of 2021. PM USA previously recorded a pre-tax
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM provision of approximately $0.8 million, including interest, for the compensatory damages award. In January 2021, PM USA paid the
recorded amounts, plus fees and additional interest.
In Sommers, as a result of the Florida Third District Court of Appeals’ non-appealable decision affirming an award of attorneys’ fees,
costs and interest, PM USA recorded a pre-tax provision of approximately $3 million, including interest, for such award in the first
quarter of 2021.
▪
Non-Engle Progeny Trial Results
In Greene, a case with a trial court judgment against PM USA for $30 million, in February 2021, the trial court awarded plaintiff
attorneys’ fees and costs in the amount of approximately $2.3 million. In February 2021, PM USA served its post-trial motions,
including to reverse the judgment or for a new trial.
In February 2021, the Massachusetts Supreme Judicial Court asserted jurisdiction over the appeal in Laramie.
▪ Health Care Cost Recovery Litigation
NPM Adjustment Disputes: In connection with a proceeding pursuant to the New York settlement where an independent investigator
was to determine the amounts due to the participating manufacturers from New York for 2019 and 2020, the investigator issued its
determination in February 2021. Pursuant to that determination, PM USA expects to receive approximately $56 million in April 2021
and approximately the same amount in April 2022.
▪
IQOS Litigation
In the lawsuit filed by RAI Strategic Holdings, Inc. and R.J. Reynolds Vapor Co. claiming patent infringement based on the sale of the
IQOS electronic device and HeatSticks in the United States, the defendants filed counterclaims alleging that plaintiffs’ e-vapor products
infringe patents owned by one or more defendants. In December 2020, the court stayed the case due to the COVID-19 pandemic. In
February 2021, the court lifted the stay with respect to defendants’ counterclaims.
▪
Antitrust Litigation
The FTC has postponed the administrative trial against Altria and JUUL, originally scheduled to begin in April 2021, until June 2021.
Item 4. Mine Safety Disclosures.
Not applicable.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Part II
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Securities.
Performance Graph
Performance Graph
The graph below compares the cumulative total shareholder return of Altria’s common stock for the last five years with the cumulative
The graph below compares the cumulative total shareholder return of Altria’s common stock for the last five years with the cumulative
total return for the same period of the S&P 500 Index and the S&P Food, Beverage and Tobacco Industry Group Total Return Index.
total return for the same period of the S&P 500 Index and the S&P Food, Beverage and Tobacco Industry Group Total Return Index.
The graph assumes the investment of $100 in common stock and each of the indices as of the market close on December 31, 2015 and
The graph assumes the investment of $100 in common stock and each of the indices as of the market close on December 31, 2015 and
the reinvestment of all dividends on a quarterly basis.
the reinvestment of all dividends on a quarterly basis.
Comparison of Five-Year Cumulative Total Shareholder Return
Comparison of Five-Year Cumulative Total Shareholder Return
Comparison of Five-Year Cumulative Total Shareholder Return
Altria
Altria
S&P Food, Beverage & Tobacco
S&P Food, Beverage & Tobacco
Altria Group, Inc.
S&P Food, Beverage & Tobacco
S&P 500
S&P 500
S&P 500
$250
250
250
200
200
$200
e
u
l
e
a
u
V
l
a
x
V
e
d
x
$150
n
e
I
d
/
n
a
i
I
r
/
t
a
l
i
A
r
t
l
A
$100
150
150
100
100
e
u
l
a
V
x
e
d
n
I
/
a
i
r
t
l
A
$50
50
50
2015
2015
2015
2016
2016
2016
2017
2017
2017
Year Ending
Year Ending
Year Ending
2018
2018
2018
2019
2019
2019
2020
2020
2020
Altria
Altria
S&P 500
S&P 500
$
$
$
$
$
$
$
$
$
$
$
$
S&P Food, Beverage
& Tobacco
S&P Food, Beverage
& Tobacco
100.00
$
100.00
$
108.76
$
108.76
$
122.19
$
122.19
$
103.96
$
103.96
$
129.88
$
129.88
$
137.10
$
137.10
$
Date
Date
December 2015
December 2015
December 2016
December 2016
December 2017
December 2017
December 2018
December 2018
December 2019
December 2019
December 2020
December 2020
Source: Bloomberg - “Total Return Analysis” calculated on a daily basis and assumes reinvestment of dividends as of the ex-dividend date.
Source: Bloomberg - “Total Return Analysis” calculated on a daily basis and assumes reinvestment of dividends as of the ex-dividend date.
Market and Dividend Information
Market and Dividend Information
The principal stock exchange on which Altria’s common stock (par value $0.33 1/3 per share) is listed is the New York Stock Exchange
The principal stock exchange on which Altria’s common stock (par value $0.33 1/3 per share) is listed is the New York Stock Exchange
under the trading symbol “MO”. At February 15, 2021, there were approximately 54,000 holders of record of Altria’s common stock.
under the trading symbol “MO”. At February 15, 2021, there were approximately 54,000 holders of record of Altria’s common stock.
Altria has a history of paying cash dividends and expects to continue to do so with a long-term objective of a dividend payout ratio target
Altria has a history of paying cash dividends and expects to continue to do so with a long-term objective of a dividend payout ratio target
of approximately 80% of its adjusted diluted earnings per share. Future dividend payments remain subject to the discretion of the Board
of approximately 80% of its adjusted diluted earnings per share. Future dividend payments remain subject to the discretion of the Board
of Directors.
of Directors.
100.00
100.00
120.46
120.46
131.84
131.84
96.13
96.13
103.78
103.78
93.00
93.00
100.00
100.00
111.95
111.95
136.38
136.38
130.39
130.39
171.44
171.44
202.98
202.98
$
$
$
$
$
$
$
$
$
$
$
$
16
16
16
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM
Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2020
In July 2019, the Board of Directors 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.
There were no share repurchases made in 2020 under a publicly announced program. In January 2021, the Board authorized a new $2.0
billion share repurchase program, which Altria expects to complete by June 30, 2022. 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 each of the three months in the period ended December 31, 2020, was as follows:
Period
October 1- October 31, 2020
November 1- November 30, 2020
December 1- December 31, 2020
For the Quarter Ended December 31, 2020
Total
Number of
Shares
Purchased (1)
Average
Price Paid
Per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares
that May Yet be Purchased Under
the Plans or Programs
836 $
37.17
— $
24 $
860 $
—
43.00
37.33
— $
— $
— $
—
—
—
—
(1) The total number of shares purchased represents shares withheld by Altria in an amount equal to the statutory withholding taxes for vested stock-
based awards previously granted to eligible employees.
Item 6. Selected Financial Data.
Item 6 has been omitted because it is no longer required as a result of recent amendments to Regulation S-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the other sections of this Form 10-K, including the consolidated financial
statements and related notes contained in Item 8, and the discussion of risk factors that may affect future results in Item 1A.
Description of the Company
For a description of Altria, see Item 1. Business, and Background in Note 1.
Executive Summary
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, Altria refers to the following
“adjusted” financial measures: adjusted operating companies income (loss) (“OCI”); adjusted OCI margins; adjusted net earnings
attributable to Altria; adjusted diluted earnings (losses) per share (“EPS”) attributable to Altria; and adjusted effective tax rates. These
adjusted financial measures are not required by, or calculated in accordance with, United States generally accepted accounting principles
(“GAAP”) and may not be calculated the same as similarly titled measures used by other companies. These adjusted financial measures
should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information
prepared in accordance with GAAP. Except as noted in 2021 Forecasted Results section below, when Altria provides a non-GAAP
measure in this Form 10-K, it also provides a reconciliation of that non-GAAP financial measure to the most directly comparable GAAP
financial measure. For a further description of these non-GAAP financial measures, see the Non-GAAP Financial Measures section
below.
COVID-19 Pandemic
The COVID-19 pandemic has led to adverse impacts on the U.S. and global economies and continues to create economic uncertainty.
Although much uncertainty still surrounds the pandemic, including its duration and ultimate overall impact on U.S. and global
economies, its subsidiaries’ operations and those of Altria’s investees, Altria continues to monitor the macroeconomic risks of the
COVID-19 pandemic and continues to carefully evaluate potential outcomes and work to mitigate risks. Specifically, Altria remains
focused on any potential impact to its liquidity, operations, supply and distribution chains and on economic conditions.
In terms of Altria’s liquidity, despite some volatility in the commercial paper market in March 2020, Altria was able to build and
maintain a higher cash balance than normal to preserve its financial flexibility. As a precautionary measure, in March 2020, Altria
borrowed the full $3.0 billion available under its senior unsecured 5-year revolving credit agreement (as amended, the “Credit
Agreement”), which Altria subsequently repaid in full in June 2020. In May 2020, Altria issued $2.0 billion of long-term debt in the
form of senior unsecured notes. In April 2020, the Board of Directors rescinded the $500 million remaining in the previously authorized
$1.0 billion share repurchase program. Altria did not repurchase any shares under its share repurchase program in 2020.
As with so many other companies throughout the U.S. and globally, Altria’s operations have been affected by the COVID-19 pandemic.
Altria has implemented remote working for many employees and aligned with the social distancing protocols recommended by public
16
17
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM health authorities. To date, Altria believes its tobacco businesses have not experienced any material adverse effects associated with
governmental actions to restrict consumer movement or business operations, but continues to monitor these factors. Altria continues to
believe that remote working due to the COVID-19 pandemic has had minimal impact on productivity. Also, Altria’s critical information
technology systems have remained operational. Although Altria’s tobacco businesses previously suspended operations temporarily at
several of their manufacturing facilities in March 2020, the businesses resumed operations at those facilities under enhanced safety
protocols in April 2020 and all manufacturing facilities are currently operational under enhanced safety protocols. Altria continues to
monitor the risks associated with facility disruptions and workforce availability as a result of uncertainty related to the COVID-19
pandemic.
Altria’s suppliers and those within its distribution chain are also subject to government actions that may require the closure of a facility
and remote working protocols. To date, Altria has not experienced any material disruptions to its supply chains or distribution systems,
but is continuing to monitor these factors. The majority of retail stores in which Altria’s tobacco products are sold, including
convenience stores, have been deemed to be essential businesses by authorities and have remained open. Altria continues to monitor the
risk that one or more suppliers, distributors or any other entities within our supply and distribution chain closes temporarily or
permanently.
In March 2020, PM USA temporarily closed its Atlanta and Richmond IQOS stores and paused its IQOS interactive marketing efforts.
In June 2020, PM USA re-opened its Atlanta and Richmond IQOS stores, and in July 2020, PM USA launched IQOS in Charlotte, with
all stores operating under enhanced safety protocols.
In 2020, Altria incurred net pre-tax charges of $50 million, which were directly related to disruptions caused by or efforts to mitigate the
impact of the COVID-19 pandemic. These costs, which were recorded in the second quarter and excluded from Altria’s adjusted results,
included premium pay, personal protective equipment and health screenings, partially offset by certain employment tax credits. These
net pre-tax charges do not include the inventory-related implementation costs associated with the wine business strategic reset.
Although Altria’s tobacco businesses have not been materially impacted to date by the COVID-19 pandemic, there is continued
uncertainty as to how the COVID-19 pandemic may impact adult tobacco consumers in the future. Altria continues to monitor the
macroeconomic risks of the COVID-19 pandemic and their effect on adult tobacco consumers, including stay-at-home practices and
disposable income (which may be impacted by unemployment rates and fiscal stimulus). Altria also continues to monitor adult tobacco
consumers’ purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases
and adoption of non-combustible products.
While Altria’s tobacco businesses have not been materially impacted to date by the COVID-19 pandemic, Altria has experienced
adverse impacts to its alcohol assets. In the wine business, Ste. Michelle’s direct-to-consumer sales and on-premise wine sales in
restaurants, bars and hospitality venues and on cruise lines have been, and continue to be, negatively impacted by disruptions arising
from the COVID-19 pandemic, which also may have an impact on adult wine consumers going forward. In 2020, against a backdrop of
product volume demand uncertainty and long-term, non-cancelable grape purchase commitments, which have been further negatively
impacted by the COVID-19 pandemic (including economic uncertainty and government actions that restrict direct-to-consumer sales and
on-premise sales), Ste. Michelle recorded pre-tax charges of $411 million consisting primarily of (i) the write-off of inventory and (ii)
estimated losses on future non-cancelable grape purchase commitments. Altria and Ste. Michelle also undertook a review of the wine
business resulting in a strategic reset. Ste. Michelle continues to monitor the impact of the COVID-19 pandemic associated risks to its
business, results of operations, cash flows and financial position.
ABI has also been impacted by the COVID-19 pandemic, including (i) a 50% reduction to its final 2019 dividend paid in the second
quarter of 2020 and a decision to forgo its interim 2020 dividend that would have been paid in the fourth quarter of 2020; (ii) the
withdrawal of its guidance for 2020 due to the uncertainty, volatility and impact of the COVID-19 pandemic; and (iii) a goodwill
impairment charge related to its Africa businesses in 2020. In addition, the extreme market disruption and volatility associated with the
COVID-19 pandemic resulted in a steep decline in ABI’s stock price in the first half of 2020. Although there was a gradual recovery in
ABI’s stock price in the second half of 2020, the fair value of Altria’s investment in ABI is below the carrying value. While Altria
believes that this decline is temporary, it will continue to monitor its investment in ABI, including the impact of the COVID-19
pandemic on ABI’s business and market valuation.
Altria considered the impact of the COVID-19 pandemic on the business of JUUL, including its sales, distribution, operations, supply
chain and liquidity, in conducting its periodic impairment assessment and quantitative valuations. While the impact of the COVID-19
pandemic was considered in our quantitative valuations during the year ended December 31, 2020, Altria does not believe the
COVID-19 pandemic was a primary driver of the non-cash pre-tax impairment charge of $2.6 billion recorded during the three months
ended September 30, 2020 or the $100 million increase in fair value during the three months ended December 31, 2020. Altria will
continue to monitor the impact of the COVID-19 pandemic on JUUL’s business in our quarterly valuations of JUUL.
Altria has considered the impact of the COVID-19 pandemic on the business of Cronos, including its sales, distribution, operations,
supply chain and liquidity. Cronos has been and continues to be impacted by the COVID-19 pandemic, due in part to government action
requiring closures or limited occupancy of retail stores in the United States. During the second quarter of 2020, Cronos recorded an
impairment charge on goodwill and intangible assets as a result of the impact of the COVID-19 pandemic (which Altria recorded in the
18
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM third quarter of 2020 due to its one-quarter lag in reporting Cronos’s results). Altria will continue to monitor its investment in Cronos,
including the impact of the COVID-19 pandemic on Cronos’s business and market valuation.
Consolidated Results of Operations
The changes in net earnings (losses) and diluted EPS attributable to Altria for the year ended December 31, 2020, from the year ended
December 31, 2019, were due primarily to the following:
(in millions, except per share data)
For the year ended December 31, 2019
2019 Asset impairment, exit, implementation and acquisition-related costs
2019 Tobacco and health litigation items
2019 Impairment of JUUL equity securities
2019 ABI-related special items (1)
2019 Cronos-related special items
2019 Tax items
Subtotal 2019 special items
2020 NPM Adjustment Items
2020 Asset impairment, exit, implementation and acquisition-related costs
2020 Tobacco and health litigation items
2020 Impairment of JUUL equity securities
2020 JUUL changes in fair value
2020 ABI-related special items
2020 Cronos-related special items
2020 COVID-19 special items
2020 Tax items
Subtotal 2020 special items
Fewer shares outstanding
Change in tax rate
Operations
For the year ended December 31, 2020
2020 Reported Net Earnings (Losses)
2019 Reported Net Earnings (Losses)
% Change
Net Earnings
(Losses)
Diluted EPS
$
(1,293)
$
(0.70)
269
58
8,600
(303)
640
(99)
9,165
(3)
(342)
(62)
(2,600)
100
(603)
(53)
(37)
(50)
(3,650)
—
(108)
353
4,467
4,467
(1,293)
100%+
$
$
$
0.15
0.03
4.60
(0.16)
0.34
(0.05)
4.91
—
(0.18)
(0.03)
(1.40)
0.05
(0.32)
(0.03)
(0.02)
(0.03)
(1.96)
0.02
(0.06)
0.19
2.40
2.40
(0.70)
100%+
$
$
$
2020 Adjusted Net Earnings and Adjusted Diluted EPS
2019 Adjusted Net Earnings and Adjusted Diluted EPS (1)
% Change
3.6 %
(1) Prior period amounts have been recast to conform with current period presentation for certain ABI mark-to-market adjustments that were not
previously identified as special items and that are now excluded from Altria’s adjusted financial measures. For further discussion, see below.
3.1 %
7,872
8,117
4.36
4.21
$
$
$
$
For a discussion of special items and other business drivers affecting the comparability of statements of earnings (losses) amounts and reconciliations
of adjusted earnings attributable to Altria and adjusted diluted EPS attributable to Altria, see the Consolidated Operating Results section below.
▪
▪
Fewer Shares Outstanding: Fewer shares outstanding during 2020 compared with 2019 were due primarily to the timing of shares
repurchased by Altria in 2019 under its share repurchase program.
Change in Tax Rate: The change in tax rate (which excludes the impact of tax items shown above) was driven primarily by lower
dividends from ABI.
18
19
19
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪ Operations: The increase of $353 million in operations (which excludes the impact of special items shown above) was due
primarily to the following:
▪
higher income from the smokeable products and oral tobacco products segments;
partially offset by:
▪
▪
▪
▪
▪
lower income from Altria’s equity investments in ABI and Cronos;
higher losses in the all other category (primarily driven by reductions in the estimated residual values of certain assets at
PMCC in 2020);
higher amortization expense;
higher interest and other debt expense, net; and
lower income from the wine segment.
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below.
2021 Forecasted Results
Altria forecasts its 2021 full-year adjusted diluted EPS to be in a range of $4.49 to $4.62, representing a growth rate of 3% to 6% over its
2020 full-year adjusted diluted EPS base of $4.36, as shown in the table below. While the 2021 full-year adjusted diluted EPS guidance
accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions related to (i)
unemployment rates, (ii) fiscal stimulus, (iii) adult tobacco consumer dynamics, including stay-at-home practices, disposable income,
purchasing patterns and adoption of non-combustible products, (iv) regulatory and legislative (including excise tax) developments, (v)
the timing and breadth of COVID-19 vaccine deployment and (vi) expectations for adjusted earnings contributions from its alcohol
assets.
Altria’s 2021 full-year adjusted diluted EPS guidance range includes planned investments in support of its Vision, such as (i)
marketplace investments to expand the availability and awareness of Altria’s non-combustible products, (ii) costs associated with
building an industry-leading consumer engagement platform that enhances data collection and insights in support of adult tobacco
consumer conversion to non-combustible products and (iii) increased non-combustible product research and development expense.
Altria expects 2021 adjusted diluted EPS growth to come in the last three quarters of the year, primarily due to prior year comparisons,
including one fewer shipping day for the smokeable products segment in the first quarter.
This forecasted growth rate excludes estimated per share charges in the first quarter of 2021 of $0.27 for loss on early extinguishment of
debt for the February 2021 Tender Offers and Redemption. For further discussion, see Financial Review - Debt and Liquidity - Debt
below.
Altria expects its 2021 full-year adjusted effective tax rate will be in a range of 24.5% to 25.5%.
Reconciliation of 2020 Reported Diluted EPS to 2020 Adjusted Diluted EPS
2020 Reported diluted EPS
Asset impairment, exit, implementation and acquisition-related costs
Tobacco and health litigation items
Impairment of JUUL equity securities
JUUL changes in fair value
ABI-related special items
Cronos-related special items
COVID-19 special items
Tax items
2020 Adjusted diluted EPS
$
$
2.40
0.18
0.03
1.40
(0.05)
0.32
0.03
0.02
0.03
4.36
For a discussion of certain income and expense items excluded from the forecasted results above, see the Consolidated Operating
Results section below.
Altria’s full-year adjusted diluted EPS guidance and full-year forecast for its adjusted effective tax rate exclude the impact of certain
income and expense items, including those items noted in the Non-GAAP Financial Measures section below, that management believes
are not part of underlying operations. Altria’s management cannot estimate on a forward-looking basis the impact of these items on its
reported diluted EPS or its reported effective tax rate because these items, which could be significant, may be unusual or infrequent, are
difficult to predict and may be highly variable. As a result, Altria does not provide a corresponding GAAP measure for, or reconciliation
to, its adjusted diluted EPS guidance or its adjusted effective tax rate forecast.
20
20
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Non-GAAP Financial Measures
While Altria reports its financial results in accordance with GAAP, its management also reviews certain financial results, including OCI,
OCI margins, net earnings (losses) attributable to Altria and diluted EPS, on an adjusted basis, which excludes certain income and
expense items that management believes are not part of underlying operations. These items may include, for example, loss on early
extinguishment of debt, restructuring charges, asset impairment charges, acquisition-related costs, COVID-19 special items, equity
investment-related special items (including any changes in fair value of the equity investment and any related warrants and preemptive
rights), certain tax items, charges associated with tobacco and health litigation items, and resolutions of certain non-participating
manufacturer (“NPM”) adjustment disputes under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as
“NPM Adjustment Items”). Altria’s management does not view any of these special items to be part of Altria’s underlying results as
they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results.
Altria’s management also reviews income tax rates on an adjusted basis. Altria’s adjusted effective tax rate may exclude certain tax
items from its reported effective tax rate.
Altria’s management believes that adjusted financial measures provide useful additional insight into underlying business trends and
results, and provide a more meaningful comparison of year-over-year results. Adjusted financial measures are used by management and
regularly provided to Altria’s chief operating decision maker (“CODM”) for planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results relative to employee compensation targets. These adjusted financial
measures are not required by, or calculated in accordance with GAAP and may not be calculated the same as similarly titled measures
used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in
isolation or as a substitute for the related financial information prepared in accordance with GAAP.
Discussion and Analysis
Critical Accounting Policies and Estimates
Note 2 includes a summary of the significant accounting policies and methods used in the preparation of Altria’s consolidated financial
statements. In most instances, Altria must use an accounting policy or method because it is the only policy or method permitted under
GAAP.
The preparation of financial statements includes the use of estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and
expenses during the reporting periods. If actual amounts are ultimately different from previous estimates, the revisions are included in
Altria’s consolidated results of operations for the period in which the actual amounts become known. Historically, the aggregate
differences, if any, between Altria’s estimates and actual amounts in any year have not had a significant impact on its consolidated
financial statements.
The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods, used in the
preparation of Altria’s consolidated financial statements:
▪
Consolidation: The consolidated financial statements include Altria, as well as its wholly owned and majority-owned
subsidiaries. Investments in equity securities in which Altria has the ability to exercise significant influence over the operating and
financial policies of the investee are accounted for either under the equity method of accounting or the fair value option. Investments in
equity securities that Altria does not have the ability to exercise significant influence over the operating and financial policies of the
investee are accounted for as an investment in an equity security. All intercompany transactions and balances have been eliminated.
Revenue Recognition: Altria’s businesses generate substantially all of their revenue from sales contracts with customers.
▪
While Altria’s businesses enter into separate sales contracts with each customer for each product type, all sales contracts are similarly
structured. These contracts create an obligation to transfer product to the customer. All performance obligations are satisfied within one
year; therefore, costs to obtain contracts are expensed as incurred and unsatisfied performance obligations are not disclosed. There is no
financing component because Altria’s businesses expect, at contract inception, that the period between when Altria’s businesses transfer
product to the customer and when the customer pays for that product will be one year or less.
Altria’s businesses define net revenues as revenues, which include excise taxes and shipping and handling charges billed to customers,
net of cash discounts for prompt payment, sales returns (also referred to as returned goods) and sales incentives. Altria’s businesses
exclude from the transaction price sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on
cigarettes, cigars, smokeless tobacco or wine billed to customers).
Altria’s businesses recognize revenues from sales contracts with customers upon shipment of goods when control of such products is
obtained by the customer. Altria’s businesses determine that a customer obtains control of the product upon shipment when title of such
product and risk of loss transfers to the customer. Altria’s businesses account for shipping and handling costs as fulfillment costs and
such amounts are classified as part of cost of sales in Altria’s consolidated statements of earnings (losses). Altria’s businesses record an
allowance for returned goods, based principally on historical volume and return rates, which is included in other accrued liabilities on
Altria’s consolidated balance sheets. Altria’s businesses record sales incentives, which consist of consumer incentives and trade
promotion activities, as a reduction to revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers
20
21
21
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM and consumers at the end of a period) based principally on historical volume, utilization and redemption rates. Expected payments for
sales incentives are included in accrued marketing liabilities on Altria’s consolidated balance sheets.
Payment terms vary depending on product type. Altria’s businesses consider payments received in advance of product shipment as
deferred revenue, which is included in other accrued liabilities on Altria’s consolidated balance sheets until revenue is recognized. PM
USA receives payment in advance of a customer obtaining control of the product. USSTC receives substantially all payments within
one business day of the customer obtaining control of the product. Ste. Michelle receives substantially all payments from customers
within 45 days of the customer obtaining control of the product. Amounts due from customers are included in receivables on Altria’s
consolidated balance sheets.
For further discussion, see Note 3. Revenues from Contracts with Customers to the consolidated financial statements in Item 8.
Depreciation, Amortization, Impairment Testing and Asset Valuation: Altria depreciates property, plant and equipment and
▪
amortizes its definite-lived intangible assets using the straight-line method over the estimated useful lives of the assets. Machinery and
equipment are depreciated over periods up to 25 years, and buildings and building improvements over periods up to 50 years. Definite-
lived intangible assets are amortized over their estimated useful lives up to 25 years.
Altria reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in business
circumstances indicate that the carrying value of the assets may not be fully recoverable. Altria performs undiscounted operating cash
flow analyses to determine if an impairment exists. These analyses are affected by general economic conditions and projected growth
rates. For purposes of recognition and measurement of an impairment for assets held for use, Altria groups assets and liabilities at the
lowest level for which cash flows are separately identifiable. If Altria determines that an impairment exists, any related impairment loss
is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be
received, less costs of disposal. Altria also reviews the estimated remaining useful lives of long-lived assets whenever events or changes
in business circumstances indicate the lives may have changed.
Altria conducts a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently
if an event occurs or circumstances change that would require Altria to perform an interim review. Altria has the option of first
performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit or indefinite-
lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative
impairment test. If necessary, Altria will perform a single step quantitative impairment test. Additionally, Altria has the option to
unconditionally bypass the qualitative assessment and perform a single step quantitative assessment. If the carrying value of a reporting
unit that includes goodwill exceeds its fair value, which is determined using discounted cash flows, goodwill is considered impaired.
The amount of impairment loss is measured as the difference between the carrying value and the fair value of a reporting unit, but is
limited to the total amount of goodwill allocated to a reporting unit. If the carrying value of an indefinite-lived intangible asset exceeds
its fair value, which is determined using discounted cash flows, the intangible asset is considered impaired and is reduced to fair value in
the period identified.
Goodwill by reporting unit and indefinite-lived intangible assets at December 31, 2020 were as follows:
(in millions)
Cigarettes
MST and snus products
Cigars
Wine
Oral nicotine pouches
Total
Goodwill
22 $
5,023
77
—
55
5,177 $
Indefinite-Lived
Intangible Assets
2
8,801
2,640
233
—
11,676
$
$
During 2020, Altria completed its annual impairment test of goodwill and indefinite-lived intangible assets performed as of October 1,
2020 and the results of this testing were as follows:
▪
▪
▪
no impairment charges were recorded;
the estimated fair values of the cigarettes, cigars and oral nicotine pouches reporting units and the indefinite-lived intangible
assets within the cigars reporting unit substantially exceeded their carrying values;
the estimated fair values of the MST and snus products reporting unit and the indefinite-lived intangible assets within the
reporting unit substantially exceeded their carrying values, with the exception of the Skoal trademark. Skoal continues to be
impacted by increased competition as well as adult tobacco consumer movement among tobacco products, including oral
nicotine pouch products. At December 31, 2020, the estimated fair value of the Skoal trademark exceeded its carrying value of
$3.9 billion by approximately 28%, which is an increase from approximately 18% at December 31, 2019. This increase is due
primarily to a decrease in the discount rate resulting from changes in market inputs. Altria believes an increase in the future
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM discount rate in isolation, which could be caused by numerous factors, including changes in market inputs, as well as the
specific risks associated with the Skoal business, could have the potential to materially decrease the future estimated fair value
of the Skoal trademark. A 1% increase in the discount rate would have resulted in the estimated fair value exceeding its
carrying value by approximately 13% at December 31, 2020; and
▪
the estimated fair values of the indefinite-lived intangible assets within the wine reporting unit substantially exceeded their
carrying values, with the exception of the Patz & Hall trademark, which at December 31, 2020, exceeded its carrying value of
$30 million by approximately 6%.
During 2019, Altria’s quantitative annual impairment test of goodwill and indefinite-lived intangible assets resulted in $74 million of
impairment charges. During 2018, Altria’s quantitative annual impairment test of goodwill and indefinite-lived intangible assets resulted
in $54 million of impairment charges. For further discussion on goodwill, see Note 4. Goodwill and Other Intangible Assets, net to the
consolidated financial statements in Item 8 (“Note 4”).
In 2020, Altria elected to perform a qualitative assessment for certain of its reporting units and indefinite-lived intangible assets. This
qualitative assessment included the review of certain macroeconomic factors and entity-specific qualitative factors to determine if it was
more-likely-than-not that the fair values of its reporting units were below carrying value. For certain of its other reporting units and
indefinite-lived intangible assets, Altria elected to unconditionally bypass the qualitative assessment and perform a single step
quantitative assessment. Altria used an income approach to estimate the fair values of all of its reporting units and indefinite-lived
intangible assets. The income approach reflects the discounting of expected future cash flows to their present value 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
expected future cash flows. The weighted-average discount rate used in performing the valuations was approximately 10%.
In performing the 2020 discounted cash flow analysis, Altria made various judgments, estimates and assumptions, the most significant of
which were volume, income, growth rates and discount rates. The analysis incorporated assumptions used in Altria’s long-term financial
forecast, which is used by Altria’s management to evaluate business and financial performance, including allocating resources and
evaluating results relative to setting employee compensation targets. The assumptions incorporated the highest and best use of Altria’s
indefinite-lived intangible assets and also included perpetual growth rates for periods beyond the long-term financial forecast. The
perpetual growth rate used in performing all of the valuations was 2%. Fair value calculations are sensitive to changes in these estimates
and assumptions, some of which relate to broader macroeconomic conditions outside of Altria’s control.
Although Altria’s discounted cash flow analysis is based on assumptions that are considered reasonable and based on the best available
information at the time that the discounted cash flow analysis is developed, there is significant judgment used in determining future cash
flows. The following factors have the most potential to impact expected future cash flows and, therefore, Altria’s impairment
conclusions: general economic conditions (such as continued uncertainty from the COVID-19 pandemic); federal, state and local
regulatory developments; category growth rates; consumer preferences; success of planned new product expansions; competitive
activity; and income and excise taxes. For further discussion of these factors, see Operating Results by Business Segment - Tobacco
Space - Business Environment and Operating Results by Business Segment - Wine Segment - Business Environment below.
While Altria’s management believes that the estimated fair values of each reporting unit and indefinite-lived intangible asset at
December 31, 2020 are reasonable, actual performance in the short-term or long-term could be significantly different from forecasted
performance, which could result in impairment charges in future periods.
For further discussion of goodwill and other intangible assets, see Note 4.
Investments in Equity Securities: Altria reviews its equity investments accounted for under the equity method of accounting
▪
for impairment by comparing the fair value of each of its investments to their carrying value. If the carrying value of an investment
exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and
the impairment is recognized in the period identified. The factors used to make this determination include the duration and magnitude of
the fair value decline, the financial condition and near-term prospects of the investee, and Altria’s intent and ability to hold its
investment until recovery.
Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity investment in JUUL under the fair
value option. Under this option, any cash dividends received and any changes in the fair value of the equity investment in JUUL, which
is calculated quarterly using level 3 fair value measurements, are included in income (losses) from equity investments in the consolidated
statements of earnings (losses). The fair value of the equity investment in JUUL is included in investments in equity securities on the
consolidated balance sheet at December 31, 2020. 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.
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares
did 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. Altria reviewed its investment in JUUL for impairment by performing a qualitative assessment of impairment indicators on a
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 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 is less than its carrying value, the investment was written down to its fair value, and the impairment was recognized in the
period identified. The impairment charges Altria recorded related to its Investment in JUUL are included in impairment of JUUL equity
securities in the consolidated statements of earnings (losses).
Investment in ABI
At December 31, 2020, Altria’s investment in ABI consisted of 185 million restricted shares of ABI (the “Restricted Shares”) and 12
million ordinary shares of ABI. 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. In the event the pledgee or
security interest holder were to foreclose on the Restricted Shares, the encumbered 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 December 31, 2020 and 2019 was $13.8 billion (carrying value of $16.7 billion)
and $16.1 billion (carrying value of $18.1 billion), respectively, which was less than its carrying value by approximately 17% and 11%,
respectively, at December 31, 2020 and 2019. At February 22, 2021, the fair value of Altria’s investment decreased to approximately
$12.8 billion. 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 recent 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 December 31, 2020, 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 December 31, 2020 and 2019, that the decline in fair value of its investment
in ABI below its carrying value was temporary and, therefore, no impairment was recorded. This conclusion was based on the following
factors:
▪
▪
▪
▪
▪
▪
the fair value of Altria’s equity investment in ABI historically exceeding its carrying value since October 2016, when Altria
obtained its ownership interest in ABI, with the exception of certain periods starting in September 2018;
a history of significant recovery in stock price during 2019, as well as an increase from March 31, 2020 to February 22, 2021,
which Altria believes indicates investor confidence in ABI’s ability to implement its business strategies and deleveraging plans;
the continued industry disruption and volatility associated with the COVID-19 pandemic, resulting in stock performance among
ABI competitors that Altria does not believe are reflective of actual underlying equity values;
ABI’s recent proactive actions to preserve financial flexibility and commitment to its long-term deleveraging initiative,
including the following actions since December 31, 2019: (i) ABI’s 50% reduction to its final 2019 dividend paid in the second
quarter of 2020 and its decision to forgo its interim 2020 dividend that would have been paid in the fourth quarter of 2020; (ii)
ABI’s completion of the sale of its Australia subsidiary in the second quarter of 2020 for $11 billion in cash proceeds; (iii)
ABI’s continuation of its refinancing efforts through issuance and redemption activity, specifically front-end maturities into
longer dated maturities; and (iv) ABI’s completion of the sale of a minority stake in its U.S.-based metal container plants in the
fourth quarter of 2020 for $3 billion in cash proceeds;
ABI’s global platform (world’s largest brewer by volume and one of the world’s top ten consumer products companies by
revenue) with strong market positions in key markets, new product innovations, geographic diversification, experienced
management team, strict financial discipline (cost management and efficiency) and expected earnings and history of
performance; and
the strategic plans implemented by ABI in response to the adverse impacts of the COVID-19 pandemic, including its ability to
leverage learnings from recovering markets and respond quickly to the evolving environment to better position ABI for a robust
recovery. This was evidenced by ABI’s performance in the second half of 2020, which represented improvement over the first
half of 2020 and reinforced its confidence in the future potential of the beer category and its business. Additionally, as ABI
stated in its year-end 2020 earnings report, it expects financial results in 2021 to improve meaningfully versus 2020.
Additionally, ABI states its 2021 outlook reflects among other factors, its current assessment of the scale and magnitude of the
COVID-19 pandemic, which is subject to change as it continues to monitor ongoing developments.
Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic and subsequent recovery on
ABI’s business and market valuation. If Altria were to conclude that the decline in fair value is other than temporary, Altria would
determine and recognize, in the period identified, the impairment of its investment, which could result in a material adverse effect on
Altria’s consolidated financial position or earnings.
Investment in JUUL
In 2020, Altria recorded a: (i) non-cash pre-tax impairment charge of $2.6 billion for three months ended September 30, 2020 related to
its investment in JUUL and (ii) non-cash pre-tax unrealized gain of $100 million for the fourth quarter and year ended December 31,
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 2020 as a result of an increase in the fair value of JUUL. The carrying value of Altria’s investment in JUUL was $1.7 billion at
December 31, 2020.
In 2019, Altria recorded total non-cash pre-tax impairment charges of $8.6 billion ($4.5 billion in the third quarter of 2019 and $4.1
billion in the fourth quarter of 2019) related to its investment in JUUL resulting in a $4.2 billion carrying value of its investment in
JUUL at December 31, 2019.
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 are based on a range of
scenarios that consider various potential regulatory and market outcomes.
In determining the fair value of its investment in JUUL in 2020 and 2019, 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. The discount rates used in performing the valuations ranged
from 13.5% to 16.5% at September 30, 2019, 19.5% to 23.0% at December 31, 2019, and 17.0% to 20.5% at September 30, 2020 and
December 31, 2020. The perpetual growth rates used in performing each valuation ranged from (0.5%) to 0.0%. 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.
Although Altria’s discounted cash flow analyses were based on assumptions that Altria’s management considered reasonable and were
based on the best available information at the time that the analyses were developed, there is significant judgment used in determining
future cash flows. If the following factors, in isolation, significantly deviate from current expectations, Altria believes that they have the
potential to materially impact Altria’s significant assumptions of sales volume, operating margins, discount rate, and perpetual growth
rate, thus potentially materially decreasing Altria’s valuation of its investment in JUUL:
▪
▪
▪
▪
▪
▪
▪
▪
adverse developments related to litigation;
a successful challenge by the FTC in its administrative complaint against Altria and JUUL;
a substantial increase in state and federal e-vapor excise taxes;
adverse publicity due to underage use of e-vapor products and other factors;
unanticipated adverse impacts on JUUL’s relationships with employees, customers, suppliers and other third parties;
unfavorable financial and market performance, including substantial changes in competitive dynamics;
disruption in JUUL’s current and future plans or operations in domestic and international markets; and
unfavorable regulatory and legislative developments at the international, federal, state and local levels such as the potential
removal of certain e-vapor products from the market as a result of FDA enforcement action or the potential denial of new
tobacco product applications for e-vapor products.
If the following factors, in isolation, significantly deviate from current expectations, Altria believes that they have the potential to
materially impact Altria’s significant assumptions of sales volume, operating margins, discount rate, and perpetual growth rate, thus
potentially materially increasing Altria’s valuation of its investment in JUUL:
▪
▪
▪
▪
favorable developments related to litigation;
favorable financial and market performance, including substantial changes in competitive dynamics;
improvement of public perception around JUUL and the e-vapor category; and
favorable regulatory and legislative developments at the international, federal, state and local levels such as FDA authorization
of future tobacco product applications for JUUL flavored e-vapor products, which are currently not permitted in the market
without authorization.
While Altria’s management believes that the recorded value of its investment in JUUL at December 31, 2020 represents its best estimate
of the fair value of the investment, JUUL’s actual performance in the short term or long term could be significantly different from
forecasted performance due to changes in the factors noted above. Additionally, the value of Altria’s investment in JUUL could be
significantly impacted by changes in the discount rate, which could be caused by numerous factors, including changes in market inputs,
as well as risks specific to JUUL and its litigation environment.
Investment in Cronos
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
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM at December 31, 2020 and 2019 was $1.1 billion (carrying value of $1.0 billion) and $1.2 billion (carrying value of $1.0 billion),
respectively, which exceeded its carrying value by approximately 8% and 20% at December 31, 2020 and 2019, respectively.
For further discussion of Altria’s investments in ABI, JUUL and Cronos, see Note 6.
▪
Marketing Costs: Altria’s businesses promote their products with consumer incentives, trade promotions and consumer
engagement programs. These consumer incentive and trade promotion activities, which include discounts, coupons, rebates, in-store
display incentives and volume-based incentives, do not create a distinct deliverable and are, therefore, recorded as a reduction of
revenues. Consumer engagement program payments are made to third parties. Altria’s businesses expense these consumer engagement
programs, which include event marketing, as incurred and such expenses are included in marketing, administration and research costs in
Altria’s consolidated statements of earnings (losses). For interim reporting purposes, Altria’s businesses charge consumer engagement
programs and certain consumer incentive expenses to operations as a percentage of sales, based on estimated sales and related expenses
for the full year.
▪
Contingencies: As discussed in Note 18 and Item 3, legal proceedings covering a wide range of matters are pending or
threatened in various U.S. and foreign jurisdictions against Altria and its subsidiaries, including PM USA and UST and its subsidiaries,
as well as their respective indemnitees and Altria’s investees. In 1998, PM USA and certain other U.S. tobacco product manufacturers
entered into the 1998 Master Settlement Agreement (the “MSA”) with 46 states and various other governments and jurisdictions to settle
asserted and unasserted health care cost recovery and other claims. PM USA and certain other U.S. tobacco product manufacturers had
previously entered into agreements to settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the
MSA, the “State Settlement Agreements”). PM USA’s portion of ongoing adjusted payments and legal fees is based on its relative share
of the settling manufacturers’ domestic cigarette shipments, including roll-your-own cigarettes, in the year preceding that in which the
payment is due. In addition, PM USA, Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the
FSPTCA. Payments under the State Settlement Agreements and the FDA user fees are based on variable factors, such as volume,
operating income, market share and inflation, depending on the subject payment. Altria’s subsidiaries account for the cost of the State
Settlement Agreements and FDA user fees as a component of cost of sales. Altria’s subsidiaries recorded approximately $4.7 billion,
$4.5 billion and $4.5 billion of charges to cost of sales for the years ended December 31, 2020, 2019 and 2018, respectively, in
connection with the State Settlement Agreements and FDA user fees.
Altria and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably
possible that an unfavorable outcome in a case may occur, except to the extent discussed in Note 18 and Item 3: (i) management has
concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to
estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending tobacco-related cases; and
(iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any.
Litigation defense costs are expensed as incurred and included in marketing, administration and research costs in the consolidated
statements of earnings (losses).
▪
Employee Benefit Plans: Altria provides a range of benefits to certain employees and retired employees, including pension,
postretirement health care and postemployment benefits. Altria records annual amounts relating to these plans based on calculations
specified by GAAP, which include various actuarial assumptions as to discount rates, assumed rates of return on plan assets, mortality,
compensation increases, turnover rates and health care cost trend rates. Altria reviews its actuarial assumptions on an annual basis and
makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. Any effect of the
modifications is generally amortized over future periods.
Altria recognizes the funded status of its defined benefit pension and other postretirement plans on the consolidated balance sheet and
records as a component of other comprehensive earnings (losses), net of deferred income taxes, the gains or losses and prior service
costs or credits that have not been recognized as components of net periodic benefit cost. The gains or losses and prior service costs or
credits recorded as components of other comprehensive earnings (losses) are subsequently amortized into net periodic benefit cost in
future years.
Altria’s discount rate assumptions for its pension and postretirement plans obligations decreased to 2.7% and 2.6%, respectively, at
December 31, 2020 from 3.4% for both plans at December 31, 2019, resulting from changes in market inputs. Altria presently
anticipates net pre-tax pension and postretirement income of $85 million in 2021 versus net pre-tax expense of $3 million in 2020,
excluding amounts in each year related to settlement and curtailment. This anticipated change is due primarily to (i) lower interest costs,
driven by the impact of lower discount rates; and (ii) higher expected return on plan assets due to the higher fair value of plan assets at
December 31, 2020. This decrease is partially offset by higher amortization of unrecognized losses, driven by the impact of lower
discount rates. Assuming no change to the shape of the yield curve, a 50 basis point decrease (increase) in Altria’s discount rates would
increase (decrease) Altria’s pension and postretirement expense by approximately $10 million. Similarly, a 50 basis point decrease
(increase) in the expected return on plan assets would increase (decrease) Altria’s pension and postretirement expense by approximately
$40 million.
For additional information see Note 16. Benefit Plans to the consolidated financial statements in Item 8 (“Note 16”).
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
Income Taxes: Significant judgment is required in determining income tax provisions and in evaluating tax positions.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Altria determines the
realizability of deferred tax assets based on the weight of available evidence, that it is more-likely-than-not that the deferred tax asset
will not be realized. In reaching this determination, Altria considers all available positive and negative evidence, including the character
of the loss, carryback and carryforward considerations, future reversals of temporary differences and available tax planning strategies.
Altria recognizes a benefit for uncertain tax positions when a tax position taken or expected to be taken in a tax return is more-likely-
than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit
that is greater than 50% likely of being realized upon ultimate settlement. Altria recognizes accrued interest and penalties associated
with uncertain tax positions as part of the provision for income taxes in its consolidated statements of earnings (losses).
Altria recognized income tax benefits and charges in the consolidated statements of earnings (losses) during 2020, 2019 and 2018 as a
result of various tax events, including the impact of the Tax Reform Act.
For additional information on income taxes, see Note 14. Income Taxes to the consolidated financial statements in Item 8 (“Note 14”).
