| Virginia | 13-3260245 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 6601 West Broad Street, | Richmond, | Virginia | 23230 | ||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
804-274-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||
Common Stock, $0.33 | MO | New York Stock Exchange | ||||||
| 1.000% Notes due 2023 | MO23A | New York Stock Exchange | ||||||
| 1.700% Notes due 2025 | MO25 | New York Stock Exchange | ||||||
| 2.200% Notes due 2027 | MO27 | New York Stock Exchange | ||||||
| 3.125% Notes due 2031 | MO31 | New York Stock Exchange | ||||||
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 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
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
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.
Large accelerated filer | þ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting | ☐ | |||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
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 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
As of June 30, 2017,2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $143$88 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.
Class | Outstanding at February 15, 2022 | |||||||
Common Stock, $0.33 1/3 par value | shares | |||||||
DOCUMENTS INCORPORATED BY REFERENCE
| Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May | ||
| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 1B. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item | ||||||||
| Item 6. | ||||||||
| Item 7. | ||||||||
| Item 7A. | ||||||||
| Item 8. | ||||||||
| Item 9. | ||||||||
| Item 9A. | ||||||||
| Item 9B. | ||||||||
| Item 9C. | ||||||||
| PART III | ||||||||
| Item 10. | ||||||||
| Item 11. | ||||||||
| Item 12. | ||||||||
| Item 13. | ||||||||
| Item 14. | ||||||||
| PART IV | ||||||||
| Item 15. | ||||||||
| Item 16. | ||||||||
Part I
Item 1. Business.
General Development of Business
Altria’s Vision by 2030 is to responsibly lead the transition of adult smokers to a smoke-free future (“Vision”). Altria is MovingBeyond SmokingTM, 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 holding company incorporated in the Commonwealth of Virginia in 1985. At December 31, 2017, Altria Group, Inc.’s wholly-ownedsubstantial opportunity for adult tobacco consumers, Altria’s businesses and society.
Altria’s wholly owned subsidiaries includedinclude Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly-ownedwholly owned subsidiary of PM USA; Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), which are engaged in the manufacture and sale of super premium cigarettes and the sale of premium cigars; and UST LLC (“UST”), which through its wholly-owned subsidiaries, includingwholly owned subsidiary 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”) and wine. Altria Group, Inc.’s other operating companies included Nu Marksnus products; Helix Innovations LLC (“Nu Mark”Helix”), a wholly-owned subsidiary that iswhich operates in the United States and Canada, and Helix Innovations GmbH and its subsidiaries (“Helix ROW”), which operate internationally in the rest-of-world, are engaged in the manufacture and sale of innovative tobacco products,on! oral nicotine pouches; and Philip Morris Capital Corporation (“PMCC”), a wholly-owned subsidiary thatwhich maintains a portfolio of finance assets, substantially all of which are leveraged leases. Other Altria Group, Inc. wholly-ownedwholly owned subsidiaries includedinclude Altria Group Distribution Company, which provides sales and distribution services to certain Altria Group, Inc.Altria’s domestic tobacco operating subsidiaries,companies, 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 Group, Inc.Altria.
On October 1, 2021, UST sold its subsidiary, International Wine & Spirits Ltd. (“IWS”), which included Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), in an all-cash transaction with a net purchase price of approximately $1.2 billion and the assumption of certain liabilities of IWS and its subsidiaries.subsidiaries (the “Ste. Michelle Transaction”).
In 2019, Helix acquired Burger Söhne Holding and its subsidiaries as well as certain affiliated companies that are engaged in the manufacture and sale of on! oral nicotine pouches. At September 30, 2016,closing, Altria Group, Inc. hadowned an approximate 27% ownership of SABMiller plc (“SABMiller”),80% interest in Helix, for which Altria Group, Inc. accounted for under the equity method of accounting. In October 2016, Anheuser-Busch InBev SA/NV (“Legacy AB InBev”) completed its business combination with SABMiller, and Altria Group, Inc. received cash and shares representing a 9.6% ownership in the combined company (the “Transaction”). The newly formed Belgian company, which retained the name Anheuser-Busch InBev SA/NV (“AB InBev”), became the holding company for the combined businesses. Subsequently, Altria Group, Inc. purchased approximately 12 million ordinary shares of AB InBev, increasing Altria Group, Inc.’s ownership to approximately 10.2% at December 31, 2016.paid $353 million. At December 31, 2017,2021, Altria Group, Inc. had an approximate 10.2% ownershipowned 100% of AB InBev, which Altria Group, Inc. accounts for under the equity method of accounting using a one-quarter lag. Asglobal on! business as a result of transactions in December 2020 and April 2021 to purchase the one-quarter lagremaining 20% interest in (i) Helix ROW and the timing(ii) Helix, respectively. The total purchase price of the completion of the Transaction, no earnings from Altria Group, Inc.’s equity investment in AB InBev were recorded for the year ended December 31, 2016. For further discussion, see Note 6. Investment in AB InBev/SABMiller to the consolidated financial statements in Item 8. Financial Statements2020 and Supplementary Data of this Annual Report on Form 10-K (“Item 8”).
April 2021 transactions was approximately $250 million.Altria’s investments in equity securities consist of Anheuser-Busch InBev SA/NV (“ABI”), Cronos Group Inc.’s consolidated results. (“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.
| 2017 | 2016 | 2015 | ||||
| Smokeable products | 85.8 | % | 86.2 | % | 87.4 | % |
| Smokeless products | 13.2 | 13.1 | 12.8 | |||
| Wine | 1.5 | 1.8 | 1.8 | |||
| All other | (0.5 | ) | (1.1 | ) | (2.0 | ) |
| Total | 100.0 | % | 100.0 | % | 100.0 | % |
Portions of the information called for byrelating 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 Operationsof this Annual Report on Form 10-K (“Item 7”).
Tobacco Space
The products of Altria Group, Inc.’sAltria’s tobacco subsidiaries includeoperating companies include: (i) smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA and Nat Sherman, machine-made large cigars and pipe tobacco manufactured and sold by MiddletonMiddleton; and premium cigars sold by Nat Sherman; smokeless(ii) oral tobacco products, consisting of MST and snus products manufactured and sold by USSTC;USSTC and innovative tobacco products, including e-vapor productsoral nicotine pouches manufactured and sold by Nu Mark.Helix.
▪Cigarettes: PM USA is the largest cigarette company in the United States and substantially all cigarettes are manufactured and sold to customers 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 4045 years. Nat Sherman sells substantially all of its super premium cigarettes in the United States. Total smokeable products segment’s cigarettes shipment volume in the United States was 116.693.8 billion units in 2017,2021, a decrease of 5.1%7.5% from 2016.2020.
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▪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. Nat Sherman sources all of its cigars from third-party suppliers and sells substantially all of its cigars to customers in the United States. Total smokeable products segment’s cigars shipment volume was approximately 1.51.8 billion units in 2017, an increase of 9.9%2021, essentially unchanged from 2016.
2020.▪SmokelessOral tobacco products: USSTC is the leading producer and marketer of moist smokeless tobacco (“MST”)MST products. The smokelessoral tobacco products segment includes the premium brands, Copenhagen and Skoal, and value brands, brand, 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 smokelessoral tobacco products are manufactured and sold to customers in the United States. Total smokelessoral tobacco products segment’s shipment volume was 841.3820.3 million units in 2017, a decrease of 1.4%2021, essentially unchanged from 2016.2020.
▪Innovative tobacco products: Nu Mark participates in the e-vapor category and has developed and commercialized other innovative tobacco products. In addition, Nu Mark sources the production of its e-vapor products through overseas contract manufacturing arrangements. In 2013, Nu Mark introduced MarkTen e-vapor products. In April 2014, Nu Mark acquired the e-vapor business of Green Smoke, Inc. and its affiliates (“Green Smoke”), which began selling e-vapor products in 2009. In 2017, Altria Group, Inc.’s subsidiaries purchased certain intellectual property related to innovative tobacco products.
In December 2013, Altria Group, Inc.’sAltria’s subsidiaries entered into a series of agreements with Philip Morris International Inc. (“PMI”) pursuant to which, including an agreement that grants Altria Group, Inc.’s subsidiaries provide an exclusive licenseright to PMI to sell Nu Mark’s e-vapor products outside the United States, and PMI’s subsidiaries provide an exclusive license to Altria Group, Inc.’s subsidiaries to sell twocommercialize certain of PMI’s heated tobacco product platforms in the United States. Further, in July 2015, Altria Group, Inc. announced the expansion of its strategic framework with PMI to include a joint research, development and technology-sharing agreement. Under this agreement, Altria Group, Inc.’s subsidiaries and PMI will collaborate to develop e-vapor products for commercialization in the United States, by Altria Group, Inc.’s subsidiaries and in markets outsidesubject to the United States by PMI. This agreement also provides for exclusive technology cross licenses, technical information sharing and cooperation on scientific assessment, regulatory engagement and approval related to e-vapor products.
In connection with a patent dispute, the U.S. International Trade Commission (“ITC”) issued a limited exclusion order barring the importation of the IQOS devices, Marlboro HeatSticks and infringing components into the United States and a cease and desist order barring domestic sales, marketing and distribution of these imported products effective November 29, 2021. In December 2021, defendants appealed the orders to the U.S. Court of Appeals for the Federal Circuit. Due to this litigation, PM USA removed the IQOS devices and Marlboro HeatSticks from the marketplace. PM USA does not expect to have access to IQOS devices or Marlboro HeatSticks in 2022. For a further discussion of the ITC decision, see Note 18. Contingencies to the consolidated financial statements in Item 8 (“Note 18”).
In October 2021, the FDA authorized the marketing and sale of four of USSTC’s Verve oral nicotine products, including Green Mint and Blue Mint varieties, representing the first quarter of 2017. Upon regulatory authorizationflavored product authorizations issued by the FDA Altria Group, Inc.’s subsidiaries will have an exclusive license to sell this heated tobacco product in the United States.for newly deemed products. These products are not currently marketed or sold.
▪Distribution, Competition and Raw Materials: Altria Group, Inc.’sAltria’s tobacco subsidiaries sell their tobacco products principally to wholesalers (including distributors), and large retail organizations, including chain stores, and the armed services.stores.
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.
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.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, as well as from leaf merchants.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.
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 Annual Report on Form 10-K (“Item 1A”) and Tobacco Space - Business Environment - Price, Availability and Quality of Agricultural Productsin Item 7 for a discussion of risks associated with tobacco supply.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. For further information on PMCC’s finance assets, see Note 7. Finance Assets, netAltria expects to complete the consolidated financial statements in Item 8.wind-down of this business by the end of 2022.
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Other Matters
▪Customers: The largest customerFor a discussion of PM USA, USSTC, MiddletonHelix and Nat Sherman, McLane Company, Inc., accounted for approximately 26%, 25% and 26%Middleton’s largest customers, including their percentages of Altria Group, Inc.’s consolidated net revenues for the years ended December 31, 2017, 2016 and 2015, respectively. In addition, Core-Mark Holding Company, Inc. accounted for approximately 14%, 14% and 10% of Altria Group, Inc.’sAltria’s consolidated net revenues for the years ended December 31, 2017, 20162021, 2020 and 2015, respectively. Substantially all of these net revenues were reported2019, see Note 15. Segment Reporting to the consolidated financial statements in the smokeable products and smokeless products segments.
▪Employees: At December 31, 2017, Altria Group, Inc. and its subsidiaries employed approximately 8,300 people.
▪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 toward 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 and benefits design and implementation, performance management, advancement and succession planning and professional and learning development. Our inclusion, diversity and equity (“ID&E”) programs are managed by our Corporate Citizenship department. Our Board of Directors (“Board of Directors” or “Board”) and the Compensation and Talent Development Committee provide oversight of human capital matters, including reviewing initiatives and programs related to corporate culture and enterprise-wide talent development, including our ID&E initiatives.
Inclusion, Diversity and Equity
We recognize the critical importance of ID&E 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 Inclusion & Diversity Aiming Points to help guide our efforts:
▪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.
As of December 31, 2021, women represented 32% of vice president-level and 41% of director-level roles; Asian, Black, Hispanic or employees of two or more races represented 24% of our vice president-level and 26% of our director-level roles.
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 Form 10-K.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.
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, disability and life insurance, and up to 12 weeks paid parental and family leave for birth, adoption and foster placement and an additional six weeks paid leave for birth mothers. Our benefits also include mental health and 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. In addition, we offered financial incentives to our employees to encourage vaccination against COVID-19. 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.
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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 expenseefforts 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, including training to maintain professional certifications, 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, support from leadership, corporate culture and culture of compliance. In addition, in 2021, we conducted quarterly employee surveys to gauge topics such as employee well-being in light of the years ended COVID-19 pandemic, inclusion and workload. 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 goal is for every Altria employee to have an injury-free career, which is supported by our Safety Management System (“SMS”). We strive for continuous improvement in our employee safety program through SMS infrastructure. Our Occupational Safety and Health Administration recordable injury rate for 2021 was 1.7% (versus 1.9% for 2020) and remains below the benchmark for companies in the U.S. Beverage and Tobacco Product Manufacturing industry classification.
In response to the COVID-19 pandemic, we implemented safety measures aligned with Centers for Disease Control and Prevention guidelines to help protect our employees, including remote work for non-manufacturing salaried employees and additional cleaning and sanitation practices. We also established a COVID-19 Task Force and a Return to Workplace team to facilitate the decision-making process as we navigated the evolving COVID-19 environment and its impacts on our employees.
Number of Employeesand Labor Relations
At December 31, 2017, 20162021, we employed approximately 6,000 people (a decrease from approximately 7,100 at December 31, 2020 driven by the sale of the wine business). Thirty percent of our employees were hourly manufacturing employees and 2015 is set forthmembers 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
We support efforts to address human capital concerns in Note 17. Additional Informationthe tobacco supply chain. For example, in our domestic tobacco supply chain, we use on-farm good agricultural practices assessments to the consolidated financial statementsassess 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 Item 8.high-risk tobacco growing regions.
More information about efforts discussed in this section can be found in our Corporate Responsibility Reports at www.altria.com/responsibility.
▪Intellectual Property: Trademarks are of material importance to Altria Group, Inc. and its operating companies, and are protected by registration or otherwise. In addition, as of December 31, 2017,2021, the portfolio of approximately 800 United States patents owned by Altria Group, Inc.’sAltria’s businesses, as a whole, was material to Altria Group, Inc. and its tobacco businesses. However, no one patent or group of related patents was material to Altria Group, Inc.’sAltria’s business or its tobacco businesses as of December 31, 2017. Altria Group, Inc.’s2021. 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 Group, Inc. and its tobacco businesses.
▪Government Regulations: Altria and wine businesses.its subsidiaries are subject to various federal, state and local laws and regulations. For discussion of laws and regulations impacting Altria’s tobacco operating companies, see Tobacco Space - Business Environment in Item 7.
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and natural resource damages under Superfund or other laws and regulations. Altria Group, Inc.’sAltria’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations. As discussed in Note 22. Summary of Significant Accounting Policies to the consolidated financial statements in Item 8 (“Note 2”), Altria Group, Inc. 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 Group, Inc. may undertake in the future. In the opinion of management, however, 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 Group, Inc.’sAltria’s consolidated results of operations, capital expenditures, financial position or cash flows.
Available Information
Altria Group, Inc. is required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). Investors may read and copy any document that Altria Group, Inc. files, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Altria Group, Inc.’s SEC filings.
Altria Group, Inc. makes available free of charge on or through its website (www.altria.com) its Annual Report on 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 Group, Inc. electronically files such material with, or furnishes it to, the SEC. Investors can access Altria Group, Inc.’sAltria’s filings with the SEC by visiting www.altria.com/secfilings.
The information on the respective websites of Altria Group, Inc. and its subsidiaries is not, and shall not be deemed to be, a part of this reportForm 10-K or incorporated into any other filings Altria Group, Inc. 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 Annual Report on 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 Annual Report on Form 10-K.
We(1) 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.webcasts and presentations. 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 Group, Inc.’sAltria’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 document,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 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 Group, Inc., or the businesses of one or more of its subsidiaries.subsidiaries or investees and Altria’s ability to achieve its Vision.
Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA, and UST and its subsidiaries, as well as their respective indemnitees.indemnitees, indemnitors and Altria’s investees. Various types of claims may be raised in these proceedings, including product liability, consumer protection,unfair trade practices, antitrust, tax, contraband-related claims, patent infringement, employment matters, claims alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 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
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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 Group, Inc. 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 Group, Inc. 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 Group, Inc. 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”),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, Group, Inc., 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, Group, Inc.its subsidiaries and its subsidiariesinvestees may face potentially significant non-monetary remedies which may cause reputational harm.that could have a material adverse effect on our businesses. For example, in the Federal Government’s lawsuit brought by the United States Department of Justice, discussed in detail in Note 18, the district court did not impose monetary penalties but ordered significant non-monetary remedies, including the issuance of “corrective statements”statements.” In the patent lawsuit adjudicated before the ITC discussed in Note 18, the ITC banned the importation of the IQOS devices, MarlboroHeatSticks and component parts into the United States and the sale and marketing of any such products previously imported into the United States. As a result of the ITC’s decision, PM USA removed the IQOS devices, Marlboro HeatSticks and any infringing components from the marketplace.
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 Group, Inc. and PM USA began makingare also defendants in various mediamany of these cases. In addition, in April 2020 the fourth quarter Federal Trade Commission (“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. In February 2022, the administrative law judge dismissed the FTC’s complaint. FTC complaint counsel appealed that decision to the FTC Commissioners. E-vapor litigation and the FTC action, including the remedies the FTC is seeking, are further discussed in Item 3. Legal Proceedingsof 2017.this Form 10-K (“Item 3”) and Note 18.
Altria Group, Inc. 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, Group, Inc., 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. In addition, an unfavorable outcome in certain pending litigation could adversely affect our ability to achieve our Vision. Altria Group, Inc. 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 Group, Inc. and its subsidiaries may enter into
settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so. See Item 3. Legal Proceedings of this Annual Report on Form 10-K (“Item 3”),3, Note 18 and Exhibits 99.1 and 99.2 to this Annual Report on Form 10-K for a discussion of pending tobacco-related litigation.
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 ourAltria and its tobacco subsidiaries’operating companies’ or its investees’ businesses and sales volumes.volumes and on Altria’s ability to achieve its Vision.
As described in Tobacco Space - Business Environment in Item 7, our cigarette subsidiaries facePM USA faces significant governmental and private sector actions, including efforts aimed at reducing the incidence of tobacco use and efforts seeking to hold these subsidiariesPM 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.
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through the pre-market review process)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, (x) result in increased illicit trade in tobacco products or (xi) 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 Group, Inc. and its tobacco subsidiaries.operating companies, including adversely affecting Altria’s investment in JUUL and Altria’s ability to achieve its Vision. See Tobacco Space - Business Environment in Item 7for 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 Group, Inc.’sAltria’s tobacco subsidiaries.operating companies and JUUL and on Altria’s ability to achieve its Vision.
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 local levels.state budgets 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
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 subsidiaries and investees and our ability to achieve our Vision could be materially adversely affected by an unfavorable outcome of any current or future investigation.
A challenge to our tax positions, an increase in the income tax rate or other changes to federal or state tax laws could adversely affect our earnings or cash flow.
Tax laws and regulations 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), an increase in the corporate income tax rate or other changes to federal or state tax laws, including changes to how foreign investments are taxed, could adversely affect Altria’s earnings or cash flow.
International business operations subject Altria, its subsidiaries and its investees 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 for Compliance and Integrity 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. Altria’s investees also engage in international business operations. Violations of these laws, or allegations of such violations, by Altria, its subsidiaries or its investees could result in reputational harm, legal challenges and/or significant costs.
Risks Related to Business Operations
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 tobacco operating companies 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 continuing 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 limited access to these markets, including by those in the distribution and supply chains), (iii) significant volatility in demand for our tobacco operating companies’ and investees’ products, (iv) changes in adult tobacco consumer accessibility to those products, including due to government action, (v) changes in adult tobacco consumer behavior and preferences, including trading down to lower-priced products or the reduction in, or the cessation of, product use due to public health actions or concerns and
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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 tobacco operating companies’ or investees’ manufacturing operations, or in their distribution and supply chains. In addition, our subsidiaries and investees 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 (including new variants), 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 investments in JUUL, ABI and Cronos and the earnings from and carrying value of those investments. For further discussion on the impact of the COVID-19 pandemic on our tobacco operating companies and investees, see Executive Summary - COVID-19 Pandemic in Item 7.
Altria’s tobacco businesses face significant competition within their categories(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, Group, Inc., or the business of Altria Group, Inc.’sAltria’s tobacco subsidiaries.operating companies and on Altria’s ability to achieve its Vision.
Each of Altria Group, Inc.’sAltria’s tobacco subsidiariesoperating companies 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. AThis highly competitive environment could negatively impact the profitability, market share (including as a result of down-trading to lower-priced competitive brands) and shipment volume of ourAltria’s tobacco subsidiaries,operating companies, 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 in the consumption levels and sales volumes of other tobacco products, including MST. 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 e-vapor and oral nicotine products of Altria’s tobacco operating companies and JUUL, could negatively impact the growth of e-vapor and 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 Group, Inc.and its tobacco operating companies if they are unable to compete effectively (directly or through Altria’s investments) in these innovative product categories, which could also negatively impact Altria’s ability to achieve its Vision.
PM USA also faces competition from lowest pricedlower-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.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 Liquidity and Capital Resources - Payments under State Settlement Agreements and FDA Regulation in Item7. These settlements, among other factors, have resulted in substantial cigarette price increases. These manufacturers may failincreases to comply with relatedhelp cover the cost of the settlement payments. Manufacturers not party to the settlements are subject to state escrow legislation orrequiring escrow deposits. Such manufacturers may avoid these escrow deposit obligations on the majority of their sales 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 lowest priced brands. USSTC faces significant competition in the smokeless tobacco category and has experienced consumer down-trading to lower-priced brands. In the cigar category, additional competition has resulted from increased imports of machine-made large cigars manufactured offshore.
Altria Group, Inc. and its subsidiariestobacco operating companies may be unsuccessful in anticipating changes in adult tobaccoconsumer preferences, responding to changes in adult tobacco consumer purchase behavior or managing through difficult competitive and economic conditions.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 operating companies.
Each of our tobacco and wine subsidiariesoperating companies is subject to intense competition and changes in adult tobacco consumer preferences. To be successful, they must continue to:
▪promote brand equity successfully;
▪anticipate and respond to new and evolving adult tobacco consumer preferences;
▪develop, manufacture, market and distribute new and innovative products that appeal to adult tobacco 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, including e-vapor products. Growth of this product category could contribute to reductions in cigarette consumption levels and cigarette industry sales volume and could adversely affectspecifically the growth rates of e-vapor and other innovative tobacco products.products and the effects on our tobacco operating companies.
The willingness of adult tobacco consumers to purchase premium consumer product brands depends in part on economic conditions.conditions, including inflation. In periods of economic uncertainty and/or high inflation, among other conditions, adult tobacco consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, including different categories of tobacco products than those they traditionally purchase, which could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its subsidiaries.tobacco operating companies. While our tobacco and wine subsidiariesoperating companies work to broaden their brand portfolios to compete effectively with lower-priced products, the failure to do so could negatively impact our companies’their ability to compete in these circumstances. During the second half of 2021, discount cigarette products resumed share growth driven primarily by deep discount products. See Tobacco Space - Business Environment - Summary in Item 7 for further discussion of economic conditions, including the impact of the current high inflationary environment on our businesses.
Altria Group, Inc. and its subsidiariestobacco operating companies have growth strategies involving moves and potential moves into adjacentinnovative products or processes, including innovative tobacco products.processes. Some innovative tobacco products may reduce the health risks associated with currentcertain 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. Theseharmful, such as electronically heated tobacco products, oral nicotine pouches and e-vapor products.
In addition to internal product development, these efforts may include arrangements with, or
investments in, third parties. parties such as our arrangement with PMI to commercialize IQOS devices and related Marlboro HeatSticks in the United States, which is governed by an exclusive license and distribution agreement. The IQOS devices and related MarlboroHeatSticks are currently subject to an importation ban and cease-and-desist orders imposed by the ITC. PM USA does not expect to have access to IQOS devices or the related Marlboro HeatSticks for sale and distribution during 2022. In addition, 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 have achieved 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, we maintain our exclusive distribution rights as to PMI during the term of the agreement so long as we have achieved 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 has met the initial term and exclusive distribution rights performance objectives, PMI has communicated to us that it disagrees as to whether those objectives have been met. If we do not resolve this disagreement in a manner favorable to PM USA, 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 devices and related Marlboro HeatSticks after April 2024, or (ii) our exclusive distribution rights as to PMI. For further discussion, see Note 18.
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 subsidiariesoperating companies and investees may not succeed in their efforts to introduce such newdevelop and commercialize these innovative products, which would have an adverse effect on the ability to grow new revenue streams.streams and on our ability to achieve our Vision.
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,tobacco consumers), the speed with which they may make such determinations or whether regulators will impose an unduly burdensome regulatory framework on such products. Nor can weIn 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 riskreduced-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 subsidiariesoperating companies or investees do not succeed in their efforts to develop and commercialize innovative tobacco products or to obtain or maintain regulatory approval for the marketing or sale of products, including with claims of reduced risk, but one or more of their competitors dodoes succeed, our tobacco subsidiariesoperating companies or investees may be at a competitive disadvantage.disadvantage, which could have an adverse effect on their financial performance and on our ability to achieve our Vision.
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Significant changes in tobacco leaf price, availability or quality of tobacco, other raw materials or component parts could have an adverse effect on the profitability and business of Altria Group, Inc.’sAltria’s tobacco subsidiaries.operating companies and investees.
Any significant change in tobacco leaf prices, quality or availability of tobacco, other raw materials or component parts, including as a result of the COVID-19 pandemic, economic conditions (including inflation, labor shortages and supply chain disruptions) or other factors, could adversely affect our tobacco subsidiaries’operating companies’ and our investees’ profitability and business.business, as well as their ability to remain compliant with FDA and other regulatory requirements for tobacco products. For further discussion, seeTobacco Space - Business Environment - Price, Availability and Qualityof Agricultural ProductsTobacco, Other Raw Materials and Component Parts in Item 7.7.
In addition to a recall required by the FDA, as referenced above, our subsidiariestobacco operating companies and investees 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. In January 2017, USSTC announced that it was voluntarily recalling certain of its smokeless tobacco products manufactured at a USSTC facility due to product tampering. USSTC recorded a charge during the first quarter of 2017 related to this recall. While this charge was not material to Altria Group, Inc.’s financial statements, futureProduct recalls (if any) could have a material adverse effect on the business, reputation, consolidated results of operations, cash flows or financial position of Altria, Group, Inc.its tobacco operating companies and its subsidiaries.
The failure of Altria Group, Inc.’sAltria’s or its investees’ information systems or service providers’ or key suppliers’ 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, Group, Inc. and its subsidiaries.subsidiaries or its investees.
Altria Group, Inc. 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 communicating internally and externally with employees, investors, suppliers, trade customers,
adult tobacco consumers and others. Suppliers and supply chain service providers also rely extensively on information systems. We continue to make appropriate 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.
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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, which could materiallyadversely affect Altria’s ability to achieve its Vision.
Our ability to implement our strategy of attracting and retaining the businessesbest 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. In addition, our ability to retain the best talent may be adversely affected by current labor market dynamics in which the number of U.S. workers leaving their jobs increased significantly. Failure to attract and retain the best talent could adversely affect Altria’s ability to achieve its Vision.
Altria Group, Inc.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 tobacco 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.
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 subsidiaries.anticipated strategic or financial objectives of a transaction.
From time to time, Altria Group, Inc.considers acquisitions, investments or dispositions and its subsidiariesmay engage in confidential negotiations that are subjectnot publicly announced unless and until those negotiations result in a definitive agreement. Although we seek to governmental investigations on a range of matters. We cannot predict whether new investigations may be commencedmaintain or the outcome of any such investigation, andimprove 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 businessinvestment grade credit ratings or the outlook for those ratings as occurred following our investment in JUUL. 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 our 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 (the “MSA”) 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 materially adversely affectedunable 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 ansome investors to inform their investment and voting decisions. Decreasing social acceptance of tobacco products or unfavorable outcome of a future investigation.
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
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administrative trial was held before an FTC administrative law judge in June 2021. In February 2022, the administrative law judge dismissed the FTC’s complaint. FTC complaint counsel appealed that decision to the FTC Commissioners. Any adverse ruling the FTC Commissioners issue following their review may be appealed to a federal appellate court.
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, and could adversely affect the estimated fair value of our investment. For further discussion of the FTC administrative complaint, see Item 3 and Note 18.
The expected benefits of the JUUL transaction may not materialize in the expected manner or timeframe or at all.
Regardless of whether we successfully defend against the FTC’s challenge to the JUUL transaction, 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, some of which are described in various risk factors above, 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 significant costs.
As discussed 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 pre-tax impairment charges of $11.2 billion. Following Share Conversion (as defined in Note 6) 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 estimated fair value of its investment, which is calculated quarterly. While we believe the December 31, 2021 valuation of $1.7 billion is the appropriate current estimated fair value of our investment, the risks identified in this paragraph, some of which are also further discussed in Discussion and Analysis - Critical Accounting Policies and Estimates - Investment in JUUL and Tobacco Space - Business Environment in Item 7 and in Note 18, are ongoing with respect to the current estimated fair value. Quarterly fair value changes could create volatility in Altria’s consolidated financial position and earnings and, if the estimated 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 United States they do engage (directlyfor at least one year or indirectly)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 certain international business activitiesthe 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 various United States and foreign laws and regulations,the exceptions mentioned above. Further, if we elect not to extend our non-competition obligations beyond that date or to terminate such asobligations in the U.S. Foreign Corrupt Practices Actcircumstances described above, we would lose some or all of our board designation rights, preemptive rights, consent rights and other laws prohibiting bribery and corruption. Although we have a Coderights with respect to our investment in JUUL.
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Table 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 or third parties. Violations of these laws, or allegations of such violations, could result in reputational harm, legal challenges and/or significant costs.Contents
For purposes of financial reporting, the earnings from and carrying value of our equity investment in AB InBevABI are translated into U.S. dollars (“USD”) from various local currencies. In addition, AB InBevABI pays dividends in euros, which we convert into U.S. dollars.USD. During times of a strengthening U.S. dollarUSD against these currencies, our reported earnings from and carrying value of our equity investment in AB InBevABI will be reduced because these currencies will translate into fewer U.S. dollarsUSD and the dividends that we receive from AB InBevABI will convert into fewer U.S. dollars.
USD. Dividends and earnings from and carrying value of our equity investment in AB InBevABI are also subject to the risks encountered by AB InBevABI in its business. We cannot provide any assurancebusiness, 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 AB InBev willwould have been paid in the fourth quarter of 2020, which resulted in a reduction of cash dividends Altria received from ABI.
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 additional impairment losses and could have a material adverse effect on our consolidated financial position or earnings.
As further discussed in Note 6, in preparing our financial statements for the period ended September 30, 2021, we concluded that the carrying value of our investment in ABI exceeded the fair value of our equity investment in ABI and that the decline in fair value of our investment in ABI below its carrying value was other than temporary at September 30, 2021. As a result, we recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021 to (income) losses from equity investments in Altria’s condensed consolidated statements of earnings (losses). If ABI is unable to successfully execute its business plans and strategies. Earnings fromstrategies and the carrying value of our equity investment in AB InBev are also subject to fluctuations in AB InBev’s stock price, for example through mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments.
If our percentage ownership in AB InBevABI were to decrease below certain levels, we may be subject to additional tax liabilities, sufferincur a reduction in the number of directors that we can have appointed to the AB InBev BoardABI board of Directorsdirectors and be unable to account for our investment in ABI under the equity method of accounting.
While we expect the equitytax treatment of the consideration that we received from the ABI Transaction to qualifybe respected, the statute of limitations for tax-deferred treatment,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 the dividends Altria Group, Inc. expects to receive from AB InBevour 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, some of which are described in various risk factors above, 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 Group, Inc. anticipates.to comply with applicable laws, including cannabis laws, could result in criminal, civil or tax liability or reputational harm 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 our consolidated financial position or earnings.
As further discussed in Note 6, in preparing our financial statements for the year ended December 31, 2021, we concluded that our equity method investment in Cronos declined below its carrying value and that there was not sufficient evidence to conclude that the impairment was temporary. As a result, we recorded a non-cash, pre-tax impairment charge of $205 million to (income) losses from equity investments in our consolidated statement of earnings (losses) for the year ended December 31, 2021. If Cronos is unable to
13
successfully execute its business plans and strategies and the fair value of our investment in Cronos continues to decrease, it could result in additional impairment losses, which could have a material adverse effect on our consolidated financial position or earnings.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The plants and properties owned or leased and operated by Altria Group, Inc. 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 Annual Report on Form 10-K. Altria Group, Inc.’sAltria’s consolidated financial statements and accompanying notes for the year ended December 31, 20172021 were filed on Form 8-K on February 1, 2018January 27, 2022 (such consolidated financial statements and accompanying notes are also included in Item 8). The following summarizes certain developments in Altria Group, Inc.’sAltria’s litigation since the filing of the Form 8-K.
Recent Developments
▪Engle Progeny Trial Results:Results
In Gloger, in February 2018, a Miami-Dade County jury returned a2022, the Florida Third District Court of Appeals reversed the trial court verdict in favor of plaintiff and against PM USA and R.J. Reynolds Tobacco Company (“R.J. Reynolds”) awarding $7.5 million in compensatory damages. The jury also awarded plaintiff $5 million in punitive damages against each defendant. PM USA postedand remanded the case for a bond in the amount of $2.5 million. Defendants filed various post-trial motions, which remain pending, and appealed to the Florida Third District Court of Appeal.new trial.
In WallaceJordan, in February 2018,2022, PM USA filed an appeala notice to invoke the discretionary jurisdiction of the Florida Fifth District Court of Appeal and posted a bond in the amount of approximately $3 million.Supreme Court.
In AllenKaplan, in February 2018,2022, the Florida Supreme Court denied PM USA’s petition to invokevacated the court’s discretionary jurisdiction.$2 million compensatory damages award against PM USA will record a pre-tax provision of approximately $10 million forbased on its decision in Sheffield and remanded the judgment plus interest in the first quarter of 2018.
▪E-Vapor Product Litigation
In the judgmentlawsuit filed by the Alaska Attorney General, in favor of plaintiff, withdrewFebruary 2022, the comparative fault reduction forcourt granted Altria’s motion to dismiss the compensatory damages award and granted plaintiff leavepublic nuisance claim, but denied its motion to seek a new trial on punitive damages. PM USA will record a pre-tax provision of approximately $1 million fordismiss the judgment plus interestother claims.
▪Antitrust Litigation
In February 2022, in the first quarterFTC administrative complaint against Altria and JUUL, the administrative law judge dismissed the FTC’s complaint. FTC complaint counsel appealed that decision to the FTC Commissioners. Any adverse ruling the FTC Commissioners issue following their review may be appealed to any U.S. Court of 2018.Appeals.
Item 4. Mine Safety Disclosures.
Not applicable.
14
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Performance Graph
The graph below compares the cumulative total shareholder return of Altria Group, Inc.’sAltria’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 AltriaS&P Food, Beverage and Tobacco Industry Group Inc. Peer Group (1).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, 20122016 and the reinvestment of all dividends on a quarterly basis.
| Date | Altria Group, Inc. | Altria Group, Inc. Peer Group | S&P 500 | |||||||||
| December 2012 | $ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
| December 2013 | $ | 128.56 | $ | 124.66 | $ | 132.37 | ||||||
| December 2014 | $ | 172.93 | $ | 139.49 | $ | 150.48 | ||||||
| December 2015 | $ | 212.87 | $ | 162.74 | $ | 152.55 | ||||||
| December 2016 | $ | 256.43 | $ | 177.01 | $ | 170.78 | ||||||
| December 2017 | $ | 280.65 | $ | 193.86 | $ | 208.05 | ||||||
| Date | Altria | S&P Food, Beverage & Tobacco | S&P 500 | |||||||||||||||||
| December 2016 | $ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||||||||||
| December 2017 | $ | 109.45 | $ | 112.35 | $ | 121.82 | ||||||||||||||
| December 2018 | $ | 79.80 | $ | 95.59 | $ | 116.47 | ||||||||||||||
| December 2019 | $ | 86.15 | $ | 119.42 | $ | 153.14 | ||||||||||||||
| December 2020 | $ | 77.21 | $ | 126.06 | $ | 181.31 | ||||||||||||||
| December 2021 | $ | 95.94 | $ | 146.45 | $ | 233.36 | ||||||||||||||
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
The principal stock exchange on which Altria Group, Inc.’sAltria’s common stock (par value $0.33 1/3 per share) is listed is the New York Stock Exchange.Exchange under the trading symbol “MO”. At February 13, 2018,15, 2022, there were approximately 64,00052,000 holders of record of Altria Group, Inc.’sAltria’s common stock.
15
| Price Per Share | Cash Dividends Declared Per Share | ||||||||||
| High | Low | ||||||||||
| 2017: | |||||||||||
| Fourth Quarter | $ | 74.38 | $ | 62.32 | $ | 0.66 | |||||
| Third Quarter | $ | 74.98 | $ | 60.01 | $ | 0.66 | |||||
| Second Quarter | $ | 77.79 | $ | 69.79 | $ | 0.61 | |||||
| First Quarter | $ | 76.55 | $ | 67.25 | $ | 0.61 | |||||
| 2016: | |||||||||||
| Fourth Quarter | $ | 68.03 | $ | 60.82 | $ | 0.61 | |||||
| Third Quarter | $ | 70.15 | $ | 62.46 | $ | 0.61 | |||||
| Second Quarter | $ | 69.26 | $ | 59.48 | $ | 0.565 | |||||
| First Quarter | $ | 63.15 | $ | 56.15 | $ | 0.565 | |||||
Issuer Purchases of Equity Securities During the Quarter Ended December 31, 20172021
In July 2015, Altria Group, Inc.’sJanuary 2021, the Board of Directors (the “Board of Directors”) authorized a $1.0$2.0 billion share repurchase program that it expanded to $3.0$3.5 billion in October 2016 and to $4.0 billion in July 20172021 (as expanded, the “July 2015“January 2021 share repurchase program”). The July 2015 share repurchase program was completed in January 2018. In January 2018, the Board of Directors authorized a new $1.0 billion share repurchase program,, which Altria Group, Inc. expects to complete by the end of 2018.December 31, 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.Board.
| Period | 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 | ||||||||||||||||||||||
| October 1- October 31, 2021 | 2,299,678 | $ | 47.49 | 2,299,435 | $ | 2,418,402,110 | ||||||||||||||||||||
| November 1- November 30, 2021 | 6,626,237 | $ | 44.58 | 6,625,750 | $ | 2,123,017,842 | ||||||||||||||||||||
| December 1- December 31, 2021 | 6,547,494 | $ | 45.51 | 6,545,903 | $ | 1,825,142,753 | ||||||||||||||||||||
| For the Quarter Ended December 31, 2021 | 15,473,409 | $ | 45.40 | 15,471,088 | ||||||||||||||||||||||
| Period | 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 | ||||||||||
| October 1- October 31, 2017 | 2,983,437 | $ | 64.36 | 2,982,371 | $ | 383,869,878 | ||||||||
| November 1- November 30, 2017 | 2,798,299 | $ | 64.98 | 2,790,984 | $ | 202,512,372 | ||||||||
| December 1- December 31, 2017 | 2,587,120 | $ | 71.16 | 2,587,120 | $ | 18,411,335 | ||||||||
| For the Quarter Ended December 31, 2017 | 8,368,856 | $ | 66.67 | 8,360,475 | ||||||||||
(1) The total number of shares purchased includes (a) shares purchased under the January 2021 share repurchase program and (b) shares withheld by Altria in an amount equal to the statutory withholding taxes for vested stock-based awards previously granted to eligible employees (which totaled 243 shares in October, 487 shares in November and 1,591 shares in December).
Item 6. Selected Financial Data.[Reserved].
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Summary of Operations: | |||||||||||||||||||
| Net revenues | $ | 25,576 | $ | 25,744 | $ | 25,434 | $ | 24,522 | $ | 24,466 | |||||||||
| Cost of sales | 7,543 | 7,746 | 7,740 | 7,785 | 7,206 | ||||||||||||||
| Excise taxes on products | 6,082 | 6,407 | 6,580 | 6,577 | 6,803 | ||||||||||||||
| Operating income | 9,556 | 8,762 | 8,361 | 7,620 | 8,084 | ||||||||||||||
| Interest and other debt expense, net | 705 | 747 | 817 | 808 | 1,049 | ||||||||||||||
| Earnings from equity investment in AB InBev/SABMiller | 532 | 795 | 757 | 1,006 | 991 | ||||||||||||||
| Gain on AB InBev/SABMiller business combination | 445 | 13,865 | 5 | — | — | ||||||||||||||
Earnings before income taxes (2) | 9,828 | 21,852 | 8,078 | 7,774 | 6,942 | ||||||||||||||
Pre-tax profit margin (2) | 38.4 | % | 84.9 | % | 31.8 | % | 31.7 | % | 28.4 | % | |||||||||
(Benefit) provision for income taxes (1)(2) | (399 | ) | 7,608 | 2,835 | 2,704 | 2,407 | |||||||||||||
Net earnings (1)(2) | 10,227 | 14,244 | 5,243 | 5,070 | 4,535 | ||||||||||||||
Net earnings attributable to Altria Group, Inc. (1)(2) | 10,222 | 14,239 | 5,241 | 5,070 | 4,535 | ||||||||||||||
Basic and Diluted EPS — net earnings attributable to Altria Group, Inc. (1)(2) | 5.31 | 7.28 | 2.67 | 2.56 | 2.26 | ||||||||||||||
| Dividends declared per share | 2.54 | 2.35 | 2.17 | 2.00 | 1.84 | ||||||||||||||
| Weighted average shares (millions) — Basic and Diluted | 1,921 | 1,952 | 1,961 | 1,978 | 1,999 | ||||||||||||||
| Capital expenditures | 199 | 189 | 229 | 163 | 131 | ||||||||||||||
| Depreciation | 188 | 183 | 204 | 188 | 192 | ||||||||||||||
| Property, plant and equipment, net | 1,914 | 1,958 | 1,982 | 1,983 | 2,028 | ||||||||||||||
| Inventories | 2,225 | 2,051 | 2,031 | 2,040 | 1,879 | ||||||||||||||
Total assets (2) | 43,202 | 45,932 | 31,459 | 33,440 | 33,858 | ||||||||||||||
| Long-term debt | 13,030 | 13,881 | 12,843 | 13,610 | 13,907 | ||||||||||||||
| Total debt | 13,894 | 13,881 | 12,847 | 14,610 | 14,432 | ||||||||||||||
Total stockholders’ equity (1)(2) | 15,380 | 12,773 | 2,873 | 3,010 | 4,118 | ||||||||||||||
Common dividends declared as a % of Basic and Diluted EPS (1)(2) | 47.8 | % | 32.3 | % | 81.3 | % | 78.1 | % | 81.4 | % | |||||||||
Book value per common share outstanding (1)(2) | 8.09 | 6.57 | 1.47 | 1.53 | 2.07 | ||||||||||||||
| Market price per common share — high/low | 77.79-60.01 | 70.15-56.15 | 61.74-47.31 | 51.67-33.80 | 38.58-31.85 | ||||||||||||||
| Closing price per common share at year end | 71.41 | 67.62 | 58.21 | 49.27 | 38.39 | ||||||||||||||
Price/earnings ratio at year end — Basic and Diluted (1)(2) | 13 | 9 | 22 | 19 | 17 | ||||||||||||||
| Number of common shares outstanding at year end (millions) | 1,901 | 1,943 | 1,960 | 1,971 | 1,993 | ||||||||||||||
| Approximate number of employees | 8,300 | 8,300 | 8,800 | 9,000 | 9,000 | ||||||||||||||
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 Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionaryrisk factors that may affect future results in Item 1A. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Altria’s 2020 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.
