ALTRIA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Description of the Company
When used in this Quarterly Report on Form 10-Q ("Form 10-Q"), the terms
"Altria," "we" and "our" refer to Altria Group, Inc. and its subsidiaries,
unless the context requires otherwise.
For a description of Altria, see Background in Note 1. Background and Basis of
Presentation to the condensed consolidated financial statements in Part I, Item
1. Financial Statements of this Form 10-Q ("Item 1").
For a detailed description of Altria's reportable segments, see Note 8. Segment
Reporting to the condensed consolidated financial statements in Item 1 ("Note
8").
Executive Summary
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations section, Altria refers to the following "adjusted" financial
measures: adjusted operating companies income (loss) ("OCI"); adjusted OCI
margins; adjusted net earnings attributable to Altria; adjusted diluted earnings
per share ("EPS") attributable to Altria; and adjusted effective tax rates.
These adjusted financial measures are not required by, or calculated in
accordance with, United States generally accepted accounting principles ("GAAP")
and may not be calculated the same as similarly titled measures used by other
companies. These adjusted financial measures should thus be considered as
supplemental in nature and not considered in isolation or as a substitute for
the related financial information prepared in accordance with GAAP. Except as
noted in the 2021 Forecasted Results section below, when Altria provides a
non-GAAP measure in this Form 10-Q, it also provides a reconciliation of that
non-GAAP financial measure to the most directly comparable GAAP financial
measure. OCI for the segments is defined as operating income before general
corporate expenses and amortization of intangibles. For a further description of
these non-GAAP financial measures, see the Non-GAAP Financial Measures section
below.
COVID-19 Pandemic
The COVID-19 pandemic has led to adverse impacts on the U.S. and global
economies and continues to create economic uncertainty even as COVID-19 vaccines
have been and continue to be administered in 2021. Although much uncertainty
still surrounds the pandemic, including its duration and ultimate overall impact
on U.S and global economies, Altria and its subsidiaries' operations and those
of its investees, Altria continues to monitor the macroeconomic risks of the
COVID-19 pandemic and continues to carefully evaluate potential outcomes and
work to mitigate risks. Specifically, Altria remains focused on any potential
impact to its liquidity, operations, supply and distribution chains and on
economic conditions. In terms of Altria's liquidity, despite some volatility in
commercial paper markets in 2020, Altria has not experienced a material impact
to its liquidity.
As with so many other companies throughout the U.S. 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 has implemented
remote working for many employees and aligned with the social distancing
protocols recommended by public health authorities for employees working at
Altria facilities. Altria continues to believe that remote working due to the
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COVID-19 pandemic has had minimal impact on productivity. Also, Altria's
critical information technology systems have remained operational. Although
Altria's tobacco businesses previously suspended operations temporarily at
several of their manufacturing facilities in March 2020, the businesses resumed
operations at those facilities under enhanced safety protocols in April 2020 and
all manufacturing facilities are currently operational under enhanced safety
protocols. Altria continues to monitor the risks associated with facility
disruptions and workforce availability as a result of uncertainty related to the
COVID-19 pandemic.
Altria's suppliers and those within its distribution chain are also subject to
potential facility closures and remote working protocols. To date, Altria has
not experienced any material disruptions to its supply chains or distribution
systems, but is continuing to monitor these factors. The majority of retail
stores in which Altria's tobacco products are sold, including convenience
stores, have been deemed to be essential businesses by authorities and have
remained open. Altria continues to monitor the risk that one or more suppliers,
distributors or any other entities within its supply and distribution chain
closes temporarily or permanently.
Although Altria's tobacco businesses have not been materially impacted to date
by the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19
pandemic may impact adult tobacco consumers in the future. Altria continues to
monitor the macroeconomic risks of the COVID-19 pandemic (including the
availability of vaccines) and their effect on adult tobacco consumers, including
stay-at-home practices and disposable income (which may be impacted by
unemployment rates and fiscal stimulus). Altria also continues to monitor adult
tobacco consumers' purchasing behaviors, including overall tobacco product
expenditures, mix between premium and discount brand purchases and adoption of
non-combustible products.
Altria has experienced adverse impacts to its alcohol assets due to the COVID-19
pandemic. In the wine business, in 2020 Ste. Michelle Wine Estates Ltd.'s ("Ste.
Michelle") direct-to-consumer sales and on-premise wine sales in restaurants,
bars and hospitality venues and on cruise lines were negatively impacted by
disruptions arising from the COVID-19 pandemic, which also may have an impact on
adult wine consumers going forward. These impacts in 2020 contributed to Ste.
Michelle recording pre-tax inventory-related charges of $392 million in the
first quarter of 2020 in connection with its strategic reset of the wine
business. Ste. Michelle continues to monitor the impact of the COVID-19 pandemic
associated risks to its business, results of operations, cash flows and
financial position.
Anheuser-Busch InBev SA/NV ("ABI") continues to be impacted by the COVID-19
pandemic. In 2020, these impacts included (i) a 50% reduction to its final 2019
dividend and a decision to forgo its interim 2020 dividend; (ii) the withdrawal
of its earnings guidance for 2020 due to uncertainty and volatility related to
the impact of the COVID-19 pandemic; and (iii) a goodwill impairment charge
related to its Africa businesses. While ABI stated in its year end 2020 earnings
report that it expects its financial results in 2021 to improve meaningfully
versus 2020, ABI did not provide earnings guidance for 2021 given the continued
uncertainty. The extreme market disruption and volatility associated with the
COVID-19 pandemic resulted in a steep decline in ABI's stock price in the first
half of 2020. Although there was a gradual recovery in ABI's stock price in the
second half of 2020 and again in April 2021, the fair value of Altria's
investment in ABI continues to be below the carrying value. While Altria
believes that this decline is temporary, it will continue to monitor its
investment in ABI, including the impact of the COVID-19 pandemic on ABI's
business and market valuation.
Altria considered the impact of the COVID-19 pandemic on the business of JUUL
Labs, Inc. ("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 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 three months
ended March 31, 2021 and during 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 the changes in fair value recorded in the fourth quarter of 2020
or for the three months ended March 31, 2021. Altria will continue to monitor
the impact of the COVID-19 pandemic on JUUL's business in Altria's quarterly
quantitative valuations of JUUL.
Altria has considered the impact of the COVID-19 pandemic on the business of
Cronos Group Inc. ("Cronos"), including its sales, distribution, operations,
supply chain and liquidity. Cronos has been and continues to be impacted by the
COVID-19 pandemic, due in part to government actions limiting access to retail
stores in the United States and Canada, including the recording in 2020 of an
impairment charge on certain goodwill and intangible assets. Altria will
continue to monitor its investment in Cronos, including the impact of the
COVID-19 pandemic on Cronos's business and market valuation.
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Consolidated Results of Operations for the Three Months Ended March 31, 2021
The changes in net earnings attributable to Altria and diluted EPS attributable
to Altria for the three months ended March 31, 2021, from the three months ended
March 31, 2020, were due primarily to the following:
   (in millions, except per share data)                   Net Earnings      

Diluted EPS

   For the three months ended March 31, 2020             $     1,552       $     0.83

   2020 Implementation and acquisition-related costs             300             0.16
   2020 Tobacco and health litigation items                       19             0.01

   2020 ABI-related special items                                 44             0.03
   2020 Cronos-related special items                              95             0.05

   2020 Tax items                                                 24             0.01
   Subtotal 2020 special items                                   482             0.26
   2021 NPM Adjustment Items                                      24             0.01
   2021 Implementation and acquisition-related costs             (37)           (0.02)
   2021 Tobacco and health litigation items                      (26)           (0.01)

   2021 JUUL changes in fair value                              (200)           (0.10)
   2021 ABI-related special items                                100             0.05
   2021 Cronos-related special items                              70             0.04

   2021 Loss on early extinguishment of debt                    (496)           (0.27)
   2021 Tax items                                                  6                -
   Subtotal 2021 special items                                  (559)           (0.30)

   Change in tax rate                                            (27)           (0.01)
   Operations                                                    (24)           (0.01)
   For the three months ended March 31, 2021             $     1,424       $     0.77

   2021 Reported Net Earnings                            $     1,424       $     0.77
   2020 Reported Net Earnings                            $     1,552       $     0.83
   % Change                                                     (8.2) %          (7.2) %

   2021 Adjusted Net Earnings and Adjusted Diluted EPS   $     1,983       $     1.07
   2020 Adjusted Net Earnings and Adjusted Diluted EPS   $     2,034       $     1.09
   % Change                                                     (2.5) %          (1.8) %



For a discussion of special items and other business drivers affecting the
comparability of statements of earnings amounts and reconciliations of adjusted
earnings attributable to Altria and adjusted diluted EPS attributable to Altria,
see the Consolidated Operating Results section below.
?Change in Tax Rate: The change in the tax rate was driven primarily by lower
dividends from ABI.
?Operations: The decrease of $24 million in operations (which excludes the
impact of special items shown in the table above) was due primarily to the
unfavorable timing of interest expense.
For further details, see the Consolidated Operating Results and Operating
Results by Business Segment sections below.
2021 Forecasted Results
Altria expects its 2021 full-year adjusted diluted EPS to be in a range of $4.49
to $4.62, representing a growth rate of 3% to 6% over its 2020 full-year
adjusted diluted EPS base of $4.36, as shown in the first table below. While the
2021 full-year adjusted diluted EPS guidance accounts for a range of scenarios,
the external environment remains dynamic. Altria will continue to monitor
conditions related to (i) unemployment rates, (ii) fiscal stimulus, (iii) adult
tobacco consumer dynamics, including stay-at-home practices, disposable income,
purchasing patterns and adoption of non-combustible products, (iv) regulatory
and legislative (including excise tax) developments, (v) the timing and breadth
of COVID-19 vaccine administration and (vi) expectations for adjusted earnings
contributions from its alcohol assets.
Altria's 2021 full-year adjusted diluted EPS guidance range includes planned
investments in support of its vision to responsibly lead the transition of adult
smokers to a non-combustible future, such as (i) marketplace investments to
expand the availability and awareness of Altria's non-combustible products, (ii)
costs associated with building an industry-leading consumer
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engagement platform that enhances data collection and insights in support of
adult tobacco consumer conversion to non-combustible products and (iii)
increased non-combustible product research and development expense. Altria
expects 2021 adjusted diluted EPS growth to come in the last three quarters of
the year. This forecasted growth rate excludes the (income) expense items in the
second table below.
Altria continues to expect its 2021 full-year adjusted effective tax rate will
be in a range of 24.5% to 25.5%.