Consolidated Operating Results
(in millions)
Net Revenues:
Smokeable products
Oral tobacco products
Wine
All other
Net revenues
Excise Taxes on Products:
Smokeable products
Oral tobacco products
Wine
All other
Excise taxes on products
Operating Income:
Operating companies income (loss):
Smokeable products
Oral tobacco products
Wine
All other
Amortization of intangibles
General corporate expenses
Corporate asset impairment and exit costs
Operating income
For the Years Ended December 31,
2020
2019
2018
$
$
$
$
$
$
23,089 $
2,533
614
(83)
26,153 $
5,162 $
130
19
1
5,312 $
9,985 $
1,718
(360)
(172)
(72)
(227)
1
10,873 $
21,996 $
2,367
689
58
25,110 $
5,166 $
127
21
—
5,314 $
9,009 $
1,580
(3)
(16)
(44)
(199)
(1)
10,326 $
22,297
2,262
691
114
25,364
5,585
131
21
—
5,737
8,408
1,431
50
(421)
(38)
(315)
—
9,115
As discussed further in Note 15, the CODM reviews OCI to evaluate the performance of, and allocate resources to, the segments. OCI
for the segments is defined as operating income before general corporate expenses and amortization of intangibles. Management
believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business
segments.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The following table provides a reconciliation of adjusted net earnings (losses) attributable to Altria and adjusted diluted EPS attributable
to Altria for the years ended December 31:
(in millions of dollars, except per share data)
2020 Reported
NPM Adjustment Items
Asset impairment, exit, implementation and acquisition-
related costs
Tobacco and health litigation items
Impairment of JUUL equity securities
JUUL changes in fair value
ABI-related special items
Cronos-related special items
COVID-19 special items
Tax items
2020 Adjusted for Special Items
2019 Reported
Asset impairment, exit, implementation and acquisition-
related costs
Tobacco and health litigation items
Impairment of JUUL equity securities
ABI-related special items (1)
Cronos-related special items
Tax items
2019 Adjusted for Special Items
2018 Reported
NPM Adjustment Items
Asset impairment, exit, implementation and acquisition-
related costs
Tobacco and health litigation items
ABI-related special items (1)
Loss on ABI/SABMiller business combination
Earnings
(Losses)
before Income
Taxes
Provision
for Income
Taxes
Net
Earnings
(Losses)
Net Earnings
(Losses)
Attributable
to Altria
Diluted
EPS
$
6,890 $
2,436 $
4,454 $
4,467
$ 2.40
4
431
83
2,600
(100)
763
51
50
—
1
89
21
—
—
160
(2)
13
(50)
3
342
62
2,600
(100)
603
53
37
50
3
—
342
62
2,600
(100)
603
53
37
50
0.18
0.03
1.40
(0.05)
0.32
0.03
0.02
0.03
$
$
$
$
10,772 $
2,668 $
8,104 $
8,117
$ 4.36
766 $
2,064 $
(1,298) $
(1,293) $ (0.70)
331
77
8,600
(383)
928
—
62
19
—
(80)
288
99
269
58
8,600
(303)
640
(99)
269
58
8,600
(303)
640
(99)
0.15
0.03
4.60
(0.16)
0.34
(0.05)
10,319 $
2,452 $
7,867 $
7,872
$ 4.21
9,341 $
2,374 $
6,967 $
(145)
538
131
(16)
33
(36)
106
33
(3)
7
(109)
432
98
(13)
26
6,963
$ 3.68
(109)
(0.06)
432
98
(13)
26
0.23
0.05
—
0.01
Tax items
2018 Adjusted for Special Items
(1) Prior period amounts have been recast to conform with current period presentation for certain ABI mark-to-market adjustments that were not
previously identified as special items and that are now excluded from Altria’s adjusted financial measures.
(197)
2,284 $
—
9,882 $
197
7,598 $
0.11
$ 4.02
197
7,594
$
The following special items affected the comparability of statements of earnings (losses) amounts.
▪
Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 18 and NPM Adjustment Items in Note 15, respectively.
NPM Adjustment Items: For a discussion of NPM Adjustment Items and a breakdown of these items by segment, see Health
▪
Asset Impairment, Exit, Implementation and Acquisition-Related Costs: Pre-tax asset impairment, exit, implementation
and acquisition-related costs were $431 million, $331 million and $538 million for the years ended December 31, 2020, 2019 and 2018,
respectively.
For further discussion on asset impairment, exit and implementation costs, including a breakdown of these costs by segment, see Note 5.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM For the years ended December 31, 2020 and 2019, Altria also recorded pre-tax acquisition-related costs of $24 million and $115 million,
respectively. The 2019 costs were primarily for the write-off of debt issuance costs related to Altria’s short-term borrowings under the
term loan agreement that Altria entered into in connection with its investments in Cronos and JUUL.
In December 2018, Altria announced a cost reduction program (which included workforce and third-party spending reductions across the
businesses) that delivered approximately $600 million in annual cost savings in 2020 and 2019. The program was completed in 2019.
In October 2016, Altria announced the consolidation of certain of its operating companies’ manufacturing facilities to streamline
operations and achieve greater efficiencies. The consolidation was completed in the first quarter of 2018 and delivered Altria’s goal of
approximately $50 million in annualized cost savings as of December 31, 2018.
Tobacco and Health Litigation Items: For a discussion of tobacco and health litigation items and a breakdown of these costs
▪
by segment, see Note 18 and Tobacco and Health Litigation Items in Note 15, respectively.
▪
Impairment of JUUL Equity Securities: For the years ended December 31, 2020 and 2019, Altria recorded non-cash pre-tax
impairment charges of $2,600 million and $8,600 million, respectively, reported as impairment of JUUL equity securities in its
consolidated statements of earnings (losses). A full tax valuation allowance was recorded in 2020 and 2019 attributable to the tax
benefit associated with the impairment charges. For further discussion, see Note 6 and Note 14.
▪
JUUL Changes in Fair Value: For the year ended December 31, 2020, Altria recorded a non-cash pre-tax unrealized gain of
$100 million reported as (income) losses from equity investments in its consolidated statement of earnings (losses) as a result of an
increase in fair value of Altria’s investment in JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance. For
further discussion, see Note 6 and Note 14.
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ABI-Related Special Items: Altria’s losses from its equity investment in ABI for the year ended December 31, 2020 included
net pre-tax charges of $763 million, consisting primarily of Altria’s share of ABI’s (i) mark-to-market losses on certain ABI financial
instruments associated with its share commitments, (ii) completion of the sale of its Australia subsidiary and (iii) goodwill impairment
charge associated with its Africa businesses.
Altria’s earnings from its equity investment in ABI for the year ended December 31, 2019 included net pre-tax income of $383 million,
consisting primarily of a gain related to the completion in September 2019 of ABI’s initial public offering of a minority stake of its Asia
Pacific subsidiary and Altria’s share of ABI’s mark-to-market gains on certain ABI financial instruments associated with its share
commitments.
Altria’s earnings from its equity investment in ABI for the year ended December 31, 2018 included net pre-tax income of $16 million,
consisting primarily of Altria’s share of ABI’s estimated effect of the Tax Reform Act and gains related to ABI’s merger and acquisition
activities, partially offset by Altria’s share of ABI’s mark-to-market losses on certain ABI financial instruments associated with its share
commitments.
These amounts include Altria’s share of amounts recorded by ABI, and may also include additional adjustments related to (i) conversion
from international financial reporting standards to GAAP and (ii) adjustments to Altria’s investment required under the equity method of
accounting.
Cronos-Related Special Items: For the years ended December 31, 2020 and 2019, Altria recorded net pre-tax losses of $51
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million and $928 million, respectively, consisting of the following:
(in millions)
Loss on Cronos-related financial instruments (1)
(Income) losses from equity investments (2)
Total Cronos-related special items - (income) expense
1,442
(514)
928
(1) The 2020 amount and substantially all of the 2019 amount are related to the non-cash change in the fair value of the warrant and certain anti-dilution
protections (the “Fixed-price Preemptive Rights”) acquired in the Cronos transaction.
(2) Amounts primarily include Altria’s share of Cronos’s non-cash change in the fair value of Cronos’s derivative financial instruments associated with
the issuance of additional shares.
140 $
(89)
51 $
$
$
2020
2019
For further discussion, see Note 6 and Note 7. Financial Instruments to the consolidated financial statements in Item 8.
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COVID-19 Special Items: For the year ended December 31, 2020, Altria recorded net pre-tax charges totaling $50 million
directly related to disruptions caused by or efforts to mitigate the impact of the COVID-19 pandemic. These net pre-tax charges
included premium pay, personal protective equipment and health screenings, partially offset by certain employment tax credits. The
COVID-19 special items do not include the charges associated with the wine business strategic reset, which are included in asset,
impairment, exit, implementation and acquisition-related costs discussed above. These implementation costs were due to increased
inventory levels, which were further negatively impacted by government restrictions and economic uncertainty surrounding the
COVID-19 pandemic.
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Tax Items: For the year ended December 31, 2020, Altria recorded net tax expense of $50 million, due primarily to net tax
expense of $27 million for adjustments resulting from amended returns and audit adjustments related to prior years, and tax expense of
$23 million for a tax basis adjustment to Altria’s investment in ABI.
For the year ended December 31, 2019, Altria recorded net tax benefits of $99 million, due primarily to tax benefits of $105 million for
adjustments as a result of amended returns and tax benefits of $100 million for the reversal of tax accruals no longer required, partially
offset by tax expense of $84 million for a tax basis adjustment to Altria’s equity investment in ABI and $38 million for a valuation
allowance on foreign tax credits not realizable.
For the year ended December 31, 2018, Altria recorded net tax expense of $197 million, which included $188 million related to the Tax
Reform Act as follows: (i) tax expense of $140 million resulting from a partial reversal of the tax basis benefit associated with the
deemed repatriation tax recorded in 2017; (ii) tax expense of $34 million for a valuation allowance on foreign tax credit carryforwards
that are not realizable as a result of updates to the provisional estimates recorded in 2017; and (iii) tax expense of $14 million for an
adjustment to the provisional estimates for the repatriation tax recorded in 2017.
For further discussion, see Note 14.
2020 Compared with 2019
Net revenues, which include excise taxes billed to customers, increased $1,043 million (4.2%), due to higher net revenues in the
smokeable products and oral tobacco products segments, partially offset by lower net revenues in the all other category (primarily driven
by reductions in the estimated residual value of certain assets at PMCC in 2020) and the wine segment.
Cost of sales increased $733 million (10.3%), due primarily to the inventory-related charges in the wine segment in 2020 (as discussed
above), higher per unit settlement charges and COVID-19 special items in 2020.
Marketing, administration and research costs decreased $72 million (3.2%), due primarily to lower spending in the smokeable products
segment, partially offset by higher amortization expense and higher spending in the all other category.
Operating income increased $547 million (5.3%), due primarily to higher operating results from the smokeable products and oral
tobacco products segments, partially offset by lower operating results from the wine segment and the all other category (primarily driven
by reductions in the estimated residual value of certain assets at PMCC in 2020) and higher amortization expense.
Interest and other debt expense, net, decreased $71 million (5.5%), due primarily to the write-off of debt issuance costs in 2019
associated with the JUUL and Cronos transactions, partially offset by lower interest income due to lower interest rates.
(Income) losses from equity investments decreased $1,836 million (100.0%+), which were negatively impacted by ABI and Cronos
special items and the impact of the COVID-19 pandemic on ABI’s ongoing operations, partially offset by a non-cash unrealized gain
resulting from an increase in the estimated fair value of Altria’s investment in JUUL in the fourth quarter of 2020.
Altria’s income tax rate decreased 234.1 percentage points to 35.4%, due primarily to changes in valuation allowances attributable to the
tax benefits associated with the impairments of JUUL equity securities in 2020 and 2019, and the increase in the estimated fair value of
JUUL in the fourth quarter of 2020. For further discussion, see Note 14.
Reported net earnings (losses) attributable to Altria of $4,467 million increased $5,760 million (100.0%+), due primarily to the 2019
impairment of JUUL equity securities, lower loss on Cronos-related financial instruments, higher operating income, and the write-off of
debt issuance costs in 2019 associated with the JUUL and Cronos transactions, partially offset by the 2020 impairment of JUUL equity
securities, losses from Altria’s equity investments and higher income taxes. Reported diluted and basic EPS attributable to Altria of
$2.40, increased by 100.0%+, due to higher net earnings (losses) attributable to Altria and fewer shares outstanding.
Adjusted net earnings attributable to Altria of $8,117 million increased $245 million (3.1%), due primarily to higher adjusted OCI in the
smokeable products and oral tobacco products segments, partially offset by lower adjusted earnings from Altria’s equity investments,
higher adjusted losses in the all other category (primarily driven by reductions in the estimated residual value of certain assets at PMCC
in 2020), higher income taxes, higher amortization expense, higher interest and other debt expense, net and lower adjusted OCI in the
wine segment. Adjusted diluted EPS attributable to Altria of $4.36 increased by 3.6%, due to higher adjusted net earnings attributable to
Altria and fewer shares outstanding.
2019 Compared with 2018
Net revenues, which include excise taxes billed to customers, decreased $254 million (1.0%), due primarily to lower net revenues in the
smokeable products segment, partially offset by higher net revenues in the oral tobacco products segment.
Cost of sales decreased $288 million (3.9%), due primarily to lower shipment volume in the smokeable products segment and lower
costs as a result of Altria’s decision in 2018 to refocus its innovative product efforts, partially offset by favorable NPM Adjustment
Items in 2018 and higher per unit settlement costs.
Excise taxes on products decreased $423 million (7.4%), due primarily to lower smokeable products shipment volume.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Marketing, administration and research costs decreased $530 million (19.2%), due primarily to lower spending as a result of the cost
reduction program and Altria’s decision in 2018 to refocus its innovative product efforts, acquisition-related costs to effect the
investment in JUUL in 2018 and lower tobacco and health litigation items.
Operating income increased $1,211 million (13.3%), due primarily to higher operating results from the smokeable and oral tobacco
products segments (which included lower spending as a result of the cost reduction program) and lower spending as a result of Altria’s
decision in 2018 to refocus its innovative product efforts (which included lower asset impairment, exit and implementation costs) and
acquisition-related costs to effect the investment in JUUL in 2018.
Interest and other debt expense, net, increased $615 million (92.5%), due primarily to higher interest costs and debt issuance costs for
borrowings associated with the Cronos and JUUL transactions.
(Income) losses from equity investments, which increased $835 million (93.8%), were positively impacted by special items related to
Altria’s equity investments in Cronos and ABI.
Altria’s income tax rate increased 244.1 percentage points to 269.5%, due primarily to a valuation allowance on a deferred tax asset
recorded in 2019 attributable to Altria’s impairment of its investment in JUUL equity securities. For further discussion, see Note 14.
Reported net losses attributable to Altria of $1,293 million as compared with 2018 net earnings attributable to Altria of $6,963 million
changed by $8,256 million (100.0%+), due primarily to the 2019 impairment of JUUL equity securities, 2019 loss on Cronos-related
financial instruments and higher interest and other debt expense, net, partially offset by higher operating income, higher earnings from
Altria’s equity investments in Cronos and ABI and favorable tax items. Reported diluted and basic net losses per share attributable to
Altria of $0.70, each decreased by 100.0%+, due to lower net earnings attributable to Altria, partially offset by fewer shares outstanding.
Adjusted net earnings attributable to Altria of $7,872 million increased $278 million (3.7%), due primarily to higher adjusted OCI in the
smokeable products and oral tobacco products segments, lower spending as a result of Altria’s decision in 2018 to refocus its innovative
products efforts and higher adjusted earnings related to Altria’s equity investment in ABI, partially offset by higher interest and other
debt expense, net. Adjusted diluted EPS attributable to Altria of $4.21 increased by 4.7%, due to higher adjusted net earnings
attributable to Altria and fewer shares outstanding.
Operating Results by Business Segment
Tobacco Space
Business Environment
Summary
The U.S. tobacco industry faces a number of business and legal challenges that have adversely affected and may adversely affect the
business and sales volume of Altria’s tobacco subsidiaries and investees and Altria’s consolidated results of operations, cash flows or
financial position. These challenges, some of which are discussed in more detail in Note 18, Item 1A and Item 3, include:
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▪
▪
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pending and threatened litigation and bonding requirements;
restrictions and requirements imposed by the FSPTCA, and restrictions and requirements (and related enforcement actions) that
have been, and in the future will be, imposed by the FDA;
actual and proposed excise tax increases, as well as changes in tax structures and tax stamping requirements;
bans and restrictions on tobacco use imposed by governmental entities and private establishments and employers;
other federal, state and local government actions, including:
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restrictions on the sale of certain tobacco products, the sale of tobacco products by certain retail establishments, the sale of
certain tobacco products with certain characterizing flavors and the sale of tobacco products in certain package sizes;
additional restrictions on the advertising and promotion of tobacco products;
other actual and proposed tobacco-related legislation and regulation; and
governmental investigations;
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▪
▪
the diminishing prevalence of cigarette smoking;
increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further
restrict the availability and use of tobacco products;
changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as economic conditions,
excise taxes and price gap relationships, may result in adult tobacco consumers switching to discount products or other lower-
priced tobacco products;
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the highly competitive nature of all tobacco categories, including, without limitation, competitive disadvantages related to
cigarette price increases attributable to the settlement of certain litigation and the proliferation of innovative tobacco products,
including e-vapor and oral nicotine pouch products;
illicit trade in tobacco products;
potential adverse changes in prices, availability and quality of tobacco, other raw materials and components; and
the COVID-19 pandemic.
In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences pose challenges for Altria’s tobacco
subsidiaries. Altria’s tobacco subsidiaries believe that a significant number of adult tobacco consumers switch among tobacco
categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products and oral nicotine
pouches. Adult smokers continue to convert from cigarettes to exclusive use of non-combustible tobacco product alternatives. Up until
the second half of 2019, the e-vapor category had experienced significant growth, and the number of adults who exclusively used e-
vapor products also increased during that time which, along with growth in oral nicotine pouches, negatively impacted consumption
levels and sales volume of cigarettes and MST. While growth of oral nicotine pouches has continued (including the introduction of
unregulated synthetic nicotine pouches), growth in the e-vapor category has been negatively impacted by the legislative and regulatory
activities discussed below. The e-vapor category has also become increasingly competitive. Altria and its tobacco subsidiaries believe
the innovative tobacco products categories (in particular, e-vapor) will continue to be dynamic as adult tobacco consumers explore a
variety of tobacco product options and as the regulatory environment for these innovative tobacco products evolves.
Domestic cigarette industry volume for 2020 was unchanged versus the prior year, which Altria believes was the result of stay-at-home
practices due to the COVID-19 pandemic and higher tobacco discretionary spending. Due to the expected continued market volatility as
a result of various factors relating to the COVID-19 pandemic and cross-category movement, Altria is not providing a cigarette industry
volume forecast at this time. Altria believes the degree of ongoing cross-category movement will be influenced by several factors,
including adult consumer perceptions of the relative risks of non-combustible products compared to cigarettes, FDA determinations on
product applications and legislative actions.
Economic conditions also impact adult tobacco consumer purchase behavior. Prior economic downturns have resulted in adult tobacco
consumers choosing discount products and other lower-priced tobacco products. Although the current economic downturn resulting
from the COVID-19 pandemic has not meaningfully increased the growth of discount and lower priced tobacco products, in part due to
stimulus payments, adult tobacco consumers may still increasingly choose these products as economic conditions remain unfavorable.
See Executive Summary in Item 7 above for further discussion.
Altria and its tobacco subsidiaries work to meet these evolving adult tobacco consumer preferences over time by developing,
manufacturing, marketing and distributing products both within and outside the U.S. through innovation and adjacency growth strategies
(including, where appropriate, arrangements with, or investments in, third parties).
FSPTCA and FDA Regulation
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FDA regulatory authority over all tobacco products and, among other provisions:
The Regulatory Framework: The FSPTCA, its implementing regulations and its 2016 deeming regulations establish broad
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▪
▪
▪
▪
impose restrictions on the advertising, promotion, sale and distribution of tobacco products (see Final Tobacco Marketing
Rule below);
establish pre-market review pathways for new and modified tobacco products (see Pre-Market Review Pathways for
Tobacco Products and Market Authorization Enforcement below);
prohibit any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without
FDA authorization;
authorize the FDA to impose tobacco product standards that are appropriate for the protection of the public health; and
equip the FDA with a variety of investigatory and enforcement tools, including the authority to inspect product
manufacturing and other facilities.
The FSPTCA also bans descriptors such as “light,” “low” or “mild” when used as descriptors of modified risk, unless expressly
authorized by the FDA. In connection with a 2016 lawsuit initiated by Middleton, the Department of Justice, on behalf of the FDA,
informed Middleton that at present, the FDA does not intend to bring an enforcement action against Middleton for the use of the term
“mild” in the trademark “Black & Mild.” Consequently, Middleton dismissed its lawsuit without prejudice. If the FDA were to change
its position at some later date, Middleton would have the opportunity to bring another lawsuit.
Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010 the FDA promulgated a wide range of
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advertising and promotion restrictions for cigarettes and smokeless tobacco(1) products (the “Final Tobacco Marketing Rule”). The May
(1)“Smokeless tobacco,” as used in this section of this Form 10-K, refers to smokeless tobacco products first regulated by the FDA in 2009, including
MST. It excludes oral nicotine pouches, which were first regulated by the FDA in 2016.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including
cigars, pipe tobacco and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives, but do not
include any component or part that is not made or derived from tobacco.
The Final Tobacco Marketing Rule, as amended, among other things:
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▪
▪
▪
restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products;
prohibits sampling of all tobacco products except that sampling of smokeless tobacco products is permitted in qualified
adult-only facilities;
prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos;
prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or
cultural event, or any entry or team in any event; and
requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for other
tobacco products, and gives the FDA the authority to require new warnings for any type of tobacco product (see FDA
Regulatory Actions - Graphic Warnings below).
Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and
smokeless tobacco products and in August 2016 for all other tobacco products.
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Rulemaking and Guidance: From time to time, the FDA issues proposed rules or guidance, which may be issued in draft or
final form, generally involve public comment and may include scientific review. The FDA also may request comments on broad topics
through an ANPRM. Altria’s tobacco subsidiaries actively engage with the FDA to develop and implement the FSPTCA’s regulatory
framework, including submission of comments to various FDA policies and proposals and participation in public hearings and
engagement sessions.
The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by
U.S. states, territories and localities of their laws and regulations as well as of the State Settlement Agreements discussed below (see
State Settlement Agreements below). Such enforcement efforts may adversely affect the ability of Altria’s tobacco subsidiaries and
investees to market and sell regulated tobacco products in those states, territories and localities.
FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation: In July 2017, the FDA announced a “Comprehensive
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Plan for Tobacco and Nicotine Regulation” (“Comprehensive Plan”) designed to strike a balance between regulation and encouraging
the development of innovative tobacco products that may be less risky than cigarettes. Since then, the FDA has issued additional
information about its Comprehensive Plan in response to concerns associated with the rise in the use of e-vapor products by youth, and
the potential youth appeal of flavored tobacco products (see Underage Access and Use of Certain Tobacco Products below). As part of
the Comprehensive Plan, the FDA:
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issued ANPRMs relating to potential product standards for nicotine in cigarettes, flavors in all tobacco products (including
menthol in cigarettes and characterizing flavors in all cigars); and, for e-vapor products, to protect against known public
health risks such as concerns about youth exposure to liquid nicotine;
took actions to restrict youth access to e-vapor products;
reconsidered the processes used by the FDA to review certain reports and new product applications; and
revisited the timelines (previously extended by the FDA) to submit applications for tobacco products first regulated by the
FDA in 2016.
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Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the
sale of tobacco products commercially marketed as of February 15, 2007 and not subsequently modified (“Grandfathered Products”) and
new or modified products authorized through the PMTA, Substantial Equivalence (“SE”) or SE Exemption pathways.
The FDA pre-market authorization enforcement policy varies based on product type and date of availability in the market; specifically:
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All tobacco products on the market as of February 15, 2007, and not subsequently modified, are Grandfathered Products
and exempt from the pre-market authorization requirement;
Cigarette and smokeless tobacco products that were modified or first introduced into the market between February 15,
2007 and March 22, 2011 are generally considered “Provisional Products” for which SE reports were required to be filed
by March 22, 2011. These reports must demonstrate that the product has the same characteristics as a product on the
market as of February 15, 2007 or to a product previously determined to be substantially equivalent, or has different
characteristics but does not raise different questions of public health; and
Tobacco products that were first regulated by the FDA in 2016, including cigars, e-vapor products and oral nicotine
pouches that are not Grandfathered Products, are generally products for which either an SE report or PMTA needed to be
filed by September 9, 2020.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Modifications to currently marketed products, including modifications that result from, for example, changes to the quantity of tobacco
product(s) in a package, a manufacturer being unable to acquire ingredients or a supplier being unable to maintain the consistency
required in ingredients, also can trigger the FDA’s pre-market review process.
Provisional Products: Most cigarette and smokeless tobacco products currently marketed by PM USA and USSTC are Provisional
Products. Altria’s subsidiaries timely submitted SE reports for these Provisional Products. PM USA and USSTC have received SE
determinations on certain Provisional Products. Those that were found to be not substantially equivalent (certain smokeless tobacco
products) had been discontinued for business reasons prior to the FDA’s determinations; therefore, those determinations did not impact
business results. PM USA and USSTC have other Provisional Products that continue to be subject to the FDA’s pre-market review
process. In the meantime, they can continue marketing these products unless the FDA determines that a specific Provisional Product is
not substantially equivalent.
In addition, the FDA has communicated that it will not review a certain subset of Provisional Product SE reports and that the products
that are the subject of those reports can generally continue to be legally marketed without further FDA review. PM USA and USSTC
have Provisional Products included in this subset of products.
While Altria’s cigarette and smokeless tobacco subsidiaries believe their current Provisional Products meet the statutory requirements of
the FSPTCA, they cannot predict how the FDA will ultimately apply law, regulation and guidance to their various SE reports. Should
Altria’s cigarette and smokeless tobacco subsidiaries receive unfavorable determinations on any SE reports currently pending with the
FDA, they believe they can replace the vast majority of their respective product volumes with other FDA authorized products or with
Grandfathered Products.
Non-Provisional Products: Cigarette and smokeless tobacco products introduced into the market or modified after March 22, 2011 are
“Non-Provisional Products” and must receive a marketing order from the FDA prior to being offered for sale. Marketing orders for
Non-Provisional Products may be obtained by filing an SE report, PMTA or using another pre-market pathway established by the FDA.
Products Regulated in 2016: Manufacturers of products first regulated by the FDA in 2016, including cigars, oral nicotine pouches and
e-vapor products, that were on the market as of August 8, 2016 and not subsequently modified must have filed an SE report or PMTA by
the filing deadline of September 9, 2020 in order for their products to remain on the market. At the FDA’s discretion, these products can
remain on the market during FDA review for up to one year from the date of the application with additional case-by-case discretion to
remain on the market after that time, so long as the report or application was timely filed with the FDA. For products (new or modified)
not on the market as of August 8, 2016, manufacturers must file an SE report or PMTA and receive FDA authorization prior to
marketing the product.
Helix submitted PMTAs for on! oral nicotine pouches on May 15, 2020, which are presently under review by the FDA. If the FDA does
not authorize one or more on! PMTAs, the FDA may require Helix to remove the affected products from the market which could have a
material adverse effect on Helix’s business. Middleton has received market orders or exemptions that cover over 97% of its cigar
product volume and filed SE reports for its remaining cigar product volume by the filing deadline.
In December 2013, Altria’s subsidiaries entered into a series of agreements with PMI, including an agreement that grants Altria an
exclusive right to commercialize certain of PMI’s heated tobacco products in the United States, subject to FDA authorization of the
applicable products. PMI submitted a PMTA and a modified risk tobacco product application with the FDA for its electronically heated
tobacco products comprising the IQOS Tobacco Heating System. In April 2019, the FDA authorized the PMTA for the IQOS Tobacco
Heating System and in July 2020, the FDA authorized the marketing of this system as a modified risk tobacco product with a reduced
exposure claim. The IQOS electronic device heats but does not burn tobacco. In December 2020, the FDA authorized the PMTA for
IQOS 3, an updated version of the IQOS Tobacco Heating System. The Modified Risk Tobacco Products authorization (“MRTP”) for
the original IQOS electronic device currently does not apply to the IQOS 3 device. PMI has disclosed that it plans to seek an MRTP for
the IQOS 3 electronic device in the future.
Post-Market Surveillance: Manufacturers that receive product authorizations through the PMTA process must submit to the FDA post-
market records and reports, as detailed in market orders. The FDA may withdraw a market order based on this information if, among
other reasons, it determines that the continued marketing of the product is no longer appropriate for the protection of the public health.
Effect of Adverse FDA Determinations: FDA review time frames have varied. It is therefore difficult to predict the duration of FDA
reviews of SE reports or PMTAs. Failure of manufacturers to submit applications by the applicable deadline, an unfavorable
determination on an application or the withdrawal by the FDA of a prior marketing order could result in the removal of products from
the market. These manufacturers would have the option of marketing products that have received FDA pre-market authorization or
Grandfathered Products. A “not substantially equivalent” determination, a denial of a PMTA or a marketing order withdrawal by the
FDA on one or more products could have a material adverse impact on the business and consolidated results of operations of our tobacco
subsidiaries and investees, and the cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting
the value of Altria’s investment in JUUL.
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FDA Regulatory Actions
Graphic Warnings: In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics
depicting the negative health consequences of smoking on cigarette packaging and advertising. The final rule requires that the
graphic health warnings (i) be located beneath the cellophane and comprise the top 50% of the front and rear panels of cigarette
packages and (ii) occupy 20% of a cigarette advertisement and be located at the top of the advertisement. As a result of a court
order related to the COVID-19 pandemic and an additional court ruling in December 2020 resulting from a lawsuit brought by
R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and others against the FDA, the final rule will be effective January 14,
2022. PM USA and other cigarette manufacturers have filed lawsuits challenging the final rule on substantive and procedural
grounds.
In the preamble to the final rule, the FDA stated that it would not exempt HeatSticks, a heated tobacco product used with the
IQOS electronic device, as part of the rulemaking, but would consider the HeatSticks marketing order, and other marketing
orders, on a case-by-case basis.
Underage Access and Use of Certain Tobacco Products: The FDA announced regulatory actions in September 2018 to address
underage access and use of e-vapor products. Altria has engaged with the FDA on this topic and has reaffirmed to the FDA its
ongoing and long-standing commitment to preventing underage use. For example, during 2019, Altria advocated raising the
minimum legal age to purchase all tobacco products to 21 at the federal and state levels to further address underage use, which
is now federal law. See Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products below
for further discussion.
In March 2019, the FDA issued draft guidance further proposing restrictions to address youth e-vapor use. This guidance,
which the FDA finalized in January 2020, states that the FDA intends to prioritize enforcement action against:
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cartridge-based, flavored e-vapor products (other than tobacco and menthol flavors) unless such products have
received market authorization from the FDA; and
all e-vapor products (in any format or flavor):
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for which a manufacturer has failed or is failing to take adequate measures to prevent access by those under the
age of 21 (referred to in the FDA guidance as “minors”);
targeted to minors and the marketing for which is likely to promote use of such products by minors; or
offered for sale after the court-ordered filing deadline and for which the manufacturer has either not submitted a
PMTA or for which an application was timely filed but an adverse decision on the application was issued by the
FDA.
E-vapor product manufacturers, however, may continue to file PMTAs for flavored tobacco products. FDA enforcement action
could result in tobacco products being removed from the market unless and until these products receive pre-market
authorization from the FDA. JUUL ceased its sales of all cartridge-based, flavored e-vapor products (other than tobacco and
menthol) in 2019. If FDA enforcement action is taken against currently marketed JUUL e-vapor products, and a significant
number of those products are removed from the market or if the FDA does not ultimately allow for the reintroduction of flavors
other than tobacco and menthol, it could adversely affect the value of Altria’s investment in JUUL and have a material adverse
effect on Altria’s consolidated financial position or earnings.
The January 2020 guidance effectively permits the continued sale (subject to the exceptions discussed above) of certain
flavored e-vapor products, including flavored disposable e-vapor products. If, as a result, these flavored e-vapor products are
sold in higher volumes than JUUL’s e-vapor products, it could adversely affect the value of Altria’s investment in JUUL and
have a material adverse effect on Altria’s consolidated financial position or earnings.
Potential Product Standards
Nicotine in cigarettes and other combustible tobacco products: In March 2018, the FDA issued an ANPRM seeking comments
on the potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to non-
addictive or minimally addictive levels. Among other issues, the FDA sought comments on (i) whether smokers would
compensate by smoking more cigarettes to obtain the same level of nicotine as with their current product and (ii) whether the
proposed rule would create an illicit trade of cigarettes containing nicotine at levels higher than a non-addictive threshold that
may be established by the FDA. The FDA also sought comments on whether a nicotine product standard should apply to other
combustible tobacco products, including cigars. Were the FDA to develop and finalize a product standard for nicotine in
combustible products, and if the standard was appealed and upheld in the courts, it could have a material adverse effect on the
business, consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries.
Flavors in tobacco products: As discussed above under FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation, the
FDA indicated that it is considering proposing rulemaking for a product standard that would seek to ban menthol in
combustible tobacco products, including cigarettes and cigars, and that it intends to propose a product standard that would ban
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM characterizing flavors in all cigars, including Grandfathered Products and those that have received SE determinations from the
FDA - an intention reiterated in the FDA’s January 2020 guidance. In March 2018, the FDA issued an ANPRM seeking
comments on the role, if any, that flavors (including menthol) in tobacco products may play in attracting youth and in helping
some smokers switch to potentially less harmful forms of nicotine delivery. In the context of litigation, the FDA has stated its
intention to issue a response by April 29, 2021 to a 2013 citizen petition requesting FDA prohibit menthol as a characterizing
flavor in cigarettes.
While the FDA has yet to define “characterizing flavors” with respect to cigars, most of Middleton’s cigar products contain
added flavors and may be subject to any action by the FDA to ban flavors in cigars. The FDA also may ban characterizing
flavors in all other tobacco products, including oral nicotine pouches. If these regulations become final and are appealed and
upheld in the courts, it could have a material adverse effect on the business of our tobacco subsidiaries and investees, and the
consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely
affecting the value of Altria’s investment in JUUL.
NNN in Smokeless Tobacco: In January 2017, the FDA proposed a product standard for N-nitrosonornicotine (“NNN”) levels in
finished smokeless tobacco products. If the proposed rule, in present form, were to become final and was appealed and upheld
in the courts, it could have a material adverse effect on the business, consolidated results of operations, cash flows or financial
position of Altria and USSTC.
Good Manufacturing Practices: The FSPTCA requires that the FDA promulgate good manufacturing practice regulations
(referred to by the FDA as “Requirements for Tobacco Product Manufacturing Practice”) for tobacco product manufacturers,
but does not specify a timeframe for such regulations. Compliance with any such regulations could result in increased costs,
which may have a material adverse effect on the financial position of Altria, its tobacco subsidiaries and its investees, including
adversely affecting the value of Altria’s investment in JUUL.
Impact on Our Business; Compliance Costs and User Fees: FDA regulatory actions under the FSPTCA could have a
material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria and its
tobacco subsidiaries in various ways. For example, actions by the FDA could:
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impact the consumer acceptability of tobacco products;
delay, discontinue or prevent the sale or distribution of existing, new or modified tobacco products;
limit adult tobacco consumer choices;
impose restrictions on communications with adult tobacco consumers;
create a competitive advantage or disadvantage for certain tobacco companies;
impose additional manufacturing, labeling or packaging requirements;
impose additional restrictions at retail;
result in increased illicit trade in tobacco products; and/or
otherwise significantly increase the cost of doing business.
The failure to comply with FDA regulatory requirements, even inadvertently, and FDA enforcement actions also could have a material
adverse effect on the business of our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or
financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.
The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco, cigar and pipe tobacco manufacturers and importers
to pay for the cost of regulation and other matters. The FSPTCA does not impose user fees on e-vapor or oral nicotine pouch
manufacturers. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA user fees and then
among manufacturers and importers within each respective category based on their relative market shares, all as prescribed by the
FSPTCA and FDA regulations. Payments for user fees are adjusted for several factors, including inflation, market share and industry
volume. For a discussion of the impact of the FDA user fee payments on Altria, see Debt and Liquidity - Payments Under State
Settlement Agreements and FDA Regulation below. In addition, compliance with the FSPTCA’s regulatory requirements has resulted,
and will continue to result, in additional costs for Altria’s tobacco businesses. The amount of additional compliance and related costs
has not been material in any given quarter or year to date period but could become material, either individually or in the aggregate, to
one or more of Altria’s tobacco subsidiaries.
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Investigation and Enforcement: The FDA has a number of investigatory and enforcement tools available to it, including
document requests and other required information submissions, facility inspections, examinations and investigations, injunction
proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. Investigations or enforcement actions
could result in significant costs or otherwise have a material adverse effect on the business of our tobacco subsidiaries and investees, and
the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely
affecting the value of Altria’s investment in JUUL.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Excise Taxes
Tobacco products are subject to substantial excise taxes in the U.S. Significant increases in tobacco-related taxes or fees have been
proposed or enacted (including with respect to e-vapor products) and are likely to continue to be proposed or enacted at the federal, state
and local levels within the U.S., including as a result of the COVID-19 pandemic as a way for governments to address potential budget
shortfalls. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of
executive and legislative bodies.
Federal, state and local cigarette excise taxes have increased substantially over the past two decades, far outpacing the rate of inflation.
Between the end of 1998 and February 22, 2021, the weighted-average state cigarette excise tax increased from $0.36 to $1.87 per pack.
As of February 22, 2021, one state, Maryland, has enacted new legislation increasing cigarette excise taxes in 2021, but various
increases are under consideration or have been proposed.
A majority of states currently tax MST using an ad valorem method, which is calculated as a percentage of the price of the product,
typically the wholesale price. This ad valorem method results in more tax being paid on premium products than is paid on lower-priced
products of equal weight. Altria’s subsidiaries support legislation to convert ad valorem taxes on MST to a weight-based methodology
because, unlike the ad valorem tax, a weight-based tax subjects cans of equal weight to the same tax. As of February 22, 2021, the
federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax
methodology for MST.
An increasing number of states and localities also are imposing excise taxes on e-vapor and oral nicotine pouches. As of February 22,
2021, 28 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor
products. These taxes are calculated in varying ways and may differ based on the e-vapor product form. Similarly, 10 states and the
District of Columbia have enacted legislation to tax oral nicotine pouches. Tax increases could have an adverse impact on the sales of
these products.
Tax increases are expected to continue to have an adverse impact on sales of cigarettes and MST products of Altria’s tobacco
subsidiaries through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium
or discount segments, or to counterfeit and contraband products. Such shifts may have an adverse impact on the sales volume and
reported share performance of cigarettes and MST products of Altria’s tobacco subsidiaries.
International Treaty on Tobacco Control
The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. As of
February 22, 2021, 181 countries, as well as the European Community, have become parties to the FCTC. While the U.S. is a signatory
of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the United States
Senate. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation
with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances,
requires) signatory nations to enact legislation that would address various tobacco-related issues.
There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial
restrictions on the manufacture, marketing, distribution and sale of tobacco products. It is not possible to predict the outcome of these
proposals or the impact of any FCTC actions on legislation or regulation in the U.S., either indirectly or as a result of the U.S. becoming
a party to the FCTC, or whether or how these actions might indirectly influence FDA regulation and enforcement.
State Settlement Agreements
As discussed in Note 18, during 1997 and 1998, PM USA and other major domestic cigarette manufacturers entered into the State
Settlement Agreements. These settlements require participating manufacturers to make substantial annual payments, which are adjusted
for several factors, including inflation, operating income, market share and industry volume. For a discussion of the impact of the State
Settlement Agreements on Altria, see Debt and Liquidity - Payments Under State Settlement Agreements and FDA Regulation below and
Note 18. The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business
operations, including prohibitions and restrictions on the advertising and marketing of cigarettes and smokeless tobacco products.
Among these are prohibitions of outdoor and transit brand advertising, payments for product placement and free sampling (except in
adult-only facilities). The State Settlement Agreements also place restrictions on the use of brand name sponsorships and brand name
non-tobacco products and prohibitions on targeting youth and the use of cartoon characters. In addition, the State Settlement
Agreements require companies to affirm corporate principles directed at reducing underage use of cigarettes; impose requirements
regarding lobbying activities; mandate public disclosure of certain industry documents; limit the industry’s ability to challenge certain
tobacco control and underage use laws; and provide for the dissolution of certain tobacco-related organizations and place restrictions on
the establishment of any replacement organizations.
In November 1998, USSTC entered into the Smokeless Tobacco Master Settlement Agreement (the “STMSA”) with the attorneys
general of various states and U.S. territories to resolve the remaining health care cost reimbursement cases initiated against USSTC. The
STMSA required USSTC to adopt various marketing and advertising restrictions. USSTC is the only smokeless tobacco manufacturer
to sign the STMSA.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Other International, Federal, State and Local Regulation and Governmental and Private Activity
International, Federal, State and Local Regulation: A number of states and localities have enacted or proposed legislation
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that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine
pouches), such as legislation that (1) prohibits the sale of tobacco product categories, such as e-vapor, (2) prohibits the sale of tobacco
products with certain characterizing flavors, such as menthol cigarettes, (3) requires the disclosure of health information separate from or
in addition to federally mandated health warnings and (4) restricts commercial speech or imposes additional restrictions on the marketing
or sale of tobacco products (including proposals to ban all tobacco product sales). The legislation varies in terms of the type of tobacco
products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or
prohibitions. For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with
characterizing flavors without providing an exception for mint- or wintergreen-flavored products. As of February 22, 2021, 19 states
and the District of Columbia have proposed legislation to ban flavors in one or more tobacco products, and five states, California,
Massachusetts, New Jersey, Utah and New York, have passed such legislation. Some of these states, such as New York and Utah,
exempt certain products that have received FDA market authorization through the PMTA pathway. The legislation in California bans
the sale of most tobacco products with characterizing flavors, including menthol, mint and wintergreen. Following enactment of the
flavor ban in August 2020, several registered California voters filed a referendum against the legislation. In January 2021 the requisite
number of registered California voters (over 600,000 registered voters were required) signed a petition to place the question of whether
the legislation should be affirmed or overturned on the next statewide general election ballot, which will likely take place in 2022 unless
a special statewide election is called earlier. As a result, the implementation of the legislation is delayed until after a vote on the
referendum occurs. Altria’s tobacco operating companies, in conjunction with other companies, funded this referendum effort.
Additionally, in October 2020, Altria’s tobacco operating companies, along with several other parties including R.J. Reynolds, filed a
lawsuit challenging the flavor ban and seeking to enjoin its implementation. Massachusetts passed legislation capping the amount of
nicotine in e-vapor products. Similar legislation is pending in three other states.
Restrictions on e-vapor products also have been instituted or proposed internationally. For example, India and Singapore have instituted
bans on e-vapor products.
Altria’s tobacco subsidiaries have challenged and will continue to challenge certain federal, state and local legislation and other
governmental action, including through litigation. It is possible, however, that legislation, regulation or other governmental action could
be enacted or implemented that could have a material adverse impact on the business and volume of our tobacco subsidiaries and
investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including
adversely affecting the value of Altria’s investment in JUUL.
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Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products: After a number of states
and localities proposed and enacted legislation to increase the minimum age to purchase all tobacco products, including e-vapor
products, in December 2019, the federal government passed legislation increasing the minimum age to purchase all tobacco products,
including e-vapor products, to 21 nationwide. Although an increase in the minimum age to purchase tobacco products may have a
negative impact on sales volume of our tobacco businesses, as discussed above under Underage Access and Use of Certain Tobacco
Products, Altria supported raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels, reflecting
its longstanding commitment to combat underage use.
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Health Effects of Tobacco Products, Including E-vapor Products: Reports with respect to the health effects of smoking
have been publicized for many years, including various reports by the U.S. Surgeon General. In 2019, there were public health
advisories concerning vaping-related lung injuries and deaths and, more recently, there have been health concerns raised about potential
increased risks associated with COVID-19 among smokers and vapers. Altria and its tobacco subsidiaries believe that the public should
be guided by the messages of the U.S. Surgeon General and public health authorities worldwide in making decisions concerning the use
of tobacco products.
Most jurisdictions within the U.S. have restricted smoking in public places and some have restricted vaping in public places. Some
public health groups have called for, and various jurisdictions have adopted or proposed, bans on smoking and vaping in outdoor places,
in private apartments and in cars transporting children. It is not possible to predict the results of ongoing scientific research or the types
of future scientific research into the health risks of tobacco exposure and the impact of such research on legislation and regulation.
Other Legislation or Governmental Initiatives: In addition to the actions discussed above, other regulatory initiatives
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affecting the tobacco industry have been adopted or are being considered at the federal level and in a number of state and local
jurisdictions. For example, amid the COVID-19 pandemic, state and local governments have required additional health and safety
requirements of all businesses, including tobacco manufacturing and other facilities. State and local governments also have mandated
the temporary closure of some businesses. It is possible that tobacco manufacturing and other facilities could be subject to these
government-mandated temporary closures. Additionally, in recent years, legislation has been introduced or enacted at the state or local
level to subject tobacco products to various reporting requirements and performance standards; establish educational campaigns relating
to tobacco consumption or tobacco control programs or provide additional funding for governmental tobacco control activities; restrict
the sale of tobacco products in certain retail establishments and the sale of tobacco products in certain package sizes; require tax
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM stamping of smokeless tobacco products; require the use of state tax stamps using data encryption technology; and further restrict the
sale, marketing and advertising of cigarettes and other tobacco products. Such legislation may be subject to constitutional or other
challenges on various grounds, which may or may not be successful.