Description of the Company
Executive Summary
| (in millions, except per share data) | Net Earnings | Diluted EPS | |||||
| For the year ended December 31, 2016 | $ | 14,239 | $ | 7.28 | |||
| 2016 NPM Adjustment Items | 11 | 0.01 | |||||
| 2016 Asset impairment, exit, implementation and acquisition-related costs | 135 | 0.07 | |||||
| 2016 Tobacco and health litigation items | 71 | 0.04 | |||||
| 2016 SABMiller special items | (57 | ) | (0.03 | ) | |||
| 2016 Loss on early extinguishment of debt | 541 | 0.28 | |||||
| 2016 Patent litigation settlement | 13 | 0.01 | |||||
| 2016 Gain on AB InBev/SABMiller business combination | (9,001 | ) | (4.61 | ) | |||
| 2016 Tax items | (30 | ) | (0.02 | ) | |||
| Subtotal 2016 special items | (8,317 | ) | (4.25 | ) | |||
| 2017 NPM Adjustment Items | (2 | ) | — | ||||
| 2017 Asset impairment, exit, implementation and acquisition-related costs | (55 | ) | (0.03 | ) | |||
| 2017 Tobacco and health litigation items | (50 | ) | (0.03 | ) | |||
| 2017 AB InBev special items | (105 | ) | (0.05 | ) | |||
| 2017 Gain on AB InBev/SABMiller business combination | 289 | 0.15 | |||||
| 2017 Settlement charge for lump sum pension payments | (49 | ) | (0.03 | ) | |||
| 2017 Tax items | 3,674 | 1.91 | |||||
| Subtotal 2017 special items | 3,702 | 1.92 | |||||
| Fewer shares outstanding | — | 0.05 | |||||
| Change in tax rate | 124 | 0.06 | |||||
| Operations | 474 | 0.25 | |||||
| For the year ended December 31, 2017 | $ | 10,222 | $ | 5.31 | |||
| 2018 | 2017 | ||||||
| Asset impairment, exit, implementation and acquisition-related costs | $ | — | $ | 0.03 | |||
| Tobacco and health litigation items | — | 0.03 | |||||
| AB InBev special items | — | 0.05 | |||||
Gain on AB InBev/SABMiller business combination | — | (0.15 | ) | ||||
| Settlement charge for lump sum pension payments | — | 0.03 | |||||
| Tax items | 0.09 | (1) | (1.91 | ) | |||
| $ | 0.09 | $ | (1.92 | ) | |||
COVID-19 Pandemic
The COVID-19 pandemic has led to adverse impacts on the United States and global economies and continues to create economic uncertainty, including due to variants of the COVID-19 virus, even as COVID-19 vaccines have been and continue to be administered and certain portions of the United States and global economies have begun to operate with reduced restrictions on consumer movements and business operations. Uncertainty still surrounds the pandemic, including its duration, the impact of COVID-19 variants and the ultimate overall impact on United States and global economies, Altria’s operations and those of its investees. Altria continues to monitor the macroeconomic risks arising in part from the COVID-19 pandemic (including labor shortages, inflation and supply change shortages) 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,
16
despite some temporary volatility in commercial paper markets in 2020, Altria has not experienced a material adverse impact to its liquidity.
As with so many other companies throughout the United States and globally, Altria’s operations have been affected by the COVID-19 pandemic. 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 operate in a remote working environment for many employees and believes 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 and non-manufacturing facilities are currently operational under enhanced safety protocols recommended by public health authorities. Altria continues to monitor the risks associated with facility disruptions and workforce availability as a result of uncertainty related to the COVID-19 pandemic and guidance from public health officials as it evolves its safety protocols.
Altria also continues to monitor the inflationary environment arising in part from the COVID-19 pandemic and its impact on Altria’s financial position and results of operations. For the year ended December 31, 2021, inflation did not have a material impact on Altria’s MSA expense or on direct materials and other costs. While Altria anticipates that inflation will continue at increased levels in 2022, it does not believe the impacts will be material to Altria’s financial position and results of operations. See Operating Results by Business Segment - Tobacco Space - State Settlement Agreements below for further discussion on MSA expense.
Altria’s suppliers and those within its distribution chain continue to be subject to potential facility closures, remote working protocols, labor shortages, supply chain disruptions and inflation. To date, Altria has not experienced any material disruptions to its supply chains or distribution systems. Altria continues to monitor the risk that the business of one or more suppliers, distributors or any other entities within its supply and distribution chains may be disrupted.
Altria believes that the COVID-19 pandemic altered adult tobacco consumer behaviors and purchasing patterns, particularly in the earlier stages of the pandemic. While the number of adult tobacco consumer trips to the store remain below pre-pandemic levels and tobacco expenditures per trip remain elevated, the environment continues to evolve as the effects of government stimulus have lessened and consumer mobility returns to more normal levels. Although Altria’s tobacco businesses have not experienced a material adverse impact to date by the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19 pandemic (including changes in COVID-19-related restrictions and guidelines and new variants) may impact adult tobacco consumers in the future. Altria continues to monitor the macroeconomic risks of the COVID-19 pandemic (including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants), and their effect on adult tobacco consumers, including stay-at-home practices and disposable income, which may be further impacted by unemployment rates and inflation. 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 smoke-free products. See Operating Results by Business Segment - Tobacco Space Business Environment - Summary below for further discussion of economic conditions and the impact on adult tobacco consumer purchasing behavior.
During 2021, ABI continued to be impacted by the COVID-19 pandemic, including the effects of COVID-19 variants, supply-chain constraints across certain markets, adverse transactional foreign exchange rates, inflation and commodity cost headwinds. While Altria considers the impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business to be transitory, Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic on ABI’s business and market valuation. See Note 6 for further discussion of Altria’s investment in ABI, including the recording of a $6.2 billion non-cash, pre-tax impairment charge in 2021.
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. JUUL’s operations were negatively impacted in 2020 and 2021 by the COVID-19 pandemic due to stay-at-home practices and government-mandated restrictions. While the impact was considered in Altria’s quantitative valuations conducted in connection with the preparation of its financial statements for the years ended December 31, 2021 and 2020, Altria does not believe the COVID-19 pandemic was a primary driver of the non-cash, pre-tax impairment charge recorded during 2020 or any quarterly changes in fair value recorded since the fourth quarter of 2020. Altria will continue to monitor the impact of the COVID-19 pandemic on JUUL’s business, including near-term supply chain constraints, component part shortages and inflation, in Altria’s quarterly quantitative valuations of JUUL. See Note 6 for further discussion of Altria’s investment in JUUL.
Altria considered the impact of the COVID-19 pandemic on the business of Cronos, including its sales, distribution, operations, supply chain and liquidity. During 2020 and 2021, Cronos was adversely impacted by the COVID-19 pandemic, due in part to government actions limiting access to retail stores in the United States and Canada. Altria will continue to monitor the impact of the COVID-19 pandemic on Cronos’s business, including as a result of new variants, near-term supply chain challenges, inflation and market valuation. See Note 6 for further discussion of Altria’s investment in Cronos.
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Consolidated Results of Operations
The changes in net earnings (losses) attributable to Altria and diluted earnings (losses) per share (“EPS”) attributable to Altria for the year ended December 31, 2021, from the year ended December 31, 2020, were due primarily to the following:
| (in millions, except per share data) | Net Earnings (Losses) | Diluted EPS | |||||||||
| For the year ended December 31, 2020 | $ | 4,467 | $ | 2.40 | |||||||
| 2020 NPM Adjustment Items | 3 | — | |||||||||
| 2020 Asset impairment, exit, implementation, acquisition and disposition-related costs | 342 | 0.18 | |||||||||
| 2020 Tobacco and health and certain other litigation items | 62 | 0.03 | |||||||||
| 2020 Impairment of JUUL equity securities | 2,600 | 1.40 | |||||||||
| 2020 JUUL changes in fair value | (100) | (0.05) | |||||||||
| 2020 ABI-related special items | 603 | 0.32 | |||||||||
| 2020 Cronos-related special items | 53 | 0.03 | |||||||||
| 2020 COVID-19 special items | 37 | 0.02 | |||||||||
| 2020 Tax items | 50 | 0.03 | |||||||||
| Subtotal 2020 special items | 3,650 | 1.96 | |||||||||
| 2021 NPM Adjustment Items | 57 | 0.03 | |||||||||
| 2021 Asset impairment, exit, implementation, acquisition and disposition-related costs | (99) | (0.05) | |||||||||
| 2021 Tobacco and health and certain other litigation items | (138) | (0.07) | |||||||||
| 2021 ABI-related special items | (4,901) | (2.66) | |||||||||
| 2021 Cronos-related special items | (470) | (0.25) | |||||||||
| 2021 Loss on early extinguishment of debt | (496) | (0.27) | |||||||||
| 2021 Tax items | 3 | — | |||||||||
| Subtotal 2021 special items | (6,044) | (3.27) | |||||||||
| Fewer shares outstanding | — | 0.03 | |||||||||
| Change in tax rate | (33) | (0.02) | |||||||||
| Operations | 435 | 0.24 | |||||||||
| For the year ended December 31, 2021 | $ | 2,475 | $ | 1.34 | |||||||
| 2021 Reported Net Earnings (Losses) | $ | 2,475 | $ | 1.34 | |||||||
| 2020 Reported Net Earnings (Losses) | $ | 4,467 | $ | 2.40 | |||||||
| % Change | (44.6) | % | (44.2) | % | |||||||
| 2021 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 8,519 | $ | 4.61 | |||||||
| 2020 Adjusted Net Earnings and Adjusted Diluted EPS | $ | 8,117 | $ | 4.36 | |||||||
| % Change | 5.0 | % | 5.7 | % | |||||||
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 were due to shares repurchased by Altria under its share repurchase program in 2021.
▪Change in Tax Rate: The change in the tax rate (which excludes the impact of special items shown in the table above) was driven primarily by a higher foreign tax rate differential and higher state tax expense.
▪Operations: The increase of $435 million in operations (which excludes the impact of special items shown above) was due primarily to the following:
▪higher OCI from the smokeable products segment;
▪lower losses in the all other category (primarily driven by reductions in the estimated residual values of certain assets at PMCC in 2020);
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▪favorable net periodic benefit income, excluding service cost; and
▪higher income from Altria’s equity investment in ABI.
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below.
2022 Forecasted Results
Altria expects its 2022 full-year adjusted diluted EPS to be in a range of $4.79 to $4.93, representing a growth rate of 4% to 7% over its 2021 full-year adjusted diluted EPS of $4.61, as shown in the table below. Altria expects 2022 adjusted diluted EPS growth to be weighted toward the second half of the year. While the 2022 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) the economy, including the impact of increased inflation, (ii) the impact of current and future COVID-19 variants and mitigation strategies, (iii) adult tobacco consumer dynamics, including tobacco usage occasions, available disposable income, purchasing patterns and adoption of smoke-free products and (iv) regulatory and legislative developments.
Altria’s 2022 full-year adjusted diluted EPS guidance range includes planned investments in support of its Vision, such as (i) costs to enhance its digital consumer engagement system, (ii) increased smoke-free product research, development and regulatory preparation expenses and (iii) marketplace activities in support of Altria’s smoke-free products. The guidance range also includes anticipated inflationary increases in MSA expenses and direct materials costs and Altria’s current expectation that PM USA will not have access to the IQOS system in 2022.
Altria expects its 2022 full-year adjusted effective tax rate will be in a range of 24.5% to 25.5%.
| Reconciliation of 2021 Reported Diluted EPS to 2021 Adjusted Diluted EPS | |||||
| 2021 Reported diluted EPS | $ | 1.34 | |||
| NPM Adjustment Items | (0.03) | ||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | 0.05 | ||||
| Tobacco and health and certain other litigation items | 0.07 | ||||
| ABI-related special items | 2.66 | ||||
| Cronos-related special items | 0.25 | ||||
| Loss on early extinguishment of debt | 0.27 | ||||
| 2021 Adjusted diluted EPS | $ | 4.61 | |||
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 forecast 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 forecast or its adjusted effective tax rate forecast.
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 and disposition-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 and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (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 (the “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
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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 Group, Inc.’sAltria’s consolidated financial statements. In most instances, Altria Group, Inc. must use an accounting policy or method because it is the only policy or method permitted under U.S. 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 Group, Inc.’sAltria’s consolidated results of operations for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between Altria Group, Inc.’sAltria’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 Group, Inc.’sAltria’s consolidated financial statements:
▪Consolidation: The consolidated financial statementsRevenue Recognition: Altria’s businesses generate substantially all of their revenue from sales contracts with customers. Net revenues are defined as revenues, which include Altria Group, Inc., as well as its wholly-ownedexcise taxes and majority-owned subsidiaries. Investments in which Altria Group, Inc. has the ability to exercise significant influence are accounted for under the equity method of accounting. All intercompany transactions and balances have been eliminated.
Altria’s businesses record sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction to customers. Payments receivedrevenues (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 advance of revenue recognition are deferred and recordedaccrued marketing liabilities on Altria’s consolidated balance sheets.
For further discussion, see Note 3. Revenues from Contracts with Customers to the consolidated financial statements in other accrued liabilities until revenue is recognized. Altria Group, Inc.’s businesses also include excise taxes billed to customers in net revenues. Shipping and handling costs are classified as part of cost of sales.Item 8.
▪Depreciation, Amortization, Impairment Testing and Asset Valuation: Altria Group, Inc. 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 Group, Inc. 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 Group, Inc. 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 Group, Inc. groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If Altria determines that an impairment is determined to exist,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 Group, Inc. also reviews the estimated remaining useful lives of long-lived assets whenever events or changes in business circumstances indicate the lives may have changed.
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Goodwill by reporting unit and indefinite-lived intangible assets at December 31, 20172021 were as follows:
| (in millions) | Goodwill | Indefinite-Lived Intangible Assets | |||||||||
| Cigarettes | $ | 22 | $ | 2 | |||||||
| MST and snus products | 5,023 | 8,801 | |||||||||
| Cigars | 77 | 2,640 | |||||||||
| Oral nicotine pouches | 55 | — | |||||||||
| Total | $ | 5,177 | $ | 11,443 | |||||||
| (in millions) | Goodwill | Indefinite-Lived Intangible Assets | |||||
| Cigarettes | $ | 22 | $ | 172 | |||
| Smokeless products | 5,023 | 8,801 | |||||
| Cigars | 77 | 2,640 | |||||
| Wine | 74 | 287 | |||||
| E-vapor | 111 | 31 | |||||
| Other | — | 194 | |||||
| Total | $ | 5,307 | $ | 12,125 | |||
During 2017, 2016 and 2015,2021, Altria Group, Inc. completed its quantitative annual impairment test of goodwill and indefinite-lived intangible assets performed as of October 1, 2021 and the results of this testing were as follows:
▪no impairment charges resulted. At December 31, 2017, were recorded; and
▪the estimated fair values of all reporting units and the indefinite-lived intangible assets within thoseall reporting units substantially exceeded their carrying values, exceptvalues.
During 2020, Altria’s quantitative annual impairment test of goodwill and indefinite-lived intangible assets resulted in no 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 2021, Altria elected to perform a qualitative assessment for the Columbia Crest trademark withincertain of its reporting units and indefinite-lived intangible assets. This qualitative assessment included the wine reporting unit. At December 31, 2017,review of certain macroeconomic factors and entity-specific qualitative factors to determine if it was more likely than not that the fair valuevalues 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 Columbia Crest trademark exceeded its book value of $54 million by approximately 9%. Results for Columbia Crest in 2017 were negatively impacted by increased competitive activityqualitative assessment and continued trade inventory reductions.
In performing the 20172021 discounted cash flow analysis, Altria Group, Inc. 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 Group, Inc.’sAltria’s long-term financial forecast, which is used by Altria Group, Inc.’s
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 Group, Inc.’sAltria’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 Group, Inc.’sAltria’s control.
Although Altria Group, Inc.’sAltria’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 Group, Inc.’sAltria’s impairment conclusions: general economic conditions;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 tobacco-relatedexcise taxes. For further discussion of these factors, see Operating Results by Business Segment - Tobacco Space - Business Environmentbelow.
While Altria Group, Inc.’sAltria’s management believes that the estimated fair values of each reporting unit and indefinite-lived intangible asset at December 31, 2021 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 additional information onfurther discussion of goodwill and other intangible assets, see Note 3.4.
▪Investments in Equity Securities: Altria reviews its equity investments accounted for under the equity method of accounting (ABI and Cronos) 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) 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).
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Investment in ABI
At December 31, 2021, 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 can convert its Restricted Shares to ordinary shares at its discretion. 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, 2021 and 2020 was $11.9 billion (carrying value of $11.1 billion) and $13.8 billion (carrying value of $16.7 billion), respectively, which was above its carrying value by approximately 7% at December 31, 2021, and less than its carrying value by approximately 17% at December 31, 2020.
In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and at September 30, 2021 had not recovered. In preparing its financial statements for the period ended September 30, 2021, Altria evaluated the factors related to the fair value decline, including the impact on the fair value of ABI’s shares during the COVID-19 pandemic, which has negatively impacted ABI’s business. Altria evaluated the duration and magnitude of the fair value decline at September 30, 2021, ABI’s financial condition and near-term prospects, and Altria’s intent and ability to hold its investment in ABI until recovery. Altria concluded that the decline in fair value of its investment in ABI at September 30, 2021 was other than temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of $6.2 billion during the third quarter of 2021, which was recorded to (income) losses from equity investments in its condensed consolidated statements of earnings (losses). This impairment charge reflected the difference between the fair value using ABI’s share price at September 30, 2021 and the carrying value of Altria’s equity investment in ABI at September 30, 2021, prior to recording the impairment charge. This conclusion was based on the following factors:
▪the fair value of Altria’s investment in ABI had been below its carrying value since October 2019 and had not fully recovered. At its lowest point in March 2020, the fair value of Altria’s investment in ABI was below its carrying value by approximately 52% and at December 31, 2020 had recovered to approximately 17% below its carrying value. During the first nine months of 2021, ABI’s share price continued to fluctuate, ultimately resulting in a share price decline of 18% since December 31, 2020. At September 30, 2021, prior to recording the impairment charge, the fair value of Altria’s investment in ABI was below its carrying value by approximately 35%;
▪the fair value of Altria’s investment in ABI historically exceeded its carrying value since October 2016 (when Altria obtained its ownership interest in ABI) with the exception of certain periods starting in September 2018 and since October 2019. Altria was optimistic about a near-term recovery because ABI’s share price demonstrated significant recovery, including during 2019, the second half of 2020 and the first half of 2021. However, during the third quarter of 2021, the decline in ABI’s share price resumed and, at September 30, 2021, the share price was lower than at December 31, 2020, erasing much of the recovery experienced in the second half of 2020 and first half of 2021;
▪ABI’s share price continued to decline following the release of ABI’s second quarter of 2021 earnings report in which ABI’s performance in the first half of 2021 improved meaningfully versus the same period in 2020. Despite ABI’s second quarter of 2021 results, which also included top-line growth ahead of the pre-pandemic levels from the second quarter of 2019 as well as the reaffirmation of its 2021 outlook, ABI’s income growth was impacted by, among other things, transactional foreign exchange and commodity cost headwinds; and
▪the industry disruption and volatility associated with the COVID-19 pandemic, including the impact of COVID-19 variants and related cost headwinds, have continued. While Altria continues to believe that ABI’s share price performance is not reflective of its underlying long-term equity value, and ABI’s share price will recover, Altria determined that it will take longer than previously expected as Altria believes that COVID-19 variants, supply-chain constraints across certain markets, transactional foreign exchange and commodity cost headwinds may continue to impact ABI’s near-term financial results and share price performance.
Although Altria recorded an impairment charge on its investment in ABI during the third quarter of 2021, Altria continues to have confidence in ABI’s (i) long-term strategies, (ii) premium global brands, (iii) experienced management team and (iv) capability to successfully navigate its near-term challenges. While Altria considers the impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business to be transitory, Altria determined, as of the third quarter of 2021, that the full recovery to carrying value would take longer than previously expected.
At February 22, 2022, the fair value of Altria’s equity investment in ABI was $12.2 billion, which exceeded its carrying value by approximately 9%. 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.
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Investment in JUUL
At December 31, 2021, the estimated fair value of Altria’s investment in JUUL was $1.7 billion, unchanged from December 31, 2020, as Altria’s projections of lower JUUL revenues in the United States over time due to lower JUUL volume assumptions were offset by (i) the effect of passage of time on the projected cash flows and (ii) a decrease in the discount rate due to change in market factors.
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 United States 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 2021, 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 17.0% to 19.0% at December 31, 2021. 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; (iii) expectations for the future state of the e-vapor category including competitive dynamics; and (iv) timing of international expansion plans.
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, for a further discussion, see Item 3 and Note 18;
▪a substantial increase in state and federal e-vapor excise taxes;
▪adverse publicity due to underage use of e-vapor products and other factors;
▪supply chain constraints and component part shortages, if not transitory;
▪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;
▪delay in timing of international expansion plans;
▪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, 2021 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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at December 31, 2020 was $1.1 billion (carrying value of $1.0 billion), which exceeded its carrying value by approximately 8% at December 31, 2020.
In September 2021, the fair value of Altria’s equity method investment in Cronos declined below its carrying value (by approximately 2% as of September 30, 2021) and had not recovered as of December 31, 2021. Accounting guidance requires the evaluation of the following factors when determining if the decline in fair value is other than temporary: (i) the duration and magnitude of the fair value decline; (ii) the financial condition and near-term prospects of the investee; and (iii) the investor’s intent and ability to hold its equity method investment until full recovery to its carrying value in the near-term. In preparing its financial statements for the year ended December 31, 2021, Altria evaluated these factors and determined that there was not sufficient evidence to conclude that the impairment was temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of $205 million for the year ended December 31, 2021, which was recorded to (income) losses from equity investments in its consolidated statement of earnings (losses). The impairment charge reflects the difference between the fair value of Altria’s equity method investment in Cronos using Cronos’s share price at December 31, 2021 and the carrying value of Altria’s equity method investment in Cronos at December 31, 2021. At December 31, 2021, prior to recording the impairment charge, the fair value of Altria’s equity method investment in Cronos was less than its carrying value by approximately 25%. After recording the impairment charge, the fair value and carrying value of Altria’s equity method investment in Cronos at December 31, 2021 were $617 million.
At February 22, 2022, the fair value of Altria’s equity method investment in Cronos was $524 million, which was less than its carrying value by approximately 15%. Altria will continue to assess the fair value of its equity method investment in Cronos to determine if any decline in fair value below its carrying value is other than temporary.
For further discussion of Altria’s investments in ABI, JUUL and Cronos, see Note 6.
▪Marketing Costs: Altria Group, Inc.’sAltria’s businesses promote their products with consumer incentives, trade promotions and consumer engagement programs,programs. These consumer incentivesincentive and trade promotions. Such programspromotion activities, which include discounts, coupons, rebates, in-store display incentives event marketing and volume-based incentives. Consumer engagement programsincentives, do not create a distinct deliverable and are, expensed as incurred. Consumer incentive and trade promotion activities aretherefore, recorded as a reduction of revenues, a portionrevenues. 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 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.earnings (losses). For interim reporting purposes, Altria’s businesses charge consumer engagement programs and certain consumer incentive expenses are charged 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 United StatesU.S. and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees.indemnitees and Altria’s investees. In 1998, PM USA and certain other U.S. tobacco product manufacturers entered into the 1998 Master Settlement
Altria Group, Inc. 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;litigation; (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;case; 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.earnings (losses).
▪Employee Benefit Plans: As discussed in Note 16. Benefit Plans to the consolidated financial statements in Item 8 (“Note 16”), Altria Group, Inc. provides a range of benefits to itscertain employees and retired employees, including pension, postretirement health care and postemployment benefits. Altria Group, Inc. records annual amounts relating to these plans based on calculations specified by U.S. 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 Group, Inc. 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 Group, Inc. 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
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costs or credits that have not been recognized as components of net periodic benefit cost.cost (income). 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 (income) in future years.
For additional information see Note 16 for a sensitivity discussion of16. Benefit Plans to the assumed health care cost trend rates.consolidated financial statements in Item 8 (“Note 16”).
▪Income Taxes: Significant judgment is required in determining income tax provisions and in evaluating tax positions. Altria Group, Inc.’s deferredDeferred 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 Group, Inc. records a valuation allowance whendetermines the realizability of deferred tax assets based on the weight of available evidence, that it is more-likely-than-notmore likely than not that some portion or all of athe 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 Group, Inc. 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-notmore 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 Group, Inc. recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes in its consolidated statements of earnings.earnings (losses).
Altria Group, Inc. recognized income tax benefits and charges in the consolidated statements of earnings (losses) during 2017, 20162021 and 20152020 as a result of various tax events, including the impact of the Tax Reform Act (as defined below).
For additional information on income taxes, see Note 14.Income Taxes to the consolidated financial statements in Item 8 (“Note 14”).
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Consolidated Operating Results
| For the Years Ended December 31, | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Net Revenues: | |||||||||||
| Smokeable products | $ | 22,636 | $ | 22,851 | $ | 22,792 | |||||
| Smokeless products | 2,155 | 2,051 | 1,879 | ||||||||
| Wine | 698 | 746 | 692 | ||||||||
| All other | 87 | 96 | 71 | ||||||||
| Net revenues | $ | 25,576 | $ | 25,744 | $ | 25,434 | |||||
| Excise Taxes on Products: | |||||||||||
| Smokeable products | $ | 5,927 | $ | 6,247 | $ | 6,423 | |||||
| Smokeless products | 132 | 135 | 133 | ||||||||
| Wine | 23 | 25 | 24 | ||||||||
| Excise taxes on products | $ | 6,082 | $ | 6,407 | $ | 6,580 | |||||
| Operating Income: | |||||||||||
| Operating companies income (loss): | |||||||||||
| Smokeable products | $ | 8,408 | $ | 7,768 | $ | 7,569 | |||||
| Smokeless products | 1,300 | 1,177 | 1,108 | ||||||||
| Wine | 147 | 164 | 152 | ||||||||
| All other | (51 | ) | (99 | ) | (169 | ) | |||||
| Amortization of intangibles | (21 | ) | (21 | ) | (21 | ) | |||||
| General corporate expenses | (227 | ) | (222 | ) | (237 | ) | |||||
| Reductions of PMI tax-related receivable | — | — | (41 | ) | |||||||
| Corporate asset impairment and exit costs | — | (5 | ) | — | |||||||
| Operating income | $ | 9,556 | $ | 8,762 | $ | 8,361 | |||||
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | |||||||||||||||
| Net Revenues: | |||||||||||||||||
| Smokeable products | $ | 22,866 | $ | 23,089 | |||||||||||||
| Oral tobacco products | 2,608 | 2,533 | |||||||||||||||
| Wine | 494 | 614 | |||||||||||||||
| All other | 45 | (83) | |||||||||||||||
| Net revenues | $ | 26,013 | $ | 26,153 | |||||||||||||
| Excise Taxes on Products: | |||||||||||||||||
| Smokeable products | $ | 4,754 | $ | 5,162 | |||||||||||||
| Oral tobacco products | 132 | 130 | |||||||||||||||
| Wine | 14 | 19 | |||||||||||||||
| All other | 2 | 1 | |||||||||||||||
| Excise taxes on products | $ | 4,902 | $ | 5,312 | |||||||||||||
| Operating Income: | |||||||||||||||||
| OCI: | |||||||||||||||||
| Smokeable products | $ | 10,394 | $ | 9,985 | |||||||||||||
| Oral tobacco products | 1,659 | 1,718 | |||||||||||||||
| Wine | 21 | (360) | |||||||||||||||
| All other | (97) | (172) | |||||||||||||||
| Amortization of intangibles | (72) | (72) | |||||||||||||||
| General corporate expenses | (345) | (227) | |||||||||||||||
| Corporate asset impairment and exit costs | — | 1 | |||||||||||||||
| Operating income | $ | 11,560 | $ | 10,873 | |||||||||||||
As discussed further in Note 15, the CODM reviews operating companies incomeOCI to evaluate the performance of, and allocate resources to, the segments. Operating companies income 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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The following events that occurred during 2017, 2016table provides a reconciliation of adjusted net earnings attributable to Altria and 2015adjusted diluted EPS attributable to Altria for the years ended December 31:
| (in millions of dollars, except per share data) | Earnings (Losses) before Income Taxes | Provision for Income Taxes | Net Earnings (Losses) | Net Earnings (Losses) Attributable to Altria | Diluted EPS | ||||||||||||||||||
| 2021 Reported | $ | 3,824 | $ | 1,349 | $ | 2,475 | $ | 2,475 | $ | 1.34 | |||||||||||||
| NPM Adjustment Items | (76) | (19) | (57) | (57) | (0.03) | ||||||||||||||||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | 120 | 21 | 99 | 99 | 0.05 | ||||||||||||||||||
Tobacco and health and certain other litigation items | 182 | 44 | 138 | 138 | 0.07 | ||||||||||||||||||
| ABI-related special items | 6,203 | 1,302 | 4,901 | 4,901 | 2.66 | ||||||||||||||||||
| Cronos-related special items | 466 | (4) | 470 | 470 | 0.25 | ||||||||||||||||||
| Loss on early extinguishment of debt | 649 | 153 | 496 | 496 | 0.27 | ||||||||||||||||||
| Tax items | — | 3 | (3) | (3) | — | ||||||||||||||||||
| 2021 Adjusted for Special Items | $ | 11,368 | $ | 2,849 | $ | 8,519 | $ | 8,519 | $ | 4.61 | |||||||||||||
| 2020 Reported | $ | 6,890 | $ | 2,436 | $ | 4,454 | $ | 4,467 | $ | 2.40 | |||||||||||||
| NPM Adjustment Items | 4 | 1 | 3 | 3 | — | ||||||||||||||||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | 431 | 89 | 342 | 342 | 0.18 | ||||||||||||||||||
| Tobacco and health and certain other litigation items | 83 | 21 | 62 | 62 | 0.03 | ||||||||||||||||||
| Impairment of JUUL equity securities | 2,600 | — | 2,600 | 2,600 | 1.40 | ||||||||||||||||||
| JUUL changes in fair value | (100) | — | (100) | (100) | (0.05) | ||||||||||||||||||
| ABI-related special items | 763 | 160 | 603 | 603 | 0.32 | ||||||||||||||||||
| Cronos-related special items | 51 | (2) | 53 | 53 | 0.03 | ||||||||||||||||||
| COVID-19 special items | 50 | 13 | 37 | 37 | 0.02 | ||||||||||||||||||
| Tax items | — | (50) | 50 | 50 | 0.03 | ||||||||||||||||||
| 2020 Adjusted for Special Items | $ | 10,772 | $ | 2,668 | $ | 8,104 | $ | 8,117 | $ | 4.36 | |||||||||||||
The following special items affected the comparability of statementstatements of earnings (losses) amounts.
▪Gain on AB InBev/SABMiller Business Combination: For the year ended December 31, 2017, Altria Group, Inc. recorded pre-tax gains of $445 million related to the planned completion of the remaining AB InBev divestitures of certain SABMiller assets and businesses in connection with Legacy AB InBev obtaining necessary regulatory clearances for the Transaction. As a result of the Transaction, for the year ended December 31, 2016, Altria Group, Inc. recorded a pre-tax gain of approximately $13.9 billion. For further discussion, see Note 6.
▪Asset Impairment, Exit, Implementation, Acquisition and Disposition-Related Costs: For the years ended December 31, 2017, 20162021 and 2015,2020, Altria recorded pre-tax expense (income) for NPM Adjustment Items was recorded in Altria Group, Inc.’s consolidated statements of earnings as follows:
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Smokeable products segment | $ | (5 | ) | $ | 12 | $ | (97 | ) | |||
| Interest and other debt expense, net | 9 | 6 | 13 | ||||||||
| Total | $ | 4 | $ | 18 | $ | (84 | ) | ||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Smokeable products segment | $ | 72 | $ | 88 | $ | 127 | |||||
| Interest and other debt expense, net | 8 | 17 | 23 | ||||||||
| Total | $ | 80 | $ | 105 | $ | 150 | |||||
| For the Year Ended December 31, 2017 | |||||||||||
| (in millions) | Cost of Sales | Marketing, Administration and Research Costs | Total | ||||||||
| Smokeable products | $ | 39 | $ | 18 | $ | 57 | |||||
| Smokeless products | — | 16 | 16 | ||||||||
| General corporate and other | — | 8 | 8 | ||||||||
| Total | $ | 39 | $ | 42 | $ | 81 | |||||
For the years ended December 31, 2021 and 2020, Altria also recorded pre-tax acquisition and disposition-related costs of $119 million and $24 million, respectively. The 2021 costs included a net pre-tax charge of $51 million related to the Ste. Michelle Transaction and $37 million for the settlement of an arbitration related to the 2019 on! transaction. For further discussion of these acquisition and disposition-related costs, see Note 15.
▪Tobacco and Health and Certain Other Litigation Items: For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 18 and Tobacco and Health and Certain Other Litigation Items in Note 15, respectively.
▪Impairment of JUUL Equity Securities: For the year ended December 31, 2020, Altria recorded a non-cash, pre-tax impairment charge of $2,600 million, reported as impairment of JUUL equity securities in its consolidated statements of earnings (losses). A full tax valuation allowance was recorded in 2020 attributable to the tax benefit associated with the impairment charge. For further discussion, see Note 6 and Note 14.
▪JUUL Changes in Fair Value: For the year ended December 31, 2021, there was no change in the estimated fair value of Altria’s investment in JUUL. 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 statements of earnings (losses) as a result of an increase
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in the estimated 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.
▪ABI-Related Special Items: Altria’s losses from its equity investment in ABI for the year ended December 31, 2021, included net pre-tax charges of $6,203 million, substantially all of which related to a non-cash impairment ($6,157 million) of Altria’s equity investment in ABI. For further discussion, see Note 6.
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.
These amounts include Altria’s respective share of the amounts recorded by ABI and 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, 2021 and 2020, Altria recorded net pre-tax (income) expense, consisting of the following:
| (in millions) | 2021 | 2020 | ||||||
Loss on Cronos-related financial instruments (1) | $ | 148 | $ | 140 | ||||
(Income) losses from equity investments (2) | 318 | (89) | ||||||
| Total Cronos-related special items - (income) expense | $ | 466 | $ | 51 | ||||
(1) Amounts 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 include Altria’s share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to Altria’s investment in Cronos including the $205 million non-cash, pre-tax impairment of Altria’s investment in Cronos in 2021, discussed above.
For further discussion, see Note 6 and Note 7. Financial Instruments to the consolidated financial statements in Item 8.
▪Loss on Early Extinguishment of Debt:During 2016 and 2015,2021, Altria Group, Inc.recorded pre-tax losses of $649 million as a result of the completed debt tender offers to purchase for cashand redemption of certain of itslong-term senior unsecured notes in aggregate principal amounts of $0.9 billion and $0.8 billion, respectively.
| (in millions) | 2016 | 2015 | ||||||
| Premiums and fees | $ | 809 | $ | 226 | ||||
| Write-off of unamortized debt discounts and debt issuance costs | 14 | 2 | ||||||
| Total | $ | 823 | $ | 228 | ||||
notes. For further discussion, see Note 9.Long-TermDebtto the consolidated financial statements in Item 8 (“Note 9”).
▪AB InBev/SABMillerCOVID-19 Special Items: For the year ended December 31, 2020, Altria Group, Inc.’s earnings from its equity investment in AB InBev for 2017 includedrecorded net pre-taxcharges totaling $50 million directly related to disruptions caused by or efforts to mitigate the impact of $160 million, consisting primarilythe COVID-19 pandemic. For further discussion and a breakdown of these costs by segment, see Note 15.
▪Tax Items: For the year ended December 31, 2020, Altria Group, Inc.’s sharerecorded net tax expense of AB InBev’s Brazilian tax item and Altria Group, Inc.’s share of AB InBev’s mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments. Altria Group, Inc.’s earnings from its equity investment in SABMiller for 2016 included net pre-tax income of $89$50 million, due primarily to a pre-tax non-cash gainnet tax expense of $309$27 million reflecting Altria Group, Inc.’s share of SABMiller’s increase to shareholders’ equity,for adjustments resulting from the completion of the SABMiller, The Coca-Cola Companyamended returns and Gutsche Family Investments transaction, combining bottling operations in Africa, partially offset by Altria Group, Inc.’s share of SABMiller’s costsaudit adjustments related to the Transactionprior years, and asset impairment charges. Altria Group, Inc.’s earnings from its equity investment in SABMiller for 2015 included net pre-tax chargestax expense of $126 million, consisting primarily of Altria Group, Inc.’s share of SABMiller’s asset impairment charges.
Net revenues, which include excise taxes billed to customers, decreased $168$140 million (0.7%(0.5%), due primarily to lower net revenues in the smokeable products and wine segments (resulting from the sale of the wine business in October 2021), partially offset by higher net revenues in the smokelessfinancial services business (primarily driven by reductions in the estimated residual values of certain assets at PMCC in 2020) and the oral tobacco products segment.
Cost of sales decreased $203$699 million (2.6%(8.9%), due primarily to changes in the wine segment, which included the inventory-related charges in 2020 (as discussed in Note 15) and the sale of the wine business in October 2021, lower shipment volume in the smokeable products segment, shipment volume,NPM Adjustment Items in 2021 and COVID-19 special items in 2020, partially offset by higher per unit settlement charges.charges, higher manufacturing costs and volume and mix in the oral tobacco products segment.
Excise taxes on products decreased $325$410 million (5.1%(7.7%), due primarily to lower smokeable products segment shipment volume.
Marketing, administration and research costs increased $278 million (12.9%), due primarily to higher general corporate expenses (including an agreement to resolve a shareholder class action lawsuit in 2021 as discussed in Note 18), higher spending in the oral tobacco products (including higher acquisition-related costs as discussed in Note 15) and smokeable products segments and higher spending associated with the retail expansion of IQOS and Marlboro HeatSticks.
Operating income increased $794$687 million (9.1%(6.3%), due primarily to higher operating results fromin the smokeable products and smokelesswine segments and the all other category (primarily driven by reductions in the estimated residual value of certain assets at PMCC in 2020), partially offset by higher general corporate expenses and lower operating results in the oral tobacco products segments (which included lower asset impairment and exit costs).segment.
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Net periodic benefit income, excluding service cost, increased by $125 million (5.6%(100.0%+), due primarily to lower interest costs on debtcost resulting from a decrease in 2017 as a result of debt refinancing activities in 2016discount rates and higher interest income dueamendments to higher interest rates in 2017.Altria’s salaried retiree healthcare plans during 2021. For further discussion, see Note 16.
Operating Results by Business Segment
Tobacco Space
Business Environment
Summary
The United StatesU.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 ourAltria’s tobacco subsidiariesoperating companies and ourinvestees and Altria’s consolidated results of operations, cash flows or financial position.position or Altria’s ability to achieve its Vision. These challenges, some of which are discussed in more detail below, in Note 18, Item 1A and Item 3, include:
▪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:
▪restrictions on the sale of certain tobacco products, the sale of tobacco products by certain retail establishments, the sale of tobacco products with 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;
▪reductions in cigarette and MST consumption levels due to growth of innovative tobacco products;
▪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 (including inflation), excise taxes and price gap relationships, may result in adult tobacco consumers switching to discount products or other lower pricedlower-priced tobacco products;
▪the highly competitive nature of all tobacco categories, including competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation and the proliferation of innovative tobacco products, such as 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 component parts; and
▪the COVID-19 pandemic.
In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences pose challenges for Altria Group, Inc.’sare continuing to impact the tobacco subsidiaries. Ourindustry. Altria’s tobacco subsidiariesoperating companies believe that a significant number of adult tobacco consumers switch betweenamong tobacco
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categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products. The e-vapor category grew rapidly from 2012 through early 2015 off a small base, but then slowed. The growth trend resumed in 2017. Nu Mark believes the category willproducts and oral nicotine pouches. Adult smokers continue to be dynamic as adult tobacco consumers explore a varietytransition from cigarettes to exclusive use of smoke-free tobacco product options.alternatives, which aligns with Altria’s Vision.
Altria Group, Inc. and its tobacco subsidiariesoperating companies work to meet these evolving adult tobacco consumer preferences over time by developing, manufacturing, marketing and distributing products both within and outside the United States through innovation and adjacencyother growth strategies (including, where appropriate, arrangements with, or investments in, third parties). See
Over the discussions regarding new product technologies, adjacencypast two years, the legislative and regulatory activities discussed below negatively impacted growth strategyin the e-vapor category. While these activities continue to impact the e-vapor category, the category experienced moderate growth in 2021 and evolving consumer preferences in Item1A for certain risks associated withremains competitive.
Oral nicotine pouch retail share of the foregoing discussion.total oral tobacco category grew significantly over the prior year from 8.4% during 2020 to 15.4% during 2021. The oral nicotine pouch category has become increasingly competitive.
We are monitoring the sale and continued introduction of unregulated synthetic nicotine products, which may lead to further competition for regulated tobacco products, including oral nicotine pouches and e-vapor products, and may result in underage use of these unregulated products if not marketed responsibly by manufacturers.
Altria and its tobacco operating companies believe the innovative tobacco products categories will continue to be dynamic due to competition, adult tobacco consumer exploration of a variety of tobacco product options, adult consumer perceptions of the relative risks of smoke-free products compared to cigarettes, FDA determinations on product applications and legislative actions.
For the year ended December 31, 2021, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 5.5%. Altria expects 2022 cigarette industry volume trends to continue to be most influenced by (i) changes to adult smoker stay-at-home practices, disposable income, purchasing patterns and adoption of smoke-free products, (ii) economic conditions (including unemployment rates, the impact of increased inflation and gasoline prices), (iii) fiscal stimulus, (iv) cross-category movement, (v) the timing and extent of COVID-19 vaccine administration and the impact of COVID-19 variants, and (vi) regulatory and legislative (including excise tax) developments.
Economic conditions (including a high inflationary environment) can also impact adult tobacco consumer purchasing behavior. For example, economic downturns have provided additional detail onresulted in adult tobacco consumers choosing discount products and other lower priced tobacco products. Although the following topics below:economic impact resulting from the COVID-19 pandemic did not meaningfully increase the growth of discount and lower priced tobacco products throughout much of the pandemic, in part due to stimulus payments, discount cigarette products resumed share growth in the second half of 2021 driven primarily by deep discount products. Share gains for discount cigarette products typically coincide with rising gas prices, higher inflation and increased consumer mobility. We expect fluctuations in discount cigarette product segment share to continue as price sensitive adult tobacco consumers react to economic conditions in the current high inflationary environment.
FSPTCA and FDA Regulation
▪The Regulatory Framework:The FSPTCA, expressly establishes certainits implementing regulations and its 2016 deeming regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions:
▪impose restrictions and prohibitions on our tobacco businesses and authorizes or requires further FDA action. Under the FSPTCA, the FDA has broad authority to (1) regulate the design, manufacture, packaging, advertising, promotion, sale and distribution of tobacco products; (2) require disclosuresproducts (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 related information;the public health; and (3) enforce
▪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 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 advertising and related regulations.promotion restrictions for cigarettes and smokeless tobacco(1) products (the “Final Tobacco Marketing Rule”). The FSPTCA went intoMay
(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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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:
▪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 2009June 2010 for cigarettes cigarette tobacco and smokeless tobacco products and in August 2016 for
all other tobacco products, including cigars, e-vapor products, pipe tobacco and oral nicotine pouch products containing tobacco-derived nicotine products (“Other Tobacco Products”). See FDA Regulatory Actions - Deeming Regulations below.nicotine.
▪Pre-Market Review Pathways Including Substantial Equivalence: The FSPTCA imposes restrictions on marketing new and modified tobacco products, requiring FDA review to begin marketing a new product or continue marketing a modified product. Specifically, cigarettes, cigarette tobacco and smokeless tobacco products modified or first introduced into the market after March 22, 2011, and Other Tobacco Products modified or first introduced into the market after August 8, 2016, are subjected to new tobacco product application and pre-market review and authorization requirements unless a manufacturer can demonstrate they are “substantially equivalent” to products commercially marketed as of February 15, 2007. The FDA could deny any such
The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by United States states, territories and localities of the United States 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 ourthe ability of Altria’s tobacco subsidiaries’ abilityoperating companies 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 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:
▪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; and
▪reconsidered the processes used by the FDA to review certain reports and new product applications.
▪Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products on the market 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. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.
The FDA pre-market authorization enforcement policy varies based on product type and date of availability in the market, specifically:
▪Grandfathered Products are 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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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, could trigger the FDA’s pre-market or SE review processes. Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination, (ii) a denial of a PMTA or (iii) a marketing order withdrawal by the FDA on one or more products, which would require the removal of the product or products from the market. Such actions could have a material adverse impact on the business and consolidated results of operations of Altria’s tobacco operating companies and investees, and the cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL.
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 products that were found by the FDA 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 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 operating companies 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 operating companies 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. Altria’s cigarette and smokeless tobacco operating companies may not be able to obtain a marketing order for non-provisional products because the FDA may determine that any such product does not meet the statutory requirements for approval.