Reconciliation of 2020 Reported Diluted EPS to 2020 Adjusted Diluted EPS 2020 Reported diluted EPS

                                              $ 

2.40

Asset impairment, exit, implementation and acquisition-related costs 0.18 Tobacco and health litigation items

0.03

Impairment of JUUL equity securities                                     1.40
JUUL changes in fair value                                              (0.05)
ABI-related special items                                                0.32

Cronos-related special items                                             0.03
COVID-19 special items                                                   0.02
Tax items                                                                0.03
2020 Adjusted diluted EPS                                              $ 4.36

The following (income) expense items are excluded from Altria's 2021 forecasted adjusted diluted EPS growth rate:

(Income) Expense Excluded from 2021 Forecasted Adjusted Diluted EPS NPM Adjustment Items

$ (0.01)
Implementation and acquisition-related costs                      0.02
Tobacco and health litigation items                               0.01

JUUL changes in fair value                                        0.10
ABI-related special items                                        (0.05)
Cronos-related special items                                     (0.04)
Loss on early extinguishment of debt                              0.27

                                                               $  0.30


For a discussion of certain income and expense items excluded from the
forecasted results above, see the Consolidated Operating Results section below.
Altria's full-year adjusted diluted EPS guidance and full-year forecast for its
adjusted effective tax rate exclude the impact of certain income and expense
items, including those items noted in the Non-GAAP Financial Measures section
below, that management believes are not part of underlying operations. Altria's
management cannot estimate on a forward-looking basis the impact of these items
on its reported diluted EPS or its reported effective tax rate because these
items, which could be significant, may be unusual or infrequent, are difficult
to predict and may be highly variable. As a result, Altria does not provide a
corresponding GAAP measure for, or reconciliation to, its adjusted diluted EPS
guidance or its adjusted effective tax rate forecast.
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 attributable to Altria and diluted EPS, on an adjusted basis, which
excludes certain income and expense items that management believes are not part
of underlying operations. These items may include, for example, loss on early
extinguishment of debt, restructuring charges, asset impairment charges,
acquisition-related costs, COVID-19 special items, equity investment-related
special items (including any changes in fair value of the equity investment and
any related warrants and preemptive rights), certain tax items, charges
associated with tobacco and health litigation items, and resolutions of certain
nonparticipating manufacturer ("NPM") adjustment disputes under the 1998 Master
Settlement Agreement (such dispute resolutions are referred to as "NPM
Adjustment Items"). Altria's management does not view any of these special items
to be part of Altria's underlying results as they may be highly variable, may be
unusual or infrequent, are
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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 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
Altria's critical accounting policies and estimates are discussed in its Annual
Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K");
there have been no material changes to these critical accounting policies and
estimates, except as noted below.
Investment in ABI
At March 31, 2021, Altria's investment in ABI consisted of 185 million
restricted shares (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, at
March 31, 2021, was classified in Level 1 of the fair value hierarchy and (ii)
observable inputs other than Level 1 prices, such as quoted prices for similar
assets, for the Restricted Shares, and was classified in Level 2 of the fair
value hierarchy. Altria may, in certain instances, pledge or otherwise grant a
security interest in all or part of its Restricted Shares. In the event the
pledgee or security interest holder were to foreclose on the Restricted Shares,
the encumbered Restricted Shares will be automatically converted, one-for-one,
into ordinary shares. Therefore, the fair value of each Restricted Share is
based on the value of an ordinary share.
The fair value of Altria's equity investment in ABI at March 31, 2021 and
December 31, 2020 was $12.4 billion (carrying value of $17.4 billion) and $13.8
billion (carrying value of $16.7 billion), respectively, which was less than its
carrying value by approximately 28% and 17%, respectively. At April 26, 2021,
the fair value of Altria's investment had increased to approximately $13.9
billion. In October 2019, the fair value of Altria's equity investment in ABI
declined below its carrying value and at April 26, 2021 has not recovered.
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 March 31, 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, both at March 31, 2021 and December 31,
2020, that the decline in fair value of its investment in ABI below its carrying
value was temporary and, therefore, no impairment was recorded. This conclusion
was based on the following factors:
?a history of significant recovery in ABI's stock price during 2019 and
recoveries during 2020 (following the steep decline in the first quarter of 2020
associated with the impacts of the COVID-19 pandemic on its business) and in
April 2021, all of which Altria believes indicate investor confidence in ABI's
ability to implement its business strategies and deleveraging plans as well as
its ability to recover from the impacts of the COVID-19 pandemic;
?the continued industry disruption and volatility associated with the COVID-19
pandemic, resulting in stock performance for ABI that Altria does not believe is
reflective of actual underlying equity values;
?ABI's proactive actions to preserve financial flexibility and commitment to its
long-term deleveraging initiative, including the following actions since
December 31, 2019: (i) ABI's 50% reduction to its final 2019 dividend and its
decision to forgo its interim 2020 dividend; (ii) ABI's completion of the sale
of its Australia subsidiary and of a minority stake in its U.S. based metal
container operations; and (iii) ABI's continuation of its refinancing efforts
through issuance and redemption activity, specifically front-end maturities into
longer dated maturities and reduction in gross debt levels;
?ABI's global platform (world's largest brewer by volume and one of the world's
top ten consumer products companies by revenue) with strong market positions in
key markets, new product innovations, geographic diversification, experienced
management team, strict financial discipline (cost management and efficiency)
and expected earnings and history of performance; and
?the strategic plans implemented by ABI in response to the adverse impacts of
the COVID-19 pandemic, including its ability to leverage learnings from
recovering markets and respond quickly to the evolving environment to better
position ABI for a robust recovery. This was evidenced by:
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?ABI's performance in the second half of 2020, which represented improvement
over the first half of 2020 and reinforced its confidence in the future
potential of the beer category and its business; and
?ABI stating in its year end 2020 earnings report that it expects financial
results in 2021 to improve meaningfully versus 2020. ABI stated that its 2021
outlook, which is subject to change as it continues to monitor ongoing
developments, reflects, among other factors, its current assessment of the scale
and magnitude of the COVID-19 pandemic.
Altria will continue to monitor its investment in ABI, including the impact of
the COVID-19 pandemic and subsequent recovery on ABI's business and market
valuation. If Altria were to conclude that the decline in fair value is other
than temporary, Altria would determine and recognize, in the period identified,
the impairment of its investment, which could result in a material adverse
effect on Altria's consolidated financial position or earnings.
For further discussion of Altria's investment in ABI, see Note 3. Investments in
Equity Securities to the condensed consolidated financial statements in Item 1
("Note 3").
Consolidated Operating Results
                                        For the Three Months Ended March 31,
(in millions)                                    2021                          2020
Net Revenues:
Smokeable products            $             5,250                            $ 5,606
Oral tobacco products                         626                                601
Wine                                          150                                146
All other                                      10                                  6
Net revenues                  $             6,036                            $ 6,359
Excise Taxes on Products:
Smokeable products            $             1,121                            $ 1,278
Oral tobacco products                          31                                 31
Wine                                            4                                  4

Excise taxes on products      $             1,156                            $ 1,313
Operating Income:
OCI:
Smokeable products            $             2,372                            $ 2,370
Oral tobacco products                         392                                414
Wine                                           18                               (379)
All other                                     (14)                                (5)
Amortization of intangibles                   (17)                          

(19)

General corporate expenses                    (61)                               (45)

Operating income              $             2,690                            $ 2,336

As discussed further in Note 8, the CODM reviews OCI to evaluate the performance of, and allocate resources to, the segments. 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 table provides a reconciliation of adjusted net earnings
attributable to Altria and adjusted diluted EPS attributable to Altria for the
three months ended March 31:
                                                                                                       Net Earnings
(in millions of dollars, except per share        Earnings before   Provision for                       Attributable
data)                                             Income Taxes     Income Taxes      Net Earnings       to Altria        Diluted EPS
2021 Reported                                    $      1,937    $          516    $       1,421    $         1,424    $       0.77
NPM Adjustment Items                                      (32)               (8)             (24)               (24)          (0.01)
Implementation and acquisition-related costs               48                11               37                 37            0.02
Tobacco and health litigation items                        35                 9               26                 26            0.01

JUUL changes in fair value                                200                 -              200                200            0.10
ABI-related special items                                (128)              (28)            (100)              (100)          (0.05)
Cronos-related special items                              (70)                -              (70)               (70)          (0.04)

Loss on early extinguishment of debt                      649               153              496                496            0.27
Tax items                                                   -                 6               (6)                (6)              -
2021 Adjusted for Special Items                  $      2,639    $          659    $       1,980    $         1,983    $       1.07

2020 Reported                                    $      2,108    $          558    $       1,550    $         1,552    $       0.83

Implementation and acquisition-related costs              395                95              300                300            0.16
Tobacco and health litigation items                        24                 5               19                 19            0.01

ABI-related special items                                  56                12               44                 44            0.03
Cronos-related special items                               89                (6)              95                 95            0.05
Tax items                                                   -               (24)              24                 24            0.01
2020 Adjusted for Special Items                  $      2,672    $          

640 $ 2,032 $ 2,034 $ 1.09

The following special items affected the comparability of statements of earnings
amounts for the three months ended March 31, 2021 and 2020:
?NPM Adjustment Items: For a discussion of NPM Adjustment Items and a breakdown
of these items by segment, see Health Care Cost Recovery Litigation in Note 10.
Contingencies to the condensed consolidated financial statements in Item 1
("Note 10") and NPM Adjustment Items in Note 8, respectively.
?Implementation and Acquisition-Related Costs: Pre-tax implementation and
acquisition-related costs were $48 million and $395 million for the three months
ended March 31, 2021 and 2020, respectively. For a discussion of implementation
and acquisition-related costs, see Note 8.
?Tobacco and Health Litigation Items: For a discussion of tobacco and health
litigation items and a breakdown of these costs by segment, see Note 10 and
Tobacco and Health Litigation Items in Note 8, respectively.
?JUUL Changes in Fair Value: For the three months ended March 31, 2021, Altria
recorded a non-cash pre-tax unrealized loss of $200 million reported as (income)
losses from equity investments in its condensed consolidated statement of
earnings as a result of a decrease in the fair value of Altria's investment in
JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance.
For further discussion, see Note 3.
?ABI-Related Special Items: Altria's earnings from its equity investment in ABI
for the three months ended March 31, 2021 included net pre-tax income of $128
million, consisting primarily of (i) ABI's completion of the issuance of a
minority stake in its U.S.-based metal container operations, (ii) mark-to-market
gains on certain ABI financial instruments associated with its share commitments
and (iii) charges associated with an early bond termination by ABI.
Altria's earnings from its equity investment in ABI for the three months ended
March 31, 2020 included net pre-tax charges of $56 million, consisting primarily
of (i) mark-to-market losses on certain ABI financial instruments associated
with its share commitments and (ii) ABI's completion in October 2019 of ABI's
initial public offering of a minority stake of its Asia Pacific subsidiary.
These amounts include Altria's respective share of amounts recorded by ABI and
may also include additional adjustments related to (i) conversion from
international financial reporting standards to GAAP and (ii) adjustments to
Altria's investment required under the equity method of accounting.
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?Cronos-Related Special Items: For the three months ended March 31, 2021 and
2020, Altria recorded net pre-tax (income) expense consisting of the following:
                                                                For the Three Months Ended March 31
(in millions)                                                      2021                       2020
(Gain) loss on Cronos-related financial instruments (1)   $               (110)         $          137
(Income) losses from equity investments (2)                                 40                     (48)
   Total Cronos-related special items - (income) expense  $                (70)         $           89


