Segment Reporting

12 Months Ended

Dec. 31, 2019

The products of Altria’s subsidiaries include smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA and Nat Sherman, machine-made large cigars and pipe tobacco manufactured and sold by Middleton and premium cigars sold by Nat Sherman; smokeless tobacco products, consisting of moist smokeless tobacco and snus products manufactured and sold by USSTC, and oral nicotine pouches sold by Helix; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria’s reportable segments of smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in all other.

Altria’s chief operating decision maker (the “CODM”) reviews operating companies income to evaluate the performance of, and allocate resources to, the segments. Operating companies income for the segments is defined as operating income before general corporate expenses and amortization of intangibles. Interest and other debt expense, net, net periodic benefit income/cost, excluding service cost, and provision for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by the CODM. Information about total assets by segment is not disclosed because such information is not reported to or used by the CODM. Substantially all of Altria’s long-lived assets are located in the United States. Segment goodwill and other intangible assets, net, are disclosed in Note 4. Goodwill and Other Intangible Assets, net. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.

Segment data were as follows:



	For the Years Ended December 31,
(in millions)	2019			2018			2017
Net revenues:
Smokeable products	$	21,996		$	22,297		$	22,636
Smokeless products	2,367			2,262			2,155
Wine	689			691			698
All other	58			114			87
Net revenues	$	25,110		$	25,364		$	25,576
Earnings (losses) before income taxes:
Operating companies income (loss):
Smokeable products	$	9,009		$	8,408		$	8,426
Smokeless products	1,580			1,431			1,306
Wine	(3		)	50			146
All other	(16		)	(421		)	(51		)
Amortization of intangibles	(44		)	(38		)	(21		)
General corporate expenses	(199		)	(315		)	(213		)
Corporate asset impairment and exit costs	(1		)	—			—
Operating income	10,326			9,115			9,593
Interest and other debt expense, net	(1,280		)	(665		)	(705		)
Net periodic benefit income (cost), excluding service cost	37			34			(37		)
Earnings from equity investments	1,725			890			532
Impairment of JUUL equity securities	(8,600		)	—			—
Loss on Cronos-related financial instruments	(1,442		)	—			—
Gain (loss) on ABI/SABMiller business combination	—			(33		)	445
Earnings (losses) before income taxes	$	766		$	9,341		$	9,828

The smokeable products segment included net revenues of $21,158 million, $21,506 million and $21,900 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to cigarettes and net revenues of $838 million, $791 million and $736 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to cigars.

Substantially all of Altria’s net revenues are from sales generated in the United States for the years ended December 31, 2019, 2018 and 2017. PM USA, USSTC, Helix, Middleton and Nat Sherman’s largest customer, McLane Company, Inc., accounted for approximately 25%, 27% and 26% of Altria’s consolidated net revenues for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, Core-Mark Holding Company, Inc. accounted for approximately 15%, 14% and 14% of Altria’s consolidated net revenues for the years ended December 31, 2019, 2018 and 2017, respectively. Substantially all of these net revenues were reported in the smokeable products and smokeless products segments. Sales to two distributors accounted for approximately 67% and 64% of net revenues for the wine segment for the years ended December 31, 2019 and 2018, respectively. Sales to three distributors accounted for approximately 67% of net revenues for the wine segment for the year ended December 31, 2017.

Details of Altria’s depreciation expense and capital expenditures were as follows:



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Depreciation expense:
Smokeable products	$	88	$	90	$	93
Smokeless products	27		28		29
Wine	41		40		40
General corporate and other	26		31		26
Total depreciation expense	$	182	$	189	$	188
Capital expenditures:
Smokeable products	$	61	$	81	$	39
Smokeless products	44		73		61
Wine	63		40		53
General corporate and other	78		44		46
Total capital expenditures	$	246	$	238	$	199

The comparability of operating companies income for the reportable segments was affected by the following:

▪Non-Participating Manufacturer (“NPM”) Adjustment Items: For the years ended December 31, 2018 and 2017, pre-tax (income) expense for NPM adjustment items was recorded in Altria’s consolidated statements of earnings (losses) as follows:



(in millions)	2018			2017
Smokeable products segment	$	(145	)	$	(5	)
Interest and other debt expense, net	—			9
Total	$	(145	)	$	4

NPM adjustment items result from the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 19. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded by PM USA as reductions to cost of sales, which increased operating companies income in the smokeable products segment.

▪Tobacco and Health Litigation Items: For the years ended December 31, 2019, 2018 and 2017, pre-tax charges related to certain tobacco and health litigation items were recorded in Altria’s consolidated statements of earnings (losses) as follows:



(in millions)	2019		2018		2017
Smokeable products segment	$	72	$	103	$	72
Smokeless products segment	—		10		—
Interest and other debt expense, net	5		18		8
Total	$	77	$	131	$	80

The amounts shown in the table above for the smokeable and smokeless products segments were recorded in marketing, administration and research costs. For further discussion, see Note 19. Contingencies.

▪Smokeless Products Recall: During 2017, USSTC voluntarily recalled certain smokeless tobacco products manufactured at its Franklin Park, Illinois facility due to a product tampering incident (the “Recall”). USSTC estimated that the Recall reduced smokeless products segment operating companies income by approximately $60 million in 2017.

▪Asset Impairment, Exit and Implementation Costs: See Note 5. Asset Impairment, Exit and Implementation Costs for a breakdown of these costs by segment.