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. These products can remain on the market during FDA review through court-allowed, case-by-case discretion, so long as the report or application was timely filed with the FDA. Due to the large number of applications received by September 9, 2020, the FDA did not complete its review of all submitted applications by September 9, 2021, although it represents that it has made decisions on more than 98% of the applications, with most being marketing denial orders and a few marketing granted orders for tobacco flavor e-vapor products. A number of the marketing denial orders are subject to litigation challenges initiated by the affected manufacturers. For those products still under FDA review, it is uncertain when and for how long the FDA may permit continued marketing and sale of those products pursuant to its case-by-case discretion. 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 and selling the product.
Helix submitted PMTAs for on! oral nicotine pouches in May 2020. JUUL submitted PMTAs to the FDA for its e-vapor device and the related tobacco and menthol flavors in July 2020. As of February 22, 2022, the FDA has not issued marketing order decisions for any on! or JUUL products. In addition, as of February 22, 2022, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.
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 MRTP application with the FDA for its electronically heated tobacco products comprising the IQOS Tobacco Heating System. The IQOS devices heat, but do not burn tobacco. 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 MRTP with a reduced exposure claim. In December 2020, the FDA authorized the PMTA for IQOS 3, an updated version of the IQOS devices. The MRTP authorization for the original IQOS device currently does not apply to the IQOS 3device. PMI submitted an MRTP application for the IQOS 3 device in March 2021, which is currently under review by the FDA.
In September 2021, in connection with a patent dispute, the ITC issued a cease and desist order, effective as of November 29, 2021, banning (i) the importation of the IQOS devices, Marlboro HeatSticks and infringing components into the United States and (ii) the sale, marketing and distribution of such imported products in the United States. As a result, PM USA removed the products from the
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marketplace. For a further discussion of the ITC decision, see Note 18. For a further discussion of risks associated with the agreements with PMI, see Risks Related to Our Businesses in Item 1A.
In October 2021, the FDA authorized the marketing and sale of four of USSTC’s Verve oral nicotine products, including Green Mint and Blue Mint varieties, representing the first flavored product authorizations issued by the FDA for newly deemed innovative products. These products are not currently marketed or sold.
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. This includes notification of all marketing activities. The IQOS Tobacco Heating System is subject to this post-market surveillance requirement. The FDA may amend requirements of a market order or withdraw the market order based on this information if, among other reasons, it determines that the continued marketing of the products 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 (which would require the removal of the product or products from the market) could have a material adverse impact on the business and consolidated results of operations of our tobacco operating companies and investees, and the cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL. Also, an adverse FDA determination on one or more innovative tobacco products could impede our ability to achieve our Vision.
▪FDA Regulatory Actions
▪Graphic Warnings:In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising. As a result of a March 2021 court order related to the COVID-19 pandemic and subsequent court orders resulting from a lawsuit brought by R.J. Reynolds Tobacco Company and others against the FDA, the final rule is presently anticipated to become effective on April 9, 2023. 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 Marlboro HeatSticks,a heated tobacco productused with the IQOS devices, as part of the rulemaking, but would consider the Marlboro HeatSticks marketing order, and other marketing orders, on a case-by-case basis. To date, the FDA has not taken any action to exempt Marlboro HeatSticks from the graphic health warnings requirements.
▪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.
Additionally, the FDA issued final guidance in April 2020, stating that it intends to prioritize enforcement action against certain product categories, including cartridge-based, flavored e-vapor products and products targeted to minors.
▪Flavored Electronic Nicotine Delivery System (“ENDS”) Products: Some e-vapor product manufacturers filed PMTAs for flavored tobacco products. As of February 22, 2022, many of these manufacturers received marketing denial orders for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. FDA has communicated in these marketing denial orders that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications will require strong, product-specific evidence. A number of manufacturers are appealing the marketing denial orders for their products. If the FDA does not ultimately allow for the reintroduction of flavors other than tobacco, it could adversely affect the value of Altria’s investment in JUUL.
Some ENDS manufacturers, including some that have received marketing denial orders, have indicated their intention to market ENDS products containing synthetically-derived nicotine, which is not currently FDA-regulated. If these products are sold in higher volumes, and marketed outside of FDA oversight, it could adversely affect the value of Altria’s investment in JUUL, have a material adverse effect on Altria’s consolidated financial position or earnings and adversely affect Altria’s ability to achieve its Vision.
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▪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 operating companies.
▪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 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, in April 2021, the FDA issued a response to a 2013 citizen petition requesting that the FDA prohibit menthol as a characterizing flavor in cigarettes. In the response, the FDA announced it intends to develop and propose two product standards, which are expected by the second quarter of 2022, that would (i) ban menthol as a characterizing flavor in cigarettes and (ii) ban all characterizing flavors (including menthol) in cigars. 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.
If any such product standards become final and are appealed and upheld in the courts, it could have a material adverse effect on the business of Altria’s tobacco operating companies, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL (due to the impact on JUUL’s business) if the FDA pursues broader flavor restrictions beyond cigarettes and cigars.
▪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 could have a material adverse effect on the financial position of Altria, its tobacco operating companies and its investees, including adversely affecting the value of Altria’s investment in JUUL.
▪Impact on Our Business; Compliance Costs and User Fees: Regulations imposed and otherFDA regulatory actions taken by the FDA under the FSPTCA could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its tobacco subsidiariesoperating companies in a number of differentvarious ways. For example, actions by the FDA could:
▪impact the consumer acceptability of 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 also have a material adverse effect on the business of Altria’s tobacco operating companies and investees, and the consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its tobacco subsidiaries.operating companies, 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 product or oral nicotine pouch
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manufacturers. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA regulationuser fees and then among manufacturers and importers within each respective category based on their relative market shares, all as prescribed by the statuteFSPTCA 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, Group, Inc., see Financial Review - Off-Balance Sheet ArrangementsLiquidity and Aggregate Contractual ObligationsCapital Resources - 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 ourAltria’s tobacco businesses.operating companies. 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 ourAltria’s tobacco subsidiaries.
▪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. The use of any of these investigatoryInvestigations or enforcement tools by the FDAactions could result in significant costs to the tobacco businesses of Altria Group, Inc. or otherwise have a material adverse effect on the business of Altria’s tobacco operating companies and investees, and the consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its tobacco subsidiaries.
Excise Taxes
Tobacco products are subject to substantial excise taxes in the United States. 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 United States. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies.
During 2021, Congress considered legislation that would have significantly increased the federal excise tax for all tobacco products and created a new tax for e-vapor products and other products containing nicotine that are not currently subject to a tobacco federal excise tax (“novel tobacco products”). The U.S. House of Representatives removed the proposal to increase the federal excise tax on tobacco products currently subject to the tax from the legislation it was considering, but retained the proposed nicotine tax for novel tobacco products. The U.S. Senate debated the legislation and removed the nicotine tax for novel tobacco products; however, as of February 22, 2022, the legislation is still pending before the Senate and could be subject to further tax related amendments.
Federal, state and local cigarette excise taxes have increased substantially over the past decade,two decades, far outpacing the rate of inflation. By way of example, in 2009, the federal excise tax (“FET”) on cigarettes increased from $0.39 per pack to approximately $1.01 per pack, in 2010, the New York state excise tax increased by $1.60 to $4.35 per pack, in October 2014, Philadelphia, Pennsylvania enacted a $2.00 per pack local cigarette excise tax and in November 2016, California passed a ballot measure to increase its cigarette excise tax by $2.00 per pack and its smokeless tobacco ad valorem excise tax from 27.30% to 65.08%, which went into effect on April 1, 2017 and July 1, 2017, respectively. Between the end of 1998 and February 23, 2018,22, 2022, the weighted-average state and certain local cigarette excise taxestax increased from $0.36 to $1.75$1.89 per pack. During
A majority of states currently tax smokeless tobacco productsMST 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 Group, Inc.’s subsidiaries supportsupports legislation to convert ad valorem taxes on smokeless tobaccoMST 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 23, 2018,22, 2022, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for smokeless tobacco.MST.
An increasing number of states and localities also are imposing excise taxes on e-vapor and oral nicotine pouches. As of February 22, 2022, 30 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, 11 states and the District of Columbia have enacted legislation to tax oral nicotine pouches.
Tax increases are expected to continue to have an adverse impact on product sales of Altria’s tobacco operating companies and JUUL through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments, to lower taxed tobacco products, or to counterfeit and contraband products. Lower sales volume and reported share performance of Altria’s tobacco operating companies’ and investees’ products could have a material adverse effect on Altria’s consolidated financial position or earnings. In addition, substantial excise tax increases on e-vapor and oral nicotine products, may negatively impact adult smokers’ transition to these products, which could adversely affect our ability to achieve our Vision.
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 23, 2018, 18022, 2022, 181 countries, as well as the European Community,Union, have become parties to the FCTC. While the United States 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 StatesU.S. 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 among other things: establish specific actions to prevent youth tobacco product use; restrict or eliminate all tobacco product advertising, marketing, promotion and sponsorship; initiate public education campaigns to inform the public about the health consequences of tobacco consumption and exposure to tobacco smoke and the benefits of quitting; implement regulations imposing product testing, disclosure and performance standards; impose health warning requirements on packaging; adopt measures intended to combat tobacco product smuggling and counterfeit tobacco products, including tracking and tracing of tobacco products through the distribution chain; and restrict smoking in public places.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. In addition, the
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proposals or the impact of any FCTC actions on legislation or regulation in the United States,U.S., either indirectly or as a result of the United StatesU.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 tobacco productcigarette 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. Increases in inflation can increase our financial liability under the State Settlement Agreements. The State Settlement Agreements’ inflation calculations require us to apply the higher of 3% or the U.S. Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (“CPI-U”) percentage rate as published in January of each year. As of December 2021, the inflation calculation was approximately 7% based on the latest CPI-U data; however, the increase in the annual payments did not have a material impact on Altria’s financial position. Altria believes that inflation will continue at increased levels in 2022, but does not expect the corresponding increase in annual payments to result in a material financial impact. However, we will continue to monitor conditions related to the impact of increased inflation on the macro-economic environment.
For a discussion of the impact of the State Settlement Agreements on Altria, Group, Inc., seeFinancial Review - Debt Liquidity and LiquidityCapital Resources - 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). Restrictions areThe State Settlement Agreements also placedplace restrictions on the use of brand name sponsorships and brand name non-tobacco products. The State Settlement Agreements also placeproducts 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 United States 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.
Other International, Federal, State and Local Regulation and Governmental and Private Activity
▪International, Federal, State and Local Regulation: A number ofRegulation:Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including innovativecigarettes, smokeless tobacco, cigars, e-vapor products such as e-vapor products)and oral nicotine pouches), such as legislation that (1)(i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with certain characterizing flavors, includingsuch as menthol cigarettes (2)and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally-mandatedfederally mandated health warnings and (3)(iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products (including proposals to ban all tobacco product sales).products. 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, 2022, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and six states (California, Massachusetts, New Jersey, Utah, New York and Illinois) and the District of Columbia have passed such legislation. Some of these states, such as New York, Utah and Illinois, exempt certain products that have received FDA market authorization through the PMTA pathway.
Massachusetts passed legislation capping the amount of nicotine in e-vapor products. Similar legislation is pending in one other state.
Restrictions on e-vapor and oral nicotine pouch products also have been instituted or proposed internationally.
Altria’s tobacco subsidiariesoperating companies 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 Altria’s tobacco operating companies and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL. Such action also could negatively impact adult smokers’ transition to these products, which could adversely affect our ability to achieve our Vision.
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▪Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products: An increasingAfter a number of states and localities have proposed and enacted legislation to increase the minimum age to purchase all tobacco products, aboveincluding e-vapor products, in December 2019, the current Federalfederal government passed legislation increasing the minimum age to purchase all tobacco products, including e-vapor products, to 21 nationwide. As of 18. The followingFebruary 22, 2022, 39 states, the District of Columbia and Puerto Rico have enacted such legislation: California (21), Hawaii (21), Alabama (19), Alaska (19), New Jersey (21), Utah (19), Oregon (21)laws increasing the legal age to purchase tobacco products to 21. 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 Maine (21). Various localities (such as New York City (21)Use of Certain Tobacco Products, Altria supports raising the minimum legal age to purchase all tobacco products to 21 at the federal and Chicago (21)) have taken similar actions.state levels, reflecting its longstanding commitment to combat underage tobacco use.
▪Health Effects of Tobacco Product Consumption and Exposure to Environmental Tobacco Smoke (“ETS”): 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 there have been health concerns raised about potential increased risks associated with COVID-19 among smokers and vapers. Altria Group, Inc. and its tobacco subsidiaries believebelieves that the public should be guided by the messages of the United StatesU.S. Surgeon General and public health authorities worldwide in making decisions concerning the use of tobacco products, including e-vapor products.
Most jurisdictions within the United States 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 minors.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 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, during the COVID-19 pandemic, state and local governments required additional health and safety requirements of all businesses, including tobacco manufacturing and other facilities. State and local governments also mandated the temporary closure of some businesses. While many restrictions have eased, it is possible that tobacco manufacturing and other facilities and the facilities of our suppliers, our suppliers’ suppliers and our trade partners could be subject to additional government-mandated temporary closures and restrictions.
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 (such as reduced cigarette ignition propensity standards);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; prohibit the sale of tobacco products based on environmental concerns; require tax stamping of moist smokeless tobacco (“MST”) 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.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 ourAltria’s tobacco subsidiariesoperating companies and investees, and the consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its tobacco subsidiaries.operating companies, including adversely affecting the value of Altria’s investment in JUUL.
▪Governmental Investigations: From time to time, Altria Group, Inc. and 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 Group, Inc.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 its subsidiaries cannot predict whether newthe hiring by JUUL of any current or former Altria director, executive or employee (see Note 18 and Item 3 for a description of the FTC’s administrative complaint against Altria and JUUL); (ii) the SEC commenced an investigation relating to Altria’s acquisition, disclosures and accountingcontrols in connection with the JUUL investment; and (iii) the New York State Office of the Attorney General and the Commonwealth of Massachusetts Office of the Attorney General, separately, issued independent subpoenas 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 commenced.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
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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, Group, Inc. and its tobacco subsidiaries.operating companies and investees. Illicit trade can take many forms, including the sale of counterfeit tobacco products; the sale of tobacco products in the United States 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’operating companies’ 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 Group, Inc.’sAltria’s tobacco subsidiariesoperating companies 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 Group, Inc.’sAltria’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;operating companies 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.
Price, Availability and Quality of Agricultural ProductsTobacco, Other Raw Materials, Ingredients and Component Parts
Shifts in crops (such as those driven by economic conditions and adverse weather patterns), government restrictions and mandated prices, production control programs, economic trade sanctions, import duties and tariffs, international trade disruptions, inflation, geopolitical instability, climate and production control programsenvironmental changes and disruptions due to man-made or natural disasters may increase or decrease the cost or reduce the supply or quality of tobacco andor other agricultural productsraw materials or ingredients or component parts used to manufacture our companies’ and our investees’ products. AsAny significant change in the price, availability or quality of tobacco, other raw materials, ingredients or component parts used to manufacture our products and those of our investees could restrict our tobacco operating companies’ and investees’ ability to continue manufacturing and marketing existing products or impact adult consumer product acceptability and adversely affect our tobacco operating companies’ and investees’ profitability and businesses.
With respect to tobacco, as with other agricultureagricultural commodities, the price of tobacco leaf can be influenced by economic conditions and imbalances in supply and demand and crop quality and availability can be influenced by variations in weather patterns, including those caused by climate change. Tobacco productionAdditionally, the price and availability of tobacco leaf can be influenced by economic conditions and imbalances in certain countries is subject to a varietysupply and demand. Economic conditions, including inflation and the economic effects of controls, including government mandated prices and production control programs. Changesthe COVID-19 pandemic, are unpredictable, which, among other factors, may result in changes in the patterns of demand for agricultural products and the cost of tobacco production which could negatively impact tobacco leaf prices and tobacco supply. CertainIn addition, as consumer demand increases for smoke-free products and decreases for combustible products, the volume of tobacco leaf required for production may decrease. The reduced demand for tobacco leaf may result in the reduced supply and availability of domestic tobacco as growers divert resources to other crops, which could result in increased costs to our tobacco operating companies.
Tobacco production in certain countries also is 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 impact adult tobacco consumer product acceptability. Any significant change in the price, quality or availability of tobacco leaf or other agricultural products used to manufacture our products could restrictimpair our subsidiaries’ ability to continue marketing existing products or impact adult tobacco consumer product acceptability,acceptability.
The COVID-19 pandemic also may limit access to and increase the cost of raw materials, component parts and personal protective equipment as United States and global suppliers may temporarily shut down facilities or use different production schedules with lower productivity in order to address exposure to the virus or as a result of a government mandate. In addition, (i) current labor market dynamics indicate labor shortages, with employers in a number of industries having difficulty employing workers and (ii) supply chain dynamics reflect failures and delays resulting from various issues including labor shortages, logistical problems and weather-related incidents. These labor shortages and supply failures and delays have led to certain increases in raw material (for example, resins used in our packaging), ingredient and component part prices and may lead to supply chain disruptions; however, to date, the impact on our operating companies and investees has been immaterial. However, the effects of the COVID-19 pandemic, labor market dynamics and supply chain disruptions outlined above may continue, which could adversely affectingaffect our subsidiaries’ and investees’ profitability and businesses. Recent economic conditions reflect an increased rate of inflation. To date, higher inflation has not had a material impact on our or our investees’ businesses, revenues or profitability. Although Altria anticipates inflation will continue at elevated levels in 2022, it is not expected to have a material impact on our or our investees’ businesses, revenues or profitability.
In addition, government taxes, restrictions and prohibitions on the sale and use of certain products may limit access to, and increase the costs of, raw materials and component parts and, potentially, impede our ability to sell certain of our products. For example, additional
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taxes on the use of certain single-use plastics have been proposed by the U.S. Congress, which, if passed, could increase the costs of, and impair our ability to, source certain materials used in the packaging for our tobacco operating companies’ products.
Timing of Sales
In the ordinary course of business, our tobacco subsidiariesoperating companies 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:
| Operating Results | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | |||||||||||||||
| Net revenues | $ | 22,866 | $ | 23,089 | |||||||||||||
| Excise taxes | (4,754) | (5,162) | |||||||||||||||
| Revenues net of excise taxes | $ | 18,112 | $ | 17,927 | |||||||||||||
| Reported OCI | $ | 10,394 | $ | 9,985 | |||||||||||||
| NPM Adjustment Items | (53) | 4 | |||||||||||||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | — | 2 | |||||||||||||||
| Tobacco and health and certain other litigation items | 83 | 79 | |||||||||||||||
| COVID-19 special items | — | 41 | |||||||||||||||
| Adjusted OCI | $ | 10,424 | $ | 10,111 | |||||||||||||
Reported OCI margins (1) | 57.4 | % | 55.7 | % | |||||||||||||
Adjusted OCI margins (1) | 57.6 | % | 56.4 | % | |||||||||||||
(1) Reported and smokeless products segments:adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
| For the Years Ended December 31, | |||||||||||||||||||||||
| Net Revenues | Operating Companies Income | ||||||||||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||
| Smokeable products | $ | 22,636 | $ | 22,851 | $ | 22,792 | $ | 8,408 | $ | 7,768 | $ | 7,569 | |||||||||||
| Smokeless products | 2,155 | 2,051 | 1,879 | 1,300 | 1,177 | 1,108 | |||||||||||||||||
| Total smokeable and smokeless products | $ | 24,791 | $ | 24,902 | $ | 24,671 | $ | 9,708 | $ | 8,945 | $ | 8,677 | |||||||||||
Adjusted OCI increased $313 million (3.1%), due primarily to higher pricing, partially offset by lower shipment volume, higher per unit settlement charges and higher costs.
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 large cigarette excise tax increase in California.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, 2021 and 2020, product liability defense costs for PM USA were $111 million and $110 million, respectively. Product liability defense costs have decreased since 2019 driven by the COVID-19 pandemic and fewer trials as a result of court closures due to the COVID-19 pandemic, which may continue into 2022. Once regular trial activity resumes, PM USA expects product liability defense costs to return to amounts similar to 2019, which were $151 million.
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Shipment Volume and Retail Share Results
The following table summarizes the smokeable products segment shipment volume performance:
| Shipment Volume | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| (sticks in millions) | 2021 | 2020 | |||||||||||||||
| Cigarettes: | |||||||||||||||||
| Marlboro | 82,970 | 88,858 | |||||||||||||||
| Other premium | 4,216 | 4,566 | |||||||||||||||
| Discount | 6,607 | 8,001 | |||||||||||||||
| Total cigarettes | 93,793 | 101,425 | |||||||||||||||
| Cigars: | |||||||||||||||||
| Black & Mild | 1,796 | 1,790 | |||||||||||||||
| Other | 7 | 10 | |||||||||||||||
| Total cigars | 1,803 | 1,800 | |||||||||||||||
| Total smokeable products | 95,596 | 103,225 | |||||||||||||||
| Shipment Volume | ||||||||
| For the Years Ended December 31, | ||||||||
| (sticks in millions) | 2017 | 2016 | 2015 | |||||
| Cigarettes: | ||||||||
| Marlboro | 99,974 | 105,297 | 108,113 | |||||
| Other premium | 5,967 | 6,382 | 6,753 | |||||
| Discount | 10,665 | 11,251 | 11,152 | |||||
| Total cigarettes | 116,606 | 122,930 | 126,018 | |||||
| Cigars: | ||||||||
| Black & Mild | 1,527 | 1,379 | 1,295 | |||||
| Other | 15 | 24 | 30 | |||||
| Total cigars | 1,542 | 1,403 | 1,325 | |||||
| Total smokeable products | 118,148 | 124,333 | 127,343 | |||||
Note: Cigarettes shipment volume includes Marlboro; Other premium brands, such as Virginia Slims, Parliament, and Benson & Hedges and Nat’s; and Discount brands, which include L&M, Basicand Basic. 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.United States 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 | Retail Share | ||||||||||||||||||||||||
| For the Years Ended December 31, | For the Years Ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2021 | 2020 | |||||||||||||||||||||
| Cigarettes: | Cigarettes: | ||||||||||||||||||||||||
| Marlboro | 43.3 | % | 43.7 | % | 43.8 | % | Marlboro | 43.1 | % | 42.9 | % | ||||||||||||||
| Other premium | 2.7 | 2.8 | 2.8 | Other premium | 2.3 | 2.3 | |||||||||||||||||||
| Discount | 4.7 | 4.6 | 4.5 | Discount | 3.4 | 3.9 | |||||||||||||||||||
| Total cigarettes | 50.7 | % | 51.1 | % | 51.1 | % | Total cigarettes | 48.8 | % | 49.1 | % | ||||||||||||||
Note: Retail share results for cigarettes are based on data from IRI/Management Science AssociateAssociates, 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.
2021 Compared with 2020
The smokeable products segment’s reported domestic cigarettes shipment volume decreased 7.5%, driven primarily by the industry’s rate of decline, trade inventory movements, retail share losses, calendar differences and other factors. When adjusted for trade inventory movements, calendar differences and other factors, the smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 6%. When adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volume decreased by an estimated 5.5%.
Shipments of premium cigarettes accounted for 93.0% and 92.1% of the smokeable products segment’s reported domestic cigarettes shipment volume for 2021 and 2020, respectively.
Total cigarettes industry discount category retail share increased 0.5 share points to 25.4% in 2021 versus 2020. For a discussion regarding discount category dynamics in 2021 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Tobacco Space - Business Environment - Summary above.
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Pricing Actions
PM USA and Middleton executed the following pricing and promotional allowance actions during 2017, 20162021 and 2015:2020:
▪Effective SeptemberDecember 12, 2021, PM USA increased the list price of Marlboro, L&M and Chesterfield by $0.15 per pack. In addition, PM USA increased the list price of all of its other cigarette brands by $0.20 per pack.
▪Effective August 15, 2021, PM USA increased the list price of Marlboro, L&M and Chesterfield by $0.14 per pack. In addition, PM USA increased the list price of all of its other cigarette brands by $0.17 per pack.
▪Effective January 24, 2017,2021, PM USA increased the list price on all of its cigarette brands by $0.10$0.14 per pack.
▪Effective May 21, 2017,January 10, 2021, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.10$0.07 per five-pack.
▪Effective March 19, 2017, PM USA increased the list price on Parliament by $0.12 per pack. In addition, PM USA increased the list price on all of its other cigarette brands by $0.08 per pack.
▪Effective November 15, 2015,June 21, 2020, PM USA increased the list price on all of its cigarette brands by $0.07$0.11 per pack.
▪Effective May 17, 2015,February 16, 2020, PM USA increased the list price on all of its cigarette brands by $0.07$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.
In addition:
▪Effective January 9, 2022, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.13 per five-pack.
Oral Tobacco Products Segment
Financial Results
The following discussion comparestable summarizes operating results, includes reported and adjusted OCI margins and provides a reconciliation of reported OCI to adjusted OCI for the smokeableoral tobacco products segment for the year ended December 31, 2017segment:
| Operating Results | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | |||||||||||||||
| Net revenues | $ | 2,608 | $ | 2,533 | |||||||||||||
| Excise taxes | (132) | (130) | |||||||||||||||
| Revenues net of excise taxes | $ | 2,476 | $ | 2,403 | |||||||||||||
| Reported OCI | $ | 1,659 | $ | 1,718 | |||||||||||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | 37 | (3) | |||||||||||||||
| COVID-19 special items | — | 9 | |||||||||||||||
| Adjusted OCI | $ | 1,696 | $ | 1,724 | |||||||||||||
Reported OCI margins (1) | 67.0 | % | 71.5 | % | |||||||||||||
Adjusted OCI margins (1) | 68.5 | % | 71.7 | % | |||||||||||||
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
2021 Compared with the year ended December 31, 2016.2020
Net revenues, which include excise taxes billed to customers, decreased $215increased $75 million (0.9%(3.0%), due primarily to lower higher pricing ($105 million), which includes higher promotional investments in on!, partially offset by volume and mix ($36 million) due primarily to a shift between MST and on! shipment volumes resulting in a higher percentage of 2021 on!volume versus 2020 (“volume/mix”).
Reported OCI decreased $59 million (3.4%) due primarily to higher costs ($1,27398 million), which include higher acquisition-related costs and COVID-19 special items in 2020, and volume/mix ($61 million), partially offset by higher pricing, which includes higher promotional investments.investments in on!.
41
Shipment Volume and benefit costs) and lower tobacco and health litigation items ($39 million). These factors were partially offset by lower shipment volume ($298 million), higher per unit settlement charges, costs in connection with the productivity initiative and facilities consolidation ($134 million) and NPM Adjustment Items in 2015 ($97 million).
The following table summarizes smokelessoral tobacco products segment shipment volume performance:
| Shipment Volume | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| (cans and packs in millions) | 2021 | 2020 | |||||||||||||||
| Copenhagen | 503.6 | 522.4 | |||||||||||||||
| Skoal | 197.4 | 208.5 | |||||||||||||||
Other (includes Red Seal and on!) | 119.3 | 88.7 | |||||||||||||||
| Total oral tobacco products | 820.3 | 819.6 | |||||||||||||||
Shipment Volume For the Years Ended December 31, | ||||||||
| (cans and packs in millions) | 2017 | 2016 | 2015 | |||||
| Copenhagen | 531.6 | 525.1 | 474.7 | |||||
| Skoal | 241.9 | 260.9 | 267.9 | |||||
Copenhagen and Skoal | 773.5 | 786.0 | 742.6 | |||||
| Other | 67.8 | 67.5 | 70.9 | |||||
| Total smokeless products | 841.3 | 853.5 | 813.5 | |||||
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.
The following table summarizes smokelessoral tobacco products segment retail share performance (excluding international volume):
Retail Share For the Years Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Copenhagen | 33.7 | % | 33.2 | % | 31.0 | % | ||
| Skoal | 16.7 | 18.1 | 19.4 | |||||
Copenhagen and Skoal | 50.4 | 51.3 | 50.4 | |||||
| Other | 3.3 | 3.4 | 3.7 | |||||
| Total smokeless products | 53.7 | % | 54.7 | % | 54.1 | % | ||
| Retail Share | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Copenhagen | 29.4 | % | 31.8 | % | |||||||||||||
| Skoal | 12.6 | 13.9 | |||||||||||||||
Other (includes Red Seal and on!) | 5.8 | 4.2 | |||||||||||||||
| Total oral tobacco products | 47.8 | % | 49.9 | % | |||||||||||||
Note: The oral tobacco products segment retail share results exclude international volume, which is currently not material. Retail share results for smokelessoral 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. SmokelessOral tobacco products is defined by IRI as moist smokelessMST, snus and spit-free tobacco products.oral nicotine pouches. New types of smokelessoral tobacco products, as well as new packaging configurations of existing smokelessoral 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.
2021 Compared with 2020
The oral tobacco products segment’s reported domestic shipment volume was essentially unchanged as the industry’s growth rate and trade inventory movements were essentially offset by retail share losses and calendar differences. When adjusted for trade inventory movements and calendar differences, the oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 0.5%.
Total oral tobacco products category industry volume increased by an estimated 2% over the six months ended December 31, 2021, driven by growth in oral nicotine pouches.
Retail share losses in the oral tobacco products segment, including Copenhagen, were due to the growth of oral nicotine pouches.
Total U.S. oral tobacco category share for on! nicotine pouches grew to 3.9% in the fourth quarter of 2021, an increase of 2.8 percentage points versus the fourth quarter of 2020.
In 2021, Helix achieved unconstrained on! manufacturing capacity for the current estimated size of the U.S. oral nicotine pouch category.
As of December 31, 2021, on! was available for sale in approximately 117,000 U.S. stores.
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Pricing Actions
USSTC executed the following pricing actions during 2017, 20162021 and 2015:2020:
▪Effective SeptemberOctober 26, 2017,2021, USSTC increased the list price on its Copenhagenand Skoal brands by $0.08 per can. USSTC also increased the list price on its Husky brand by $0.12 per can. In addition, USSTC decreased the price on its Red Seal brand by $0.17 per can.
▪Effective June 29, 2021, USSTC increased the list price on its Skoal Blend products by $0.46 per can. USSTC also increased the list price on its Red Seal and Copenhagen brands and the balance of its Skoal products by $0.05 per can. In addition, USSTC decreased the price on its Husky brand by $1.65 per can.
▪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.
▪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 $0.12$0.08 per can. In addition, USSTC increased the list price on allthe balance of its brands, except for Copenhagen and Skoal popular price products by $0.07 per can.
▪Effective April 25, 2017,July 21, 2020, USSTC increased the list price on all its Skoal Blend products by $0.15 per can. USSTC also increased the list price on its Husky, Red Seal and Copenhagenbrands and the balance of its Skoal products by $0.07 per can.
▪Effective December 6, 2016,February 18, 2020, USSTC increased the list price on Copenhagen and its Skoal popular price X-TRA products by $0.12$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.
In addition,addition:
▪Effective February 22, 2022, USSTC increased the list price on all its Copenhagen, Skoal and Red Sealbrands except for Copenhagen and Skoal popular price products, by $0.07$0.08 per can.
Wine Segment
Full-year 2021 results include wine business financial results for the period January 1, 2021 through September 30, 2021 as a result of the Ste. Michelle is a leading producer of Washington state wines, primarily Chateau Ste. Michelle, Columbia Crest 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, Torres and Villa Maria Estate wines and Champagne Nicolas Feuillatte in the United States. Key elements of Ste. Michelle’s strategy are expanded domestic distribution of its wines, especially in certain account categories such as restaurants, wholesale clubs, supermarkets, wine shops and mass merchandisers, and a focus on improving product mix to higher-priced, premium products.
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:
| For the Years Ended December 31, | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Net revenues | $ | 698 | $ | 746 | $ | 692 | |||||
| Operating companies income | $ | 147 | $ | 164 | $ | 152 | |||||
| Operating Results | |||||||||||||||||
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | |||||||||||||||
| Net revenues | $ | 494 | $ | 614 | |||||||||||||
| Excise taxes | (14) | (19) | |||||||||||||||
| Revenues net of excise taxes | $ | 480 | $ | 595 | |||||||||||||
| Reported OCI | $ | 21 | $ | (360) | |||||||||||||
| Asset impairment, exit, implementation, acquisition and disposition-related costs | 52 | 411 | |||||||||||||||
| Adjusted OCI | $ | 73 | $ | 51 | |||||||||||||
Reported OCI margins (1) | 4.4 | % | (60.5) | % | |||||||||||||
Adjusted OCI margins (1) | 15.2 | % | 8.6 | % | |||||||||||||
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
Net revenues, which include excise taxes billed to customers, decreased $48$120 million (6.4%(19.5%).
Reported OCI and adjusted OCI increased $381 million (100%+) and $22 million (43.1%), due primarily to lower shipment volume, partially offset by improved premium mix.respectively.
Reported OCI for the year ended December 31, 2015.2020 included inventory-related charges related to the strategic reset of the wine business (as discussed in Note 5).
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Liquidity and Capital Resources
Altria is a holding company that is primarily dependent on the capital resources of its subsidiaries to satisfy its liquidity requirements. Altria’s access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At December 31, 2021, 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 addition, Altria receives cash dividends on its interest in ABI and will continue to do so as long as ABI pays dividends.
At December 31, 2021, Altria had $4.5 billion of cash and cash equivalents. In addition to having access to the operating cash flows of its wholly owned subsidiaries, Altria’s capital resources include excise taxes billedaccess to customers, increased $54 million (7.8%), duecredit markets in the form of commercial paper, borrowings available under its $3.0 billion Credit Agreement (as defined below) and its access to credit markets through the issuance of long-term senior unsecured notes. For additional information, see Capital Markets and Other Matters below.
In addition to funding current operations, Altria primarily to higher shipment volume. Operating companies income increased $12 million (7.9%), due primarily to higher shipment volume and improved premium mix, partially offset by higher costs.
Altria believes its cash and cash equivalents balance, along with $3.8 billion during 2016. This increase was due primarilyits future cash flows from operations and capacity for borrowings through its access to the following:
Capital expenditures for 2017 increased 5.3% to $199 million, due primarily to the acquisition of the previously leased headquarters in Richmond, Virginia in 2017, partially offset by lower spending related to manufacturing. Capital expenditures for 2018 are expected to be in the range of $200 million to $250 million,Markets and are expected to be funded from operating cash flows. The increase in expected capital expenditures in 2018 compared with 2017 is due primarily to spending related to manufacturing.
Credit Ratings - Altria Group, Inc.’sAltria’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 Group, Inc.’s credit agreementthe Credit Agreement is discussed below. Seein Note 8. Short-Term Borrowings and Borrowing Arrangements to the discussionconsolidated financial statements in Item 1A regarding the potential adverse impact of certain events on Altria Group, Inc.’s credit ratings.8 (“Note 8”).
At December 31, 2017,2021, the credit ratings and outlook for Altria Group, Inc.’sAltria’s indebtedness by major credit rating agencies were:
Short-term Debt | Long-term Debt | Outlook | |||||||||||||||
| Moody’s | P-2 | A3 | Stable | ||||||||||||||
| Standard & Poor’s | Stable | ||||||||||||||||
Fitch Ratings Inc. | F2 | Stable | |||||||||||||||
Credit Lines- From time to time, Altria Group, Inc. has short-term borrowing needs to meet its working capital requirements arising from the timing of annual MSA payments, quarterly income tax payments and quarterly dividend payments, and generally uses its commercial paper program to meet those needs.
Any commercial paper issued by Altria Group, Inc. believesand borrowings under the lendersCredit Agreement are guaranteed by PM USA. For further discussion, see Supplemental Guarantor Financial Information below and Note 9.
Debt - At December 31, 2021 and 2020, Altria’s total debt was $28.0 billion and $29.5 billion, respectively.
In May 2021, Altria repaid in full its bank group will be willing4.75% senior unsecured notes in the aggregate principal amount of $1.5 billion at maturity.
In February 2021, Altria issued long-term senior unsecured notes in the aggregate principal amount of $5.5 billion (the “Notes”). The net proceeds from the Notes were used (i) to fund the purchase and ableredemption of certain unsecured notes and payment of related fees and expenses (as described below) and (ii) for other general corporate purposes.
During the first quarter of 2021, Altria (i) completed debt tender offers to advance fundspurchase for cash certain of its long-term senior unsecured notes in accordance with their legal obligations. See Item
All of Altria Group, Inc.’sAltria’s long-term debt was fixed-rate debtoutstanding at December 31, 20172021 and 2016.2020 was fixed-rate debt. The weighted-average coupon interest rate on total long-term debt was approximately 4.9%4.0% and 4.1% at December 31, 20172021 and 2016. 2020, respectively.
For further details on long-term debt, see Note 9.
44
Ste. Michelle Transaction - On October 1, 2021, UST received net cash proceeds of approximately $1.2 billion from the Ste. Michelle Transaction, which was used to partially fund the expansion of the January 2021 share repurchase program as discussed in Note 10. Capital Stock to the consolidated financial statements in Item 8 (“Note 10”).
In October 2017,2020, Altria Group, Inc. filed a registration statement on Form S-3 with the SEC, under which Altria Group, Inc. 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 AggregateOther Future Contractual Obligations
Altria Group, Inc. 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 Group, Inc. and certain of its subsidiaries had unused letters of credit obtained in the ordinary course of business and guarantees (including third-party guarantees) and a redeemable noncontrolling interest outstanding at December 31, 2017.2021. From time to time, subsidiaries of Altria Group, Inc. also issue lines of credit to affiliated entities. In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 19,9, PM USA has issued guarantees relating to Altria Group, Inc.’sAltria’s obligations under its outstanding debt securities, borrowings under the Credit Agreement and amounts outstanding under itsthe commercial paper program. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’sAltria’s liquidity.
| Payments Due | |||||||||||||||||||
| (in millions) | Total | 2018 | 2019 - 2020 | 2021 - 2022 | 2023 and Thereafter | ||||||||||||||
Long-term debt (1) | $ | 14,017 | $ | 864 | $ | 2,144 | $ | 3,400 | $ | 7,609 | |||||||||
Interest on borrowings (2) | 8,403 | 693 | 1,100 | 849 | 5,761 | ||||||||||||||
Operating leases (3) | 192 | 38 | 61 | 49 | 44 | ||||||||||||||
Purchase obligations: (4) | |||||||||||||||||||
| Inventory and production costs | 3,452 | 1,023 | 1,250 | 600 | 579 | ||||||||||||||
| Other | 634 | 456 | 159 | 19 | — | ||||||||||||||
| 4,086 | 1,479 | 1,409 | 619 | 579 | |||||||||||||||
Other long-term liabilities (5) | 2,084 | 78 | 166 | 194 | 1,646 | ||||||||||||||
| $ | 28,782 | $ | 3,152 | $ | 4,880 | $ | 5,111 | $ | 15,639 | ||||||||||
At December 31, 2021, Altria had $609 million of other purchase obligation commitments for marketing, capital expenditures, information technology and professional services, which occur through the ordinary course of business. Substantially all of these commitments are expected to be satisfied within 12 months. Accounts payable and accrued liabilities are excluded from the table above.
Payments Under State Settlement Agreements and FDA Regulation - As discussed previously and in Note 18, PM USA and Nat Sherman havehas entered into State Settlement Agreements with the states and territories of the United States that call for certain payments. In addition, PM USA, Middleton Nat Sherman 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 Group, Inc.’s subsidiaries account for the cost of the State Settlement Agreements and FDA user fees as a component of cost of sales. Altria Group, Inc.’s subsidiaries recorded approximately $4.7 billion, $4.9 billion and $4.8 billion of charges to cost of sales for the years ended December 31, 2017, 2016 and 2015, 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 Adjustmentadjustment provision under the MSA, see Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 18.
Based on current agreements, 2017estimated market share, and historicalestimated annual industry volume decline rates and inflation rates, the estimated amounts that Altria Group, Inc.’sAltria’s subsidiaries may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees approximate $4.8are $4.4 billion in 2018 and each year thereafter.on average for the next three years. These amounts exclude the potential impact of theany NPM Adjustment provision applicable under the MSA and the revised NPM Adjustment provisions applicable under the resolutions of the NPM Adjustment disputes.Items.
The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year wouldare 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. Altria’s subsidiaries paid approximately $4.7 billion and $4.5 billion for the years ended December 31, 2021 and 2020, respectively, in connection with the State Settlement Agreements and FDA user fees. 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, 2017,2021, PM USA had posted various forms of securityappeal bonds totaling approximately $61$50 million, the majority of which have been collateralized with restricted cash deposits. These cash deposits arethat 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 Group, Inc. in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 18, Item 3 and Item 1A, management expects cash flow from operations, together with Altria Group, Inc.’sAltria’s access to capital markets, to provide sufficient liquidity to meet ongoing business needs.
Other Long-Term Liabilities - Altria had $1.5 billion of accrued postretirement health care costs on its consolidated balance sheet at December 31, 2021 and estimates approximately $100 million of annual payments. In addition, Altria has accrued pension obligations, substantially all of which are funded from plan assets. For further information on Altria’s postretirement health care and pension
45
obligations, see Note 16. Altria is unable to estimate the timing of payments of other long-term liabilities (accrued postemployment costs, income taxes and tax contingencies, and other accruals) included on its consolidated balance sheet at December 31, 2021.
Equity and Dividends
As discussed in Note 11. Stock Plans to the consolidated financial statements in Item 8, during 20172021 Altria Group, Inc. granted an aggregate of 0.61.1 million restricted stock units and 0.2 million performance stock units to eligible employees.
At December 31, 2017,2021, the number of shares to be issued upon vesting of restricted stock units and performance stock units was not significant.
Dividends paid in 20172021 and 20162020 were approximately $4.8$6.4 billion and $4.5$6.3 billion, respectively, an increase of 6.5%2.5%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares repurchased by Altria Group, Inc.in 2021 under its share repurchase program.
Cash Provided by/Used in Operating Activities
During 2021, net cash provided by operating activities was $8.4 billion, essentially unchanged from 2020 as higher net revenues, net of excise taxes, in the smokeable products and oral tobacco products segments were mostly offset by higher settlement and income tax payments.
Altria had a working capital deficit at December 31, 2021 and 2020. 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 the credit markets.
Cash Provided by/Used in Investing Activities
During 2021, net cash provided by investing activities was $1.2 billion compared with net cash used in investing activities of $0.1 billion during 2020. This change was due primarily to proceeds from the Ste. Michelle Transaction, higher proceeds from finance asset sales and lower capital expenditures.
Capital expenditures for 2021 decreased 26.8% to $169 million. Capital expenditures were lower due primarily to the timing of projects and the sale of the wine business. Capital expenditures for 2022 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 2021, net cash used in financing activities was $10.0 billion compared with $5.4 billion during 2020. This increase was due primarily to the following:
▪repayment of $5.0 billion of Altria senior unsecured notes in connection with the 2021 debt tender offers and redemption and payments of $0.6 billion for the premiums and fees in connection with the debt tender offers described above and in Note 9;
▪proceeds of $2.0 billion from the issuance of long-term senior unsecured notes in 2020;
▪repayment of $1.5 billion in full of Altria senior unsecured notes at scheduled maturity in May 2021;
▪repurchases of common stock in 2021; and
▪higher dividends paid in 2021;
partially offset by:
▪proceeds of $5.5 billion from the issuance of long-term senior unsecured notes used to repurchase and redeem senior unsecured notes in connection with the 2021 debt tender offers and redemption; and
▪repayment of $1.0 billion in full of Altria senior unsecured notes at scheduled maturity in January 2020.
New Accounting Guidance Not Yet Adopted
See Note 2for a discussion of recently issued accounting guidance applicable to, but not yet adopted by, Altria Group, Inc.
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
▪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 S&P 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.