(1)The 2021 and 2020 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 primarily include Altria's share of Cronos's non-cash change in the
fair value of Cronos's derivative financial instruments associated with the
issuance of additional shares.
For further discussion, see Note 3 and Note 4. Financial Instruments to the
condensed consolidated financial statements in Item 1.
?Loss on Early Extinguishment of Debt: For the three months ended March 31,
2021, Altria recorded pre-tax losses of $649 million as a result of the
completed debt tender offers and redemption of certain long-term senior
unsecured notes. For further discussion, see Note 9. Debt to the condensed
consolidated financial statements in Item 1 ("Note 9").
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31,
2020
Net revenues, which include excise taxes billed to customers, decreased $323
million (5.1%), due primarily to lower net revenues in the smokeable products
segment.
Cost of sales decreased $565 million (26.0%), due primarily to the
inventory-related charges in the wine segment in 2020 (as discussed in Note 8),
lower shipment volume in the smokeable products segment and favorable NPM
Adjustment Items in 2021.
Excise taxes on products decreased $157 million (12.0%), due primarily to lower
smokeable products shipment volume.
Marketing, administration and research costs increased $45 million (8.4%), due
primarily to higher acquisition-related costs in the oral tobacco products
segment (as discussed in Note 8).
Operating income increased $354 million (15.2%), due primarily to higher
operating results in the wine segment, partially offset by lower operating
results in the oral tobacco products segment.
Interest and other debt expense, net, increased $33 million (12.0%), due
primarily to unfavorable timing of interest expense.
Income (losses) from equity investments, which decreased $106 million (67.5%),
were negatively impacted by the non-cash pre-tax unrealized loss of $200 million
as a result of a decrease in the fair value of Altria's investment in JUUL and
unfavorable special items from Altria's equity investment in Cronos (as shown
above), partially offset by favorable ABI-related special items.
Reported net earnings attributable to Altria of $1,424 million decreased $128
million (8.2%), due primarily to the loss on early extinguishment of debt and
the non-cash unrealized loss as a result of a decrease in the fair value of
Altria's investment in JUUL, partially offset by higher operating income and
favorable Cronos-related and ABI-related special items. Reported diluted and
basic EPS attributable to Altria of $0.77, each decreased by 7.2%, due to lower
net earnings attributable to Altria.
Adjusted net earnings attributable to Altria of $1,983 million decreased $51
million (2.5%), due primarily to unfavorable timing of interest and other debt
expense, net and a higher adjusted tax rate. Adjusted diluted EPS attributable
to Altria of $1.07 decreased by 1.8%, due to lower adjusted net earnings
attributable to Altria.