It is not possible to predict what, if any, additional legislation, regulation or other governmental action will be enacted or implemented
(and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or
the tobacco industry generally. It is possible, however, that legislation, regulation or other governmental action could be enacted or
implemented that could have a material adverse impact on the business and volume of our tobacco subsidiaries and investees, and the
consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting
the value of Altria’s investment in JUUL.
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Governmental Investigations: From time to time, Altria, its subsidiaries and investees are subject to governmental
investigations on a range of matters. For example: (i) the FTC issued a Civil Investigative Demand (“CID”) to Altria while conducting
its antitrust review of Altria’s investment in JUUL seeking information regarding, among other things, Altria’s role in the resignation of
JUUL’s former chief executive officer and the hiring by JUUL of any current or former Altria director, executive or employee; (ii) the
U.S. Securities and Exchange Commission (“SEC”) commenced an investigation relating to Altria’s acquisition, disclosures and
accounting controls in connection with the JUUL investment; and (iii) the New York State Office of the Attorney General issued a
subpoena to Altria seeking documents relating to Altria’s investment in and provision of services to JUUL. Additionally, JUUL is
currently under investigation by various federal and state agencies, including the SEC, the FDA and the FTC, and state attorneys
general. Such investigations vary in scope but at least some appear to include JUUL’s marketing practices; particularly as such practices
relate to youth, and Altria may be asked in the context of those investigations to provide information concerning its investment in JUUL
or relating to its marketing of Nu Mark LLC e-vapor products.
Private Sector Activity on E-Vapor
A number of retailers, including national chains, have discontinued the sale of e-vapor products. Reasons for the discontinuation include
reported illnesses related to e-vapor product use and the uncertain regulatory environment. It is possible that this private sector activity
could adversely affect the value of Altria’s investment in JUUL and have a material adverse effect on Altria’s consolidated financial
position or earnings.
Illicit Trade in Tobacco Products
Illicit trade in tobacco products can have an adverse impact on the businesses of Altria, its tobacco subsidiaries and investees. Illicit
trade can take many forms, including the sale of counterfeit tobacco products; the sale of tobacco products in the U.S. that are intended
for sale outside the country; the sale of untaxed tobacco products over the Internet and by other means designed to avoid the collection
of applicable taxes; and diversion into one taxing jurisdiction of tobacco products intended for sale in another. Counterfeit tobacco
products, for example, are manufactured by unknown third parties in unregulated environments. Counterfeit versions of our tobacco
subsidiaries’ and investees’ products can negatively affect adult tobacco consumer experiences with and opinions of those brands. Illicit
trade in tobacco products also harms law-abiding wholesalers and retailers by depriving them of lawful sales and undermines the
significant investment Altria’s tobacco subsidiaries and investees have made in legitimate distribution channels. Moreover, illicit trade
in tobacco products results in federal, state and local governments losing tax revenues. Losses in tax revenues can cause such
governments to take various actions, including increasing excise taxes; imposing legislative or regulatory requirements that may
adversely impact Altria’s consolidated results of operations and cash flows, including adversely affecting the value of Altria’s
investment in JUUL, and the businesses of its tobacco subsidiaries and investees; or asserting claims against manufacturers of tobacco
products or members of the trade channels through which such tobacco products are distributed and sold.
Altria’s tobacco subsidiaries communicate with wholesale and retail trade members regarding illicit trade in tobacco products and how
they can help prevent such activities; enforce wholesale and retail trade programs and policies that address illicit trade in tobacco
products and, when necessary, litigate to protect their trademarks.
Price, Availability and Quality of Tobacco, Other Raw Materials and Component Parts
Shifts in crops (such as those driven by economic conditions and adverse weather patterns), government restrictions and mandated
prices, economic trade sanctions, import duties and tariffs, geopolitical instability and production control programs may increase or
decrease the cost or reduce the supply or quality of tobacco and other raw materials or component parts used to manufacture our
companies’ products. Any significant change in the price, quality or availability of tobacco, other raw materials or component parts used
to manufacture our products could restrict our subsidiaries’ ability to continue marketing existing products or impact adult consumer
product acceptability and adversely affect our subsidiaries’ profitability and businesses.
With respect to tobacco, as with other agricultural commodities, crop quality and availability can be influenced by variations in weather
patterns, including those caused by climate change. Additionally, the price of tobacco leaf can be influenced by economic conditions
and imbalances in supply and demand. Economic conditions, including the economic effects of the COVID-19 pandemic, are
unpredictable, which, among other economic factors, may result in changes in the patterns of demand for agricultural products and the
cost of tobacco production which could impact tobacco leaf prices and tobacco supply. Tobacco production in certain countries also is
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM subject to a variety of controls, including government-mandated prices and production control programs. Moreover, certain types of
tobacco are only available in limited geographies, including geographies experiencing political instability or government prohibitions on
the import or export of tobacco, and loss of their availability could impair our subsidiaries’ ability to continue marketing existing
products or impact adult tobacco consumer product acceptability.
The COVID-19 pandemic also may limit access to and increase the cost of raw materials, component parts and personal protective
equipment as U.S. and global suppliers temporarily shut down facilities in order to address exposure to the virus or as a result of a
government mandate.
Timing of Sales
In the ordinary course of business, our tobacco subsidiaries are subject to many influences that can impact the timing of sales to
customers, including the timing of holidays and other annual or special events, the timing of promotions, customer incentive programs
and customer inventory programs, as well as the actual or speculated timing of pricing actions and tax-driven price increases.
Operating Results
Smokeable Products Segment
Financial Results
The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported
OCI to adjusted OCI for the smokeable products segment:
(in millions)
Net revenues
Excise taxes
Revenues net of excise taxes
Reported OCI
NPM adjustment items
Asset impairment, exit and implementation costs
Tobacco and health litigation items
COVID-19 special items
Adjusted OCI
Operating Results
For the Years Ended December 31,
2018
2019
2020
$ 23,089
(5,162)
$ 17,927
$ 21,996
(5,166)
$ 16,830
$ 22,297
(5,585)
$ 16,712
$ 9,985
4
2
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41
$ 10,111
$
$
9,009
—
92
72
—
9,173
$
$
8,408
(145)
83
103
—
8,449
Reported OCI margins (1)
Adjusted OCI margins (1)
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
55.7 %
56.4 %
53.5 %
54.5 %
50.3 %
50.6 %
2020 Compared with 2019
Net revenues, which include excise taxes billed to customers, increased $1,093 million (5.0%), due primarily to higher pricing ($1,152
million), which includes higher promotional investments.
Reported OCI increased $976 million (10.8%), due primarily to higher pricing ($1,134 million), which includes higher promotional
investments, lower costs ($153 million) and lower asset impairment, exit and implementation costs ($90 million), partially offset by
higher per unit settlement charges, COVID-19 special items ($41 million) and lower shipment volume ($35 million).
Adjusted OCI increased $938 million (10.2%), due primarily to higher pricing, which includes higher promotional investments, and
lower costs, partially offset by higher per unit settlement charges and lower shipment volume.
Marketing, administration and research costs for the smokeable products segment include PM USA’s cost of administering and litigating
product liability claims. Litigation defense costs are influenced by a number of factors, including the number and types of cases filed,
the number of cases tried annually, the results of trials and appeals, the development of the law controlling relevant legal issues, and
litigation strategy and tactics. For further discussion on these matters, see Note 18 and Item 3. For the years ended December 31, 2020
2019 and 2018, product liability defense costs for PM USA were $110 million, $151 million and $179 million, respectively. The
COVID-19 pandemic resulted in fewer trials in 2020, which is the primary factor for the reduced costs in 2020 compared to prior years.
While this trend may continue in 2021, PM USA expects product liability defense costs to return to amounts similar to 2019 and 2018
once regular trial activity resumes.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 2019 Compared with 2018
Net revenues, which include excise taxes billed to customers, decreased $301 million (1.3%), due primarily to lower shipment volume
($1,780 million), partially offset by higher pricing ($1,497 million), which includes lower promotional investments.
Reported OCI increased $601 million (7.1%), due primarily to higher pricing, which includes lower promotional investments, and lower
costs ($420 million), partially offset by lower shipment volume ($996 million), 2018 NPM Adjustment Items ($145 million) and higher
per unit settlement charges.
Adjusted OCI increased $724 million (8.6%), due primarily to higher pricing, which includes lower promotional investments, and lower
costs ($389 million), partially offset by lower shipment volume and higher per unit settlement charges.
Shipment Volume and Retail Share Results
The following table summarizes the smokeable products segment shipment volume performance:
(sticks in millions)
Cigarettes:
Marlboro
Other premium
Discount
Total cigarettes
Cigars:
Black & Mild
Other
Total cigars
Total smokeable products
Shipment Volume
For the Years Ended December 31,
2018
2019
2020
88,858
4,566
8,001
101,425
1,790
10
1,800
103,225
88,473
4,869
8,457
101,799
1,641
10
1,651
103,450
94,770
5,552
9,469
109,791
1,590
11
1,601
111,392
Note: Cigarettes shipment volume includes Marlboro; Other premium brands, such as Virginia Slims, Parliament, Benson & Hedges and Nat’s; and
Discount brands, which include L&M, Basic and Chesterfield. Cigarettes volume includes units sold as well as promotional units, but excludes units
sold for distribution to Puerto Rico, and units sold in U.S. Territories, to overseas military and by Philip Morris Duty Free Inc., none of which,
individually or in the aggregate, is material to the smokeable products segment.
The following table summarizes cigarettes retail share performance:
Retail Share
For the Years Ended December 31,
2019
2018
2020
Cigarettes:
Marlboro
Other premium
Discount
Total cigarettes
43.0 %
2.3
3.9
49.2 %
43.3 %
2.5
4.0
49.8 %
43.4 %
2.6
4.3
50.3 %
Note: Retail share results for cigarettes are based on data from IRI/Management Science Associates, Inc., a tracking service that uses a sample of stores
and certain wholesale shipments to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers,
convenience, military, dollar store and club trade classes. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers
to retailers through the Store Tracking Analytical Reporting System (“STARS”). This service is not designed to capture sales through other channels,
including the internet, direct mail and some illicitly tax-advantaged outlets. It is IRI’s standard practice to periodically refresh its services, which could
restate retail share results that were previously released in this service.
For a discussion of volume trends and factors that impact volume and retail share performance, see Tobacco Space - Business
Environment above.
2020 Compared with 2019
The smokeable products segment’s reported domestic cigarettes shipment volume decreased 0.4%, driven primarily by retail share losses
and other factors, partially offset by trade inventory movements and calendar differences. When adjusted for trade inventory movements
and calendar differences, the smokeable products segment’s domestic cigarettes shipment volume decreased by an estimated 2%. When
adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volumes were
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM unchanged versus the prior year.
Shipments of premium cigarettes accounted for 92.1% of the smokeable products segment’s reported domestic cigarettes shipment
volume for 2020, versus 91.7% for 2019.
Total cigarettes industry discount category retail share increased 0.3 share points to 24.5% in 2020 versus 2019.
Reported cigar shipment volume increased 9.0%.
2019 Compared with 2018
The smokeable products segment’s reported domestic cigarettes shipment volume decreased 7.3%, driven primarily by the industry’s
rate of decline, retail share losses, trade inventory movements and other factors. When adjusted for trade inventory movements and
other factors, the smokeable products segment’s domestic cigarettes shipment volume decreased by an estimated 7%. When adjusted for
trade inventory movements and other factors, total domestic cigarette industry volumes declined by an estimated 5.5%.
Shipments of premium cigarettes accounted for 91.7% of the smokeable products segment’s reported domestic cigarettes shipment
volume for 2019, versus 91.4% for 2018.
Total cigarettes industry discount category retail share was 24.2% in 2019, an increase of 0.4 percentage points versus 2018.
Reported cigar shipment volume increased 3.1%.
Pricing Actions
PM USA and Middleton executed the following pricing and promotional allowance actions during 2020, 2019 and 2018:
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Effective November 1, 2020 PM USA increased the list price on all of its cigarette brands by $0.13 per pack.
Effective June 21, 2020, PM USA increased the list price on all of its cigarette brands by $0.11 per pack.
Effective February 16, 2020, PM USA increased the list price on all of its cigarette brands by $0.08 per pack.
Effective January 12, 2020, Middleton increased various list prices across substantially all of its cigar brands resulting in a
weighted-average increase of approximately $0.08 per five-pack.
Effective October 20, 2019, PM USA increased the list price on all of its cigarette brands by $0.08 per pack.
Effective August 4, 2019, Middleton increased various list prices across substantially all of its cigar brands resulting in a
weighted-average increase of approximately $0.04 per five-pack.
Effective June 16, 2019, PM USA increased the list price on all of its cigarette brands by $0.06 per pack, except for L&M,
which had no list price change.
Effective February 24, 2019, PM USA increased the list price on Marlboro and L&M by $0.11 per pack and Parliament and
Virginia Slims by $0.16 per pack. In addition, PM USA increased the list price on all of its other cigarette brands by $0.31 per
pack.
Effective September 23, 2018, PM USA increased the list price on Marlboro and L&M by $0.10 per pack and Parliament and
Virginia Slims by $0.15 per pack. In addition, PM USA increased the list price on all of its other cigarette brands by $0.50 per
pack.
Effective May 6, 2018, Middleton increased various list prices across substantially all of its cigar brands resulting in a
weighted-average increase of approximately $0.11 per five-pack.
Effective March 25, 2018, PM USA increased the list price on all of its cigarette brands by $0.09 per pack.
In addition:
▪
▪
Effective January 24, 2021 PM USA increased the list price on all of its cigarette brands by $0.14 per pack.
Effective January 10, 2021, Middleton increased various list prices across substantially all of its cigar brands resulting in a
weighted-average increase of approximately $0.07 per five-pack.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Oral Tobacco Products Segment
Financial Results
The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported
OCI to adjusted OCI for the oral tobacco products segment:
(in millions)
Net revenues
Excise taxes
Revenues net of excise taxes
Reported OCI
Asset impairment, exit, implementation and acquisition-related costs
Tobacco and health litigation items
COVID-19 special items
Adjusted OCI
Operating Results
For the Years Ended December 31,
2018
2019
2020
$ 2,533
(130)
$ 2,403
$ 1,718
(3)
—
9
$ 1,724
$
$
$
$
2,367
(127)
2,240
1,580
26
—
—
1,606
$
$
$
$
2,262
(131)
2,131
1,431
23
10
—
1,464
67.2 %
68.7 %
Reported OCI margins (1)
Adjusted OCI margins (1)
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
71.5 %
71.7 %
70.5 %
71.7 %
2020 Compared with 2019
Net revenues, which include excise taxes billed to customers, increased $166 million (7.0%), due primarily to higher pricing ($128
million), which includes higher promotional investments (including investments in on!), and higher shipment volume ($33 million).
Reported OCI increased $138 million (8.7%), due primarily to higher pricing, which includes higher promotional investments, higher
shipment volume ($22 million) and 2019 asset impairment, exit, implementation and acquisition-related costs ($26 million), partially
offset by higher costs (including investments in on!).
Adjusted OCI increased $118 million (7.3%), due primarily to higher pricing, which includes higher promotional investments, and
higher shipment volume, partially offset by higher costs (including investments in on!).
2019 Compared with 2018
Net revenues, which include excise taxes billed to customers, increased $105 million (4.6%), due primarily to higher pricing ($197
million), which includes lower promotional investments, partially offset by lower shipment volume ($98 million).
Reported OCI increased $149 million (10.4%), due primarily to higher pricing, which includes lower promotional investments, and
lower costs, partially offset by lower shipment volume ($87 million).
Adjusted OCI increased $142 million (9.7%), due primarily to higher pricing, which includes lower promotional investments, and lower
costs, partially offset by lower shipment volume.
Shipment Volume and Retail Share Results
Oral tobacco products segment’s shipment volumes and estimated industry shipment volumes for the current and comparable periods
include MST, snus and oral nicotine pouch products. The following table summarizes oral tobacco products segment shipment volume
performance:
(cans and packs in millions)
Copenhagen
Skoal
Other (includes Red Seal and on!)
Total oral tobacco products
Shipment Volume
For the Years Ended December 31,
2020
522.4
208.5
88.7
819.6
2019
522.2
217.8
69.7
809.7
2018
531.7
231.1
69.8
832.6
Note: Oral tobacco products shipment volume includes cans and packs sold, as well as promotional units, but excludes international volume, which is
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM currently not material to the oral tobacco products segment. New types of oral tobacco products, as well as new packaging configurations of existing
oral tobacco products, may or may not be equivalent to existing MST products on a can-for-can basis. To calculate volumes of cans and packs shipped,
one pack of snus or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed to be equivalent to one can of
MST.
In the first quarter of 2020, Altria’s smokeless products segment was renamed the oral tobacco products segment. Prior to 2020, the
smokeless products segment retail share performance and category industry volume estimates included MST and snus products, but
excluded oral nicotine pouch products. Altria has restated prior period retail share performance data and estimated category industry
volume to reflect the inclusion of oral nicotine pouch products. The following table summarizes oral tobacco products segment retail
share performance (excluding international volume):
Copenhagen
Skoal
Other (includes Red Seal and on!)
Total oral tobacco products
Retail Share
For the Years Ended December 31,
2020
31.9 %
13.8
4.1
49.8 %
2019
33.9 %
15.0
3.6
52.5 %
2018
34.4 %
15.9
3.4
53.7 %
Note: Retail share results for oral tobacco products are based on data from IRI InfoScan, a tracking service that uses a sample of stores to project market
share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes
on the number of cans and packs sold. Oral tobacco products is defined by IRI as MST, snus and oral nicotine pouches. New types of oral tobacco
products, as well as new packaging configurations of existing oral tobacco products, may or may not be equivalent to existing MST products on a can-
for-can basis. For example, one pack of snus or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed
to be equivalent to one can of MST. Because this service represents retail share performance only in key trade channels, it should not be considered a
precise measurement of actual retail share. It is IRI’s standard practice to periodically refresh its InfoScan services, which could restate retail share
results that were previously released in this service.
For a discussion of volume trends and factors that impact volume and retail share performance, see Tobacco Space - Business
Environment above.
2020 Compared with 2019
The oral tobacco products segment’s reported domestic shipment volume increased 1.2%, driven primarily by the industry’s growth rate,
calendar differences and other factors, partially offset by retail share losses (primarily due to the growth of oral nicotine pouches) and
trade inventory movements. When adjusted for calendar differences, trade inventory movements and other factors, the oral tobacco
products segment’s reported domestic shipment volume increased by an estimated 1%.
The oral tobacco products category industry volume increased an estimated 6% over the six months ended December 31, 2020, primarily
driven by growth in oral nicotine pouches.
The oral tobacco products segment’s retail share was 49.8% for 2020, and Copenhagen continued to be the leading oral tobacco brand
with retail share of 31.9% for 2020. Share losses for both the segment and Copenhagen were due to the growth of oral nicotine pouches.
on! is now available in approximately 78,000 stores as of the end of 2020, which is more than five times the store count from the end of
2019. In stores with distribution, on! achieved a retail share of 2.4 percentage points of the oral tobacco category for full-year 2020.
Helix expects unconstrained on! manufacturing capacity for the U.S. market by mid-year 2021.
2019 Compared with 2018
The oral tobacco products segment’s reported domestic shipment volume declined 2.8%, driven primarily by retail share losses, calendar
differences, and other factors, partially offset by industry growth and trade inventory movements. When adjusted for trade inventory
movements and calendar differences, the oral tobacco products segment’s domestic shipment volume declined 2.5%.
The oral tobacco products category industry volume increased an estimated 3% over the six months ended December 31, 2019, primarily
driven by growth in oral nicotine pouches.
Pricing Actions
USSTC executed the following pricing actions during 2020, 2019 and 2018:
▪
▪
Effective October 20, 2020, USSTC increased the list price on its Skoal Blend products by $0.15 per can. USSTC also
increased the list price on its Husky and Red Seal brands and its Copenhagen and Skoal popular price products by $0.08 per can.
In addition, USSTC increased the list price on the balance of its Copenhagen and Skoal products by $0.07 per can.
Effective July 21, 2020, USSTC increased the list price on its Skoal Blend products by $0.15 per can. USSTC also increased
the list price on its Husky, Red Seal and Copenhagen brands and the balance of its Skoal products by $0.07 per can.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
▪
▪
▪
▪
▪
Effective February 18, 2020, USSTC increased the list price on its Skoal X-TRA products by $0.56 per can. USSTC also
increased the list price on its Skoal Blend products by $0.16 cents per can and increased the list price on its Husky, Red Seal and
Copenhagen brands and the balance of its Skoal products by $0.07 per can.
Effective October 22, 2019, USSTC increased the list price on its Skoal X-TRA products and select Copenhagen products by
$0.09 per can. USSTC also increased the list price on its Husky and Red Seal brands and the balance of its Copenhagen and
Skoal products by $0.04 per can.
Effective July 23, 2019, USSTC increased the list price on its Skoal X-TRA products and select Copenhagen products by $0.08
per can. USSTC also increased the list price on its Husky and Red Seal brands and the balance of its Copenhagen and Skoal
products by $0.03 per can.
Effective April 30, 2019, USSTC increased the list price on its Skoal X-TRA products and select Copenhagen products by
$0.17 per can. USSTC also increased the list price on its Husky and Red Seal brands and its Copenhagen and Skoal popular
price products by $0.12 per can. In addition, USSTC increased the list price on the balance of its Copenhagen and Skoal
products by $0.07 per can.
Effective November 20, 2018, USSTC increased the list price on its Skoal X-TRA products and select Copenhagen products by
$0.17 per can. USSTC also increased the list price on its Husky brand and on the balance of its Copenhagen and Skoal products
by $0.07 per can. In addition, USSTC decreased the price on its Red Seal brand by $0.08 per can.
Effective June 5, 2018, USSTC increased the list price on all its brands by $0.07 per can.
In addition:
▪
Effective March 2, 2021, USSTC increased the list price on its Skoal Blend products by $0.16 per can. USSTC also increased
the list price on its Husky, Red Seal and Copenhagen brands and the balance of its Skoal products by $0.08 per can.
Wine Segment
Business Environment
Ste. Michelle is a producer and supplier of premium varietal and blended table wines and of sparkling wines. Ste. Michelle is a leading
producer of Washington state wines, primarily Chateau Ste. Michelle and 14 Hands, and owns wineries in or distributes wines from
several other domestic and foreign wine regions. Ste. Michelle holds an 85% ownership interest in Michelle-Antinori, LLC, which owns
Stag’s Leap Wine Cellars in Napa Valley. Ste. Michelle also owns Conn Creek in Napa Valley, Patz & Hall in Sonoma and Erath in
Oregon. In addition, Ste. Michelle imports and markets Antinori wine and Champagne Nicolas Feuillatte products in the United States.
Ste. Michelle works to meet evolving adult consumer preferences over time by developing, marketing and distributing products through
innovation.
Ste. Michelle’s business is subject to significant competition, including competition from many larger, well-established domestic and
international companies, as well as from many smaller wine producers. Wine segment competition is primarily based on quality, price,
consumer and trade wine tastings, competitive wine judging, third-party acclaim and advertising. Substantially all of Ste. Michelle’s
sales occur in the United States through state-licensed distributors. Ste. Michelle also sells to domestic consumers through retail and e-
commerce channels and exports wines to international distributors.
Adult consumer preferences among alcohol categories and within the wine category can shift due to a variety of factors, including
changes in taste preferences, demographics or social trends, and changes in leisure, dining and beverage consumption patterns and
economic conditions. Evolving adult consumer preferences pose strategic challenges for Ste. Michelle, which has seen slowing growth
in the wine category and increases in inventory levels in recent periods. Ste. Michelle has been experiencing product volume demand
uncertainty, which was further negatively impacted in 2020 by the COVID-19 pandemic (including economic uncertainty and
government actions that restrict direct-to-consumer sales and on-premise sales).
As a result of wine inventory levels significantly exceeding forecasted demand in 2020, Ste. Michelle recorded pre-tax charges of $411
million in 2020. The charges primarily included (i) a $292 million inventory write off in the first quarter of 2020, (ii) estimated losses of
$100 million on future non-cancelable grape purchase commitments recorded in the first quarter of 2020 and (iii) inventory disposal
costs and other charges of $19 million in 2020. For further discussion see Asset Impairment, Exit and Implementation Costs in Note 5.
Evolving adult consumer preferences, the current economic downturn, an extended disruption in on-premise sales or facility shutdowns,
either voluntary or government-mandated, could result in a further slowdown in the wine category and otherwise have a material adverse
effect on Ste. Michelle’s wine business, the consolidated results of operations, cash flows or financial position of Ste. Michelle.
As with other agricultural commodities, grape quality and availability can be influenced by plant disease and infestation, as well as by
variations in weather patterns, such as fires and smoke damage from fires, including those caused by climate change. For example, in
2019, freezing temperatures reduced grape production and resulted in fewer grapes being available to Ste. Michelle. Additionally, Ste.
Michelle experienced some impact from the fires in the western United States during 2020.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Federal, state and local governmental agencies regulate the beverage alcohol industry through various means, including licensing
requirements, pricing rules, labeling and advertising restrictions, and distribution and production policies. Further regulatory restrictions
or additional excise or other taxes on the manufacture and sale of alcoholic beverages could have an adverse effect on Ste. Michelle’s
wine business.
Operating Results
The following table summarizes operating results, includes reported and adjusted OCI margins and provides a reconciliation of reported
OCI to adjusted OCI for the wine segment:
(in millions)
Net revenues
Excise taxes
Revenues net of excise taxes
Reported OCI (Loss)
Asset impairment, exit and implementation costs
Adjusted OCI
Operating Results
For the Years Ended December 31,
2018
2019
2020
$
$
$
$
614
(19)
595
(360)
411
51
$
$
$
$
689
(21)
668
(3)
76
73
$
$
$
$
691
(21)
670
50
54
104
7.5 %
15.5 %
Reported OCI margins (1)
Adjusted OCI margins (1)
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
(60.5) %
8.6 %
(0.4) %
10.9 %
2020 Compared with 2019
Net revenues, which include excise taxes billed to customers, decreased $75 million (10.9%), due primarily to lower shipment volume,
partially offset by higher pricing, which includes lower promotional investments.
Reported OCI decreased $357 million (100.0%+), due primarily to 2020 inventory-related charges discussed above (included in
implementation costs and charged to cost of sales) and lower shipment volume, partially offset by 2019 impairment of wine segment
goodwill and higher pricing, which includes lower promotional investments.
Adjusted OCI decreased $22 million (30.1%), due primarily to lower shipment volume, partially offset by higher pricing, which includes
lower promotional investments.
For 2020, Ste. Michelle’s reported wine shipment volume of 7,300 thousand cases decreased 12.0%.
2019 Compared with 2018
Net revenues, which include excise taxes billed to customers, were essentially unchanged as higher promotional investments were
mostly offset by higher shipment volume and favorable premium mix.
Reported OCI (Loss) decreased $53 million (100.0%+), due primarily to the 2019 impairment of the wine segment goodwill ($74
million), higher costs and higher promotional investments, partially offset by the 2018 impairment of the Columbia Crest trademark ($54
million).
Adjusted OCI decreased $31 million (29.8%), due primarily to higher costs and higher promotional investments.
For 2019, Ste. Michelle’s reported wine shipment volume of 8,294 thousand cases increased 0.6%.
Financial Review
Cash Provided by/Used in Operating Activities
During 2020, net cash provided by operating activities was $8.4 billion compared with $7.8 billion during 2019. This increase was due
primarily to the following:
▪
▪
▪
higher net revenues in the smokeable products and oral tobacco products segments;
lower payments as a result of savings from the cost reduction program announced in December 2018; and
lower payments for tobacco and health litigation items;
partially offset by:
▪
higher income tax payments;
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
▪
higher long-term debt interest payments; and
lower dividends received from ABI in 2020.
During 2019, net cash provided by operating activities was $7.8 billion compared with $8.4 billion during 2018. This decrease was due
primarily to the following:
▪
▪
▪
lower payments of settlement charges in 2018;
lower dividends received from ABI; and
higher payments of interest on long-term debt in 2019;
partially offset by:
▪
▪
lower costs as a result of the cost reduction program announced in December 2018, net of cash paid under this program in 2019;
and
lower federal income tax payments in 2019.
Altria had a working capital deficit at December 31, 2020 and 2019. Altria’s management believes that Altria has the ability to fund
working capital deficits with cash provided by operating activities and borrowings through its access to credit and capital markets, as
discussed in the Debt and Liquidity section below.
Cash Provided by/Used in Investing Activities
During 2020, net cash used in investing activities was $0.1 billion compared with $2.4 billion during 2019. This decrease was due
primarily to the investment in Cronos in 2019 and Helix’s 2019 acquisition of the Burger Group.
During 2019, net cash used in investing activities was $2.4 billion compared with $13.0 billion during 2018. This decrease was due
primarily to the following:
▪
Altria’s $12.8 billion investment in JUUL in 2018;
partially offset by:
▪
▪
Altria’s $1.9 billion investment in Cronos in 2019; and
Helix’s acquisition of the Burger Group in 2019.
Capital expenditures for 2020 decreased 6.1% to $231 million. Capital expenditures for 2021 are expected to be in the range of $200
million to $250 million, and are expected to be funded from operating cash flows.
Cash Provided by/Used in Financing Activities
During 2020, net cash used in financing activities was $5.4 billion compared with $4.7 billion during 2019. This increase was due
primarily to the following:
▪
▪
proceeds of $16.3 billion from the issuance of long-term senior unsecured notes in 2019; and
higher dividends paid in 2020;
partially offset by:
▪
▪
▪
▪
repayments of $12.8 billion of short-term borrowings in 2019;
proceeds of $2.0 billion from the issuance of long-term senior unsecured notes in 2020;
repurchases of common stock in 2019; and
lower repayments of long-term debt at maturity in 2020.
During 2019, net cash used in financing activities was $4.7 billion compared with net cash provided by financing activities of $4.7
billion during 2018. This change was due primarily to the following:
▪
▪
▪
▪
proceeds of $12.8 billion from short-term borrowings in 2018;
repayments of $12.8 billion of short-term borrowings in 2019;
higher dividends paid during 2019; and
higher repayments of long-term debt at maturity in 2019;
partially offset by:
▪
▪
proceeds of $16.3 billion from the issuance of long-term senior unsecured notes during 2019; and
lower repurchases of common stock during 2019.
Debt and Liquidity
Source of Funds - Altria is a holding company. As a result, its 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. In addition, Altria receives cash dividends on its interest in ABI and will continue to do so as long as ABI pays dividends.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Credit Ratings - Altria’s cost and terms of financing and its access to commercial paper markets may be impacted by applicable credit
ratings. The impact of credit ratings on the cost of borrowings under Altria’s Credit Agreement is discussed in Note 8. Short-Term
Borrowings and Borrowing Arrangements to the consolidated financial statements in Item 8 (“Note 8”).
At December 31, 2020, the credit ratings and outlook for Altria’s indebtedness by major credit rating agencies were:
Moody’s Investors Service, Inc. (“Moody’s”)
Standard & Poor’s Ratings Services (“Standard & Poor’s”)
Fitch Ratings Ltd. (“Fitch”)
Short-term Debt
Long-term Debt
P-2
A-2
F2
A3
BBB
BBB
Outlook
Stable (1)
Stable
Stable
(1) On May 1, 2020, Moody’s changed the outlook for Altria to Stable from Negative.
Credit Lines - From time to time, Altria has short-term borrowing needs to meet its working capital requirements and generally uses its
commercial paper program to meet those needs.
Altria’s Credit Agreement, which is used for general corporate purposes, had $3.0 billion available at December 31, 2020.
At December 31, 2020, Altria was in compliance with its covenants associated with the Credit Agreement, and expects to continue to
meet its covenants associated with the Credit Agreement.
For further details on short-term borrowings, see Note 8.
Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA. For further discussion,
see Supplemental Guarantor Financial Information below and Note 9. Long-Term Debt to the consolidated financial statements in Item
8 (“Note 9”).
Financial Market Environment - Altria believes it has adequate liquidity and access to financial resources to meet its anticipated
obligations and ongoing business needs in the foreseeable future. Altria monitors the credit quality of its bank group and is not aware of
any potential non-performing credit provider in that group.
Investment in ABI - In 2020, ABI’s proactive actions to preserve financial flexibility and commitment to its long-term deleveraging
initiative included a 50% reduction to its final 2019 dividend paid in the second quarter of 2020 and a decision to forgo its interim 2020
dividend that would have been paid in the fourth quarter of 2020. Altria does not expect changes in cash dividends it receives from ABI
to have a material impact on its consolidated financial position, liquidity or earnings.
COVID-19 Pandemic - Due to the uncertainty surrounding the COVID-19 pandemic, including its duration, severity and ultimate overall
impact on the global and U.S. economies and the businesses of Altria’s operating companies, Altria maintained a higher than normal
cash balance during 2020 to preserve its financial flexibility. Altria took the following actions to increase its cash position:
▪
▪
issued $2.0 billion of long-term senior unsecured notes in May 2020; and
did not repurchase any shares during 2020 (in April 2020, the Board of Directors rescinded the $500 million remaining in the
$1.0 billion share repurchase program).
In January 2021, the Board of Directors authorized a new $2.0 billion share repurchase program, which Altria expects to complete by
June 30, 2022. 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 of Directors.
Debt - At December 31, 2020 and 2019, Altria’s total debt was $29.5 billion and $28.0 billion, respectively. The increase in debt was
primarily due to Altria’s May 2020 issuance of long-term senior unsecured notes in the aggregate principal amount of $2.0 billion and
the changes in the carrying value of the foreign currency denominated debt due to changes in the Euro to USD exchange rate, partially
offset by the repayment in full of $1.0 billion of senior unsecured notes at scheduled maturity in January 2020.
All of Altria’s long-term debt outstanding at December 31, 2020 and 2019 was fixed-rate debt. The weighted-average coupon interest
rate on total long-term debt was approximately 4.1% and 4.2% at December 31, 2020 and 2019, respectively.
On February 1, 2021, Altria commenced a series of debt-related transactions to reduce the near-term maturity towers and extend the
weighted average maturity of its debt. The transactions are described in further detail below.
▪
Tender Offers - On February 1, 2021, Altria commenced cash tender offers (the “Tender Offers”) for an aggregate purchase
price of up to $3.65 billion in respect of certain of its outstanding long-term senior unsecured notes (the “Tender Notes”). On
February 16, 2021, the Tender Offers were amended to increase the aggregate purchase price. The Tender Offers will expire on
March 1, 2021, unless extended or earlier terminated. The results of the Tender Offers are discussed below.
On February 18, 2021, Altria paid approximately $4.6 billion to purchase the Tender Notes (aggregate principal amount of
approximately $4.0 billion) validly tendered and not validly withdrawn at or prior to February 12, 2021 that it had accepted for
purchase in the Tender Offers. Altria does not intend to accept any additional Tender Notes for purchase in the Tender Offers.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The principal amounts of Tender Notes purchased by Altria were:
(in millions)
2.850% Notes due 2022
2.950% Notes due 2023
4.000% Notes due 2024
3.800% Notes due 2024
4.400% Notes due 2026
4.800% Notes due 2029
9.950% Notes due 2038
10.200% Notes due 2039
6.200% Notes due 2059
Principal Amount of
Tender Notes
Purchased
795
132
624
655
430
1,094
65
18
229
4,042
$
$
▪
▪
Issuance of New Notes - On February 4, 2021, Altria issued long-term senior unsecured notes in the aggregate principal amount
of $5.5 billion (the “Notes”). The net proceeds from the issuance of the Notes were used (i) to fund the purchase of the Tender
Notes accepted for purchase in the Tender Offers and the payment of related fees and expenses, (ii) to fund the Redemption
described below and (iii) for other general corporate purposes.
Altria’s obligations under the Notes are fully and unconditionally guaranteed by PM USA. The Notes contain the following
terms:
▪
▪
▪
▪
$1.75 billion at 2.450%, due 2032, interest payable semiannually beginning August 4, 2021;
$1.50 billion at 3.400%, due 2041, interest payable semiannually beginning August 4, 2021;
$1.25 billion at 3.700%, due 2051, interest payable semiannually beginning August 4, 2021; and
$1.00 billion at 4.000%, due 2061, interest payable semiannually beginning August 4, 2021.
Redemption of Notes - On February 4, 2021, Altria exercised its optional redemption rights to redeem all of its outstanding
3.490% Notes due 2022 in an aggregate principal amount of $1.0 billion (the “Redemption”). Altria paid the Redemption on
February 19, 2021.
Altria will record a one-time, pre-tax charge against reported earnings in the first quarter of 2021 of approximately $645 million, or an
estimated $0.27 per share, reflecting the loss on early extinguishment of debt related to the Tender Offers and the Redemption, which
includes estimated premiums and fees, and write-off of unamortized debt discounts and debt issue costs.
For further details on long-term debt, see Note 9.
In October 2020, Altria filed a registration statement on Form S-3 with the SEC, under which Altria may offer debt securities or warrants
to purchase debt securities from time to time over a three-year period from the date of filing.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Altria has no off-balance sheet arrangements, including special purpose entities, other than guarantees and contractual obligations that
are discussed below.
Guarantees and Other Similar Matters - As discussed in Note 18, Altria and certain of its subsidiaries had unused letters of credit
obtained in the ordinary course of business, guarantees (including third-party guarantees) and a redeemable noncontrolling interest
outstanding at December 31, 2020. From time to time, subsidiaries of Altria also issue lines of credit to affiliated entities. In addition,
as discussed below in Supplemental Guarantor Financial Information and in Note 9, PM USA has issued guarantees relating to Altria’s
obligations under its outstanding debt securities, borrowings under the Credit Agreement and amounts outstanding under the commercial
paper program. These items have not had, and are not expected to have, a significant impact on Altria’s liquidity. For further discussion
regarding Altria’s liquidity, see the Debt and Liquidity section above.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Aggregate Contractual Obligations - The following table summarizes Altria’s contractual obligations at December 31, 2020:
(in millions)
Long-term debt (1)
Interest on borrowings (2)
Operating leases (3)
Purchase obligations: (4)
Payments Due
$
Total
29,701 $
17,774
182
2021
1,500 $
1,191
45
2022 - 2023
2024 - 2025
4,777 $
2,200
56
4,066 $
1,932
20
2026 and
Thereafter
19,358
12,451
61
$
54,366 $
3,997
665
4,662
2,047
Other long-term liabilities (5)
650
—
650
168
6,836 $
1,363
127
1,490
150
8,673 $
1,095
538
1,633
79
4,448 $
Inventory and production costs
Other
889
—
889
1,650
34,409
(1) Amounts represent the expected cash payments of Altria’s long-term debt and exclude changes resulting from the debt transactions in February 2021
discussed above.
(2) Amounts represent the expected cash payments of Altria’s interest expense on its long-term debt. Interest on Altria’s long-term debt, which was all
fixed-rate debt at December 31, 2020, is presented using the stated coupon interest rate. Amounts exclude the amortization of debt discounts and debt
issuance costs, the amortization of loan fees and fees for lines of credit that would be included in interest, other debt expense, net in the consolidated
statements of earnings (losses) and changes resulting from the debt transactions in February 2021 discussed above.
(3) Amounts represent the minimum rental commitments under non-cancelable operating leases.
(4) Purchase obligations for inventory and production costs (such as raw materials, indirect materials and services, contract manufacturing, packaging,
storage and distribution) are commitments for projected needs to be used in the normal course of business. Other purchase obligations include
commitments for marketing, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations
if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the
transaction. Most arrangements are cancelable without a significant penalty, and with short notice (usually 30 days). Any amounts reflected on the
consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
(5) Other long-term liabilities primarily consist of accrued postretirement health care costs and certain accrued pension costs. The amounts included in
the table above for accrued pension costs consist of the actuarially determined anticipated minimum funding requirements for each year from 2021
through 2025. Contributions beyond 2025 cannot be reasonably estimated and, therefore, are not included in the table above. In addition, the following
long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued postemployment costs, income taxes and tax
contingencies, and other accruals. Altria is unable to estimate the timing of payments for these items.
The State Settlement Agreements and related legal fee payments, and payments for FDA user fees, as discussed below and in Note 18,
are excluded from the table above, as the payments are subject to adjustment for several factors, including inflation, operating income,
market share and industry volume. Litigation escrow deposits, as discussed below and in Note 18, are also excluded from the table
above since these deposits will be returned to PM USA should it prevail on appeal.
Payments Under State Settlement Agreements and FDA Regulation - As discussed previously and in Note 18, PM USA has entered into
State Settlement Agreements with the states and territories of the United States that call for certain payments. In addition, PM USA,
Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. Altria’s subsidiaries recorded
approximately $4.7 billion, $4.5 billion and $4.5 billion of charges to cost of sales for each of the years ended December 31, 2020, 2019
and 2018, respectively, in connection with the State Settlement Agreements and FDA user fees. For further discussion of the resolutions
of certain disputes with states and territories related to the NPM adjustment provision under the MSA, see Health Care Cost Recovery
Litigation - NPM Adjustment Disputes in Note 18.
Based on current agreements, 2020 market share and estimated annual industry volume decline rates, the estimated amounts that Altria’s
subsidiaries may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees approximate $4.5
billion each year for the next three years. These amounts exclude the potential impact of any NPM Adjustment Items.
The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year would generally be paid in the
following year. The amounts charged to cost of sales for FDA user fees are generally paid in the quarter in which the fees are incurred.
As previously stated, the payments due under the terms of the State Settlement Agreements and FDA user fees are subject to adjustment
for several factors, including volume, operating income, inflation and certain contingent events and, in general, are allocated based on
each manufacturer’s market share. The future payment amounts discussed above are estimates, and actual payment amounts will differ
to the extent underlying assumptions differ from actual future results.
Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments
pending appeals, as of December 31, 2020, PM USA had posted appeal bonds totaling $61 million, which have been collateralized with
restricted cash that is included in assets on the consolidated balance sheet.
Although litigation is subject to uncertainty and an adverse outcome or settlement of litigation could have a material adverse effect on
the financial position, cash flows or results of operations of PM USA, UST or Altria in a particular fiscal quarter or fiscal year, as more
50
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM fully disclosed in Note 18, Item 3 and Item 1A, management expects cash flow from operations, together with Altria’s access to capital
markets, to provide sufficient liquidity to meet ongoing business needs.
Equity and Dividends
As discussed in Note 11. Stock Plans to the consolidated financial statements in Item 8, during 2020 Altria granted an aggregate of 1.2
million restricted stock units and 0.3 million performance stock units to eligible employees.
At December 31, 2020, the number of shares to be issued upon vesting of restricted stock units and performance stock units was not
significant.
Dividends paid in 2020 and 2019 were approximately $6.3 billion and $6.1 billion, respectively, an increase of 3.6%, reflecting a higher
dividend rate, partially offset by fewer shares outstanding as a result of shares repurchased by Altria in 2019 under its share repurchase
programs.
In July 2020, 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 per share. Altria has a long-term objective of
a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. Future dividend payments remain subject to the
discretion of the Board.
For a discussion of Altria’s share repurchase programs, see Note 10. Capital Stock to the consolidated financial statements in Item 8 and
Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in this
Form 10-K.
New Accounting Guidance Not Yet Adopted
See Note 2 for a discussion of issued accounting guidance applicable to, but not yet adopted by, Altria.
Contingencies
See Note 18 and Item 3 for a discussion of contingencies.
Supplemental Guarantor Financial Information
PM USA (the “Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc. (the “Parent”), has guaranteed the Parent’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, the Guarantor fully and unconditionally guarantees, as primary obligor,
the payment and performance of the Parent’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release
under certain customary circumstances as noted below.
The Guarantees provide that the Guarantor guarantees the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations. The liability of the Guarantor 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, the Parent or the Guarantor.
Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent transfer law, the Guarantees could be
voided, or claims in respect of the Guarantees could be subordinated to the debts of the Guarantor, if, among other things, the Guarantor,
at the time it incurred the Obligations evidenced by the Guarantees:
▪
▪
received less than reasonably equivalent value or fair consideration therefor; and
either:
▪
▪
▪
was insolvent or rendered insolvent by reason of such occurrence;
was engaged in a business or transaction for which the assets of the Guarantor constituted unreasonably small capital; or
intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, under such circumstances, the payment of amounts by the Guarantor pursuant to the Guarantees could be voided and
required to be returned to the Guarantor, or to a fund for the benefit of the Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding
with respect to the foregoing. Generally, however, the Guarantor would be considered insolvent if:
▪
▪
the sum of its debts, including contingent liabilities, was greater than the saleable value of its assets, all at a fair valuation;
the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and mature; or
50
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
it could not pay its debts as they become due.
To the extent the Guarantees are voided as a fraudulent conveyance or held unenforceable for any other reason, the holders of the
guaranteed debt obligations would not have any claim against the Guarantor and would be creditors solely of the Parent.
The obligations of the Guarantor under the Guarantees are limited to the maximum amount as will not result in the Guarantor’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 the Guarantor 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.
The Guarantor will be unconditionally released and discharged from the Obligations upon the earliest to occur of:
▪
▪
▪
▪
the date, if any, on which the Guarantor consolidates with or merges into the Parent or any successor;
the date, if any, on which the Parent or any successor consolidates with or merges into the Guarantor;
the payment in full of the Obligations pertaining to such Guarantees; and
the rating of the Parent’s long-term senior unsecured debt by Standard & Poor’s of A or higher.