47
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)
| December 31, 2021 | |||||||||||||||||
| Parent | Guarantor | ||||||||||||||||
| Assets | |||||||||||||||||
| Due from Non-Guarantor Subsidiaries | $ | 25 | $ | 240 | |||||||||||||
| Other current assets | 4,635 | 874 | |||||||||||||||
| Total current assets | $ | 4,660 | $ | 1,114 | |||||||||||||
| Due from Non-Guarantor Subsidiaries | $ | 4,790 | $ | — | |||||||||||||
| Other assets | 11,195 | 1,764 | |||||||||||||||
| Total non-current assets | $ | 15,985 | $ | 1,764 | |||||||||||||
| Liabilities | |||||||||||||||||
| Due to Non-Guarantor Subsidiaries | $ | 1,179 | $ | 778 | |||||||||||||
| Other current liabilities | 3,339 | 4,452 | |||||||||||||||
| Total current liabilities | $ | 4,518 | $ | 5,230 | |||||||||||||
| Total non-current liabilities | $ | 28,865 | $ | 979 | |||||||||||||
Summarized Statements of Earnings (Losses)
(in millions of dollars)
| For the Year Ended December 31, 2021 | |||||||||||||||||
Parent (1) | Guarantor | ||||||||||||||||
| Net revenues | $ | — | $ | 21,848 | |||||||||||||
| Gross profit | — | 11,064 | |||||||||||||||
| Net earnings (losses) | (5,812) | 7,256 | |||||||||||||||
(1) For the year ended December 31, 2021, net earnings (losses) includes $231 million of intercompany interest income from non-guarantor subsidiaries.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Risk.
The fair value of Altria Group, Inc.’sAltria’s long-term debt, all of which is fixed-rate debt, is subject to fluctuations resulting from changes in market interest rates. A 1% increase in market interest rates at December 31, 2017 and 2016 would decreaseThe following table provides the fair value of Altria Group, Inc.’s totalAltria’s long-term debt by approximately $1.2 billion for each period. Aand the change in fair value based on a 1% increase or decrease in market interest rates at December 31, 2017 and 2016 would increase the fair value of Altria Group, Inc.’s total debt by approximately $1.3 billion and $1.4 billion, respectively.31:
| (in billions) | 2021 | 2020 | ||||||||||||
| Fair value | $ | 30.5 | $ | 34.7 | ||||||||||
| Decrease in fair value from a 1% increase in market interest rates | 2.7 | 2.7 | ||||||||||||
| Increase in fair value from a 1% decrease in market interest rates | 3.2 | 3.1 | ||||||||||||
Interest rates on borrowings under the Credit Agreement are expected to be based on LIBORthe London Interbank Offered Rate (“LIBOR”), or a fallback benchmark rate determined based on prevailing market convention, plus a percentage based on the higher of the ratings of Altria Group, Inc.’sAltria’s long-term senior unsecured debt from Moody’s and Standard & Poor’s.S&P. The applicable percentage based on Altria Group, Inc.’sAltria’s long-term senior unsecured debt ratings at December 31, 20172021 for borrowings under the Credit Agreement was 1.125%1.0%. At December 31, 2017,2021 and 2020, Altria Group, Inc. had no borrowings under the Credit Agreement.
48
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:
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in millions) | Fixed-price Preemptive Rights | Cronos Warrant | ||||||||||||||||||||||||
| Fair values | $ | 1 | $ | 24 | $ | 14 | $ | 139 | ||||||||||||||||||
| Change in fair value based on a 10% increase/decrease in the quoted market price of Cronos shares | — | 6 | 5 | 28 | ||||||||||||||||||||||
49
Item 8. Financial Statements and Supplementary Data.
Altria Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions of dollars)
________________________
| at December 31, | 2021 | 2020 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 4,544 | $ | 4,945 | |||||||
| Receivables | 47 | 137 | |||||||||
| Inventories: | |||||||||||
| Leaf tobacco | 744 | 844 | |||||||||
| Other raw materials | 166 | 200 | |||||||||
| Work in process | 23 | 502 | |||||||||
| Finished product | 261 | 420 | |||||||||
| 1,194 | 1,966 | ||||||||||
| Other current assets | 298 | 69 | |||||||||
| Total current assets | 6,083 | 7,117 | |||||||||
| Property, plant and equipment, at cost: | |||||||||||
| Land and land improvements | 123 | 348 | |||||||||
| Buildings and building equipment | 1,422 | 1,480 | |||||||||
| Machinery and equipment | 2,652 | 3,010 | |||||||||
| Construction in progress | 235 | 312 | |||||||||
| 4,432 | 5,150 | ||||||||||
| Less accumulated depreciation | 2,879 | 3,138 | |||||||||
| 1,553 | 2,012 | ||||||||||
| Goodwill | 5,177 | 5,177 | |||||||||
| Other intangible assets, net | 12,306 | 12,615 | |||||||||
| Investments in equity securities ($1,720 million and $1,868 million at December 31, 2021 and 2020, respectively, measured at fair value) | 13,481 | 19,529 | |||||||||
| Other assets | 923 | 964 | |||||||||
| Total Assets | $ | 39,523 | $ | 47,414 | |||||||
| at December 31, | 2017 | 2016 | |||||
| Assets | |||||||
| Cash and cash equivalents | $ | 1,253 | $ | 4,569 | |||
| Receivables | 142 | 151 | |||||
| Inventories: | |||||||
| Leaf tobacco | 941 | 892 | |||||
| Other raw materials | 170 | 164 | |||||
| Work in process | 560 | 512 | |||||
| Finished product | 554 | 483 | |||||
| 2,225 | 2,051 | ||||||
| Income taxes | 461 | 269 | |||||
| Other current assets | 263 | 220 | |||||
| Total current assets | 4,344 | 7,260 | |||||
| Property, plant and equipment, at cost: | |||||||
| Land and land improvements | 302 | 316 | |||||
| Buildings and building equipment | 1,437 | 1,481 | |||||
| Machinery and equipment | 2,975 | 2,917 | |||||
| Construction in progress | 165 | 121 | |||||
| 4,879 | 4,835 | ||||||
| Less accumulated depreciation | 2,965 | 2,877 | |||||
| 1,914 | 1,958 | ||||||
| Goodwill | 5,307 | 5,285 | |||||
| Other intangible assets, net | 12,400 | 12,036 | |||||
| Investment in AB InBev | 17,952 | 17,852 | |||||
| Finance assets, net | 899 | 1,028 | |||||
| Other assets | 386 | 513 | |||||
| Total Assets | $ | 43,202 | $ | 45,932 | |||
See notes to consolidated financial statements.
50
Altria Group, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
(in millions of dollars, except share and per share data)
| at December 31, | 2017 | 2016 | at December 31, | 2021 | 2020 | |||||||||||||
| Liabilities | Liabilities | |||||||||||||||||
| Current portion of long-term debt | $ | 864 | $ | — | Current portion of long-term debt | $ | 1,105 | $ | 1,500 | |||||||||
| Accounts payable | 374 | 425 | Accounts payable | 449 | 380 | |||||||||||||
| Accrued liabilities: | Accrued liabilities: | |||||||||||||||||
| Marketing | 695 | 747 | Marketing | 664 | 523 | |||||||||||||
| Employment costs | 188 | 289 | ||||||||||||||||
| Settlement charges | 2,442 | 3,701 | Settlement charges | 3,349 | 3,564 | |||||||||||||
| Other | 971 | 1,025 | Other | 1,365 | 1,494 | |||||||||||||
| Dividends payable | 1,258 | 1,188 | Dividends payable | 1,647 | 1,602 | |||||||||||||
| Total current liabilities | 6,792 | 7,375 | Total current liabilities | 8,579 | 9,063 | |||||||||||||
| Long-term debt | 13,030 | 13,881 | Long-term debt | 26,939 | 27,971 | |||||||||||||
| Deferred income taxes | 5,247 | 8,416 | Deferred income taxes | 3,692 | 4,532 | |||||||||||||
| Accrued pension costs | 445 | 805 | Accrued pension costs | 200 | 551 | |||||||||||||
| Accrued postretirement health care costs | 1,987 | 2,217 | Accrued postretirement health care costs | 1,436 | 1,951 | |||||||||||||
| Other liabilities | 283 | 427 | Other liabilities | 283 | 381 | |||||||||||||
| Total liabilities | 27,784 | 33,121 | Total liabilities | 41,129 | 44,449 | |||||||||||||
| Contingencies (Note 18) | Contingencies (Note 18) | 0 | 0 | |||||||||||||||
| Redeemable noncontrolling interest | 38 | 38 | Redeemable noncontrolling interest | — | 40 | |||||||||||||
| Stockholders’ Equity | ||||||||||||||||||
| Stockholders’ Equity (Deficit) | Stockholders’ Equity (Deficit) | |||||||||||||||||
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued) | 935 | 935 | Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued) | 935 | 935 | |||||||||||||
| Additional paid-in capital | 5,952 | 5,893 | Additional paid-in capital | 5,857 | 5,910 | |||||||||||||
| Earnings reinvested in the business | 42,251 | 36,906 | Earnings reinvested in the business | 30,664 | 34,679 | |||||||||||||
| Accumulated other comprehensive losses | (1,897 | ) | (2,052 | ) | Accumulated other comprehensive losses | (3,056) | (4,341) | |||||||||||
Cost of repurchased stock (904,702,125 shares at December 31, 2017 and 862,689,093 shares at December 31, 2016) | (31,864 | ) | (28,912 | ) | ||||||||||||||
| Total stockholders’ equity attributable to Altria Group, Inc. | 15,377 | 12,770 | ||||||||||||||||
Cost of repurchased stock (982,785,699 shares at December 31, 2021 and 947,542,152 shares at December 31, 2020) | Cost of repurchased stock (982,785,699 shares at December 31, 2021 and 947,542,152 shares at December 31, 2020) | (36,006) | (34,344) | |||||||||||||||
| Total stockholders’ equity (deficit) attributable to Altria | Total stockholders’ equity (deficit) attributable to Altria | (1,606) | 2,839 | |||||||||||||||
| Noncontrolling interests | 3 | 3 | Noncontrolling interests | — | 86 | |||||||||||||
| Total stockholders’ equity | 15,380 | 12,773 | ||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 43,202 | $ | 45,932 | ||||||||||||||
| Total stockholders’ equity (deficit) | Total stockholders’ equity (deficit) | (1,606) | 2,925 | |||||||||||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | Total Liabilities and Stockholders’ Equity (Deficit) | $ | 39,523 | $ | 47,414 | |||||||||||||
See notes to consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Earnings (Losses)
(in millions of dollars, except per share data)
| for the years ended December 31, | 2021 | 2020 | 2019 | ||||||||||||||
| Net revenues | $ | 26,013 | $ | 26,153 | $ | 25,110 | |||||||||||
| Cost of sales | 7,119 | 7,818 | 7,085 | ||||||||||||||
| Excise taxes on products | 4,902 | 5,312 | 5,314 | ||||||||||||||
| Gross profit | 13,992 | 13,023 | 12,711 | ||||||||||||||
| Marketing, administration and research costs | 2,432 | 2,154 | 2,226 | ||||||||||||||
| Asset impairment and exit costs | — | (4) | 159 | ||||||||||||||
| Operating income | 11,560 | 10,873 | 10,326 | ||||||||||||||
| Interest and other debt expense, net | 1,162 | 1,209 | 1,280 | ||||||||||||||
| Net periodic benefit income, excluding service cost | (202) | (77) | (37) | ||||||||||||||
| Loss on early extinguishment of debt | 649 | — | — | ||||||||||||||
| (Income) losses from equity investments | 5,979 | 111 | (1,725) | ||||||||||||||
| Impairment of JUUL equity securities | — | 2,600 | 8,600 | ||||||||||||||
| Loss on Cronos-related financial instruments | 148 | 140 | 1,442 | ||||||||||||||
| Earnings before income taxes | 3,824 | 6,890 | 766 | ||||||||||||||
| Provision for income taxes | 1,349 | 2,436 | 2,064 | ||||||||||||||
| Net earnings (losses) | 2,475 | 4,454 | (1,298) | ||||||||||||||
| Net losses attributable to noncontrolling interests | — | 13 | 5 | ||||||||||||||
| Net earnings (losses) attributable to Altria | $ | 2,475 | $ | 4,467 | $ | (1,293) | |||||||||||
| Per share data: | |||||||||||||||||
| Basic and diluted earnings (losses) per share attributable to Altria | $ | 1.34 | $ | 2.40 | $ | (0.70) | |||||||||||
| for the years ended December 31, | 2017 | 2016 | 2015 | ||||||||
| Net revenues | $ | 25,576 | $ | 25,744 | $ | 25,434 | |||||
| Cost of sales | 7,543 | 7,746 | 7,740 | ||||||||
| Excise taxes on products | 6,082 | 6,407 | 6,580 | ||||||||
| Gross profit | 11,951 | 11,591 | 11,114 | ||||||||
| Marketing, administration and research costs | 2,362 | 2,650 | 2,708 | ||||||||
| Reduction of PMI tax-related receivable | — | — | 41 | ||||||||
| Asset impairment and exit costs | 33 | 179 | 4 | ||||||||
| Operating income | 9,556 | 8,762 | 8,361 | ||||||||
| Interest and other debt expense, net | 705 | 747 | 817 | ||||||||
| Loss on early extinguishment of debt | — | 823 | 228 | ||||||||
| Earnings from equity investment in AB InBev/SABMiller | (532 | ) | (795 | ) | (757 | ) | |||||
| Gain on AB InBev/SABMiller business combination | (445 | ) | (13,865 | ) | (5 | ) | |||||
| Earnings before income taxes | 9,828 | 21,852 | 8,078 | ||||||||
| (Benefit) provision for income taxes | (399 | ) | 7,608 | 2,835 | |||||||
| Net earnings | 10,227 | 14,244 | 5,243 | ||||||||
| Net earnings attributable to noncontrolling interests | (5 | ) | (5 | ) | (2 | ) | |||||
| Net earnings attributable to Altria Group, Inc. | $ | 10,222 | $ | 14,239 | $ | 5,241 | |||||
| Per share data: | |||||||||||
| Basic and diluted earnings per share attributable to Altria Group, Inc. | $ | 5.31 | $ | 7.28 | $ | 2.67 | |||||
See notes to consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Earnings (Losses)
(in millions of dollars)
_______________________
| for the years ended December 31, | 2021 | 2020 | 2019 | |||||||||||||||||
| Net earnings (losses) | $ | 2,475 | $ | 4,454 | $ | (1,298) | ||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes: | ||||||||||||||||||||
| Benefit plans | 808 | (228) | (24) | |||||||||||||||||
| ABI | 426 | (1,245) | (319) | |||||||||||||||||
| Currency translation adjustments and other | 51 | (4) | 26 | |||||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | 1,285 | (1,477) | (317) | |||||||||||||||||
| Comprehensive earnings (losses) | 3,760 | 2,977 | (1,615) | |||||||||||||||||
| Comprehensive losses attributable to noncontrolling interests | — | 13 | 5 | |||||||||||||||||
| Comprehensive earnings (losses) attributable to Altria | $ | 3,760 | $ | 2,990 | $ | (1,610) | ||||||||||||||
| for the years ended December 31, | 2017 | 2016 | 2015 | |||||||||
| Net earnings | $ | 10,227 | $ | 14,244 | $ | 5,243 | ||||||
| Other comprehensive earnings (losses), net of deferred income taxes: | ||||||||||||
| Currency translation adjustments | — | 1 | (3 | ) | ||||||||
| Benefit plans | 209 | (38 | ) | 30 | ||||||||
| AB InBev/SABMiller | (54 | ) | 1,265 | (625 | ) | |||||||
| Other comprehensive earnings (losses), net of deferred income taxes | 155 | 1,228 | (598 | ) | ||||||||
| Comprehensive earnings | 10,382 | 15,472 | 4,645 | |||||||||
| Comprehensive earnings attributable to noncontrolling interests | (5 | ) | (5 | ) | (2 | ) | ||||||
| Comprehensive earnings attributable to Altria Group, Inc. | $ | 10,377 | $ | 15,467 | $ | 4,643 | ||||||
See notes to consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions of dollars)
__________________
| for the years ended December 31, | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Cash Provided by (Used in) Operating Activities | |||||||||||||||||||||||
| Net earnings (losses) | $ | 2,475 | $ | 4,454 | $ | (1,298) | |||||||||||||||||
| Adjustments to reconcile net earnings (losses) to operating cash flows: | |||||||||||||||||||||||
| Depreciation and amortization | 244 | 257 | 226 | ||||||||||||||||||||
| Deferred income tax benefit | (1,160) | (164) | (95) | ||||||||||||||||||||
| (Income) losses from equity investments | 5,979 | 111 | (1,725) | ||||||||||||||||||||
| Dividends from ABI | 119 | 108 | 396 | ||||||||||||||||||||
| Loss on Cronos-related financial instruments | 148 | 140 | 1,442 | ||||||||||||||||||||
| Impairment of JUUL equity securities | — | 2,600 | 8,600 | ||||||||||||||||||||
| Loss on early extinguishment of debt | 649 | — | — | ||||||||||||||||||||
Cash effects of changes: (1) | |||||||||||||||||||||||
| Receivables | (18) | 20 | (8) | ||||||||||||||||||||
| Inventories | 57 | 2 | 42 | ||||||||||||||||||||
| Accounts payable | 163 | 53 | (79) | ||||||||||||||||||||
| Income taxes | (149) | (29) | 89 | ||||||||||||||||||||
| Accrued liabilities and other current assets | 165 | (15) | 11 | ||||||||||||||||||||
| Accrued settlement charges | (215) | 218 | (108) | ||||||||||||||||||||
| Pension plan contributions | (26) | (33) | (56) | ||||||||||||||||||||
| Pension provisions and postretirement, net | (175) | (49) | (52) | ||||||||||||||||||||
Other, net (2) | 149 | 712 | 452 | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | 8,405 | 8,385 | 7,837 | ||||||||||||||||||||
| Cash Provided by (Used in) Investing Activities | |||||||||||||||||||||||
| Capital expenditures | (169) | (231) | (246) | ||||||||||||||||||||
| Acquisitions of businesses and assets | — | — | (421) | ||||||||||||||||||||
| Investment in Cronos | — | — | (1,899) | ||||||||||||||||||||
| Proceeds from the Ste. Michelle Transaction, net of cash transferred | 1,176 | — | — | ||||||||||||||||||||
| Other, net | 205 | 88 | 168 | ||||||||||||||||||||
| Net cash provided by (used in) investing activities | 1,212 | (143) | (2,398) | ||||||||||||||||||||
| for the years ended December 31, | 2017 | 2016 | 2015 | ||||||||||
| Cash Provided by (Used in) Operating Activities | |||||||||||||
| Net earnings | $ | 10,227 | $ | 14,244 | $ | 5,243 | |||||||
| Adjustments to reconcile net earnings to operating cash flows: | |||||||||||||
| Depreciation and amortization | 209 | 204 | 225 | ||||||||||
| Deferred income tax (benefit) provision | (3,126 | ) | 3,119 | (132 | ) | ||||||||
| Earnings from equity investment in AB InBev/SABMiller | (532 | ) | (795 | ) | (757 | ) | |||||||
| Gain on AB InBev/SABMiller business combination | (445 | ) | (13,865 | ) | (5 | ) | |||||||
| Dividends from AB InBev/SABMiller | 806 | 739 | 495 | ||||||||||
| Asset impairment and exit costs, net of cash paid | (38 | ) | 106 | 1 | |||||||||
| Loss on early extinguishment of debt | — | 823 | 228 | ||||||||||
| Cash effects of changes: | |||||||||||||
| Receivables | 10 | (27 | ) | 3 | |||||||||
| Inventories | (171 | ) | (34 | ) | (33 | ) | |||||||
| Accounts payable | (55 | ) | 24 | 26 | |||||||||
| Income taxes | (294 | ) | (231 | ) | (12 | ) | |||||||
| Accrued liabilities and other current assets | (85 | ) | (113 | ) | 184 | ||||||||
| Accrued settlement charges | (1,259 | ) | 111 | 90 | |||||||||
| Pension and postretirement plans contributions | (294 | ) | (531 | ) | (28 | ) | |||||||
| Pension provisions and postretirement, net | (11 | ) | (73 | ) | 114 | ||||||||
| Other | (20 | ) | 120 | 201 | |||||||||
| Net cash provided by operating activities | 4,922 | 3,821 | 5,843 | ||||||||||
| Cash Provided by (Used in) Investing Activities | |||||||||||||
| Capital expenditures | (199 | ) | (189 | ) | (229 | ) | |||||||
| Acquisitions of businesses and assets | (415 | ) | (45 | ) | — | ||||||||
| Proceeds from finance assets | 133 | 231 | 354 | ||||||||||
| Proceeds from AB InBev/SABMiller business combination | — | 4,773 | — | ||||||||||
| Purchase of AB InBev ordinary shares | — | (1,578 | ) | — | |||||||||
| Payment for derivative financial instruments | (5 | ) | (3 | ) | (132 | ) | |||||||
| Proceeds from derivative financial instruments | — | 510 | — | ||||||||||
| Other | 19 | 9 | (8 | ) | |||||||||
| Net cash (used in) provided by investing activities | (467 | ) | 3,708 | (15 | ) | ||||||||
| Cash Provided by (Used in) Financing Activities | |||||||||||||
| Long-term debt issued | — | 1,976 | — | ||||||||||
| Long-term debt repaid | — | (933 | ) | (1,793 | ) | ||||||||
| Repurchases of common stock | (2,917 | ) | (1,030 | ) | (554 | ) | |||||||
| Dividends paid on common stock | (4,807 | ) | (4,512 | ) | (4,179 | ) | |||||||
| Premiums and fees related to early extinguishment of debt | — | (809 | ) | (226 | ) | ||||||||
| Other | (47 | ) | (21 | ) | (28 | ) | |||||||
| Net cash used in financing activities | (7,771 | ) | (5,329 | ) | (6,780 | ) | |||||||
| Cash and cash equivalents: | |||||||||||||
| (Decrease) increase | (3,316 | ) | 2,200 | (952 | ) | ||||||||
| Balance at beginning of year | 4,569 | 2,369 | 3,321 | ||||||||||
| Balance at end of year | $ | 1,253 | $ | 4,569 | $ | 2,369 | |||||||
| Cash paid: Interest | $ | 696 | $ | 775 | $ | 776 | |||||||
| Income taxes | $ | 3,036 | $ | 4,664 | $ | 3,029 | |||||||
(2) 2020 primarily reflects inventory-related amounts associated with the wine business strategic reset. For further discussion, see Note 5. Asset Impairment, Exit and Implementation Costs.
See notes to consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
__________________
| for the years ended December 31, | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Cash Provided by (Used in) Financing Activities | |||||||||||||||||||||||
| Proceeds from short-term borrowings | $ | — | $ | 3,000 | $ | — | |||||||||||||||||
| Repayment of short-term borrowings | — | (3,000) | (12,800) | ||||||||||||||||||||
| Long-term debt issued | 5,472 | 1,993 | 16,265 | ||||||||||||||||||||
| Long-term debt repaid | (6,542) | (1,000) | (1,144) | ||||||||||||||||||||
| Repurchases of common stock | (1,675) | — | (845) | ||||||||||||||||||||
| Dividends paid on common stock | (6,446) | (6,290) | (6,069) | ||||||||||||||||||||
| Premiums and fees related to early extinguishment of debt | (623) | — | — | ||||||||||||||||||||
| Other, net | (215) | (99) | (119) | ||||||||||||||||||||
| Net cash provided by (used in) financing activities | (10,029) | (5,396) | (4,712) | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||||||||||||||
| Increase (decrease) | (412) | 2,846 | 727 | ||||||||||||||||||||
| Balance at beginning of year | 5,006 | 2,160 | 1,433 | ||||||||||||||||||||
| Balance at end of year | $ | 4,594 | $ | 5,006 | $ | 2,160 | |||||||||||||||||
| Cash paid: | Interest | $ | 1,189 | $ | 1,246 | $ | 991 | ||||||||||||||||
| Income taxes | $ | 2,673 | $ | 2,616 | $ | 1,977 | |||||||||||||||||
| The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s consolidated balance sheets: | |||||||||||||||||||||||
| at December 31, | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Cash and cash equivalents | $ | 4,544 | $ | 4,945 | $ | 2,117 | |||||||||||||||||
Restricted cash included in other current assets (1) | — | 1 | — | ||||||||||||||||||||
Restricted cash included in other assets (1) | 50 | 60 | 43 | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 4,594 | $ | 5,006 | $ | 2,160 | |||||||||||||||||
(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.
55
Altria Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
(in millions of dollars, except per share data)
| Attributable to Altria | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Earnings Reinvested in the Business | Accumulated Other Comprehensive Losses | Cost of Repurchased Stock | Non- controlling Interests | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||
| Balances, December 31, 2018 | $ | 935 | $ | 5,961 | $ | 43,962 | $ | (2,547) | $ | (33,524) | $ | 2 | $ | 14,789 | |||||||||||||||||||||||||||
Net earnings (losses) (1) | — | — | (1,293) | — | — | (7) | (1,300) | ||||||||||||||||||||||||||||||||||
Other comprehensive earnings (losses), net of deferred income taxes | — | — | — | (317) | — | — | (317) | ||||||||||||||||||||||||||||||||||
| Stock award activity | — | 9 | — | — | 11 | — | 20 | ||||||||||||||||||||||||||||||||||
| Cash dividends declared ($3.28 per share) | — | — | (6,130) | — | — | — | (6,130) | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | (845) | — | (845) | ||||||||||||||||||||||||||||||||||
Other (2) | — | — | — | — | — | 102 | 102 | ||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | 935 | 5,970 | 36,539 | (2,864) | (34,358) | 97 | 6,319 | ||||||||||||||||||||||||||||||||||
Net earnings (losses) (1) | — | — | 4,467 | — | — | (16) | 4,451 | ||||||||||||||||||||||||||||||||||
Other comprehensive earnings (losses), net of deferred income taxes | — | — | — | (1,477) | — | — | (1,477) | ||||||||||||||||||||||||||||||||||
| Stock award activity | — | 13 | — | — | 14 | — | 27 | ||||||||||||||||||||||||||||||||||
| Cash dividends declared ($3.40 per share) | — | — | (6,327) | — | — | — | (6,327) | ||||||||||||||||||||||||||||||||||
Other (2) | — | (73) | — | — | — | 5 | (68) | ||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | 935 | 5,910 | 34,679 | (4,341) | (34,344) | 86 | 2,925 | ||||||||||||||||||||||||||||||||||
Net earnings (losses) (1) | — | — | 2,475 | — | — | (4) | 2,471 | ||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | — | — | — | 1,285 | — | — | 1,285 | ||||||||||||||||||||||||||||||||||
| Stock award activity | — | 24 | — | — | 13 | — | 37 | ||||||||||||||||||||||||||||||||||
| Cash dividends declared ($3.52 per share) | — | — | (6,490) | — | — | — | (6,490) | ||||||||||||||||||||||||||||||||||
| Repurchases of common stock | — | — | — | — | (1,675) | — | (1,675) | ||||||||||||||||||||||||||||||||||
Other (2) | — | (77) | — | — | — | (82) | (159) | ||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | 935 | $ | 5,857 | $ | 30,664 | $ | (3,056) | $ | (36,006) | $ | — | $ | (1,606) | |||||||||||||||||||||||||||
| Attributable to Altria Group, Inc. | |||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Earnings Reinvested in the Business | Accumulated Other Comprehensive Losses | Cost of Repurchased Stock | Non- controlling Interests | Total Stockholders’ Equity | |||||||||||||||||||||
| Balances, December 31, 2014 | $ | 935 | $ | 5,735 | $ | 26,277 | $ | (2,682 | ) | $ | (27,251 | ) | $ | (4 | ) | $ | 3,010 | ||||||||||
Net earnings (losses) (1) | — | — | 5,241 | — | — | (3 | ) | 5,238 | |||||||||||||||||||
Other comprehensive losses, net of deferred income taxes | — | — | — | (598 | ) | — | — | (598 | ) | ||||||||||||||||||
| Stock award activity | — | 78 | — | — | (40 | ) | — | 38 | |||||||||||||||||||
| Cash dividends declared ($2.17 per share) | — | — | (4,261 | ) | — | — | — | (4,261 | ) | ||||||||||||||||||
| Repurchases of common stock | — | — | — | — | (554 | ) | — | (554 | ) | ||||||||||||||||||
| Balances, December 31, 2015 | 935 | 5,813 | 27,257 | (3,280 | ) | (27,845 | ) | (7 | ) | 2,873 | |||||||||||||||||
Net earnings (1) | — | — | 14,239 | — | — | — | 14,239 | ||||||||||||||||||||
Other comprehensive earnings, net of deferred income taxes | — | — | — | 1,228 | — | — | 1,228 | ||||||||||||||||||||
| Stock award activity | — | 90 | — | — | (37 | ) | — | 53 | |||||||||||||||||||
| Cash dividends declared ($2.35 per share) | — | — | (4,590 | ) | — | — | — | (4,590 | ) | ||||||||||||||||||
| Repurchases of common stock | — | — | — | — | (1,030 | ) | — | (1,030 | ) | ||||||||||||||||||
| Other | — | (10 | ) | — | — | — | 10 | — | |||||||||||||||||||
| Balances, December 31, 2016 | 935 | 5,893 | 36,906 | (2,052 | ) | (28,912 | ) | 3 | 12,773 | ||||||||||||||||||
Net earnings (1) | — | — | 10,222 | — | — | — | 10,222 | ||||||||||||||||||||
Other comprehensive earnings, net of deferred income taxes | — | — | — | 155 | — | — | 155 | ||||||||||||||||||||
| Stock award activity | — | 59 | — | — | (35 | ) | — | 24 | |||||||||||||||||||
| Cash dividends declared ($2.54 per share) | — | — | (4,877 | ) | — | — | — | (4,877 | ) | ||||||||||||||||||
| Repurchases of common stock | — | — | — | — | (2,917 | ) | — | (2,917 | ) | ||||||||||||||||||
| Balances, December 31, 2017 | $ | 935 | $ | 5,952 | $ | 42,251 | $ | (1,897 | ) | $ | (31,864 | ) | $ | 3 | $ | 15,380 | |||||||||||
(1) Amounts attributable to noncontrolling interests for each of the years ended December 31, 2017, 20162021, 2020 and 20152019 exclude net earnings of $5$4 million, $3 million and $2 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 consolidated balance sheets at December 31, 2017, 2016sheets.
(2) Includes the purchase of an 80% noncontrolling interest in Helix in 2019 and 2015. Seethe remaining noncontrolling interest in Helix ROW and Helix in 2020 and 2021, respectively. For additional information, see Note 18.1. Background and Basis of Presentation.
See notes to consolidated financial statements.
Altria Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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, 2017, Altria Group, Inc.’s wholly-owned2021, 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; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly-ownedwholly owned subsidiary of PM USA; Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), which are engaged in the manufacture and sale of super premium cigarettes and the sale of premium cigars; and UST LLC (“UST”), which through its wholly-owned subsidiaries, includingwholly owned subsidiary 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”) and wine. Altria Group, Inc.’s other operating companies included Nu Marksnus products; Helix Innovations LLC (“Nu Mark”Helix”), a wholly-owned subsidiary that iswhich operates in the United States and Canada, and Helix Innovations GmbH and its subsidiaries (“Helix ROW”), which operate internationally in the rest-of-world, are engaged in the manufacture and sale of innovative tobacco products,on! oral nicotine pouches; and Philip Morris Capital Corporation (“PMCC”), a wholly-owned subsidiary thatwhich maintains a portfolio of finance assets, substantially all of which are leveraged leases. Other Altria Group, Inc. wholly-ownedwholly owned subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria Group, Inc. operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria Group, Inc. and its subsidiaries. Altria Group, Inc.’sAltria. Altria’s access to the operating cash flows of its wholly-ownedwholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At December 31, 2017, Altria Group, Inc.’s principal wholly-owned2021, Altria’s significant wholly owned subsidiaries were not limited by long-term debt or other agreementscontractual 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 that are engaged in the manufacture and sale of on! oral nicotine pouches. At closing, Altria Group, Inc. accountedowned an 80% interest in Helix, for underwhich Altria paid $353 million. At December 31, 2021, Altria owned 100% of the global on! business as a result of transactions in December 2020 and April 2021 to purchase the remaining 20% interest in (i) Helix ROW and (ii) Helix, respectively. The total purchase price of the December 2020 and April 2021 transactions was approximately $250 million.
At December 31, 2021, Altria’s investments in equity methodsecurities consisted of accounting. In October 2016, Anheuser-Busch InBev SA/NV (“Legacy AB InBev”ABI”) completed its business combination with SABMiller, and Altria, Cronos Group Inc. received cash(“Cronos”) and shares representing a 9.6% ownershipJUUL Labs, Inc. (“JUUL”). Altria accounts for its investments in the combined company (the “Transaction”). The newly formed Belgian company, which retained the name Anheuser-Busch InBev SA/NV (“AB InBev”), became the holding company for the combined businesses. Subsequently, Altria Group, Inc. purchased approximately 12 million ordinary shares of AB InBev, increasing Altria Group, Inc.’s ownership to approximately 10.2% at December 31, 2016. At December 31, 2017, Altria Group, Inc. had an approximate 10.2% ownership of AB InBev, which Altria Group, Inc. accounts forABI and Cronos under the equity method of accounting using a one-quarter lag. As a result of the one-quarter lag and the timing of the completion of the Transaction, no earnings from Altria Group, Inc.’saccounts for its equity investment in AB InBev were recorded forJUUL under the year
fair value option.▪Basis of Presentation: The consolidated financial statements include Altria, Group, Inc., as well as its wholly-ownedwholly owned and majority-owned subsidiaries. Investments in equity securities in which Altria Group, Inc. 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.accounting or the fair value option. 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 (“U.S. 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 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, marketing programs and income taxes, and the allowance for losses and estimated residual values of finance leases.taxes. Actual results could differ from those estimates.
Certain immaterial prior year amounts have been reclassified to conform with the current year’s presentation due primarily topresentation.
On January 1, 2021, Altria Group, Inc.’s 2017 adoption ofadopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2016-09, Compensation2019-12”). This guidance removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU No. 2019-12 did not have a material impact on Altria’s consolidated financial statements.
Additionally, on January 1, 2021, Altria adopted ASU No. 2020-01, Investments - Stock CompensationEquity Securities (Topic 718)321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Improvements to Employee Share-Based Payment AccountingClarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU No. 2016-09”2020-01”). For further discussion, see Note 11. Stock Plans.This 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 adoption of ASU No. 2020-01 did not have a material impact on Altria’s consolidated financial statements.
57
Note 2. Summary of Significant Accounting Policies
▪Cash and Cash Equivalents: Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.
▪Depreciation, Amortization and Impairment Testing and Asset Valuation: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 Group, Inc. 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 Group, Inc. 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
Altria Group, Inc. 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 Group, Inc. 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 implied fair value.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.value in the period identified.
▪Derivative Financial Instruments: In November 2017, Altria Group, Inc. adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands hedge accounting for both financial and nonfinancial risk components to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the guidance includes certain targeted improvements to simplify the application of hedge accounting. At adoption, Altria Group, Inc. had no derivative or nonderivative financial instruments designated in hedging relationships. Adoption of the guidance had no impact on prior years.
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 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 Group, Inc.’s economic interest in the underlying foreign entity decreases.accounting. 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 achieving the offsetting changes in the fair value of the hedged risk during the period that the hedge is designated. Altria Group, Inc. 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 willwould 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 statementsstatement of earnings (losses) each period. Altria Group, Inc. does not enter into or hold derivative financial instruments for trading or speculative purposes.
▪Employee Benefit Plans: Altria Group, Inc. provides a range of benefits to itscertain employees and retired employees, including pension, postretirement health care and postemployment benefits. Altria Group, Inc. records annual amounts relating to these plans based on calculations
58
specified by U.S. 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 Group, Inc. recognizes the funded status of its defined benefit pension and other postretirement plans on the consolidated balance sheetsheets 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 Group, Inc. is subject to laws and regulations relating to the protection of the environment. Altria Group, Inc. 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 Group, Inc.’sAltria’s consolidated results of operations, capital expenditures, financial position or cash flows (seeflows. See Note 18. Contingencies - Environmental Regulation).
▪Fair Value Measurements: Altria Group, Inc. 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 Group, Inc. 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 1Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2Observable 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. Level 3Unobservable inputs that are supported by little or no market activity and that are significant |
▪Guarantees: Altria Group, Inc. recognizes a liability for the fair value of the obligation of qualifying guarantee activities. See Note 18. Contingencies for a further discussion of guarantees.
▪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 Group, Inc. records a valuation allowance when it is more-likely-than-notmore likely than not that some portion or all of a deferred tax asset will not be realized. Altria determines the realizability of deferred tax assets based on the weight of all available positive and negative evidence. In reaching this determination, Altria considers the character of the assets and the possible sources of taxable income of the appropriate character within the available carryback and carryforward periods available under the tax law.
Altria Group, Inc. recognizes athe financial statement benefit for uncertain income tax positions when a taxit is more likely than not, based on the technical merits, that the position taken or expected to be taken in a tax return is more-likely-than-not towill 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 Group, Inc. recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes in its consolidated statements of earnings.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 81% and 59% of inventories at December 31, 2021 and 2020, respectively, was determined using the LIFO method. The increase in LIFO percentage was due to the Ste. Michelle Transaction (as Ste. Michelle accounted for its inventory using FIFO). The stated LIFO amounts of inventories were approximately $0.6 billion lower than the current cost of inventories at December 31, 2021 and 2020.
▪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 (income) 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
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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) losses 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 sheets at December 31, 2021 and 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 Group, Inc. 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.earnings (losses). See Note 18. Contingencies.
▪Marketing Costs: Altria Group, Inc.’s Altria’s businesses promote their products with consumer incentives, trade promotions and consumer engagement programs,programs. These consumer incentivesincentive and trade promotions. Such programspromotion activities, which include discounts, coupons, rebates, in-store display incentives event marketing and volume-based incentives. Consumer engagement programsincentives, do not create a distinct deliverable and are, expensed as incurred. Consumer incentive and trade promotion activities aretherefore, 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 exclude from the transaction price sales taxes and value-added taxes imposed at the time of sale.
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,period) based principally on historical volume, utilization and redemption rates. For interim reporting purposes, consumer engagement programs and certain consumer incentive expenses are charged to operations as a percentage of sales, based on estimated sales and related expensesExpected payments for the full year.
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▪Stock-Based Compensation: Altria Group, Inc. measures compensation cost for all stock-based awards at fair value on date of grant, net of estimated forfeitures, and recognizes compensation expense over the service periods for awards expected to vest.
Altria:
| Standards | Description | Effective Date for Public Entity | Effect on Financial Statements | ||||||||
ASU 2020-06 Accounting for | |||||||||||
| The guidance | The guidance is effective for | ||||||||||
ASU | The guidance | The guidance is effective for | |||||||||
Note 3. Revenues from Contracts with Customers
Altria disaggregates net revenues based on product type. For further discussion, see Note 15. Segment Reporting.
In 2020, a majority of Altria’s businesses offered cash discounts to customers for prompt payment and calculated cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms. Beginning in the first quarter of 2021 for USSTC and in the third quarter of 2021 for PM USA, cash discounts were calculated as a flat rate per unit, based on agreed-upon payment terms. Altria’s businesses record receivables net of the cash discounts on Altria’s consolidated balance sheets.
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 $287 million and $301 million at December 31, 2021 and 2020, 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, 2021 and 2020, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.
Receivables were $47 million and $137 million at December 31, 2021 and 2020, respectively; the decrease was due primarily to the Ste. Michelle Transaction. At December 31, 2021 and 2020, 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.
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.
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Note 4. Goodwill and Other Intangible Assets, net
Goodwill and other intangible assets, net, by segment were as follows:follows at December 31:
| Goodwill | Other Intangible Assets, net | Goodwill | Other Intangible Assets, net | |||||||||||||||||||||||||||||||||||
| (in millions) | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Smokeable products | $ | 99 | $ | 77 | $ | 3,054 | $ | 2,901 | Smokeable products | $ | 99 | $ | 99 | $ | 3,017 | $ | 3,044 | |||||||||||||||||||||
| Smokeless products | 5,023 | 5,023 | 8,827 | 8,829 | ||||||||||||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | 5,078 | 5,078 | 9,129 | 9,164 | |||||||||||||||||||||||||||||||||
| Wine | 74 | 74 | 294 | 295 | Wine | — | — | — | 237 | |||||||||||||||||||||||||||||
| Other | 111 | 111 | 225 | 11 | Other | — | — | 160 | 170 | |||||||||||||||||||||||||||||
| Total | $ | 5,307 | $ | 5,285 | $ | 12,400 | $ | 12,036 | Total | $ | 5,177 | $ | 5,177 | $ | 12,306 | $ | 12,615 | |||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||
| Indefinite-lived intangible assets | $ | 11,443 | $ | — | $ | 11,676 | $ | — | |||||||||||||||
| Definite-lived intangible assets | 1,260 | 397 | 1,275 | 336 | |||||||||||||||||||
| Total other intangible assets | $ | 12,703 | $ | 397 | $ | 12,951 | $ | 336 | |||||||||||||||
At December 31, 2021, substantially all of Nat Sherman, 2014 acquisitionAltria’s indefinite-lived intangible assets consist of Green Smoke,MST and snus trademarks ($8.8 billion) and cigar trademarks ($2.6 billion) from Altria’s 2009 acquisition of UST and 2007 acquisition of Middleton.
| December 31, 2017 | December 31, 2016 | ||||||||||||||
| (in millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
| Indefinite-lived intangible assets | $ | 12,125 | $ | — | $ | 11,740 | $ | — | |||||||
| Definite-lived intangible assets | 465 | 190 | 465 | 169 | |||||||||||
| Total other intangible assets | $ | 12,590 | $ | 190 | $ | 12,205 | $ | 169 | |||||||
additional transactions occur that require the amortization of intangible assets.
The changes in goodwill and net carrying amount of intangible assets were as follows:
| 2021 | 2020 | ||||||||||||||||||||||
| (in millions) | Goodwill | Other Intangible Assets, net | Goodwill | Other Intangible Assets, net | |||||||||||||||||||
| Balance at January 1 | $ | 5,177 | $ | 12,615 | $ | 5,177 | $ | 12,687 | |||||||||||||||
| Changes due to: | |||||||||||||||||||||||
Dispositions (1) | — | (237) | — | — | |||||||||||||||||||
| Amortization | — | (72) | — | (72) | |||||||||||||||||||
| Balance at December 31 | $ | 5,177 | $ | 12,306 | $ | 5,177 | $ | 12,615 | |||||||||||||||
(1) Dispositions related to the Ste. Michelle Transaction. See Note 1. Background and Basis of Presentation.
During 2017, 20162021 and 2015, Altria Group, Inc. completed its quantitative2020, Altria’s annual impairment test of goodwill and indefinite-lived intangible assets andresulted in no impairment charges resulted.charges.
At December 31, 2017, 2016 and 2015, there have been no changes in goodwill and the gross carrying amount of other intangible assets except for the purchase of certain intellectual property in 2017 primarily related to innovative tobacco products, the 2017 acquisition of Nat Sherman and Ste. Michelle’s 2016 purchase of substantially all of the assets
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Note 4.5. Asset Impairment, Exit and Implementation Costs
Pre-tax asset impairment, exit and implementation costs (income) consisted of the following:
| (in millions) | (in millions) | Asset Impairment and Exit Costs | Implementation Costs | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the year ended December 31, | For the year ended December 31, | 2020 | 2019 | 2021 | 2020 | 2019 (1) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Smokeable products | Smokeable products | $ | 2 | $ | 59 | $ | — | $ | — | $ | 33 | $ | — | $ | 2 | $ | 92 | |||||||||||||||||||||||||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | (5) | 9 | — | — | 5 | — | (5) | 14 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wine | Wine | — | 76 | 1 | 411 | — | 1 | 411 | 76 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All other | All other | — | 14 | — | — | (10) | — | — | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General corporate | General corporate | (1) | 1 | — | — | — | — | (1) | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Year Ended December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Asset Impairment and Exit Costs | Implementation Costs (1) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Smokeable products | $ | 5 | $ | 17 | $ | 22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Smokeless products | 28 | 28 | 56 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 33 | $ | 45 | $ | 78 | Total | (4) | 159 | 1 | 411 | 28 | 1 | 407 | 187 | |||||||||||||||||||||||||||||||||||||||||||||||||
Plus amounts included in net periodic benefit (income) cost, excluding service cost (2) | Plus amounts included in net periodic benefit (income) cost, excluding service cost (2) | — | 29 | — | — | — | — | — | 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Total | $ | (4) | $ | 188 | $ | 1 | $ | 411 | $ | 28 | $ | 1 | $ | 407 | $ | 216 | |||||||||||||||||||||||||||||||||||||||||||||||
(1) The pre-tax Included in cost of sales ($2 million) and marketing, administration and research costs ($26 million) in Altria’s consolidated statement of earnings (losses).
(2) Represents settlement and curtailment costs. See Note 16. Benefit Plans.