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Operating Results by Business Segment
Tobacco Space
Business Environment
Summary
The U.S. tobacco industry faces a number of business and legal challenges that
have adversely affected and may adversely affect the business and sales volume
of Altria's tobacco subsidiaries and investees and Altria's consolidated results
of operations, cash flows or financial position. These challenges, some of which
are discussed in more detail in Note 10 and in Part I, Item 1A. Risk Factors of
the 2020 Form 10-K, include:
?pending and threatened litigation and bonding requirements;
?restrictions and requirements imposed by the Family Smoking Prevention and
Tobacco Control Act (the "FSPTCA"), and restrictions and requirements (and
related enforcement actions) that have been, and in the future will be, imposed
by the United States Food and Drug Administration (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;
?the diminishing prevalence of cigarette smoking;
?increased efforts by tobacco control advocates and other private sector
entities (including retail establishments) to further restrict the availability
and use of tobacco products;
?changes in adult tobacco consumer purchase behavior, which is influenced by
various factors such as economic conditions, excise taxes and price gap
relationships, may result in adult tobacco consumers switching to discount
products or other lower-priced tobacco products;
?the highly competitive nature of all tobacco categories, including, without
limitation, competitive disadvantages related to cigarette price increases
attributable to the settlement of certain litigation and the proliferation of
innovative tobacco products, including e-vapor and oral nicotine pouch products;
?illicit trade in tobacco products;
?potential adverse changes in prices, availability and quality of tobacco, other
raw materials and components; and
?the COVID-19 pandemic.
In addition to and in connection with the foregoing, evolving adult tobacco
consumer preferences are continuing to impact the tobacco industry. Altria's
tobacco subsidiaries believe that a significant number of adult tobacco
consumers switch among tobacco categories, use multiple forms of tobacco
products and try innovative tobacco products, such as e-vapor products and oral
nicotine pouches. Adult smokers continue to convert from cigarettes to exclusive
use of non-combustible tobacco product alternatives.
Up until the second half of 2019, the e-vapor category had experienced
significant growth, and the number of adults who exclusively used e-vapor
products also increased during that time which, along with growth in oral
nicotine pouches, negatively impacted consumption levels and sales volume of
cigarettes and moist smokeless tobacco products ("MST"). Growth in the e-vapor
category was negatively impacted by the legislative and regulatory activities
discussed below. However, the e-vapor category is now experiencing a moderate
rate of growth and has become increasingly competitive.
Oral nicotine pouch retail share of the total oral tobacco category has doubled
since the first quarter of 2020. The oral nicotine pouch category is becoming
increasingly competitive and we are also monitoring the introduction of new
unregulated synthetic nicotine pouches, which may lead to further competition
for oral nicotine pouches.
Altria and its tobacco subsidiaries believe the innovative tobacco products
categories (in particular, e-vapor) will continue to be dynamic as adult tobacco
consumers explore a variety of tobacco product options and as a result of adult
consumer perceptions of the relative risks of non-combustible products compared
to cigarettes, FDA determinations on product applications and legislative
actions.
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Domestic cigarette industry volume for 2020 was unchanged versus the prior year,
which Altria believes was the result of stay-at-home practices due to the
COVID-19 pandemic and higher tobacco discretionary spending. In the first
quarter of 2021, we estimate that adjusted domestic cigarette industry volume
declined by 2%. Altria expects 2021 cigarette industry volume trends to be most
influenced by (i) adult smoker stay-at-home practices, (ii) unemployment rates,
(iii) fiscal stimulus, (iv) cross-category movement, (v) the timing and breadth
of COVID-19 vaccine administration and (vi) adult smoker purchasing behavior of
those who receive the vaccine.
Economic conditions also impact adult tobacco consumer purchase behavior. Prior
economic downturns have resulted in adult tobacco consumers choosing discount
products and other lower-priced tobacco products. Although the economic downturn
resulting from the COVID-19 pandemic has not meaningfully increased the growth
of discount and lower priced tobacco products, in part due to stimulus payments,
adult tobacco consumers may still increasingly choose these products if economic
conditions do not continue to improve. See Executive Summary in Item 7 above for
further discussion.
Altria and its tobacco subsidiaries work to meet these evolving adult tobacco
consumer preferences over time by developing, manufacturing, marketing and
distributing products both within and outside the U.S. through innovation and
adjacency growth strategies (including, where appropriate, arrangements with, or
investments in, third parties).
FSPTCA and FDA Regulation
?The Regulatory Framework: The FSPTCA, its implementing regulations and its 2016
deeming regulations establish broad FDA regulatory authority over all tobacco
products and, among other provisions:
?impose restrictions on the advertising, promotion, sale and distribution of
tobacco products (see Final Tobacco Marketing Rule below);
?establish pre-market review pathways for new and modified tobacco products (see
Pre-Market Review Pathways for Tobacco Products and Market Authorization
Enforcement below);
?prohibit any express or implied claims that a tobacco product is or may be less
harmful than other tobacco products without FDA authorization;
?authorize the FDA to impose tobacco product standards that are appropriate for
the protection of the public health; and
?equip the FDA with a variety of investigatory and enforcement tools, including
the authority to inspect product manufacturing and other facilities.
The FSPTCA also bans descriptors such as "light," "low" or "mild" when used as
descriptors of modified risk, unless expressly authorized by the FDA. In
connection with a 2016 lawsuit initiated by John Middleton Co. ("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 promotion restrictions for
cigarettes and smokeless tobacco(1) products (the "Final Tobacco Marketing
Rule"). The May 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).
(1)"Smokeless tobacco," as used in this section of this Form 10-Q, 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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Subject to certain limitations arising from legal challenges, the Final Tobacco
Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco
products and in August 2016 for all other tobacco products.
?Rulemaking and Guidance: From time to time, the FDA issues proposed rules or
guidance, which may be issued in draft or final form, generally involve public
comment and may include scientific review. The FDA also may request comments on
broad topics through an Advanced Notice of Proposed Rulemaking ("ANPRM").
Altria's tobacco subsidiaries actively engage with the FDA to develop and
implement the FSPTCA's regulatory framework, including submission of comments to
various FDA policies and proposals and participation in public hearings and
engagement sessions.
The FDA's implementation of the FSPTCA and related regulations and guidance also
may have an impact on enforcement efforts by U.S. states, territories and
localities of their laws and regulations as well as of the State Settlement
Agreements discussed below (see State Settlement Agreements below).  Such
enforcement efforts may adversely affect the ability of Altria's tobacco
subsidiaries and investees to market and sell regulated tobacco products in
those states, territories and localities.
?FDA's Comprehensive Plan for Tobacco and Nicotine Regulation: In July 2017, the
FDA announced a "Comprehensive 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;
?reconsidered the processes used by the FDA to review certain reports and new
product applications; and
?revisited the timelines (previously extended by the FDA) to submit applications
for tobacco products first regulated by the FDA in 2016.
?Pre-Market Review Pathways for Tobacco Products and Market Authorization
Enforcement: The FSPTCA permits the sale of tobacco products commercially
marketed as of February 15, 2007 and not subsequently modified ("Grandfathered
Products") and new or modified products authorized through the pre-market
tobacco product application ("PMTA"), Substantial Equivalence ("SE") or SE
Exemption pathways.
The FDA pre-market authorization enforcement policy varies based on product type
and date of availability in the market; specifically:
?All tobacco products on the market as of February 15, 2007, and not
subsequently modified, are Grandfathered Products and exempt from the pre-market
authorization requirement;
?Cigarette and smokeless tobacco products that were modified or first introduced
into the market between February 15, 2007 and March 22, 2011 are generally
considered "Provisional Products" for which SE reports were required to be filed
by March 22, 2011. These reports must demonstrate that the product has the same
characteristics as a product on the market as of February 15, 2007 or to a
product previously determined to be substantially equivalent, or has different
characteristics but does not raise different questions of public health; and
?Tobacco products that were first regulated by the FDA in 2016, including
cigars, e-vapor products and oral nicotine pouches that are not Grandfathered
Products, are generally products for which either an SE report or PMTA needed to
be filed by September 9, 2020.
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 action could have a material adverse impact on the business and
consolidated results of operations of our tobacco subsidiaries and investees,
and the cash flows or financial position of Altria and its tobacco subsidiaries,
including adversely affecting the value of Altria's investment in JUUL.
Provisional Products: Most cigarette and smokeless tobacco products currently
marketed by PM USA and USSTC are Provisional Products. Altria's subsidiaries
timely submitted SE reports for these Provisional Products. PM USA and USSTC
have received SE determinations on certain Provisional Products. Those that were
found 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
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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 subsidiaries believe their
current Provisional Products meet the statutory requirements of the FSPTCA, they
cannot predict how the FDA will ultimately apply law, regulation and guidance to
their various SE reports. Should Altria's cigarette and smokeless tobacco
subsidiaries receive unfavorable determinations on any SE reports currently
pending with the FDA, they believe they can replace the vast majority of their
respective product volumes with other FDA authorized products or with
Grandfathered Products.
Non-Provisional Products: Cigarette and smokeless tobacco products introduced
into the market or modified after March 22, 2011 are "Non-Provisional Products"
and must receive a marketing order from the FDA prior to being offered for sale.
Marketing orders for Non-Provisional Products may be obtained by filing an SE
report, PMTA or using another pre-market pathway established by the FDA.
Altria's cigarette and smokeless tobacco subsidiaries 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. At the FDA's discretion, these products
can remain on the market during FDA review for up to one year from the date of
the application with additional case-by-case discretion to remain on the market
after that time, so long as the report or application was timely filed with the
FDA. It is uncertain when and for how long FDA may permit such products to
remain on the market 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 the product.
Helix Innovations LLC ("Helix") submitted PMTAs for on! oral nicotine pouches in
May 2020, which are presently under review by the FDA. JUUL submitted PMTAs to
the FDA for its e-vapor device and the related tobacco and menthol flavors in
July 2020. Middleton has received market orders or exemptions that cover over
97% of its cigar product volume and filed SE reports for its remaining cigar
product volume by the filing deadline.
In December 2013, Altria's subsidiaries entered into a series of agreements with
Philip Morris International Inc. ("PMI"), including an agreement that grants
Altria an exclusive right to commercialize certain of PMI's heated tobacco
products in the United States, subject to FDA authorization of the applicable
products. PMI submitted a PMTA and a modified risk tobacco product application
with the FDA for its electronically heated tobacco products comprising the IQOS
Tobacco Heating System. In April 2019, the FDA authorized the PMTA for the IQOS
Tobacco Heating System and in July 2020, the FDA authorized the marketing of
this system as a modified risk tobacco product ("MRTP") with a reduced exposure
claim. The IQOS electronic device heats but does not burn tobacco. In December
2020, the FDA authorized the PMTA for IQOS 3, an updated version of the IQOS
electronic device. The MRTP authorization for the original IQOS electronic
device currently does not apply to the IQOS 3 device. PMI has disclosed that it
plans to seek an MRTP authorization for the IQOS 3 electronic device.
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 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 could have a material adverse
impact on the business and consolidated results of operations of our tobacco
subsidiaries and investees, and the cash flows or financial position of Altria
and its tobacco subsidiaries, including adversely affecting the value of
Altria's investment in JUUL.
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?FDA Regulatory Actions
?Graphic Warnings: In March 2020, the FDA issued a final rule requiring 11
textual warnings accompanied by color graphics depicting certain negative health
consequences of smoking on cigarette packaging and advertising. The final rule
requires that the graphic health warnings (i) be located beneath the cellophane
and comprise the top 50% of the front and rear panels of cigarette packages and
(ii) occupy 20% of a cigarette advertisement and be located at the top of the
advertisement. As a result of a court order related to the COVID-19 pandemic and
an additional court ruling in March 2021 resulting from a lawsuit brought by
R.J. Reynolds Tobacco Company ("R.J. Reynolds") and others against the FDA, the
final rule will be effective April 14, 2022. PM USA and other cigarette
manufacturers have filed lawsuits challenging the final rule on substantive and
procedural grounds.
In the preamble to the final rule, the FDA stated that it would not exempt
HeatSticks, a heated tobacco product used with the IQOS electronic device, as
part of the rulemaking, but would consider the HeatSticks marketing order, and
other marketing orders, on a case-by-case basis. To date, the FDA has not taken
any action to exempt 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.
In March 2019, the FDA issued draft guidance further proposing restrictions to
address youth e-vapor use. This guidance, which the FDA finalized in January
2020, states that the FDA intends to prioritize enforcement action against:
?cartridge-based, flavored e-vapor products (other than tobacco and menthol
flavors) unless such products have received market authorization from the FDA;
and
?all e-vapor products (in any format or flavor):
?for which a manufacturer has failed or is failing to take adequate measures to
prevent access by those under the age of 21 (referred to in the FDA guidance as
"minors");
?targeted to minors and the marketing for which is likely to promote use of such
products by minors; or
?offered for sale after the court-ordered filing deadline and for which the
manufacturer has either not submitted a PMTA or for which an application was
timely filed but an adverse decision on the application was issued by the FDA.
E-vapor product manufacturers, however, may continue to file PMTAs for flavored
tobacco products. FDA enforcement action could result in tobacco products being
removed from the market unless and until these products receive pre-market
authorization from the FDA. JUUL ceased its sales of all cartridge-based,
flavored e-vapor products (other than tobacco and menthol) in 2019. If FDA
enforcement action is taken against currently marketed JUUL e-vapor products,
and a significant number of those products are removed from the market or if the
FDA does not ultimately allow for the reintroduction of flavors other than
tobacco and menthol, it could adversely affect the value of Altria's investment
in JUUL and have a material adverse effect on Altria's consolidated financial
position or earnings.
The January 2020 guidance effectively permits the continued sale (subject to the
exceptions discussed above) of certain flavored e-vapor products, including
flavored disposable e-vapor products. If, as a result, these flavored e-vapor
products are sold in higher volumes than JUUL's e-vapor products, it could
adversely affect the value of Altria's investment in JUUL and have a material
adverse effect on Altria's consolidated financial position or earnings.
?Potential Product Standards
?Nicotine in cigarettes and other combustible tobacco products: In March 2018,
the FDA issued an ANPRM seeking comments on the potential public health benefits
and any possible adverse effects of lowering nicotine in combustible cigarettes
to non-addictive or minimally addictive levels. Among other issues, the FDA
sought comments on (i) whether smokers would compensate by smoking more
cigarettes to obtain the same level of nicotine as with their current product
and (ii) whether the proposed rule would create an illicit trade of cigarettes
containing nicotine at levels higher than a non-addictive threshold that may be
established by the FDA. The FDA also sought comments on whether a nicotine
product standard should apply to other combustible tobacco products, including
cigars. Were the FDA to develop and finalize a product standard for nicotine in
combustible products, and if the standard was appealed
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and upheld in the courts, it could have a material adverse effect on the
business, consolidated results of operations, cash flows or financial position
of Altria and its tobacco subsidiaries.
?Flavors in tobacco products: As discussed above under FDA's Comprehensive Plan
for Tobacco and Nicotine Regulation, the FDA indicated that it is considering
proposing rulemaking for a product standard that would seek to ban menthol in