The Parent is a holding company; therefore, its 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. Neither
the Guarantor nor other 100% owned subsidiaries of the Parent that are not guarantors of the debt (“Non-Guarantor Subsidiaries”) are
limited by contractual obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.
The following tables include summarized financial information for the Parent and the Guarantor. Transactions between the Parent and
the Guarantor (including investment and intercompany balances as well as equity earnings) have been eliminated. The Parent’s and the
Guarantor’s intercompany balances with Non-Guarantor Subsidiaries have been presented separately. This summarized financial
information is not intended to present the financial position or results of operations of the Parent or the Guarantor in accordance with
GAAP.
Summarized Balance Sheets
(in millions of dollars)
Assets
Due from Non-Guarantor Subsidiaries
Other current assets
Total current assets
Due from Non-Guarantor Subsidiaries
Other assets
Total non-current assets
Liabilities
Due to Non-Guarantor Subsidiaries
Other current liabilities
Total current liabilities
Total non-current liabilities
December 31, 2020
Parent
Guarantor
112 $
4,896
5,008 $
4,790 $
16,883
21,673 $
1,169 $
3,688
4,857 $
199
734
933
—
1,983
1,983
656
4,539
5,195
30,958 $
1,268
$
$
$
$
$
$
$
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Summarized Statements of Earnings (Losses)
(in millions of dollars)
For the Year Ended December 31, 2020
Parent (1)
Guarantor
$
— $
—
22,094
10,693
Net revenues
Gross profit
Net earnings (losses)
6,947
(1) For the year ended December 31, 2020, net earnings (losses) includes $228 million of intercompany interest income from non-guarantor subsidiaries.
(1,061)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The fair value of Altria’s long-term debt, all of which is fixed-rate debt, is subject to fluctuations resulting from changes in market
interest rates. The following table provides the fair value of Altria’s long-term debt and the change in fair value based on a 1% increase
or decrease in market interest rates at December 31, 2020 and 2019:
(in billions)
Fair value
Decrease in fair value from a 1% increase in market interest rates
Increase in fair value from a 1% decrease in market interest rates
December 31, 2020
December 31, 2019
$
34.7 $
2.7
3.1
30.7
2.4
2.7
Interest rates on borrowings under the Credit Agreement are expected to be based on the London Interbank Offered Rate (“LIBOR”), or
a mutually agreed upon benchmark rate, plus a percentage based on the higher of the ratings of Altria’s long-term senior unsecured debt
from Moody’s and Standard & Poor’s. The applicable percentage based on Altria’s long-term senior unsecured debt ratings at
December 31, 2020 for borrowings under the Credit Agreement was 1.0%. At December 31, 2020 and 2019, Altria had no borrowings
under the Credit Agreement.
Equity Price Risk
The estimated fair values of the Fixed-price Preemptive Rights and the Cronos warrant are subject to equity price risk. The Fixed-price
Preemptive Rights and warrant are recorded at fair value, which is estimated using Black-Scholes option-pricing models. The fair values
of the Fixed-price Preemptive Rights and Cronos warrant are subject to fluctuations resulting from changes in the quoted market price of
Cronos shares, the underlying equity security.
The following table provides (i) fair values of the Fixed-price Preemptive Rights and Cronos warrants and (ii) the change in fair value
based on a 10% increase or decrease in the quoted market price of Cronos shares at December 31, 2020 and 2019:
(in millions)
Fixed-price Preemptive Rights
Cronos Warrant
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Fair values
Change in fair value based on a 10%
increase/decrease in the quoted market price
of Cronos shares
$
24 $
69 $
139 $
6
13
28
234
37
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Item 8. Financial Statements and Supplementary Data.
Item 8. Financial Statements and Supplementary Data.
Item 8. Financial Statements and Supplementary Data.
Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Consolidated Balance Sheets
Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions of dollars)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows (Continued)
________________________
(in millions of dollars)
(in millions of dollars)
(in millions of dollars)
________________________
________________________
__________________
at December 31,
Assets
for the years ended December 31,
Cash Provided by (Used in) Financing Activities
at December 31,
Assets
Cash and cash equivalents
Receivables
Inventories:
at December 31,
Cash and cash equivalents
Assets
Receivables
Proceeds from short-term borrowings
Cash and cash equivalents
Inventories:
Repayment of short-term borrowings
Receivables
Leaf tobacco
Long-term debt issued
Inventories:
Leaf tobacco
Other raw materials
Long-term debt repaid
Leaf tobacco
Other raw materials
Work in process
Repurchases of common stock
Other raw materials
Work in process
Finished product
Dividends paid on common stock
Work in process
Finished product
Finished product
Net cash provided by (used in) financing activities
Total current assets
Other, net
Other current assets
Other current assets
Cash, cash equivalents and restricted cash:
Other current assets
Total current assets
$
$
$
2020
$
$
3,000
(3,000)
1,993
(1,000)
—
(6,290)
(99)
(5,396)
2,846
2,160
2020
2019
$
2020
2019
2020
4,945 $
4,945 $
137
—
4,945 $
137
(12,800)
137
844
16,265
844
200
(1,144)
844
200
502
(845)
200
502
420
(6,069)
502
420
1,966
(119)
420
1,966
69
(4,712)
1,966
69
7,117
69
7,117
727
7,117
1,433
2019
2018
2019
2,117
2,117
152
12,800
2,117
152
—
152
—
874
874
192
(864)
874
192
696
(1,673)
192
696
531
(5,415)
696
531
2,293
(132)
531
2,293
262
4,716
2,293
262
4,824
262
4,824
119
4,824
1,314
$
$
$
$
1,246
2,160
5,006
Income taxes
Cash paid: Interest
Total current assets
Balance at end of year
Increase (decrease)
Property, plant and equipment, at cost:
Balance at beginning of year
Property, plant and equipment, at cost:
Land and land improvements
Property, plant and equipment, at cost:
Land and land improvements
Buildings and building equipment
Land and land improvements
Buildings and building equipment
Machinery and equipment
Buildings and building equipment
Machinery and equipment
Construction in progress
Machinery and equipment
Construction in progress
Construction in progress
Less accumulated depreciation
353
353
1,461
353
704
1,461
2,998
1,461
2,307
2,998
262
2,998
262
5,074
262
5,074
3,075
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
5,074
consolidated balance sheets:
3,075
1,999
3,075
1,999
2018
1,999
1,333
at December 31,
Goodwill
Other intangible assets, net
Investments in equity securities ($1,868 million and $303 million at December 31, 2020
Goodwill
Other intangible assets, net
5,006
Investments in equity securities ($1,868 million and $303 million at December 31, 2020
and 2019, respectively, measured at fair value)
Cash and cash equivalents
Goodwill
Restricted cash included in other current assets (1)
Other intangible assets, net
Restricted cash included in other assets (1)
and 2019, respectively, measured at fair value)
Investments in equity securities ($1,868 million and $303 million at December 31, 2020
Cash, cash equivalents and restricted cash
and 2019, respectively, measured at fair value)
57
5,177
43
12,687
1,433
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
23,581
appeals. See Note 18. Contingencies.
1,003
49,271
348
348
1,480
348
991
1,480
3,010
1,480
1,977
3,010
312
3,010
312
5,150
312
5,150
3,138
5,150
3,138
2,012
3,138
2,012
2019
2,012
2,117
—
5,177
43
12,615
19,529
2,160
19,529
964
19,529
964
47,414 $
964
47,414 $
47,414 $
23,581
23,581
1,003
1,003
49,271
49,271
Less accumulated depreciation
Less accumulated depreciation
5,177
12,687
5,177
12,615
5,177
12,687
5,177
12,615
Total Assets
Total Assets
Other assets
Other assets
Other assets
1,433
2,616
4,945
2020
60
$
$
$
$
$
1
$
$
$
$
$
$
$
$
$
Total Assets
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
54
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59
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
Consolidated Balance Sheets (Continued)
Consolidated Balance Sheets (Continued)
Altria Group, Inc. and Subsidiaries
(in millions of dollars, except share and per share data)
(in millions of dollars, except share and per share data)
(in millions of dollars, except share and per share data)
Consolidated Balance Sheets (Continued)
____________________________________________
____________________________________________
(in millions of dollars, except share and per share data)
____________________________________________
____________________________________________
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
__________________
$
$
$
$
2020
2020
2020
2019
2019
2019
1,000
325
1,000
325
523
3,564
1,494
1,602
$
9,063
523
3,564
2019
1,494
1,602
—
9,063
(12,800)
2020
1,500 $
1,500 $
1,500 $
380
380
380
1,500 $
380
523
3,564
523
1,494
3,564
1,602
1,494
9,063
1,602
9,063
16,265
27,971
27,971
27,971
(1,144)
4,532
4,532
4,532
27,971
(845)
551
551
551
4,532
(6,069)
1,951
1,951
1,951
551
(119)
381
381
381
1,951
(4,712)
44,449
44,449
44,449
381
44,449
393
3,346
1,545
1,565
$
8,174
393
3,346
2018
1,545
1,565
12,800
8,174
2019
1,000
325
1,000
325
393
3,346
393
1,545
3,346
1,565
1,545
8,174
1,565
8,174
27,042
27,042
27,042
5,083
5,083
5,083
27,042
(1,673)
473
473
473
5,083
(5,415)
1,797
1,797
1,797
473
(132)
345
345
345
1,797
4,716
42,914
42,914
42,914
345
42,914
(864)
—
—
727
119
40
40
1,433
40
2,160
40
38
$
38
1,314
38
1,433
38
$
2020
3,000
(3,000)
1,993
(1,000)
—
(6,290)
(99)
(5,396)
2,846
2,160
$
5,006
$
at December 31,
at December 31,
at December 31,
Liabilities
Liabilities
Liabilities
at December 31,
Current portion of long-term debt
Current portion of long-term debt
Current portion of long-term debt
Liabilities
Accounts payable
Accounts payable
Accounts payable
Current portion of long-term debt
Accrued liabilities:
Accrued liabilities:
Accrued liabilities:
Accounts payable
Marketing
Marketing
Marketing
Accrued liabilities:
Settlement charges
Settlement charges
Settlement charges
Marketing
for the years ended December 31,
Other
Other
Other
Settlement charges
Dividends payable
Dividends payable
Other
Proceeds from short-term borrowings
Total current liabilities
Total current liabilities
Dividends payable
Repayment of short-term borrowings
Total current liabilities
Dividends payable
Cash Provided by (Used in) Financing Activities
Total current liabilities
Long-term debt issued
Long-term debt
Long-term debt
Long-term debt
Long-term debt repaid
Deferred income taxes
Deferred income taxes
Deferred income taxes
Long-term debt
Repurchases of common stock
Accrued pension costs
Accrued pension costs
Accrued pension costs
Deferred income taxes
Dividends paid on common stock
Accrued postretirement health care costs
Accrued postretirement health care costs
Accrued postretirement health care costs
Accrued pension costs
Other, net
Other liabilities
Other liabilities
Other liabilities
Accrued postretirement health care costs
Total liabilities
Other liabilities
Net cash provided by (used in) financing activities
Total liabilities
Cash, cash equivalents and restricted cash:
Total liabilities
Total liabilities
Increase (decrease)
Contingencies (Note 18)
Contingencies (Note 18)
Contingencies (Note 18)
Balance at beginning of year
Redeemable noncontrolling interest
Redeemable noncontrolling interest
Redeemable noncontrolling interest
Contingencies (Note 18)
Balance at end of year
Stockholders’ Equity
Stockholders’ Equity
Stockholders’ Equity
Redeemable noncontrolling interest
Common stock, par value $0.33 1/3 per share
Common stock, par value $0.33 1/3 per share
Common stock, par value $0.33 1/3 per share
Stockholders’ Equity
Cash paid: Interest
(2,805,961,317 shares issued)
(2,805,961,317 shares issued)
(2,805,961,317 shares issued)
Common stock, par value $0.33 1/3 per share
Income taxes
Additional paid-in capital
Additional paid-in capital
Additional paid-in capital
(2,805,961,317 shares issued)
Earnings reinvested in the business
Earnings reinvested in the business
Earnings reinvested in the business
Additional paid-in capital
Accumulated other comprehensive losses
Accumulated other comprehensive losses
Accumulated other comprehensive losses
Earnings reinvested in the business
Accumulated other comprehensive losses
Cost of repurchased stock
Cost of repurchased stock
(947,542,152 shares at December 31, 2020 and
(947,542,152 shares at December 31, 2020 and
(947,542,152 shares at December 31, 2020 and
Cost of repurchased stock
947,979,763 shares at December 31, 2019)
947,979,763 shares at December 31, 2019)
947,979,763 shares at December 31, 2019)
(947,542,152 shares at December 31, 2020 and
Total stockholders’ equity attributable to Altria
Total stockholders’ equity attributable to Altria
947,979,763 shares at December 31, 2019)
Cash and cash equivalents
Restricted cash included in other current assets (1)
Noncontrolling interests
Noncontrolling interests
Total stockholders’ equity attributable to Altria
Restricted cash included in other assets (1)
Total stockholders’ equity
Cash, cash equivalents and restricted cash
Total stockholders’ equity
Total stockholders’ equity
Total stockholders’ equity
Noncontrolling interests
Noncontrolling interests
at December 31,
Total stockholders’ equity attributable to Altria
935
935
2,307
5,970
5,970
935
36,539
36,539
5,970
(2,864)
(2,864)
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
36,539
consolidated balance sheets:
Cost of repurchased stock
(2,864)
935
$
5,910
34,679
(4,341)
935
$
5,970
36,539
(2,864)
991
935
935
1,977
5,910
5,910
935
34,679
34,679
5,910
(4,341)
(4,341)
34,679
(4,341)
1,246
2,616
704
$
$
$
$
Total Liabilities and Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
1,433
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
appeals. See Note 18. Contingencies.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
Total Liabilities and Stockholders’ Equity
5,006
$
$
$
$
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
$
2020
4,945
1
60
2019
(34,344)
(34,344)
(34,344)
2,117
$
2,839
2,839
2,839
(34,344)
—
86
86
86
2,839
43
2,925
2,925
2,925
86
$
2,160
47,414 $
47,414 $
$
47,414 $
2,925
47,414 $
2018
(34,358)
(34,358)
(34,358)
1,333
$
6,222
6,222
6,222
(34,358)
97
97
97
6,222
6,319
6,319
6,319
97
$
49,271
49,271
49,271
6,319
49,271
57
43
54
55
55
55
55
55
59
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
Altria Group, Inc. and Subsidiaries
__________________
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Earnings (Losses)
2020
Consolidated Statements of Earnings (Losses)
(in millions of dollars, except per share data)
(in millions of dollars, except per share data)
____________________________________
____________________________________
$
3,000
for the years ended December 31,
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings
Repayment of short-term borrowings
for the years ended December 31,
for the years ended December 31,
Long-term debt issued
Net revenues
Net revenues
Cost of sales
Cost of sales
Excise taxes on products
Excise taxes on products
Long-term debt repaid
Repurchases of common stock
Dividends paid on common stock
Gross profit
Gross profit
Other, net
Marketing, administration and research costs
Marketing, administration and research costs
Asset impairment and exit costs
Asset impairment and exit costs
Cash, cash equivalents and restricted cash:
Operating income
Operating income
Increase (decrease)
Balance at end of year
Interest and other debt expense, net
Interest and other debt expense, net
Balance at beginning of year
Net periodic benefit income, excluding service cost
Net periodic benefit income, excluding service cost
(Income) losses from equity investments
(Income) losses from equity investments
Cash paid: Interest
Impairment of JUUL equity securities
Impairment of JUUL equity securities
Income taxes
Loss on Cronos-related financial instruments
Loss on Cronos-related financial instruments
Loss on ABI/SABMiller business combination
Loss on ABI/SABMiller business combination
Net cash provided by (used in) financing activities
2019
2018
$
—
$
12,800
2020
(3,000)
2020
1,993
$ 26,153
$ 26,153
(1,000)
7,818
7,818
—
5,312
5,312
(6,290)
13,023
13,023
(99)
2,154
2,154
(4)
(4)
10,873
10,873
(5,396)
2,846
2,160
5,006
1,246
2,616
1,209
1,209
(77)
(77)
$
111
111
$
2,600
2,600
$
140
140
—
—
$
$
$
159
2019
5,314
7,085
2,226
12,711
(12,800)
2019
16,265
$ 25,110
$ 25,110
(1,144)
7,085
(845)
5,314
(6,069)
12,711
(119)
2,226
(4,712)
159
10,326
10,326
727
1,280
1,433
(37)
(37)
$
2,160
(1,725)
(1,725)
$
991
8,600
8,600
$
1,977
1,442
1,442
—
1,280
—
$ 25,364
—
2018
—
2018
$ 25,364
(864)
7,373
7,373
5,737
(1,673)
5,737
(5,415)
12,254
(132)
2,756
2,756
12,254
4,716
383
383
9,115
9,115
119
665
665
1,314
(34)
1,433
(890)
(34)
(890)
704
—
—
2,307
—
—
33
33
Earnings before income taxes
Earnings before income taxes
9,341
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
consolidated balance sheets:
Provision for income taxes
Provision for income taxes
2,374
2,436
6,890
2,064
2,374
9,341
2,064
6,890
2,436
766
766
Net earnings (losses)
Net earnings (losses)
at December 31,
Net (earnings) losses attributable to noncontrolling interests
Net (earnings) losses attributable to noncontrolling interests
Cash and cash equivalents
Net earnings (losses) attributable to Altria
Restricted cash included in other current assets (1)
Net earnings (losses) attributable to Altria
Per share data:
Restricted cash included in other assets (1)
Per share data:
$
2020
4,454
4,454
13
13
$
4,467
4,467
1
4,945
$
$
60
(1,298)
(1,298)
2019
5
5
$
2,117
$
(1,293)
(1,293)
—
43
$
$
6,967
6,967
2018
(4)
1,333
(4)
6,963
$
6,963
57
43
Cash, cash equivalents and restricted cash
Basic earnings (losses) per share attributable to Altria
Basic earnings (losses) per share attributable to Altria
1,433
3.69
3.69
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
3.68
appeals. See Note 18. Contingencies.
Diluted earnings (losses) per share attributable to Altria
Diluted earnings (losses) per share attributable to Altria
$
$
(0.70)
$
2.40
2.40
$
(0.70)
5,006
$
2,160
(0.70)
(0.70)
2.40
3.68
2.40
$
$
$
$
$
$
$
$
$
$
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
59
56
56
56
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 2020
2019
2018
$
3,000
$
—
$
12,800
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
__________________
for the years ended December 31,
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings
Repayment of short-term borrowings
Long-term debt issued
Long-term debt repaid
Repurchases of common stock
Dividends paid on common stock
Other, net
Net cash provided by (used in) financing activities
(3,000)
1,993
(1,000)
—
(6,290)
(99)
(5,396)
Cash, cash equivalents and restricted cash:
Increase (decrease)
Balance at beginning of year
Balance at end of year
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Earnings (Losses)
Altria Group, Inc. and Subsidiaries
(in millions of dollars)
Consolidated Statements of Comprehensive Earnings (Losses)
_______________________
(in millions of dollars)
_______________________
2,160
2,846
5,006
$
$
(12,800)
16,265
(1,144)
(845)
(6,069)
(119)
(4,712)
727
1,433
2,160
$
—
—
(864)
(1,673)
(5,415)
(132)
4,716
119
1,314
1,433
for the years ended December 31,
Cash paid: Interest
for the years ended December 31,
Net earnings (losses)
Income taxes
$
$
1,246
2,616
2020
2020
4,454
4,454
$
$
$
$
$
$
2019
991
2019
(1,298)
1,977
(1,298)
$
$
$
$
2018
704
2018
6,967
2,307
6,967
Net earnings (losses)
ABI
Benefit plans
Currency translation adjustments and other
Other comprehensive earnings (losses), net of deferred income taxes:
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans
68
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
68
ABI
(309)
consolidated balance sheets:
(309)
Currency translation adjustments and other
(1)
2018
at December 31,
(1)
(242)
1,333
(242)
57
6,725
43
6,725
Comprehensive (earnings) losses attributable to noncontrolling interests
(4)
1,433
Cash, cash equivalents and restricted cash
Comprehensive (earnings) losses attributable to noncontrolling interests
(4)
6,721
Comprehensive earnings (losses) attributable to Altria
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
6,721
Comprehensive earnings (losses) attributable to Altria
appeals. See Note 18. Contingencies.
Cash and cash equivalents
Restricted cash included in other current assets (1)
Restricted cash included in other assets (1)
Comprehensive earnings (losses)
Other comprehensive earnings (losses), net of deferred income taxes
Other comprehensive earnings (losses), net of deferred income taxes
(228)
(228)
(1,245)
(1,245)
(4)
(4)
(1,477)
$
(1,477)
1
2,977
60
2,977
13
13
2,990
2,990
(24)
(24)
(319)
(319)
26
26
(317)
(317)
—
(1,615)
43
(1,615)
5
2,160
5
Comprehensive earnings (losses)
(1,610)
(1,610)
2,117
4,945
5,006
$
$
2020
2019
$
$
$
$
$
$
$
$
$
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
59
57
57
57
56
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
(in millions of dollars)
(in millions of dollars)
__________________
__________________
for the years ended December 31,
for the years ended December 31,
Cash Provided by (Used in) Operating Activities
Cash Provided by (Used in) Operating Activities
Net earnings (losses)
Net earnings (losses)
Adjustments to reconcile net earnings (losses) to operating cash flows:
Adjustments to reconcile net earnings (losses) to operating cash flows:
Altria Group, Inc. and Subsidiaries
4,454
Consolidated Statements of Cash Flows (Continued)
257
(in millions of dollars)
257
__________________
4,454
$
$
for the years ended December 31,
Proceeds from short-term borrowings
Depreciation and amortization
Depreciation and amortization
Deferred income tax benefit
Deferred income tax benefit
(Income) losses from equity investments
(Income) losses from equity investments
Cash Provided by (Used in) Financing Activities
Loss on ABI/SABMiller business combination
Loss on ABI/SABMiller business combination
Dividends from ABI
Dividends from ABI
Loss on Cronos-related financial instruments
Loss on Cronos-related financial instruments
Impairment of JUUL equity securities
Impairment of JUUL equity securities
Asset impairment and exit costs, net of cash paid
Asset impairment and exit costs, net of cash paid
Repurchases of common stock
Cash effects of changes:
Cash effects of changes:
Dividends paid on common stock
Repayment of short-term borrowings
Long-term debt issued
Long-term debt repaid
Other, net
Receivables
Receivables
Inventories
Inventories
Net cash provided by (used in) financing activities
Accounts payable
Accounts payable
Cash, cash equivalents and restricted cash:
Income taxes
Income taxes
Accrued liabilities and other current assets
Accrued liabilities and other current assets
Accrued settlement charges
Accrued settlement charges
Balance at beginning of year
Increase (decrease)
Cash paid: Interest
Balance at end of year
Pension plan contributions
Pension plan contributions
Pension provisions and postretirement, net
Pension provisions and postretirement, net
Other, net (1)
Other, net (1)
Income taxes
Net cash provided by (used in) operating activities
Net cash provided by (used in) operating activities
2020
2020
2019
2019
2018
2018
$
$
(1,298) $
(1,298) $
6,967
6,967
(164)
(164)
2020
111
111
$
$
$
$
$
—
140
—
3,000
108
108
(3,000)
140
1,993
2,600
2,600
(1,000)
(51)
(51)
—
20
(6,290)
20
(99)
2
(5,396)
53
53
2
(29)
(15)
(29)
2,846
(15)
2,160
218
5,006
(33)
218
(33)
(49)
763
(49)
1,246
763
2,616
8,385
8,385
$
$
$
226
226
(95)
(95)
(1,725)
2019
(1,725)
$
—
396
—
—
396
(12,800)
1,442
1,442
16,265
8,600
(1,144)
41
(845)
8,600
41
(8)
42
(6,069)
(8)
(119)
42
(4,712)
(79)
(79)
227
227
(57)
(57)
2018
(890)
(890)
33
33
12,800
657
—
—
—
—
(864)
354
(1,673)
657
—
—
354
—
(5,415)
—
(132)
(129)
(129)
4,716
27
27
89
11
89
727
11
1,433
(108)
2,160
(56)
(108)
$
(56)
$
(52)
411
$
(52)
991
411
1,977
7,837
7,837
218
(21)
980
(41)
(13)
79
218
119
(21)
1,314
980
1,433
(41)
(13)
704
79
2,307
8,391
8,391
at December 31,
Cash Provided by (Used in) Investing Activities
Cash Provided by (Used in) Investing Activities
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
(238)
Capital expenditures
consolidated balance sheets:
Capital expenditures
Acquisitions of businesses and assets
Acquisitions of businesses and assets
Investment in JUUL
Investment in JUUL
Cash and cash equivalents
Investment in Cronos
Restricted cash included in other current assets (1)
Investment in Cronos
Other, net
Restricted cash included in other assets (1)
Other, net
(15)
2018
(12,800)
(12,800)
1,333
—
57
65
43
(12,988)
1,433
(12,988)
(1) 2020 reflects inventory-related amounts associated with the Wine Business Strategic Reset. For further discussion, see Note 5. Asset
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
(1) 2020 reflects inventory-related amounts associated with the Wine Business Strategic Reset. For further discussion, see Note 5. Asset
Impairment, Exit and Implementation Costs.
appeals. See Note 18. Contingencies.
Impairment, Exit and Implementation Costs.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
(421)
(421)
2019
(5)
2,117
$
(1,899)
(1,899)
—
173
43
(2,398)
2,160
Net cash provided by (used in) investing activities
Cash, cash equivalents and restricted cash
Net cash provided by (used in) investing activities
(231)
—
2020
—
4,945
—
—
1
88
60
88
(143)
5,006
$
(2,398)
(143)
(238)
(246)
(231)
(246)
(15)
173
—
—
—
65
(5)
$
$
$
$
58
58
58
59
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Altria Group, Inc. and Subsidiaries
(in millions of dollars)
Consolidated Statements of Cash Flows (Continued)
__________________
(in millions of dollars)
__________________
2020
for the years ended December 31,
Cash Provided by (Used in) Financing Activities
for the years ended December 31,
Proceeds from short-term borrowings
Cash Provided by (Used in) Financing Activities
Repayment of short-term borrowings
Proceeds from short-term borrowings
Long-term debt issued
Repayment of short-term borrowings
Long-term debt repaid
Long-term debt issued
Long-term debt repaid
Repurchases of common stock
Repurchases of common stock
Dividends paid on common stock
Dividends paid on common stock
Other, net
Other, net
Net cash provided by (used in) financing activities
Cash, cash equivalents and restricted cash:
Net cash provided by (used in) financing activities
Cash, cash equivalents and restricted cash:
Increase (decrease)
Increase (decrease)
Balance at beginning of year
Balance at beginning of year
Balance at end of year
Balance at end of year
Cash paid: Interest
Cash paid: Interest
Income taxes
Income taxes
2020
3,000
3,000
(3,000)
(3,000)
1,993
1,993
(1,000)
(1,000)
—
—
(6,290)
(6,290)
(99)
(99)
(5,396)
(5,396)
2,846
2,846
2,160
2,160
5,006
5,006
1,246
1,246
2,616
2,616
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2019
2019
—
—
(12,800)
(12,800)
16,265
16,265
(1,144)
(1,144)
(845)
(845)
(6,069)
(6,069)
(119)
(119)
(4,712)
(4,712)
727
727
1,433
1,433
2,160
2,160
991
991
1,977
1,977
$
$
$
$
$
$
$
$
2018
2018
12,800
12,800
—
—
—
—
(864)
(864)
(1,673)
(1,673)
(5,415)
(5,415)
(132)
(132)
4,716
4,716
119
119
1,314
1,314
1,433
1,433
704
704
2,307
2,307
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
consolidated balance sheets:
consolidated balance sheets:
at December 31,
Cash and cash equivalents
Restricted cash included in other current assets (1)
Restricted cash included in other assets (1)
at December 31,
Cash and cash equivalents
Restricted cash included in other current assets (1)
Restricted cash included in other assets (1)
2018
2018
1,333
1,333
57
57
43
43
1,433
1,433
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
appeals. See Note 18. Contingencies.
appeals. See Note 18. Contingencies.
2020
2020
4,945
4,945
1
1
60
60
5,006
5,006
2019
2019
2,117
2,117
—
—
43
43
2,160
2,160
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash
$
$
$
$
$
$
$
$
$
$
$
$
See notes to consolidated financial statements.
See notes to consolidated financial statements.
58
59
59
59
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria Group, Inc. and Subsidiaries
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Stockholders’ Equity
(in millions of dollars, except per share data)
____________________________________
(in millions of dollars, except per share data)
____________________________________
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Additional
(in millions of dollars)
Paid-in
Additional
__________________
Capital
Paid-in
Capital
Attributable to Altria
Earnings
Reinvested in
Earnings
the Business
Reinvested in
the Business
Accumulated
Other
Accumulated
Comprehensive
Other
Losses
Comprehensive
Losses
Attributable to Altria
5,952 $
42,251 $
Common
Stock
Common
Stock
$
$
—
Net cash provided by (used in) financing activities
935 $
Balances, December 31, 2017
for the years ended December 31,
935 $
Balances, December 31, 2017
Reclassification due to adoption of ASU 2018-02 (1)
—
Cash Provided by (Used in) Financing Activities
Reclassification due to adoption of ASU 2018-02 (1)
—
Net earnings (losses) (2)
—
Proceeds from short-term borrowings
Net earnings (losses) (2)
—
Other comprehensive earnings (losses), net
Other comprehensive earnings (losses), net
Repayment of short-term borrowings
of deferred income taxes
of deferred income taxes
Stock award activity
Long-term debt issued
Stock award activity
Cash dividends declared ($3.00 per share)
Long-term debt repaid
Cash dividends declared ($3.00 per share)
Repurchases of common stock
Repurchases of common stock
Other
Other
Repurchases of common stock
Dividends paid on common stock
Balances, December 31, 2018
Balances, December 31, 2018
Increase (decrease)
of deferred income taxes
of deferred income taxes
Other, net
Net earnings (losses) (2)
Net earnings (losses) (2)
Other comprehensive earnings (losses), net
Other comprehensive earnings (losses), net
Cash, cash equivalents and restricted cash:
Stock award activity
Stock award activity
Cash dividends declared ($3.28 per share)
Cash dividends declared ($3.28 per share)
Balance at beginning of year
Repurchases of common stock
Repurchases of common stock
Issuance of noncontrolling interest in Helix
Issuance of noncontrolling interest in Helix
Other
Other
Cash paid: Interest
Balances, December 31, 2019
Balances, December 31, 2019
Income taxes
Balance at end of year
Cost of
Repurchased
Cost of
Stock
Repurchased
Stock
(31,864) $
Non-
controlling
Non-
Interests
controlling
Interests
2019
(31,864) $
—
3 $
—
Total
Stockholders’
Total
Equity
Stockholders’
Equity
2018
15,380
15,380
3 $
—
5,952 $
—
42,251 $
408
—
—
—
—
408
6,963
6,963
—
$
—
9
9
—
—
—
—
—
—
5,961
5,961
—
—
—
—
(5,660)
(5,660)
—
—
—
—
43,962
43,962
(1,293)
(1,293)
—
—
9
9
—
—
—
—
—
—
(6,130)
(6,130)
—
—
—
—
—
—
—
—
—
—
5,970
5,970
—
—
36,539
36,539
$
$
$
(1,897) $
2020
(1,897) $
(408)
(408)
(242)
—
3,000
—
(242)
(3,000)
—
1,993
—
—
(1,000)
—
—
—
—
(2,547)
—
—
(6,290)
(2,547)
(99)
—
—
(5,396)
(317)
(317)
—
—
2,846
—
—
2,160
—
—
5,006
—
—
—
—
1,246
(2,864)
2,616
—
—
(2,864)
$
—
—
—
13
—
—
—
(12,800)
13
16,265
—
(1,144)
—
—
—
—
—
(1,673)
(845)
—
—
(1,673)
—
(33,524)
—
(33,524)
(6,069)
—
(119)
—
(4,712)
(1)
2
(7)
—
$
—
—
—
—
(1)
2
(7)
—
11
—
11
—
—
(845)
727
1,433
$
(845)
—
2,160
—
—
—
(34,358)
$
(34,358)
$
991
1,977
—
—
—
—
—
—
—
$
88
—
88
14
97
14
$
97
$
(16)
22
(242)
—
6,963
12,800
6,963
—
(242)
—
22
(5,660)
(864)
(5,660)
(1,673)
(1,673)
(1)
(5,415)
14,789
14,789
(132)
(1,300)
4,716
(1,673)
(1,300)
(1)
(317)
(317)
20
20
119
(6,130)
(6,130)
1,314
(845)
1,433
88
(845)
88
14
14
704
6,319
6,319
2,307
4,451
4,451
—
—
—
—
—
—
—
—
—
—
935
935
—
—
—
—
—
—
—
—
—
—
—
—
—
—
935
935
—
—
—
—
—
—
4,467
4,467
deferred income taxes
deferred income taxes
Net earnings (losses) (2)
Net earnings (losses) (2)
Other comprehensive earnings (losses), net of
Other comprehensive earnings (losses), net of
(1,477)
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s
Stock award activity
27
Stock award activity
consolidated balance sheets:
(6,327)
Cash dividends declared ($3.40 per share)
Cash dividends declared ($3.40 per share)
(6,327)
at December 31,
2018
Other
Other
(68)
Cash and cash equivalents
1,333
Balances, December 31, 2020
Balances, December 31, 2020
2,925
Restricted cash included in other current assets (1)
57
(1) In 2018, Altria adopted Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain
(1) In 2018, Altria adopted Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain
Restricted cash included in other assets (1)
43
Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), and reclassified the stranded income tax effects of the 2017 Tax Cuts and Jobs Act (the
Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), and reclassified the stranded income tax effects of the 2017 Tax Cuts and Jobs Act (the
“Tax Reform Act”) on items with accumulated other comprehensive losses to earnings reinvested in the business.
“Tax Reform Act”) on items with accumulated other comprehensive losses to earnings reinvested in the business.
1,433
(2) Amounts attributable to noncontrolling interests for each of the years ended December 31, 2020, 2019 and 2018 exclude net earnings of $3 million, $2 million and $4
(2) Amounts attributable to noncontrolling interests for each of the years ended December 31, 2020, 2019 and 2018 exclude net earnings of $3 million, $2 million and $4
(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending
million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the
million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the
appeals. See Note 18. Contingencies.
consolidated balance sheets at December 31, 2020, 2019 and 2018.
consolidated balance sheets at December 31, 2020, 2019 and 2018.
—
2020
—
—
4,945
(4,341) $
(4,341) $
1
Cash, cash equivalents and restricted cash
—
—
—
—
—
—
—
—
(6,327)
—
—
(6,327)
$
(34,344) $
$
86 $
86 $
(34,344) $
34,679 $
—
(73)
34,679 $
5,910 $
5,910 $
935 $
935 $
5,006
2,160
2,117
(1,477)
(1,477)
(1,477)
2019
2,925
(68)
60
43
—
(73)
(16)
—
13
—
—
—
—
—
—
—
14
—
27
—
—
—
—
—
—
13
—
14
—
—
—
—
—
$
$
$
$
$
$
—
5
5
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 1. Background and Basis of Presentation
Altria Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Altria Group, Inc. and Subsidiaries
_______________________________
Notes to Consolidated Financial Statements
_______________________________
When used in these notes, the term “Altria” refers to Altria Group, Inc. and its subsidiaries, unless the context requires otherwise.
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 December 31, 2020, Altria Group, Inc.’s (“Altria”) 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
▪
Background: At December 31, 2020, Altria Group, Inc.’s (“Altria”) wholly owned subsidiaries included Philip Morris USA
previously manufactured and sold by Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”); John Middleton Co.
Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes in the United States (including super premium cigarettes
(“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly owned
previously manufactured and sold by Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”); John Middleton Co.
subsidiary of PM USA; UST LLC (“UST”), which through its wholly owned subsidiaries, including U.S. Smokeless Tobacco Company
(“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly owned
LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of moist smokeless
subsidiary of PM USA; UST LLC (“UST”), which through its wholly owned subsidiaries, including U.S. Smokeless Tobacco Company
tobacco products (“MST”), snus products and wine; and Philip Morris Capital Corporation (“PMCC”), which maintains a portfolio of
LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of moist smokeless
finance assets, substantially all of which are leveraged leases. In addition, at December 31, 2020, Altria owned an 80% interest in Helix
tobacco products (“MST”), snus products and wine; and Philip Morris Capital Corporation (“PMCC”), which maintains a portfolio of
Innovations LLC (“Helix”), which is engaged in the manufacture and sale of oral nicotine pouches. Other Altria wholly owned
finance assets, substantially all of which are leveraged leases. In addition, at December 31, 2020, Altria owned an 80% interest in Helix
subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria operating
Innovations LLC (“Helix”), which is engaged in the manufacture and sale of oral nicotine pouches. Other Altria wholly owned
subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer
subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria operating
engagement, finance, human resources and external affairs to Altria and its subsidiaries. Altria’s access to the operating cash flows of its
subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer
wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on
engagement, finance, human resources and external affairs to Altria and its subsidiaries. Altria’s access to the operating cash flows of its
intercompany loans by its subsidiaries. At December 31, 2020, Altria’s significant wholly owned subsidiaries were not limited by
wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on
contractual obligations in their ability to pay cash dividends or make other distributions with respect to their equity interests.
intercompany loans by its subsidiaries. At December 31, 2020, 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.
In 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 owned an 80% interest in Helix, for which Altria
In 2019, Helix acquired Burger Söhne Holding and its subsidiaries as well as certain affiliated companies (the “Burger Group”) that are
paid $353 million in 2019. The purchase price allocation has been completed, and there were no changes subsequent to the acquisition
engaged in the manufacture and sale of on! oral nicotine pouches. At closing, Altria owned an 80% interest in Helix, for which Altria
date.
paid $353 million in 2019. The purchase price allocation has been completed, and there were no changes subsequent to the acquisition
date.
At December 31, 2020, 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
At December 31, 2020, Altria’s investments in equity securities consisted of Anheuser-Busch InBev SA/NV (“ABI”), Cronos Group Inc.
accounting using a one-quarter lag. Altria accounts for its equity investment in JUUL under the fair value option.
(“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.
At December 31, 2020, Altria had a 10.0% ownership interest in ABI. Altria receives cash dividends on its interest in ABI and will
continue to do so as long as ABI pays dividends.
At December 31, 2020, Altria had a 10.0% ownership interest in ABI. Altria receives cash dividends on its interest in ABI and will
continue to do so as long as ABI pays dividends.
In December 2018, Altria made an investment in JUUL by purchasing shares of non-voting convertible common stock of JUUL
In December 2018, Altria made an investment in JUUL by purchasing shares of non-voting convertible common stock of JUUL
representing a 35% ownership interest. JUUL is engaged in the manufacture and sale of e-vapor products in the U.S. and certain
representing a 35% ownership interest. JUUL is engaged in the manufacture and sale of e-vapor products in the U.S. and certain
international markets. In November 2020, Altria exercised its rights to convert its non-voting shares to voting shares. Altria does not
international markets. In November 2020, Altria exercised its rights to convert its non-voting shares to voting shares. Altria does not
currently intend to exercise its additional governance rights obtained upon share conversion, including the right to elect directors to
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 U.S. Federal Trade Commission
JUUL’s board, or to vote its JUUL shares other than as a passive investor, pending the outcome of the U.S. Federal Trade Commission
(“FTC”) administrative complaint. At December 31, 2020, Altria had a 35% ownership interest in JUUL.
(“FTC”) administrative complaint. At December 31, 2020, Altria had a 35% ownership interest in JUUL.
In March 2019, Altria acquired a 45% ownership interest in Cronos, a global cannabinoid company headquartered in Toronto, Canada.
In March 2019, Altria acquired a 45% ownership interest in Cronos, a global cannabinoid company headquartered in Toronto, Canada.
At December 31, 2020, Altria had a 43.5% ownership interest in Cronos.
At December 31, 2020, Altria had a 43.5% ownership interest in Cronos.
For further discussion of Altria’s investments in equity securities, see Note 6. Investments in Equity Securities.
For further discussion of Altria’s investments in equity securities, see Note 6. Investments in Equity Securities.
Basis of Presentation: The consolidated financial statements include Altria, as well as its wholly owned and majority-owned
▪
Basis of Presentation: The consolidated financial statements include Altria, as well as its wholly owned and majority-owned
▪
subsidiaries. Investments in equity securities in which Altria has the ability to exercise significant influence over the operating and
subsidiaries. Investments in equity securities in which Altria has the ability to exercise significant influence over the operating and
financial policies of the investee are accounted for under the equity method of accounting or the fair value option. Investments in equity
financial policies of the investee are accounted for under the equity method of accounting or the fair value option. Investments in equity
securities that Altria does not have the ability to exercise significant influence over the operating and financial policies of the investee
securities that Altria does not have the ability to exercise significant influence over the operating and financial policies of the investee
are accounted for as an investment in an equity security. All intercompany transactions and balances have been eliminated.
are accounted for as an investment in an equity security. All intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during
disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during
the reporting periods. Significant estimates and assumptions include, among other things, pension and benefit plan assumptions, lives
the reporting periods. Significant estimates and assumptions include, among other things, pension and benefit plan assumptions, lives
and valuation assumptions for goodwill and other intangible assets, impairment and fair value evaluations for equity investments,
and valuation assumptions for goodwill and other intangible assets, impairment and fair value evaluations for equity investments,
marketing programs, income taxes, and the estimated residual values of finance leases. Actual results could differ from those estimates.
marketing programs, income taxes, and the estimated residual values of finance leases. Actual results could differ from those estimates.
In the first quarter of 2020, Altria renamed its smokeless products segment as the oral tobacco products segment.
In the first quarter of 2020, Altria renamed its smokeless products segment as the oral tobacco products segment.
Certain immaterial prior year amounts have been adjusted to conform with the current year’s presentation.
Certain immaterial prior year amounts have been adjusted to conform with the current year’s presentation.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM During the second quarter of 2020, Altria began complying early with U.S. Securities and Exchange Commission (“SEC”) Regulation S-
X Rules 13-01 and 13-02 regarding the financial disclosure requirements for registered debt securities with guarantees. In October 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 made to its disclosure rules on registered debt securities
with guarantees. 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 Annual Report on Form 10-K as permitted by the new rules.
During the fourth quarter of 2020, Altria began complying early with the SEC’s amendments to the financial disclosures rules regarding
acquired and disposed businesses. Among other changes, the amendments impact SEC rules relating to the definition of “significant”
subsidiaries and the requirements related to the provision of financial statements for “significant” acquisitions.
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 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 consolidated financial statements.
Note 2. Summary of Significant Accounting Policies
▪
original maturities of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.
Cash and Cash Equivalents: Cash equivalents include demand deposits with banks and all highly liquid investments with
▪
Depreciation, Amortization and Impairment Testing: Property, plant and equipment are stated at historical costs and
depreciated by the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over
periods up to 25 years, and buildings and building improvements over periods up to 50 years. Definite-lived intangible assets are
amortized over their estimated useful lives up to 25 years.
Altria reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in business
circumstances indicate that the carrying value of the assets may not be fully recoverable. Altria performs undiscounted operating cash
flow analyses to determine if an impairment exists. For purposes of recognition and measurement of an impairment for assets held for
use, Altria groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If Altria determines that an
impairment exists, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any,
are based on the estimated proceeds to be received, less costs of disposal. Altria also reviews the estimated remaining useful lives of
long-lived assets whenever events or changes in business circumstances indicate the lives may have changed.
Altria conducts a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently
if an event occurs or circumstances change that would require Altria to perform an interim review. Altria has the option of first
performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit or indefinite-
lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative
impairment test. If necessary, Altria will perform a single step quantitative impairment test. Additionally, Altria has the option to
unconditionally bypass the qualitative assessment and perform a single step quantitative assessment. If the carrying value of a reporting
unit that includes goodwill exceeds its fair value, which is determined using discounted cash flows, goodwill is considered impaired.
The amount of impairment loss is measured as the difference between the carrying value and the fair value of a reporting unit, but is
limited to the total amount of goodwill allocated to a reporting unit. If the carrying value of an indefinite-lived intangible asset exceeds
its fair value, which is determined using discounted cash flows, the intangible asset is considered impaired and is reduced to fair value in
the period identified.
▪
Derivative Financial Instruments: Altria enters into derivatives 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.
Derivative financial instruments are recorded at fair value on the consolidated balance sheets as either assets or liabilities. Derivative
financial instruments that qualify for hedge accounting are designated as either fair value hedges, cash flow hedges or net investment
hedges at the inception of the contracts. For fair value hedges, changes in the fair value of the derivative, as well as the offsetting
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM changes in the fair value of the hedged item, are recorded in the consolidated statements of earnings (losses) each period. For cash flow
hedges, changes in the fair value of the derivative are recorded each period in accumulated other comprehensive earnings (losses) and
are reclassified to the consolidated statements of earnings (losses) in the same periods in which operating results are affected by the
respective hedged item. For net investment hedges, changes in the fair value of the derivative or foreign currency transaction gains or
losses on a nonderivative hedging instrument are recorded in accumulated other comprehensive earnings (losses) to offset the change in
the value of the net investment being hedged. Such amounts remain in accumulated other comprehensive earnings (losses) until the
complete or substantially complete liquidation of the underlying foreign operations occurs or, for investments in foreign entities
accounted for under the equity method of accounting, Altria’s economic interest in the underlying foreign entity decreases. Cash flows
from hedging instruments are classified in the same manner as the respective hedged item in the consolidated statements of cash flows.