Pre-tax implementation costs for 2021 and 2020, which were included in cost of sales in Altria Group, Inc.’sAltria’s consolidated statementstatements of earnings.earnings (losses), were related to Ste. Michelle’s strategic reset, as discussed below.
| For the Year Ended December 31, 2016 | |||||||||||
| (in millions) | Asset Impairment and Exit Costs (1) | Implementation Costs | Total | ||||||||
| Smokeable products | $ | 125 | $ | 9 | $ | 134 | |||||
| Smokeless products | 42 | 15 | 57 | ||||||||
| All other | 7 | — | 7 | ||||||||
| General corporate | 5 | — | 5 | ||||||||
| Total | $ | 179 | $ | 24 | $ | 203 | |||||
▪Wine Business Strategic Reset: During the year ended December 31, 2020, Ste. Michelle recorded pre-tax implementation costs for 2016 are related to both the facilities consolidation and the productivity initiative discussed below.
▪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 are severance liabilities, forincluded 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. 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. Cash payments of $11 million, $44 million and $136 million were made during the years ended December 31, 20172021, 2020 and 20162019, respectively, for total program cash payments of $191 million. The cash payments and pre-tax charges related to this cost reduction program are complete.
Note 6. Investments in Equity Securities
The carrying amount of Altria’s investments consisted of the following at December 31:
| (in millions) | 2021 | 2020 | ||||||||||||
| ABI | $ | 11,144 | $ | 16,651 | ||||||||||
| JUUL | 1,705 | 1,705 | ||||||||||||
Cronos (1) | 632 | 1,173 | ||||||||||||
| Total | $ | 13,481 | $ | 19,529 | ||||||||||
(1) Altria’s investment in Cronos at December 31, 2021 consisted of Altria’s equity method investment in Cronos ($617 million), the Cronos warrant ($14 million) and the Fixed-price Preemptive Rights ($1 million) (collectively, “Investment in Cronos”). The Investment in Cronos at December 31, 2020 consisted of Altria’s equity method investment in Cronos ($1,010 million), the Cronos warrant ($139 million) and the Fixed-price Preemptive Rights ($24 million). See below for further discussion.
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(Income) losses from equity investments accounted for under the equity method of accounting and fair value option consisted of the following:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
ABI (1) | $ | 5,564 | $ | 223 | $ | (1,229) | |||||||||||
Cronos (1) | 415 | (12) | (496) | ||||||||||||||
| (Income) losses from investments under equity method of accounting | 5,979 | 211 | (1,725) | ||||||||||||||
| JUUL | — | (100) | — | ||||||||||||||
| (Income) losses from equity investments | $ | 5,979 | $ | 111 | $ | (1,725) | |||||||||||
(1) Includes Altria’s share of amounts recorded by its investees and additional adjustments, if required, 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.
Investees’ summarized financial data for Altria’s equity investments was as follows:
| For Altria’s Year Ended December 31, | |||||||||||||||||||||||||||||||||||
2021 (1) | 2020 (2) | 2019 (3) | |||||||||||||||||||||||||||||||||
| (in millions) | ABI | Other Investments | ABI | Other Investments | ABI | Other Investments | |||||||||||||||||||||||||||||
| Net revenues | $ | 52,864 | $ | 1,313 | $ | 48,294 | $ | 37 | $ | 54,187 | $ | 21 | |||||||||||||||||||||||
| Gross profit | $ | 30,653 | $ | 757 | $ | 28,438 | $ | (31) | $ | 33,735 | $ | 10 | |||||||||||||||||||||||
| Earnings (losses) from continuing operations | $ | 7,434 | $ | (800) | $ | 4,265 | $ | 99 | $ | 10,530 | $ | 1,117 | |||||||||||||||||||||||
| Net earnings (losses) | $ | 7,434 | $ | (800) | $ | 4,266 | $ | 98 | $ | 10,530 | $ | 1,117 | |||||||||||||||||||||||
| Net earnings (losses) attributable to equity investments | $ | 5,780 | $ | (798) | $ | 3,323 | $ | 100 | $ | 9,189 | $ | 1,117 | |||||||||||||||||||||||
| (in millions) | |||
| Balances at December 31, 2015 | $ | — | |
| Charges | 152 | ||
| Cash spent | (73 | ) | |
| Balances at December 31, 2016 | 79 | ||
| Charges | 25 | ||
| Cash spent | (71 | ) | |
| Balances at December 31, 2017 | $ | 33 | |
| At September 30, | |||||||||||||||||||||||
2021 (1) | 2020 (2) | ||||||||||||||||||||||
| (in millions) | ABI | Other Investments | ABI | Other Investments | |||||||||||||||||||
| Current assets | $ | 21,593 | $ | 1,882 | $ | 28,672 | $ | 1,394 | |||||||||||||||
| Long-term assets | $ | 190,082 | $ | 1,049 | $ | 185,106 | $ | 525 | |||||||||||||||
| Current liabilities | $ | 33,540 | $ | 451 | $ | 34,884 | $ | 143 | |||||||||||||||
| Long-term liabilities | $ | 105,973 | $ | 2,277 | $ | 117,400 | $ | 12 | |||||||||||||||
| Convertible Preferred Stock | $ | — | $ | 715 | $ | — | $ | — | |||||||||||||||
| Noncontrolling interests | $ | 11,356 | $ | (3) | $ | 8,459 | $ | (3) | |||||||||||||||
(1) Reflects a one-quarter lag. Other Investments reflect summarized financial data of certain of its operating companies’ manufacturing facilities to streamline operationsCronos’s and achieve greater efficiencies. Middleton is in the process of transferring its Limerick, Pennsylvania operations to the Manufacturing Center site in Richmond, Virginia (“Richmond Manufacturing Center”). USSTC is in the process of transferring its Franklin Park, Illinois operations to its Nashville, Tennessee facility and the Richmond Manufacturing Center. Separation benefits are being paid to non-relocating employees. The consolidation is expected to be substantially completed by the end of the first quarter of 2018.
(2) Reflects a one-quarter lag. Other Investments reflect summarized financial data of Cronos.
(3) Reflects a one-quarter lag. Other Investments reflect summarized financial data of Cronos’s results for theAltria’s year ended December 31, 2016, pre-tax implementation costs of $17 million were recorded in the smokeable products segment ($3 million) and smokeless products segment ($14 million). The pre-tax implementation costs were included in cost of sales in Altria Group, Inc.’s consolidated statement of earnings.
At December 31, 2017,2021, Altria Group, Inc. had an approximate 10.2%10.0% ownership of AB InBev,interest in ABI, consisting of approximately 185 million restricted shares of AB InBevABI (the “Restricted Shares”) and approximately 12 million ordinary shares of AB InBev.ABI. The Restricted Shares:
▪are unlisted and not admitted to trading on any stock exchange;
▪are convertible by Altria Group, Inc.into ordinary shares of ABI on a one-for-one basis;
▪rank equally with ordinary shares of ABI with regards to dividends and voting rights; and
▪have director nomination rights with respect to ABI.
The Restricted Shares were subject to a five-year lock-up period that ended October 10, 2021. As of this filing, Altria has not elected to convert its Restricted Shares into ordinary shares of ABI.
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Altria accounts for its investment in AB InBevABI under the equity method of accounting because Altria Group, Inc. has the ability to exercise significant influence over the operating and financial policies of AB InBev,ABI, including having active representation on AB InBev’s BoardABI’s board of Directors (“AB InBev Board”)directors and certain AB InBev Board Committees.ABI board committees. Through this representation, Altria Group, Inc. participates in AB InBevABI policy making processes.
Altria Group, Inc. reports its share of AB InBev’sABI’s results using a one-quarter lag because AB InBev’sABI’s results are not available in time for Altria Group, Inc. to record them in the concurrent period.
| (in millions) | For Altria Group, Inc.’s Year Ended December 31, 2017 (1) | ||
| Net revenues | $ | 56,004 | |
| Gross profit | $ | 34,376 | |
| Earnings from continuing operations | $ | 6,769 | |
| Net earnings | $ | 6,845 | |
| Net earnings attributable to AB InBev | $ | 5,473 | |
| (in millions) | At September 30, 2017 (1) | At October 10, 2016 (1) | |||||
| Current assets | $ | 30,920 | $ | 40,086 | |||
| Long-term assets | $ | 213,696 | $ | 223,701 | |||
| Current liabilities | $ | 37,765 | $ | 44,272 | |||
| Long-term liabilities | $ | 134,236 | $ | 139,112 | |||
| Noncontrolling interests | $ | 10,639 | $ | 9,177 | |||
The fair value of Altria Group, Inc.’sAltria’s equity investment in AB InBevABI is based on:on (i) unadjusted quoted prices in active markets for AB InBev’sABI’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 Group, Inc. may, in certain instances, pledge or otherwise grant a security interest in all or part ofcan convert its Restricted Shares. In the event the pledgee or security interest holder forecloses on the Restricted Shares the relevant Restricted Shares will be automatically converted, one-for-one, intoto ordinary shares.shares at its discretion. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share. The
In October 2019, the fair value of Altria Group, Inc.’sAltria’s equity investment in AB InBevABI declined below its carrying value. At December 31, 2020, the fair value of Altria’s equity investment in ABI was $13.8 billion (carrying value of $16.7 billion), which was less than its carrying value by approximately 17%. In preparing its financial statements for the period ended December 31, 2020, Altria evaluated the factors related to the fair value decline, including the impact on the fair value of ABI’s shares during the COVID-19 pandemic, which negatively impacted ABI’s business. Altria evaluated the duration and magnitude of the fair value decline, ABI’s financial condition and near-term prospects and Altria’s intent and ability to hold its investment in ABI until recovery. Altria concluded that the decline in fair value of its equity investment in ABI below its carrying value at December 31, 20172020 was temporary and, 2016therefore, no impairment was $22.1 billion and $20.9 billion, respectively, compared
the same factors, Altria, Group, Inc. and Subsidiaries
At December 31, 2021, the fair value of Altria’s equity investment in ABI was $11.9 billion (carrying value of $11.1 billion), which exceeded its carrying value by approximately 7%.
At December 31, 2021, the carrying value of Altria’s equity investment in ABI exceeded its share of ABI’s net assets attributable to equity holders of ABI by approximately $5.1 billion. Substantially all of this difference is comprised of goodwill and other indefinite-lived intangible assets (consisting primarily of trademarks).
Investment in JUUL
In December 2018, Altria made an investment in JUUL for $12.8 billion and $17.9received a 35% economic interest in JUUL through non-voting shares, which were convertible at Altria’s election into voting shares (“Share Conversion”), and a security convertible into additional non-voting or voting shares, as applicable, upon settlement or exercise of certain JUUL convertible securities (the “JUUL Transaction”). At December 31, 2021, Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.
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. In January 2020, Altria and JUUL amended certain JUUL Transaction agreements and entered into a new cooperation agreement. In conjunction with these amendments, the parties agreed that Altria would discontinue all services as of March 31, 2020 except regulatory affairs support for JUUL’s pursuit of its pre-market tobacco applications and/or its modified risk tobacco products applications.
Altria also agreed to non-competition obligations generally requiring that it participate in the e-vapor business only through JUUL. However, Altria has 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), (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 respectively.or (iii) if Altria is no longer providing JUUL services as of December 20, 2024.
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Additionally, 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.
On April 1, 2020, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion, see Note 18. Contingencies - Antitrust Litigation.
In November 2020, Altria exercised its rights to convert its non-voting JUUL shares into 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, as described below, or to vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint.
If Altria chooses to exercise its governance rights, JUUL will:
▪restructure JUUL’s current 7-member board of directors to a 9-member board that will include independent board members. The new structure will include: (i) 3 independent directors (1 of whom will be designated by Altria and 2 of whom will be designated by JUUL stockholders other than Altria) unanimously certified as independent by a nominating committee, which will include at least 1 Altria designee, (ii) 2 directors designated by Altria, (iii) 3 directors designated by JUUL stockholders other than Altria and (iv) the JUUL Chief Executive Officer; and
▪create a Litigation Oversight Committee, which will include 2 Altria designated directors (1 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 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.
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 estimated 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 business or a market-derived valuation.
The following table provides a reconciliation of the beginning and ending balance of Altria’s investment in JUUL, which is classified in Level 3 of the fair value hierarchy:
| (in millions) | Investment Balance | |||||||
| Balance at December 31, 2019 | $ | — | ||||||
| Transfers into Level 3 fair value | 1,605 | |||||||
| Unrealized gains (losses) included in (income) losses from equity investments | 100 | |||||||
| Balance at December 31, 2020 | 1,705 | |||||||
| Unrealized gains (losses) included in (income) losses from equity investments | — | |||||||
| Balance at December 31, 2021 | $ | 1,705 | ||||||
Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the completionJUUL 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, prior to Share Conversion, Altria reviewed its investment in JUUL for impairment by performing a qualitative assessment of impairment indicators on October 10, 2016,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 estimated fair value of the investment was less than its carrying value, the investment was written down to its estimated fair value.
2021 Financial Activity
▪For the year ended December 31, 2021, Altria Group, Inc. heldrecorded no change in the estimated fair value of its investment in JUUL. During the year ended December 31, 2021, the estimated fair value was primarily impacted by Altria’s projections of lower JUUL revenues in the U.S. over time due to lower JUUL volume assumptions offset by (i) the effect of passage of time on the projected cash flows and (ii) a decrease in the discount rate due to change in market factors. The estimated fair value of Altria’s investment in JUUL was $1.7 billion at December 31, 2021 and 2020.
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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 approximate 27%increase in the estimated fair value of its investment in 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.
▪In September 2020, JUUL announced a strategic update, 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 impairment charge of $2.6 billion for the year ended December 31, 2020, reported as impairment of JUUL equity securities in its consolidated statements 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 impairment charge of $4.5 billion.
▪In the fourth quarter of 2019, Altria determined that a significant increase in the number of legal cases pending against JUUL in the fourth quarter of 2019, which included a variety of class action lawsuits and personal injury claims, as well as cases brought by state attorneys general and local governments, resulted in an additional indicator of impairment. Altria determined that the fourth-quarter 2019 impairment charge resulted substantially from increased discount rates applied to future cash flow projections, due to the significant risk created by the increase in the number of legal cases pending against JUUL and the expectation that the number of legal cases against JUUL will continue to increase, which resulted in an additional non-cash pre-tax impairment charge of $4.1 billion.
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.
In determining the estimated fair value of its investment in JUUL, in 2021, 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, (iii) expectations for the future state of the e-vapor category including competitive dynamics and (iv) timing of international expansion plans.
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Investment in Cronos
At December 31, 2021, Altria had a 41.8% ownership interest in Cronos, consisting of SABMiller that was accounted156.6 million shares, which Altria accounts for under the equity method of accounting. Altria’s ownership percentage decreased from 43.5% at December 31, 2020 due to the issuance of additional shares by Cronos. 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.
▪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, 2021, Altria estimates the Fixed-price Preemptive Rights allows Altria to purchase up to an additional approximately 12 million common shares of Cronos; and
▪a warrant providing Altria the ability to purchase an additional approximate 10% of common shares of Cronos (approximately 83 million common shares at December 31, 2021) 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).
If exercised in full, the exercise prices for the warrant and Fixed-price Preemptive Rights are approximately CAD $1.6 billion and CAD $0.2 billion, respectively (approximately USD $1.3 billion and $0.2 billion, respectively, based on the CAD to USD exchange rate on January 24, 2022). At December 31, 2021, upon full exercise of the Fixed-price Preemptive Rights, to the extent such rights become available, and the warrant, Altria would own approximately 52% 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.
Altria nominated 4 directors, including 1 director who is independent from Altria, Group, Inc.’swho serve on Cronos’s 7-member board of directors.
The fair value of Altria’s equity method investment in SABMiller were $795Cronos 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 exceeded its carrying value by $77 million and $757 million for the years endedor approximately 8% at December 31, 20162020.
In September 2021, the fair value of Altria’s equity method investment in Cronos declined below its carrying value and 2015, respectively. Altria Group, Inc.’s earnings fromhas not recovered. Accounting guidance requires the evaluation of the following factors when determining if the decline in fair value is other than temporary: (i) the duration and magnitude of the fair value decline, (ii) the financial condition and near-term prospects of the investee and (iii) the investor’s intent and ability to hold its equity method investment until full recovery to its carrying value in SABMillerthe near-term. In preparing its financial statements for the year ended December 31, 2016 included a pre-tax non-cash gain of $309 million, reflecting2021, Altria Group, Inc.’s share of SABMiller’s increaseevaluated these factors and determined that there is not sufficient evidence to shareholders’ equity, resulting fromconclude that the completion of the SABMiller, The Coca-Cola Company and Gutsche Family Investments transaction, combining bottling operations in Africa.impairment is temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of the timing of the completion of the Transaction, Altria Group, Inc.’s pre-tax earnings from its equity investment in SABMiller$205 million for the year ended December 31, 2016 included2021, which was recorded to (income) losses from equity investments in its consolidated statement of earnings (losses). The impairment charge reflects the difference between the fair value of Altria’s equity method investment in Cronos using Cronos’s share price at December 31, 2021 and the carrying value of Altria’s equity method investment in Cronos at December 31, 2021. At December 31, 2021, prior to recording the impairment charge, the fair value of Altria’s equity method investment in Cronos was less than its carrying value by approximately 25%. After recording the impairment charge, the fair value and carrying value of Altria’s equity method investment in Cronos at December 31, 2021 were $617 million.
At December 31, 2021, Altria’s carrying value of its equity method investment in Cronos approximated its share of approximately nine monthsCronos’s net assets attributable to equity holders of SABMiller’s earnings.Cronos.
Note 7. Financial Instruments
| For the Years Ended December 31, | |||||||
| (in millions) | 2016 (1) | 2015 | |||||
| Net revenues | $ | 14,543 | $ | 20,188 | |||
| Operating profit | $ | 2,099 | $ | 3,690 | |||
| Net earnings attributable to SABMiller | $ | 1,803 | $ | 2,838 | |||
Altria’s investment in ABI, whose functional currency is the form of a put option (together the “options”) to hedgeEuro, exposes Altria Group, Inc.’s exposure to foreign currency exchange rate movementsrisk on the carrying value of its investment. To manage this risk, Altria may designate 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.
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In May 2021, all outstanding foreign currency contracts matured and, at December 31, 2021, Altria had no outstanding foreign currency contracts. When Altria has foreign currency contracts in effect, counterparties are domestic and international financial institutions. Under these contracts, 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 GBPamount 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 United States dollar, in relationevent Altria’s credit rating falls below investment grade, counterparties to Altria’s foreign currency contracts can require Altria to post collateral.
The following table provides (i) the pre-tax cash consideration that Altria Group, Inc. expected to receive under the PSA pursuant to the revised and final offer announced by Legacy AB InBev on July 26, 2016. Theaggregate notional amounts of foreign currency contracts and (ii) the November 2015aggregate carrying value and August 2016 options were $2,467 million (1,625 million GBP)fair value of foreign currency denominated debt at December 31:
| (in millions) | 2021 | 2020 | |||||||||
| Foreign currency contracts (notional amounts) | $ | — | $ | 1,066 | |||||||
| Foreign currency denominated debt | |||||||||||
| Carrying value | 4,817 | 5,171 | |||||||||
| Fair value | 5,114 | 5,687 | |||||||||
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 $480 million (378 million GBP), respectively. The options did not qualifytherefore are classified in Level 2 of the fair value hierarchy. An adjustment for hedge accounting; therefore, changescredit risk and non-performance risk is included in the fair values of foreign currency contracts.
The following table provides the options were recorded as gains or losses in Altria Group, Inc.’s consolidated statementsaggregate carrying value and fair value of earnings in the periods in which the changes occurred. For the year endedAltria’s total long-term debt at December 31, 2016, Altria Group, Inc. recorded pre-tax gains associated with the November 2015 and August
| (in millions) | 2021 | 2020 | |||||||||
| Carrying value | $ | 28,044 | $ | 29,471 | |||||||
| Fair value | 30,459 | 34,682 | |||||||||
The Fixed-price Preemptive Rights and Cronos warrant, which are further discussed in Note 7. Finance Assets, net
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Fixed-price Preemptive Rights | Cronos Warrant | |||||||||||||||||||||||||
Share price (1) | C$4.98 | C$8.84 | C$4.98 | C$8.84 | ||||||||||||||||||||||
Expected life (2) | 0.59 year | 1.05 years | 1.18 years | 2.18 years | ||||||||||||||||||||||
Expected volatility (3) | 79.64% | 80.68% | 79.64% | 80.68% | ||||||||||||||||||||||
Risk-free interest rate (4)(5) | 0.43% | 0.13% | 0.80% | 0.21% | ||||||||||||||||||||||
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 4 years at December 31, 20172021 and 2016, before allowance for losses was as follows:
| (in millions) | 2017 | 2016 | ||||||
| Rents receivable, net | $ | 696 | $ | 805 | ||||
| Unguaranteed residual values | 427 | 495 | ||||||
| Unearned income | (201 | ) | (240 | ) | ||||
| Investments in finance leases | 922 | 1,060 | ||||||
| Deferred income taxes | (407 | ) | (717 | ) | ||||
| Net investments in finance leases | $ | 515 | $ | 343 | ||||
(3) Based on a blend of historical volatility of the underlying equity security and manufacturing (10%). There were no investments located outsideimplied volatility from traded options on the United Statesunderlying equity security at December 31, 20172021. Based on a blend of historical volatility levels of the underlying equity security and 2016.
(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues (with a range from approximately 0.16% to 1.14% at December 31, 2021 and 0.06% to 0.39% at December 31, 2020) 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.
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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 December 31, 2019 | $ | 303 | |||
| Pre-tax losses recognized in net earnings (losses) | (140) | ||||
| Balance at December 31, 2020 | 163 | ||||
| Pre-tax losses recognized in net earnings (losses) | (148) | ||||
| Balance at December 31, 2021 | $ | 15 | |||
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 at December 31:
| Fair Value of Assets | Fair Value of Liabilities | |||||||||||||||||||||||||||||||
| (in millions) | Balance Sheet Classification | 2021 | 2020 | Balance Sheet Classification | 2021 | 2020 | ||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||
| Foreign currency contracts | Other current assets | $ | — | $ | — | Other accrued liabilities | $ | — | $ | 87 | ||||||||||||||||||||||
| Foreign currency contracts | Other assets | — | — | Other liabilities | — | — | ||||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | — | $ | 87 | ||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
| Cronos warrant | Investments in equity securities | $ | 14 | $ | 139 | |||||||||||||||||||||||||||
| Fixed-price Preemptive Rights | Investments in equity securities | 1 | 24 | |||||||||||||||||||||||||||||
| Total | $ | 15 | $ | 163 | ||||||||||||||||||||||||||||
| Total derivatives | $ | 15 | $ | 163 | $ | — | $ | 87 | ||||||||||||||||||||||||
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. Altria recorded non-cash, pre-tax unrealized losses, representing the changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant, as follows:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Fixed-price Preemptive Rights | $ | 23 | $ | 45 | $ | 434 | |||||||||||
| Cronos warrant | 125 | 95 | 977 | ||||||||||||||
| Total | $ | 148 | $ | 140 | $ | 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).
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Net Investment Hedging
The pre-tax effects of Altria’s net investment hedges on accumulated other comprehensive losses and the consolidated statements of earnings (losses) were as follows:
| (Gain) Loss Recognized in Accumulated Other Comprehensive Losses | (Gain) Loss Recognized in Net Earnings (Losses) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | $ | (16) | $ | 79 | $ | (23) | $ | (7) | $ | (40) | $ | (36) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency denominated debt | (359) | 424 | (35) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (375) | $ | 503 | $ | (58) | $ | (7) | $ | (40) | $ | (36) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||
| 2018 | $ | 96 | |
| 2019 | 173 | ||
| 2020 | 116 | ||
| 2021 | 96 | ||
| 2022 | 142 | ||
| Thereafter | 73 | ||
| Total | $ | 696 | |
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Balance at beginning of year | $ | 32 | $ | 42 | $ | 42 | |||||
| Decrease to allowance | (9 | ) | (10 | ) | — | ||||||
| Balance at end of year | $ | 23 | $ | 32 | $ | 42 | |||||
| (in millions) | 2017 | 2016 | |||||
| Credit Rating by Standard & Poor’s/Moody’s: | |||||||
| “AAA/Aaa” to “A-/A3” | $ | 220 | $ | 218 | |||
| “BBB+/Baa1” to “BBB-/Baa3” | 550 | 559 | |||||
| “BB+/Ba1” and Lower | 152 | 283 | |||||
| Total | $ | 922 | $ | 1,060 | |||
Note 8. Short-Term Borrowings and Borrowing Arrangements
At December 31, 20172021 and December 31, 2016,2020, Altria Group, Inc. had no short-term borrowings. The credit line available to
Altria Group, Inc. at December 31, 2017 under the Credit Agreement (as defined below) was $3.0 billion.
At December 31, 2021 and 2020, the Credit Agreement had available borrowings up to an aggregate principal amount of $3.0 billion.
Pricing for interest and fees under the Credit Agreement may be modified in the event of a change in the rating of Altria Group, Inc.’sAltria’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”)LIBOR, or a fallback benchmark rate determined based on prevailing market convention, plus a percentage based on the higher of the ratings of Altria Group, Inc.’sAltria’s long-term senior unsecured debt from Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s.Poor’s Financial Services LLC (“S&P”). The applicable percentage based on Altria Group, Inc.’sAltria’s long-term senior unsecured debt ratings at December 31, 20172021 for borrowings under the Credit Agreement was 1.125%1.0%. The Credit Agreement does not include any other rating triggers nor does it containor any provisions that could require the posting of collateral.
The Credit Agreement is used for general corporate purposes andincludes various covenants, one of which requires Altria to support Altria Group, Inc.’s commercial paper issuances.
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.
In February 2019, Altria repaid short-term borrowings of $12.8 billion outstanding under a term loan agreement. The term loan agreement, which was entered into in connection with Altria’s investments in JUUL and Cronos, was set to mature in December 2019, and was repaid using the net proceeds from the issuance of long-term senior unsecured notes. Upon repayment, the term loan agreement terminated, 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 Group, Inc. and borrowings under the Credit Agreement are guaranteed by PM USA as further discussed in Note 19. Condensed Consolidating Financial Information.9. Long-Term Debt.
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Note 9. Long-Term Debt
Altria’s long-term debt consisted of the following at December 31:
| (in millions) | 2021 | 2020 | |||||||||
USD notes, 2.350% to 10.20%, interest payable semi-annually, due through 2061 (1) | $ | 23,185 | $ | 24,258 | |||||||
| USD debenture, 7.75%, interest payable semi-annually, due 2027 | 42 | 42 | |||||||||
Euro notes, 1.000% to 3.125%, interest payable annually, due through 2031 (2) | 4,817 | 5,171 | |||||||||
| 28,044 | 29,471 | ||||||||||
| Less current portion of long-term debt | 1,105 | 1,500 | |||||||||
| $ | 26,939 | $ | 27,971 | ||||||||
(1) Weighted-average coupon interest rate of 4.4% and 4.6% at December 31, 2021 and 2020, respectively.
(2) Weighted-average coupon interest rate of 2.0% at December 31, 2021 and 2020.
At December 31, 2017 and 2016, Altria Group, Inc.’s2021, Altria’s outstanding long-term debt consisted of the following:
| (in millions) | ||||||||||||||
| Type | Face Value | Interest Rate | Issuance | Maturity | ||||||||||
| USD notes | $1,105 | 2.850% | August 2012 | August 2022 | ||||||||||
| Euro notes | €1,250 | 1.000% | February 2019 | February 2023 | ||||||||||
| USD notes | $218 | 2.950% | May 2013 | May 2023 | ||||||||||
| USD notes | $776 | 4.000% | October 2013 | January 2024 | ||||||||||
| USD notes | $345 | 3.800% | February 2019 | February 2024 | ||||||||||
| USD notes | $750 | 2.350% | May 2020 | May 2025 | ||||||||||
| Euro notes | €750 | 1.700% | February 2019 | June 2025 | ||||||||||
| USD notes | $1,069 | 4.400% | February 2019 | February 2026 | ||||||||||
| USD notes | $500 | 2.625% | September 2016 | September 2026 | ||||||||||
| USD debenture | $42 | 7.750% | January 1997 | January 2027 | ||||||||||
| Euro notes | €1,000 | 2.200% | February 2019 | June 2027 | ||||||||||
| USD notes | $1,906 | 4.800% | February 2019 | February 2029 | ||||||||||
| USD notes | $750 | 3.400% | May 2020 | May 2030 | ||||||||||
| Euro notes | €1,250 | 3.125% | February 2019 | June 2031 | ||||||||||
| USD notes | $1,750 | 2.450% | February 2021 | February 2032 | ||||||||||
| USD notes | $177 | 9.950% | November 2008 | November 2038 | ||||||||||
| USD notes | $208 | 10.200% | February 2009 | February 2039 | ||||||||||
| USD notes | $2,000 | 5.800% | February 2019 | February 2039 | ||||||||||
| USD notes | $1,500 | 3.400% | February 2021 | February 2041 | ||||||||||
| USD notes | $900 | 4.250% | August 2012 | August 2042 | ||||||||||
| USD notes | $650 | 4.500% | May 2013 | May 2043 | ||||||||||
| USD notes | $1,800 | 5.375% | October 2013 | January 2044 | ||||||||||
| USD notes | $1,500 | 3.875% | September 2016 | September 2046 | ||||||||||
| USD notes | $2,500 | 5.950% | February 2019 | February 2049 | ||||||||||
| USD notes | $500 | 4.450% | May 2020 | May 2050 | ||||||||||
| USD notes | $1,250 | 3.700% | February 2021 | February 2051 | ||||||||||
| USD notes | $271 | 6.200% | February 2019 | February 2059 | ||||||||||
| USD notes | $1,000 | 4.000% | February 2021 | February 2061 | ||||||||||
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| (in millions) | 2017 | 2016 | |||||
Notes, 2.625% to 10.20%, interest payable semi-annually, due through 2046 (1) | $ | 13,852 | $ | 13,839 | |||
| Debenture, 7.75%, interest payable semi-annually, due 2027 | 42 | 42 | |||||
| 13,894 | 13,881 | ||||||
| Less current portion of long-term debt | 864 | — | |||||
| $ | 13,030 | $ | 13,881 | ||||
At December 31, 2017,2021, aggregate maturities of Altria Group, Inc.’sAltria’s long-term debt were as follows:
| (in millions) | Aggregate Maturities | |||||||
| 2022 | $ | 1,105 | ||||||
| 2023 | 1,639 | |||||||
| 2024 | 1,121 | |||||||
| 2025 | 1,603 | |||||||
| 2026 | 1,569 | |||||||
| Thereafter | 21,262 | |||||||
| 28,299 | ||||||||
| Less: | debt issuance costs | 163 | ||||||
| debt discounts | 92 | |||||||
| $ | 28,044 | |||||||
| (in millions) | ||||
| 2018 | $ | 864 | ||
| 2019 | 1,144 | |||
| 2020 | 1,000 | |||
| 2021 | 1,500 | |||
| 2022 | 1,900 | |||
| Thereafter | 7,609 | |||
| 14,017 | ||||
| Less: debt issuance costs | 68 | |||
| debt discounts | 55 | |||
| $ | 13,894 | |||
▪Altria Group, Inc. and Subsidiaries
▪$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.
The Notes are Altria’s senior unsecured obligations and rank equally in right of payment with all of Altria Group, Inc.’sAltria’s existing and future senior unsecured indebtedness. Upon the occurrence of both (i) a change of control of Altria Group, Inc. and (ii) the notesNotes ceasing to be rated investment grade by each of Moody’s, Standard & Poor’sS&P and Fitch Ratings Ltd.Inc. within a specified time period, Altria Group, Inc. will be required to make an offer to purchase the notesNotes at a price equal to 101% of the aggregate principal amount of such notes,Notes, plus accrued and unpaid interest to the date of repurchase as and to the extent set forth in the terms of the notes.Notes.
▪Debt Tender Offers: Offers and Redemption: During 2016 and 2015,the first quarter of 2021, Altria Group, Inc. completed debt tender offers to purchase for cash certain of its long-term senior unsecured notes in an aggregate principal amountsamount of $0.9 billion and $0.8 billion, respectively.
$4,042 million. Details of thesethe debt tender offers are as follows:
| (in millions) | Principal Amount of Notes Purchased | ||||
| 2.850% Notes due 2022 | $ | 795 | |||
| 2.950% Notes due 2023 | 132 | ||||
| 4.000% Notes due 2024 | 624 | ||||
| 3.800% Notes due 2024 | 655 | ||||
| 4.400% Notes due 2026 | 430 | ||||
| 4.800% Notes due 2029 | 1,094 | ||||
| 9.950% Notes due 2038 | 65 | ||||
| 10.200% Notes due 2039 | 18 | ||||
| 6.200% Notes due 2059 | 229 | ||||
| $ | 4,042 | ||||
During the first quarter of 2021, Altria also redeemed all of its outstanding 3.490% Notes due 2022 in an aggregate principal amount of $1.0 billion.
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As a result of the debt tender offers and the associatedredemption, Altria recorded pre-tax losses on early extinguishment of debt recorded byas follows:
| (in millions) | For the Year Ended December 31, 2021 | ||||
| Premiums and fees | $ | 623 | |||
| Write-off of unamortized debt discounts and debt issuance costs | 26 | ||||
| Total | $ | 649 | |||
PM USA (the “Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc. were(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 follows: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.
| (in millions) | 2016 | 2015 | |||||
| Notes Purchased | |||||||
| 9.95% Notes due 2038 | $ | 441 | $ | — | |||
| 10.20% Notes due 2039 | 492 | — | |||||
| 9.70% Notes due 2018 | — | 793 | |||||
| Total | $ | 933 | $ | 793 | |||
| Pre-tax Loss on Early Extinguishment of Debt | |||||||
| Premiums and fees | $ | 809 | $ | 226 | |||
| Write-off of unamortized debt discounts and debt issuance costs | 14 | 2 | |||||
| Total | $ | 823 | $ | 228 | |||
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, 2017,2021, Altria Group, Inc. had 12 billion shares of authorized common stock; issued, repurchased and outstanding shares of common stock were as follows:
| Shares Issued | Shares Repurchased | Shares Outstanding | ||||||
| Balances, December 31, 2014 | 2,805,961,317 | (834,486,794 | ) | 1,971,474,523 | ||||
| Stock award activity | — | (732,623 | ) | (732,623 | ) | |||
Repurchases of common stock | — | (10,682,419 | ) | (10,682,419 | ) | |||
| Balances, December 31, 2015 | 2,805,961,317 | (845,901,836 | ) | 1,960,059,481 | ||||
| Stock award activity | — | (566,256 | ) | (566,256 | ) | |||
Repurchases of common stock | — | (16,221,001 | ) | (16,221,001 | ) | |||
| Balances, December 31, 2016 | 2,805,961,317 | (862,689,093 | ) | 1,943,272,224 | ||||
| Stock award activity | — | (408,891 | ) | (408,891 | ) | |||
Repurchases of common stock | — | (41,604,141 | ) | (41,604,141 | ) | |||
| Balances, December 31, 2017 | 2,805,961,317 | (904,702,125 | ) | 1,901,259,192 | ||||
| Shares Issued | Shares Repurchased | Shares Outstanding | |||||||||||||||
| Balances, December 31, 2018 | 2,805,961,317 | (931,903,722) | 1,874,057,595 | ||||||||||||||
| Stock award activity | — | 427,276 | 427,276 | ||||||||||||||
| Repurchases of common stock | — | (16,503,317) | (16,503,317) | ||||||||||||||
| Balances, December 31, 2019 | 2,805,961,317 | (947,979,763) | 1,857,981,554 | ||||||||||||||
| Stock award activity | — | 437,611 | 437,611 | ||||||||||||||
| Balances, December 31, 2020 | 2,805,961,317 | (947,542,152) | 1,858,419,165 | ||||||||||||||
| Stock award activity | — | 412,569 | 412,569 | ||||||||||||||
| Repurchases of common stock | — | (35,656,116) | (35,656,116) | ||||||||||||||
| Balances, December 31, 2021 | 2,805,961,317 | (982,785,699) | 1,823,175,618 | ||||||||||||||
At December 31, 2017, 41,688,6662021, Altria had 27,585,919 shares of common stock were reserved for stock-based awards under Altria Group, Inc.’sAltria’s stock plans, andplans.
At December 31, 2021, 10 million shares of serial preferred stock, $1.00 par value, were authorized. Noauthorized; no shares of serial preferred stock have been issued.
▪Dividends: DuringIn the third quarter of 2017, Altria Group, Inc.’s2021, Altria’s Board of Directors (the “Board of Directors” or “Board”) approved an 8.2%a 4.7% increase in the quarterly dividend rate to $0.66$0.90 per share of Altria Group, Inc. common stock versus the previous rate of $0.61$0.86 per share. The current annualized dividend rate is $2.64$3.60 per share. Future dividend payments remain subject to the discretion of the Board of Directors.Board.
▪Share Repurchases:In July 2014,2019, the Board of Directors authorized a $1.0 billion share repurchase program (the “July 20142019 share repurchase program”). DuringIn April 2020, the third quarterBoard rescinded the $500 million remaining in this program as part of 2015, Altria Group, Inc. completedAltria’s efforts to enhance its liquidity position in response to the July 2014 share repurchase program, under which Altria Group, Inc. repurchased a total of 20.4 million shares of its common stock at an average price of $48.90 per share.COVID-19 pandemic.
In July 2015,January 2021, the Board of Directors authorized a $1.0new $2.0 billion share repurchase program that it expanded to $3.0$3.5 billion in October 2016 and to $4.0 billion in July 20172021 (as expanded, the “July 2015“January 2021 share repurchase program”). During 2017, 2016 and 2015, Altria Group, Inc. repurchased 41.6 million shares, 16.2 million shares, and 0.6 million shares, respectively, of its common stock (at an aggregate cost
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Altria did not repurchase any shares in 2020. For the years ended December 31, 2017, 20162021 and 2015, Altria Group, Inc.’s2019, Altria’s total share repurchase activity was as follows:
| 2021 | 2019 | |||||||||||||||||||||||||||||||
| (in millions, except per share data) | January 2021 Share Repurchase Program | July 2019 Share Repurchase Program | January 2018 Share Repurchase Program (1) | Total | ||||||||||||||||||||||||||||
| Total number of shares repurchased | 35.7 | 10.1 | 6.4 | 16.5 | ||||||||||||||||||||||||||||
| Aggregate cost of shares repurchased | $ | 1,675 | $ | 500 | $ | 345 | $ | 845 | ||||||||||||||||||||||||
| Average price per share of shares repurchased | $ | 46.97 | $ | 49.29 | $ | 54.36 | $ | 51.24 | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||
| (in millions, except per share data) | ||||||||||
Total number of shares repurchased | 41.6 | 16.2 | 10.7 | |||||||
Aggregate cost of shares repurchased | $ | 2,917 | $ | 1,030 | $ | 554 | ||||
| Average price per share of shares repurchased | $ | 70.10 | $ | 63.48 | $ | 51.83 | ||||
Note 11. Stock Plans
Shares available to be granted under the 20152020 Plan and the Directors Plan at December 31, 2017,2021, were 38,161,24223,459,288 and 920,942,703,256, respectively.
▪Restricted Stock and Restricted Stock Units: Altria Group, Inc. may grant shares of restricted stock and restricted stock units to employees of Altria Group, Inc. or any of its subsidiaries or affiliates. RSUs: During the vesting period, these sharesRSUs include nonforfeitable rights to dividends or dividend equivalents and may not be sold, assigned, pledged or otherwise encumbered. Such sharesRSUs are subject to forfeiture if certain employment conditions are not met. Altria Group, Inc. 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. Shares of restricted stock and restricted stock unitsRSUs generally vest three years after the grant date.
The fair value of the shares of restricted stock and restricted stock unitsRSUs at the date of grant, net of estimated forfeitures, is amortized to expense ratably over the restriction period, which is generally three years. Altria Group, Inc. recorded pre-tax compensation expense related to restricted stock and restricted stock units granted to employeesRSUs for the years ended December 31, 2017, 20162021, 2020 and 20152019 of $49$34 million, $44$31 million and $51$28 million, respectively. The deferred tax benefit recorded related to this compensation expense was $18$9 million, $17$8 million and $20$7 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. The unamortized compensation expense related to Altria Group, Inc. restricted stock and restricted stock unitsRSUs was $54$59 million at December 31, 20172021 and is expected to be recognized over a weighted-average period of approximately two years.
| Number of Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||||||||
Number of Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||||||||
| Balance at December 31, 2016 | 3,245,534 | $ | 48.45 | ||||||||||||||
| Balance at December 31, 2020 | Balance at December 31, 2020 | 2,239,379 | $ | 51.76 | |||||||||||||
| Granted | 641,263 | $ | 71.05 | Granted | 1,069,531 | $ | 45.22 | ||||||||||
| Vested | (1,321,620 | ) | $ | 36.40 | Vested | (424,217) | $ | 69.04 | |||||||||
| Forfeited | (180,676 | ) | $ | 59.11 | Forfeited | (182,231) | $ | 46.09 | |||||||||
| Balance at December 31, 2017 | 2,384,501 | $ | 60.40 | ||||||||||||||
| Balance at December 31, 2021 | Balance at December 31, 2021 | 2,702,462 | $ | 46.84 | |||||||||||||
The weighted-average grant date fair value of Altria Group, Inc. restricted stock and restricted stock unitsRSUs granted during the years ended December 31, 2017, 20162021, 2020 and 20152019 was $46$48 million, $56$49 million and $65$37 million, respectively, or $71.05, $59.38$45.22, $42.59 and $54.54$52.03 per restricted stock or restricted stock unit,RSU, respectively. The total vesting date fair value of Altria Group, Inc. restricted stock and restricted stock unitsRSUs that vested during the years ended December 31, 2017, 20162021, 2020 and 20152019 was $95$19 million, $78$25 million and $85$30 million, respectively.
▪PSUs: Altria Group, Inc. and Subsidiaries
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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 (“EPS”TSR”) performance multiplier, which depends on Altria’s relative TSR to a predetermined peer group. For the 2019 grant, the performance measures consist of Altria’s adjusted diluted earnings per share compounded annual growth rate and Altria Group, Inc.’s total shareholder returnAltria’s TSR relative to a predetermined peer group. The performance stock unitsPSUs are also subject to forfeiture if certain employment conditions are not met. At December 31, 2017,2021, Altria Group, Inc. had 170,755 performance stock units remaining,554,551 PSUs outstanding, with a weighted-average grant date fair value of $70.39$46.58 per performance stock unit.PSU. The fair value of the performance stock unitsPSUs at the date of grant, net of estimated forfeitures, is amortized to expense over the performance period. Altria Group, Inc. recorded pre-tax compensation expense related to performance stock unitsPSUs for the yearyears ended December 31, 20172021, 2020 and 2019 of $6 million.million, $4 million and $4 million, respectively. The unamortized compensation expense related to Altria Group, Inc.’s performance stock unitsPSUs was $7$12 million at December 31, 2017. Altria Group, Inc. did not grant any performance stock units during 2016 and 2015.