combustible tobacco products, including cigarettes and cigars, and that it
intends to propose a product standard that would ban characterizing flavors in
all cigars, including Grandfathered Products and those that have received SE
determinations from the FDA - an intention reiterated in the FDA's January 2020
guidance. In March 2018, the FDA issued an ANPRM seeking comments on the role,
if any, that flavors (including menthol) in tobacco products may play in
attracting youth and in helping some smokers switch to potentially less harmful
forms of nicotine delivery. In the context of litigation, the FDA has stated its
intention to issue a response by April 29, 2021 to a 2013 citizen petition
requesting that the FDA prohibit menthol as a characterizing flavor in
cigarettes. If the FDA decides to ban menthol in cigarettes, it could have a
material adverse effect on the business, consolidated results of operations,
cash flows or financial position of Altria and its tobacco subsidiaries.
While the FDA has yet to define "characterizing flavors" with respect to cigars,
most of Middleton's cigar products contain added flavors and may be subject to
any action by the FDA to ban flavors in cigars. The FDA also may ban
characterizing flavors in all other tobacco products, including oral nicotine
pouches. If these regulations become final and are appealed and upheld in the
courts, it could have a material adverse effect on the business of our tobacco
subsidiaries and investees, and the consolidated results of operations, cash
flows or financial position of Altria and its tobacco subsidiaries, including
adversely affecting the value of Altria's investment in JUUL.
?NNN in Smokeless Tobacco: In January 2017, the FDA proposed a product standard
for N-nitrosonornicotine ("NNN") levels in finished smokeless tobacco products.
If the proposed rule, in present form, were to become final and was appealed and
upheld in the courts, it could have a material adverse effect on the business,
consolidated results of operations, cash flows or financial position of Altria
and USSTC.
?Good Manufacturing Practices: The FSPTCA requires that the FDA promulgate good
manufacturing practice regulations (referred to by the FDA as "Requirements for
Tobacco Product Manufacturing Practice") for tobacco product manufacturers, but
does not specify a timeframe for such regulations. Compliance with any such
regulations could result in increased costs, which may have a material adverse
effect on the financial position of Altria, its tobacco subsidiaries and its
investees, including adversely affecting the value of Altria's investment in
JUUL.
?Impact on Our Business; Compliance Costs and User Fees: FDA regulatory actions
under the FSPTCA could have a material adverse effect on the business,
consolidated results of operations, cash flows or financial position of Altria
and its tobacco subsidiaries in various ways. For example, actions by the FDA
could:
?impact the consumer acceptability of tobacco products;
?delay, discontinue or prevent the sale or distribution of existing, new or
modified tobacco products;
?limit adult tobacco consumer choices;
?impose restrictions on communications with adult tobacco consumers;
?create a competitive advantage or disadvantage for certain tobacco companies;
?impose additional manufacturing, labeling or packaging requirements;
?impose additional restrictions at retail;
?result in increased illicit trade in tobacco products; and/or
?otherwise significantly increase the cost of doing business.
The failure to comply with FDA regulatory requirements, even inadvertently, and
FDA enforcement actions also could have a material adverse effect on the
business of our tobacco subsidiaries and investees, and the consolidated results
of operations, cash flows or financial position of Altria and its tobacco
subsidiaries, including adversely affecting the value of Altria's investment in
JUUL.
The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco,
cigar and pipe tobacco manufacturers and importers to pay for the cost of
regulation and other matters. The FSPTCA does not impose user fees on e-vapor or
oral nicotine pouch manufacturers. The cost of the FDA user fee is
allocated first among tobacco product categories subject to FDA user fees and
then among manufacturers and importers within each respective category based on
their relative market shares, all as prescribed by the FSPTCA and FDA
regulations. Payments for user fees are adjusted for several factors, including
inflation, market share and industry volume. For a discussion of the impact of
the FDA user fee payments on Altria, see Debt and Liquidity - Payments Under
State Settlement Agreements and FDA Regulation below. In addition, compliance
with the FSPTCA's regulatory requirements has resulted, and will continue to
result, in additional costs for Altria's tobacco businesses.
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The amount of additional compliance and related costs has not been material in
any given quarter or year to date period but could become material, either
individually or in the aggregate, to one or more of Altria's tobacco
subsidiaries.
?Investigation and Enforcement: The FDA has a number of investigatory and
enforcement tools available to it, including document requests and other
required information submissions, facility inspections, examinations and
investigations, injunction proceedings, monetary penalties, product withdrawal
and recall orders, and product seizures. Investigations or enforcement actions
could result in significant costs or otherwise have a material adverse effect on
the business of our tobacco subsidiaries and investees, and the consolidated
results of operations, cash flows or financial position of Altria and its
tobacco subsidiaries, including adversely affecting the value of Altria's
investment in JUUL.
Excise Taxes
Tobacco products are subject to substantial excise taxes in the U.S. Significant
increases in tobacco-related taxes or fees have been proposed or enacted
(including with respect to e-vapor products) and are likely to continue to be
proposed or enacted at the federal, state and local levels within the U.S.,
including as a result of the COVID-19 pandemic as a way for governments to
address potential budget shortfalls. The frequency and magnitude of excise tax
increases can be influenced by various factors, including the composition of
executive and legislative bodies.
Federal, state and local cigarette excise taxes have increased substantially
over the past two decades, far outpacing the rate of inflation. Between the end
of 1998 and April 26, 2021, the weighted-average state cigarette excise tax
increased from $0.36 to $1.89 per pack. As of April 26, 2021, one state,
Maryland, has enacted new legislation increasing cigarette excise taxes in 2021,
but various increases are under consideration or have been proposed.
A majority of states currently tax MST using an ad valorem method, which is
calculated as a percentage of the price of the product, typically the wholesale
price. This ad valorem method results in more tax being paid on premium products
than is paid on lower-priced products of equal weight. Altria's subsidiaries
support legislation to convert ad valorem taxes on MST to a weight-based
methodology because, unlike the ad valorem tax, a weight-based tax subjects cans
of equal weight to the same tax. As of April 26, 2021, the federal government,
23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois
have adopted a weight-based tax methodology for MST.
An increasing number of states and localities also are imposing excise taxes on
e-vapor and oral nicotine pouches. As of April 26, 2021, 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 could have an adverse impact on the sales of these products.
Tax increases are expected to continue to have an adverse impact on sales of
cigarettes and MST products of Altria's tobacco subsidiaries through lower
consumption levels and the potential shift in adult consumer purchases from the
premium to the non-premium or discount segments, or to counterfeit and
contraband products. Such shifts may have an adverse impact on the sales volume
and reported share performance of cigarettes and MST products of Altria's
tobacco subsidiaries.
International Treaty on Tobacco Control
The World Health Organization's Framework Convention on Tobacco Control (the
"FCTC") entered into force in February 2005. As of April 26, 2021, 181
countries, as well as the European Community, have become parties to the FCTC.
While the U.S. is a signatory of the FCTC, it is not currently a party to the
agreement, as the agreement has not been submitted to, or ratified by, the
United States Senate. The FCTC is the first international public health treaty
and its objective is to establish a global agenda for tobacco regulation with
the purpose of reducing initiation of tobacco use and encouraging cessation. The
treaty recommends (and in certain instances, requires) signatory nations to
enact legislation that would address various tobacco-related issues.
There are a number of proposals currently under consideration by the governing
body of the FCTC, some of which call for substantial restrictions on the
manufacture, marketing, distribution and sale of tobacco products. It is not
possible to predict the outcome of these proposals or the impact of any FCTC
actions on legislation or regulation in the U.S., either indirectly or as a
result of the U.S. becoming a party to the FCTC, or whether or how these actions
might indirectly influence FDA regulation and enforcement.
State Settlement Agreements
As discussed in Note 10, during 1997 and 1998, PM USA and other major domestic
cigarette manufacturers entered into the State Settlement Agreements. These
settlements require participating manufacturers to make substantial annual
payments, which are adjusted for several factors, including inflation, operating
income, market share and industry volume. For a discussion of the impact of the
State Settlement Agreements on Altria, see Debt and Liquidity - Payments Under
State Settlement Agreements and FDA Regulation below and Note 10. The State
Settlement Agreements also place numerous requirements and restrictions on
participating manufacturers' business operations, including prohibitions and
restrictions on the
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advertising and marketing of cigarettes and smokeless tobacco products. Among
these are prohibitions of outdoor and transit brand advertising, payments for
product placement and free sampling (except in adult-only facilities). The State
Settlement Agreements also place restrictions on the use of brand name
sponsorships and brand name non-tobacco products and prohibitions on targeting
youth and the use of cartoon characters. In addition, the State Settlement
Agreements require companies to affirm corporate principles directed at reducing
underage use of cigarettes; impose requirements regarding lobbying activities;
mandate public disclosure of certain industry documents; limit the industry's
ability to challenge certain tobacco control and underage use laws; and provide
for the dissolution of certain tobacco-related organizations and place
restrictions on the establishment of any replacement organizations.
In November 1998, USSTC entered into the Smokeless Tobacco Master Settlement
Agreement (the "STMSA") with the attorneys general of various states and U.S.
territories to resolve the remaining health care cost reimbursement cases
initiated against USSTC. The STMSA required USSTC to adopt various marketing and
advertising restrictions. USSTC is the only smokeless tobacco manufacturer to
sign the STMSA.
Other International, Federal, State and Local Regulation and Governmental and
Private Activity
?International, Federal, State and Local Regulation: A number of states and
localities have enacted or proposed legislation that imposes restrictions on
tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor
products and oral nicotine pouches), such as legislation that (1) prohibits the
sale of all tobacco products or certain tobacco categories, such as e-vapor, (2)
prohibits the sale of tobacco products with characterizing flavors, such as
menthol cigarettes, (3) requires the disclosure of health information separate
from or in addition to federally mandated health warnings and (4) restricts
commercial speech or imposes additional restrictions on the marketing or sale of
tobacco products. 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 April 26, 2021, 17 states and the
District of Columbia have proposed legislation to ban flavors in one or more
tobacco products, and five states, California, Massachusetts, New Jersey, Utah
and New York, have passed such legislation. Some of these states, such as New
York and Utah, exempt certain products that have received FDA market
authorization through the PMTA pathway.
The legislation in California bans the sale of most tobacco products with
characterizing flavors, including menthol, mint and wintergreen. Following
enactment of the flavor ban in August 2020, several registered California voters
filed a referendum against the legislation. In January 2021 the requisite number
of registered California voters signed a petition to place the question of
whether the legislation should be affirmed or overturned on the next statewide
general election ballot, which will likely take place in 2022, unless a special
statewide election is called earlier. As a result, the implementation of the
legislation is delayed until after a vote on the referendum occurs.
Additionally, in October 2020, Altria's tobacco operating companies, along with
several other parties including R.J. Reynolds, filed a lawsuit challenging the
flavor ban and seeking to enjoin its implementation.
Massachusetts passed legislation capping the amount of nicotine in e-vapor
products. Similar legislation is pending in three other states.
Restrictions on e-vapor products also have been instituted or proposed
internationally. For example, India and Singapore have instituted bans on
e-vapor products.
Altria's tobacco subsidiaries have challenged and will continue to challenge
certain federal, state and local legislation and other governmental action,
including through litigation. It is possible, however, that legislation,
regulation or other governmental action could be enacted or implemented that
could have a material adverse impact on the business and volume of our tobacco
subsidiaries and investees, and the consolidated results of operations, cash
flows or financial position of Altria and its tobacco subsidiaries, including
adversely affecting the value of Altria's investment in JUUL.
?Federal, State and Local Legislation to Increase the Legal Age to Purchase
Tobacco Products: After a number of states and localities proposed and enacted
legislation to increase the minimum age to purchase all tobacco products,
including e-vapor products, in December 2019, the federal government passed
legislation increasing the minimum age to purchase all tobacco products,
including e-vapor products, to 21 nationwide. As of April 26, 2021, 34 states
and the District of Columbia have enacted 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 Use of Certain
Tobacco Products, Altria supported raising the minimum legal age to purchase all
tobacco products to 21 at the federal and state levels, reflecting its
longstanding commitment to combat underage tobacco use.
?Health Effects of Tobacco Products, Including E-vapor Products: Reports with
respect to the health effects of smoking have been publicized for many years,
including various reports by the U.S. Surgeon General. In 2019, there were
public health advisories concerning vaping-related lung injuries and deaths and,
more recently, there have been health concerns
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raised about potential increased risks associated with COVID-19 among smokers
and vapers. Altria and its tobacco subsidiaries believe that the public should
be guided by the messages of the U.S. Surgeon General and public health
authorities worldwide in making decisions concerning the use of tobacco
products.
Most jurisdictions within the U.S. have restricted smoking in public places and
some have restricted vaping in public places. Some public health groups have
called for, and various jurisdictions have adopted or proposed, bans on smoking
and vaping in outdoor places, in private apartments and in cars transporting
children. It is not possible to predict the results of ongoing scientific
research or the types of future scientific research into the health risks of
tobacco exposure and the impact of such research on legislation and regulation.
?Other Legislation or Governmental Initiatives: In addition to the actions
discussed above, other regulatory initiatives affecting the tobacco industry
have been adopted or are being considered at the federal level and in a number
of state and local jurisdictions. For example, amid the COVID-19 pandemic, state
and local governments have required additional health and safety requirements of
all businesses, including tobacco manufacturing and other facilities. State and
local governments also have mandated the temporary closure of some businesses.
It is possible that tobacco manufacturing and other facilities and the
facilities of our suppliers, our suppliers' suppliers and our trade partners
could be subject to these government-mandated temporary closures. Additionally,
in recent years, legislation has been introduced or enacted at the state or
local level to subject tobacco products to various reporting requirements and
performance standards; establish educational campaigns relating to tobacco
consumption or tobacco control programs or provide additional funding for
governmental tobacco control activities; restrict the sale of tobacco products
in certain retail establishments and the sale of tobacco products in certain
package sizes; require tax stamping of smokeless tobacco products; require the
use of state tax stamps using data encryption technology; and further restrict
the sale, marketing and advertising of cigarettes and other tobacco products.
Such legislation may be subject to constitutional or other challenges on various
grounds, which may or may not be successful.
It is not possible to predict what, if any, additional legislation, regulation
or other governmental action will be enacted or implemented (and, if challenged,
upheld) relating to the manufacturing, design, packaging, marketing,
advertising, sale or use of tobacco products, or the tobacco industry generally.
It is possible, however, that legislation, regulation or other governmental
action could be enacted or implemented that could have a material adverse impact
on the business and volume of our tobacco subsidiaries and investees, and the
consolidated results of operations, cash flows or financial position of Altria
and its tobacco subsidiaries, including adversely affecting the value of
Altria's investment in JUUL.
?Governmental Investigations: From time to time, Altria, its subsidiaries and
investees are subject to governmental investigations on a range of matters. 