To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, is expected to be
highly effective at offsetting changes in the fair value of the hedged risk during the period that the hedge is designated. Altria formally
designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management
objective, the strategy for undertaking the hedge transaction and method for assessing hedge effectiveness. Additionally, for qualified
hedges of forecasted transactions, if it becomes probable that a forecasted transaction will not occur, the hedge would no longer be
considered effective and all of the derivative gains and losses would be recorded in the consolidated statement of earnings (losses) in the
current period.
For financial instruments that are not designated as hedging instruments or do not qualify for hedge accounting, changes in fair value are
recorded in the consolidated statement of earnings (losses) each period. Altria does not enter into or hold derivative financial
instruments for trading or speculative purposes.
▪
Employee Benefit Plans: Altria provides a range of benefits to certain employees and retired employees, including pension,
postretirement health care and postemployment benefits. Altria records annual amounts relating to these plans based on calculations
specified by GAAP, which include various actuarial assumptions as to discount rates, assumed rates of return on plan assets, mortality,
compensation increases, turnover rates and health care cost trend rates.
Altria recognizes the funded status of its defined benefit pension and other postretirement plans on the consolidated balance sheets and
records as a component of other comprehensive earnings (losses), net of deferred income taxes, the gains or losses and prior service
costs or credits that have not been recognized as components of net periodic benefit cost. The gains or losses and prior service costs or
credits recorded as components of other comprehensive earnings (losses) are subsequently amortized into net periodic benefit cost in
future years.
▪
Environmental Costs: Altria is subject to laws and regulations relating to the protection of the environment. Altria provides
for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are probable and can
be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change.
Compliance with environmental laws and regulations, including the payment of any remediation and compliance costs or damages and
the making of related expenditures, has not had, and is not expected to have, a material adverse effect on Altria’s consolidated results of
operations, capital expenditures, financial position or cash flows. See Note 18. Contingencies - Environmental Regulation.
▪
Fair Value Measurements: Altria measures certain assets and liabilities at fair value. Fair value is defined as the exchange
price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. Altria uses a fair value hierarchy,
which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs used to measure fair value are:
Level 1
Level 2
Level 3
Unadjusted quoted prices in active markets for identical assets or liabilities.
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
▪
Contingencies for a further discussion of guarantees.
Guarantees: Altria recognizes a liability for the fair value of the obligation of qualifying guarantee activities. See Note 18.
▪
Income Taxes: Significant judgment is required in determining income tax provisions and in evaluating tax positions.
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Altria records a valuation
allowance when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.
Altria recognizes a benefit for uncertain tax positions when a tax position taken or expected to be taken in a tax return is more-likely-
than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM that is greater than 50% likely of being realized upon ultimate settlement. Altria recognizes accrued interest and penalties associated
with uncertain tax positions as part of the provision for income taxes in its consolidated statements of earnings (losses).
Inventories: The last-in, first-out (“LIFO”) method is used to determine the cost of substantially all tobacco inventories. The
▪
cost of the remaining inventories is determined using the first-in, first-out (“FIFO”) and average cost methods. Inventories that are
measured using the LIFO method are stated at the lower of cost or market. Inventories that are measured using the FIFO and average
cost methods are stated at the lower of cost and net realizable value. It is a generally recognized industry practice to classify leaf tobacco
and wine inventories as current assets although part of such inventory, because of the duration of the curing and aging process, ordinarily
would not be used within one year. The cost of approximately 59% and 56% of inventories at December 31, 2020 and 2019,
respectively, was determined using the LIFO method. The stated LIFO amounts of inventories were approximately $0.6 billion lower
than the current cost of inventories at December 31, 2020 and 2019.
Investments in Equity Securities: Investments in equity securities in which Altria has the ability to exercise significant
▪
influence over the operating and financial policies of the investee are accounted for under the equity method of accounting or the fair
value option. The election of the fair value option is irrevocable and is made on an investment by investment basis.
Altria elected to account for its investments in ABI and Cronos under the equity method of accounting. Altria’s share of equity earnings
(losses) and other adjustments associated with these equity investments are included in income (losses) from equity investments in the
consolidated statements of earnings (losses). The carrying value for each of Altria’s equity investments in ABI and Cronos is reported in
investments in equity securities on the consolidated balance sheets. Equity method investments accounted for under the equity method
of accounting are reported at cost and adjusted each period for Altria’s share of income (loss) and dividends paid, if any. Altria reports
its share of ABI’s and Cronos’s results using a one-quarter lag because results are not available in time for Altria to record them in the
concurrent period. Altria reviews its equity investments accounted for under the equity method of accounting for impairment by
comparing the fair value of each of its investments to their carrying value. If the carrying value of an investment exceeds its fair value
and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment is
recognized in the period identified. The factors used to make this determination include the duration and magnitude of the fair value
decline, the financial condition and near-term prospects of the investee, and Altria’s intent and ability to hold its investment until
recovery.
Following Share Conversion (as defined in Note 6. Investments in Equity Securities) in the fourth quarter of 2020, Altria elected to
account for its equity investment in JUUL under the fair value option. Under this option, any cash dividends received and any changes
in the fair value of the equity investment in JUUL, which is calculated quarterly using level 3 fair value measurements, are included in
income (losses) from equity investments in the consolidated statements of earnings (losses). The fair value of the equity investment in
JUUL is included in investments in equity securities on the consolidated balance sheet at December 31, 2020. Prior to Altria exercising
its right to convert its non-voting shares to voting shares, Altria accounted for its investment in JUUL as an investment in an equity
security. Since the JUUL shares did 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.
Litigation Contingencies and Costs: Altria and its subsidiaries record provisions in the consolidated financial statements for
▪
pending litigation when it is determined that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.
Litigation defense costs are expensed as incurred and included in marketing, administration and research costs in the consolidated
statements of earnings (losses). See Note 18. Contingencies.
Marketing Costs: Altria’s businesses promote their products with consumer incentives, trade promotions and consumer
▪
engagement programs. These consumer incentive and trade promotion activities, which include discounts, coupons, rebates, in-store
display incentives and volume-based incentives, do not create a distinct deliverable and are, therefore, recorded as a reduction of
revenues. Consumer engagement program payments are made to third parties. Altria’s businesses expense these consumer engagement
programs, which include event marketing, as incurred and such expenses are included in marketing, administration and research costs in
Altria’s consolidated statements of earnings (losses). For interim reporting purposes, Altria’s businesses charge consumer engagement
programs and certain consumer incentive expenses to operations as a percentage of sales, based on estimated sales and related expenses
for the full year.
Revenue Recognition: Altria’s businesses generate substantially all of their revenue from sales contracts with customers.
▪
While Altria’s businesses enter into separate sales contracts with each customer for each product type, all sales contracts are similarly
structured. These contracts create an obligation to transfer product to the customer. All performance obligations are satisfied within one
year; therefore, costs to obtain contracts are expensed as incurred and unsatisfied performance obligations are not disclosed. There is no
financing component because Altria’s businesses expect, at contract inception, that the period between when Altria’s businesses transfer
product to the customer and when the customer pays for that product will be one year or less.
Altria’s businesses define net revenues as revenues, which include excise taxes and shipping and handling charges billed to customers,
net of cash discounts for prompt payment, sales returns (also referred to as returned goods) and sales incentives. Altria’s businesses
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM exclude from the transaction price sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on
cigarettes, cigars, smokeless tobacco or wine billed to customers).
Altria’s businesses recognize revenues from sales contracts with customers upon shipment of goods when control of such products is
obtained by the customer. Altria’s businesses determine that a customer obtains control of the product upon shipment when title of such
product and risk of loss transfers to the customer. Altria’s businesses account for shipping and handling costs as fulfillment costs and
such amounts are classified as part of cost of sales in Altria’s consolidated statements of earnings (losses). Altria’s businesses record an
allowance for returned goods, based principally on historical volume and return rates, which is included in other accrued liabilities on
Altria’s consolidated balance sheets. Altria’s businesses record sales incentives, which consist of consumer incentives and trade
promotion activities, as a reduction to revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers
and consumers at the end of a period) based principally on historical volume, utilization and redemption rates. Expected payments for
sales incentives are included in accrued marketing liabilities on Altria’s consolidated balance sheets.
Payment terms vary depending on product type. Altria’s businesses consider payments received in advance of product shipment as
deferred revenue, which is included in other accrued liabilities on Altria’s consolidated balance sheets until revenue is recognized. PM
USA receives payment in advance of a customer obtaining control of the product. USSTC receives substantially all payments within
one business day of the customer obtaining control of the product. Ste. Michelle receives substantially all payments from customers
within 45 days of the customer obtaining control of the product. Amounts due from customers are included in receivables on Altria’s
consolidated balance sheets.
▪
applicable to, but not yet adopted by, Altria:
New Accounting Guidance Not Yet Adopted: The following table provides a description of issued accounting guidance
Standards
ASU 2019-12
Simplifying the
Accounting for Income
Taxes (Topic 740)
ASU 2020-01
Clarifying the
Interactions between
Topic 321, Topic 323,
and Topic 815
ASU 2020-06
Accounting for
Convertible
Instruments and
Contracts in an
Entity’s Own Equity
Description
The guidance removes certain exceptions for
investments, intraperiod allocations and
interim calculations, and adds guidance to
reduce complexity in accounting for income
taxes.
The 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 guidance simplifies the accounting for
certain financial instruments with
characteristics of liabilities and equity,
including convertible instruments and
contracts in an entity’s own equity. Key
provisions of the guidance include reducing
the number of accounting models, simplifying
the earnings per share calculations and
expanding the disclosures related to
convertible instruments.
Effective Date for Public Entity
The guidance is effective for fiscal
years, and interim periods within
those fiscal years, beginning after
December 15, 2020.
Effect on Financial Statements
Altria’s adoption of this guidance is
not expected to have a material
impact on its consolidated financial
statements.
The guidance is effective for fiscal
years, and interim periods within
those fiscal years, beginning after
December 15, 2020.
Altria’s adoption of this guidance is
not expected to have a material
impact on its consolidated financial
statements.
The guidance is effective for fiscal
years, and interim periods within
those fiscal years, beginning after
December 15, 2021. Early adoption
is permitted, but no earlier than fiscal
years beginning after December 15,
2020, including interim periods
within those fiscal years.
Altria is in the process of evaluating
the impact of this guidance on its
consolidated financial statements and
related disclosures.
Note 3. Revenues from Contracts with Customers
Altria disaggregates net revenues based on product type. For further discussion, see Note 15. Segment Reporting.
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. Altria’s businesses record an allowance for cash discounts, which is
included as a contra-asset against receivables on Altria’s consolidated balance sheets. Cash discounts at December 31, 2020 and 2019,
were de minimis and there were no differences between amounts recorded as an allowance for cash discounts and cash discounts
subsequently given to customers.
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 consolidated balance sheets until control of such products is obtained by the
customer. Deferred revenue was $301 million and $362 million at December 31, 2020 and 2019, respectively. When cash is received in
advance of product shipment, Altria’s businesses satisfy their performance obligations within three days of receiving payment. At
December 31, 2020 and 2019, there were no differences between amounts recorded as deferred revenue and amounts subsequently
recognized as revenue.
Receivables were $137 million and $152 million at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, 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.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria’s businesses record an allowance for returned goods, which is included in other accrued liabilities on Altria’s 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 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 consolidated financial statements.
Note 4. Goodwill and Other Intangible Assets, net
Goodwill and other intangible assets, net, by segment were as follows:
(in millions)
Smokeable products
Oral tobacco products
Wine
Other
Total
Goodwill
Other Intangible Assets, net
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
$
$
99 $
99 $
3,044 $
5,078
—
—
5,078
—
—
9,164
237
170
5,177 $
5,177 $
12,615 $
3,071
9,196
238
182
12,687
At December 31, 2020 and 2019, the accumulated impairment losses related to goodwill were $185 million.
Other intangible assets consisted of the following:
(in millions)
Indefinite-lived intangible assets
Definite-lived intangible assets
Total other intangible assets
December 31, 2020
December 31, 2019
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
$
$
11,676 $
1,275
12,951 $
— $
336
336 $
11,676 $
1,275
12,951 $
Accumulated
Amortization
—
264
264
At December 31, 2020, indefinite-lived intangible assets consist substantially of trademarks from Altria’s 2009 acquisition of UST ($9.0
billion) and 2007 acquisition of Middleton ($2.6 billion). Definite-lived intangible assets, which consist primarily of intellectual
property, customer relationships and certain cigarette trademarks, are amortized over a weighted-average period of 20 years. Pre-tax
amortization expense for definite-lived intangible assets during the years ended December 31, 2020, 2019 and 2018, was $72 million,
$44 million and $38 million, respectively. Annual amortization expense for each of the next five years is estimated to be approximately
$70 million, assuming no additional transactions occur that require the amortization of intangible assets.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The changes in goodwill and net carrying amount of intangible assets were as follows:
(in millions)
Balance at January 1
Changes due to:
Acquisitions (1)
Asset impairment
Amortization
2020
2019
Goodwill
Other Intangible
Assets, net
Goodwill
Other Intangible
Assets, net
$
5,177 $
12,687 $
5,196 $
12,279
—
—
—
—
—
(72)
55
(74)
—
451
—
(43)
12,687
Balance at December 31
(1) Substantially all of the 2019 changes reflect Helix’s acquisition of the Burger Group, which held assets consisting primarily of intellectual property.
For further discussion, see Note 1. Background and Basis of Presentation.
12,615 $
5,177 $
5,177 $
$
During 2020, Altria’s annual impairment test of goodwill and indefinite-lived intangible assets resulted in no impairment charges.
During 2019, upon completion of Altria’s annual impairment testing of goodwill and other indefinite-lived intangible assets, Altria
concluded that goodwill of $74 million in the wine segment was fully impaired as the wine reporting unit was impacted by a slowing
growth rate in the premium wine category and higher inventories.
During 2018, Altria recorded goodwill and other intangible asset impairment charges of $111 million and $44 million, respectively,
related to Altria’s decision in the fourth quarter of 2018 to refocus its companies’ innovative product efforts, which included the
discontinuation of production and distribution of all e-vapor products.
In addition, during 2018, upon completion of Altria’s annual impairment testing, Altria concluded that the $54 million carrying value of
the Columbia Crest trademark in the wine segment was fully impaired as Columbia Crest has been negatively impacted by an
accelerated decline in the $7 to $10 premium wine segment, increased competition and reduction in trade support.
Note 5. Asset Impairment, Exit and Implementation Costs
Pre-tax asset impairment, exit and implementation costs (income) consisted of the following:
(in millions)
Asset Impairment
and Exit Costs
For the year ended December 31,
2020
2019
2018
Implementation Costs
2019 (2)
2020 (1)
2018 (1)
Total
2020
2019
2018
Smokeable products
Oral tobacco products
Wine (3)
All other
General corporate
Total
$
2 $
59 $
79 $ — $
33 $
1 $
2 $
92 $
(5)
—
—
(1)
(4)
9
76
14
1
159
20
54
227
3
383
—
411
—
—
411
5
—
(10)
—
28
3
—
63
—
67
(5)
411
—
(1)
407
14
76
4
1
187
Plus amounts included in net periodic
benefit (income) cost, excluding
service cost (4)
Total
—
(4) $
29
188 $
3
386 $
—
411 $
—
28 $
—
67 $
$
—
29
407 $
216 $
80
23
54
290
3
450
3
453
(1) Included in cost of sales in Altria’s consolidated statements of earnings (losses).
(2) Included in cost of sales ($2 million) and marketing, administration and research costs ($26 million) in Altria’s consolidated statement of earnings
(losses).
(3) Includes impairment of goodwill for the wine reporting unit in 2019 and impairment of the Columbia Crest trademark in 2018. See Note 4. Goodwill
and Other Intangible Assets, net.
(4) Represents settlement and curtailment costs. See Note 16. Benefit Plans.
Implementation costs for 2020 were related to Ste. Michelle’s strategic reset, as discussed below.
The 2019 pre-tax asset impairment, exit and implementation costs were related to the cost reduction program and the refocus of
innovative product efforts discussed below, and the goodwill impairment for the wine reporting unit.
Substantially all of the 2018 pre-tax asset impairment, exit and implementation costs were related to the refocus of innovative product
efforts and the cost reduction program discussed below, and the impairment of the Columbia Crest trademark.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The movement in the restructuring liabilities, substantially all of which were severance liabilities, for the years ended December 31,
2020 and 2019 was as follows:
(in millions)
Balances at December 31, 2018
Charges
Cash spent
Balances at December 31, 2019
Cost reversals, net
Cash spent
Balances at December 31, 2020
$
$
155
59
(147)
67
(4)
(47)
16
Wine Business Strategic Reset: Evolving adult consumer preferences have posed strategic challenges for Ste. Michelle, which
▪
has seen slowing growth in the wine category and increased inventory levels in recent periods. Against a backdrop of product volume
demand uncertainty and long-term, non-cancelable grape purchase commitments, which have been further negatively impacted by the
COVID-19 pandemic (including economic uncertainty and government actions that restrict direct-to-consumer sales and on-premise
sales), Ste. Michelle experienced additional increases in inventory levels that, in 2020, significantly exceeded long-term forecasted
demand.
During the year ended December 31, 2020, Ste. Michelle recorded pre-tax charges of $411 million, which were included in cost of sales
in Altria’s consolidated statement of earnings (losses). The charges consisted primarily of the following: (i) write-off of inventory ($292
million recorded in the first quarter of 2020) as Ste. Michelle no longer believed that the benefit of the blending and production plans for
its inventory outweighs inventory carrying cost given the reduced product volume demand; (ii) estimated losses on future non-cancelable
grape purchase commitments that Ste. Michelle believed no longer have a future economic benefit ($100 million recorded in the first
quarter of 2020); and (iii) inventory disposal costs and other charges ($19 million). The non-cancelable grape purchase commitments
will continue to require cash payments as grape commitments are fulfilled over the next four years.
Given such uncertainty in economic conditions and product volume demand, as well as long-term supply-side contractual challenges,
Altria and Ste. Michelle undertook a review of the wine business. As a result, Altria and Ste. Michelle implemented a strategic reset in
order to maximize Ste. Michelle’s profitability and achieve improved long-term cash-flow generation. This strategic reset includes: (i)
an updated approach to forecasting demand; (ii) supply chain optimization; (iii) SKU rationalization to reduce the number of products
and eliminate underperforming brands; and (iv) streamlining operations by reducing future capital expenditures, working capital
requirements and ongoing operating costs.
Refocus of Innovative Product Efforts: During the fourth quarter of 2018, Altria refocused its companies’ innovative product
▪
efforts, which included the discontinuation of production and distribution of all e-vapor products. During the year ended December 31,
2019, Altria incurred pre-tax charges of $9 million, consisting of asset impairment, exit and implementation costs. During 2018, Altria
incurred pre-tax charges of $272 million, consisting of asset impairment and exit costs of $209 million primarily related to the
impairment of goodwill and other intangible assets and other charges of $63 million related to inventory write-offs and accelerated
depreciation. The pre-tax charges related to the refocus of innovative product efforts have been completed. The majority of the charges
related to these efforts did not result in cash payments.
▪
Cost Reduction Program: In December 2018, Altria announced a cost reduction program that included workforce reductions
and third-party spending reductions across the businesses. As a result of the cost reduction program, Altria recorded total pre-tax
restructuring charges of $250 million, which included employee benefit-related curtailment and settlement costs. Of this amount, Altria
recorded net pre-tax cost reversals of $4 million in 2020 and pre-tax charges of $133 million in 2019 and $121 million in 2018. The
total charges, the majority of which resulted in cash expenditures, related primarily to employee separation costs of $198 million and
other costs of $52 million. The pre-tax charges related to this cost reduction program have been completed. Cash payments related to
this cost reduction program of $44 million and $136 million were made during the years ended December 31, 2020 and 2019,
respectively, for total cash payments of $180 million since inception.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 6. Investments in Equity Securities
Altria’s investments at December 31, 2020 and 2019 consisted of the following:
(in millions)
ABI
JUUL
Cronos (1)
Total
Carrying Amount
December 31, 2020
December 31, 2019
$
16,651 $
1,705
1,173
18,071
4,205
1,305
23,581
(1) 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), (collectively, “Investment in Cronos”). The Investment in Cronos at December 31, 2019 included Altria’s equity
method investment in Cronos ($1,002 million), the Cronos warrant ($234 million) and the Fixed-price Preemptive Rights ($69 million). See below
for further discussion.
19,529 $
$
Income (losses) from equity investments accounted for under the equity method of accounting and fair value option for the years ended
December 31, 2020, 2019 and 2018 consisted of the following:
(in millions)
ABI (1)
Cronos
Income (losses) from investments under equity method of
accounting
JUUL
Income (losses) from equity investments
2020
2019
2018
(223) $
1,229 $
12
(211)
100
496
1,725
—
(111) $
1,725 $
890
—
890
—
890
$
$
(1) During 2020, ABI amounts recorded by Altria included pre-tax losses associated with its share of ABI’s (i) mark-to-market losses on certain ABI
financial instruments associated with its share commitments, (ii) completion of the sale of its Australia subsidiary and (iii) goodwill impairment
charge associated with its Africa businesses. These amounts included Altria’s share of amounts recorded by ABI, and may also include additional
adjustments related to (i) conversion from international financial reporting standards to GAAP and (ii) adjustments to Altria’s investment required
under the equity method of accounting.
Investment in ABI
At December 31, 2020, 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. Altria’s ownership percentage decreased from 10.1% at December 31, 2019 due to the
issuance of additional shares by 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.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Summary financial data of ABI is as follows:
(in millions)
Net revenues
Gross profit
Earnings from continuing operations
Net earnings
Net earnings attributable to ABI
(in millions)
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Noncontrolling interests
(1) Reflects the one-quarter lag.
For Altria’s Year Ended December 31,
2019 (1)
2018 (1)
2020 (1)
$
$
$
$
$
$
$
$
$
$
48,294 $
28,438 $
4,265 $
4,266 $
3,323 $
54,187 $
33,735 $
10,530 $
10,530 $
9,189 $
At September 30,
2020 (1)
2019 (1)
28,672 $
185,106 $
34,884 $
117,400 $
8,459 $
55,500
34,986
9,020
9,020
7,641
27,353
199,591
36,819
119,025
8,765
At December 31, 2020, Altria’s carrying value of its equity investment in ABI exceeded its share of ABI’s net assets attributable to
equity holders of ABI by approximately $11.3 billion. Substantially all of this difference is comprised of goodwill and other indefinite-
lived intangible assets (consisting primarily of trademarks).
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 December 31, 2020 and 2019 was $13.8 billion (carrying value of $16.7 billion)
and $16.1 billion (carrying value of $18.1 billion), respectively, which was less than its carrying value by approximately 17% and 11%,
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 recent 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 December 31, 2020, 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 December 31, 2020 and 2019, that the decline in fair value of its investment
in ABI below its carrying value was temporary and, therefore, no impairment was recorded.
In December 2020, ABI completed the issuance of a minority stake in its U.S.-based metal container plants for $3 billion in cash
proceeds. Consistent with the one-quarter lag for reporting ABI’s results in Altria’s financial results, in the first quarter of 2021, Altria
will record the financial statement impact, which has not yet been determined but may be material, related to this transaction.
Investment in JUUL
In December 2018, Altria made an investment in JUUL for $12.8 billion. In exchange for the investment, Altria received a 35%
economic interest in JUUL through non-voting shares, which were convertible at Altria’s election into voting shares (“Share
Conversion”), and for no additional payment, 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.
As part of the JUUL Transaction, Altria and JUUL entered into a services agreement pursuant to which Altria agreed to provide JUUL
with certain commercial services, as requested by JUUL, for an initial term of six years. Altria also agreed to grant JUUL a non-
exclusive, royalty-free perpetual, irrevocable, sublicensable license to Altria’s non-trademark licensable intellectual property rights in the
e-vapor field, subject to the terms and conditions set forth in an intellectual property license agreement between the parties.
Additionally, Altria agreed to non-competition obligations generally requiring that it participate in the e-vapor business only through
JUUL as long as Altria is supplying JUUL services, which Altria is committed to doing until at least December 20, 2024.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM In January 2020, Altria and JUUL amended certain JUUL Transaction agreements and entered into a new cooperation agreement, which
included the following provisions:
▪
▪
Altria will continue to provide regulatory affairs support for JUUL’s pursuit of its pre-market tobacco applications (“PMTA”)
and/or its modified risk tobacco products authorization (“MRTP”) and discontinued all other services as of March 31, 2020.
Altria will have the option to be released from its non-compete obligation (i) in the event JUUL is prohibited by federal law from
selling e-vapor products in the U.S. for a continuous period of at least 12 months (subject to tolling of this period in certain
circumstances) or (ii) if the carrying value of Altria’s investment in JUUL is not more than 10% of its initial carrying value of
$12.8 billion.
▪
Altria and JUUL agreed that for a period of one year they will not pursue any litigation against each other in connection with any
conduct that occurred prior to the date of such cooperation agreement, with statutes of limitation being tolled during the one-year
In January 2020, Altria and JUUL amended certain JUUL Transaction agreements and entered into a new cooperation agreement, which
period.
included the following provisions:
•
▪
▪
▪
▪
▪
▪
▪
•
▪
• With respect to certain litigation in which Altria and JUUL are both defendants against third-party plaintiffs, Altria will not
Altria will continue to provide regulatory affairs support for JUUL’s pursuit of its pre-market tobacco applications (“PMTA”)
▪
pursue any claims against JUUL for indemnification or reimbursement except for any non-contractual claims for contribution or
and/or its modified risk tobacco products authorization (“MRTP”) and discontinued all other services as of March 31, 2020.
In January 2020, Altria and JUUL amended certain JUUL Transaction agreements and entered into a new cooperation agreement, which
indemnity where a judgment has been entered against Altria and JUUL.
included the following provisions:
Altria will have the option to be released from its non-compete obligation (i) in the event JUUL is prohibited by federal law from
In the event of Share Conversion and if Altria chooses to exercise its governance rights (which it has not currently elected to do,
selling e-vapor products in the U.S. for a continuous period of at least 12 months (subject to tolling of this period in certain
Altria will continue to provide regulatory affairs support for JUUL’s pursuit of its pre-market tobacco applications (“PMTA”)
as discussed below), JUUL will:
circumstances) or (ii) if the carrying value of Altria’s investment in JUUL is not more than 10% of its initial carrying value of
and/or its modified risk tobacco products authorization (“MRTP”) and discontinued all other services as of March 31, 2020.
$12.8 billion.
restructure JUUL’s current seven-member board of directors to a nine-member board that will include independent board
Altria will have the option to be released from its non-compete obligation (i) in the event JUUL is prohibited by federal law from
members. The new structure will include: (i) three independent directors (one of whom will be designated by Altria and
Altria and JUUL agreed that for a period of one year they will not pursue any litigation against each other in connection with any
selling e-vapor products in the U.S. for a continuous period of at least 12 months (subject to tolling of this period in certain
two of whom will be designated by JUUL stockholders other than Altria) unanimously certified as independent by a
conduct that occurred prior to the date of such cooperation agreement, with statutes of limitation being tolled during the one-year
circumstances) or (ii) if the carrying value of Altria’s investment in JUUL is not more than 10% of its initial carrying value of
nominating committee, which will include at least one Altria designee, (ii) two directors designated by Altria, (iii) three
period.
$12.8 billion.
directors designated by JUUL stockholders other than Altria, and (iv) the JUUL Chief Executive Officer; and
• With respect to certain litigation in which Altria and JUUL are both defendants against third-party plaintiffs, Altria will not
Altria and JUUL agreed that for a period of one year they will not pursue any litigation against each other in connection with any
▪
▪
create a Litigation Oversight Committee, which will include two Altria designated directors (one of whom will chair the
pursue any claims against JUUL for indemnification or reimbursement except for any non-contractual claims for contribution or
conduct that occurred prior to the date of such cooperation agreement, with statutes of limitation being tolled during the one-year
Litigation Oversight Committee) that will have oversight authority and review of litigation management for matters in
indemnity where a judgment has been entered against Altria and JUUL.
period.
which JUUL and Altria are co-defendants and have or reasonably could have a written joint defense agreement in effect
In the event of Share Conversion and if Altria chooses to exercise its governance rights (which it has not currently elected to do,
•
• With respect to certain litigation in which Altria and JUUL are both defendants against third-party plaintiffs, Altria will not
between them. Subject to certain limitations, the Litigation Oversight Committee will recommend to JUUL changes to
as discussed below), JUUL will:
pursue any claims against JUUL for indemnification or reimbursement except for any non-contractual claims for contribution or
outside counsel and litigation strategy by majority vote, with disagreements by JUUL’s management being resolved by
indemnity where a judgment has been entered against Altria and JUUL.
restructure JUUL’s current seven-member board of directors to a nine-member board that will include independent board
majority vote of JUUL’s board of directors.
members. The new structure will include: (i) three independent directors (one of whom will be designated by Altria and
In the event of Share Conversion and if Altria chooses to exercise its governance rights (which it has not currently elected to do,
On April 1, 2020, the FTC issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion on the
two of whom will be designated by JUUL stockholders other than Altria) unanimously certified as independent by a
as discussed below), JUUL will:
FTC litigation, see Note 18. Contingencies - Antitrust Litigation.
nominating committee, which will include at least one Altria designee, (ii) two directors designated by Altria, (iii) three
restructure JUUL’s current seven-member board of directors to a nine-member board that will include independent board
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to voting shares. Altria does not currently intend to
directors designated by JUUL stockholders other than Altria, and (iv) the JUUL Chief Executive Officer; and
members. The new structure will include: (i) three independent directors (one of whom will be designated by Altria and
exercise its additional governance rights obtained upon Share Conversion, including the right to elect directors to JUUL’s board or to
create a Litigation Oversight Committee, which will include two Altria designated directors (one of whom will chair the
two of whom will be designated by JUUL stockholders other than Altria) unanimously certified as independent by a
vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint. At December 31, 2020,
Litigation Oversight Committee) that will have oversight authority and review of litigation management for matters in
nominating committee, which will include at least one Altria designee, (ii) two directors designated by Altria, (iii) three
Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
which JUUL and Altria are co-defendants and have or reasonably could have a written joint defense agreement in effect
directors designated by JUUL stockholders other than Altria, and (iv) the JUUL Chief Executive Officer; and
Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity method investment in JUUL under the
between them. Subject to certain limitations, the Litigation Oversight Committee will recommend to JUUL changes to
create a Litigation Oversight Committee, which will include two Altria designated directors (one of whom will chair the
fair value option. Under this option, Altria’s consolidated statements of earnings (losses) include any cash dividends received from its
outside counsel and litigation strategy by majority vote, with disagreements by JUUL’s management being resolved by
Litigation Oversight Committee) that will have oversight authority and review of litigation management for matters in
investment in JUUL and any changes in the fair value of its investment, which is calculated quarterly. Altria believes the fair value
majority vote of JUUL’s board of directors.
which JUUL and Altria are co-defendants and have or reasonably could have a written joint defense agreement in effect
option provides quarterly transparency to investors as to the fair market value of Altria’s investment in JUUL, given the changes and
On April 1, 2020, the FTC issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion on the
between them. Subject to certain limitations, the Litigation Oversight Committee will recommend to JUUL changes to
volatility in the e-vapor category since Altria’s initial investment, as well as the lack of publicly available information regarding JUUL’s
FTC litigation, see Note 18. Contingencies - Antitrust Litigation.
outside counsel and litigation strategy by majority vote, with disagreements by JUUL’s management being resolved by
business or a market-derived valuation.
majority vote of JUUL’s board of directors.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to voting shares. Altria does not currently intend to
The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, which is classified in Level 3
exercise its additional governance rights obtained upon Share Conversion, including the right to elect directors to JUUL’s board or to
On April 1, 2020, the FTC issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion on the
of the fair value hierarchy:
vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint. At December 31, 2020,
FTC litigation, see Note 18. Contingencies - Antitrust Litigation.
Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to voting shares. Altria does not currently intend to
Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity method investment in JUUL under the
exercise its additional governance rights obtained upon Share Conversion, including the right to elect directors to JUUL’s board or to
Balance at December 31, 2019
—
fair value option. Under this option, Altria’s consolidated statements of earnings (losses) include any cash dividends received from its
vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint. At December 31, 2020,
1,605
Transfers into Level 3 fair value
investment in JUUL and any changes in the fair value of its investment, which is calculated quarterly. Altria believes the fair value
Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
Unrealized gains included with income / (losses) from equity investments
100
option provides quarterly transparency to investors as to the fair market value of Altria’s investment in JUUL, given the changes and
Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity method investment in JUUL under the
Balance at December 31, 2020
1,705
volatility in the e-vapor category since Altria’s initial investment, as well as the lack of publicly available information regarding JUUL’s
fair value option. Under this option, Altria’s consolidated statements of earnings (losses) include any cash dividends received from its
business or a market-derived valuation.
investment in JUUL and any changes in the fair value of its investment, which is calculated quarterly. Altria believes the fair value
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares
The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, which is classified in Level 3
option provides quarterly transparency to investors as to the fair market value of Altria’s investment in JUUL, given the changes and
do not have a readily determinable fair value, Altria elected to measure its investment in JUUL at its cost minus impairment, if any, plus
of the fair value hierarchy:
volatility in the e-vapor category since Altria’s initial investment, as well as the lack of publicly available information regarding JUUL’s
or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same
business or a market-derived valuation.
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, Altria reviewed its
The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, which is classified in Level 3
—
Balance at December 31, 2019
of the fair value hierarchy:
Transfers into Level 3 fair value
(in millions)
(in millions)
1,605
$
$
$
▪
70
(in millions)
71
71
100
Unrealized gains included with income / (losses) from equity investments
—
Balance at December 31, 2019
1,705
Balance at December 31, 2020
1,605
Transfers into Level 3 fair value
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares
100
Unrealized gains included with income / (losses) from equity investments
do not have a readily determinable fair value, Altria elected to measure its investment in JUUL at its cost minus impairment, if any, plus
Balance at December 31, 2020
or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same
$
1,705
issuer. There were no upward or downward adjustments to the carrying value of Altria’s investment in JUUL resulting from observable
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares
price changes in orderly transactions since the JUUL Transaction through the date of Share Conversion. In addition, Altria reviewed its
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, Altria reviewed its
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$
$
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 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.
2020 Financial Activity
▪
▪
▪
Altria recorded a non-cash pre-tax unrealized gain of $100 million for the fourth quarter and year ended December 31, 2020 as
a result of an increase in the fair value of JUUL. The increase in fair value was primarily driven by the effect of passage of time
on the projected cash flows, as there were no material changes in the significant assumptions.
JUUL announced a strategic update in September 2020, which included its plans for a significant global workforce reduction,
its evaluation of its resource allocation and the possibility of exiting various international markets. As part of the preparation of
Altria’s financial statements for the period ended September 30, 2020, Altria performed a qualitative assessment of impairment
indicators for its investment in JUUL and determined that JUUL’s strategic update was an indicator of impairment at September
30, 2020, given the significant deterioration in JUUL’s business prospects.
Given the existence of this impairment indicator, Altria performed a quantitative valuation of its investment in JUUL during the
third quarter of 2020 and recorded a non-cash pre-tax charge of $2.6 billion for the year ended December 31, 2020, reported as
impairment of JUUL equity securities in its consolidated statement of earnings (losses). The impairment charge was driven by
Altria’s projections of lower JUUL revenues over time due to lower pricing assumptions and delays in JUUL achieving
previously forecasted operating margin performance. These drivers were the result of: (i) JUUL’s revised international
expansion plans and (ii) the evolving U.S. e-vapor category and associated competitive dynamics.
2019 Financial Activity
▪
In 2019, Altria recorded total non-cash pre-tax impairment charges of $8.6 billion ($4.5 billion in the third quarter of 2019 and
$4.1 billion in the fourth quarter of 2019) related to its investment in JUUL resulting in a $4.2 billion carrying value of its
investment in JUUL at December 31, 2019.
▪
In the third quarter of 2019, Altria performed a qualitative assessment for impairment indicators and concluded that
impairment indicators existed. These indicators included significant adverse changes in both the e-vapor regulatory
environment and the industry in which JUUL operates. While there was no single determinative event or factor, Altria
considered in totality the following indicators of impairment: the increased likelihood of a United States Food and
Drug Administration (“FDA”) compliance policy prohibiting the sale of certain flavored e-vapor products in the U.S.
market without a pre-market authorization; various e-vapor bans put in place by certain states and cities in the U.S. and
in certain international markets, coupled with the increased potential for additional bans in the future; and the impact
of heightened adverse publicity, including news reports and public health advisories concerning vaping-related lung
injuries and deaths. Altria determined that the third-quarter 2019 impairment charge was due primarily to lower e-
vapor sales volume assumptions in the U.S. and international markets and a delay in achieving operating margin
performance as compared to the assumptions at the time of the JUUL Transaction, which resulted in a non-cash pre-tax
In January 2020, Altria and JUUL amended certain JUUL Transaction agreements and entered into a new cooperation agreement, which
charge of $4.5 billion.
included the following provisions:
▪
•
▪
▪
In the fourth quarter of 2019, Altria determined that a significant increase in the number of legal cases pending against
Altria will continue to provide regulatory affairs support for JUUL’s pursuit of its pre-market tobacco applications (“PMTA”)
JUUL in the fourth quarter of 2019, which included a variety of class action lawsuits and personal injury claims, as
and/or its modified risk tobacco products authorization (“MRTP”) and discontinued all other services as of March 31, 2020.
well as cases brought by state attorneys general and local governments, resulted in an additional indicator of
Altria will have the option to be released from its non-compete obligation (i) in the event JUUL is prohibited by federal law from
impairment. Altria determined that the fourth-quarter 2019 impairment charge resulted substantially from increased
selling e-vapor products in the U.S. for a continuous period of at least 12 months (subject to tolling of this period in certain
discount rates applied to future cash flow projections, due to the significant risk created by the increase in the number
circumstances) or (ii) if the carrying value of Altria’s investment in JUUL is not more than 10% of its initial carrying value of
of legal cases pending against JUUL and the expectation that the number of legal cases against JUUL will continue to
$12.8 billion.
increase, which resulted in an additional non-cash pre-tax charge of $4.1 billion.
Altria and JUUL agreed that for a period of one year they will not pursue any litigation against each other in connection with any
conduct that occurred prior to the date of such cooperation agreement, with statutes of limitation being tolled during the one-year
period.
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.
• With respect to certain litigation in which Altria and JUUL are both defendants against third-party plaintiffs, Altria will not
pursue any claims against JUUL for indemnification or reimbursement except for any non-contractual claims for contribution or
indemnity where a judgment has been entered against Altria and JUUL.
In determining the fair value of its investment in JUUL, in 2020 and 2019, 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.
In the event of Share Conversion and if Altria chooses to exercise its governance rights (which it has not currently elected to do,
as discussed below), JUUL will:
As disclosed in Note 8. Short-term Borrowings and Borrowing Arrangements, Altria financed the JUUL Transaction and the Investment
in Cronos (defined below) through a senior unsecured term loan agreement (the “Term Loan Agreement”). Costs incurred to effect the
restructure JUUL’s current seven-member board of directors to a nine-member board that will include independent board
members. The new structure will include: (i) three independent directors (one of whom will be designated by Altria and
two of whom will be designated by JUUL stockholders other than Altria) unanimously certified as independent by a
nominating committee, which will include at least one Altria designee, (ii) two directors designated by Altria, (iii) three
directors designated by JUUL stockholders other than Altria, and (iv) the JUUL Chief Executive Officer; and
▪
•
▪
create a Litigation Oversight Committee, which will include two Altria designated directors (one of whom will chair the
Litigation Oversight Committee) that will have oversight authority and review of litigation management for matters in
which JUUL and Altria are co-defendants and have or reasonably could have a written joint defense agreement in effect
between them. Subject to certain limitations, the Litigation Oversight Committee will recommend to JUUL changes to
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outside counsel and litigation strategy by majority vote, with disagreements by JUUL’s management being resolved by
majority vote of JUUL’s board of directors.
On April 1, 2020, the FTC issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion on the
FTC litigation, see Note 18. Contingencies - Antitrust Litigation.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to 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 December 31, 2020,
Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
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 consolidated statements of earnings (losses) 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
The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, which is classified in Level 3
business or a market-derived valuation.
of the fair value hierarchy:
Balance at December 31, 2019
Transfers into Level 3 fair value
Balance at December 31, 2020
Unrealized gains included with income / (losses) from equity investments
(in millions)
—
1,605
100
1,705
$
$
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, Altria reviewed its
71
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM investment in JUUL were recognized as expenses in Altria’s consolidated statements of earnings (losses). For the years ended
December 31, 2019 and 2018, Altria incurred $8 million and $85 million, respectively, of pre-tax acquisition-related costs, consisting
primarily of advisory fees, substantially all of which were recorded in marketing, administration and research costs.
Investment in Cronos
In March 2019, Altria completed its acquisition of:
▪
▪
▪
149.8 million newly issued common shares of Cronos (“Acquired Common Shares”), which represented a 45% economic and
voting interest;
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 December 31, 2020, Altria estimates the Fixed-price Preemptive Rights allows
Altria to purchase up to an additional approximately 30 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 80
million common shares at December 31, 2020) at a per share exercise price of CAD $19.00, which expires on March 8, 2023.
The total purchase price for the Acquired Common Shares, Fixed-price Preemptive Rights and warrant was CAD $2.4 billion (U.S.
dollar (“USD”) $1.8 billion).
In accounting for the acquisition of these assets as of the date of closing, the Fixed-price Preemptive Rights and warrant were recorded at
each of their fair values using Black-Scholes option-pricing models, based on the assumptions described in Note 7. Financial
Instruments. In addition, a deferred tax liability related to the Fixed-price Preemptive Rights and warrant was recorded. The residual of
the purchase price was allocated to the Acquired Common Shares. Accordingly, the CAD $2.4 billion (USD $1.8 billion) purchase price
was recorded in USD as follows:
▪
▪
▪
▪
$1.2 billion to the warrant;
$0.5 billion to the Fixed-price Preemptive Rights;
$0.4 billion to the Acquired Common Shares; and
$0.3 billion to a deferred tax liability.
If exercised in full, the exercise prices for the warrant and Fixed-price Preemptive Rights are approximately CAD $1.5 billion and CAD
$0.5 billion (approximately USD $1.2 billion and $0.4 billion, respectively, based on the CAD to USD exchange rate on January 25,
2021). At December 31, 2020, upon full exercise of the Fixed-price Preemptive Rights, to the extent such rights become available, and
the warrant, Altria would own approximately 54% 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 7. Financial Instruments.
At December 31, 2020, Altria had a 43.5% 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 45% at December 31, 2019 due to the issuance of
additional shares by Cronos for which Altria did not exercise its Fixed-price Preemptive Rights. 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.
Altria nominated four directors, including one director who is independent from Altria, who serve on Cronos’s seven-member board of
directors.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Summary financial data of Cronos is as follows:
(in millions)
Net revenues
Gross profit
Earnings from continuing operations
Net earnings
Net earnings attributable to Cronos
(in millions)
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Noncontrolling interests
For Altria’s Year Ended December 31,
2020 (1)
2019 (1)
$
$
$
$
$
$
$
$
$
$
37 $
(31) $
99 $
98 $
100 $
At September 30,
2020 (1)
2019 (1)
1,394 $
525 $
143 $
12 $
(3) $
21
10
1,117
1,117
1,117
1,575
511
457
7
—
(1) Reflects the one-quarter lag. Summary financial data of Cronos’s results for Altria’s year ended December 31, 2019 include Cronos’s results for the
period March 8, 2019 through September 30, 2019.
At December 31, 2020, Altria’s carrying value of its equity method investment in Cronos exceeded its share of Cronos’s net assets
attributable to equity holders of Cronos by approximately $0.2 billion. Substantially all of this difference is comprised of definite-lived
intangible assets (consisting of licenses, distribution agreements and developed technology).
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 December 31, 2020 and 2019 was $1.1 billion (carrying value of $1.0 billion) and $1.2 billion (carrying value of $1.0 billion),
respectively, which exceeded its carrying value by approximately 8% and 20% at December 31, 2020 and 2019, respectively.
Note 7. 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)
Foreign currency contracts (notional amounts)
Foreign currency denominated debt
Carrying value
Fair value
December 31, 2020 December 31, 2019
2,246
$
1,066 $
5,171
5,687
4,741
5,057
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.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The following table provides the aggregate carrying value and fair value of Altria’s total long-term debt:
(in millions)
Carrying value
Fair value
December 31, 2020 December 31, 2019
$
29,471 $
34,682
28,042
30,710
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 6. 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:
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Fixed-price Preemptive Rights
Cronos Warrant
C$8.84
Share price (1)
Expected life (2)
Expected volatility (3)
Risk-free interest rate (4)(5)
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 5 years at
1.05 years
2.18 years
1.67 years
3.18 years
80.68%
80.68%
81.61%
81.61%
C$8.84
C$9.97
C$9.97
0.21%
0.13%
1.69%
1.71%
—%
—%
—%
December 31, 2020 and 0.25 year to 6 years at December 31, 2019) and the March 8, 2023 expiration date of the Cronos warrant.