2021.Note 12. Earnings (Losses) per Share
Basic and diluted EPSearnings (losses) per share (“EPS”) were calculated using the following:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Net earnings (losses) attributable to Altria | $ | 2,475 | $ | 4,467 | $ | (1,293) | |||||||||||
| Less: Distributed and undistributed earnings attributable to share-based awards | (11) | (8) | (7) | ||||||||||||||
| Earnings (losses) for basic and diluted EPS | $ | 2,464 | $ | 4,459 | $ | (1,300) | |||||||||||
| Weighted-average shares for basic EPS | 1,845 | 1,858 | 1,869 | ||||||||||||||
| Plus: contingently issuable PSUs | — | 1 | — | ||||||||||||||
| Weighted-average shares for diluted EPS | 1,845 | 1,859 | 1,869 | ||||||||||||||
| For the Years Ended December 31, | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Net earnings attributable to Altria Group, Inc. | $ | 10,222 | $ | 14,239 | $ | 5,241 | |||||
| Less: Distributed and undistributed earnings attributable to share-based awards | (14 | ) | (24 | ) | (10 | ) | |||||
| Earnings for basic and diluted EPS | $ | 10,208 | $ | 14,215 | $ | 5,231 | |||||
| Weighted-average shares for basic and diluted EPS | 1,921 | 1,952 | 1,961 | ||||||||
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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 Group, Inc.:Altria:
| (in millions) | Benefit Plans | ABI | Currency Translation Adjustments and Other | Accumulated Other Comprehensive Losses | ||||||||||||||||||||||
| Balances, December 31, 2018 | $ | (2,168) | $ | (374) | $ | (5) | $ | (2,547) | ||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications | (204) | (367) | 26 | (545) | ||||||||||||||||||||||
| Deferred income taxes | 51 | 75 | — | 126 | ||||||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | (153) | (292) | 26 | (419) | ||||||||||||||||||||||
| Amounts reclassified to net earnings (losses) | 173 | (34) | — | 139 | ||||||||||||||||||||||
| Deferred income taxes | (44) | 7 | — | (37) | ||||||||||||||||||||||
Amounts reclassified to net earnings (losses), net of deferred income taxes | 129 | (27) | — | 102 | ||||||||||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | (24) | (319) | (1) | 26 | (317) | |||||||||||||||||||||
| Balances, December 31, 2019 | (2,192) | (693) | 21 | (2,864) | ||||||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications | (454) | (1,613) | (4) | (2,071) | ||||||||||||||||||||||
| Deferred income taxes | 115 | 352 | — | 467 | ||||||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | (339) | (1,261) | (4) | (1,604) | ||||||||||||||||||||||
| Amounts reclassified to net earnings (losses) | 148 | 21 | — | 169 | ||||||||||||||||||||||
| Deferred income taxes | (37) | (5) | — | (42) | ||||||||||||||||||||||
Amounts reclassified to net earnings (losses), net of deferred income taxes | 111 | 16 | — | 127 | ||||||||||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | (228) | (1,245) | (1) | (4) | (1,477) | |||||||||||||||||||||
| Balances, December 31, 2020 | (2,420) | (1,938) | 17 | (4,341) | ||||||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications | 961 | 627 | 25 | 1,613 | ||||||||||||||||||||||
| Deferred income taxes | (245) | (141) | — | (386) | ||||||||||||||||||||||
| Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | 716 | 486 | 25 | 1,227 | ||||||||||||||||||||||
| Amounts reclassified to net earnings (losses) | 122 | (76) | 35 | 81 | ||||||||||||||||||||||
| Deferred income taxes | (30) | 16 | (9) | (23) | ||||||||||||||||||||||
Amounts reclassified to net earnings (losses), net of deferred income taxes | 92 | (60) | 26 | 58 | ||||||||||||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | 808 | 426 | (1) | 51 | 1,285 | |||||||||||||||||||||
| Balances, December 31, 2021 | $ | (1,612) | $ | (1,512) | $ | 68 | $ | (3,056) | ||||||||||||||||||
| (in millions) | Benefit Plans | AB InBev/SABMiller | Currency Translation Adjustments and Other | Accumulated Other Comprehensive Losses | ||||||||||||
| Balances, December 31, 2014 | $ | (2,040 | ) | $ | (640 | ) | $ | (2 | ) | $ | (2,682 | ) | ||||
| Other comprehensive losses before reclassifications | (223 | ) | (983 | ) | (4 | ) | (1,210 | ) | ||||||||
| Deferred income taxes | 86 | 344 | 1 | 431 | ||||||||||||
| Other comprehensive losses before reclassifications, net of deferred income taxes | (137 | ) | (639 | ) | (3 | ) | (779 | ) | ||||||||
| Amounts reclassified to net earnings | 272 | 21 | — | 293 | ||||||||||||
| Deferred income taxes | (105 | ) | (7 | ) | — | (112 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | 167 | 14 | — | 181 | ||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | 30 | (625 | ) | (1) | (3 | ) | (598 | ) | ||||||||
| Balances, December 31, 2015 | (2,010 | ) | (1,265 | ) | (5 | ) | (3,280 | ) | ||||||||
| Other comprehensive (losses) earnings before reclassifications | (247 | ) | 787 | 1 | 541 | |||||||||||
| Deferred income taxes | 96 | (276 | ) | — | (180 | ) | ||||||||||
| Other comprehensive (losses) earnings before reclassifications, net of deferred income taxes | (151 | ) | 511 | (2) | 1 | 361 | ||||||||||
| Amounts reclassified to net earnings | 178 | 1,160 | — | 1,338 | ||||||||||||
| Deferred income taxes | (65 | ) | (406 | ) | — | (471 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | 113 | 754 | (3) | — | 867 | |||||||||||
| Other comprehensive (losses) earnings, net of deferred income taxes | (38 | ) | 1,265 | 1 | 1,228 | |||||||||||
| Balances, December 31, 2016 | (2,048 | ) | — | (4 | ) | (2,052 | ) | |||||||||
| Other comprehensive earnings (losses) before reclassifications | 52 | (91 | ) | — | (39 | ) | ||||||||||
| Deferred income taxes | (21 | ) | 32 | — | 11 | |||||||||||
| Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | 31 | (59 | ) | — | (28 | ) | ||||||||||
| Amounts reclassified to net earnings | 291 | 8 | — | 299 | ||||||||||||
| Deferred income taxes | (113 | ) | (3 | ) | — | (116 | ) | |||||||||
Amounts reclassified to net earnings, net of deferred income taxes | 178 | 5 | — | 183 | ||||||||||||
| Other comprehensive earnings (losses), net of deferred income taxes | 209 | (54 | ) | (1) | — | 155 | ||||||||||
| Balances, December 31, 2017 | $ | (1,839 | ) | $ | (54 | ) | $ | (4 | ) | $ | (1,897 | ) | ||||
(1) Altria Group, Inc.’s proportionatePrimarily reflects Altria’s share of AB InBev’s and SABMiller’s other comprehensive earnings/losses consisted primarily ofABI’s currency translation adjustments forand the years ended December 31, 2017 and 2015, respectively.impact of Altria’s designated net investment hedges. For further discussion of designated net investment hedges, see Note 7. Financial Instruments.
The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings:earnings (losses):
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||
Benefit Plans: (1) | ||||||||||||||||||||||||||||||||
| Net loss | $ | 163 | $ | 173 | $ | 200 | ||||||||||||||||||||||||||
| Prior service cost/credit | (41) | (25) | (27) | |||||||||||||||||||||||||||||
| 122 | 148 | 173 | ||||||||||||||||||||||||||||||
ABI (2) | (76) | 21 | (34) | |||||||||||||||||||||||||||||
Other (3) | 35 | — | — | |||||||||||||||||||||||||||||
| Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings (losses) | $ | 81 | $ | 169 | $ | 139 | ||||||||||||||||||||||||||
| For the Years Ended December 31, | ||||||||||||
| (in millions) | 2017 | 2016 | 2015 | |||||||||
Benefit Plans: (1) | ||||||||||||
| Net loss | $ | 325 | $ | 223 | $ | 304 | ||||||
| Prior service cost/credit | (34 | ) | (45 | ) | (32 | ) | ||||||
| 291 | 178 | 272 | ||||||||||
AB InBev/SABMiller (2) | 8 | 1,160 | 21 | |||||||||
| Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings | $ | 299 | $ | 1,338 | $ | 293 | ||||||
(2) For the years ended December 31, 2017 and 2015, amounts Amounts are included in earnings(income) losses from equity investment in AB InBev/SABMiller. Substantially all of the amount for the year ended December 31, 2016 is included in gain on AB InBev/SABMiller business combination.investments. For further information, see Note 6. InvestmentInvestments in AB InBev/SABMiller.Equity Securities.
(3) Amounts are included in marketing, administration and research costs and are related to the Ste. Michelle Transaction. For further details, see Note 16. Benefit Plans.
Note 14. Income Taxes
Earnings (losses) before income taxes and (benefit) provision for income taxes consisted of the following for the years ended December 31, 2017, 2016 and 2015:following:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Earnings (losses) before income taxes: | |||||||||||||||||
| United States | $ | 4,239 | $ | 6,842 | $ | 266 | |||||||||||
| Outside United States | (415) | 48 | 500 | ||||||||||||||
| Total | $ | 3,824 | $ | 6,890 | $ | 766 | |||||||||||
| Provision (benefit) for income taxes: | |||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 1,965 | $ | 2,025 | $ | 1,686 | |||||||||||
| State and local | 542 | 553 | 470 | ||||||||||||||
| Outside United States | 2 | 22 | 3 | ||||||||||||||
| 2,509 | 2,600 | 2,159 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (1,190) | (130) | (78) | ||||||||||||||
| State and local | 30 | (34) | (19) | ||||||||||||||
| Outside United States | — | — | 2 | ||||||||||||||
| (1,160) | (164) | (95) | |||||||||||||||
| Total provision (benefit) for income taxes | $ | 1,349 | $ | 2,436 | $ | 2,064 | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Earnings before income taxes: | |||||||||||
| United States | $ | 9,809 | $ | 21,867 | $ | 8,078 | |||||
| Outside United States | 19 | (15 | ) | — | |||||||
| Total | $ | 9,828 | $ | 21,852 | $ | 8,078 | |||||
Provision (benefit) for income taxes: | |||||||||||
| Current: | |||||||||||
| Federal | $ | 2,346 | $ | 4,093 | $ | 2,516 | |||||
| State and local | 366 | 390 | 451 | ||||||||
| Outside United States | 15 | 6 | — | ||||||||
| 2,727 | 4,489 | 2,967 | |||||||||
| Deferred: | |||||||||||
| Federal | (3,213 | ) | 3,102 | (140 | ) | ||||||
| State and local | 86 | 20 | 8 | ||||||||
| Outside United States | 1 | (3 | ) | — | |||||||
| (3,126 | ) | 3,119 | (132 | ) | |||||||
Total (benefit) provision for income taxes | $ | (399 | ) | $ | 7,608 | $ | 2,835 | ||||
78
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 was as follows:
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Balance at beginning of year | $ | 74 | $ | 64 | $ | 85 | |||||||||||
| Additions for tax positions of prior years | 40 | 12 | 32 | ||||||||||||||
| Reductions for tax positions due to lapse of statutes of limitations | (5) | — | — | ||||||||||||||
| Reductions for tax positions of prior years | (23) | (2) | (16) | ||||||||||||||
| Tax settlements | (33) | — | (37) | ||||||||||||||
| Balance at end of year | $ | 53 | $ | 74 | $ | 64 | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Balance at beginning of year | $ | 169 | $ | 158 | $ | 258 | |||||
Additions based on tax positions related to the current year | — | 15 | 15 | ||||||||
Additions for tax positions of prior years | 129 | 29 | 57 | ||||||||
Reductions for tax positions due to lapse of statutes of limitations | (4 | ) | (4 | ) | (4 | ) | |||||
Reductions for tax positions of prior years | (208 | ) | (28 | ) | (86 | ) | |||||
| Settlements | (20 | ) | (1 | ) | (82 | ) | |||||
| Balance at end of year | $ | 66 | $ | 169 | $ | 158 | |||||
Unrecognized tax benefits and Altria Group, Inc.’sAltria’s consolidated liability for tax contingencies were as follows at December 31, 2017 and 2016 were as follows:31:
| (in millions) | 2017 | 2016 | (in millions) | 2021 | 2020 | |||||||||||||
| Unrecognized tax benefits | $ | 66 | $ | 169 | Unrecognized tax benefits | $ | 53 | $ | 74 | |||||||||
| Accrued interest and penalties | 9 | 23 | Accrued interest and penalties | 11 | 15 | |||||||||||||
| Tax credits and other indirect benefits | (1 | ) | (6 | ) | Tax credits and other indirect benefits | — | (1) | |||||||||||
| Liability for tax contingencies | $ | 74 | $ | 186 | Liability for tax contingencies | $ | 64 | $ | 88 | |||||||||
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 20172021 was $43$31 million, along with $23$22 million affecting deferred taxes. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 20162020 was $67$47 million, along with $102$27 million affecting deferred taxes.
Altria Group, Inc. recognizes accrued interest and penalties associated with uncertain tax positions as part of the tax provision.
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, Altria Group, Inc. recognized in its consolidated statements of earnings $(13)(losses) $(4) million, $9$4 million and $(36)$6 million, respectively, of gross interest (income) expense associated with uncertain tax positions.
Altria Group, Inc. is subject to income taxation in many jurisdictions. UncertainUnrecognized tax positionsbenefits 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 Group, Inc.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 $5$17 million.
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||
| (dollars in millions) | $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||||
| U.S. federal statutory rate | $ | 803 | 21.0 | % | $ | 1,447 | 21.0 | % | $ | 161 | 21.0 | % | ||||||||||||||||||||||||||
| Increase (decrease) resulting from: | ||||||||||||||||||||||||||||||||||||||
| State and local income taxes, net of federal tax benefit | 451 | 11.8 | 410 | 6.0 | 356 | 46.5 | ||||||||||||||||||||||||||||||||
| Tax basis in foreign investments | 25 | 0.7 | 23 | 0.3 | 84 | 11.0 | ||||||||||||||||||||||||||||||||
| Uncertain tax positions | (25) | (0.7) | 9 | 0.1 | (40) | (5.2) | ||||||||||||||||||||||||||||||||
| Investment in ABI | (31) | (0.8) | (16) | (0.2) | (210) | (27.4) | ||||||||||||||||||||||||||||||||
| Investment in JUUL | 7 | 0.2 | 537 | 7.8 | 1,808 | 236.0 | ||||||||||||||||||||||||||||||||
| Investment in Cronos | 128 | 3.3 | 20 | 0.3 | (66) | (8.6) | ||||||||||||||||||||||||||||||||
Other (1) | (9) | (0.2) | 6 | 0.1 | (29) | (3.8) | ||||||||||||||||||||||||||||||||
| Effective tax rate | $ | 1,349 | 35.3 | % | $ | 2,436 | 35.4 | % | $ | 2,064 | 269.5 | % | ||||||||||||||||||||||||||
(1) Other in 2019 is primarily deferred profit sharing dividends tax benefit of $21 million and 2015:
| 2017 | 2016 | 2015 | ||||||
| U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| Increase (decrease) resulting from: | ||||||||
State and local income taxes, net of federal tax benefit | 3.5 | 1.2 | 3.7 | |||||
| Re-measurement of net deferred tax liabilities | (31.2 | ) | — | — | ||||
| Tax basis in foreign investments | (7.8 | ) | — | — | ||||
| Deemed repatriation tax | 4.2 | — | — | |||||
| Uncertain tax positions | (0.9 | ) | — | (0.8 | ) | |||
AB InBev/SABMiller dividend benefit | (5.9 | ) | (0.6 | ) | (0.5 | ) | ||
| Domestic manufacturing deduction | (1.8 | ) | (0.8 | ) | (2.0 | ) | ||
| Other | 0.8 | — | (0.3 | ) | ||||
| Effective tax rate | (4.1 | )% | 34.8 | % | 35.1 | % | ||
The tax benefitprovision (benefit) in 20172021 was impacted by the state tax treatment of the impairment charge on Altria’s equity investment in ABI. The tax provision (benefit) in 2021 also included net tax benefitsexpense of $3,367$128 million related to Altria’s Investment in Cronos, including an addition to a valuation allowance on a deferred tax asset.
The tax provision (benefit) 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 Tax Reform Act recordedthird quarter of 2020, partially offset by a $24 million tax benefit reflecting the
79
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 2017 as follows: (i) a2020.
The tax benefitprovision (benefit) in 2019 included tax expense of $3,017 million to re-measure Altria Group, Inc. and its consolidated subsidiaries’ net deferred tax liabilities based on the new U.S. federal statutory rate; and (ii) a net tax benefit of $763$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 adjustmentbenefit associated with the deemed repatriation tax partially offset by tax expense of $413 million for the deemed repatriation tax.
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at December 31, 2017 and 2016:31:
| (in millions) | 2017 | 2016 | (in millions) | 2021 | 2020 | |||||||||||||
| Deferred income tax assets: | Deferred income tax assets: | |||||||||||||||||
| Accrued postretirement and postemployment benefits | $ | 539 | $ | 952 | Accrued postretirement and postemployment benefits | $ | 387 | $ | 524 | |||||||||
| Settlement charges | 614 | 1,446 | Settlement charges | 835 | 888 | |||||||||||||
| Accrued pension costs | 136 | 330 | Accrued pension costs | — | 148 | |||||||||||||
| Investment in JUUL | Investment in JUUL | 2,652 | 2,642 | |||||||||||||||
| Investment in Cronos | Investment in Cronos | 403 | 128 | |||||||||||||||
| Net operating losses and tax credit carryforwards | 18 | 288 | Net operating losses and tax credit carryforwards | 46 | 81 | |||||||||||||
| Total deferred income tax assets | 1,307 | 3,016 | Total deferred income tax assets | 4,323 | 4,411 | |||||||||||||
| Deferred income tax liabilities: | Deferred income tax liabilities: | |||||||||||||||||
| Property, plant and equipment | (261 | ) | (429 | ) | Property, plant and equipment | (216) | (273) | |||||||||||
| Intangible assets | (2,674 | ) | (4,032 | ) | Intangible assets | (2,802) | (2,806) | |||||||||||
| Investment in AB InBev | (2,859 | ) | (5,546 | ) | ||||||||||||||
| Investment in ABI | Investment in ABI | (1,695) | (2,819) | |||||||||||||||
| Finance assets, net | (404 | ) | (708 | ) | Finance assets, net | (29) | (117) | |||||||||||
| Accrued pension costs | Accrued pension costs | (55) | — | |||||||||||||||
| Other | (121 | ) | (125 | ) | Other | (94) | (12) | |||||||||||
| Total deferred income tax liabilities | (6,319 | ) | (10,840 | ) | Total deferred income tax liabilities | (4,891) | (6,027) | |||||||||||
| Valuation allowances | — | (240 | ) | Valuation allowances | (3,097) | (2,817) | ||||||||||||
| Net deferred income tax liabilities | $ | (5,012 | ) | $ | (8,064 | ) | Net deferred income tax liabilities | $ | (3,665) | $ | (4,433) | |||||||
At December 31, 2017,2021, Altria Group, Inc. had estimated gross state tax net operating losses of $569$272 million that, if unused, will expire in 20182022 through 2037.2038.
A reconciliation of the beginning and ending valuation allowances was as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
| Balance at beginning of year | $ | 2,817 | $ | 2,324 | $ | 71 | ||||||||||||||
| Additions to valuation allowance related to Altria’s initial Investment in Cronos | — | — | 352 | |||||||||||||||||
| Additions to valuation allowance charged to income tax expense | 401 | 692 | 2,063 | |||||||||||||||||
| Reductions to valuation allowance credited to income tax benefit | (118) | (200) | (159) | |||||||||||||||||
| Foreign currency translation | (3) | 1 | (3) | |||||||||||||||||
| Balance at end of year | $ | 3,097 | $ | 2,817 | $ | 2,324 | ||||||||||||||
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.
80
The changes in valuation allowances during 2021 were primarily due to deferred tax assets recorded in connection with Altria’s Investment in Cronos. The cumulative valuation allowance at December 31, 2021 was primarily attributable to deferred tax assets recorded in connection with Altria’s investment in JUUL ($2,652 million) and its Investment in Cronos ($407 million).
The 2020 valuation allowance was primarily attributable to deferred tax assets recorded in connection with the impairments of Altria’s investment in JUUL ($2,610 million), and its Investment in Cronos ($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.
Note 15. Segment Reporting
The products of Altria Group, Inc.’sAltria’s subsidiaries include smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA, and Nat Sherman, machine-made large cigars and pipe tobacco manufactured and sold by MiddletonMiddleton; oral tobacco products, consisting of MST and premium cigars sold by Nat Sherman; smokeless tobaccosnus products manufactured and sold by USSTC;USSTC, and wine produced and/or distributedoral nicotine pouches manufactured and sold by Ste. Michelle.Helix. The products and services of these subsidiaries constitute Altria Group, Inc.’sAltria’s reportable segments of smokeable products smokelessand oral tobacco products and wine.at December 31, 2021. The financial services and the innovative tobacco products businesses, which include the heated tobacco business and Helix ROW, 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. Operating companies incomeOCI for the segments is defined as operating income before general corporate expenses and amortization of intangibles. Interest and other debt expense, net, along with net periodic benefit income/cost, excluding service cost, and provision (benefit) 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 3. 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:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||
| Net revenues: | Net revenues: | |||||||||||||||||||||||||||
| Smokeable products | $ | 22,636 | $ | 22,851 | $ | 22,792 | Smokeable products | $ | 22,866 | $ | 23,089 | $ | 21,996 | |||||||||||||||
| Smokeless products | 2,155 | 2,051 | 1,879 | |||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | 2,608 | 2,533 | 2,367 | ||||||||||||||||||||||||
| Wine | 698 | 746 | 692 | Wine | 494 | 614 | 689 | |||||||||||||||||||||
| All other | 87 | 96 | 71 | All other | 45 | (83) | 58 | |||||||||||||||||||||
| Net revenues | $ | 25,576 | $ | 25,744 | $ | 25,434 | Net revenues | $ | 26,013 | $ | 26,153 | $ | 25,110 | |||||||||||||||
| Earnings before income taxes: | Earnings before income taxes: | |||||||||||||||||||||||||||
Operating companies income (loss): | ||||||||||||||||||||||||||||
| OCI: | OCI: | |||||||||||||||||||||||||||
| Smokeable products | $ | 8,408 | $ | 7,768 | $ | 7,569 | Smokeable products | $ | 10,394 | $ | 9,985 | $ | 9,009 | |||||||||||||||
| Smokeless products | 1,300 | 1,177 | 1,108 | |||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | 1,659 | 1,718 | 1,580 | ||||||||||||||||||||||||
| Wine | 147 | 164 | 152 | Wine | 21 | (360) | (3) | |||||||||||||||||||||
| All other | (51 | ) | (99 | ) | (169 | ) | All other | (97) | (172) | (16) | ||||||||||||||||||
| Amortization of intangibles | (21 | ) | (21 | ) | (21 | ) | Amortization of intangibles | (72) | (72) | (44) | ||||||||||||||||||
| General corporate expenses | (227 | ) | (222 | ) | (237 | ) | General corporate expenses | (345) | (227) | (199) | ||||||||||||||||||
| Reduction of PMI tax-related receivable | — | — | (41 | ) | ||||||||||||||||||||||||
| Corporate asset impairment and exit costs | — | (5 | ) | — | Corporate asset impairment and exit costs | — | 1 | (1) | ||||||||||||||||||||
| Operating income | 9,556 | 8,762 | 8,361 | Operating income | 11,560 | 10,873 | 10,326 | |||||||||||||||||||||
| Interest and other debt expense, net | (705 | ) | (747 | ) | (817 | ) | Interest and other debt expense, net | 1,162 | 1,209 | 1,280 | ||||||||||||||||||
| Loss on early extinguishment of debt | — | (823 | ) | (228 | ) | Loss on early extinguishment of debt | 649 | — | — | |||||||||||||||||||
| Earnings from equity investment in AB InBev/SABMiller | 532 | 795 | 757 | |||||||||||||||||||||||||
| Gain on AB InBev/SABMiller business combination | 445 | 13,865 | 5 | |||||||||||||||||||||||||
| Net periodic benefit income, excluding service cost | Net periodic benefit income, excluding service cost | (202) | (77) | (37) | ||||||||||||||||||||||||
| (Income) losses from equity investments | (Income) losses from equity investments | 5,979 | 111 | (1,725) | ||||||||||||||||||||||||
| Impairment of JUUL equity securities | Impairment of JUUL equity securities | — | 2,600 | 8,600 | ||||||||||||||||||||||||
| Loss on Cronos-related financial instruments | Loss on Cronos-related financial instruments | 148 | 140 | 1,442 | ||||||||||||||||||||||||
| Earnings before income taxes | $ | 9,828 | $ | 21,852 | $ | 8,078 | Earnings before income taxes | $ | 3,824 | $ | 6,890 | $ | 766 | |||||||||||||||
The smokeable products segment included net revenues of $21,900$21,877 million, $22,199$22,135 million and $22,193$21,158 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively, related to cigarettes and net revenues of $736$989 million, $652$954 million and $599$838 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, 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, 2021, 2020 and 2019. PM USA, USSTC, MiddletonHelix and Nat Sherman’s largestMiddleton’s customer, McLane Company, Inc., accounted for approximately 26%23%, 26% and 25% and 26% of Altria Group, Inc.’sAltria’s consolidated net revenues for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively. In addition, Performance Food Group Company, which acquired Core-Mark Holding Company, Inc. in 2021, also accounted for approximately 23% of Altria’s consolidated net revenues for the year ended December 31, 2021. Core-Mark Holding Company, Inc. accounted for approximately 14%, 14%17% and 10%15% of Altria Group, Inc.’sAltria’s consolidated net revenues for the years ended December 31, 2017, 20162020 and 2015,2019, respectively. Substantially all of these net revenues were reported in the smokeable products and smokelessoral tobacco products segments. Sales to three distributorsNo other customer accounted for approximately 67%, 69% and 66%more than 10% of Altria’s consolidated net revenues for the wine segment for the years ended December 31, 2017, 20162021, 2020 and 2015, respectively.2019.
82
Details of Altria Group, Inc.’sAltria’s depreciation expense and capital expenditures were as follows:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||
| Depreciation expense: | Depreciation expense: | |||||||||||||||||||||||||||
| Smokeable products | $ | 93 | $ | 93 | $ | 117 | Smokeable products | $ | 80 | $ | 81 | $ | 88 | |||||||||||||||
| Smokeless products | 29 | 26 | 27 | |||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | 34 | 32 | 27 | ||||||||||||||||||||||||
| Wine | 40 | 36 | 32 | Wine | 27 | 40 | 41 | |||||||||||||||||||||
| General corporate and other | 26 | 28 | 28 | General corporate and other | 31 | 32 | 26 | |||||||||||||||||||||
| Total depreciation expense | $ | 188 | $ | 183 | $ | 204 | Total depreciation expense | $ | 172 | $ | 185 | $ | 182 | |||||||||||||||
| Capital expenditures: | Capital expenditures: | |||||||||||||||||||||||||||
| Smokeable products | $ | 39 | $ | 55 | $ | 56 | Smokeable products | $ | 48 | $ | 49 | $ | 61 | |||||||||||||||
| Smokeless products | 61 | 52 | 113 | |||||||||||||||||||||||||
| Oral tobacco products | Oral tobacco products | 43 | 67 | 44 | ||||||||||||||||||||||||
| Wine | 53 | 59 | 42 | Wine | 12 | 31 | 63 | |||||||||||||||||||||
| General corporate and other | 46 | 23 | 18 | General corporate and other | 66 | 84 | 78 | |||||||||||||||||||||
| Total capital expenditures | $ | 199 | $ | 189 | $ | 229 | Total capital expenditures | $ | 169 | $ | 231 | $ | 246 | |||||||||||||||
The comparability of operating companies incomeOCI 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, 2017, 2016 and 2015, pre-taxPre-tax (income) expense (income) for NPM adjustment items was recorded in Altria Group, Inc.’sto Altria’s consolidated statements of earnings (losses) as follows:
| For the Years Ended December 31, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Smokeable products segment | $ | (53) | $ | 4 | ||||||||||
| Interest and other debt expense, net | (23) | — | ||||||||||||
| Total | $ | (76) | $ | 4 | ||||||||||
| (in millions) | 2017 | 2016 | 2015 | |||||||||
| Smokeable products segment | $ | (5 | ) | $ | 12 | $ | (97 | ) | ||||
| Interest and other debt expense, net | 9 | 6 | 13 | |||||||||
| Total | $ | 4 | $ | 18 | $ | (84 | ) | |||||
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 collectively as “NPM Adjustment Items”). For the year ended December 31, 2015, the NPM Adjustment Items primarily relate to the resolution of the dispute with New York. For further discussion, see and are more fully described inHealth Care Cost Recovery Litigation - NPM Adjustment Disputesin Note 18. Contingencies. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded by PM USA as (reductions) increases (reductions) to cost of sales, which (increased) decreased (increased) operating companies incomeOCI in the smokeable products segment.
▪Tobacco and Health and Certain Other Litigation Items: For the years ended December 31, 2017, 2016 and 2015, pre-taxPre-tax charges related to certain tobacco and health and certain other litigation items were recorded in Altria Group, Inc.’sAltria’s consolidated statements of earnings (losses) as follows:
| For the Years Ended December 31, | ||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||
| Smokeable products segment | $ | 83 | $ | 79 | $ | 72 | ||||||||||||||
| General corporate | 90 | — | — | |||||||||||||||||
| Interest and other debt expense, net | 9 | 4 | 5 | |||||||||||||||||
| Total | $ | 182 | $ | 83 | $ | 77 | ||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | |||||||||
| Smokeable products segment | $ | 72 | $ | 88 | $ | 127 | ||||||
| Interest and other debt expense, net | 8 | 17 | 23 | |||||||||
| Total | $ | 80 | $ | 105 | $ | 150 | ||||||
▪Settlement for Lump Sum Pension Payments: In the third quarterCOVID-19 Special Items: Net pre-tax charges of 2017, Altria Group, Inc. made a voluntary, limited-time offer to former employees with vested benefits$50 million ($41 million in the Altria Retirement Plan who had not commenced receiving benefit paymentssmokeable products segment and who met certain other conditions. Eligible participants$9 million in the oral tobacco products segment) related to the COVID-19 pandemic were offered the opportunity to make a one-time election to receive their pension benefit as a single lump sum payment or as a monthly annuity. As a result of the 2017 lump sum distributions, a one-time pre-tax settlement charge of $81 million was recorded in 2017 in Altria Group, Inc.’sAltria’s consolidated statement of earnings as follows:(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, implementation, acquisition and disposition-related 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.
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| For the Year Ended December 31, 2017 | |||||||||||
| (in millions) | Cost of Sales | Marketing, Administration and Research Costs | Total | ||||||||
| Smokeable products | $ | 39 | $ | 18 | $ | 57 | |||||
| Smokeless products | — | 16 | 16 | ||||||||
| General corporate and other | — | 8 | 8 | ||||||||
| Total | $ | 39 | $ | 42 | $ | 81 | |||||
▪Asset Impairment, Exit, Implementation, Acquisition and Disposition-Related Costs: For further discussion,the years ended December 31, 2021, 2020 and 2019, Altria recorded pre-tax asset impairment, exit and implementation costs of $1 million, $407 million and $216 million, respectively. For a breakdown of asset impairment, exit and implementation costs by segment, see Note 16. Benefit Plans.
In addition, in 2021 the comparability of OCI was further impacted by the following disposition and Implementationacquisition-related costs:
Ste. Michelle Transaction: For the year ended December 31, 2021, net pre-tax disposition-related costs of $51 million were recorded in the wine segment, which consisted of a net pre-tax charge of $41 million to record the assets and liabilities associated with the Ste. Michelle Transaction at their fair value less costs to sell and $10 million of other disposition-related costs. The total net pre-tax charges of $51 million were recorded in marketing, administration and research costs in Altria’s consolidated statements of earnings (losses).
Acquisition-Related Costs: For the year ended December 31, 2021, Altria recorded pre-tax acquisition-related costs of $37 million in the oral tobacco products segment primarily for the settlement of an arbitration related to the 2019 on! transaction. These costs were included in marketing, administration and research costs in Altria’s consolidated statements of earnings (losses).
▪PMCC Residual Value Adjustments: For the year ended December 31, 2020, PMCC recorded pre-tax charges of $125 million (as a breakdownreduction to net revenues in the all other category) related to the decrease in unguaranteed residual values of these costs by segment.certain leased assets. There were no such adjustments in 2021 or 2019.
Note 16. Benefit Plans
Subsidiaries of Altria Group, Inc. sponsor noncontributory defined benefit pension plans covering the majority of allcertain employees of Altria Group, Inc. and its subsidiaries. However, employeesEmployees 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. This transition for new hires occurred from October 1, 2006 to January 1, 2008. In addition, effective January 1, 2010, certain employees of UST’s subsidiaries and Middleton who were participants in noncontributory defined benefit pension plans ceased to earn additional benefit service under those plans and became eligible to participate in a defined contribution plan with enhanced benefits. Altria Group, Inc. and its subsidiaries also provide postretirement health care and other benefits to the majority ofcertain retired employees.
The plan assets and benefit obligations of Altria Group, Inc.’sAltria’s pension plans and postretirement plans are measured at December 31 of each year. In December 2017, Altria Group, Inc. made a contribution of $270 million to a trust to fund certain
The discount rates for Altria Group, Inc.’sAltria’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.
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| Pension | Postretirement | ||||||||||||||
| (in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Change in benefit obligation: | |||||||||||||||
| Benefit obligation at beginning of year | $ | 8,312 | $ | 8,011 | $ | 2,364 | $ | 2,392 | |||||||
| Service cost | 75 | 76 | 16 | 17 | |||||||||||
| Interest cost | 288 | 281 | 76 | 77 | |||||||||||
| Benefits paid | (703 | ) | (440 | ) | (139 | ) | (135 | ) | |||||||
| Actuarial losses | 589 | 367 | 56 | 24 | |||||||||||
| Termination, settlement and curtailment | (51 | ) | 13 | — | 5 | ||||||||||
| Other | — | 4 | (38 | ) | (16 | ) | |||||||||
| Benefit obligation at end of year | 8,510 | 8,312 | 2,335 | 2,364 | |||||||||||
| Change in plan assets: | |||||||||||||||
| Fair value of plan assets at beginning of year | 7,475 | 6,706 | — | — | |||||||||||
| Actual return on plan assets | 1,219 | 678 | — | — | |||||||||||
| Employer contributions | 24 | 531 | 270 | — | |||||||||||
| Benefits paid | (703 | ) | (440 | ) | — | — | |||||||||
| Fair value of plan assets at end of year | 8,015 | 7,475 | 270 | — | |||||||||||
| Funded status at December 31 | $ | (495 | ) | $ | (837 | ) | $ | (2,065 | ) | $ | (2,364 | ) | |||
| Amounts recognized on Altria Group, Inc.’s consolidated balance sheets were as follows: | |||||||||||||||
| Other accrued liabilities | $ | (51 | ) | $ | (32 | ) | $ | (78 | ) | $ | (147 | ) | |||
| Accrued pension costs | (445 | ) | (805 | ) | — | — | |||||||||
| Other assets | 1 | — | — | — | |||||||||||
| Accrued postretirement health care costs | — | — | (1,987 | ) | (2,217 | ) | |||||||||
| $ | (495 | ) | $ | (837 | ) | $ | (2,065 | ) | $ | (2,364 | ) | ||||
| Pension | Postretirement | ||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | 9,465 | $ | 8,659 | $ | 2,229 | $ | 2,091 | |||||||||||||||
| Service cost | 68 | 74 | 20 | 16 | |||||||||||||||||||
| Interest cost | 184 | 251 | 38 | 59 | |||||||||||||||||||
| Benefits paid | (465) | (477) | (104) | (107) | |||||||||||||||||||
| Actuarial (gains) losses | (523) | 970 | (150) | 169 | |||||||||||||||||||
| Plan amendments | 8 | (12) | (345) | 1 | |||||||||||||||||||
| Divestiture | (193) | (1) | — | — | — | ||||||||||||||||||
| Benefit obligation at end of year | 8,544 | 9,465 | 1,688 | 2,229 | |||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets at beginning of year | 8,911 | 8,167 | 201 | 213 | |||||||||||||||||||
| Actual return on plan assets | 466 | 1,188 | 21 | 21 | |||||||||||||||||||
| Employer contributions | 26 | 33 | — | — | |||||||||||||||||||
| Benefits paid | (465) | (477) | (37) | (33) | |||||||||||||||||||
| Divestiture | (145) | (1) | — | — | — | ||||||||||||||||||
| Fair value of plan assets at end of year | 8,793 | 8,911 | 185 | 201 | |||||||||||||||||||
| Funded status at December 31 | $ | 249 | $ | (554) | $ | (1,503) | $ | (2,028) | |||||||||||||||
| Amounts recognized on Altria’s consolidated balance sheets were as follows: | |||||||||||||||||||||||
| Other accrued liabilities | $ | (27) | $ | (23) | $ | (67) | $ | (77) | |||||||||||||||
| Accrued pension costs | (200) | (551) | — | — | |||||||||||||||||||
| Other assets | 476 | 20 | — | — | |||||||||||||||||||
| Accrued postretirement health care costs | — | — | (1,436) | (1,951) | |||||||||||||||||||
| $ | 249 | $ | (554) | $ | (1,503) | $ | (2,028) | ||||||||||||||||
(1)Divestiture of benefit obligations and plan assets related to the Ste. Michelle Transaction. For further discussion, see Note 1. Background and Basis of Presentation.
The table above presents the projected benefit obligation for Altria Group, Inc.’sAltria’s pension plans. The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $8.2 billion and $8.0$9.1 billion at December 31, 20172021 and 2016,2020, respectively.
Actuarial (gains) losses for the years ended December 31, 2021 and 2020 for the pension and postretirement plans were due primarily to changes in the discount rate. Actuarial (gains) losses for the pension plans for the year ended December 31, 2021 were further impacted by changes to mortality rate assumptions.
Plan amendments for the postretirement plans for the year ended December 31, 2021 included several plan changes announced in June 2021 to Altria’s salaried retiree healthcare plans, primarily changing its post-age 65 coverage to a private medicare marketplace. These amendments triggered a plan remeasurement in June 2021, resulting in a reduction of $432 million (including discount rate impact and other changes) to the postretirement obligation in the second quarter of 2021 and a corresponding reduction to its accumulated other comprehensive losses.
For pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2017,2021, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $413 million, $364$176 million and $124$0 million, respectively. 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 projected benefit obligations in excess of plan assets at December 31, 2021, the projected benefit obligation and fair value of plan assets were $227 million and $0 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.
At December 31, 2016,2021 and 2020, the accumulated postretirement benefit obligations were in excess of plan assets for all pensionpostretirement plans.
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The following assumptions were used to determine Altria Group, Inc.’sAltria’s pension and postretirement benefit obligations at December 31:
| 2017 | 2016 | ||||
| Discount rate | 3.7 | % | 4.1 | % | |
| Rate of compensation increase | 4.0 | 4.0 | |||
| Pension | Postretirement | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Discount rate | 3.0 | % | 2.7 | % | 2.9 | % | 2.6 | % | |||||||||||||||
| Rate of compensation increase - long-term | 4.0 | 4.0 | — | — | |||||||||||||||||||
| Health care cost trend rate assumed for next year | — | — | 6.5 | 6.5 | |||||||||||||||||||
| Ultimate trend rate | — | — | 5.0 | 5.0 | |||||||||||||||||||
| Year that the rate reaches the ultimate trend rate | — | — | 2027 | 2027 | |||||||||||||||||||
| 2017 | 2016 | ||||
| Discount rate | 3.7 | % | 4.1 | % | |
| Health care cost trend rate assumed for next year | 7.0 | 7.0 | |||
| Ultimate trend rate | 5.0 | 5.0 | |||
| Year that the rate reaches the ultimate trend rate | 2022 | 2022 | |||
| Pension | Postretirement | ||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||
| Service cost | $ | 68 | $ | 74 | $ | 70 | $ | 20 | $ | 16 | $ | 16 | |||||||||||||||||||||||
| Interest cost | 184 | 251 | 306 | 38 | 59 | 76 | |||||||||||||||||||||||||||||
| Expected return on plan assets | (522) | (502) | (576) | (14) | (14) | (15) | |||||||||||||||||||||||||||||
| Amortization: | |||||||||||||||||||||||||||||||||||
| Net loss | 131 | 134 | 159 | 22 | 10 | 5 | |||||||||||||||||||||||||||||
| Prior service cost (credit) | 5 | 5 | 6 | (46) | (30) | (30) | |||||||||||||||||||||||||||||
| Settlement and curtailment | — | 10 | 27 | — | — | 5 | |||||||||||||||||||||||||||||
| Net periodic benefit cost (income) | $ | (134) | $ | (28) | $ | (8) | $ | 20 | $ | 41 | $ | 57 | |||||||||||||||||||||||
| Pension | Postretirement | ||||||||||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||
| Service cost | $ | 75 | $ | 76 | $ | 86 | $ | 16 | $ | 17 | $ | 18 | |||||||||||
| Interest cost | 288 | 281 | 337 | 76 | 77 | 100 | |||||||||||||||||
| Expected return on plan assets | (601 | ) | (553 | ) | (539 | ) | — | — | — | ||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss | 197 | 171 | 234 | 25 | 25 | 43 | |||||||||||||||||
| Prior service cost (credit) | 4 | 5 | 7 | (38 | ) | (39 | ) | (39 | ) | ||||||||||||||
| Termination, settlement and curtailment | 86 | 34 | 8 | — | (2 | ) | — | ||||||||||||||||
| Net periodic benefit cost | $ | 49 | $ | 14 | $ | 133 | $ | 79 | $ | 78 | $ | 122 | |||||||||||
The amounts included in termination, settlement and curtailment in the table above were comprised of the following changes:
| Pension | Post- retirement | ||||||||||||
| (in millions) | 2017 | 2016 | 2015 | 2016 | |||||||||
| Benefit obligation | $ | — | $ | 23 | $ | — | $ | 11 | |||||
| Other comprehensive earnings/losses: | |||||||||||||
| Net loss | 86 | 9 | 8 | — | |||||||||
| Prior service cost (credit) | — | 2 | — | (13 | ) | ||||||||
| $ | 86 | $ | 34 | $ | 8 | $ | (2 | ) | |||||
| Pension | Postretirement | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2019 | ||||||||||||||||||||||||||||||||||||||
| Benefit obligation | $ | — | $ | 6 | $ | 10 | |||||||||||||||||||||||||||||||||||
| Other comprehensive earnings/losses: | |||||||||||||||||||||||||||||||||||||||||
| Net loss | 10 | 20 | — | ||||||||||||||||||||||||||||||||||||||
| Prior service cost (credit) | — | 1 | (5) | ||||||||||||||||||||||||||||||||||||||
| $ | 10 | $ | 27 | $ | 5 | ||||||||||||||||||||||||||||||||||||
| (in millions) | Pension | Postretirement | |||||
| Net loss | $ | 228 | $ | 35 | |||
| Prior service cost (credit) | 4 | (42 | ) | ||||
The following assumptions were used to determine Altria Group, Inc.’sAltria’s net periodic benefit cost for the years ended December 31:
| Pension | Postretirement | Pension | Postretirement | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||
| Discount rates: | Discount rates: | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | 4.3 | % | 4.7 | % | 4.1 | % | 4.3 | % | 4.5 | % | 4.0 | % | Service cost | 3.1 | % | 3.7 | % | 4.6 | % | 3.1 | % | 3.6 | % | 4.5 | % | |||||||||||||||||||||||||||
| Interest cost | 3.5 | 3.6 | 4.1 | 3.5 | 3.4 | 4.0 | Interest cost | 2.0 | 3.0 | 4.0 | 2.0 | 3.0 | 4.0 | |||||||||||||||||||||||||||||||||||||||
| Expected rate of return on plan assets | 8.0 | 8.0 | 8.0 | — | — | — | Expected rate of return on plan assets | 6.6 | 6.6 | 7.8 | 7.7 | 7.7 | 7.8 | |||||||||||||||||||||||||||||||||||||||
| Rate of compensation increase | 4.0 | 4.0 | 4.0 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Rate of compensation increase - long-term | Rate of compensation increase - long-term | 4.0 | 4.0 | 4.0 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Health care cost trend rate | — | — | — | 7.0 | 6.5 | 7.0 | Health care cost trend rate | — | — | — | 6.5 | 6.5 | 6.5 | |||||||||||||||||||||||||||||||||||||||
| One-Percentage-Point Increase | One-Percentage-Point Decrease | ||||
| Effect on total of postretirement service and interest cost | 7.8 | % | (6.9 | )% | |
| Effect on postretirement benefit obligation | 6.6 | % | (5.5 | )% | |
▪Defined Contribution Plans: Altria Group, Inc. 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 $83$90 million, $93$88 million and $85$78 million in 2017, 20162021, 2020 and 2015,2019, respectively.
▪Pension and Postretirement Plan Assets: In managing its pension assets, Altria Group, Inc.’simplements a liability-driven investment framework that aligns plan assets with liabilities. In the fourth quarter of 2021, Altria adjusted its target asset allocation for the majority
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of its pension plan assets from an equity/fixed income allocation of 30%/70% to a target allocation of 20%/80%. The objective of this change is to further reduce the overall exposure to equity volatility and more closely align the values of plan assets with the liabilities. The target allocation between fixed income and growth assets 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.
Altria’s investment strategy for its pensionpostretirement plan assets is aimed at maximizing the total asset return based on an expectation that equity securities will outperform debt securities over the long term. term and reflects the maturity structure of the benefit obligation. The equity/fixed income target allocation for postretirement plan assets remains unchanged at 55%/45%.