For

example: (i) the U.S. Federal Trade Commission (the "FTC") issued a Civil
Investigative Demand ("CID") to Altria while conducting its antitrust review of
Altria's investment in JUUL seeking information regarding, among other things,
Altria's role in the resignation of JUUL's former chief executive officer and
the hiring by JUUL of any current or former Altria director, executive or
employee; (ii) the U.S. Securities and Exchange Commission ("SEC") commenced an
investigation relating to Altria's acquisition, disclosures and accounting
controls in connection with the JUUL investment; and (iii) the New York State
Office of the Attorney General issued a subpoena to Altria seeking documents
relating to Altria's investment in and provision of services to JUUL.
Additionally, JUUL is currently under investigation by various federal and state
agencies, including the SEC, the FDA and the FTC, and state attorneys general.
Such investigations vary in scope but at least some appear to include JUUL's
marketing practices; particularly as such practices relate to youth, and Altria
may be asked in the context of those investigations to provide information
concerning its investment in JUUL or relating to its marketing of Nu Mark LLC
e-vapor products.
Private Sector Activity on E-Vapor
A number of retailers, including national chains, have discontinued the sale of
e-vapor products. Reasons for the discontinuation include reported illnesses
related to e-vapor product use and the uncertain regulatory environment. It is
possible that this private sector activity could adversely affect the value of
Altria's investment in JUUL and have a material adverse effect on Altria's
consolidated financial position or earnings.
Illicit Trade in Tobacco Products
Illicit trade in tobacco products can have an adverse impact on the businesses
of Altria, its tobacco subsidiaries and investees. Illicit trade can take many
forms, including the sale of counterfeit tobacco products; the sale of tobacco
products in the U.S. that are intended for sale outside the country; the sale of
untaxed tobacco products over the Internet and by other means designed to avoid
the collection of applicable taxes; and diversion into one taxing jurisdiction
of tobacco products intended for sale in another. Counterfeit tobacco products,
for example, are manufactured by unknown third parties in unregulated
environments. Counterfeit versions of our tobacco subsidiaries' and investees'
products can negatively affect adult tobacco consumer experiences with and
opinions of those brands. Illicit trade in tobacco products also harms
law-abiding wholesalers and retailers by depriving them of lawful sales and
undermines the significant investment Altria's tobacco subsidiaries and
investees have made in legitimate distribution channels. Moreover, illicit trade
in tobacco products results in federal, state and local governments losing tax
revenues. Losses in tax revenues can cause such governments to take various
actions, including
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increasing excise taxes; imposing legislative or regulatory requirements that
may adversely impact Altria's consolidated results of operations and cash flows,
including adversely affecting the value of Altria's investment in JUUL, and the
businesses of its tobacco subsidiaries and investees; or asserting claims
against manufacturers of tobacco products or members of the trade channels
through which such tobacco products are distributed and sold.
Altria's tobacco subsidiaries communicate with wholesale and retail trade
members regarding illicit trade in tobacco products and how they can help
prevent such activities; enforce wholesale and retail trade programs and
policies that address illicit trade in tobacco products and, when necessary,
litigate to protect their trademarks.
Price, Availability and Quality of Tobacco, Other Raw Materials and Component
Parts
Shifts in crops (such as those driven by economic conditions and adverse weather
patterns), government restrictions and mandated prices, production control
programs, economic trade sanctions, import duties and tariffs, international
trade disruptions, geopolitical instability, climate and environmental changes
and disruptions due to man-made or natural disasters may increase the cost or
reduce the supply or quality of tobacco or other raw materials or ingredients or
component parts used to manufacture our companies' products. Any significant
change in the price, quality or availability of tobacco, other raw materials,
ingredients or component parts used to manufacture our products could restrict
our subsidiaries' ability to continue manufacturing and marketing existing
products or impact adult consumer product acceptability and adversely affect
our subsidiaries' profitability and businesses.
With respect to tobacco, as with other agricultural commodities, crop
quality and availability can be influenced by variations in weather patterns,
including those caused by climate change. Additionally, the price and
availability of tobacco leaf can be influenced by economic conditions and
imbalances in supply and demand. Economic conditions, including the economic
effects of the COVID-19 pandemic, are unpredictable, which, among other economic
factors, may result in changes in the patterns of demand for agricultural
products and the cost of tobacco production which could impact tobacco leaf
prices and tobacco supply. In addition, as consumer demand increases for
non-combustible 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.
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 impair our subsidiaries' ability to continue marketing existing products
or impact adult tobacco consumer product acceptability.
The COVID-19 pandemic also may limit access to and increase the cost of raw
materials, component parts and personal protective equipment as U.S. and global
suppliers temporarily shut down facilities in order to address exposure to the
virus or as a result of a government mandate.
Timing of Sales
In the ordinary course of business, our tobacco subsidiaries are subject to many
influences that can impact the timing of sales to customers, including the
timing of holidays and other annual or special events, the timing of promotions,
customer incentive programs and customer inventory programs, as well as the
actual or speculated timing of pricing actions and tax-driven price increases.

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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 Three Months Ended March 31,
(in millions)                                                 2021                2020               Change
Net revenues                                             $    5,250            $  5,606                  (6.4) %
Excise taxes                                                 (1,121)             (1,278)
Revenues net of excise taxes                             $    4,129            $  4,328

Reported OCI                                             $    2,372            $  2,370                   0.1  %

NPM Adjustment Items                                            (32)                  -
Tobacco and health litigation items                              35                  22

Adjusted OCI                                             $    2,375            $  2,392                  (0.7) %

Reported OCI margins (1)                                       57.4    %           54.8  %                2.6 pp
Adjusted OCI margins (1)                                       57.5    %           55.3  %                2.2 pp


(1) Reported and adjusted OCI margins are calculated as reported and adjusted
OCI, respectively, divided by revenues net of excise taxes.
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31,
2020
Net revenues, which include excise taxes billed to customers, decreased $356
million (6.4%), due primarily to lower shipment volume ($715 million), partially
offset by higher pricing ($368 million), which includes higher promotional
investments.
Reported OCI was essentially unchanged, as higher pricing ($364 million), which
includes higher promotional investments, lower costs ($62 million) and NPM
Adjustment Items ($32 million), were mostly offset by lower shipment volume
($428 million) and higher per unit settlement charges.
Adjusted OCI decreased $17 million (0.7%), due primarily to lower shipment
volume and higher per unit settlement charges, partially offset by higher
pricing, which includes higher promotional investments, and lower costs.
Shipment Volume and Retail Share Results
The following table summarizes the smokeable products segment shipment volume
performance:
                                                                                         Shipment Volume
                                                                              For the Three Months Ended March 31,
(sticks in millions)                                                    2021                   2020                 Change
Cigarettes:
   Marlboro                                                               19,415               21,842                  (11.1) %
   Other premium                                                             981                1,137                  (13.7) %
   Discount                                                                1,618                2,045                  (20.9) %
Total cigarettes                                                          22,014               25,024                  (12.0) %
Cigars:
   Black & Mild                                                              479                  430                   11.4  %
   Other                                                                       1                    2                  (50.0) %
Total cigars                                                                 480                  432                   11.1  %
Total smokeable products                                                  22,494               25,456                  (11.6) %


Note: Cigarettes shipment volume includes Marlboro; Other premium brands, such
as Virginia Slims, Parliament, Benson & Hedges and Nat's; and Discount brands,
which include L&M, Basic and Chesterfield. Cigarettes volume includes units sold
as well as promotional units, but excludes units sold for distribution to Puerto
Rico, and units sold in U.S. Territories, to overseas military and by Philip
Morris Duty Free Inc., none of which, individually or in the aggregate, is
material to the smokeable products segment.
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The following table summarizes cigarettes retail share performance:
                                                                                         Retail Share
                                                                            

For the Three Months Ended March 31,

                                                                 2021                  2020              Percentage Point Change
Cigarettes:
   Marlboro                                                         43.1  %               42.7  %                    0.4
   Other premium                                                     2.3                   2.3                         -
   Discount                                                          3.6                   4.0                      (0.4)
Total cigarettes                                                    49.0  %               49.0  %                      -