(3) Based on a blend of historical volatility levels of the underlying equity security and peer companies.
(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues (with a range from approximately 0.06% to 0.39% at
December 31, 2020 and 1.66% to 1.74% at December 31, 2019) 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 January 1
Initial investment in Fixed-price Preemptive Rights and warrant
Exercise of Fixed-price Preemptive Rights
Pre-tax earnings (losses) recognized in net earnings
Balance at December 31
2020
2019
303 $
—
—
(140)
163 $
—
1,736
(22)
(1,411)
303
$
$
74
75
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria elects to record the gross assets and liabilities of derivative financial instruments executed with the same counterparty on its
consolidated balance sheets. The fair values of Altria’s derivative financial instruments on a gross basis included on the consolidated
balance sheets were as follows:
Balance Sheet
Classification
Fair Value of Assets
December 31,
2020
December 31,
2019
Balance Sheet
Classification
December 31,
2020
December 31,
2019
Fair Value of Liabilities
(in millions)
Derivatives designated as hedging
instruments:
Foreign currency contracts
Other current
assets
Foreign currency contracts
Other assets
Total
Derivatives not designated as
hedging instruments:
Cronos warrant
Fixed-price Preemptive Rights
Total
Total derivatives
Investments in
equity securities
Investments in
equity securities
$
$
$
$
$
— $
46 Other accrued
liabilities
—
— $
— Other liabilities
46
$
$
87 $
—
87 $
7
21
28
139 $
24
163 $
163 $
234
69
303
349
$
87 $
28
Altria records in its consolidated statements of earnings (losses) 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 years ended
December 31, 2020 and 2019, Altria recognized pre-tax unrealized (losses) representing the changes in the fair values of the Fixed-price
Preemptive Rights and Cronos warrant, as follows:
(in millions)
Fixed-price Preemptive Rights
Cronos warrant
Total
For the Years Ended December 31,
2020
2019
$
$
(45) $
(95)
(140) $
(434)
(977)
(1,411)
Additionally, in January and February 2019, Altria entered into derivative financial instruments in the form of forward contracts, which
were settled in March 2019, to hedge Altria’s exposure to CAD to USD foreign currency exchange rate movements, in relation to the
CAD $2.4 billion purchase price for the Investment in Cronos. The aggregate notional amounts of the forward contracts were USD $1.8
billion (CAD $2.4 billion). The forward contracts did not qualify for hedge accounting; therefore, in the first quarter of 2019, pre-tax
losses of USD $31 million representing changes in the fair values of the forward contracts were recorded in loss on Cronos-related
financial instruments in Altria’s consolidated statement of earnings (losses).
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 December 31, 2020 and
December 31, 2019.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM ▪
and the consolidated statements of earnings (losses) were as follows:
Net Investment Hedging: The pre-tax effects of Altria’s net investment hedges on accumulated other comprehensive losses
Gain (Loss) Recognized in Accumulated
Other Comprehensive Losses
Gain (Loss) Recognized
in Net Earnings (Losses) (1)
For the Years Ended December 31,
(in millions)
2020
2019
2020
2019
Foreign currency contracts
$
Foreign currency denominated debt
Total
$
(1) Related to amounts excluded from effectiveness testing.
(79) $
(424)
(503) $
23 $
35
58 $
40 $
—
40 $
36
—
36
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 consolidated statements of earnings (losses) based on an amortization approach.
Note 8. Short-Term Borrowings and Borrowing Arrangements
At December 31, 2020 and 2019, Altria had no short-term borrowings.
At December 31, 2020, Altria had a senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”) that
provides for borrowings up to an aggregate principal amount of $3.0 billion. The Credit Agreement, which is used for general corporate
purposes, expires on August 1, 2023 and includes an option, subject to certain conditions, for Altria to extend the Credit Agreement for
two additional one-year periods. Pricing for interest and fees under the Credit Agreement may be modified in the event of a change in
the rating of Altria’s long-term senior unsecured debt. Interest rates on borrowings under the Credit Agreement are expected to be based
on the London Interbank Offered Rate (“LIBOR”), or a mutually agreed upon benchmark rate, plus a percentage based on the higher of
the ratings of Altria’s long-term senior unsecured debt from Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s
Ratings Services (“Standard & Poor’s”). The applicable percentage based on Altria’s long-term senior unsecured debt ratings at
December 31, 2020 for borrowings under the Credit Agreement was 1.0%. The Credit Agreement does not include any other rating
triggers, or any provisions that could require the posting of collateral.
The Credit Agreement includes various covenants, one of which requires Altria to maintain a ratio of consolidated earnings before
interest, taxes, depreciation and amortization (“EBITDA”) to Consolidated Interest Expense of not less than 4.0 to 1.0, calculated as of
the end of the applicable quarter on a rolling four quarters basis. At December 31, 2020, the ratio of consolidated EBITDA to
Consolidated Interest Expense, calculated in accordance with the Credit Agreement, was 9.0 to 1.0. At December 31, 2020, Altria was
in compliance with its covenants in the Credit Agreement. The terms “Consolidated EBITDA” and “Consolidated Interest Expense,”
each as defined in the Credit Agreement, include certain adjustments.
In March 2020, due to the uncertainty at that time in the global capital markets, including the commercial paper markets, resulting from
the COVID-19 pandemic, Altria elected to borrow the full $3.0 billion available under the Credit Agreement as a precautionary measure
to increase its cash position and preserve financial flexibility. In June 2020, Altria repaid the full amount outstanding under the Credit
Agreement using the net proceeds from the issuance of long-term senior unsecured notes issued in May 2020 and available cash.
At December 31, 2020 and 2019, Altria had no borrowings under the Credit Agreement. The credit line available to Altria at December
31, 2020 under the Credit Agreement was $3.0 billion.
At December 31, 2018, Altria had aggregate short-term borrowings of $12.8 billion under the Term Loan Agreement that was set to
mature in December 2019. In February 2019, Altria repaid all of the outstanding $12.8 billion using the net proceeds from the issuance
of long-term senior unsecured notes. Upon repayment, the Term Loan Agreement terminated in 2019, and Altria recorded
approximately $95 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 consolidated statement of earnings (losses).
Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA as further discussed in
Note 9. Long-Term Debt.
76
77
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 9. Long-Term Debt
At December 31, 2020 and 2019, Altria’s long-term debt consisted of the following:
(in millions)
USD notes, 2.350% to 10.20%, interest payable semi-annually, due through 2059 (1)
USD Debenture, 7.75%, interest payable semi-annually, due 2027
Euro notes,1.000% to 3.125%, interest payable annually, due through 2031(2)
Less current portion of long-term debt
(1) Weighted-average coupon interest rate of 4.6% at December 31, 2020 and 2019.
(2) Weighted-average coupon interest rate of 2.0% at December 31, 2020 and 2019.
At December 31, 2020, aggregate maturities of Altria’s long-term debt were as follows:
(in millions)
2021
2022
2023
2024
2025
Thereafter
Less: debt issuance costs
debt discounts
2020
$
24,258 $
42
5,171
29,471
1,500
$
27,971 $
$
2019
23,259
42
4,741
28,042
1,000
27,042
1,500
2,900
1,877
2,400
1,666
19,358
29,701
151
79
At December 31, 2020 and 2019, accrued interest on long-term debt of $458 million and $470 million, respectively, was included in
other accrued liabilities on Altria’s consolidated balance sheets.
Altria Senior Notes: In May 2020, Altria issued USD denominated long-term senior unsecured notes in the aggregate principal
▪
amount of $2.0 billion. The net proceeds from the notes were used for general corporate purposes, which included repayment of the
borrowings in March 2020 under the Credit Agreement. The Notes contain the following terms:
$
29,471
▪
▪
▪
$0.750 billion at 2.350%, due 2025, interest payable semiannually beginning November 6, 2020;
$0.750 billion at 3.400%, due 2030, interest payable semiannually beginning November 6, 2020; and
$0.500 billion at 4.450%, due 2050, interest payable semiannually beginning November 6, 2020.
All of Altria’s outstanding notes are 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, Standard & Poor’s 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.
During 2020, Altria repaid in full at maturity notes in the aggregate principal amount of $1.0 billion.
PM USA (the “Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc. (the “Parent”), has guaranteed the Parent’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, the Guarantor fully and unconditionally guarantees, as primary obligor,
the payment and performance of the Parent’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release
under certain customary circumstances as noted below.
The Guarantees provide that the Guarantor guarantees the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations. The liability of the Guarantor 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, the Parent or the Guarantor.
78
78
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The Parent is a holding company; therefore, its 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. Neither
the Guarantor nor other 100% owned subsidiaries of the Parent that are not guarantors of the Obligations are limited by contractual
obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.
For a discussion of the fair value of Altria’s long-term debt and the designation of its Euro denominated senior unsecured notes as a net
investment hedge of its investment in ABI, see Note 7. Financial Instruments.
Note 10. Capital Stock
At December 31, 2020, Altria had 12 billion shares of authorized common stock; issued, repurchased and outstanding shares of common
stock were as follows:
Balances, December 31, 2017
Stock award activity
Repurchases of common stock
Balances, December 31, 2018
Stock award activity
Repurchases of common stock
Balances, December 31, 2019
Stock award activity
Balances, December 31, 2020
Shares Issued
2,805,961,317
Repurchased Shares Outstanding
(904,702,125)
1,901,259,192
Shares
—
—
676,727
676,727
(27,878,324)
(27,878,324)
2,805,961,317
(931,903,722)
1,874,057,595
—
—
427,276
427,276
(16,503,317)
(16,503,317)
2,805,961,317
(947,979,763)
1,857,981,554
—
437,611
437,611
2,805,961,317
(947,542,152)
1,858,419,165
At December 31, 2020, Altria had 28,357,980 shares of common stock reserved for stock-based awards under Altria’s stock plans.
At December 31, 2020, 10 million shares of serial preferred stock, $1.00 par value, were authorized; no shares of serial preferred stock
have been issued.
▪
Dividends: During the third quarter of 2020, Altria’s Board of Directors (the “Board of Directors”) approved 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 per share. Future dividend payments remain subject to the discretion of the Board of Directors.
▪
Share Repurchases: 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.
In January 2021, the Board of Directors authorized a new $2.0 billion share repurchase 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 of
Directors.
78
79
79
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria did not repurchase any shares in 2020. For the years ended December 31, 2019 and 2018, Altria’s total share repurchase activity
was as follows:
July 2019 Share
Repurchase
Program
2019
January 2018 Share
Repurchase
Program
2019
2018
July 2015 Share
Repurchase
Program (1)
2018
Total
2019
2018
(in millions, except per share data)
Total number of shares repurchased
Aggregate cost of shares repurchased
$
500 $
345 $ 1,655 $
10.1
6.4
27.6
0.3
16.5
27.9
18 $ 845 $ 1,673
Average price per share of shares repurchased
71.68 $ 51.24 $ 60.00
(1) In July 2015, the Board of Directors authorized a $1.0 billion share repurchase program (expanded to $3.0 billion in October 2016 and to $4.0 billion
in July 2017), which was completed in January 2018.
49.29 $ 54.36 $ 59.89 $
$
Note 11. Stock Plans
In 2020, the Board of Directors adopted, and shareholders approved, the Altria Group, Inc. 2020 Performance Incentive Plan (the “2020
Plan”). The 2020 Plan succeeded the 2015 Performance Incentive Plan, under which no new awards were permitted to be made after
May 31, 2020. Under the 2020 Plan, Altria may grant stock options, stock appreciation rights, restricted stock, restricted stock units
(“RSUs”), performance stock units (“PSUs”) and other stock-based awards, as well as cash-based annual and long-term incentive awards
to employees of Altria or any of its subsidiaries or affiliates. Any awards granted pursuant to the 2020 Plan may be in the form of
performance-based awards, including PSUs subject to the achievement or satisfaction of performance goals and performance cycles. Up
to 25 million shares of common stock may be issued under the 2020 Plan. In addition, under the 2015 Stock Compensation Plan for
Non-Employee Directors (the “Directors Plan”), Altria may grant up to one million shares of common stock to members of the Board of
Directors who are not employees of Altria.
Shares available to be granted under the 2020 Plan and the Directors Plan at December 31, 2020, were 24,827,160 and 759,234,
respectively.
RSUs: During the vesting period, RSUs include nonforfeitable rights to dividends or dividend equivalents and may not be sold,
▪
assigned, pledged or otherwise encumbered. RSUs are subject to forfeiture if certain employment conditions are not met. Altria
estimates the number of awards expected to be forfeited and adjusts this estimate when subsequent information indicates that the actual
number of forfeitures is likely to differ from previous estimates. RSUs generally vest three years after the grant date.
The fair value of the RSUs at the date of grant, net of estimated forfeitures, is amortized to expense ratably over the restriction period,
which is generally three years. Altria recorded pre-tax compensation expense related to RSUs for the years ended December 31, 2020,
2019 and 2018 of $31 million, $28 million and $39 million, respectively. The deferred tax benefit recorded related to this compensation
expense was $8 million, $7 million and $9 million for the years ended December 31, 2020, 2019 and 2018, respectively. The
unamortized compensation expense related to RSUs was $54 million at December 31, 2020 and is expected to be recognized over a
weighted-average period of approximately two years.
RSU activity was as follows for the year ended December 31, 2020:
Balance at December 31, 2019
Granted
Vested
Forfeited
Balance at December 31, 2020
Number of Shares
Weighted-Average Grant
Date Fair Value Per Share
1,909,642 $
1,162,118 $
(542,331) $
(290,050) $
2,239,379 $
61.46
42.59
66.22
51.91
51.76
The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $49 million,
$37 million and $60 million, respectively, or $42.59, $52.03 and $67.17 per RSU, respectively. The total vesting date fair value of
restricted stock and RSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $25 million, $30 million and $65
million, respectively.
PSUs: Altria granted an aggregate of 275,288, 181,409 and 177,338 of PSUs during 2020, 2019 and 2018, respectively. The
▪
payout of the PSUs is based on the achievement of certain performance measures over the three-year performance period. For the 2020
grant, these performance measures consist of Altria’s adjusted diluted earnings per share compounded annual growth rate and a cash
conversion measure for Altria. Additionally, the payout resulting from the performance measures is then adjusted up or down by a total
shareholder return (“TSR”) performance multiplier, which depends on Altria’s relative TSR to a predetermined peer group. For the
80
80
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 2019 and 2018 grants, the performance measures consist of Altria’s adjusted diluted earnings per share compounded annual growth rate
and Altria’s TSR relative to a predetermined peer group. PSUs are subject to forfeiture if certain employment conditions are not met.
At December 31, 2020, Altria had 409,392 PSUs outstanding, with a weighted-average grant date fair value of $49.63 per PSU. The fair
value of PSUs at the date of grant, net of estimated forfeitures, is amortized to expense over the performance period. Altria recorded
pre-tax compensation expense related to PSUs for the years ended December 31, 2020, 2019 and 2018 of $4 million, $4 million and $7
million, respectively. The unamortized compensation expense related to PSUs was $9 million at December 31, 2020.
Note 12. Earnings (Losses) per Share
Basic and diluted earnings (losses) per share (“EPS”) were calculated using the following:
(in millions)
Net earnings (losses) attributable to Altria
Less: Distributed and undistributed earnings attributable to share-based awards
Earnings (losses) for basic and diluted EPS
Weighted-average shares for basic EPS
Plus: contingently issuable PSUs
Weighted-average shares for diluted EPS
$
$
For the Years Ended December 31,
2020
4,467 $
(8)
4,459 $
1,858
1
1,859
2019
(1,293) $
(7)
(1,300) $
1,869
—
1,869
2018
6,963
(8)
6,955
1,887
1
1,888
80
81
81
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 13. Other Comprehensive Earnings/Losses
The following tables set forth the changes in each component of accumulated other comprehensive losses, net of deferred income taxes,
attributable to Altria:
(in millions)
Balances, December 31, 2017
Adoption of ASU No. 2018-02 (1)
Benefit Plans
$
(1,839) $
(397)
Other comprehensive earnings (losses) before reclassifications
Deferred income taxes
Other comprehensive earnings (losses) before reclassifications,
net of deferred income taxes
Amounts reclassified to net earnings (losses)
Deferred income taxes
Amounts reclassified to net earnings (losses), net of
deferred income taxes
Other comprehensive earnings (losses), net of deferred
income taxes
Balances, December 31, 2018
Other comprehensive earnings (losses) before reclassifications
Deferred income taxes
Other comprehensive earnings (losses) before reclassifications,
net of deferred income taxes
Amounts reclassified to net earnings (losses)
Deferred income taxes
Amounts reclassified to net earnings (losses), net of
deferred income taxes
Other comprehensive earnings (losses), net of deferred
income taxes
Balances, December 31, 2019
Other comprehensive earnings (losses) before reclassifications
Deferred income taxes
Other comprehensive earnings (losses) before reclassifications,
net of deferred income taxes
Amounts reclassified to net earnings (losses)
Deferred income taxes
Amounts reclassified to net earnings (losses), net of
deferred income taxes
Other comprehensive earnings (losses), net of deferred
income taxes
(151)
39
(112)
241
(61)
180
68
(2,168)
(204)
51
(153)
173
(44)
129
(24)
(2,192)
(454)
115
(339)
148
(37)
111
(228)
ABI
(54)
(11)
(323)
64
(259)
(64)
14
(50)
(309)
(374)
(367)
75
(292)
(34)
7
(27)
(2)
(2)
(319)
(693)
(1,613)
352
(1,261)
21
(5)
16
(1,245)
(2)
Currency
Translation
Adjustments
and Other
Accumulated
Other
Comprehensive
Losses
$
(4) $
—
(1)
—
(1)
—
—
—
(1)
(5)
26
—
26
—
—
—
26
21
(4)
—
(4)
—
—
—
(4)
(1,897)
(408)
(475)
103
(372)
177
(47)
130
(242)
(2,547)
(545)
126
(419)
139
(37)
102
(317)
(2,864)
(2,071)
467
(1,604)
169
(42)
127
(1,477)
Balances, December 31, 2020
(1) Reflects the reclassification of the stranded income tax effects of the Tax Reform Act.
(2) Primarily reflects Altria’s share of ABI’s currency translation adjustments and the impact of Altria’s designated net investment hedges. For further
discussion of designated net investment hedges, see Note 7. Financial Instruments.
(2,420) $
(4,341)
(1,938)
17 $
$
$
82
82
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings
(losses):
(in millions)
Benefit Plans: (1)
Net loss
Prior service cost/credit
ABI (2)
Pre-tax amounts reclassified from accumulated other comprehensive losses to net
earnings (losses)
For the Years Ended December 31,
2020
2019
2018
$
$
173
(25)
148
21
$
200
(27)
173
(34)
276
(35)
241
(64)
$
169
$
139
$
177
(1) Amounts are included in net defined benefit plan costs. For further details, see Note 16. Benefit Plans.
(2) Amounts are primarily included in income (losses) from equity investments. For further information, see Note 6. Investments in Equity Securities.
Note 14. Income Taxes
Earnings (losses) before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2020,
2019 and 2018:
(in millions)
Earnings (losses) before income taxes:
United States
Outside United States
Total
Provision (benefit) for income taxes:
Current:
Federal
State and local
Outside United States
Deferred:
Federal
State and local
Outside United States
Total provision for income taxes
2020
2019
2018
6,842 $
48
6,890 $
266 $
500
766 $
2,025 $
553
22
2,600
(130)
(34)
—
(164)
2,436 $
1,686 $
470
3
2,159
(78)
(19)
2
(95)
2,064 $
9,441
(100)
9,341
1,911
519
1
2,431
(18)
(42)
3
(57)
2,374
$
$
$
$
Altria’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal income tax statute of
limitations remains open for the year 2016 and forward, with years 2016 through 2018 currently under examination by the Internal
Revenue Service (“IRS”) as part of an audit conducted in the ordinary course of business. State statutes of limitations generally remain
open for the year 2016 and forward. Certain of Altria’s state tax returns are currently under examination by various states as part of
routine audits conducted in the ordinary course of business.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2020, 2019 and
2018 was as follows:
(in millions)
Balance at beginning of year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Tax settlements
Balance at end of year
2020
2019
64 $
12
(2)
—
74 $
85 $
32
(16)
(37)
64 $
2018
66
22
(1)
(2)
85
$
$
82
83
83
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Unrecognized tax benefits and Altria’s consolidated liability for tax contingencies at December 31, 2020 and 2019 were as follows:
(in millions)
Unrecognized tax benefits
Accrued interest and penalties
Tax credits and other indirect benefits
Liability for tax contingencies
2020
74 $
15
(1)
88 $
2019
64
11
(1)
74
$
$
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2020 was $47 million,
along with $27 million affecting deferred taxes. The amount of unrecognized tax benefits that, if recognized, would impact the effective
tax rate at December 31, 2019 was $40 million, along with $24 million affecting deferred taxes.
Altria recognizes accrued interest and penalties associated with uncertain tax positions as part of the tax provision.
For the years ended December 31, 2020, 2019 and 2018, Altria recognized in its consolidated statements of earnings (losses) $4 million,
$6 million and $5 million, respectively, of gross interest expense associated with uncertain tax positions.
Altria is subject to income taxation in many jurisdictions. Unrecognized tax benefits reflect the difference between tax positions taken
or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax
positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria.
It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in
unrecognized tax benefits of approximately $8 million.
A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to earnings (losses) before
income taxes for the years ended December 31, 2020, 2019 and 2018 is as follows:
(dollars in millions)
U.S. federal statutory rate
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit
Tax basis in foreign investments
Deemed repatriation tax
Uncertain tax positions
Investment in ABI
Investment in JUUL
Investment in Cronos
Other (1)
2020
2019
2018
$
$ 1,447
%
21.0 % $
$
161
%
21.0 % $ 1,962
$
%
21.0%
410
23
—
9
(16)
537
20
6
$ 2,436
6.0
0.3
—
0.1
(0.2)
7.8
0.3
0.1
356
84
—
(40)
(210)
1,808
(66)
(29)
35.4 % $ 2,064
46.5
11.0
—
(5.2)
(27.4)
236.0
(8.6)
(3.8)
377
140
14
8
(104)
15
—
(38)
269.5 % $ 2,374
4.0
1.5
0.1
0.1
(1.1)
0.2
—
(0.4)
25.4 %
Effective tax rate
(1) Other in 2019 is primarily deferred profit sharing dividends tax benefit of $21 million and immaterial miscellaneous items.
The tax provision in 2020 included tax expense of $612 million for a valuation allowance on a deferred tax asset related to Altria’s
impairment of its investment in JUUL in the third quarter of 2020, partially offset by a $24 million tax benefit reflecting the release of a
portion of the valuation allowance related to a reduction of a deferred tax asset associated with an increase in the estimated fair value of
JUUL in the fourth quarter of 2020.
The tax provision in 2019 included tax expense of $2,024 million for a valuation allowance on a deferred tax asset related to Altria’s
impairment of its investment in JUUL, tax expense of $84 million resulting from a partial reversal of the tax basis benefit associated
with the deemed repatriation tax recorded in 2017 and tax expense of $38 million for a valuation allowance against foreign tax credits
not realizable. These amounts were partially offset by a tax benefit of $105 million for amended tax returns and audit adjustments
relating to a prior year, a tax benefit of $100 million for accruals no longer required and a net tax benefit of $79 million related to
Altria’s Investment in Cronos, including a valuation allowance release on a deferred tax asset.
The tax provision in 2018 included tax expense of $188 million related to the Tax Reform Act as follows: (i) tax expense of $140 million
resulting from a partial reversal of the tax basis benefit associated with the deemed repatriation tax recorded in 2017; (ii) tax expense of
$34 million for a valuation allowance on foreign tax credit carryforwards that are not realizable as a result of updates to the provisional
estimates recorded in 2017; and (iii) tax expense of $14 million for an adjustment to the provisional estimates for the repatriation tax
recorded in 2017.
Substantially all of the 2018 amounts related to the tax basis adjustment, valuation allowance on foreign tax credits and repatriation tax
relate to Altria’s share of ABI’s accumulated earnings and associated taxes. The adjustments recorded in 2018 to the provisional
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM
estimates recorded in 2017 were based on (i) additional guidance related to, or interpretation of, the Tax Reform Act and associated tax
laws and (ii) additional information received from ABI, including information regarding ABI’s accumulated earnings and associated
taxes for the 2016 and 2017 tax years. The accounting for the repatriation tax was completed in 2018; therefore, no further adjustments
to the provisional estimates were required.
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at
December 31, 2020 and 2019:
(in millions)
Deferred income tax assets:
Accrued postretirement and postemployment benefits
Settlement charges
Accrued pension costs
Investment in JUUL
Investment in Cronos
Net operating losses and tax credit carryforwards
Total deferred income tax assets
Deferred income tax liabilities:
Property, plant and equipment
Intangible assets
Investment in ABI
Finance assets, net
Other
Total deferred income tax liabilities
Valuation allowances
Net deferred income tax liabilities
2020
2019
$
$
524 $
888
148
2,642
128
81
4,411
(273)
(2,806)
(2,819)
(117)
(12)
(6,027)
(2,817)
(4,433) $
491
833
131
2,047
197
92
3,791
(255)
(2,758)
(3,115)
(204)
(158)
(6,490)
(2,324)
(5,023)
At December 31, 2020, Altria had estimated gross state tax net operating losses of $808 million that, if unused, will expire in 2021
through 2040.
A reconciliation of the beginning and ending valuation allowances for the years ended December 31, 2020, 2019 and 2018 was as
follows:
(in millions)
Balance at beginning of year
Additions to valuation allowance related to Altria’s initial
Investment in Cronos
Additions to valuation allowance charged to income tax expense
Reductions to valuation allowance credited to income tax benefit
Foreign currency translation
Balance at end of year
$
$
2020
2,324 $
—
692
(200)
1
2,817 $
2019
71 $
352
2,063
(159)
(3)
2,324 $
2018
—
—
71
—
—
71
Altria determines the realizability of deferred tax assets based on the weight of available evidence, that it is more-likely-than-not that the
deferred tax asset will not be realized. In reaching this determination, Altria considers all available positive and negative evidence,
including the character of the loss, carryback and carryforward considerations, future reversals of temporary differences and available
tax planning strategies.
The 2020 valuation allowance was primarily attributable to deferred tax assets recorded in connection with the impairments of Altria’s
investment in JUUL of $2,610 million, and its Investment in Cronos of $121 million.
The 2019 valuation allowance was primarily attributable to the deferred tax asset recorded in connection with the impairment of Altria’s
investment in JUUL. Altria recorded a full valuation allowance of $2,024 million against this deferred tax asset. For a discussion
regarding the impairment of Altria’s investment in JUUL, see Note 6. Investments in Equity Securities.
The 2018 valuation allowance was primarily related to foreign tax credit and state net operating loss carryforwards that more-likely-
than-not will not be realized.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 15. Segment Reporting
In the first quarter of 2020, Altria renamed its smokeless products segment as the oral tobacco products segment.
The products of Altria’s subsidiaries include smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by
PM USA (including super premium cigarettes previously manufactured and sold by Nat Sherman), machine-made large cigars and pipe
tobacco manufactured and sold by Middleton; oral tobacco products, consisting of MST and snus products manufactured and sold by
USSTC, and oral nicotine pouches manufactured and sold by Helix; and wine produced and/or distributed by Ste. Michelle. The
products and services of these subsidiaries constitute Altria’s reportable segments of smokeable products, oral tobacco products
(formerly smokeless products) and wine. The financial services and the innovative tobacco products businesses are included in all other.
Altria’s chief operating decision maker (the “CODM”) reviews operating companies income (loss) (“OCI”) to evaluate the performance
of, and allocate resources to, the segments. OCI for the segments is defined as operating income before general corporate expenses and
amortization of intangibles. Interest and other debt expense, net, net periodic benefit income/cost, excluding service cost, and provision
for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are
excluded from the measure of segment profitability reviewed by the CODM. Information about total assets by segment is not disclosed
because such information is not reported to or used by the CODM. Substantially all of Altria’s long-lived assets are located in the
United States. Segment goodwill and other intangible assets, net, are disclosed in Note 4. Goodwill and Other Intangible Assets, net.
The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.
Segment data were as follows:
(in millions)
Net revenues:
Smokeable products
Oral tobacco products
Wine
All other
Net revenues
Earnings before income taxes:
Operating companies income (loss):
Smokeable products
Oral tobacco products
Wine
All other
Amortization of intangibles
General corporate expenses
Corporate asset impairment and exit costs
Operating income
Interest and other debt expense, net
Net periodic benefit income, excluding service cost
Income (losses) from equity investments
Impairment of JUUL equity securities
Loss on Cronos-related financial instruments
Loss on ABI/SABMiller business combination
Earnings before income taxes
For the Years Ended December 31,
2020
2019
2018
23,089 $
2,533
614
(83)
26,153 $
21,996 $
2,367
689
58
25,110 $
22,297
2,262
691
114
25,364
9,985 $
1,718
(360)
(172)
(72)
(227)
1
10,873
(1,209)
77
(111)
(2,600)
(140)
—
6,890 $
9,009 $
1,580
(3)
(16)
(44)
(199)
(1)
10,326
(1,280)
37
1,725
(8,600)
(1,442)
—
766 $
8,408
1,431
50
(421)
(38)
(315)
—
9,115
(665)
34
890
—
—
(33)
9,341
$
$
$
$
The smokeable products segment included net revenues of $22,135 million, $21,158 million and $21,506 million for the years ended
December 31, 2020, 2019 and 2018, respectively, related to cigarettes and net revenues of $954 million, $838 million and $791 million
for the years ended December 31, 2020, 2019 and 2018, respectively, related to cigars.
Substantially all of Altria’s net revenues are from sales generated in the United States for the years ended December 31, 2020, 2019 and
2018. PM USA, USSTC, Helix and Middleton’s largest customer, McLane Company, Inc., accounted for approximately 26%, 25% and
27% of Altria’s consolidated net revenues for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, Core-Mark
Holding Company, Inc. accounted for approximately 17%, 15% and 14% of Altria’s consolidated net revenues for the years ended
December 31, 2020, 2019 and 2018, respectively. Substantially all of these net revenues were reported in the smokeable products and
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM oral tobacco products segments. Sales to two distributors accounted for approximately 68%, 67% and 64% of net revenues for the wine
segment for the years ended December 31, 2020, 2019 and 2018 respectively.
Details of Altria’s depreciation expense and capital expenditures were as follows:
(in millions)
Depreciation expense:
Smokeable products
Oral tobacco products
Wine
General corporate and other
Total depreciation expense
Capital expenditures:
Smokeable products
Oral tobacco products
Wine
General corporate and other
Total capital expenditures
For the Years Ended December 31,
2020
2019
2018
$
$
$
$
81 $
32
40
32
185 $
49 $
67
31
84
231 $
88 $
27
41
26
182 $
61 $
44
63
78
246 $
90
28
40
31
189
81
73
40
44
238
The comparability of OCI for the reportable segments and the all other category was affected by the following:
▪
Non-Participating Manufacturer (“NPM”) Adjustment Items: For the years ended December 31, 2020 and 2018, pre-tax
expense (income) for NPM adjustment items of $4 million and $(145) million, respectively, was recorded to cost of sales in the
smokeable products segment. No NPM adjustment items were recorded for 2019. NPM adjustment items result from the resolutions of
certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such
dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation -
NPM Adjustment Disputes in Note 18. Contingencies).
▪
certain tobacco and health litigation items were recorded in Altria’s consolidated statements of earnings (losses) as follows:
Tobacco and Health Litigation Items: For the years ended December 31, 2020, 2019 and 2018, pre-tax charges related to
(in millions)
Smokeable products segment
Oral tobacco products segment
Interest and other debt expense, net
Total
2020
2019
79 $
—
4
83 $
72 $
—
5
77 $
2018
103
10
18
131
$
$
The amounts shown in the table above for the smokeable and oral tobacco products segments were recorded in marketing, administration
and research costs. For further discussion, see Note 18. Contingencies.
COVID-19 Special Items: Net pre-tax charges of $50 million ($41 million in the smokeable products segment and $9 million
▪
in the oral tobacco products segment) related to the COVID-19 pandemic were recorded in Altria’s consolidated statement of earnings
(losses) for the year ended December 31, 2020. The net pre-tax charges, which were directly related to disruptions caused by or efforts
to mitigate the impact of the COVID-19 pandemic, were all recorded in costs of sales and included premium pay, personal protective
equipment and health screenings, which were partially offset by certain employment tax credits. The COVID-19 special items do not
include the inventory-related implementation costs associated with the wine business strategic reset, which are included in asset
impairment, exit and implementation costs. These implementation costs were due to increased inventory levels, which were further
negatively impacted by the COVID-19 pandemic, including economic uncertainty and government restrictions.
▪
breakdown of these costs by segment.
Asset Impairment, Exit and Implementation Costs: See Note 5. Asset Impairment, Exit and Implementation Costs for a
▪
PMCC Residual Value Adjustments: For the year ended December 31, 2020, PMCC recorded pre-tax charges of $125
million (as a reduction to net revenues in the all other category) related to the decrease in unguaranteed residual values of certain leased
assets. There were no such adjustments in 2019 or 2018.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 16. Benefit Plans
Subsidiaries of Altria sponsor noncontributory defined benefit pension plans covering certain employees of Altria and its subsidiaries.
Employees hired on or after a date specific to their employee group, except for certain employees of UST’s subsidiaries and Middleton,
are not eligible to participate in these noncontributory defined benefit pension plans but are instead eligible to participate in a defined
contribution plan with enhanced benefits. Altria and its subsidiaries also provide postretirement health care and other benefits to certain
retired employees.
The plan assets and benefit obligations of Altria’s pension plans and postretirement plans are measured at December 31 of each year.
The discount rates for Altria’s plans were based on a yield curve developed from a model portfolio of high-quality corporate bonds with
durations that match the expected future cash flows of the pension and postretirement benefit obligations.
▪
plans at December 31, 2020 and 2019 were as follows:
Obligations and Funded Status: The benefit obligations, plan assets and funded status of Altria’s pension and postretirement
(in millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Actuarial losses
Settlement and curtailment
Other
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status at December 31
Amounts recognized on Altria’s consolidated balance sheets were as
follows:
Other accrued liabilities
Accrued pension costs
Other assets
Accrued postretirement health care costs
Pension
Postretirement
2020
2019
2020
2019
8,659 $
74
251
(477)
970
—
(12)
9,465
8,167
1,188
33
(477)
8,911
(554) $
(23) $
(551)
20
—
(554) $
7,726
70
306
(493)
1,025
25
—
8,659
7,138
1,466
56
(493)
8,167
(492)
(26)
(473)
7
—
(492)
$
$
$
$
2,091 $
16
59
(107)
169
—
1
2,229
213
21
—
(33)
2,040
16
76
(126)
78
7
—
2,091
211
45
—
(43)
201
(2,028) $
213
(1,878)
(77) $
—
—
(1,951)
(2,028) $
(81)
—
—
(1,797)
(1,878)
$
$
$
$
The table above presents the projected benefit obligation for Altria’s pension plans. The accumulated benefit obligation, which
represents benefits earned to date, for the pension plans was $9.1 billion and $8.4 billion at December 31, 2020 and 2019, respectively.
Actuarial losses for the years ended December 31, 2020 and 2019 for the pension and postretirement plans were due primarily to
changes in the discount rate assumptions.
For pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2020, the accumulated benefit
obligation and fair value of plan assets were $393 million and $149 million, respectively. For pension plans with accumulated benefit
obligations in excess of plan assets at December 31, 2019, the accumulated benefit obligation and fair value of plan assets were $357
million and $134 million, respectively.
For pension plans with projected benefit obligations in excess of plan assets at December 31, 2020, the projected benefit obligation and
fair value of plan assets were $9,324 million and $8,750 million, respectively. For pension plans with projected benefit obligations in
excess of plan assets at December 31, 2019, the projected benefit obligation and fair value of plan assets were $8,522 million and $8,023
million, respectively.
At December 31, 2020 and 2019, the accumulated postretirement benefit obligations were in excess of plan assets for all postretirement
plans.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The following assumptions were used to determine Altria’s pension and postretirement benefit obligations at December 31:
Discount rate
Rate of compensation increase
Health care cost trend rate assumed for next year
Ultimate trend rate
Year that the rate reaches the ultimate trend rate
Pension
Postretirement
2020
2.7 %
4.0
—
—
—
2019
3.4 %
4.0
—
—
—
2020
2.6 %
—
6.5
5.0
2027
2019
3.4 %
—
6.5
5.0
2025
▪
years ended December 31, 2020, 2019 and 2018:
Components of Net Periodic Benefit Cost (Income): Net periodic benefit cost (income) consisted of the following for the
(in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization:
Net loss
Prior service cost (credit)
Settlement and curtailment
Net periodic benefit cost (income)
Pension
2020
74 $
251
(502)
134
5
10
(28) $
2019
70 $
306
(576)
159
6
27
(8) $
$
$
2018
81
276
(585)
225
4
16
17
$
$
Postretirement
2020
2019
16 $
59
(14)
10
(30)
—
41 $
16 $
76
(15)
5
(30)
5
57 $
2018
18
70
(19)
21
(42)
—
48
Settlement and curtailment shown in the table above for 2019 and 2018 primarily relate to the cost reduction program discussed in Note
5. Asset Impairment, Exit and Implementation Costs.
The amounts included in settlement and curtailment in the table above were comprised of the following changes:
(in millions)
Benefit obligation
Other comprehensive earnings/losses:
Net loss
Prior service cost (credit)
Pension
2020
— $
2019
6 $
2018
—
10
—
10 $
20
1
27 $
13
3
16
$
$
$
$
Postretirement
2019
10
—
(5)
5
The following assumptions were used to determine Altria’s net periodic benefit cost for the years ended December 31:
Discount rates:
Service cost
Interest cost
Expected rate of return on plan assets
Rate of compensation increase
Health care cost trend rate
Pension
Postretirement
2020
2019
2018
2020
2019
2018
3.7 %
3.0
6.6
4.0
—
4.6 %
4.0
7.8
4.0
—
3.8 %
3.3
7.8
4.0
—
3.6 %
3.0
7.7
—
6.5
4.5 %
4.0
7.8
—
6.5
3.8 %
3.3
7.8
—
7.0
▪
Defined Contribution Plans: Altria sponsors deferred profit-sharing plans covering certain salaried, non-union and union
employees. Contributions and costs are determined generally as a percentage of earnings, as defined by the plans. Amounts charged to
expense for these defined contribution plans totaled $88 million, $78 million and $85 million in 2020, 2019 and 2018, respectively.
▪
Pension and Postretirement Plan Assets: In managing its pension assets, Altria implements a liability-driven investment
framework that aligns plan assets with liabilities. The current target allocation between fixed income and growth assets of 70%/30%,
respectively, balances pension liability hedging and asset growth in order to maintain the plan’s funded status and cover incremental
service accruals and interest cost. Liability hedging is achieved through investing in rate-sensitive fixed income securities, primarily
corporate bonds and U.S. Treasuries, while growth assets are comprised of publicly traded equity securities.
88
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Altria’s investment strategy for its postretirement plan assets is aimed at maximizing the total asset return based on expectation that
equity securities will outperform debt securities over the long term and reflects the maturity structure of the benefit obligation. The
equity/fixed income target allocation for postretirement plan assets is 55%/45%.
Altria believes that it implements these investment strategies in a prudent and risk-controlled manner, consistent with the fiduciary
requirements of the Employee Retirement Income Security Act of 1974, by investing retirement plan assets in a well-diversified mix of
equities, fixed income and other securities.
The actual composition of Altria’s plan assets at December 31, 2020 was broadly characterized with the following allocation:
Equity securities
Corporate bonds
U.S. Treasury and foreign government securities
Pension
Postretirement
31 %
53 %
16 %
58 %
31 %
11 %
Altria’s pension and postretirement plan asset performance is monitored on an ongoing basis to adjust the mix as necessary.
Substantially all pension and all postretirement assets can be used to make monthly benefit payments.
Altria’s investment objective for its pension and postretirement plan assets is accomplished by investing in long-duration fixed income
securities that primarily include U.S. corporate bonds of companies from diversified industries and U.S. Treasury securities that mirror
Altria’s pension obligation benchmark, as well as U.S. and international equity index strategies that are intended to mirror broad market
indices, including, the Standard & Poor’s 500 Index and Morgan Stanley Capital International (“MSCI”) Europe, Australasia, and the
Far East (“EAFE”) Index. Altria’s pension and postretirement plans also invest in actively managed international equity securities of
mid and small cap companies located in developed and emerging markets. For pension plan assets, the allocation to below investment
grade securities represented 11% of the fixed income holdings or 8% of the total plan assets at December 31, 2020. The allocation to
emerging markets represented 1% of equity holdings or less than 1% of total plan assets at December 31, 2020. For postretirement plan
assets, the allocation to below investment grade securities represented 8% of the fixed income holdings or 3% of the total plan assets at
December 31, 2020. There were no postretirement plan assets invested in emerging markets at December 31, 2020.
Altria’s risk management practices for its pension and postretirement plans include (i) ongoing monitoring of asset allocation,
investment performance and investment managers’ compliance with their investment guidelines, (ii) periodic rebalancing between equity
and debt asset classes and (iii) annual actuarial re-measurement of plan liabilities.
Altria’s expected rate of return on pension and postretirement plan assets is determined by the plan assets’ historical long-term
investment performance, current asset allocation and estimates of future long-term returns by asset class. The forward-looking estimates
are consistent with the long-term historical averages exhibited by returns on equity and fixed income securities. For determining its
pension and postretirement net periodic benefit cost, Altria’s 2021 expected rate of return assumption remains unchanged from prior
year at 6.6% and 7.7%, respectively.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The fair values of the pension plan assets by asset category at December 31, 2020 and 2019 were as follows:
(in millions)
U.S. and foreign government securities or their agencies:
U.S. government and agencies
U.S. municipal bonds
Foreign government and agencies
Corporate debt instruments:
Above investment grade
Below investment grade and no rating
Common stock:
International equities
U.S. equities
Other, net
Investments measured at NAV as a practical expedient for fair
Level 1
2020
Level 2
Total
Level 1
2019
Level 2
Total
$
— $
—
—
$
950
64
90
950
64
90
$
— $
—
—
$
811
57
98
811
57
98
—
—
3,760
868
3,760
868
—
—
3,523
521
3,523
521
316
970
21
—
—
356
$ 1,307 $ 6,088
316
970
377
$ 7,395
296
1,263
(4)
—
—
479
$ 1,555 $ 5,489
296
1,263
475
$ 7,044
value:
Collective investment funds
U.S. large cap
U.S. small cap
International developed markets
Total investments measured at NAV
Other
Fair value of plan assets, net
$
924
455
114
$ 1,493
23
$ 8,911
$
825
386
106
$ 1,317
(194)
$ 8,167
Level 3 holdings and transactions were immaterial to total plan assets at December 31, 2020 and 2019.
The fair value of the postretirement plan assets at December 31, 2020 and 2019 were as follows:
(in millions)
Level 1
Level 2
Total
Level 1
Level 2
Total
U.S. and foreign government securities or their agencies:
2020
2019
U.S. government and agencies
Foreign government and agencies
Corporate debt instruments:
Above investment grade
Below investment grade and no rating
Other, net
Investments measured at NAV as a practical expedient for fair
value:
Collective investment funds:
U.S. large cap
International developed markets
Total investments measured at NAV
Other
Fair value of plan assets, net
$
— $
—
—
—
—
— $
$
$
— $
11
$
—
—
—
—
— $
5
63
9
7
95
$
$
$
$
$
6
4
55
11
7
83
$
$
$
6
4
55
11
7
83
97
25
122
(4)
11
5
63
9
7
95
97
24
121
(3)
$
201
$
213
There were no Level 3 postretirement plan holdings or transactions during 2020 and 2019.
90
91
91
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM For a description of the fair value hierarchy and the three levels of inputs used to measure fair value, see Note 2. Summary of Significant
Accounting Policies.
Following is a description of the valuation methodologies used for investments measured at fair value.
▪
▪
▪
▪
U.S. and Foreign Government Securities: U.S. and foreign government securities consist of investments in Treasury Nominal Bonds
and Inflation Protected Securities and municipal securities. Government securities are valued at a price that is based on a
compilation of primarily observable market information, such as broker quotes. Matrix pricing, yield curves and indices are used
when broker quotes are not available.
Corporate Debt Instruments: Corporate debt instruments are valued at a price that is based on a compilation of primarily observable
market information, such as broker quotes. Matrix pricing, yield curves and indices are used when broker quotes are not available.
Common Stock: Common stocks are valued based on the price of the security as listed on an open active exchange on last trade date.
Collective Investment Funds: Collective investment funds consist of funds that are intended to mirror indices such as Standard &
Poor’s 500 Index and MSCI EAFE Index. They are valued on the basis of the relative interest of each participating investor in the
fair value of the underlying assets of each of the respective collective investment funds. The underlying assets are valued based on
the net asset value (“NAV”), which is provided by the investment account manager as a practical expedient to estimate fair value.
These investments are not classified by level but are disclosed to permit reconciliation to the fair value of plan assets.
Cash Flows: Altria makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that
relate to plans for salaried employees that cannot be funded under IRS regulations. Currently, Altria anticipates making employer
contributions to its pension and postretirement plans of up to approximately $30 million and $60 million, respectively, in 2021.