Altria Group, Inc. believes that it implements thethese investment strategystrategies 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 that reflects the impact of the demographic mix of plan participants on the benefit obligation using a target asset allocation between equity securities and fixed income investments of 55%/45%. securities.
The actual composition of Altria Group, Inc.’sAltria’s plan assets at December 31, 20172021 was broadly characterized with the following allocation:
| Pension | Postretirement | ||||||||||
| Equity securities | 31 | % | 56 | % | |||||||
| Corporate bonds | 53 | % | 35 | % | |||||||
| U.S. Treasury and foreign government securities | 16 | % | 9 | % | |||||||
Altria’s pension and postretirement plan asset performance is monitored on an ongoing basis to adjust the mix as an allocation between equity securities (59%), corporate bonds (30%) and U.S. Treasury and foreign government securities (11%). Virtuallynecessary to achieve the target allocation.
Substantially all pension and all postretirement assets can be used to make monthly benefit payments.
(income) from 6.6% in 2021 to 6.1% in 2022. For determining its postretirement net periodic benefit cost (income), Altria’s 2022 expected rate of return assumption remains unchanged from prior year at 7.7%.
The fair values of Altria Group, Inc.’sthe pension plan assets by asset category were as follows at December 31, 2017 and 2016 were as follows:31:
| 2017 | 2016 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | (in millions) | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. and foreign government securities or their agencies: | U.S. and foreign government securities or their agencies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | — | $ | 588 | $ | — | $ | 588 | $ | — | $ | 444 | $ | — | $ | 444 | U.S. government and agencies | $ | — | $ | 1,147 | $ | 1,147 | $ | — | $ | 950 | $ | 950 | |||||||||||||||||||||||||||||||||||||||||||
| U.S. municipal bonds | — | 81 | — | 81 | — | 102 | — | 102 | U.S. municipal bonds | — | 60 | 60 | — | 64 | 64 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and agencies | — | 150 | — | 150 | — | 185 | — | 185 | Foreign government and agencies | — | 88 | 88 | — | 90 | 90 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt instruments: | Corporate debt instruments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Above investment grade | — | 1,789 | — | 1,789 | — | 1,735 | — | 1,735 | Above investment grade | — | 3,442 | 3,442 | — | 3,760 | 3,760 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Below investment grade and no rating | — | 511 | — | 511 | — | 602 | — | 602 | Below investment grade and no rating | — | 1,032 | 1,032 | — | 868 | 868 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock: | Common stock: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International equities | 1,396 | — | — | 1,396 | 1,076 | — | — | 1,076 | International equities | 373 | — | 373 | 316 | — | 316 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. equities | 831 | — | — | 831 | 760 | — | — | 760 | U.S. equities | 856 | — | 856 | 970 | — | 970 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other, net | 120 | 74 | — | 194 | 142 | 33 | 13 | 188 | Other, net | 52 | 237 | 289 | 21 | 356 | 377 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 2,347 | $ | 3,193 | $ | — | $ | 5,540 | $ | 1,978 | $ | 3,101 | $ | 13 | $ | 5,092 | $ | 1,281 | $ | 6,006 | $ | 7,287 | $ | 1,307 | $ | 6,088 | $ | 7,395 | |||||||||||||||||||||||||||||||||||||||||||||
| Investments measured at NAV as a practical expedient for fair value: | Investments measured at NAV as a practical expedient for fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common/collective trusts: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collective investment funds | Collective investment funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. large cap | 2,014 | 1,940 | U.S. large cap | $ | 873 | $ | 924 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. small cap | 361 | 363 | U.S. small cap | 462 | 455 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International developed markets | 100 | 80 | International developed markets | 125 | 114 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total investments measured at NAV | Total investments measured at NAV | $ | 1,460 | $ | 1,493 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | Other | 46 | 23 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets, net | $ | 8,015 | $ | 7,475 | Fair value of plan assets, net | $ | 8,793 | $ | 8,911 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 3 holdings and transactions were immaterial to total plan assets at December 31, 20172021 and 2016.2020.
The fair value of the postretirement plan assets were as follows at December 31:
| 2021 | 2020 | ||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||||||||||||
| U.S. and foreign government securities or their agencies: | |||||||||||||||||||||||||||||
| U.S. government and agencies | $ | — | $ | 5 | $ | 5 | $ | — | $ | 6 | $ | 6 | |||||||||||||||||
| Foreign government and agencies | — | 3 | 3 | — | 4 | 4 | |||||||||||||||||||||||
| Corporate debt instruments: | |||||||||||||||||||||||||||||
| Above investment grade | — | 55 | 55 | — | 55 | 55 | |||||||||||||||||||||||
| Below investment grade and no rating | — | 10 | 10 | — | 11 | 11 | |||||||||||||||||||||||
| Other, net | — | — | — | — | 7 | 7 | |||||||||||||||||||||||
| $ | — | $ | 73 | $ | 73 | $ | — | $ | 83 | $ | 83 | ||||||||||||||||||
| Investments measured at NAV as a practical expedient for fair value: | |||||||||||||||||||||||||||||
| Collective investment funds: | |||||||||||||||||||||||||||||
U.S. large cap | $ | 84 | $ | 97 | |||||||||||||||||||||||||
| International developed markets | 25 | 25 | |||||||||||||||||||||||||||
| Total investments measured at NAV | $ | 109 | $ | 122 | |||||||||||||||||||||||||
| Other | 3 | (4) | |||||||||||||||||||||||||||
| Fair value of plan assets, net | $ | 185 | $ | 201 | |||||||||||||||||||||||||
There were no Level 3 postretirement plan holdings or transactions during 2021 and 2020.
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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 common/collective trusts.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.
deductible and pays benefits that relate to plans for salaried employees that cannot be funded under IRS regulations. Currently, Altria Group, Inc. anticipates making employer contributions to its pension and postretirement plans of up to approximately $60$30 million in 2018 based on current tax law. for each in 2022. However, this estimate isthe foregoing estimates of 2022 contributions to the pension and postretirement plans are 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 on pension plan assets, or
for each respective plan.Estimated future benefit payments at December 31, 20172021 were as follows:
| (in millions) | Pension | Postretirement | |||||
| 2018 | $ | 480 | $ | 142 | |||
| 2019 | 451 | 140 | |||||
| 2020 | 456 | 138 | |||||
| 2021 | 459 | 136 | |||||
| 2022 | 463 | 133 | |||||
| 2023-2027 | 2,372 | 620 | |||||
| (in millions) | Pension | Postretirement | |||||||||
| 2022 | $ | 499 | $ | 107 | |||||||
| 2023 | 477 | 103 | |||||||||
| 2024 | 476 | 99 | |||||||||
| 2025 | 479 | 96 | |||||||||
| 2026 | 478 | 95 | |||||||||
| 2027-2031 | 2,387 | 472 | |||||||||
Comprehensive Earnings/Losses
| (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||
| Net loss | $ | (2,493 | ) | $ | (612 | ) | $ | (93 | ) | $ | (3,198 | ) | |||
| Prior service (cost) credit | (15 | ) | 195 | — | 180 | ||||||||||
| Deferred income taxes | 979 | 166 | 34 | 1,179 | |||||||||||
| Amounts recorded in accumulated other comprehensive losses | $ | (1,529 | ) | $ | (251 | ) | $ | (59 | ) | $ | (1,839 | ) | |||
The amounts recorded in accumulated other comprehensive losses at December 31, 20162021 consisted of the following:
| (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||||||||||
| Net loss | $ | (2,093) | $ | (362) | $ | (32) | $ | (2,487) | |||||||||||||||
| Prior service (cost) credit | (30) | 340 | (5) | 305 | |||||||||||||||||||
| Deferred income taxes | 549 | 12 | 9 | 570 | |||||||||||||||||||
| Amounts recorded in accumulated other comprehensive losses | $ | (1,574) | $ | (10) | $ | (28) | $ | (1,612) | |||||||||||||||
The amounts recorded in accumulated other comprehensive losses at December 31, 2020 consisted of the following:
| (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||||||||||
| Net loss | $ | (2,689) | $ | (541) | $ | (44) | $ | (3,274) | |||||||||||||||
| Prior service (cost) credit | (27) | 41 | (5) | 9 | |||||||||||||||||||
| Deferred income taxes | 702 | 132 | 11 | 845 | |||||||||||||||||||
| Amounts recorded in accumulated other comprehensive losses | $ | (2,014) | $ | (368) | $ | (38) | $ | (2,420) | |||||||||||||||
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| (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||
| Net loss | $ | (2,857 | ) | $ | (581 | ) | $ | (99 | ) | $ | (3,537 | ) | |||
| Prior service (cost) credit | (19 | ) | 195 | — | 176 | ||||||||||
| Deferred income taxes | 1,124 | 153 | 36 | 1,313 | |||||||||||
| Amounts recorded in accumulated other comprehensive losses | $ | (1,752 | ) | $ | (233 | ) | $ | (63 | ) | $ | (2,048 | ) | |||
The movements in other comprehensive earnings/losses during the year ended December 31, 20172021 were as follows:
| (in millions) | Pension | Post- retirement | Post- employment | Total | (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||||||||||||||||||||
| Amounts reclassified to net earnings as components of net periodic benefit cost: | ||||||||||||||||||||||||||||||||||||||
| Amounts reclassified to net earnings (losses) as components of net periodic benefit cost: | Amounts reclassified to net earnings (losses) as components of net periodic benefit cost: | |||||||||||||||||||||||||||||||||||||
| Amortization: | Amortization: | |||||||||||||||||||||||||||||||||||||
| Net loss | $ | 197 | $ | 25 | $ | 17 | $ | 239 | Net loss | $ | 131 | $ | 22 | $ | 10 | $ | 163 | |||||||||||||||||||||
| Prior service cost/credit | 4 | (38 | ) | — | (34 | ) | Prior service cost/credit | 5 | (46) | — | (41) | |||||||||||||||||||||||||||
| Other expense: | ||||||||||||||||||||||||||||||||||||||
| Other expense (income): | Other expense (income): | |||||||||||||||||||||||||||||||||||||
| Net loss | 86 | — | — | 86 | Net loss | — | — | — | — | |||||||||||||||||||||||||||||
| Prior service cost/credit | Prior service cost/credit | — | — | — | — | |||||||||||||||||||||||||||||||||
| Deferred income taxes | (113 | ) | 6 | (6 | ) | (113 | ) | Deferred income taxes | (35) | 7 | (2) | (30) | ||||||||||||||||||||||||||
| 174 | (7 | ) | 11 | 178 | $ | 101 | $ | (17) | $ | 8 | $ | 92 | ||||||||||||||||||||||||||
| Other movements during the year: | Other movements during the year: | |||||||||||||||||||||||||||||||||||||
| Net loss | 81 | (56 | ) | (11 | ) | 14 | Net loss | $ | 465 | $ | 157 | $ | 2 | $ | 624 | |||||||||||||||||||||||
| Prior service cost/credit | — | 38 | — | 38 | Prior service cost/credit | (8) | 345 | — | 337 | |||||||||||||||||||||||||||||
| Deferred income taxes | (32 | ) | 7 | 4 | (21 | ) | Deferred income taxes | (118) | (127) | — | (245) | |||||||||||||||||||||||||||
| 49 | (11 | ) | (7 | ) | 31 | $ | 339 | $ | 375 | $ | 2 | $ | 716 | |||||||||||||||||||||||||
| Total movements in other comprehensive earnings/losses | $ | 223 | $ | (18 | ) | $ | 4 | $ | 209 | Total movements in other comprehensive earnings/losses | $ | 440 | $ | 358 | $ | 10 | $ | 808 | ||||||||||||||||||||
The movements in other comprehensive earnings/losses during the year ended December 31, 20162020 were as follows:
| (in millions) | Pension | Post-retirement | Post-employment | Total | |||||||||||||||||||
| Amounts reclassified to net earnings (losses) as components of net periodic benefit cost: | |||||||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss | $ | 134 | $ | 10 | $ | 19 | $ | 163 | |||||||||||||||
| Prior service cost/credit | 5 | (30) | — | (25) | |||||||||||||||||||
| Other expense (income): | |||||||||||||||||||||||
| Net loss | 10 | — | — | 10 | |||||||||||||||||||
| Prior service cost/credit | — | — | — | — | |||||||||||||||||||
| Deferred income taxes | (37) | 5 | (5) | (37) | |||||||||||||||||||
| $ | 112 | $ | (15) | $ | 14 | $ | 111 | ||||||||||||||||
| Other movements during the year: | |||||||||||||||||||||||
| Net loss | $ | (268) | $ | (162) | $ | (18) | $ | (448) | |||||||||||||||
| Prior service cost/credit | (5) | (1) | — | (6) | |||||||||||||||||||
| Deferred income taxes | 69 | 41 | 5 | 115 | |||||||||||||||||||
| $ | (204) | $ | (122) | $ | (13) | $ | (339) | ||||||||||||||||
| Total movements in other comprehensive earnings/losses | $ | (92) | $ | (137) | $ | 1 | $ | (228) | |||||||||||||||
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| (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||
| Amounts reclassified to net earnings as components of net periodic benefit cost: | |||||||||||||||
| Amortization: | |||||||||||||||
| Net loss | $ | 171 | $ | 25 | $ | 18 | $ | 214 | |||||||
| Prior service cost/credit | 5 | (39 | ) | — | (34 | ) | |||||||||
| Other expense (income): | |||||||||||||||
| Net loss | 9 | — | — | 9 | |||||||||||
| Prior service cost/credit | 2 | (13 | ) | — | (11 | ) | |||||||||
| Deferred income taxes | (69 | ) | 11 | (7 | ) | (65 | ) | ||||||||
| 118 | (16 | ) | 11 | 113 | |||||||||||
| Other movements during the year: | |||||||||||||||
| Net loss | (232 | ) | (18 | ) | (9 | ) | (259 | ) | |||||||
| Prior service cost/credit | (4 | ) | 16 | — | 12 | ||||||||||
| Deferred income taxes | 92 | 1 | 3 | 96 | |||||||||||
| (144 | ) | (1 | ) | (6 | ) | (151 | ) | ||||||||
| Total movements in other comprehensive earnings/losses | $ | (26 | ) | $ | (17 | ) | $ | 5 | $ | (38 | ) | ||||
The movements in other comprehensive earnings/losses during the year ended December 31, 20152019 were as follows:
| (in millions) | Pension | Post- retirement | Post- employment | Total | (in millions) | Pension | Post- retirement | Post- employment | Total | |||||||||||||||||||||||||||||
| Amounts reclassified to net earnings as components of net periodic benefit cost: | ||||||||||||||||||||||||||||||||||||||
| Amounts reclassified to net earnings (losses) as components of net periodic benefit cost: | Amounts reclassified to net earnings (losses) as components of net periodic benefit cost: | |||||||||||||||||||||||||||||||||||||
| Amortization: | Amortization: | |||||||||||||||||||||||||||||||||||||
| Net loss | $ | 234 | $ | 43 | $ | 19 | $ | 296 | Net loss | $ | 159 | $ | 5 | $ | 20 | $ | 184 | |||||||||||||||||||||
| Prior service cost/credit | 7 | (39 | ) | — | (32 | ) | Prior service cost/credit | 6 | (30) | 1 | (23) | |||||||||||||||||||||||||||
| Other expense: | ||||||||||||||||||||||||||||||||||||||
| Other expense (income): | Other expense (income): | |||||||||||||||||||||||||||||||||||||
| Net loss | 8 | — | — | 8 | Net loss | 20 | — | (4) | 16 | |||||||||||||||||||||||||||||
| Prior service cost/credit | Prior service cost/credit | 1 | (5) | — | (4) | |||||||||||||||||||||||||||||||||
| Deferred income taxes | (96 | ) | (2 | ) | (7 | ) | (105 | ) | Deferred income taxes | (47) | 7 | (4) | (44) | |||||||||||||||||||||||||
| 153 | 2 | 12 | 167 | $ | 139 | $ | (23) | $ | 13 | $ | 129 | |||||||||||||||||||||||||||
| Other movements during the year: | Other movements during the year: | |||||||||||||||||||||||||||||||||||||
| Net loss | (410 | ) | 192 | (5 | ) | (223 | ) | Net loss | (153) | (67) | 17 | (203) | ||||||||||||||||||||||||||
| Prior service cost/credit | (6 | ) | 6 | — | — | Prior service cost/credit | — | (1) | — | (1) | ||||||||||||||||||||||||||||
| Deferred income taxes | 160 | (75 | ) | 1 | 86 | Deferred income taxes | 38 | 18 | (5) | 51 | ||||||||||||||||||||||||||||
| (256 | ) | 123 | (4 | ) | (137 | ) | $ | (115) | $ | (50) | $ | 12 | $ | (153) | ||||||||||||||||||||||||
| Total movements in other comprehensive earnings/losses | $ | (103 | ) | $ | 125 | $ | 8 | $ | 30 | Total movements in other comprehensive earnings/losses | $ | 24 | $ | (73) | $ | 25 | $ | (24) | ||||||||||||||||||||
Note 17. Additional Information
| For the Years Ended December 31, | |||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||
| Research and development expense | $ | 145 | $ | 131 | $ | 168 | |||||||||||
| Interest and other debt expense, net: | |||||||||||||||||
| Interest expense | $ | 1,188 | $ | 1,223 | $ | 1,322 | |||||||||||
| Interest income | (26) | (14) | (42) | ||||||||||||||
| $ | 1,162 | $ | 1,209 | $ | 1,280 | ||||||||||||
| For the Years Ended December 31, | |||||||||||
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Research and development expense | $ | 241 | $ | 203 | $ | 186 | |||||
| Advertising expense | $ | 29 | $ | 27 | $ | 25 | |||||
| Interest and other debt expense, net: | |||||||||||
| Interest expense | $ | 727 | $ | 754 | $ | 808 | |||||
| Interest income | (31 | ) | (13 | ) | (4 | ) | |||||
| Interest related to NPM Adjustment Items | 9 | 6 | 13 | ||||||||
| $ | 705 | $ | 747 | $ | 817 | ||||||
| Rent expense | $ | 43 | $ | 53 | $ | 48 | |||||
| (in millions) | Rental Commitments | Sublease Income | |||||
| 2018 | $ | 38 | $ | 5 | |||
| 2019 | 33 | 5 | |||||
| 2020 | 28 | 5 | |||||
| 2021 | 26 | 5 | |||||
| 2022 | 23 | 5 | |||||
| Thereafter | 44 | 5 | |||||
| $ | 192 | $ | 30 | ||||
The activity in the allowance for discounts and allowance for returned goods for the years ended December 31, 2017, 2016 and 2015 was as follows:
| For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2017 | 2016 | 2015 | (in millions) | 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discounts | Returned Goods | Discounts | Returned Goods | Discounts | Returned Goods | Discounts | Returned Goods | Discounts | Returned Goods | Discounts | Returned Goods | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | — | $ | 49 | $ | — | $ | 68 | $ | — | $ | 46 | Balance at beginning of year | $ | — | $ | 40 | $ | — | $ | 32 | $ | — | $ | 32 | |||||||||||||||||||||||||||||||||||||
| Charged to costs and expenses | 626 | 130 | 628 | 133 | 618 | 217 | Charged to costs and expenses | 647 | 124 | 633 | 98 | 604 | 127 | |||||||||||||||||||||||||||||||||||||||||||||||||
Deductions (1) | (626 | ) | (139 | ) | (628 | ) | (152 | ) | (618 | ) | (195 | ) | Deductions (1) | (647) | (114) | (633) | (90) | (604) | (127) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at end of year | $ | — | $ | 40 | $ | — | $ | 49 | $ | — | $ | 68 | Balance at end of year | $ | — | $ | 50 | $ | — | $ | 40 | $ | — | $ | 32 | |||||||||||||||||||||||||||||||||||||
(1) Represents the recording of discounts and returns for which allowances were created.created.
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Note 18. Contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various United StatesU.S. and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA and UST and its subsidiaries,USSTC, as well as their respective indemnitees.indemnitees and Altria’s investees. Various types of claims may be raised in these proceedings, including product liability, consumer protection,unfair trade practices, antitrust, tax, contraband shipments, patent infringement, employment matters, claims alleging violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 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 Group, Inc. 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 Group, Inc. 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 Group, Inc. or its subsidiaries also 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 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 also seek to repeal or alter bond cap statutes through legislation. Although Altria Group, Inc. cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria, Group, Inc., 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 Group, Inc. 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 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.
Altria Group, Inc. 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, Group, Inc., 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 Group, Inc. 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 Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so.
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Judgments Paid and Provisions for Tobacco and Health (Including Engle Progeny Litigation) and Certain Other Litigation Items: The changes in Altria’s accrued liability for tobacco and health and certain other litigation items, including related interest costs, for the periods specified below are as follows:
| (in millions) | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||
| Accrued liability for tobacco and health and certain other litigation items at beginning of period | $ | 9 | $ | 14 | $ | 112 | |||||||||||||||||||||||
| Pre-tax charges for: | |||||||||||||||||||||||||||||
| Tobacco and health litigation | 83 | 79 | 72 | ||||||||||||||||||||||||||
Agreement to resolve shareholder class action (1) | 90 | — | — | ||||||||||||||||||||||||||
| Related interest costs | 9 | 4 | 5 | ||||||||||||||||||||||||||
| Payments | (100) | (88) | (175) | ||||||||||||||||||||||||||
| Accrued liability for tobacco and health and certain other litigation items at end of period | $ | 91 | $ | 9 | $ | 14 | |||||||||||||||||||||||
(1) See Shareholder Class Action and Shareholder Derivative Lawsuits below for a discussion of the shareholder class action case and related settlement.
The accrued liability for tobacco and health and certain other litigation items, including related interest costs, was included in accrued liabilities on Altria’s consolidated balance sheets. Pre-tax charges for tobacco and health and certain other litigation were included in marketing, administration and research costs on Altria’s consolidated statements of earnings (losses). Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria’s consolidated statements of earnings (losses).
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 $896 million and interest totaling approximately $227 million as of December 31, 2021. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $410 million and related interest totaling approximately $56 million.
Security for Judgments: To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of December 31, 2021, PM USA has posted appeal bonds totaling approximately $50 million, which have been collateralized with restricted cash that are included in assets on the consolidated balance sheets.
Overview of Altria Group, Inc. 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) smoking and health cases primarily alleging personal injury or seeking court-supervised
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The table below lists the number of certain tobacco-related cases pending in the United StatesU.S. against PM USA and, in some instances,and/or Altria Group, Inc.at December 31:
| 2021 | 2020 | 2019 | |||||||||||||||
Individual Smoking and Health Cases (1) | 176 | 148 | 104 | ||||||||||||||
Health Care Cost Recovery Actions (2) | 1 | 1 | 1 | ||||||||||||||
E-vapor Cases (3) | 3,296 | 1,563 | 101 | ||||||||||||||
Other Tobacco-Related Cases (4) | 3 | 3 | 4 | ||||||||||||||
(1) Includes as of December 31, 2017, 20162021, 18 cases filed in Illinois, 17 cases filed in New Mexico, 42 cases filed in Massachusetts and 2015:
| 2017 | 2016 | 2015 | |||
Individual Smoking and Health Cases (1) | 92 | 70 | 65 | ||
Smoking and Health Class Actions and Aggregated Claims Litigation (2) | 4 | 5 | 5 | ||
Health Care Cost Recovery Actions (3) | 1 | 1 | 1 | ||
| “Lights/Ultra Lights” Class Actions | 3 | 8 | 11 | ||
(2) Includes as one case the 30 civil actions that were to be tried in six consolidated trials in West Virginia (In re: Tobacco Litigation). PM USA is a defendant in nine of the 30 cases. The parties have agreed to resolve the cases for an immaterial amount and have so notified the court.
(3) Includes as of December 31, 2021, 53 class action lawsuits, 2,795 individual lawsuits and 448 “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. The 53 class action lawsuits include 28 cases in the Northern District of California (“Multidistrict Litigation” or “MDL”) involving plaintiffs whose claims were previously included in other class action complaints but were refiled as separate stand-alone class actions for procedural and other reasons.
International Tobacco-Related Cases: As of January 29, 2018,24, 2022, (i) Altria is named as a defendant in 3 e-vapor class action lawsuits in Canada; (ii) PM USA is a named defendant in 10 health care cost recovery actions in Canada, eight8 of which also name Altria Group, Inc. as a defendant.defendant; and (iii) PM USA and Altria Group, Inc. are also named as defendants in seven7 smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement (defined below) between Altria Group,and Philip Morris International Inc. and PMI(“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.
Of the 2125 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 1820 have reached final resolution.
See Smoking and Health LitigationLitigation - Engle Progeny Trial Court Results below for a discussion of these verdicts.
| (in millions) | 2017 | 2016 | 2015 | ||||||||
| Accrued liability for tobacco and health litigation items at beginning of year | $ | 47 | $ | 132 | $ | 39 | |||||
| Pre-tax charges for: | |||||||||||
| Tobacco and health judgments | 72 | 21 | 84 | ||||||||
| Related interest costs | 8 | 7 | 23 | ||||||||
Agreement to resolve federal Engle progeny cases | — | — | 43 | ||||||||
Agreement to resolve Aspinall including related interest costs | — | 32 | — | ||||||||
Agreement to resolve Miner | — | 45 | — | ||||||||
| Payments | (21 | ) | (190 | ) | (57 | ) | |||||
Accrued liability for tobacco and health litigation items at end of year | $ | 106 | $ | 47 | $ | 132 | |||||
Smoking and Health Litigation
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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 appealed the trial court verdict to the Third District Court of Appeal and, in September 2021, the appellate court reversed the trial court’s decision and found in favor of PM USA. In November 2021, plaintiff moved for a rehearing before 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. In February 2021, the trial court awarded plaintiffs attorneys’ fees and costs in the amount of approximately $2.3 million. In July 2021, following denial of PM USA’s post-trial motions, PM USA appealed the judgment to the Appeals Court of Massachusetts.
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 appealed and, in February 2021, the Massachusetts Supreme Judicial Court asserted jurisdiction over the appeal. In September 2021, the Massachusetts Supreme Judicial Court affirmed the trial court award of $21 million in compensatory and punitive damages. PM USA recorded a pre-tax provision of approximately $27.1 million in the third quarter of 2021 and paid $30.3 million (including the judgment and interest) in December 2021.
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 (an amount of approximately $5.3 million). Subsequently, in October 2017,USA. PM USA filed various post-trial motions.
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.
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. The court also reinstated compensatory damages awards totaling approximately $6.9 million to two individual plaintiffs and found that a third plaintiff’s claim was barred by the statute of limitations. In February 2008, PM USA paid approximately $3 million, representing its share of compensatory damages and interest, to the two individual plaintiffs identified in the Florida Supreme Court’s order.
In August 2006, PM USA and plaintiffs sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion, including the ruling (described above) that certain jury findings have res judicata effect in subsequent individual trials timely brought by Engle class members. The rehearing motion also asked, among other things, that legal errors that were raised but not expressly ruled upon in the Florida Third District Court of Appeal or in the Florida Supreme Court now be addressed. Plaintiffs also filed a motion for rehearing in August 2006 seeking clarification of the applicability of the statute of limitations to non-members of the decertified class.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 January 2007, the Florida Supreme Court issued the mandate from its revised opinion. Defendants then filed a motion with the Florida Third District Court of Appeal requesting that the court address legal errors that were previously raised by defendants but have not yet been addressed either by the Florida Third District Court of Appeal or by the Florida Supreme Court. In February 2007, the Florida Third District Court of Appeal denied defendants’ motion. In May 2007, defendants’ motion for a partial stay of the mandate pending the completion of appellate review was denied by the Florida Third District Court of Appeal. In May 2007, defendants filed a petition for writ of certiorari with the United States Supreme Court, which the United States Supreme Court denied later in 2007.
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damages and found plaintiff was entitled to punitive damages; however, the court declared a mistrial in the second phase of the trial regarding punitive damages because the jury was unable to determine the amount of the punitive damages. NaN verdicts (Pearson, D. Cohen, Collar andCollar Chacon) that were returned in favor of PM USA were subsequently reversed for new trials. The juriesJuries in the 2 cases (Reider and Bankscases )returned zero damages verdicts in favor of PM USA. The juriesJuries in the 2 other cases (Weingart and Hancock cases) returned verdicts against PM USA awarding no damages, but the trial court in each case granteddecided to award plaintiffs damages. NaN case, Pollari, resulted in a verdict in favor of PM USA following a retrial of an additur.initial verdict returned in favor of plaintiff. Plaintiff and defendants appealed the verdict and the appellate court affirmed the judgment in favor of the defendants. NaN 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 appeals are pending in those 3 cases. NaN cases, Freeman and Harris, 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 (including Hancock, where the verdict originally was returned in favor of PM USA).plaintiffs. The first chart lists such cases that are pending as of January 29, 2018;24, 2022 but where PM USA has determined an unfavorable outcome is not probable and the amount of loss cannot be reasonably estimated. The second chart lists such cases that were pendinghave concluded within the previous 12 months, but thatmonths. 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. As of January 24, 2022, there are now concluded.
(rounded to nearest $ million)
| Plaintiff | Verdict Date | Defendant(s) | Court | Compensatory Damages (1) | Punitive Damages (PM USA) | Appeal Status | ||||||||||||||
| Lipp | September 2021 | PM USA | Miami-Dade | $15 million | $28 million | Appeal by defendant to Third District Court of Appeal pending. | ||||||||||||||
| Garcia | May 2021 | PM USA | Miami-Dade | $6 million | Mistrial | Appeals by plaintiff and defendant to Third District Court of Appeal pending. | ||||||||||||||
| Duignan | February 2020 (2) | PM USA and R.J. Reynolds | Pinellas | $3 million | $12 million | Appeal by defendants to Second District Court of Appeal pending. | ||||||||||||||
| Cuddihee | January 2020 | PM USA | Duval | $3 million | $0 | Appeal by defendant to First District Court of Appeal pending. | ||||||||||||||
Rintoul (Caprio) | November 2019 (2) | PM USA and R.J. Reynolds | Broward | $9 million | $74 million | Appeals by plaintiff and defendants to Fourth District Court of Appeal pending. | ||||||||||||||
| Gloger | November 2019 (2) | PM USA and R.J. Reynolds | Miami-Dade | $15 million | $11 million | Appeal by defendants to Third District Court of Appeal pending. | ||||||||||||||
| McCall | March 2019 | PM USA | Broward | <$1 million (<$1 million PM USA) | $0 | New trial ordered on punitive damages. | ||||||||||||||
| Neff | March 2019 | PM USA and R.J. Reynolds | Broward | $4 million | $2 million | Fourth District Court of Appeal reversed the judgment against defendants and remanded for a new trial. Plaintiff’s petition for review to the Florida Supreme Court pending. | ||||||||||||||
| Mahfuz | February 2019 | PM USA and R.J. Reynolds | Broward | $12 million | $10 million | Fourth District Court of Appeal reversed the judgment against defendants and remanded for a new trial. Plaintiff’s petition for review to the Florida Supreme Court pending. | ||||||||||||||
| Holliman | February 2019 | PM USA | Miami-Dade | $3 million | $0 | Appeal by defendant to Third District Court of Appeal pending. | ||||||||||||||
| Chadwell | September 2018 | PM USA | Miami-Dade | $2 million | $0 | 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) | ||||||||||||||
(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 Prentice. Prentice is discussed below in Engle Progeny Appellate Issues. | ||||||||||||||||||||
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| Currently Pending Engle Cases with Verdicts Against PM USA | ||||||||||||||||||||
| (rounded to nearest $ million) | ||||||||||||||||||||
| Plaintiff | Verdict Date | Defendant(s) | Court | Compensatory Damages (1) | Punitive Damages (PM USA) | Appeal Status | ||||||||||||||
| Kaplan | July 2018 | PM USA and R.J. Reynolds | Broward | $2 million | $2 million | Fourth District Court of Appeal affirmed the verdict and reaffirmed the verdict on rehearing. Defendants’ petition for review to the Florida Supreme Court pending. | ||||||||||||||
| R. Douglas | November 2017 | PM USA | Duval | <$1 million | $0 | Awaiting entry of final judgment by the trial court. | ||||||||||||||
| Sommers | April 2017 | PM USA | Miami-Dade | $1 million | $0 | 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) | ||||||||||||||
| Cooper (Blackwood) | September 2015 | PM USA and R.J. Reynolds | Broward | $5 million (<$1 million PM USA) | $0 | Fourth District Court of Appeal affirmed judgment and granted a new trial on punitive damages. | ||||||||||||||
| D. Brown | January 2015 | PM USA | Federal Court - Middle District of Florida | $8 million | $9 million | Appeal by defendant to U.S. Court of Appeals for the Eleventh Circuit stayed pending Florida Supreme Court decision in Prentice. (3) | ||||||||||||||
(1) PM USA’s portion of the fault to PM USA (an amount of $5,255).
(2) Plaintiff was granted an award of approximately $3 million in fees, costs and denied the remaining post-trial motions.
(3) PM USA is not a defendant in Prentice. Prentice is discussed below in Engle Progeny Appellate Issues.
Engle Cases Concluded Within Past 12 Months (1)
(rounded to nearest $ million)
| Plaintiff | Verdict Date | Defendant(s) | Court | Accrual Date | Payment Amount (if any) | Payment Date | ||||||||||||||
| Berger (Cote) | September 2014 | PM USA | Federal Court - Middle District of Florida | Fourth quarter of 2018 and first quarter of 2021 | $29 million | February 2021 | ||||||||||||||
| Santoro | March 2017 | PM USA, R.J. Reynolds and Liggett Group | Broward | Second quarter of 2020 and first quarter of 2021 | $1 million | January 2021 | ||||||||||||||
(1) In 6 cases in which PM USA paid the judgments more than a year ago, Naugle,Gore, M. Brown,Jordan,Theis and Landi, plaintiffs were awarded approximately $8 million, $2 million, $8 million, $4 million, $1 million and allocating 40% of the fault to PM USA. The court dismissed the punitive damages claim prior to trial.
fee award and post-judgment interest. In December 2016, the trial court entered final judgment in favor of plaintiff with a deduction for plaintiff’s comparative fault and PM USA and R.J. Reynolds filed various post-trial motions, including motions to set aside the verdict and for a new trial. In January 2017, the trial court denied all post-trial motions. In February 2017, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and plaintiff cross-appealed. Also in February 2017, PM USA posted a bond in the amount of $2.9 million.
In November 2017, the Florida Fourth District Court of Appeal reversed the judgment against PM USA andMary Sheffield v. R.J. Reynolds and ordered a new trial onTobacco Company, an appellate finding that the trial court erred in admitting certain materials into evidence that deprived defendants of a fair trial. In December 2017, plaintiff filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court.
In February 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In March 2015, PM USA filed various post-trial motions, including motions to alter or amend the judgment and for a new trial or, in the alternative, remittitur of the damages awards, all of which the court denied. In July 2015, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. In August 2015, the Court of Appeals granted PM USA’s motion to stay the appeal pending final disposition in the Graham case, discussed below under Engle Progeny Appellate Issues. In January 2018, the United States Supreme Court denied PM USA’s petition for writ of certiorari in Graham.
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which have each held that Engle plaintiffs do not have applied the comparative fault deduction. The court remanded the caseneed to the trial court to amend the judgment to award plaintiff the full amount of the jury’s compensatory damages awardprove reliance on a statement, and also separately ruled that plaintiff is entitled to attorneys’ fees. In May 2017, defendants filed notices to invoke the discretionary jurisdiction of the Florida Supreme Courtinstead can prevail by proving reliance on the merits and on the attorneys’ fees issue. The Florida Supreme Court stayed considerationEngle defendants’ concealment of its jurisdiction on the merits appeal pending its ruling in Schoeff, discussed below under Engle Progeny Appellate Issues. In December 2017, the Florida Supreme Court held in Schoeff that comparative fault does not reduce compensatory damages awards for intentional torts. PM USA intends to request that the Florida Supreme Court remand the case to the Second District Court of Appeal for further consideration.
No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engleprogeny cases tried in federal court.
Other Smoking and Health Class Actions
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 29, 2018,24, 2022, PM USA and Altria Group, Inc. are named as defendants, along with other cigarette manufacturers, in seven7 class actions filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan, British Columbia (two(2 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 3 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 2 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 Group, Inc. and PMI, thatwhich provides for indemnities for certain liabilities concerning tobacco products.
Health Care Cost Recovery Litigation
Although there have been some decisions to the contrary, most judicial decisions in the United StatesU.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 StatesU.S. Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five federal circuit courts of appeals.appeal.
In addition to the cases brought in the United States,U.S., health care cost recovery actions have also been brought against tobacco industry participants, including PM USA and Altria, Group, Inc., in Israel (dismissed), the Marshall Islands (dismissed) and 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 Group, Inc. 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 legislation.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 3 tobacco manufacturers (none of which are affiliated with Altria or its subsidiaries) under the Companies’
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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 Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.
The independent auditor (the “IA”(“IA”) appointed under the MSA calculates the maximum amount of the NPM Adjustment, if any, for each year.
Settlements of NPM Adjustment Disputes.
▪Multi-State Settlement.By the end of 2018, PM USA entered into a multi-state settlement of NPM Adjustment disputes with a total of 36 MSA states and territories in which PM USA settled the NPM Adjustment disputes through 2022 with 35 of the 36 states, and through 2024 with 1 state. Pursuant to the multi-state settlement, PM USA received $1.03 billion and expects to receive approximately $320 million in credits to offset PM USA’s MSA payments through 2029.
▪New York Settlement. In 2015, PM USA entered into a separate NPM Adjustment settlement with New York in which PM USA settled the NPM Adjustment disputes with New York in perpetuity. PM USA received $373 million pursuant to the New York settlement and expects to receive annual credits applied against the MSA payments due to New York going forward.
▪Montana Settlement. In 2020, PM USA entered into a separate NPM Adjustment settlement with Montana in which PM USA settled the NPM Adjustment disputes with Montana through 2030. This settlement resulted in a payment by PM USA of $4 million.
Continuing NPM Adjustment Disputes with States That Have Not Settled.
▪2004 NPM Adjustment. The PMs and the 10 states that have not settled the NPM Adjustment disputes are currently arbitrating NPM Adjustment disputes for 2004 in a multi-state arbitration. Hearings for 9 of the 10 states have concluded. In September 2021, the arbitration panels issued decisions finding that 2 states, Missouri and Washington, were not diligent in their enforcement of their escrow statutes in 2004 and, therefore, are subject to the NPM adjustment for 2004. The arbitration panels further found that the remaining 7 states were diligent in their enforcement and, therefore, are not subject to the NPM adjustment for 2004. The hearing for one remaining state is currently scheduled for February 2022. The two states determined by the arbitration panel to be non-diligent have filed motions in applicable state courts and with the arbitration panels challenging these determinations and several issues remain to be resolved by the arbitration panels that will affect the final amount of the 2004 NPM adjustment PM USA and other PMs will receive. PM USA recorded $21 million as a reduction to cost of sales in the third quarter of 2021 for its estimate of the minimum amount of the 2004 NPM adjustment it will receive. PM USA estimates it is entitled to interest of approximately $23 million in connection with the 2004 NPM adjustment, which it recorded as interest income in the third quarter of 2021.
▪2005-2007 NPM Adjustments. The PMs and the 10 states that have not settled the NPM Adjustment disputes are currently arbitrating NPM Adjustment disputes before a single arbitration panel. The arbitration encompasses three years, 2005-2007, for 9 of the 10 states, and one year, 2005, for 1 state. As of January 24, 2022, no decisions have resulted from the arbitration.
▪Subsequent Years. 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.
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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’Reynolds’s acquisition of Lorillard in 2015 and its related sale of certain cigarette brands to ITG (the “ITG transferred brands”). In particular,PM USA filed motions to enforce the State Settlement Agreements in Florida, Minnesota, Texas and Mississippi in connection with various positions that R.J. Reynolds and ITG have asserted that they do not havetook with regard to make payments on
the ITG brands undertransferred brands. After various court decisions in each of those states that were favorable to PM USA, those motions to enforce have now been resolved either through settlement or exhaustion of appeals. Despite these resolutions, PM USA continues to dispute the Florida, Minnesotaaccuracy of certain submissions made by R.J. Reynolds and Texas State Settlement Agreements or includeITG concerning the calculation of certain payments relating to the ITG transferred brands for purposes of certain calculations under the State Settlement Agreements. PM USA believes that R.J. Reynolds’ and ITG’s position violates the State Settlement Agreements and applicable law. PM USA further believes that these actions: (i) improperly increased PM USA’s payments for 2015 and 2016 by at least $84 million; (ii) may improperly increase PM USA’s payments for subsequent years; (iii) may improperly decrease PM USA’s share of the 2015 and 2016 NPM Adjustments and the settlements of related disputes; and (iv) may improperly decrease PM USA’s share of NPM Adjustments and related settlements for subsequent years.pursue such claims.
In January 2021, PM USA and other PMs reached an agreement with several MSA states to enforcewaive the Florida State Settlement Agreement. In December 2017, the Florida trial court ruled that R.J. Reynolds (and not ITG) must make settlement paymentsPMs’ claim under the Florida State Settlement Agreement onmost favored nation provision of the ITG brands.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 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. These funds were received in January 2021 and were recorded in Altria’s consolidated statement of earnings for the first quarter of 2021 as a reduction to cost of sales.
▪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”;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 the third quarter of 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 Federal Trade Commission (“FTC”)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 United States;U.S.; and (ix) payment of the government’s costs in bringing the action.
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In 2014 and 2019, Altria Group, Inc. and PM USA recorded provisions on each of their respective balance sheets totaling $31approximately $36 million for the estimated costs of implementing the corrective communications remedy. This estimate is subject to change due to several factors, though Altria Group, Inc. and PM USA do not expect any change in this estimate to be material.
The consent order approved by the district court in June 2014 did not address the requirements related to corrective statements at point-of-sale signage.remain outstanding. In May 2014, the district court ordered further briefing by the parties on the issue, of corrective statements on point-of-sale signage, which was completed in June 2014.
In December 2011,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 June 2022.
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 United States Food and Drug Administration for HeatSticks.
E-vapor Product Litigation
As of January 24, 2022, Altria and/or its subsidiaries, including PM USA, are defendants in 53 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 seek various remedies, including compensatory and punitive damages and an injunction prohibiting product sales. The 53 class action lawsuits include 28 cases involving plaintiffs whose claims were previously included in other class action complaints but were refiled as separate stand-alone class actions for procedural and other reasons. Three of the class action lawsuits are pending in Canada.
Altria and/or its subsidiaries, including PM USA, also have been named as defendants in other lawsuits involving JUUL e-vapor products, including 2,851 individual lawsuits and 483 “third party” lawsuits, which include school districts, state and local governments 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 U.S. 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 without prejudice. 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 the RICO claim, which the court denied in April 2021. In July 2021, the court set dates for the first four cases to be tried in 2022, with the first case commencing in April 2022.
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.
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.
NaN of the “third party” lawsuits noted above against Altria and/or its subsidiaries and JUUL, as an additional named defendant, were initiated, individually, by the attorneys general of Alaska, Hawaii and Minnesota alleging violations of state consumer protection and other similar laws. Altria filed motions to dismiss each of these three lawsuits and the motions were denied in the lawsuits from the attorneys general of Hawaii and Minnesota in May 2021 and June 2021, respectively. With respect to the lawsuit entered into an agreementfrom the attorney general of Alaska, as of January 24, 2022, the court has yet to rule on the motion. JUUL is also named in other attorneys general lawsuits to which neither Altria nor any of its subsidiaries is currently named. JUUL settled 2 such lawsuits by agreeing to pay approximately $40 million in one case and $14.5 million in the second. In addition, in both cases, JUUL agreed to certain restrictions on its sales and marketing activities.
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 U.S. 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
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defendants. The case was stayed in December 2020 due to the issues concerningCOVID-19 pandemic; however, the document repository. Pursuantstay was lifted with respect to this agreement,defendants’ counterclaims in February 2021. As of January 24, 2022, the court had not set a trial date.
Also in April 2020, a related patent infringement 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”), but the remedies sought included a prohibition on the importation of the IQOS electronic device, HeatSticks and component parts into the United States and on the sale of any such products previously imported into the United States. No damages are recoverable in the proceedings before the ITC. In September 2021, the ITC issued a limited exclusion order barring the importation of the IQOS electronic device, HeatSticks and the infringing components into the United States and a cease and desist order barring domestic sales, marketing and distribution of these imported products. The orders became effective on November 29, 2021. Consequently, PM USA agreedremoved the IQOS electronic device and HeatSticks from the marketplace. In December 2021, defendants appealed the orders to deposit an amountthe U.S. Court of approximately $3.1 million intoAppeals for the districtFederal Circuit and, in January 2022, the court in installments over a five-year period.