Note: Retail share results for cigarettes are based on data from IRI/Management
Science Associates, Inc., a tracking service that uses a sample of stores and
certain wholesale shipments to project market share and depict share trends.
This service tracks sales in the food, drug, mass merchandisers, convenience,
military, dollar store and club trade classes. For other trade classes selling
cigarettes, retail share is based on shipments from wholesalers to retailers
through the Store Tracking Analytical Reporting System ("STARS"). This service
is not designed to capture sales through other channels, including the internet,
direct mail and some illicitly tax-advantaged outlets. It is IRI's standard
practice to periodically refresh its services, which could restate retail share
results that were previously released in this service.
For a discussion of volume trends and factors that impact volume and retail
share performance, see Tobacco Space - Business Environment above.
Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31,
2020
The smokeable products segment's reported domestic cigarettes shipment volume
decreased 12.0%, driven primarily by trade inventory movements, the industry's
rate of decline, one fewer shipping day and other factors. When adjusted for
trade inventory movements, one fewer shipping day and other factors, the
smokeable products segment's reported domestic cigarettes shipment volume
decreased by an estimated 3.5%. When adjusted for trade inventory movements, one
fewer shipping day and other factors, total estimated domestic cigarette
industry volumes decreased by an estimated 2%.
Shipments of premium cigarettes accounted for 92.7% and 91.8% of the smokeable
products segment's reported domestic cigarettes shipment volume for the three
months ended March 31, 2021 and 2020, respectively.
Total cigarettes industry discount category retail share increased 0.1 share
point to 25.3%.
Reported cigar shipment volume increased 11.1%.
Pricing Actions
PM USA and Middleton executed the following pricing and promotional allowance
actions during 2021 and 2020:
?Effective January 24, 2021 PM USA increased the list price on all of its
cigarette brands by $0.14 per pack.
?Effective January 10, 2021, Middleton increased various list prices across
substantially all of its cigar brands resulting in a weighted-average increase
of approximately $0.07 per five-pack.
?Effective November 1, 2020 PM USA increased the list price on all of its
cigarette brands by $0.13 per pack.
?Effective June 21, 2020, PM USA increased the list price on all of its
cigarette brands by $0.11 per pack.
?Effective February 16, 2020, PM USA increased the list price on all of its
cigarette brands by $0.08 per pack.
?Effective January 12, 2020, Middleton increased various list prices across
substantially all of its cigar brands resulting in a weighted-average increase
of approximately $0.08 per five-pack.
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Oral Tobacco Products Segment
Financial Results
The following table summarizes operating results, includes reported and adjusted
OCI margins, and provides a reconciliation of reported OCI to adjusted OCI for
the oral tobacco products segment:
                                                                                            Operating Results
                                                                                  For the Three Months Ended March 31,
(in millions)                                                                2021                  2020                Change
Net revenues                                                          $        626              $    601                     4.2  %
Excise taxes                                                                   (31)                  (31)
Revenues net of excise taxes                                          $        595              $    570

Reported OCI                                                          $        392              $    414                    (5.3) %
Acquisition-related costs                                                       37                     2

Adjusted OCI                                                          $        429              $    416                     3.1  %

Reported OCI margins (1)                                                      65.9      %           72.6  %                (6.7) pp
Adjusted OCI margins (1)                                                      72.1      %           73.0  %                (0.9) pp


(1) Reported and adjusted OCI margins are calculated as reported and adjusted
OCI, respectively, divided by revenues net of excise taxes.
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31,
2020
Net revenues, which include excise taxes billed to customers, increased $25
million (4.2%), due primarily to higher pricing ($26 million), which includes
higher promotional investments in on!.
Reported OCI decreased $22 million (5.3%), due primarily to higher costs ($41
million, which includes higher acquisition-related costs), partially offset by
higher pricing, which includes higher promotional investments.
Adjusted OCI increased $13 million (3.1%), due primarily to higher pricing,
which includes higher promotional investments, partially offset by higher costs.
Shipment Volume and Retail Share Results
The following table summarizes oral tobacco products segment shipment volume
performance:
                                                                               Shipment Volume
                                                                    For the Three Months Ended March 31,
(cans and packs in millions)                                   2021                  2020                Change
Copenhagen                                                        122.9               125.0                  (1.7) %
Skoal                                                              48.2                51.3                  (6.0) %
Other (includes Red Seal and on!)                                  26.8                20.4                  31.4  %
Total oral tobacco products                                       197.9               196.7                   0.6  %


Note: Oral tobacco products shipment volume includes cans and packs sold, as
well as promotional units, but excludes international volume, which is currently
not material to the oral tobacco products segment. New types of oral tobacco
products, as well as new packaging configurations of existing oral tobacco
products, may or may not be equivalent to existing MST products on a can-for-can
basis. To calculate volumes of cans and packs shipped, one pack of snus or one
can of oral nicotine pouches, irrespective of the number of pouches in the pack
or can, is assumed to be equivalent to one can of MST.
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Table of Contents The following table summarizes oral tobacco products segment retail share performance (excluding international volume):

                                                                                       Retail Share
                                                                           

For the Three Months Ended March 31,

                                                               2021                  2020              Percentage Point Change
Copenhagen                                                        30.2  %               32.4  %                   (2.2)
Skoal                                                             12.9                  14.4                      (1.5)
Other (includes Red Seal and on!)                                  5.0                   3.6                       1.4
Total oral tobacco products                                       48.1  %               50.4  %                   (2.3)


Note: Retail share results for oral tobacco products are based on data from IRI
InfoScan, a tracking service that uses a sample of stores to project market
share and depict share trends.  This service tracks sales in the food, drug,
mass merchandisers, convenience, military, dollar store and club trade classes
on the number of cans and packs sold.  Oral tobacco products is defined by IRI
as MST, snus and oral nicotine pouches. New types of oral tobacco products, as
well as new packaging configurations of existing oral tobacco products, may or
may not be equivalent to existing MST products on a can-for-can basis. For
example, one pack of snus or one can of oral nicotine pouches, irrespective of
the number of pouches in the pack or can, is assumed to be equivalent to one can
of MST. Because this service represents retail share performance only in key
trade channels, it should not be considered a precise measurement of actual
retail share.  It is IRI's standard practice to periodically refresh its
InfoScan services, which could restate retail share results that were previously
released in this service.
For a discussion of volume trends and factors that impact volume and retail
share performance, see Tobacco Space - Business Environment above.
Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31,
2020
The oral tobacco products segment's reported domestic shipment volume increased
0.6%, driven primarily by the growth of on! oral nicotine pouches and trade
inventory movements, partially offset by retail share losses (primarily due to
the growth of oral nicotine pouches), calendar differences and other factors.
When adjusted for trade inventory movements, calendar differences and other
factors, the oral tobacco products segment's reported domestic shipment volume
increased by an estimated 0.5%.
Total oral tobacco products category industry volume increased by an estimated
5% over the six months ended March 31, 2021, driven by growth in oral nicotine
pouches.
The oral tobacco products segment's retail share was 48.1% for the three months
ended March 31, 2021 and Copenhagen continued to be the leading oral tobacco
brand with retail share of 30.2% for the three months ended March 31, 2021.
Share losses in the oral tobacco products segment, including Copenhagen, were
due to the growth of oral nicotine pouches.
In the first quarter of 2021, Helix expanded the distribution of on! by an
additional 15,000 stores. on! was available in approximately 93,000 stores as of
March 31, 2021. on!'s retail share of the total oral tobacco category was 1.7%
in the first quarter of 2021, an increase of 0.6% from the fourth quarter of
2020. on!'s retail share of the oral tobacco category in stores with on!
distribution was 3.1% for the twelve months ended March 31, 2021, an increase of
0.7% from the twelve months ended December 31, 2020. Helix continues to expect
unconstrained on! manufacturing capacity for the U.S. market by mid-year 2021.
Pricing Actions
USSTC executed the following pricing actions during 2021 and 2020:
?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 $0.08 per
can. In addition, USSTC increased the list price on the balance of its
Copenhagen and Skoal products by $0.07 per can.
?Effective July 21, 2020, USSTC increased the list price on its Skoal Blend
products by $0.15 per can.  USSTC also increased the list price on its Husky,
Red Seal and Copenhagen brands and the balance of its Skoal products by $0.07
per can.
?Effective February 18, 2020, USSTC increased the list price on its Skoal X-TRA
products by $0.56 per can. USSTC also increased the list price on its Skoal
Blend products by $0.16 cents per can and increased the list price on its Husky,
Red Seal and Copenhagen brands and the balance of its Skoal products by $0.07
per can.

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Wine Segment
Business Environment
Ste. Michelle is a producer and supplier of premium varietal and blended table
wines and of sparkling wines. Ste. Michelle is a leading producer of Washington
state wines, primarily Chateau Ste. Michelle and 14 Hands, and owns wineries in
or distributes wines from several other domestic and foreign wine regions. Ste.
Michelle holds an 85% ownership interest in Michelle-Antinori, LLC, which owns
Stag's Leap Wine Cellars in Napa Valley. Ste. Michelle also owns Conn Creek in
Napa Valley, Patz & Hall in Sonoma and Erath in Oregon. In addition, Ste.
Michelle imports and markets Antinori wine and Champagne Nicolas Feuillatte
products in the United States. Ste. Michelle works to meet evolving adult
consumer preferences over time by developing, marketing and distributing
products through innovation.
Ste. Michelle's business is subject to significant competition, including
competition from many larger, well-established domestic and international
companies, as well as from many smaller wine producers. Wine segment competition
is primarily based on quality, price, consumer and trade wine tastings,
competitive wine judging, third-party acclaim and advertising. Substantially all
of Ste. Michelle's sales occur in the United States through state-licensed
distributors. Ste. Michelle also sells to domestic consumers through retail and
e-commerce channels and exports wines to international distributors.
Adult consumer preferences among alcohol categories and within the wine category
can shift due to a variety of factors, including changes in taste preferences,
demographics or social trends, and changes in leisure, dining and beverage
consumption patterns and economic conditions. Evolving adult consumer
preferences pose strategic challenges for Ste. Michelle, which has seen slowing
growth in the wine category and increases in inventory levels in recent periods.
Ste. Michelle has been experiencing product volume demand uncertainty, which was
further negatively impacted in 2020 by the COVID-19 pandemic (including economic
uncertainty and government actions that restrict direct-to-consumer sales and
on-premise sales).
As a result of wine inventory levels significantly exceeding long-term
forecasted demand, at March 31, 2020, Ste. Michelle recorded pre-tax charges of
$392 million consisting of (i) the write-off of inventory ($292 million) and
(ii) estimated losses on future non-cancelable grape purchase commitments ($100
million). For further discussion, see Note 8. Evolving adult consumer
preferences, the current economic downturn, an extended disruption in on-premise
sales or facility shutdowns, either voluntary or government-mandated, could
result in a further slowdown in the wine category and otherwise have a material
adverse effect on Ste. Michelle's wine business, the consolidated results of
operations, cash flows or financial position of Ste. Michelle.
As with other agricultural commodities, grape quality and availability can be
influenced by plant disease and infestation, as well as by variations in weather
patterns, such as fires and smoke damage from fires, including those caused by
climate change. For example, in 2019, freezing temperatures reduced grape
production and resulted in fewer grapes being available to Ste. Michelle.
Additionally, Ste. Michelle experienced some impact from the fires in the
western United States during 2020.
Federal, state and local governmental agencies regulate the beverage alcohol
industry through various means, including licensing requirements, pricing rules,
labeling and advertising restrictions, and distribution and production policies.
Further regulatory restrictions or additional excise or other taxes on the
manufacture and sale of alcoholic beverages could have an adverse effect on Ste.
Michelle's wine business.