However, this estimate is subject to change as a result of changes in tax and other benefit laws, changes in interest rates, as well as asset
performance significantly above or below the assumed long-term rate of return for each respective plan.
Estimated future benefit payments at December 31, 2020 were as follows:
(in millions)
2021
2022
2023
2024
2025
2026-2030
$
Pension
495 $
483
483
483
485
2,437
Postretirement
120
118
115
113
112
563
Comprehensive Earnings/Losses
The amounts recorded in accumulated other comprehensive losses at December 31, 2020 consisted of the following:
(in millions)
Net loss
Prior service (cost) credit
Deferred income taxes
Amounts recorded in accumulated other comprehensive losses
Pension
(2,689) $
(27)
702
(2,014) $
$
$
Post-
retirement
Post-
employment
(541) $
41
132
(368) $
(44) $
(5)
11
(38) $
The amounts recorded in accumulated other comprehensive losses at December 31, 2019 consisted of the following:
(in millions)
Net loss
Prior service (cost) credit
Deferred income taxes
Amounts recorded in accumulated other comprehensive losses
Pension
(2,565) $
(27)
670
(1,922) $
$
$
Post-
retirement
Post-
employment
(389) $
72
86
(231) $
(45) $
(5)
11
(39) $
Total
(3,274)
9
845
(2,420)
Total
(2,999)
40
767
(2,192)
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92
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The movements in other comprehensive earnings/losses during the year ended December 31, 2020 were as follows:
(in millions)
Amounts reclassified to net earnings (losses) as components of net periodic
Pension
Post-
retirement
Post-
employment
Total
benefit cost:
Amortization:
Net loss
Prior service cost/credit
Other expense (income):
Net loss
Prior service cost/credit
Deferred income taxes
Other movements during the year:
Net loss
Prior service cost/credit
Deferred income taxes
Total movements in other comprehensive earnings/losses
The movements in other comprehensive earnings/losses during the year ended December 31, 2019 were as follows:
(in millions)
Amounts reclassified to net earnings (losses) as components of net periodic
benefit cost:
Pension
Post-
retirement
Post-
employment
Total
$
134 $
5
10
—
(37)
10 $
(30)
—
—
5
19 $
—
—
—
(5)
112 $
(15) $
14 $
163
(25)
10
—
(37)
111
(268) $
(162) $
(18) $
(448)
(5)
69
(204) $
(92) $
(1)
41
(122) $
(137) $
—
5
(13) $
1 $
(6)
115
(339)
(228)
$
159 $
5 $
20 $
6
20
1
(47)
(30)
—
(5)
7
1
(4)
—
(4)
139 $
(23) $
13 $
184
(23)
16
(4)
(44)
129
(153) $
(67) $
17 $
(203)
—
38
(115) $
24 $
(1)
18
(50) $
(73) $
—
(5)
12 $
25 $
(1)
51
(153)
(24)
$
$
$
$
$
$
$
$
Amortization:
Net loss
Prior service cost/credit
Other expense (income):
Net loss
Prior service cost/credit
Deferred income taxes
Other movements during the year:
Net loss
Prior service cost/credit
Deferred income taxes
Total movements in other comprehensive earnings/losses
92
93
93
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The movements in other comprehensive earnings/losses during the year ended December 31, 2018 were as follows:
(in millions)
Amounts reclassified to net earnings (losses) as components of net periodic
Pension
Post-
retirement
Post-
employment
Total
benefit cost:
Amortization:
Net loss
Prior service cost/credit
Other expense (income):
Net loss
Prior service cost/credit
Deferred income taxes
Other movements during the year:
Adoption of ASU 2018-02 (1)
Net loss
Prior service cost/credit
Deferred income taxes
Total movements in other comprehensive earnings/losses
$
(1) Reflects the reclassification of the stranded income tax effects of the Tax Reform Act.
Note 17. Additional Information
(in millions)
Research and development expense
Advertising expense
Interest and other debt expense, net:
Interest expense
Interest income
$
$
$
$
225 $
4
13
3
(61)
21 $
(42)
—
—
4
17 $
—
—
—
(4)
184 $
(17) $
13 $
263
(38)
13
3
(61)
180
(330) $
(55) $
(12) $
(397)
(336)
(26)
91
(601) $
(417) $
264
(45)
(54)
110 $
93 $
(2)
(6)
2
(18) $
(5) $
(74)
(77)
39
(509)
(329)
For the Years Ended December 31,
2020
131 $
26 $
1,223 $
(14)
1,209 $
2019
168 $
33 $
1,322 $
(42)
1,280 $
$
$
$
$
2018
252
37
697
(32)
665
The activity in the allowance for discounts and allowance for returned goods for the years ended December 31, 2020, 2019 and 2018 was
as follows:
(in millions)
2020
2019
2018
Balance at beginning of year
Charged to costs and expenses
Deductions (1)
Balance at end of year
(1) Represents the recording of discounts and returns for which allowances were created.
— $
633
(633)
— $
$
$
$
$
Discounts
Discounts
Returned
Goods
32
98
(90)
40
Returned
Goods
32
127
(127)
32
$
$
Discounts
— $
620
(620)
— $
Returned
Goods
40
97
(105)
32
— $
604
(604)
— $
The activity in the allowance for losses on finance assets for the years ended December 31, 2020, 2019 and 2018 was as follows:
(in millions)
Balance at beginning of year
Decrease to allowance
Balance at end of year
2020
2019
2018
$
$
19
—
19
$
$
19
—
19
$
$
23
(4)
19
94
94
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 18. Contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various U.S. and foreign jurisdictions against Altria and
its subsidiaries, including PM USA and USSTC, as well as their respective indemnitees and Altria’s investees. Various types of claims
may be raised in these proceedings, including product liability, unfair trade practices, antitrust, tax, contraband shipments, patent
infringement, employment matters, claims for contribution and claims of competitors, shareholders or distributors. Legislative action,
such as changes to tort law, also may expand the types of claims and remedies available to plaintiffs.
Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An
unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional
litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, have ranged in
the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in
litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In
certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria or its subsidiaries may face the risk that
one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or
jury-allocated share of a judgment. As a result, Altria or its subsidiaries under certain circumstances may have to pay more than their
proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria or
its subsidiaries also may be required to pay interest and attorneys’ fees.
Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs
from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable
in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico limit the dollar amount of bonds or require no
bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute
in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the
applicability of state bond caps in federal court. States, including Florida, also may seek to repeal or alter bond cap statutes through
legislation. Although Altria cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash
flows or financial position of Altria, or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal
year by an unfavorable outcome of one or more such challenges.
Altria and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably
possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 18. Contingencies:
(i) management has concluded that it is not probable that a loss has been incurred in any of the pending cases; (ii) management is unable
to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending cases; and
(iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any.
Litigation defense costs are expensed as incurred.
Altria and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and
significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria, or one
or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or
settlement of certain pending litigation. Altria and each of its subsidiaries named as a defendant believe, and each has been so advised
by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of
adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However,
Altria and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria to do
so.
Overview of Altria and/or PM USA Tobacco-Related Litigation
Types and Number of U.S. Cases: Claims related to tobacco products generally fall within the following categories: (i) smoking and
health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) health care cost recovery cases brought by
governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette
smoking and/or disgorgement of profits; (iii) e-vapor cases alleging violation of the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), fraud, failure to warn, design defect, negligence, antitrust and unfair trade practices; and (iv) other tobacco-related litigation
described below. Plaintiffs’ theories of recovery and the defenses raised in tobacco-related litigation are discussed below.
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95
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The table below lists the number of certain tobacco-related cases pending in the U.S. against PM USA and/or Altria as of December 31,
2020, 2019 and 2018:
Individual Smoking and Health Cases (1)
Health Care Cost Recovery Actions (2)
E-vapor Cases (3)
Other Tobacco-Related Cases (4)
2020
148
1
1,563
3
2019
104
1
101
4
2018
100
1
—
4
(1) Includes 16 cases filed in New Mexico, 30 cases filed in Massachusetts and 60 non-Engle cases filed in Florida. Does not include individual smoking
and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (these Engle
progeny cases are discussed below in Smoking and Health Litigation - Engle Class Action). Also does not include 1,471 cases brought by flight
attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight
attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the
court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages, but prohibited them from
seeking punitive damages. In March 2018, 923 of these cases were voluntarily dismissed without prejudice.
(2) See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below.
(3) Includes 27 class action lawsuits, three of which were filed in Canada, 1,468 individual lawsuits and 68 “third party” lawsuits relating to JUUL e-
vapor products, which include school districts, state and local government, tribal and healthcare organization lawsuits. JUUL is an additional named
defendant in each of these lawsuits.
(4) Includes one inactive smoking and health case alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs and
two inactive class action lawsuits alleging that use of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common
law or statutory fraud, unjust enrichment, breach of warranty or violations of RICO.
International Tobacco-Related Cases: As of January 25, 2021, (i) Altria is named as a defendant in three e-vapor class action lawsuits
in Canada; (ii) PM USA is a named defendant in 10 health care cost recovery actions in Canada, eight of which also name Altria as a
defendant; and (iii) PM USA and Altria are named as defendants in seven smoking and health class actions filed in various Canadian
provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and Philip
Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.
Tobacco-Related Cases Set for Trial: As of January 25, 2021, one Engle progeny case against PM USA is set for trial through March
30, 2021. Trial dates are subject to change and many of the trials have been postponed due to the COVID-19 pandemic.
Trial Results: Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 69
tobacco-related cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 44 of the
69 cases. These 44 cases were tried in Alaska (1), California (7), Connecticut (1), Florida (10), Louisiana (1), Massachusetts (4),
Mississippi (1), Missouri (4), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1),
Tennessee (2) and West Virginia (2).
Of the 25 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 20 have reached final resolution, and one case
(Gentile) that was initially returned in favor of plaintiff was reversed post-trial and remains pending.
See Smoking and Health Litigation - Engle Progeny Trial Results below for a discussion of verdicts in state and federal Engle progeny
cases involving PM USA as of January 25, 2021.
Judgments Paid and Provisions for Tobacco and Health Litigation Items (Including Engle Progeny Litigation): After exhausting
all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid
judgments and settlements (including related costs and fees) totaling approximately $805 million and interest totaling approximately
$218 million as of December 31, 2020. These amounts include payments for Engle progeny judgments (and related costs and fees)
totaling approximately $365 million and related interest totaling approximately $56 million.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM The changes in Altria’s accrued liability for tobacco and health litigation items, including related interest costs, for the periods specified
below are as follows:
(in millions)
Accrued liability for tobacco and health litigation items at beginning of period (1)
Pre-tax charges for:
Tobacco and health litigation
Related interest costs
Payments (1)
2020
2019
2018
$
14
$
112
$
106
79 (1)(2)
4
(88) (3)
72 (1)(2)
5
(175) (3)
113
18
(125)
Accrued liability for tobacco and health litigation items at end of period (1)
$
9
$
14
$
112
(1) Includes amounts related to the costs of implementing the corrective communications remedy related to the Federal Government’s Lawsuit discussed
below.
(2) Includes certain costs related to pre-trial resolution of tobacco and health cases.
(3) Includes amounts related to (i) payments for pre-trial resolution of tobacco and health cases and (ii) costs for pre-trial resolution of other tobacco and
health cases accrued in the prior year and paid in the identified year.
The accrued liability for tobacco and health litigation items, including related interest costs, was included in accrued liabilities on
Altria’s consolidated balance sheets. Pre-tax charges for tobacco and health litigation were included in marketing, administration and
research costs on Altria’s consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and
other debt expense, net on Altria’s consolidated statements of earnings.
Security for Judgments: To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of December
31, 2020, PM USA has posted appeal bonds totaling approximately $61 million, which have been collateralized with restricted cash that
are included in assets on the consolidated balance sheets.
Smoking and Health Litigation
Overview: Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including
negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and
implied warranties, breach of special duty, conspiracy, concert of action, violations of unfair trade practice laws and consumer protection
statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms
of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of
medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these
cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations
and preemption by the Federal Cigarette Labeling and Advertising Act.
Non-Engle Progeny Litigation: Summarized below are the non-Engle progeny smoking and health cases pending during 2020 in which
a verdict was returned in favor of plaintiff and against PM USA. Charts listing certain verdicts for plaintiffs in the Engle progeny cases
can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.
Principe: In February 2020, a jury in a Florida state court returned a verdict in favor of plaintiff and against PM USA, awarding
approximately $11 million in compensatory damages. There was no claim for punitive damages. PM USA’s appeal is pending in the
Third District Court of Appeal.
Greene: In September 2019, a jury in a Massachusetts state court returned a verdict in favor of plaintiffs and against PM USA, awarding
approximately $10 million in compensatory damages. In May 2020, the court ruled on plaintiffs’ remaining claim and trebled the
compensatory damages award to approximately $30 million. PM USA plans to file post-trial motions.
Laramie: In August 2019, a jury in a Massachusetts state court returned a verdict in favor of plaintiff and against PM USA, awarding
$11 million in compensatory damages and $10 million in punitive damages. PM USA and plaintiff have appealed.
Gentile: In October 2017, a jury in a Florida state court returned a verdict in favor of plaintiff and against PM USA, awarding
approximately $7.1 million in compensatory damages and allocating 75% of the fault to PM USA. PM USA appealed. In September
2019, the Florida Fourth District Court of Appeal reversed the judgment entered by the trial court, granted PM USA judgment on certain
claims and remanded for a new trial on the remaining claims. Plaintiff petitioned the Florida Supreme Court for further review, which
the court denied in January 2021.
Federal Government’s Lawsuit: See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below for a discussion of
the verdict and post-trial developments in the United States of America health care cost recovery case.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Engle Class Action: In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict
assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA.
Following entry of judgment, PM USA appealed. In May 2003, the Florida Third District Court of Appeal reversed the judgment
entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs petitioned the Florida Supreme
Court for further review.
In July 2006, the Florida Supreme Court ordered that the punitive damages award be vacated, that the class approved by the trial court be
decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the
mandate. The court further declared the following Phase I findings are entitled to res judicata effect in such individual actions brought
within one year of the issuance of the mandate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive;
(iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material
information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact
concerning the health effects or addictive nature of smoking; (v) that defendants agreed to misrepresent information regarding the health
effects or addictive nature of cigarettes with the intention of causing the public to rely on this information to their detriment; (vi) that
defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that
smokers would rely on the information to their detriment; (vii) that all defendants sold or supplied cigarettes that were defective; and
(viii) that defendants were negligent.
In August 2006, PM USA and plaintiffs sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion. In
December 2006, the Florida Supreme Court refused to revise its July 2006 ruling, except that it revised the set of Phase I findings
entitled to res judicata effect by excluding finding (v) listed above (relating to agreement to misrepresent information), and added the
finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations of fact made
by defendants. In February 2008, the trial court decertified the class.
Pending Engle Progeny Cases: The deadline for filing Engle progeny cases expired in January 2008, at which point a total of
approximately 9,300 federal and state claims were pending. As of January 25, 2021, approximately 1,300 state court cases were pending
against PM USA or Altria asserting individual claims by or on behalf of approximately 1,600 state court plaintiffs. Because of a number
of factors, including docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates. While the
Federal Engle Agreement (discussed below) resolved nearly all Engle progeny cases pending in federal court, as of January 25, 2021,
three cases were pending against PM USA in federal court representing the cases excluded from that agreement.
Engle Progeny Trial Results: As of January 25, 2021, 134 federal and state Engle progeny cases involving PM USA have resulted in
verdicts since the Florida Supreme Court Engle decision. Seventy-six verdicts were returned in favor of plaintiffs and five verdicts
(Skolnick, Calloway, Oshinsky-Blacker, McCoy and Frogel) that were initially returned in favor of plaintiffs were reversed post-trial or
on appeal and remain pending.
Forty-nine verdicts were returned in favor of PM USA, of which 43 were state cases. In addition, there have been a number of mistrials,
only some of which have resulted in new trials as of January 25, 2021. Four verdicts (Pearson, D. Cohen, Collar and Chacon) that were
returned in favor of PM USA were subsequently reversed for new trials. Juries in two cases (Reider and Banks) returned zero damages
verdicts in favor of PM USA. Juries in two other cases (Weingart and Hancock) returned verdicts against PM USA awarding no
damages, but the trial court in each case decided to award plaintiffs damages. One case, Pollari, resulted in a verdict in favor of PM
USA following a retrial of an initial verdict returned in favor of plaintiff. Plaintiff and defendants appealed the verdict and the appellate
court affirmed the judgement in favor of the defendants. Three cases, Gloger, Rintoul (Caprio) and Duignan, resulted in verdicts in
favor of plaintiffs following retrial of initial verdicts returned in favor of plaintiffs. Post-trial motions or appeals are pending. One case,
Freeman, resulted in an appellate reversal of a jury verdict in favor of plaintiff, and a judgment in favor of PM USA.
The charts below list the verdicts and post-trial developments in certain Engle progeny cases in which verdicts were returned in favor of
plaintiffs. The first chart lists such cases that are pending as of January 25, 2021 where PM USA has recorded a provision in its
consolidated financial statements because PM USA has determined that an unfavorable outcome is probable and the amount of the loss
can be reasonably estimated; the second chart lists other such cases that are pending as of January 25, 2021 but where PM USA has
determined an unfavorable outcome is not probable and the amount of loss cannot be reasonably estimated; and the third chart lists other
such cases that have concluded within the previous 12 months. Unless otherwise noted for a particular case, the jury’s award for
compensatory damages will not be reduced by any finding of plaintiff’s comparative fault. Further, the damages noted reflect
adjustments based on post-trial or appellate rulings.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Currently Pending Engle Cases with Accrued Liabilities
(rounded to nearest $ million)
Plaintiff
Berger
(Cote)
Verdict Date Defendant(s) Court
September
2014
PM USA
Federal
Court -
Middle
District of
Florida
Compensatory
Damages (All
Defendants)
$6 million
Santoro
March 2017
Broward
PM USA, R.J.
Reynolds and
Liggett
Group (2)
$2 million
(<$1 million
PM USA)
Punitive
Damages
(PM USA) Appeal Status
$21 million The Eleventh Circuit Court of Appeals
reinstated the punitive and
compensatory damages awards and
remanded the case to the district court.
PM USA’s challenge to the punitive
damages award was denied by the
district court. Upon appeal by PM
USA, the Eleventh Circuit Court of
Appeals affirmed the punitive damages
award.
<$1 million The Fourth District Court of Appeal
affirmed the compensatory damages
award and reinstated the punitive
damages award. Defendants’ motion
for rehearing was denied. Defendants’
appeal to the Florida Supreme Court of
the punitive damages award was also
denied.
Accrual (1)
$6 million accrual
in the fourth
quarter of 2018
<$1 million
accrual for
compensatory
damages award in
the second quarter
of 2020
(1) Accrual amounts include interest and associated costs, if applicable. For cases with multiple defendants, if any, accrual amounts reflect the portion of
compensatory damages PM USA believes it will have to pay if the case is ultimately decided in plaintiff’s favor after taking into account any portion
potentially payable by the other defendant(s).
(2) References to “R.J. Reynolds,” “Lorillard” and “Liggett Group” are to R.J. Reynolds Tobacco Company, Lorillard Tobacco Company and Liggett
Group, LLC, respectively.
Other Currently Pending Engle Cases with Verdicts Against PM USA
(rounded to nearest $ million)
November
2019 (2)
March 2019
PM USA and
R.J. Reynolds
Miami-Dade
$15 million
$11 million
PM USA
Broward
$0
New trial ordered on punitive damages.
Rintoul
(Caprio)
Gloger
McCall
Neff
Mahfuz
Plaintiff
Duignan
Verdict Date
February
2020 (2)
Defendant(s)
PM USA and
R.J. Reynolds
Court
Pinellas
Compensatory
Damages (1)
$3 million
Punitive
Damages
(PM USA)
$12 million
Cuddihee
January 2020
PM USA
Duval
$3 million
$0
November
2019 (2)
PM USA and
R.J. Reynolds
Broward
$9 million
$74 million
<$1 million
(<$1 million PM
USA)
$4 million
March 2019
PM USA and
R.J. Reynolds
February 2019 PM USA and
R.J. Reynolds
Broward
$2 million
Broward
$12 million
$10 million
Holliman
February 2019 PM USA
Miami-Dade
$3 million
Chadwell
September
2018
PM USA
Miami-Dade
$2 million
$0
$0
Kaplan
July 2018
PM USA and
R.J. Reynolds
Broward
$2 million
$2 million
Appeal Status
Appeal by defendants to Second District
Court of Appeal pending.
Appeal by plaintiff and defendant to First
District Court of Appeal pending.
Appeal by plaintiff and defendants to
Fourth District Court of Appeal pending.
Appeal by defendants to Third District
Court of Appeal pending.
Appeals by plaintiff and defendants to
Fourth District Court of Appeal pending.
Appeals by plaintiff and defendants to
Fourth District Court of Appeal pending.
Defendant’s appeal to Third District Court
of Appeal pending.
Third District Court of Appeal affirmed
the compensatory damages award. PM
USA petitioned Florida Supreme Court for
review. Case stayed pending Florida
Supreme Court decision in Prentice. (3)
Fourth District Court of Appeal affirmed
the verdict. Defendants’ motion for
rehearing pending.
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(1) PM USA’s portion of the compensatory damages award is noted parenthetically where the court has ruled that comparative fault applies.
(2) Plaintiff’s verdict following a retrial of an initial verdict in favor of plaintiff.
(3) PM USA is not a defendant in this case.
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Other Currently Pending Engle Cases with Verdicts Against PM USA
(rounded to nearest $ million)
Plaintiff
R. Douglas November
Verdict Date
Defendant(s)
PM USA
Court
Duval
Compensatory
Damages (1)
<$1 million
Punitive
Damages
(PM USA)
$0
Sommers
2017
April 2017
PM USA
Miami-Dade
$1 million
$0
Cooper
(Blackwood)
September
2015
PM USA and
R.J. Reynolds
Broward
D. Brown
January 2015
PM USA
Harris
July 2014
PM USA,
R.J. Reynolds
and Lorillard
Federal Court
- Middle
District of
Florida
Federal Court
- Middle
District of
Florida
$5 million
(<$1 million PM
USA)
$0
$8 million
$9 million
$2 million
(<$1 million PM
USA)
$0
Appeal Status
Awaiting entry of final judgment by the
trial court.
Third District Court of Appeal affirmed
compensatory damages award and granted
new trial on punitive damages. Florida
Supreme Court denied PM USA’s petition
for review of the Third District Court of
Appeal's decision. PM USA paid
approximately $1 million for the
compensatory damages award and awaits
the new trial on punitive damages. (2)
Fourth District Court of Appeal affirmed
judgment and granted a new trial on
punitive damages.
Appeal by defendant to U.S. Court of
Appeals for the Eleventh Circuit stayed
pending Florida Supreme Court decision
in Prentice. (3)
U.S. Court of Appeals for the Eleventh
Circuit reversed the judgment against PM
USA and remanded to the district court to
enter judgment for the defendants.
(1) PM USA’s portion of the compensatory damages award is noted parenthetically where the court has ruled that comparative fault applies.
(2) Plaintiff was granted an award of approximately $3 million in fees, costs and interest that PM USA has appealed.
(3) PM USA is not a defendant in this case.
Engle Cases Concluded Within Past 12 Months (1)
(rounded to nearest $ million)
Plaintiff
Verdict Date
Dean (Kerrivan) (2) October 2014
Landi (3)
Theis (4)
June 2018
May 2018
Defendant(s)
PM USA and R.J.
Reynolds
PM USA and R.J.
Reynolds
PM USA and
R.J. Reynolds
Court
Federal Court -
Middle District
of Florida
Broward
Accrual Date
Third quarter of 2020
Payment Amount
(if any)
$26 million
Payment Date
August 2020
Second quarter of 2020
$10 million
July 2020
Sarasota
First quarter of 2020
$17 million
February 2020
(1) In four cases in which PM USA paid the judgments more than a year ago, Naugle, Gore, M. Brown and Jordan, plaintiffs were awarded
approximately $8 million, $2 million, $9 million and $4 million in fees and costs, respectively. PM USA has appealed in all of these cases.
(2) In August 2020, the U.S. Court of Appeals for the Eleventh Circuit denied the defendants’ petition for rehearing. As a result, in the third quarter of
2020, PM USA recorded a pre-tax provision of approximately $26 million, reflecting its portion of the judgment plus interest, and paid this amount in
August 2020.
(3) In June 2020, the Fourth District Court of Appeal affirmed the compensatory damages award. As a result, in the second quarter of 2020, PM USA
recorded a pre-tax provision of approximately $10 million for the judgment plus interest and paid this amount in July 2020.
(4) In February 2020, the Florida Second District Court of Appeal denied PM USA’s petition for review. As a result, in the first quarter of 2020, PM
USA recorded a pre-tax provision of approximately $17 million for the judgment plus interest and paid this amount.
Florida Bond Statute: In June 2009, Florida amended its existing bond cap statute by adding a $200 million bond cap that applies to all
state Engle progeny lawsuits in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that
vary depending on the number of judgments in effect at a given time. Plaintiffs have been unsuccessful in various challenges to the bond
cap statute in Florida state court.
No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engle progeny
cases tried in federal court.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM From time to time, legislation has been presented to the Florida legislature that would repeal the bond cap statute; however to date, no
legislation repealing the statute has passed.
Other Smoking and Health Class Actions: Since the dismissal in May 1996 of a purported nationwide class action brought on behalf
of allegedly addicted smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal
courts. In general, these cases purport to be brought on behalf of residents of a particular state or states (although a few cases purport to
be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.
Class certification has been denied or reversed by courts in 61 smoking and health class actions involving PM USA in Arkansas (1),
California (1), Delaware (1), the District of Columbia (2), Florida (2), Illinois (3), Iowa (1), Kansas (1), Louisiana (1), Maryland (1),
Michigan (1), Minnesota (1), Nevada (29), New Jersey (6), New York (2), Ohio (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Puerto
Rico (1), South Carolina (1), Texas (1) and Wisconsin (1). See Certain Other Tobacco-Related Litigation below for a discussion of
“Lights” and “Ultra Lights” class action cases and medical monitoring class action cases pending against PM USA.
As of January 25, 2021, PM USA and Altria are named as defendants, along with other cigarette manufacturers, in seven class actions
filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan,
British Columbia (two separate cases) and Ontario, plaintiffs seek class certification on behalf of individuals who suffer or have suffered
from various diseases, including chronic obstructive pulmonary disease, emphysema, heart disease or cancer, after smoking defendants’
cigarettes. In the actions filed in Alberta, Manitoba and Nova Scotia, plaintiffs seek certification of classes of all individuals who
smoked defendants’ cigarettes. In March 2019, all of these class actions were stayed as a result of three Canadian tobacco manufacturers
(none of which is related to Altria or its subsidiaries) seeking protection under Canada’s Companies’ Creditors Arrangement Act (which
is similar to Chapter 11 bankruptcy in the U.S.). The companies entered into these proceedings following a Canadian appellate court
upholding two smoking and health class action verdicts against those companies totaling approximately CAD $13 billion. See
Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and PMI, which provides
for indemnities for certain liabilities concerning tobacco products.
Health Care Cost Recovery Litigation
Overview: In the health care cost recovery litigation, governmental entities seek reimbursement of health care cost expenditures
allegedly caused by tobacco products and, in some cases, of future expenditures and damages. Relief sought by some but not all
plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged
marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure
of nicotine yields, and payment of attorney and expert witness fees.
Although there have been some decisions to the contrary, most judicial decisions in the U.S. have dismissed all or most health care cost
recovery claims against cigarette manufacturers. Nine federal circuit courts of appeals and eight state appellate courts, relying primarily
on grounds that plaintiffs’ claims were too remote, have ordered or affirmed dismissals of health care cost recovery actions. The United
States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five federal circuit courts of appeal.
In addition to the cases brought in the U.S., health care cost recovery actions have also been brought against tobacco industry
participants, including PM USA and Altria, in Canada (10 cases), and other entities have stated that they are considering filing such
actions.
Since the beginning of 2008, the Canadian Provinces of British Columbia, New Brunswick, Ontario, Newfoundland and Labrador,
Quebec, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia have brought health care reimbursement claims
against cigarette manufacturers. PM USA is named as a defendant in the British Columbia and Quebec cases, while both Altria and PM
USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan, Prince
Edward Island and Nova Scotia cases. The Nunavut Territory and Northwest Territory have passed legislation permitting similar claims,
but lawsuits based on this legislation have not been filed. All of these cases have been stayed pending resolution of proceedings in
Canada involving three tobacco manufacturers (none of which are affiliated with Altria or its subsidiaries) under the Companies’
Creditors Arrangement Act discussed above. See Smoking and Health Litigation - Other Smoking and Health Class Actions above for a
discussion of these proceedings. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement
between Altria and PMI that provides for indemnities for certain liabilities concerning tobacco products.
Settlements of Health Care Cost Recovery Litigation: In November 1998, PM USA and certain other tobacco product manufacturers
entered into the MSA with 46 states, the District of Columbia and certain U.S. territories to settle asserted and unasserted health care
cost recovery and other claims. PM USA and certain other tobacco product manufacturers had previously entered into agreements to
settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”).
The State Settlement Agreements require that the original participating manufacturers or “OPMs” (now PM USA and R.J. Reynolds and,
with respect to certain brands, ITG Brands, LLC (“ITG”)) make annual payments of approximately $9.4 billion, subject to adjustments
for several factors, including inflation, market share and industry volume. In addition, the OPMs are required to pay settling plaintiffs’
attorneys’ fees, subject to an annual cap of $500 million. For the years ended December 31, 2020, 2019 and 2018, the aggregate amount
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM recorded in cost of sales with respect to the State Settlement Agreements was approximately $4.4 billion, $4.2 billion, and $4.2 billion,
respectively. These amounts include PM USA’s estimate of amounts related to NPM Adjustments discussed below.
NPM Adjustment Disputes: PM USA is participating in proceedings regarding the NPM Adjustment for 2003-2019. The “NPM
Adjustment” is a reduction in MSA payments made by the OPMs and those manufacturers that are subsequent signatories to the MSA
(collectively, the “participating manufacturers” or “PMs”) that applies if the PMs collectively lose at least a specified level of market
share to non-participating manufacturers since 1997, subject to certain conditions and defenses. The independent auditor (the “IA”)
appointed under the MSA calculates the maximum amount of the NPM Adjustment, if any, for each year.
NPM Adjustment Disputes - Settlement with 36 States and Territories and Separate Settlements with Montana and New York.
PM USA has entered into three settlements of NPM Adjustment disputes with a total of 38 states and territories, one with 36 states and
territories (the “multi-state settlement”), one with the State of New York and one with the State of Montana. In the multi-state
settlement, PM USA, by the end of October 2017, had settled the NPM Adjustment disputes for 2003-2015 with 26 states in exchange
for a total of $740 million. In 2018, PM USA agreed to settle the NPM Adjustment disputes for 2016 and 2017 with the 26 states
mentioned above and PM USA settled the NPM Adjustment disputes for 2004-2017 with ten additional states. As a result of these two
developments, PM USA will receive approximately $248 million, $68 million of which it received in April 2018, $121 million of which
it received in April 2019 and $47 million of which it received in April 2020. In connection with these two developments, PM USA
recorded a reduction to cost of sales in the amount of $39 million in 2017 and in the amount of $209 million in 2018. In the first quarter
of 2019, PM USA also recorded a reduction to cost of sales in the amount of $52 million for its estimate of the 2018 NPM Adjustment
settlement credit it expects to receive under the multi-state settlement.
In the first quarter of 2020, the PMs agreed that certain conditions set forth in the multi-state settlement had been met. As a result, PM
USA’s and the other PMs’ settlement with Pennsylvania was extended to include NPM Adjustments for 2018-2024. In the third quarter
of 2020, PM USA and the other PMs also agreed with the other 35 states to extend the settlement with those states to include NPM
Adjustments for 2018-2022. As a result of these two developments, PM USA will receive approximately $361 million in credits to
offset PM USA’s MSA payments over the following nine years.
In the NPM Adjustment settlement with New York, which was entered into in 2015, PM USA has received approximately $317 million
for 2004-2018. PM USA and the other participating manufacturers are involved in a proceeding pursuant to the New York settlement in
which an independent investigator will determine the amounts due to the participating manufacturers from New York for 2019 and 2020.
PM USA expects to receive such amounts in April 2021 and April 2022, respectively.
As discussed below, in November 2020, PM USA and other PMs reached a resolution with Montana with respect to NPM adjustments
for 2005-2019.
The New York settlement, the Montana settlement and the multi-state settlement also contain provisions resolving certain disputes
regarding the application of the NPM Adjustment going forward.
2003 and Subsequent NPM Adjustments - Continuing Disputes with States that have not Settled.
▪
▪
2003 NPM Adjustment. In September 2013, an arbitration panel issued rulings regarding the 15 states and territories that
remained in the arbitration, ruling that six of them did not establish valid defenses to the NPM Adjustment for 2003. In June
2014, two of these six states joined the multi-state settlement discussed above. With respect to the remaining four states,
following the outcome of challenges in state courts, PM USA ultimately recorded $74 million primarily as a reduction to cost of
sales, with the final adjustment being recorded in the third quarter of 2017. Subsequently, another one of the six states joined
the multi-state settlement. Two potential disputes remain outstanding regarding the amount of interest due to PM USA and
there is no assurance that PM USA will prevail in either of these disputes.
2004 and Subsequent NPM Adjustments. PM USA has continued to pursue the NPM Adjustments for 2004 and subsequent
years in multi-state arbitrations against the states that did not join the settlements discussed above.
In September 2019, a New Mexico state appellate court affirmed a trial court’s order compelling New Mexico to arbitrate the
2004 NPM Adjustment claims in the multi-state arbitration with the other states. In November 2019, the New Mexico Supreme
Court declined to review that decision. The arbitration hearing for New Mexico has been scheduled for June 2021.
The Montana state courts ruled that Montana may litigate its claims in state court, rather than participate in a multi-state
arbitration and the PMs agreed not to contest the applicability of the 2004 NPM Adjustment to Montana. In April 2020, the
State of Montana filed a motion in Montana state court against the PMs, including PM USA, claiming that Montana’s share of
the NPM Adjustment amounts should have been paid to the state in advance of the resolution of disputes over the applicability
of those adjustments. Montana’s share of the amounts PM USA placed in the disputed payments account established pursuant
to the terms of the MSA on account of the NPM Adjustment disputes was approximately $13.8 million. The matter was
resolved by agreement in November 2020 resulting in a settlement payment from PM USA of approximately $4 million, which
was recorded to cost of sales in the fourth quarter of 2020, and the release to Montana of its share of PM USA’s money in the
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM disputed payments account for the NPM Adjustment disputes. As part of the agreement, the PMs agreed not to contest the
application of the NPM Adjustment to Montana for 2005-2030.
Other than Montana and New Mexico, all of the non-settling states participated in a 2004 multi-state arbitration. That
arbitration initially concluded in July 2019, although Missouri was granted a hearing in June 2020. As of January 25, 2021, no
decisions have resulted from the arbitration.
The PMs have reached an agreement with the states that have not settled (with the exception of Missouri) that the next round of
NPM arbitrations will encompass three years, 2005-2007, and the parties have selected an arbitration panel for the 2005-2007
arbitration. Missouri is participating in the arbitration, but has agreed to arbitrate only one year, 2005, before the panel. The
hearings in this arbitration have not yet been scheduled. No assurance can be given as to when proceedings for 2008 and
subsequent years will be scheduled or the precise form those proceedings will take.
The IA has calculated that PM USA’s share of the maximum potential NPM Adjustments for 2004-2019 is (exclusive of
interest or earnings): $388 million for 2004; $181 million for 2005; $154 million for 2006; $185 million for 2007; $250 million
for 2008; $211 million for 2009; $218 million for 2010; $166 million for 2011; $214 million for 2012; $224 million for 2013;
$258 million for 2014; $313 million for 2015; $305 million for 2016; $297 million for 2017; $340 million for 2018 and $441
million for 2019. These maximum amounts will be reduced, likely substantially, to reflect the NPM Adjustment settlements
discussed above, and potentially for current and future calculation disputes and other developments. Finally, PM USA’s
recovery of these amounts, even as reduced, is dependent upon subsequent determinations regarding state-specific defenses and
disputes with other PMs.
Other Disputes Under the State Settlement Agreements: The payment obligations of the tobacco product manufacturers that are
parties to the State Settlement Agreements, as well as the allocations of any NPM Adjustments and related settlements, have been and
may continue to be affected by R.J. Reynolds’s acquisition of Lorillard in 2015 and its related sale of certain cigarette brands to ITG (the
“ITG brands”). In particular, both R.J. Reynolds and ITG have asserted that they do not have to make payments on the ITG brands
under the Florida, Minnesota and Texas State Settlement Agreements or include the ITG brands for purposes of certain calculations
under the State Settlement Agreements. PM USA believes that R.J. Reynolds’s and ITG’s positions violate the State Settlement
Agreements and applicable law. PM USA further believes that these actions: (i) improperly increased PM USA’s payments for
2015-2019; (ii) may improperly increase PM USA’s payments for subsequent years; (iii) improperly decreased PM USA’s share of the
2015-2019 NPM Adjustments and of the settlements of related disputes; and (iv) may improperly decrease PM USA’s share of NPM
Adjustments and related settlements for subsequent years.
In January 2017, PM USA and the State of Florida each filed a motion in Florida state court against R.J. Reynolds and ITG seeking to
enforce the Florida State Settlement Agreement. In August 2018, the Florida trial court entered final judgment ruling that R.J. Reynolds
(and not ITG) must make settlement payments under the Florida State Settlement Agreement on the ITG brands, and ordering R.J.
Reynolds to pay PM USA approximately $9.8 million (inclusive of interest) for the 2015-2017 period. Both R.J. Reynolds and PM USA
filed notices of appeal and, in July 2020, the Florida Fourth District Court of Appeal affirmed the trial court’s decision. In September
2020, the Florida Fourth District Court of Appeal denied R.J. Reynolds’s motions for rehearing. In October 2020, R.J. Reynolds
petitioned the Florida Supreme Court to review the appellate court decision; the petition was denied in December 2020.
In March 2018, PM USA and the State of Minnesota filed pleadings in Minnesota state court asserting claims against R.J. Reynolds and
ITG, similar to those made in Florida, and seeking to enforce the Minnesota State Settlement Agreement. In September 2019, the
Minnesota court granted the State of Minnesota’s and PM USA’s motions to enforce the agreement against R.J. Reynolds. The
Minnesota court concluded, however, that it could not yet resolve the question of ITG’s liability under the Minnesota State Settlement
Agreement. An evidentiary hearing on the question of ITG’s potential liability was held in the third quarter of 2020. A decision has not
yet been issued.
In December 2018, PM USA filed a motion in Mississippi state court seeking to enforce the Mississippi State Settlement Agreement
against R.J. Reynolds and ITG with respect to the accuracy of certain submissions made by R.J. Reynolds and ITG concerning the
calculation of payments relating to the ITG brands. A hearing in the case is currently scheduled for May 2021. In December 2019, in a
separate matter, the State of Mississippi filed a motion in Mississippi state court seeking to enforce the Mississippi State Settlement
Agreement against PM USA, R.J. Reynolds and ITG concerning the tax rates used in the annual calculation of the net operating profit
adjustment payments starting in 2018. A hearing is scheduled for October 2021.
In January 2019, PM USA and the State of Texas each filed a motion in federal court in the Eastern District of Texas asserting claims
against R.J. Reynolds and ITG, similar to those made in Florida and Minnesota, seeking to enforce the Texas State Settlement
Agreement. In February 2020, the Texas court granted the State of Texas’s and PM USA’s motions to enforce the settlement agreement
against R.J. Reynolds. The Texas court, however, deferred the ultimate resolution of the motions to enforce against ITG, because it
concluded that question was dependent upon the outcome of separate litigation pending between ITG and R.J. Reynolds in the Delaware
Court of Chancery. In August 2020, R.J. Reynolds appealed the Eastern District of Texas’s ruling to the U.S. Court of Appeals for the
Fifth Circuit. ITG and the State of Texas also have filed notices of appeal, each of which is limited to the issue of how payments of
statutory fees are treated under the Eastern District of Texas’s ruling. The appeals remain pending.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM In January 2021, PM USA and other PMs reached an agreement with several MSA states to waive the PMs’ claim under the most
favored nation provision of the MSA in connection with a settlement between those MSA states and a non-participating manufacturer,
S&M Brands, Inc. (“S&M Brands”), under which the states released certain claims against S&M Brands in exchange for receiving a
portion of the funds S&M Brands had deposited into escrow accounts in those states pursuant to the states’ escrow statutes. In
consideration for waiving its most favored nation claim, PM USA received approximately $32 million from the escrow funds paid to
those MSA states under their settlement with S&M Brands. Such funds were received in January 2021 and will be recorded in the
financials for the first quarter of 2021 as a reduction to cost of sales.
Federal Government’s Lawsuit: In 1999, the United States government filed a lawsuit in the U.S. District Court for the District of
Columbia against various cigarette manufacturers, including PM USA, and others, including Altria, asserting claims under three federal
statutes. The case ultimately proceeded only under the civil provisions of RICO. In August 2006, the district court held that certain
defendants, including Altria and PM USA, violated RICO and engaged in seven of the eight “sub-schemes” to defraud that the
government had alleged. Specifically, the court found that:
▪
▪
▪
▪
▪
▪
▪
defendants falsely denied, distorted and minimized the significant adverse health consequences of smoking;
defendants hid from the public that cigarette smoking and nicotine are addictive;
defendants falsely denied that they control the level of nicotine delivered to create and sustain addiction;
defendants falsely marketed and promoted “low tar/light” cigarettes as less harmful than full-flavor cigarettes;
defendants falsely denied that they intentionally marketed to youth;
defendants publicly and falsely denied that ETS is hazardous to non-smokers; and
defendants suppressed scientific research.
The court did not impose monetary penalties on defendants, but ordered the following relief: (i) an injunction against “committing any
act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States;
(ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the
Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each; (iii) an injunction against
“making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any
public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information
concerning cigarettes;” (iv) an injunction against conveying any express or implied health message or health descriptors on cigarette
packaging or in cigarette advertising or promotional material, including “lights,” “ultra lights” and “low tar,” which the court found
could cause consumers to believe one cigarette brand is less hazardous than another brand; (v) the issuance of “corrective statements” in
various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant
health benefit from smoking “low tar” or “light” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine
delivery and the adverse health effects of exposure to ETS; (vi) the disclosure on defendants’ public document websites and in the
Minnesota document repository of all documents produced to the government in the lawsuit or produced in any future court or
administrative action concerning smoking and health until 2021, with certain additional requirements as to documents withheld from
production under a claim of privilege or confidentiality; (vii) the disclosure of disaggregated marketing data to the government in the
same form and on the same schedule as defendants now follow in disclosing such data to the FTC for a period of 10 years; (viii) certain
restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette businesses within the U.S.;
and (ix) payment of the government’s costs in bringing the action.
Following several years of appeals relating to the content of the corrective statements remedy described above, in October 2017, the
district court approved the parties’ proposed consent order implementing corrective statements in newspapers and on television. The
corrective statements began appearing in newspapers and on television in the fourth quarter of 2017. In April 2018, the parties reached
agreement on the implementation details of the corrective statements on websites and onserts. The corrective statements began
appearing on websites in the second quarter of 2018 and the onserts began appearing in the fourth quarter of 2018.
In 2014 and 2019, Altria and PM USA recorded provisions totaling approximately $36 million for the estimated costs of implementing
the corrective communications remedy.
The requirements related to corrective statements at point-of-sale remain outstanding. In May 2014, the district court ordered further
briefing on the issue, which was completed in June 2014. In May 2018, the parties submitted a joint status report and additional briefing
on point-of-sale signage to the district court. In May 2019, the district court ordered a hearing on the point-of-sale signage issue. The
hearing is currently scheduled for July 2021.
In June 2020, the United States government filed a motion with the district court asking for clarification as to whether the court-ordered
injunction that applies to cigarettes also applies to HeatSticks, a heated tobacco product used with the IQOS electronic device. In August
2020, Altria and PM USA filed an opposition to the government’s motion and, in the alternative, a motion to modify the injunction to
make clear it does not apply to HeatSticks. Regardless of the district court’s decisions on the pending motions, the government has
indicated it will not oppose a modification to the injunction that permits PM USA to use the Modified Risk Tobacco Product claim
authorized by the FDA for HeatSticks.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM E-vapor Product Litigation
As of January 25, 2021, Altria and/or its subsidiaries, including PM USA, were named as defendants in 27 class action lawsuits relating
to JUUL e-vapor products. JUUL is an additional named defendant in each of these lawsuits. The theories of recovery include violation
of RICO, fraud, failure to warn, design defect, negligence and unfair trade practices. Plaintiffs also sought to add antitrust claims due to
the recent administrative complaint filed by the FTC. Although the court denied this request in the class action lawsuits, the individual
antitrust claims remain pending before the same court. See Antitrust Litigation below for further discussion. Plaintiffs seek various
remedies, including compensatory and punitive damages and an injunction prohibiting product sales.