An additional unrelated patent infringement case regarding the IQOS electronic device was filed in November 2020 in the U.S. District Court for the Northern District of warranty, and have sought injunctive and equitable relief, including restitution and, in certain cases, punitive damages. These class actions have been broughtGeorgia against PM USA and Philip Morris Products S.A. seeking damages and equitable relief. In February 2021, defendants filed a motion to dismiss the lawsuit, which the court granted in July 2021. In December 2021, the U.S. District Court denied plaintiff’s motion to amend the complaint and plaintiff appealed this ruling to the U.S. Court of Appeals for the Federal Circuit.
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, 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, a requirement of FTC approval of future agreements related to the development, manufacture, distribution or sale of e-vapor products 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 was held before an FTC administrative law judge in June 2021. The post-trial briefing was completed in October 2021. The administrative law judge’s 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 may be appealed to any U.S. Court of Appeals.
Also as of January 24, 2022, 17 putative class action lawsuits have been filed against Altria and JUUL in the U.S. District Court for the Northern District of California. The lawsuits initially named, in addition to the two companies, certain instances,senior executives and certain members of the board of directors of both companies as defendants; however, those individuals currently or formerly affiliated with Altria Group, Inc. or its other subsidiaries,were later dismissed. In November 2020 these lawsuits were consolidated into 3 complaints (one on behalf of individualsdirect 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 August 2021, the U.S. District Court for the Northern District of California denied Altria’s motion to dismiss except with respect to plaintiffs’ claims for injunctive and equitable relief. However, plaintiffs were granted the opportunity to replead such claims by the trial court, which plaintiffs did in September 2021. In January 2022, the trial court ordered that the direct-purchaser plaintiffs’ claims be sent to arbitration pursuant to an arbitration provision in JUUL’s online purchase agreement.
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
Shareholder Class Action: In October and December 2019, 2 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 U.S. District Court for the Eastern District of New York. In December 2019, the court consolidated the 2 lawsuits into a single proceeding. The consolidated lawsuit was subsequently transferred to the U.S. 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, which the district court denied in March 2021. In the fourth quarter of 2021, plaintiffs and defendants agreed upon a class action settlement
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under which, among other things, (i) all claims asserted against Altria and the other named defendants are resolved without any liability or wrongdoing attributed to them personally or to Altria and (ii) Altria will pay the class an aggregate amount of $90 million, which amount includes attorneys’ fees. The class is defined to include persons and entities who purchased or otherwise acquired share of Altria between October 25, 2018 through April 2, 2020, subject to certain exclusions. The trial court preliminarily approved the settlement in December 2021; however, the settlement is subject to final approval by the trial court and consumedother customary conditions. Altria recorded pre-tax provisions totaling $90 million in 2021 and, in January 2022, paid $90 million to plaintiffs’ escrow account.
Federal Shareholder Derivative Lawsuits:In August 2020, 2 purported Altria shareholders filed separate derivative lawsuits in the U.S. 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. In March 2021, the U.S. District Court for the Northern District of California granted defendants’ motion to transfer both lawsuits to the U.S. District Court for the Eastern District of Virginia. NaN additional federal derivative lawsuits were filed in October 2020, January 2021 and March 2021, respectively, in the U.S. District Court for the Eastern District of Virginia against Mr. Willard, Mr. Gifford, Mr. Crosthwaite, certain members of Altria’s Board of Directors, JUUL, its founders and some of its current and former executives. These suits assert various brandsclaims, including breach of cigarettes, including Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lightsfiduciary duty, unjust enrichment, waste of corporate assets and Superslims, Merit Lights and Cambridge Lights. Defenses raisedviolations of certain federal securities laws. The remedies sought in these caseslawsuits include lackdamages, disgorgement of misrepresentation, lackprofits, reformation of causation, injuryAltria’s corporate governance and damages,internal procedures, and attorneys’ fees. In April 2021, the statute of limitations, non-liability under state statutory provisions exempting conduct that complies with federal regulatory directives, andcourt consolidated the First Amendment. As of January 29, 2018, a total of three such5 cases are pending in various U.S.the Eastern District of Virginia into a single case.
State Shareholder Derivative Lawsuits: NaN derivative lawsuits have been filed in Virginia state courts noneagainst Mr. Willard, Mr. Gifford, Mr. Crosthwaite (Altria’s former Chief Growth Officer and JUUL’s current Chief Executive Officer), certain members of which is active.
Certain Other Tobacco-Related Litigation
As of January 24, 2022, 1 smoking and health case alleging thatpersonal injury or seeking court-supervised programs or ongoing medical monitoring and purporting to be brought on behalf of a fire caused by cigarettes led to individuals’ deaths. Inclass of individual plaintiffs, is pending in a Kentucky case (Walker), the federal district court denied plaintiffs’ motion to remand the case to state court and dismissed plaintiffs’ claims in February 2009. Plaintiffs subsequently filed a notice of appeal. In October 2011, the U.S. Court of Appeals for the Sixth Circuit reversed the portion of the district court decision that denied remand of the case to Kentucky state court and remanded the case to Kentucky
state court. The Sixth Circuit did not address the merits of the district court’s dismissal order. Defendants’ petition for rehearing with the Sixth Circuit was denied in December 2011. Defendants filed a renewed motion to dismiss in state court in March 2013. Based on new evidence, in June 2013, defendants removed the case for a second time to the U.S. District Court for the Western District of Kentucky and re-filed their motion to dismiss in June 2013. In July 2013, plaintiffs filed a motion to remand the case to Kentucky state court, which was granted in March 2014. In November 2016, defendants filed renewed motions to dismiss the case, which the court granted in March 2017.is currently inactive.
UST Litigation
pending against UST and/or its tobacco subsidiaries.
Environmental Regulation
Altria Group, Inc. 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 United States: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 Group, Inc. are involved in several matters subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. Altria Group, Inc.’sAltria’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations.
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Altria Group, Inc. 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 Group, Inc. 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 Group, Inc.’sAltria’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 Group, Inc. have agreed to indemnify a limited number of third parties in the event of future litigation. At December 31, 2017,2021, Altria Group, Inc. and certain of its subsidiaries (i) had $57$48 million of unused letters of credit obtained in the ordinary course of business;business and (ii) were contingently liable for $33 million of guarantees consisting primarily of surety bonds, related to their own performance; and (iii) had a redeemable noncontrolling interest of $38performance, including $19 million for surety bonds recorded on its consolidated balance sheet. In addition, from time to time, subsidiaries of Altria Group, Inc. issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’sAltria’s liquidity.
Under the terms of a distribution agreement between Altria Group, Inc. and PMI (the “Distribution Agreement”), entered into as a result of Altria Group, Inc.’sAltria’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 Group, Inc. 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 Group, Inc. does not have a related liability recorded on its consolidated balance sheet at December 31, 20172021 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 IQOS Litigation, excluding the patent infringement case filed with the U.S. District Court for the Northern District of Georgia.
For further discussion, see Note 19. Condensed Consolidating Financial Information
9. Long-Term Debt.
| at December 31, 2017 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 1,203 | $ | 1 | $ | 49 | $ | — | $ | 1,253 | |||||||||
| Receivables | 1 | 10 | 131 | — | 142 | ||||||||||||||
| Inventories: | |||||||||||||||||||
| Leaf tobacco | — | 579 | 362 | — | 941 | ||||||||||||||
| Other raw materials | — | 111 | 59 | — | 170 | ||||||||||||||
| Work in process | — | 5 | 555 | — | 560 | ||||||||||||||
| Finished product | — | 128 | 426 | — | 554 | ||||||||||||||
| — | 823 | 1,402 | — | 2,225 | |||||||||||||||
| Due from Altria Group, Inc. and subsidiaries | 2 | 2,413 | 1,022 | (3,437 | ) | — | |||||||||||||
| Income taxes | — | 542 | 17 | (98 | ) | 461 | |||||||||||||
| Other current assets | 11 | 147 | 105 | — | 263 | ||||||||||||||
| Total current assets | 1,217 | 3,936 | 2,726 | (3,535 | ) | 4,344 | |||||||||||||
| Property, plant and equipment, at cost | — | 2,930 | 1,949 | — | 4,879 | ||||||||||||||
| Less accumulated depreciation | — | 2,086 | 879 | — | 2,965 | ||||||||||||||
| — | 844 | 1,070 | — | 1,914 | |||||||||||||||
| Goodwill | — | — | 5,307 | — | 5,307 | ||||||||||||||
| Other intangible assets, net | — | 2 | 12,398 | — | 12,400 | ||||||||||||||
| Investment in AB InBev | 17,952 | — | — | — | 17,952 | ||||||||||||||
| Investment in consolidated subsidiaries | 13,111 | 2,818 | — | (15,929 | ) | — | |||||||||||||
| Finance assets, net | — | — | 899 | — | 899 | ||||||||||||||
| Due from Altria Group, Inc. and subsidiaries | 4,790 | — | — | (4,790 | ) | — | |||||||||||||
| Other assets | 34 | 671 | 157 | (476 | ) | 386 | |||||||||||||
| Total Assets | $ | 37,104 | $ | 8,271 | $ | 22,557 | $ | (24,730 | ) | $ | 43,202 | ||||||||
| at December 31, 2017 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Liabilities | |||||||||||||||||||
| Current portion of long-term debt | $ | 864 | $ | — | $ | — | $ | — | $ | 864 | |||||||||
| Accounts payable | 2 | 91 | 281 | — | 374 | ||||||||||||||
| Accrued liabilities: | |||||||||||||||||||
| Marketing | — | 578 | 117 | — | 695 | ||||||||||||||
| Employment costs | 21 | 14 | 153 | — | 188 | ||||||||||||||
| Settlement charges | — | 2,437 | 5 | — | 2,442 | ||||||||||||||
| Other | 389 | 433 | 247 | (98 | ) | 971 | |||||||||||||
| Dividends payable | 1,258 | — | — | — | 1,258 | ||||||||||||||
| Due to Altria Group, Inc. and subsidiaries | 3,040 | 317 | 80 | (3,437 | ) | — | |||||||||||||
| Total current liabilities | 5,574 | 3,870 | 883 | (3,535 | ) | 6,792 | |||||||||||||
| Long-term debt | 13,030 | — | — | — | 13,030 | ||||||||||||||
| Deferred income taxes | 2,809 | — | 2,914 | (476 | ) | 5,247 | |||||||||||||
| Accrued pension costs | 206 | — | 239 | — | 445 | ||||||||||||||
| Accrued postretirement health care costs | — | 1,214 | 773 | — | 1,987 | ||||||||||||||
| Due to Altria Group, Inc. and subsidiaries | — | — | 4,790 | (4,790 | ) | — | |||||||||||||
| Other liabilities | 108 | 49 | 126 | — | 283 | ||||||||||||||
| Total liabilities | 21,727 | 5,133 | 9,725 | (8,801 | ) | 27,784 | |||||||||||||
| Contingencies | |||||||||||||||||||
| Redeemable noncontrolling interest | — | — | 38 | — | 38 | ||||||||||||||
| Stockholders’ Equity | |||||||||||||||||||
| Common stock | 935 | — | 9 | (9 | ) | 935 | |||||||||||||
| Additional paid-in capital | 5,952 | 3,310 | 12,045 | (15,355 | ) | 5,952 | |||||||||||||
| Earnings reinvested in the business | 42,251 | 96 | 2,243 | (2,339 | ) | 42,251 | |||||||||||||
| Accumulated other comprehensive losses | (1,897 | ) | (268 | ) | (1,506 | ) | 1,774 | (1,897 | ) | ||||||||||
| Cost of repurchased stock | (31,864 | ) | — | — | — | (31,864 | ) | ||||||||||||
| Total stockholders’ equity attributable to Altria Group, Inc. | 15,377 | 3,138 | 12,791 | (15,929 | ) | 15,377 | |||||||||||||
| Noncontrolling interests | — | — | 3 | — | 3 | ||||||||||||||
| Total stockholders’ equity | 15,377 | 3,138 | 12,794 | (15,929 | ) | 15,380 | |||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 37,104 | $ | 8,271 | $ | 22,557 | $ | (24,730 | ) | $ | 43,202 | ||||||||
| at December 31, 2016 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 4,521 | $ | 1 | $ | 47 | $ | — | $ | 4,569 | |||||||||
| Receivables | — | 8 | 143 | — | 151 | ||||||||||||||
| Inventories: | |||||||||||||||||||
| Leaf tobacco | — | 541 | 351 | — | 892 | ||||||||||||||
| Other raw materials | — | 111 | 53 | — | 164 | ||||||||||||||
| Work in process | — | 3 | 509 | — | 512 | ||||||||||||||
| Finished product | — | 112 | 371 | — | 483 | ||||||||||||||
| — | 767 | 1,284 | — | 2,051 | |||||||||||||||
| Due from Altria Group, Inc. and subsidiaries | — | 3,797 | 1,511 | (5,308 | ) | — | |||||||||||||
| Income taxes | 167 | 10 | 92 | — | 269 | ||||||||||||||
| Other current assets | 3 | 108 | 109 | — | 220 | ||||||||||||||
| Total current assets | 4,691 | 4,691 | 3,186 | (5,308 | ) | 7,260 | |||||||||||||
| Property, plant and equipment, at cost | — | 2,971 | 1,864 | — | 4,835 | ||||||||||||||
| Less accumulated depreciation | — | 2,073 | 804 | — | 2,877 | ||||||||||||||
| — | 898 | 1,060 | — | 1,958 | |||||||||||||||
| Goodwill | — | — | 5,285 | — | 5,285 | ||||||||||||||
| Other intangible assets, net | — | 2 | 12,034 | — | 12,036 | ||||||||||||||
| Investment in AB InBev | 17,852 | — | — | — | 17,852 | ||||||||||||||
| Investment in consolidated subsidiaries | 11,636 | 2,632 | — | (14,268 | ) | — | |||||||||||||
| Finance assets, net | — | — | 1,028 | — | 1,028 | ||||||||||||||
| Due from Altria Group, Inc. and subsidiaries | 4,790 | — | — | (4,790 | ) | — | |||||||||||||
| Other assets | 18 | 1,748 | 131 | (1,384 | ) | 513 | |||||||||||||
| Total Assets | $ | 38,987 | $ | 9,971 | $ | 22,724 | $ | (25,750 | ) | $ | 45,932 | ||||||||
| at December 31, 2016 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Liabilities | |||||||||||||||||||
| Accounts payable | $ | 1 | $ | 92 | $ | 332 | $ | — | $ | 425 | |||||||||
| Accrued liabilities: | |||||||||||||||||||
| Marketing | — | 619 | 128 | — | 747 | ||||||||||||||
| Employment costs | 104 | 14 | 171 | — | 289 | ||||||||||||||
| Settlement charges | — | 3,696 | 5 | — | 3,701 | ||||||||||||||
| Other | 261 | 438 | 326 | — | 1,025 | ||||||||||||||
| Dividends payable | 1,188 | — | — | — | 1,188 | ||||||||||||||
| Due to Altria Group, Inc. and subsidiaries | 5,030 | 237 | 41 | (5,308 | ) | — | |||||||||||||
| Total current liabilities | 6,584 | 5,096 | 1,003 | (5,308 | ) | 7,375 | |||||||||||||
| Long-term debt | 13,881 | — | — | — | 13,881 | ||||||||||||||
| Deferred income taxes | 5,424 | — | 4,376 | (1,384 | ) | 8,416 | |||||||||||||
| Accrued pension costs | 207 | — | 598 | — | 805 | ||||||||||||||
| Accrued postretirement health care costs | — | 1,453 | 764 | — | 2,217 | ||||||||||||||
| Due to Altria Group, Inc. and subsidiaries | — | — | 4,790 | (4,790 | ) | — | |||||||||||||
| Other liabilities | 121 | 146 | 160 | — | 427 | ||||||||||||||
| Total liabilities | 26,217 | 6,695 | 11,691 | (11,482 | ) | 33,121 | |||||||||||||
| Contingencies | |||||||||||||||||||
| Redeemable noncontrolling interest | — | — | 38 | — | 38 | ||||||||||||||
| Stockholders’ Equity | |||||||||||||||||||
| Common stock | 935 | — | 9 | (9 | ) | 935 | |||||||||||||
| Additional paid-in capital | 5,893 | 3,310 | 11,585 | (14,895 | ) | 5,893 | |||||||||||||
| Earnings reinvested in the business | 36,906 | 237 | 1,118 | (1,355 | ) | 36,906 | |||||||||||||
| Accumulated other comprehensive losses | (2,052 | ) | (271 | ) | (1,720 | ) | 1,991 | (2,052 | ) | ||||||||||
| Cost of repurchased stock | (28,912 | ) | — | — | — | (28,912 | ) | ||||||||||||
| Total stockholders’ equity attributable to Altria Group, Inc. | 12,770 | 3,276 | 10,992 | (14,268 | ) | 12,770 | |||||||||||||
| Noncontrolling interests | — | — | 3 | — | 3 | ||||||||||||||
| Total stockholders’ equity | 12,770 | 3,276 | 10,995 | (14,268 | ) | 12,773 | |||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 38,987 | $ | 9,971 | $ | 22,724 | $ | (25,750 | ) | $ | 45,932 | ||||||||
| for the year ended December 31, 2017 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Net revenues | $ | — | $ | 21,826 | $ | 3,787 | $ | (37 | ) | $ | 25,576 | ||||||||
| Cost of sales | — | 6,414 | 1,166 | (37 | ) | 7,543 | |||||||||||||
| Excise taxes on products | — | 5,864 | 218 | — | 6,082 | ||||||||||||||
| Gross profit | — | 9,548 | 2,403 | — | 11,951 | ||||||||||||||
| Marketing, administration and research costs | 173 | 1,710 | 479 | — | 2,362 | ||||||||||||||
| Asset impairment and exit costs | — | 1 | 32 | — | 33 | ||||||||||||||
| Operating (expense) income | (173 | ) | 7,837 | 1,892 | — | 9,556 | |||||||||||||
| Interest and other debt expense (income), net | 510 | (20 | ) | 215 | — | 705 | |||||||||||||
| Earnings from equity investment in AB InBev | (532 | ) | — | — | — | (532 | ) | ||||||||||||
| Gain on AB InBev/SABMiller business combination | (445 | ) | — | — | — | (445 | ) | ||||||||||||
| Earnings before income taxes and equity earnings of subsidiaries | 294 | 7,857 | 1,677 | — | 9,828 | ||||||||||||||
| (Benefit) provision for income taxes | (2,624 | ) | 3,127 | (902 | ) | — | (399 | ) | |||||||||||
| Equity earnings of subsidiaries | 7,304 | 558 | — | (7,862 | ) | — | |||||||||||||
| Net earnings | 10,222 | 5,288 | 2,579 | (7,862 | ) | 10,227 | |||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | (5 | ) | — | (5 | ) | ||||||||||||
| Net earnings attributable to Altria Group, Inc. | $ | 10,222 | $ | 5,288 | $ | 2,574 | $ | (7,862 | ) | $ | 10,222 | ||||||||
| Net earnings | $ | 10,222 | $ | 5,288 | $ | 2,579 | $ | (7,862 | ) | $ | 10,227 | ||||||||
| Other comprehensive earnings, net of deferred income taxes | 155 | 3 | 214 | (217 | ) | 155 | |||||||||||||
| Comprehensive earnings | 10,377 | 5,291 | 2,793 | (8,079 | ) | 10,382 | |||||||||||||
| Comprehensive earnings attributable to noncontrolling interests | — | — | (5 | ) | — | (5 | ) | ||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 10,377 | $ | 5,291 | $ | 2,788 | $ | (8,079 | ) | $ | 10,377 | ||||||||
| for the year ended December 31, 2016 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Net revenues | $ | — | $ | 22,146 | $ | 3,633 | $ | (35 | ) | $ | 25,744 | ||||||||
| Cost of sales | — | 6,628 | 1,153 | (35 | ) | 7,746 | |||||||||||||
| Excise taxes on products | — | 6,187 | 220 | — | 6,407 | ||||||||||||||
| Gross profit | — | 9,331 | 2,260 | — | 11,591 | ||||||||||||||
| Marketing, administration and research costs | 165 | 1,996 | 489 | — | 2,650 | ||||||||||||||
| Asset impairment and exit costs | 5 | 97 | 77 | — | 179 | ||||||||||||||
| Operating (expense) income | (170 | ) | 7,238 | 1,694 | — | 8,762 | |||||||||||||
| Interest and other debt expense, net | 519 | 10 | 218 | — | 747 | ||||||||||||||
| Loss on early extinguishment of debt | 823 | — | — | — | 823 | ||||||||||||||
| Earnings from equity investment in SABMiller | (795 | ) | — | — | — | (795 | ) | ||||||||||||
| Gain on AB InBev/SABMiller business combination | (13,865 | ) | — | — | — | (13,865 | ) | ||||||||||||
| Earnings before income taxes and equity earnings of subsidiaries | 13,148 | 7,228 | 1,476 | — | 21,852 | ||||||||||||||
| Provision for income taxes | 4,453 | 2,631 | 524 | — | 7,608 | ||||||||||||||
| Equity earnings of subsidiaries | 5,544 | 268 | — | (5,812 | ) | — | |||||||||||||
| Net earnings | 14,239 | 4,865 | 952 | (5,812 | ) | 14,244 | |||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | (5 | ) | — | (5 | ) | ||||||||||||
| Net earnings attributable to Altria Group, Inc. | $ | 14,239 | $ | 4,865 | $ | 947 | $ | (5,812 | ) | $ | 14,239 | ||||||||
| Net earnings | $ | 14,239 | $ | 4,865 | $ | 952 | $ | (5,812 | ) | $ | 14,244 | ||||||||
Other comprehensive earnings (losses), net of deferred income taxes | 1,228 | (16 | ) | (28 | ) | 44 | 1,228 | ||||||||||||
| Comprehensive earnings | 15,467 | 4,849 | 924 | (5,768 | ) | 15,472 | |||||||||||||
| Comprehensive earnings attributable to noncontrolling interests | — | — | (5 | ) | — | (5 | ) | ||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 15,467 | $ | 4,849 | $ | 919 | $ | (5,768 | ) | $ | 15,467 | ||||||||
| for the year ended December 31, 2015 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Net revenues | $ | — | $ | 22,133 | $ | 3,342 | $ | (41 | ) | $ | 25,434 | ||||||||
| Cost of sales | — | 6,664 | 1,117 | (41 | ) | 7,740 | |||||||||||||
| Excise taxes on products | — | 6,369 | 211 | — | 6,580 | ||||||||||||||
| Gross profit | — | 9,100 | 2,014 | — | 11,114 | ||||||||||||||
| Marketing, administration and research costs | 189 | 2,094 | 425 | — | 2,708 | ||||||||||||||
| Reduction of PMI tax-related receivable | 41 | — | — | — | 41 | ||||||||||||||
| Asset impairment and exit costs | — | — | 4 | — | 4 | ||||||||||||||
| Operating (expense) income | (230 | ) | 7,006 | 1,585 | — | 8,361 | |||||||||||||
| Interest and other debt expense, net | 560 | 33 | 224 | — | 817 | ||||||||||||||
| Loss on early extinguishment of debt | 228 | — | — | — | 228 | ||||||||||||||
| Earnings from equity investment in SABMiller | (757 | ) | — | — | — | (757 | ) | ||||||||||||
| Gain on AB InBev/SABMiller business combination | (5 | ) | — | — | — | (5 | ) | ||||||||||||
| (Loss) earnings before income taxes and equity earnings of subsidiaries | (256 | ) | 6,973 | 1,361 | — | 8,078 | |||||||||||||
| (Benefit) provision for income taxes | (184 | ) | 2,536 | 483 | — | 2,835 | |||||||||||||
| Equity earnings of subsidiaries | 5,313 | 268 | — | (5,581 | ) | — | |||||||||||||
| Net earnings | 5,241 | 4,705 | 878 | (5,581 | ) | 5,243 | |||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | (2 | ) | — | (2 | ) | ||||||||||||
| Net earnings attributable to Altria Group, Inc. | $ | 5,241 | $ | 4,705 | $ | 876 | $ | (5,581 | ) | $ | 5,241 | ||||||||
| Net earnings | $ | 5,241 | $ | 4,705 | $ | 878 | $ | (5,581 | ) | $ | 5,243 | ||||||||
Other comprehensive (losses) earnings, net of deferred income taxes | (598 | ) | 86 | (69 | ) | (17 | ) | (598 | ) | ||||||||||
| Comprehensive earnings | 4,643 | 4,791 | 809 | (5,598 | ) | 4,645 | |||||||||||||
| Comprehensive earnings attributable to noncontrolling interests | — | — | (2 | ) | — | (2 | ) | ||||||||||||
Comprehensive earnings attributable to Altria Group, Inc. | $ | 4,643 | $ | 4,791 | $ | 807 | $ | (5,598 | ) | $ | 4,643 | ||||||||
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| for the year ended December 31, 2017 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Cash Provided by Operating Activities | |||||||||||||||||||
| Net cash provided by operating activities | $ | 6,910 | $ | 4,049 | $ | 841 | $ | (6,878 | ) | $ | 4,922 | ||||||||
| Cash Provided by (Used in) Investing Activities | |||||||||||||||||||
| Capital expenditures | — | (34 | ) | (165 | ) | — | (199 | ) | |||||||||||
| Acquisitions of businesses and assets | — | — | (415 | ) | — | (415 | ) | ||||||||||||
| Proceeds from finance assets | — | — | 133 | — | 133 | ||||||||||||||
| Payment for derivative financial instruments | (5 | ) | — | — | — | (5 | ) | ||||||||||||
| Other | — | 4 | 15 | — | 19 | ||||||||||||||
| Net cash used in investing activities | (5 | ) | (30 | ) | (432 | ) | — | (467 | ) | ||||||||||
| Cash Provided by (Used in) Financing Activities | |||||||||||||||||||
| Repurchases of common stock | (2,917 | ) | — | — | — | (2,917 | ) | ||||||||||||
| Dividends paid on common stock | (4,807 | ) | — | — | — | (4,807 | ) | ||||||||||||
Changes in amounts due to/from Altria Group, Inc. and subsidiaries | (2,459 | ) | 1,410 | 1,049 | — | — | |||||||||||||
| Cash dividends paid to parent | — | (5,429 | ) | (1,449 | ) | 6,878 | — | ||||||||||||
| Other | (40 | ) | — | (7 | ) | — | (47 | ) | |||||||||||
| Net cash used in financing activities | (10,223 | ) | (4,019 | ) | (407 | ) | 6,878 | (7,771 | ) | ||||||||||
| Cash and cash equivalents: | |||||||||||||||||||
| (Decrease) increase | (3,318 | ) | — | 2 | — | (3,316 | ) | ||||||||||||
| Balance at beginning of year | 4,521 | 1 | 47 | — | 4,569 | ||||||||||||||
| Balance at end of year | $ | 1,203 | $ | 1 | $ | 49 | $ | — | $ | 1,253 | |||||||||
| for the year ended December 31, 2016 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Cash Provided by Operating Activities | |||||||||||||||||||
| Net cash provided by operating activities | $ | 4,356 | $ | 5,138 | $ | 319 | $ | (5,992 | ) | $ | 3,821 | ||||||||
| Cash Provided by (Used in) Investing Activities | |||||||||||||||||||
| Capital expenditures | — | (45 | ) | (144 | ) | — | (189 | ) | |||||||||||
| Acquisition of assets | — | — | (45 | ) | — | (45 | ) | ||||||||||||
| Proceeds from finance assets | — | — | 231 | — | 231 | ||||||||||||||
| Proceeds from AB InBev/SABMiller business combination | 4,773 | — | — | — | 4,773 | ||||||||||||||
| Purchase of AB InBev ordinary shares | (1,578 | ) | — | — | — | (1,578 | ) | ||||||||||||
| Payment for derivative financial instrument | (3 | ) | — | — | — | (3 | ) | ||||||||||||
| Proceeds from derivative financial instruments | 510 | — | — | — | 510 | ||||||||||||||
| Other | — | — | 9 | — | 9 | ||||||||||||||
| Net cash provided by (used in) investing activities | 3,702 | (45 | ) | 51 | — | 3,708 | |||||||||||||
| Cash Provided by (Used in) Financing Activities | |||||||||||||||||||
| Long-term debt issued | 1,976 | — | — | — | 1,976 | ||||||||||||||
| Long-term debt repaid | (933 | ) | — | — | — | (933 | ) | ||||||||||||
| Repurchases of common stock | (1,030 | ) | — | — | — | (1,030 | ) | ||||||||||||
| Dividends paid on common stock | (4,512 | ) | — | — | — | (4,512 | ) | ||||||||||||
Changes in amounts due to/from Altria Group, Inc. and subsidiaries | (530 | ) | (28 | ) | 558 | — | — | ||||||||||||
| Premiums and fees related to early extinguishment of debt | (809 | ) | — | — | — | (809 | ) | ||||||||||||
| Cash dividends paid to parent | — | (5,064 | ) | (928 | ) | 5,992 | — | ||||||||||||
| Other | (12 | ) | — | (9 | ) | — | (21 | ) | |||||||||||
| Net cash used in financing activities | (5,850 | ) | (5,092 | ) | (379 | ) | 5,992 | (5,329 | ) | ||||||||||
| Cash and cash equivalents: | |||||||||||||||||||
| Increase (decrease) | 2,208 | 1 | (9 | ) | — | 2,200 | |||||||||||||
| Balance at beginning of year | 2,313 | — | 56 | — | 2,369 | ||||||||||||||
| Balance at end of year | $ | 4,521 | $ | 1 | $ | 47 | $ | — | $ | 4,569 | |||||||||
| for the year ended December 31, 2015 | Altria Group, Inc. | PM USA | Non- Guarantor Subsidiaries | Total Consolidating Adjustments | Consolidated | ||||||||||||||
| Cash Provided by Operating Activities | |||||||||||||||||||
| Net cash provided by operating activities | $ | 5,118 | $ | 5,204 | $ | 961 | $ | (5,440 | ) | $ | 5,843 | ||||||||
| Cash Provided by (Used in) Investing Activities | |||||||||||||||||||
| Capital expenditures | — | (51 | ) | (178 | ) | — | (229 | ) | |||||||||||
| Proceeds from finance assets | — | — | 354 | — | 354 | ||||||||||||||
| Payment for derivative financial instrument | (132 | ) | — | — | — | (132 | ) | ||||||||||||
| Other | — | 10 | (18 | ) | — | (8 | ) | ||||||||||||
| Net cash (used in) provided by investing activities | (132 | ) | (41 | ) | 158 | — | (15 | ) | |||||||||||
| Cash Provided by (Used in) Financing Activities | |||||||||||||||||||
| Long-term debt repaid | (1,793 | ) | — | — | — | (1,793 | ) | ||||||||||||
| Repurchases of common stock | (554 | ) | — | — | — | (554 | ) | ||||||||||||
| Dividends paid on common stock | (4,179 | ) | — | — | — | (4,179 | ) | ||||||||||||
Changes in amounts due to/from Altria Group, Inc. and subsidiaries | 814 | (495 | ) | (319 | ) | — | — | ||||||||||||
| Premiums and fees related to early extinguishment of debt | (226 | ) | — | — | — | (226 | ) | ||||||||||||
| Cash dividends paid to parent | — | (4,671 | ) | (769 | ) | 5,440 | — | ||||||||||||
| Other | (16 | ) | — | (12 | ) | — | (28 | ) | |||||||||||
| Net cash used in financing activities | (5,954 | ) | (5,166 | ) | (1,100 | ) | 5,440 | (6,780 | ) | ||||||||||
| Cash and cash equivalents: | |||||||||||||||||||
| (Decrease) increase | (968 | ) | (3 | ) | 19 | — | (952 | ) | |||||||||||
| Balance at beginning of year | 3,281 | 3 | 37 | — | 3,321 | ||||||||||||||
| Balance at end of year | $ | 2,313 | $ | — | $ | 56 | $ | — | $ | 2,369 | |||||||||
| 2017 Quarters | |||||||||||||||
| (in millions, except per share data) | 1st | 2nd | 3rd | 4th | |||||||||||
| Net revenues | $ | 6,083 | $ | 6,663 | $ | 6,729 | $ | 6,101 | |||||||
| Gross profit | $ | 2,779 | $ | 3,119 | $ | 3,183 | $ | 2,870 | |||||||
| Net earnings | $ | 1,402 | $ | 1,990 | $ | 1,867 | $ | 4,968 | |||||||
| Net earnings attributable to Altria Group, Inc. | $ | 1,401 | $ | 1,989 | $ | 1,866 | $ | 4,966 | |||||||
| Per share data: | |||||||||||||||
| Basic and diluted EPS attributable to Altria Group, Inc. | $ | 0.72 | $ | 1.03 | $ | 0.97 | $ | 2.60 | |||||||
| 2016 Quarters | |||||||||||||||
| (in millions, except per share data) | 1st | 2nd | 3rd | 4th | |||||||||||
| Net revenues | $ | 6,066 | $ | 6,521 | $ | 6,905 | $ | 6,252 | |||||||
| Gross profit | $ | 2,656 | $ | 2,957 | $ | 3,150 | $ | 2,828 | |||||||
| Net earnings | $ | 1,218 | $ | 1,654 | $ | 1,094 | $ | 10,278 | |||||||
| Net earnings attributable to Altria Group, Inc. | $ | 1,217 | $ | 1,653 | $ | 1,093 | $ | 10,276 | |||||||
| Per share data: | |||||||||||||||
| Basic and diluted EPS attributable to Altria Group, Inc. | $ | 0.62 | $ | 0.84 | $ | 0.56 | $ | 5.27 | |||||||
| 2017 Quarters | |||||||||||||||
| (in millions) | 1st | 2nd | 3rd | 4th | |||||||||||
| NPM Adjustment Items | $ | (1 | ) | $ | — | $ | 5 | $ | — | ||||||
| Tobacco and health litigation items, including accrued interest | 1 | 17 | — | 62 | |||||||||||
| Asset impairment, exit, implementation and acquisition-related costs | 30 | 30 | 17 | 12 | |||||||||||
| Settlement charge for lump sum pension payments | — | — | — | 81 | |||||||||||
| Gain on AB InBev/SABMiller business combination | — | (408 | ) | (37 | ) | — | |||||||||
| AB InBev special items | 73 | 2 | 34 | 51 | |||||||||||
| $ | 103 | $ | (359 | ) | $ | 19 | $ | 206 | |||||||
| 2016 Quarters | |||||||||||||||
| (in millions) | 1st | 2nd | 3rd | 4th | |||||||||||
| NPM Adjustment Items | $ | 18 | $ | — | $ | — | $ | — | |||||||
| Tobacco and health litigation items, including accrued interest | 38 | 5 | 45 | 17 | |||||||||||
| Patent litigation settlement | — | — | — | 21 | |||||||||||
| Asset impairment, exit, implementation and acquisition-related costs | 122 | 5 | 6 | 73 | |||||||||||
| Loss on early extinguishment of debt | — | — | 823 | — | |||||||||||
| Gain on AB InBev/SABMiller business combination | (40 | ) | (117 | ) | (48 | ) | (13,660 | ) | |||||||
| SABMiller special items | 166 | 21 | (40 | ) | (236 | ) | |||||||||
| $ | 304 | $ | (86 | ) | $ | 786 | $ | (13,785 | ) | ||||||
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, 20172021 and 2016,2020, and the related consolidated statements of earnings (losses), comprehensive earnings (losses), stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited Altria Group, Inc.’sthe Company’s internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Altria Group, Inc. and its subsidiaries atthe Company as of December 31, 20172021 and 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Altria Group, Inc.the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
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 beloware mattersarising 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 theconsolidated 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 consolidatedfinancial statements, taken as a whole,
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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 $1 million as of December 31, 2021. 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 Labs, Inc. (“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, 2021, 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, 2021. 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 the Company’s 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 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, (iii) expectations for the future state of the e-vapor category including competitive dynamics and (iv) timing of international expansion plans.
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 management’s assessment of the risk created by the number and types of legal cases pending against JUUL, the timing of international expansion plans, the reasonableness of the range of scenarios that consider various potential regulatory and market outcomes and evaluating management’s significant assumptions related to sales volume, operating margins, and discount rates; 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 judgments and assumptions related to sales volume, operating margins, discount rates, the risk created by the number and types of legal cases pending against JUUL and timing of international expansion plans. 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 in the income approach; (iv) evaluating management’s assessment of 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; (vi) evaluating the reasonableness of the timing of international expansion plans; and (vii) evaluating the reasonableness of the significant assumptions used by management related to sales volume, operating margins, and discount rates.
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Evaluating management’s assumptions related to sales volume and operating margins involved evaluating whether the judgments and assumptions used by management were reasonable considering (i) the current and past performance of 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 assumptions.
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, 2021, the Company had an approximate 10.0% ownership interest in ABI with a carrying value of $11.1 billion. Management reviews the Company’s equity investment in ABI, accounted for under the equity method of accounting, for impairment by comparing the fair value of the 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. Management concluded that the decline in fair value of its investment in ABI at September 30, 2021 was other than temporary. As a result, the Company recorded a pre-tax impairment charge of $6.2 billion during the third quarter of 2021.
The principal considerations for our determination that performing procedures relating to the 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 and the period in which to take the impairment charge; 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 or other than 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 27, 2022
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 determinedbeen able to determine the specific year we began serving as auditor of the Company.
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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:
npertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Altria Group, Inc.;
nprovide 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;
nprovide 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
nprovide 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, 2017.2021. 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)(“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 ourAltria Group, Inc.’s Board of Directors.
Based on this assessment, management determined that, as of December 31, 2017,2021, 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, 2017,2021, as stated in their report herein.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Disclosure.
None.
Item 9A. Controls and Procedures.Procedures.
Disclosure Controls and Procedures
Altria Group, Inc. carried out an evaluation, with the participation of Altria Group, Inc.’sAltria’s management, including Altria Group, Inc.’sits Chief Executive Officer and Chief Financial Officer, of the effectiveness of Altria Group, Inc.’sits 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 Annual Report on Form 10-K. Based upon that evaluation, Altria Group, Inc.’sAltria’s Chief Executive Officer and Chief Financial Officer concluded
that Altria Group, Inc.’sAltria’s disclosure controls and procedures are effective.
There have been no changes in Altria Group, Inc.’sAltria’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, Altria Group, Inc.’sits 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.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 Group, Inc.’sAltria’s definitive proxy statement for use in connection with its Annual Meeting of Shareholders to be held on May 17, 201819, 2022 that willis expected to be filed with the SEC on or about April 5, 20187, 2022 (the “proxy statement”), and, except as indicated therein, made a part hereof.
Item 10. Directors, Executive Officers and Corporate Governance.
Refer to “Proposals Requiring Your Vote“Board and Governance Matters - Proposal 1 - Election of Directors,” “Ownership of Equity Securities of Altria - Section 16(a) Beneficial Ownership Reporting Compliance”Directors” and “Board and Governance Matters - Committees of Our Board of Directors”and Committee Governance” sections of the proxy statement.
Information about Our Executive Officers as of February 13, 2018:
15, 2022:
| Name | Office | Age | ||||||
| Daniel J. Bryant | Vice President and Treasurer | |||||||
| Vice President and Controller | ||||||||
| Murray R. Garnick | Executive Vice President and General Counsel | |||||||
| William F. Gifford, Jr. | Chief Executive Officer | 51 | ||||||
| Salvatore Mancuso | Executive Vice President and Chief Financial Officer | |||||||
| Senior Vice President, Corporate Strategy | ||||||||
| W. Hildebrandt Surgner, Jr. | Vice President, Corporate Secretary and Associate General Counsel | |||||||
| Charles N. Whitaker | Senior Vice President, Chief Human Resources | |||||||
All of the above-mentioned executive officers have been employed by Altria Group, Inc. or its subsidiaries in various capacities during the past five years.
Mr. Whitaker’s wife and Mr. Surgner’s wife are first cousins.
Codes of Conduct and Corporate Governance
Altria Group, Inc. 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 Group, Inc. 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 Group, Inc.’sAltria’s website at www.altria.com.
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Any waiver granted by Altria Group, Inc. 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 Group, Inc.’sAltria’s website at www.altria.com within the time period required by applicable rules.
In addition, Altria Group, Inc. 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 Group, Inc.’sAltria’s website at www.altria.com.
The information on the respective websites of Altria Group, Inc. and its subsidiaries is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings Altria Group, Inc. makes with the SEC.
Item 11. Executive Compensation.Compensation.
Refer to “Executive Compensation,” “Compensation Committee Matters - Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Matters - Compensation Committee Report for the Year Ended December 31, 2017” and “Board and Governance Matters - Directors - Director Compensation” sections of the proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters.
The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under Altria Group, Inc.’sAltria’s equity compensation plans at December 31, 2017,2021, were as follows:
Number of Shares to be Issued upon Exercise of Outstanding Options and Vesting of Deferred Stock (a) | Weighted Average Exercise Price of Outstanding Options (b) | Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (c) | |||||||||
Equity compensation plans approved by shareholders (1) | $— | ||||||||||
(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 2,702,462 shares of restricted stock units and 720,913 shares that may be issued upon vesting of performance stock units if maximum performance measures are achieved. (3)Includes 23,459,288 shares available under the 2020 Performance Incentive Plan and 703,256 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.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.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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Part IV
Item 15. Exhibits and Financial Statement Schedules.Schedules.
(a) Index to Consolidated Financial Statements
| Page | |||||
| Consolidated Balance Sheets at December 31, | |||||
| Consolidated Statements of Earnings (Losses) for the years ended December 31, | |||||
| Consolidated Statements of Comprehensive Earnings (Losses) for the years ended December 31, | |||||
| Consolidated Statements of Cash Flows for the years ended December 31, | |||||
| Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, | |||||
| Notes to Consolidated Financial Statements | |||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | |||||
| Report of Management on Internal Control Over Financial Reporting | |||||
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 AB InBevABI for the year ended December 31, 20172021 will be filed by amendment within six months after AB InBev’sABI’s year ended December 31, 2017.2021.
(b) The following exhibits are filed as part of this Annual Report on Form 10-K:
| 2.1 | |||||||||||
| 2.2 | |||||||||||
| 2.3 | |||||||||||
| 2.4 | |||||||||||
| 2.6 | |||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
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| 4.1 | |||||||||||
| 4.2 | 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). | ||||||||||
| 4.7 | |||||||||||
| 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. | |||||||||||
| 10.1 | 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). | ||||||||||
| 10.2 | 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). | ||||||||||
| 10.3 | 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). | ||||||||||
| 10.4 | 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). | ||||||||||
| 10.5 | 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). | ||||||||||
| 10.6 | 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). | ||||||||||
| 10.7 | 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). | ||||||||||
| 10.8 | 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). | ||||||||||
| 10.9 | 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). | ||||||||||
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| 10.10 | |||||||||||
| 10.11 | |||||||||||
| 10.12 | |||||||||||
Guarantee made by Philip Morris USA Inc. | |||||||||||
| 10.18 | 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).* | ||||||||||
| 10.19 | |||||||||||
| 10.24 | |||||||||||
Form of | |||||||||||
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| 10.30 | |||||||||||
| 10.31 | |||||||||||
| 10.32 | |||||||||||
| 10.33 | |||||||||||
| 10.35 | |||||||||||
| 10.36 | |||||||||||
| 21 | |||||||||||
| 23 | |||||||||||
| 24 | |||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 32.2 | |||||||||||
| 99.1 | |||||||||||
| 99.2 | |||||||||||
| Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||
| 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.Summary.
None.
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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/ | ||||||||
| �� | ( Chief Executive | ||||||||
Date: February 27, 201825, 2022
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 | |||||||||||||||
/s/ WILLIAM F. GIFFORD, JR. (William F. Gifford, Jr.) | Director and Chief Executive | February | |||||||||||||||
/s/ | Executive Vice President and Chief Financial Officer | February 25, 2022 | |||||||||||||||
/s/ STEVEN D’AMBROSIA (Steven D’Ambrosia) | Vice President and Controller | February | |||||||||||||||
* JOHN T. CASTEEN III, MARJORIE M. CONNELLY, R. MATT DAVIS, DINYAR S. DEVITRE, DEBRA J. KELLY-ENNIS, W. LEO KIELY III, KATHRYN B. MCQUADE, GEORGE MUÑOZ, NABIL Y. SAKKAB, VIRGINIA E. SHANKS, ELLEN R. STRAHLMAN | Directors | ||||||||||||||||
| *By: | /s/ ( ATTORNEY-IN-FACT) | February | |||||||||||||||