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Operating Results
Financial Results and Shipment Volume
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:
                                                                                               Operating Results
                                                                                     For the Three Months Ended March 31,
(in millions)                                                                  2021                     2020                 Change
Net revenues                                                          $            150              $     146                      2.7  %
Excise taxes                                                                        (4)                    (4)
Revenues net of excise taxes                                          $            146              $     142

Reported OCI (Loss)                                                   $             18              $    (379)                   100.0+ %
Implementation costs                                                                 1                    392
Adjusted OCI                                                          $             19              $      13                     46.2  %

Reported OCI margins (1)                                                          12.3      %          (100.0)%+                100.0+ pp
Adjusted OCI margins (1)                                                          13.0      %             9.2  %                   3.8 pp


(1) Reported and adjusted OCI margins are calculated as reported and adjusted
OCI, respectively, divided by revenues net of excise taxes.
Three Months Ended March 31, 2021 Compared with Three Months Ended March 31,
2020
Net revenues, which include excise taxes billed to customers, increased $4
million (2.7%), due primarily to higher pricing.
Reported OCI increased $397 million (100.0%+), due primarily to 2020
inventory-related charges discussed in Note 8 (included in implementation costs
and charged to cost of sales).
Adjusted OCI increased $6 million (46.2%), due primarily to higher pricing and
lower costs.
For the three months ended March 31, 2021, Ste. Michelle's reported wine
shipment volume of 1,745 thousand cases increased 1.7%.
Financial Review
Cash Provided by/Used in Operating Activities
During the first three months of 2021, net cash provided by operating activities
was $3,040 million compared with $3,129 million during the first three months of
2020. This decrease was due primarily to lower net revenues, net of excise
taxes.
Altria had a working capital deficit at March 31, 2021 and December 31, 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 credit and capital markets, as discussed in the Debt and Liquidity
section below.
Cash Provided by/Used in Investing Activities
During the first three months of 2021, net cash used in investing activities was
$29 million compared with $52 million during the first three months of 2020.
This decrease was due primarily to lower capital expenditures.
Cash Provided by/Used in Financing Activities
During the first three months of 2021, net cash used in financing activities was
$2,172 million compared with net cash provided by financing activities of $427
million during the first three months of 2020. This change was due primarily to
the following:
?payment of $5.0 billion of Altria senior unsecured notes in connection with the
2021 debt tender offers and redemption and the premiums and fees in connection
with the debt tender offers described below and in Note 9;
?proceeds of $3.0 billion from short-term borrowings in 2020;
?repurchases of common stock in 2021;
?higher dividends paid in 2021;
partially offset by:
?proceeds of $5.5 billion from the issuance of long-term senior unsecured debt
used to repurchase and redeem senior unsecured notes in connection with the 2021
debt tender offers and redemption; and
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?repayment of $1.0 billion in full of Altria senior unsecured notes at scheduled
maturity in January 2020.
Debt and Liquidity
Source of Funds - Altria is a holding company. As a result, its access to the
operating cash flows of its wholly owned subsidiaries consists of cash received
from the payment of dividends and distributions, and the payment of interest on
intercompany loans by its subsidiaries. In addition, Altria receives cash
dividends on its interest in ABI and will continue to do so as long as ABI pays
dividends.
Credit Ratings - Altria's cost and terms of financing and its access to
commercial paper markets may be impacted by applicable credit ratings. The
impact of credit ratings on the cost of borrowings under Altria's Credit
Agreement is discussed in Note 9.
At March 31, 2021, the credit ratings and outlook for Altria's indebtedness by
major credit rating agencies were:
                                                       Short-term Debt               Long-term Debt                  Outlook
Moody's Investors Service, Inc. ("Moody's")                        P-2                           A3                   Stable
Standard & Poor's Financial Services LLC
("S&P")                                                            A-2                          BBB                   Stable
Fitch Ratings Inc.                                                  F2                          BBB                   Stable


Credit Lines - From time to time, Altria has short-term borrowing needs to meet
its working capital requirements and generally uses its commercial paper program
to meet those needs.
At March 31, 2021, Altria's Credit Agreement, which is used for general
corporate purposes, had $3.0 billion available and Altria was in compliance with
the covenants in the Credit Agreement. Altria expects to continue to meet the
covenants in the Credit Agreement. For further discussion, including interest
and covenants in the Credit Agreement, see Note 9.
Any commercial paper issued by Altria and borrowings under the Credit Agreement
are guaranteed by PM USA. For further discussion, see Supplemental Guarantor
Financial Information below and Note 9.
Financial Market Environment - Altria believes it has adequate liquidity and
access to financial resources to meet its anticipated obligations and ongoing
business needs in the foreseeable future. Altria monitors the credit quality of
its bank group and is not aware of any potential non-performing credit provider
in that group.
COVID-19 Pandemic - Despite the uncertainty surrounding the COVID-19 pandemic,
including its duration, severity and ultimate overall impact on the global and
U.S. economies and the businesses of Altria's operating companies, including
some volatility in the commercial paper markets in March 2020, Altria has not
experienced a material impact to its liquidity.
Debt - At March 31, 2021 and December 31, 2020, Altria's total debt was $29.7
billion and $29.5 billion, respectively.
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 redemption 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
purchase for cash certain of its long-term senior unsecured notes in the
aggregate principal amount of $4,042 million and (ii) redeemed all of its
outstanding 3.490% Notes due 2022 in an aggregate principal amount of $1.0
billion. As a result, for the three months ended March 31, 2021, Altria recorded
pre-tax losses on early extinguishment of debt of $649 million, which included
premiums and fees of $623 million and the write-off of related unamortized debt
discounts and debt issuance costs of $26 million.
As a result of these debt transactions, Altria reduced its near-term maturity
towers and extended the weighted-average maturity of its debt. In addition, the
weighted-average coupon interest rate on total long-term debt decreased to 4.0%
at March 31, 2021 from 4.1% at December 31, 2020.
For further details on long-term debt, including the terms of the Notes, the
debt tender offers and the redemption, see Note 9.
Guarantees and Other Similar Matters - As discussed in Note 10, Altria and
certain of its subsidiaries had unused letters of credit obtained in the
ordinary course of business, guarantees (including third-party guarantees) and a
redeemable noncontrolling interest outstanding at March 31, 2021. From time to
time, subsidiaries of Altria also issue lines of credit to affiliated entities.
In addition, as discussed below in Supplemental Guarantor Financial Information
and in Note 9, PM USA has issued guarantees relating to Altria's obligations
under its outstanding debt securities, borrowings under the Credit Agreement and
amounts outstanding under the commercial paper program. These items have not
had, and are not expected to have, a significant impact on Altria's liquidity.
For further discussion regarding Altria's liquidity, see the Debt and Liquidity
section above.
Payments Under State Settlement Agreements and FDA Regulation - As discussed
previously and in Note 10, PM USA has entered into State Settlement Agreements
with the states and territories of the United States that call for certain
payments. In addition, PM USA, Middleton and USSTC are subject to quarterly user
fees imposed by the FDA as a result of the FSPTCA.
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Altria's subsidiaries recorded $1.0 billion and $1.1 billion of charges to cost
of sales for the three months ended March 31, 2021 and 2020, respectively, in
connection with the State Settlement Agreements and FDA user fees. For further
discussion of the resolutions of certain disputes with states and territories
related to the NPM adjustment provision under the 1998 Master Settlement
Agreement, see Health Care Cost Recovery Litigation - NPM Adjustment Disputes in
Note 10.
Based on current agreements, 2020 market share and estimated annual industry
volume decline rates, the estimated amounts that Altria's subsidiaries may
charge to cost of sales for payments related to State Settlement Agreements and
FDA user fees are $4.5 billion on average for the next three years. These
amounts exclude the potential impact of any NPM Adjustment Items.
The estimated amounts due under the State Settlement Agreements charged to cost
of sales in each year would generally be paid in the following year. The amounts
charged to cost of sales for FDA user fees are generally paid in the quarter in
which the fees are incurred. As previously stated, the payments due under the
terms of the State Settlement Agreements and FDA user fees are subject to
adjustment for several factors, including volume, operating income, inflation
and certain contingent events and, in general, are allocated based on each
manufacturer's market share. The future payment amounts discussed above are
estimates, and actual payment amounts will differ to the extent underlying
assumptions differ from actual future results.
Litigation-Related Deposits and Payments - With respect to certain adverse
verdicts currently on appeal, to obtain stays of judgments pending appeals, as
of March 31, 2021, PM USA had posted appeal bonds totaling $53 million, which
have been collateralized with restricted cash that is included in assets on the
condensed 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 LLC or Altria in a
particular fiscal quarter or fiscal year, as more fully disclosed in Note 10,
management expects cash flow from operations, together with Altria's access to
capital markets, to provide sufficient liquidity to meet ongoing business needs.
Equity and Dividends
Dividends paid during the first three months of 2021 and 2020 were $1,601
million and $1,563 million, respectively, an increase of 2.4%, reflecting a
higher dividend rate. The current annualized dividend rate is $3.44 per share.
Altria maintains its long-term objective of a dividend payout ratio target of
approximately 80% of its adjusted diluted EPS. Future dividend payments remain
subject to the discretion of Altria's Board of Directors (the "Board of
Directors" or "Board").
For a discussion of Altria's share repurchase programs, see Note 1. Background
and Basis of Presentation to the condensed consolidated financial statements in
Item 1 and Part II, Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds of this Form 10-Q.
New Accounting Guidance Not Yet Adopted
See Note 11. New Accounting Guidance Not Yet Adopted to the condensed
consolidated financial statements in Item 1 for a discussion of issued
accounting guidance applicable to, but not yet adopted by, Altria.
Contingencies
See Note 10 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
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?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.
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.
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                           Summarized Balance Sheets
                            (in millions of dollars)
                                                              Parent                                             Guarantor
                                            March 31, 2021           December 31, 2020          March 31, 2021           December 31, 2020
Assets
Due from Non-Guarantor Subsidiaries       $           125          $              112          $          199          $              199
Other current assets                                6,023                       4,896                     745                         734
Total current assets                      $         6,148          $            5,008          $          944          $              933

Due from Non-Guarantor Subsidiaries $ 4,790 $

    4,790          $            -          $                -
Other assets                                       17,582                      16,883                   1,955                       1,983
Total non-current assets                  $        22,372          $           21,673          $        1,955          $            1,983

Liabilities

Due to Non-Guarantor Subsidiaries $ 1,047 $

    1,169          $          729          $              656
Other current liabilities                           3,431                       3,688                   5,972                       4,539
Total current liabilities                 $         4,478          $            4,857          $        6,701          $            5,195

Total non-current liabilities             $        31,394          $           30,958          $        1,261          $            1,268

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