Altria and/or its subsidiaries, including PM USA, also have been named as defendants in other lawsuits involving JUUL e-vapor
products, including 1,631 individual lawsuits, 81 “third party” lawsuits, which include school districts, state and local governments,
including the states of Alaska, Hawaii and Minnesota, and tribal and healthcare organization lawsuits. JUUL is an additional named
defendant in each of these lawsuits.
The majority of the individual and class action lawsuits mentioned above were filed in federal court. In October 2019, the United States
Judicial Panel on Multidistrict Litigation ordered the coordination or consolidation of these lawsuits in the U.S. District Court for the
Northern District of California for pretrial purposes.
Altria and its subsidiaries filed motions to dismiss certain claims in the class action and school district cases, including the federal RICO
claim. In October 2020, the U.S. District Court for the Northern District of California granted the motion to dismiss the RICO class
action claim. Although it otherwise denied the motion, the court found that plaintiffs had not sufficiently alleged standing or causation
with respect to their claim under California law. The court also granted the motion to dismiss the RICO claim in the cases filed by
various school districts, but denied the motion in all other respects. The court gave plaintiffs the opportunity to amend their complaints
to attempt to cure the deficiencies the court identified and plaintiffs filed their amended complaints in November 2020. In January 2021,
Altria and its subsidiaries filed a renewed motion to dismiss.
An additional group of cases is pending in California state courts. In January 2020, the Judicial Council of California determined that
this group of cases was appropriate for coordination and assigned the group to the Superior Court of California, Los Angeles County, for
pretrial purposes.
No case in which Altria or any of its subsidiaries is named has been set for trial.
JUUL also is named in a significant number of additional individual and class action lawsuits to which neither Altria nor any of its
subsidiaries is currently named.
IQOS Litigation
In April 2020, RAI Strategic Holdings, Inc. and R.J. Reynolds Vapor Co., which are affiliates of R.J. Reynolds, filed a lawsuit against
Altria, PM USA, Altria Client Services LLC, PMI and its affiliate, Philip Morris Products S.A., in the United States District Court for
the Eastern District of Virginia. The lawsuit asserts claims of patent infringement based on the sale of the IQOS electronic device and
HeatSticks in the United States. Plaintiffs seek various remedies, including preliminary and permanent injunctive relief, treble damages
and attorneys’ fees. Altria and PMI have been dismissed from the lawsuit. In June 2020, the remaining defendants filed a motion to
dismiss certain of plaintiffs’ claims and also filed counterclaims against the plaintiffs for infringement of various patents owned by the
remaining defendants. The case is currently stayed.
Also in April 2020, a related action was filed against the same defendants by the same plaintiffs, as well as R.J. Reynolds, with the
United States International Trade Commission (“ITC”). There, the plaintiffs also allege patent infringement, but the remedies sought
include a prohibition on the importation of the IQOS electronic device, HeatSticks and component parts into the United States. No
damages are recoverable in the proceedings before the ITC. A hearing before an administrative law judge began on January 25, 2021.
An additional patent infringement case regarding the IQOS electronic device was filed in November 2020 in the United States District
Court for the Northern District of Georgia against PM USA and Philip Morris Products S.A. seeking damages and equitable relief.
Antitrust Litigation
In April 2020, the FTC issued an administrative complaint against Altria and JUUL alleging that Altria’s 35% investment in JUUL and
the associated agreements constitute an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act of 1890
(“Sherman Act”) and Section 5 of the Federal Trade Commission Act of 1914 (“FTC Act”), and substantially lessened competition in
violation of Section 7 of the Clayton Antitrust Act (“Clayton Act”). If the FTC’s challenge is successful, the FTC may order a broad
range of remedies, including divestiture of Altria’s minority investment in JUUL, rescission of the transaction and all associated
agreements, and prohibition against any officer or director of either Altria or JUUL serving on the other party’s board of directors or
attending meetings of the other party’s board of directors. The administrative trial will take place before an FTC administrative law
judge and is currently scheduled to begin April 2021. The administrative law judge’s decision is then submitted to the FTC, which
decision is subject to review by the FTC on its own motion or at the request of any party. The FTC then issues its ruling, which is
subject to appellate review.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Also as of January 25, 2021, 16 putative class action lawsuits have been filed against Altria and JUUL in the United States District Court
for the Northern District of California. The lawsuits initially named, in addition to the two companies, certain senior executives and
certain members of the board of directors of both companies as defendants; however, those individuals currently or formerly affiliated
with Altria were later dismissed. In November 2020 these lawsuits were consolidated into three complaints (one on behalf of direct
purchasers, one on behalf of indirect purchasers and one on behalf of indirect resellers). The consolidated lawsuits, as amended, cite the
FTC administrative complaint and allege that Altria and JUUL violated Sections 1, 2 and/or 3 of the Sherman Act and Section 7 of the
Clayton Act and various state antitrust, consumer protection and unjust enrichment laws by restraining trade and/or substantially
lessening competition in the U.S. closed-system electronic cigarette market. Plaintiffs seek various remedies, including treble damages,
attorneys’ fees, a declaration that the agreements between Altria and JUUL are invalid, divestiture of Altria’s minority investment in
JUUL and rescission of the transaction. Altria filed a motion to dismiss these lawsuits in January 2021.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to voting shares. However, pending the outcome of
the FTC administrative complaint, Altria currently does not intend to exercise its additional governance rights obtained upon the
conversion, including the right to elect directors to JUUL’s board or to vote its JUUL shares other than as a passive investor. For further
discussion of Altria’s rights in the event of share conversion, see Note 6. Investments in Equity Securities - Investment in JUUL.
Shareholder Class Action and Shareholder Derivative Lawsuits
In October and December 2019, two purported Altria shareholders filed putative class action lawsuits against Altria, Howard A. Willard
III, Altria’s former Chairman and Chief Executive Officer, and William F. Gifford, Jr., Altria’s former Vice Chairman and Chief
Financial Officer and current Chief Executive Officer, in the United States District Court for the Eastern District of New York. In
December 2019, the court consolidated the two lawsuits into a single proceeding. The consolidated lawsuit was subsequently transferred
to the United States District Court for the Eastern District of Virginia. The lawsuit asserts claims under Sections 10(b) and 20(a) and
under Rule 10b-5 of the Exchange Act. In April 2020, JUUL, its founders and some of its current and former executives were added to
the lawsuit. The claims allege false and misleading statements and omissions relating to Altria’s investment in JUUL. Plaintiffs seek
various remedies, including damages and attorneys’ fees. In July 2020, the defendants filed motions to dismiss plaintiffs’ claims.
In August 2020, two purported Altria shareholders filed separate derivative lawsuits in the United States District Court for the Northern
District of California on behalf of themselves and Altria, against Mr. Willard, Mr. Gifford, JUUL and certain of its executives and
officers. These derivative lawsuits relate to Altria’s investment in JUUL, and assert claims of breach of fiduciary duty by the Altria
defendants and aiding and abetting in that alleged breach of fiduciary duty by the remaining defendants. A third derivative lawsuit was
filed in September 2020 in the Circuit Court for Henrico County, Virginia against Mr. Willard, Mr. Gifford, Kevin C. Crosthwaite
(Altria’s former Chief Growth Officer and current JUUL Chief Executive Officer) and certain members of Altria’s Board of Directors.
This suit asserts a claim for breach of fiduciary duty. Plaintiffs seek various remedies, including damages, disgorgement of profits,
reformation of Altria’s corporate governance and internal procedures, and attorneys’ fees. The plaintiffs have agreed to stay the Virginia
derivative case pending the outcome of defendants’ motions to dismiss the shareholder class action. The fourth and fifth derivative
lawsuits were filed in October 2020 and January 2021, respectively, in the United States District Court for the Eastern District of
Virginia against the same Altria defendants in the Virginia lawsuit, JUUL, its founders and some of its current and former executives.
The remedies sought in both lawsuits are similar to those sought by plaintiffs in the Virginia lawsuit. As with the Virginia lawsuit, the
plaintiffs in the fourth lawsuit have agreed to stay the case pending the outcome of defendants’ motions to dismiss the shareholder class
action.
Certain Other Tobacco-Related Litigation
“Lights/Ultra Lights” Cases and Other Smoking and Health Class Actions: Plaintiffs have sought certification of their cases as class
actions, alleging among other things, that the uses of the terms “Lights” and/or “Ultra Lights” constitute deceptive and unfair trade
practices, common law or statutory fraud, unjust enrichment or breach of warranty, and have sought injunctive and equitable relief,
including restitution and, in certain cases, punitive damages. These class actions have been brought against PM USA and, in certain
instances, Altria or its other subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes. Defenses
raised in these cases include lack of misrepresentation, lack of causation, injury and damages, the statute of limitations, non-liability
under state statutory provisions exempting conduct that complies with federal regulatory directives, and the First Amendment. Twenty-
one state courts in 23 “Lights” cases have refused to certify class actions, dismissed class action allegations, reversed prior class
certification decisions or have entered judgment in favor of PM USA. As of January 25, 2021, two “Lights/Ultra Lights” class actions
are pending in U.S. state court. Neither case is active.
As of January 25, 2021, two smoking and health cases alleging personal injury or seeking court-supervised programs or ongoing medical
monitoring and purporting to be brought on behalf of a class of individual plaintiffs, are pending in their respective U.S. state courts.
Neither case is active.
UST Litigation: UST and/or its tobacco subsidiaries have been named in a number of individual tobacco and health lawsuits over time.
Plaintiffs’ allegations of liability in these cases have been based on various theories of recovery, such as negligence, strict liability, fraud,
misrepresentation, design defect, failure to warn, breach of implied warranty, addiction and breach of consumer protection statutes.
Plaintiffs have typically sought various forms of relief, including compensatory and punitive damages, and certain equitable relief,
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM including but not limited to disgorgement. Defenses raised in these cases include lack of causation, assumption of the risk, comparative
fault and/or contributory negligence, and statutes of limitations. As of January 25, 2021, there is one case pending against USSTC.
Environmental Regulation
Altria and its subsidiaries (and former subsidiaries) are subject to various federal, state and local laws and regulations concerning the
discharge of materials into the environment, or otherwise related to environmental protection, including, in the U.S.: the Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act (commonly known as “Superfund”), which can impose joint and several liability on each responsible party. Subsidiaries
(and former subsidiaries) of Altria are involved in several matters subjecting them to potential costs of remediation and natural resource
damages under Superfund or other laws and regulations. Altria’s subsidiaries expect to continue to make capital and other expenditures
in connection with environmental laws and regulations.
Altria provides for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are
probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change. Other than
those amounts, it is not possible to reasonably estimate the cost of any environmental remediation and compliance efforts that
subsidiaries of Altria may undertake in the future. In the opinion of management, however, compliance with environmental laws and
regulations, including the payment of any remediation costs or damages and the making of related expenditures, has not had, and is not
expected to have, a material adverse effect on Altria’s consolidated results of operations, capital expenditures, financial position or cash
flows.
Guarantees and Other Similar Matters
In the ordinary course of business, certain subsidiaries of Altria have agreed to indemnify a limited number of third parties in the event
of future litigation. At December 31, 2020, Altria and certain of its subsidiaries (i) had $49 million of unused letters of credit obtained in
the ordinary course of business; (ii) were contingently liable for guarantees related to their own performance, including $25 million for
surety bonds; and (iii) had a redeemable noncontrolling interest of $40 million recorded on its consolidated balance sheet. In addition,
from time to time, subsidiaries of Altria issue lines of credit to affiliated entities. These items have not had, and are not expected to
have, a significant impact on Altria’s liquidity.
Under the terms of a distribution agreement between Altria and PMI (the “Distribution Agreement”), entered into as a result of Altria’s
2008 spin-off of its former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the
manufacturer. PMI will indemnify Altria and PM USA for liabilities related to tobacco products manufactured by PMI or contract
manufactured for PMI by PM USA, and PM USA will indemnify PMI for liabilities related to tobacco products manufactured by PM
USA, excluding tobacco products contract manufactured for PMI. Altria does not have a related liability recorded on its consolidated
balance sheet at December 31, 2020 as the fair value of this indemnification is insignificant. PMI has agreed not to seek indemnification
with respect to the IQOS patent litigation discussed above under Certain Other Tobacco-Related Litigation - IQOS Litigation, excluding
the patent infringement case filed with the United States District Court for the Northern District of Georgia.
As more fully discussed in Note 9. Long-Term Debt, PM USA has issued guarantees relating to Altria’s obligations under its outstanding
debt securities, borrowings under its $3.0 billion Credit Agreement and amounts outstanding under its commercial paper program.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Note 19. Quarterly Financial Data (Unaudited)
(in millions, except per share data)
Net revenues
Gross profit
Net earnings (losses)
Net earnings (losses) attributable to Altria
Per share data:
Basic and diluted earnings (losses) per share attributable to Altria
(in millions, except per share data)
Net revenues
Gross profit
Net earnings (losses)
Net earnings (losses) attributable to Altria
Per share data:
Basic earnings (losses) per share attributable to Altria
Diluted earnings (losses) per share attributable to Altria
2020 Quarters
1st
6,359 $
2,873 $
1,550 $
1,552 $
2nd
6,367 $
3,287 $
1,938 $
1,943 $
3rd
7,123 $
3,717 $
(956) $
(952) $
4th
6,304
3,146
1,922
1,924
0.83 $
1.04 $
(0.51) $
1.03
1st
5,628 $
2,811 $
1,121 $
1,120 $
2019 Quarters
2nd
6,619 $
3,319 $
3rd
6,856 $
3,497 $
1,997 $
(2,602) $
1,996 $
(2,600) $
4th
6,007
3,084
(1,814)
(1,809)
0.60 $
0.60 $
1.07 $
1.07 $
(1.39) $
(1.39) $
(0.97)
(1.00)
$
$
$
$
$
$
$
$
$
$
$
During 2020 and 2019, the following pre-tax (gains) or charges were included in net earnings attributable to Altria:
(in millions)
Impairment of JUUL equity securities
JUUL changes in fair value
Tobacco and health litigation items, including accrued interest
Asset impairment, exit, implementation and acquisition-related costs
ABI-related special items
Cronos-related special items
PMCC residual value adjustments
COVID-19 special items
(in millions)
Impairment of JUUL equity securities
Tobacco and health litigation items, including accrued interest
Asset impairment, exit, implementation and acquisition-related costs
ABI-related special items (1)
Cronos-related special items
2020 Quarters
$
1st
— $
—
2nd
— $
—
3rd
2,600 $
—
24
395
56
89
—
—
18
8
120
(88)
34
50
34
12
513
143
—
—
$
564 $
142 $
3,302 $
1st
— $
17
159
163
425
764 $
2019 Quarters
2nd
— $
28
45
(129)
119
63 $
3rd
4,500 $
3
11
(23)
549
5,040 $
$
$
4th
—
(100)
7
16
74
(93)
91
—
(5)
4th
4,100
29
116
(394)
(165)
3,686
(1) Prior period amounts have been recast to conform with current period presentation for certain ABI mark-to-market adjustments.
As discussed in Note 14. Income Taxes, Altria has recognized income tax benefits and charges in the consolidated statements of earnings
(losses) during 2020 and 2019 as a result of various tax events.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Altria Group, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Altria Group, Inc. and its subsidiaries (the “Company”) as of
December 31, 2020 and 2019, and the related consolidated statements of earnings (losses), comprehensive earnings (losses),
stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial
reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Report of Management On Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Tobacco and Health Litigation Provisions and Disclosures
As described in Note 18 to the consolidated financial statements, legal proceedings covering a wide range of matters are pending or
threatened in various U.S. and foreign jurisdictions against the Company as well as its respective indemnitees and investees. The
Company records provisions in the consolidated financial statements for pending litigation when management determines that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The Company’s most significant category of
legal proceedings is tobacco and health litigation. The Company’s accrued liability for tobacco and health litigation was $9 million as of
December 31, 2020. While it is reasonably possible that an unfavorable outcome in a case may occur, except for those cases which have
been accrued for: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco and
health related cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable
outcome in any of the pending tobacco and health related cases; and (iii) accordingly, management has not provided any amounts in the
consolidated financial statements for unfavorable outcomes, if any.
The principal considerations for our determination that performing procedures relating to tobacco and health litigation provisions and
disclosures is a critical audit matter are (i) the significant judgment by management when determining if a loss for tobacco and health
litigation should be recorded in the consolidated financial statements, which in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of whether a loss
should be recorded; and (ii) the significant judgment by management when disclosing facts and circumstances related to the litigation,
which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures related to the disclosures,
including evaluating the audit evidence obtained related to management’s disclosures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s loss
determination for tobacco and health litigation matters and controls over the related financial statement disclosures. These procedures
also included, among others, (i) evaluating the completeness of the Company’s description of tobacco and health litigation matters; (ii)
confirming with external and internal legal counsel the likelihood of an unfavorable outcome and the extent to which a loss is estimable;
(iii) evaluating the reasonableness of management’s determination regarding the likelihood of an unfavorable outcome; and (iv)
evaluating the sufficiency of the Company’s tobacco and health litigation disclosures.
JUUL - Determination of the Fair Value of the Investment
As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31, 2020, the Company accounts for its equity
method investment in JUUL under the fair value option. The Company’s investment in JUUL was $1.7 billion as of December 31, 2020,
which was impacted by the non-cash pre-tax impairment charge of $2.6 billion recorded during the third quarter of 2020. Fair value is
estimated by management using an income approach, which reflects the discounting of future cash flows for the U.S. and international
markets of JUUL’s business. In determining the fair value of its investment in JUUL, management has 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, management has
made significant assumptions 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.
The principal considerations for our determination that performing procedures relating to the determination of the fair value of the
investment in JUUL is a critical audit matter are the (i) significant judgment by management when determining the fair value of the
investment in JUUL; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the risk created
by the number and types of legal cases pending against JUUL, the reasonableness of the range of scenarios that consider various
potential regulatory and market outcomes and management’s significant assumptions for the U.S. business related to sales volume,
operating margins and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
determination of the fair value of the investment in JUUL, including controls over the significant assumptions related to sales volume,
operating margins and discount rate. These procedures also included, among others, (i) testing management’s process for determining
the fair value estimate; (ii) evaluating the appropriateness of the income approach; (iii) testing the completeness and accuracy of
underlying data used by management in the income approach; (iv) evaluating the risk created by the number and types of legal cases
pending against JUUL; (v) evaluating the reasonableness of the range of scenarios that consider various potential regulatory and market
outcomes; and (vi) evaluating the significant assumptions used by management for the U.S. business related to sales volume, operating
margins and discount rate. Evaluating management’s assumptions for the U.S. business related to sales volume and operating margins
involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM the investee; (ii) the consistency with external market and industry data; and (iii) evidence obtained in other areas of the audit.
Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the Company’s income approach and (ii)
the discount rate assumption.
Other Than Temporary Impairment Assessment - Investment in Anheuser-Busch InBev SA/NV (“ABI”)
As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31, 2020, the Company had a 10.0%
ownership interest in ABI. Management reviews its equity investment in ABI accounted for under the equity method of accounting for
impairment by comparing the fair value of its investment to its carrying value. If the carrying value of the investment exceeds its fair
value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment
is recognized in the period identified. The factors used to make the determination regarding temporary impairment include the duration
and magnitude of the fair value decline, the financial condition and near-term prospects of the investee, and the Company’s intent and
ability to hold its investment in ABI until recovery. In October 2019, the fair value of the Company’s equity investment in ABI declined
below its carrying value and has not recovered. The fair value of the Company’s equity investment in ABI as of December 31, 2020 was
$13.8 billion (carrying value of $16.7 billion). Based on management’s evaluation of the duration and magnitude of the fair value
decline, management’s evaluation of ABI’s financial condition and near-term prospects, and the Company’s intent and ability to hold its
investment in ABI until recovery, management concluded that the decline in fair value of its investment in ABI below its carrying value
is temporary and, therefore, no impairment was recorded.
The principal considerations for our determination that performing procedures relating to the other than temporary impairment
assessment for the investment in ABI is a critical audit matter are the significant judgment by management when determining whether
the impairment represented a temporary or other than temporary impairment; this in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating management’s assessment of the financial condition and near-term
prospects of the investee, as well as the Company’s intent and ability to hold the investment in ABI until recovery.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
impairment assessment for the investment in ABI. These procedures also included, among others, evaluating management’s assessment
that the loss in value was temporary including the reasonableness of management’s assessment of the financial condition and near-term
prospects of the investee, as well as the Company’s intent and ability to hold the investment in ABI until recovery. Evaluating the
reasonableness of management’s assessment related to the financial condition and near-term prospects of the investee and the
Company’s intent and ability to the hold the investment until recovery involved consideration of whether the factors in the assessment
were consistent with (i) the current and past performance of the investee; (ii) external market and industry data; and (iii) evidence
obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Richmond, Virginia
January 28, 2021
We have served as the Company’s auditor since at least 1934, which is when the Company became subject to SEC reporting
requirements. We have not been able to determine the specific year we began serving as auditor of the Company.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Report of Management On Internal Control Over Financial Reporting
Management of Altria Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Altria Group, Inc.’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United
States of America. Internal control over financial reporting includes those written policies and procedures that:
n pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of Altria Group, Inc.;
n provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America;
n provide reasonable assurance that receipts and expenditures of Altria Group, Inc. are being made only in accordance with the
authorization of management and directors of Altria Group, Inc.; and
n provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that
could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to
correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Altria Group, Inc.’s internal control over financial reporting as of December 31, 2020.
Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Management’s assessment included an evaluation of the design of Altria Group, Inc.’s internal control over financial reporting and
testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its
assessment with the Audit Committee of Altria Group, Inc.’s Board of Directors.
Based on this assessment, management determined that, as of December 31, 2020, Altria Group, Inc. maintained effective internal
control over financial reporting.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial
statements of Altria Group, Inc. included in this report, has audited the effectiveness of Altria Group, Inc.’s internal control over
financial reporting as of December 31, 2020, as stated in their report herein.
January 28, 2021
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Altria carried out an evaluation, with the participation of Altria’s management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this Form 10-K. Based upon that evaluation, Altria’s Chief Executive Officer and Chief Financial Officer
concluded that Altria’s disclosure controls and procedures are effective.
There have been no changes in Altria’s internal control over financial reporting during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, its internal control over financial reporting.
The Report of Independent Registered Public Accounting Firm and the Report of Management on Internal Control over Financial
Reporting are included in Item 8.
Item 9B. Other Information.
None.
Part III
Except for the information relating to the executive officers set forth in Item 10, the information called for by Items 10-14 is hereby
incorporated by reference to Altria’s definitive proxy statement for use in connection with its Annual Meeting of Shareholders to be held
on May 20, 2021 that is expected to be filed with the SEC on or about April 8, 2021 (the “proxy statement”), and, except as indicated
therein, made a part hereof.
Item 10. Directors, Executive Officers and Corporate Governance.
Refer to “Board and Governance Matters - Proposal 1 - Election of Directors” and “Board and Governance Matters - Board and
Committee Governance” sections of the proxy statement.
Information about Our Executive Officers as of February 15, 2021:
Name
Jody L. Begley
Daniel J. Bryant
Office
Executive Vice President and Chief Operating Officer
Vice President and Treasurer
Steven D’Ambrosia
Murray R. Garnick
William F. Gifford, Jr.
Salvatore Mancuso
Heather A. Newman
W. Hildebrandt Surgner, Jr. Vice President, Corporate Secretary and Associate General Counsel
Charles N. Whitaker
Vice President and Controller
Executive Vice President and General Counsel
Chief Executive Officer
Executive Vice President and Chief Financial Officer
Senior Vice President, Corporate Strategy
Senior Vice President, Chief Human Resources Officer and Chief Compliance Officer
Age
49
51
54
61
50
55
43
55
54
All of the above-mentioned executive officers have been employed by Altria or its subsidiaries in various capacities during the past five
years.
Effective September 1, 2020, Mr. Begley, previously Senior Vice President, Tobacco Products of Altria, was elected Executive Vice
President and Chief Operating Officer of Altria.
Effective April 16, 2020, Mr. Gifford, previously Vice Chairman and Chief Financial Officer of Altria, was elected Chief Executive
Officer of Altria.
Effective April 16, 2020, Mr. Mancuso, previously Senior Vice President, Finance and Procurement of Altria, was elected Executive
Vice President and Chief Financial Officer of Altria.
Mr. Whitaker’s wife and Mr. Surgner’s wife are first cousins.
112
113
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Codes of Conduct and Corporate Governance
Altria has adopted the Altria Code of Conduct for Compliance and Integrity, which complies with requirements set forth in Item 406 of
Regulation S-K. This Code of Conduct applies to all of its employees, including its principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing similar functions. Altria has also adopted a code of business
conduct and ethics that applies to the members of its Board of Directors. These documents are available free of charge on Altria’s
website at www.altria.com.
Any waiver granted by Altria to its principal executive officer, principal financial officer or controller under the Code of Conduct, and
certain amendments to the Code of Conduct, will be disclosed on Altria’s website at www.altria.com within the time period required by
applicable rules.
In addition, Altria has adopted corporate governance guidelines and charters for its Audit, Compensation and Nominating, Corporate
Governance and Social Responsibility Committees and the other committees of the Board of Directors. All of these documents are
available free of charge on Altria’s website at www.altria.com.
The information on the respective websites of Altria and its subsidiaries is not, and shall not be deemed to be, a part of this Form 10-K or
incorporated into any other filings Altria makes with the SEC.
Item 11. Executive Compensation.
Refer to “Executive Compensation,” and “Board and Governance Matters - Director Compensation” sections of the proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under
Altria’s equity compensation plans at December 31, 2020, were as follows:
Equity compensation plans approved by shareholders (1)
Number of Shares
to be Issued upon
Exercise of
Outstanding
Options and Vesting of
Deferred Stock
(a)
2,771,586 (2)
Weighted Average
Exercise Price of
Outstanding
Options
(b)
$—
Number of Shares
Remaining Available for
Future Issuance Under Equity
Compensation
Plans
(c)
25,586,394 (3)
(1)
The following plans have been approved by Altria shareholders and have shares referenced in column (a) or column (c): the 2015
Performance Incentive Plan, the 2020 Performance Incentive Plan and the 2015 Stock Compensation Plan for Non-Employee Directors.
(2) Represents 2,239,379 shares of restricted stock units and 532,207 shares that may be issued upon vesting of performance stock units if
(3)
maximum performance measures are achieved.
Includes 24,827,160 shares available under the 2020 Performance Incentive Plan and 759,234 shares available under the 2015 Stock
Compensation Plan for Non-Employee Directors, and excludes shares reflected in column (a).
Refer to “Ownership of Equity Securities of Altria - Directors and Executive Officers” and “Ownership of Equity Securities of Altria -
Certain Other Beneficial Owners” sections of the proxy statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Refer to “Related Person Transactions and Code of Conduct” and “Board and Governance Matters - Altria Board of Directors - Director
Independence Determinations” sections of the proxy statement.
Item 14. Principal Accounting Fees and Services.
Refer to “Audit Committee Matters - Independent Registered Public Accounting Firm’s Fees” and “Audit Committee Matters - Pre-
Approval Policy” sections of the proxy statement.
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Part IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Index to Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Earnings (Losses) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Earnings (Losses) for the years ended December 31, 2020, 2019
and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Management on Internal Control Over Financial Reporting
Page
54
56
57
58
60
61
109
112
Schedules have been omitted either because such schedules are not required or are not applicable.
In accordance with Regulation S-X Rule 3-09, the audited financial statements of ABI for the year ended December 31, 2020 will be
filed by amendment within six months after ABI’s year ended December 31, 2020.
(b) The following exhibits are filed as part of this Form 10-K:
2.1
2.2
2.3
2.4
2.5
2.6
3.1
Distribution Agreement by and between Altria Group, Inc. and Kraft Foods Inc. (now known as Mondelēz
International, Inc.), dated as of January 31, 2007. Incorporated by reference to Altria Group, Inc.’s Current Report on
Form 8-K filed on January 31, 2007 (File No. 1-08940).
Distribution Agreement by and between Altria Group, Inc. and Philip Morris International Inc., dated as of January 30,
2008. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on January 30, 2008 (File
No. 1-08940).
Class C-1 Common Stock Purchase Agreement, dated as of December 20, 2018, by and among JUUL Labs, Inc.,
Altria Group, Inc. and Altria Enterprises LLC. Incorporated by reference to Altria Group, Inc.’s Current Report on
Form 8-K filed on December 20, 2018 (File No. 1-08940).
Amendment No. 1 to Class C-1 Common Stock Purchase Agreement, dated as of January 28, 2020, by and among
JUUL Labs, Inc., Altria Group, Inc. and Altria Enterprises LLC. Incorporated by reference to Altria Group, Inc.’s
Current Report on Form 8-K filed on January 30, 2020 (File No. 1-08940).
Relationship Agreement, dated as of December 20, 2018, by and among JUUL Labs, Inc., Altria Group, Inc. and Altria
Enterprises LLC. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on December
20, 2018 (File No. 1-08940).
Amendment No. 1 to Relationship Agreement, dated as of January 28, 2020, by and among JUUL Labs, Inc. and Altria
Group, Inc. and Altria Enterprises LLC. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K
filed on January 30, 2020 (File No. 1-08940).
Articles of Amendment to the Restated Articles of Incorporation of Altria Group, Inc. and Restated Articles of
Incorporation of Altria Group, Inc. Incorporated by reference to Altria Group, Inc.’s Annual Report on Form 10-K for
the year ended December 31, 2002 (File No. 1-08940).
114
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Amended and Restated By-Laws of Altria Group, Inc., effective as of May 14, 2020. Incorporated by reference to
Altria Group, Inc.’s Current Report on Form 8-K filed on May 18, 2020 (File No. 1-08940).
Description of Altria Group, Inc.’s Registered Securities.
Indenture between Altria Group, Inc. and The Bank of New York (as successor in interest to JPMorgan Chase Bank,
formerly known as The Chase Manhattan Bank), as Trustee, dated as of December 2, 1996. Incorporated by reference
to Altria Group, Inc.’s Registration Statement on Form S-3/A filed on January 29, 1998 (No. 333-35143).
First Supplemental Indenture to Indenture, dated as of December 2, 1996, between Altria Group, Inc. and The Bank of
New York (as successor in interest to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as
Trustee, dated as of February 13, 2008. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K
filed on February 15, 2008 (File No. 1-08940).
Indenture among Altria Group, Inc., as Issuer, Philip Morris USA Inc., as Guarantor, and Deutsche Bank Trust
Company Americas, as Trustee, dated as of November 4, 2008. Incorporated by reference to Altria Group, Inc.’s
Registration Statement on Form S-3 filed on November 4, 2008 (No. 333-155009).
5-Year Revolving Credit Agreement, dated as of August 1, 2018, among Altria Group, Inc., the lenders named therein
and JPMorgan Chase Bank, N.A. and Citibank, N.A., as administrative agents. Incorporated by reference to Altria
Group, Inc.’s Current Report on Form 8-K filed on August 1, 2018 (File No. 1-08940).
Amendment No. 1 to the Credit Agreement, dated January 25, 2019, among Altria Group, Inc. the Lenders and
JPMorgan Chase Bank, N.A. and Citibank, N.A. as administrative agents. Incorporated by reference to Altria Group,
Inc.’s Current Report on Form 8-K filed on January 31, 2019 (File No. 1-08940).
The Registrant agrees to furnish copies of any instruments defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its
consolidated subsidiaries to the Commission upon request.
Comprehensive Settlement Agreement and Release related to settlement of Mississippi health care cost recovery
action, dated as of October 17, 1997. Incorporated by reference to Altria Group, Inc.’s Annual Report on Form 10-K
for the year ended December 31, 1997 (File No. 1-08940).
Settlement Agreement related to settlement of Florida health care cost recovery action, dated August 25, 1997.
Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on September 3, 1997 (File No.
1-08940).
Comprehensive Settlement Agreement and Release related to settlement of Texas health care cost recovery action,
dated as of January 16, 1998. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on
January 28, 1998 (File No. 1-08940).
Settlement Agreement and Stipulation for Entry of Judgment regarding the claims of the State of Minnesota, dated as
of May 8, 1998. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended
March 31, 1998 (File No. 1-08940).
Settlement Agreement and Release regarding the claims of Blue Cross and Blue Shield of Minnesota, dated as of May
8, 1998. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended March
31, 1998 (File No. 1-08940).
Stipulation of Amendment to Settlement Agreement and For Entry of Agreed Order regarding the settlement of the
Mississippi health care cost recovery action, dated as of July 2, 1998. Incorporated by reference to Altria Group, Inc.’s
Quarterly Report on Form 10-Q for the period ended June 30, 1998 (File No. 1-08940).
Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree regarding the settlement of the
Texas health care cost recovery action, dated as of July 24, 1998. Incorporated by reference to Altria Group, Inc.’s
Quarterly Report on Form 10-Q for the period ended June 30, 1998 (File No. 1-08940).
Stipulation of Amendment to Settlement Agreement and For Entry of Consent Decree regarding the settlement of the
Florida health care cost recovery action, dated as of September 11, 1998. Incorporated by reference to Altria Group,
Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 1998 (File No. 1-08940).
Master Settlement Agreement relating to state health care cost recovery and other claims, dated as of November 23,
1998. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on November 25, 1998, as
amended by Form 8-K/A filed on December 24, 1998 (File No. 1-08940).
10.10
Stipulation and Agreed Order Regarding Stay of Execution Pending Review and Related Matters, dated as of May 7,
2001. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on May 8, 2001 (File No.
1-08940).
116
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Term Sheet effective December 17, 2012, between Philip Morris USA, Inc., the other participating manufacturers, and
various states and territories for settlement of the 2003 - 2012 Non-Participating Manufacturer Adjustment with those
states. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on December 18, 2012 (File
No. 1-08940).
Intellectual Property Agreement by and between Philip Morris International Inc. and PM USA, dated as of January 1,
2008. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on March 28, 2008 (File No.
1-08940).
Guarantee made by Philip Morris USA Inc. in favor of the lenders party to the 5-Year Revolving Credit Agreement,
dated as of August 1, 2018, among Altria Group, Inc., the lenders named therein and JPMorgan Chase Bank, N.A. and
Citibank, N.A., as administrative agents, dated as of August 1, 2018. Incorporated by reference to Altria Group, Inc.’s
Current Report on Form 8-K filed on August 1, 2018 (File No. 1-08940)
Benefit Equalization Plan, effective September 2, 1974, as amended. Incorporated by reference to Altria Group, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 1-08940).*
Amendment to Benefit Equalization Plan, effective March 31, 2016. Incorporated by reference to Altria Group, Inc.’s
Quarterly Report on Form 10-Q for the period ended March 31, 2016 (File No. 1-08940).*
Amendment to Benefit Equalization Plan, effective January 1, 2016 and October 1, 2016. Incorporated by reference to
Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016 (File No. 1-08940).*
Amendment to Benefit Equalization Plan, effective January 1, 2019. Incorporated by reference to Altria Group, Inc.’s
Annual Report on Form 10-K for year ended December 31, 2018 (File No. 1-08940).*
Form of Employee Grantor Trust Enrollment Agreement. Incorporated by reference to Altria Group, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 1995 (File No. 1-08940).*
Long-Term Disability Benefit Equalization Plan, effective as of January 1, 1989, as amended. Incorporated by
reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2009 (File No.
1-08940).*
Deferred Fee Plan for Non-Employee Directors, as amended and restated effective October 28, 2015. Incorporated by
reference to Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No.
1-08940).*
2015 Stock Compensation Plan for Non-Employee Directors, as amended and restated effective October 28, 2015.
Incorporated by reference to Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015
(File No. 1-08940).*
2015 Performance Incentive Plan, effective on May 1, 2015. Incorporated by reference to Altria Group, Inc.’s
definitive proxy statement on Schedule 14A filed on April 9, 2015 (File No. 1-08940).*
2020 Performance Incentive Plan. Incorporated by reference to Exhibit A to Altria Group, Inc.'s Definitive Proxy
Statement on Schedule 14A filed on April 2, 2020, as amended by Altria Group, Inc.'s Supplement to Proxy Statement
on Schedule 14A filed on April 17, 2020 (File No. 1-08940).
Form of Indemnity Agreement. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on
October 30, 2006 (File No. 1-08940).
Form of Restricted Stock Unit Agreement, dated as of January 26, 2016. Incorporated by reference to Altria Group,
Inc.’s Current Report on Form 8-K filed on January 28, 2016 (File No. 1-08940).*
Form of Restricted Stock Unit Agreement, dated as of January 30, 2018. Incorporated by reference to Altria Group,
Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2018 (File No. 1-08940).*
Form of Performance Stock Unit Agreement, dated as of January 30, 2018. Incorporated by reference to Altria Group,
Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2018 (File No. 1-08940).*
Form of Restricted Stock Unit Agreement, dated as of February 26, 2019. Incorporated by reference to Altria Group,
Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (File No. 1-08940).*
Form of Performance Stock Unit Agreement, dated as of February 26, 2019. Incorporated by reference to Altria
Group, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (File No. 1-08940).*
Form of Restricted Stock Unit Agreement (2020). Incorporated by reference to Altria Group, Inc.’s Quarterly Report
on Form 10-Q for the period ended March 31, 2020 (File No. 1-08940). *
116
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM 10.31
10.32
10.33
10.34
10.35
10.36
21
22
23
24
31.1
31.2
32.1
32.2
99.1
99.2
Form of Performance Stock Unit Agreement (2020). Incorporated by reference to Altria Group, Inc.’s Quarterly
Report on Form 10-Q for the period ended March 31, 2020 (File No. 1-08940). *
Form of Executive Confidentiality and Non-Competition Agreement (October 2018). Incorporated by reference to
Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 1-08940).*
Form of Confidentiality and Non-Competition Agreement (February 2019). Incorporated by reference to Altria Group,
Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 (File No. 1-08940).*
Form of Letter Regarding Reimbursement of Legal Expenses.*
Time Sharing Agreement between Altria Client Services LLC and William F. Gifford, Jr., dated June 17, 2020.
Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2020
(File No. 1-08940).*
Form of Agreement and General Release (September 2019). Incorporated by reference to Altria Group, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2019 (File No. 1-08940).*
Subsidiaries of Altria Group, Inc.
Guarantor Subsidiary of the Registrant. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form
10-Q for the period ended June 30, 2020 (File No. 1-08940).
Consent of independent registered public accounting firm.
Powers of attorney.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certain Litigation Matters.
Trial Schedule for Certain Cases.
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
* Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
Item 16. Form 10-K Summary.
None.
118
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALTRIA GROUP, INC.
By:
/s/ WILLIAM F. GIFFORD, JR.
(William F. Gifford, Jr.
Chief Executive Officer)
Date: February 26, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated:
Signature
Title
Date
Director and Chief Executive Officer
February 26, 2021
Executive Vice President and Chief Financial
Officer
February 26, 2021
Vice President and Controller
February 26, 2021
Directors
/s/ WILLIAM F. GIFFORD, JR.
(William F. Gifford, Jr.)
/s/ SALVATORE MANCUSO
(Salvatore Mancuso)
/s/ STEVEN D’AMBROSIA
(Steven D’Ambrosia)
* JOHN T. CASTEEN III,
DINYAR S. DEVITRE,
THOMAS F. FARRELL II,
DEBRA J. KELLY-ENNIS,
W. LEO KIELY III,
KATHRYN B. MCQUADE,
GEORGE MUÑOZ,
MARK E. NEWMAN,
NABIL Y. SAKKAB,
VIRGINIA E. SHANKS,
ELLEN R. STRAHLMAN
* By:
/s/ WILLIAM F. GIFFORD, JR.
(WILLIAM F. GIFFORD, JR.
ATTORNEY-IN-FACT)
February 26, 2021
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Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM Shareholder Information
Shareholder Response Center:
Computershare Trust Company,
N.A. (Computershare), our transfer
agent, will be happy to answer
questions about your accounts,
certificates, dividends or the
Direct Stock Purchase and
Dividend Reinvestment Plan.
Direct Stock Purchase and
Dividend Reinvestment Plan:
Altria offers a Direct Stock
Purchase and Dividend
Reinvestment Plan, administered
by Computershare. For more
information, please contact
Computershare.
Within the U.S. and Canada,
shareholders may call toll-free:
1-800-442-0077
From outside the U.S. or Canada,
shareholders may call:
1-781-575-3572
Postal address:
Computershare Trust
Company, N.A.
P.O. Box 505005
Louisville, KY 40233-5005
To eliminate duplicate mailings,
please contact Computershare
(if you are a registered sharehold-
er) or your broker (if you hold your
shares through a brokerage firm).
Shareholder Publications:
Altria makes a variety of publica-
tions and reports available. These
include the Annual Report, news
releases and other publications.
For copies, please visit our website
at: www.altria.com/investors
Altria makes available free of
charge its filings with the U.S.
Securities and Exchange
Commission (SEC), such as Proxy
Statements and Reports on Form
10-K, 10-Q and 8-K.
For copies, please visit our
website at:
www.altria.com/SECfilings
If you do not have Internet
access, you may call:
1-804-484-8222
Internet Access Helps
Reduce Costs:
As a convenience to shareholders
and an important cost-reduction
and environmentally friendly
measure, you can register to
receive future shareholder
materials (i.e., Annual Report and
Proxy Statement) electronically.
Shareholders also can vote their
proxies electronically.
For more information, please visit
our website at:
www.altria.com/investors
Additional Information:
The information on the respec-
tive websites of Altria and its
subsidiaries is not, and shall not
be deemed to be, a part of this
report or incorporated into any
filings Altria makes with the SEC.
Trademarks and service marks
in this report are the registered
property of or licensed by Altria or
its subsidiaries.
2021 Annual Meeting:
The Altria Annual Meeting of
Shareholders will be held at
9:00 a.m. (Eastern Time) on
Thursday, May 20, 2021. For more
information about the Annual
Meeting, please refer to Altria’s
2021 Proxy Statement or call:
1-804-484-8838
Transfer Agent and Registrar:
Computershare Trust
Company, N.A.
P.O. Box 505005
Louisville, KY 40233-5005
Independent Auditors:
PricewaterhouseCoopers LLP
1021 E. Cary Street, Suite 1250
Richmond, VA 23219
Stock Exchange Listing:
The principal stock
exchange on which
Altria’s common stock
(par value $0.33 1⁄3
per share) is listed is the New York
Stock Exchange (ticker symbol:
MO). As of January 31, 2021, there
were approximately 54,000
holders of record of Altria’s
common stock.
Board of Directors
John T. Casteen III 1,2,5
President Emeritus,
University of Virginia
Director since 2010
Dinyar S. Devitre 3,4,5,6
Former Chief Financial Officer,
Altria Group, Inc.
Director since 2008
Thomas F. Farrell II 2,3,6
Executive Chairman,
Dominion Energy, Inc.
Director since 2008
William F. Gifford, Jr.3
Chief Executive Officer,
Altria Group, Inc.
Director since 2020
Debra J. Kelly-Ennis1,5,6
Retired President and
Chief Executive Officer,
Diageo Canada, Inc.
Director since 2013
Design: andradesignstudio.com
Photography: Casey Templeton,
Dominion Energy, Inc., Vincent Laforet
Printer: Stephenson Printing Inc.
© Copyright 2021 Altria
W. Leo Kiely III 2,3,4,5
Retired Chief Executive Officer,
MillerCoors LLC
Director since 2011
Kathryn B. McQuade 1,2,3,6
Retired Executive Vice President
and Chief Financial Officer,
Canadian Pacific
Railway Limited
Director since 2012
George Muñoz 1,3,4,6
Principal, Muñoz Investment
Banking Group, LLC
Partner, Tobin & Muñoz
Director since 2004
Mark E. Newman1,4,5
Senior Vice President and
Chief Operating Officer,
The Chemours Company
Director since 2018
Nabil Y. Sakkab 3,4,5,6
Retired Senior Vice President,
Corporate Research and
Development, The Procter
& Gamble Company
Director since 2008
Virginia E. Shanks1,2,5
Former Executive Vice President
and Chief Administrative Officer,
Pinnacle Entertainment, Inc.
Director since 2017
Ellen R. Strahlman4,5
Retired Executive Vice President,
Research & Development and
Chief Medical Officer,
Becton, Dickinson and Company
Director since 2020
Independent Chairman of the Board
Thomas F. Farrell II
Committees
1 Member of Audit Committee,
George Muñoz, Chair
2 Member of Compensation and
Talent Development Committee,
W. Leo Kiely III, Chair
3 Member of Executive Committee,
Thomas F. Farrell II, Chair
4 Member of Finance Committee,
Dinyar S. Devitre, Chair
5 Member of Innovation Committee,
Nabil Y. Sakkab, Chair
6 Member of Nominating,
Corporate Governance and
Social Responsibility Committee,
Kathryn B. McQuade, Chair
The 2020 annual report was printed on FSC®
certified paper. The FSC® is an independent,
non-governmental, not-for-profit global
organization established to promote the
responsible management of the world’s forests.
Altria 2020 10-K | Andra Design Studio | Wednesday, March 3, 2021 | 1:45 PM
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
an Altria Company
From tobacco company
To tobacco harm reduction company
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Altria Group, Inc. | 6601 W. Broad Street | Richmond, VA 23230-1723 | altria.com
2020
Altria Group, Inc.
Annual Report
Altria 2020 Annual Report | Andra Design Studio | Tuesday, February 2, 2021 9:00amAltria 2020 Annual Report | Andra Design Studio | Tuesday, February 2, 2021 9:00am