XML 26 R13.htm IDEA: XBRL DOCUMENT
v3.21.2

Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | Financial Instruments Altria enters into derivative financial instruments to mitigate the potential impact of certain market risks, including foreign currency exchange rate risk. Altria uses various types of derivative financial instruments, including forward contracts, options and swaps. Altria does not enter into or hold derivative financial instruments for trading or speculative purposes. Altria’s investment in ABI, whose functional currency is the Euro, exposes Altria to foreign currency exchange risk on the carrying value of its investment. To manage this risk, Altria designates certain foreign exchange contracts, including cross-currency swap contracts and forward contracts (collectively, “foreign currency contracts”), and Euro denominated unsecured long-term notes (“foreign currency denominated debt”) as net investment hedges of Altria’s investment in ABI. In May 2021, all outstanding foreign currency contracts matured. When Altria has foreign currency contracts in effect, counterparties are domestic and international financial institutions. Under these contracts, Altria is exposed to potential losses due to non-performance by these counterparties. Altria manages its credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure Altria has with each counterparty and monitoring the financial condition of each counterparty. The counterparty agreements contain provisions that require Altria to maintain an investment grade credit rating. In the event Altria’s credit rating falls below investment grade, counterparties to Altria’s foreign currency contracts can require Altria to post collateral. No collateral was received or posted related to derivative assets and liabilities at December 31, 2020. The following table provides (i) the aggregate notional amounts of foreign currency contracts and (ii) the aggregate carrying value and fair value of foreign currency denominated debt:
(in millions) | September 30, 2021 |  | December 31, 2020
Foreign currency contracts (notional amounts) | $ | — |  |  | $ | 1,066 |
Foreign currency denominated debt |  |  |
Carrying value | 4,905 |  |  | 5,171 |
Fair value | 5,288 |  |  | 5,687 |
Altria’s estimates of the fair values of its foreign currency contracts are determined using valuation models with significant inputs that are readily available in public markets, or can be derived from observable market transactions, and therefore are classified in Level 2 of the fair value hierarchy. An adjustment for credit risk and non-performance risk is included in the fair values of foreign currency contracts. The following table provides the aggregate carrying value and fair value of Altria’s total long-term debt:
(in millions) | September 30, 2021 |  | December 31, 2020
Carrying value | $ | 28,127 |  |  | $ | 29,471 |
Fair value | 31,037 |  |  | 34,682 |
Altria’s estimate of the fair value of its total long-term debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy. The Fixed-price Preemptive Rights and Cronos warrant, which are further discussed in Note 4. Investments in Equity Securities, are derivative financial instruments, which are required to be recorded at fair value. The fair values of the Fixed-price Preemptive Rights and Cronos warrant are estimated using Black-Scholes option-pricing models, adjusted for observable inputs (which are classified in Level 1 of the fair value hierarchy), including share price, and unobservable inputs, including probability factors and weighting of expected life, volatility levels and risk-free interest rates (which are classified in Level 3 of the fair value hierarchy) based on the following assumptions at:
|  | Fixed-price Preemptive Rights |  | Cronos Warrant |  |  |  |
|  | September 30, 2021 |  | December 31, 2020 |  | September 30, 2021 |  | December 31, 2020 |  |  |  |
Share price (1) |  | C$7.15 |  | C$8.84 |  | C$7.15 |  | C$8.84 |  |  |  |
Expected life (2) |  | 0.81 year |  | 1.05 years |  | 1.43 years |  | 2.18 years |  |  |  |
Expected volatility (3) |  | 67.32% |  | 80.68% |  | 67.32% |  | 80.68% |  |  |  |
Risk-free interest rate (4)(5) |  | 0.24% |  | 0.13% |  | 0.39% |  | 0.21% |  |  |  |
Expected dividend yield (6) |  | —% |  | —% |  | —% |  | —% |  |  |  |
(1) Based on the closing market price for Cronos common stock on the Toronto Stock Exchange on the date indicated. (2) Based on the weighted-average expected life of the Fixed-price Preemptive Rights (with a range from approximately 0.25 year to 4.00 years at September 30, 2021 and 0.25 year to 5 years at December 31, 2020) and the March 8, 2023 expiration date of the Cronos warrant. (3) Based on a blend of historical volatility of the underlying equity security and implied volatility from traded options on the underlying equity security at September 30, 2021. Based on a blend of historical volatility levels of the underlying equity security and peer companies at December 31, 2020. (4) Based on the implied yield currently available on Canadian Treasury zero coupon issues (with a range from approximately 0.12% to 0.89% at September 30, 2021 and 0.06% to 0.39% at December 31, 2020) weighted for the remaining expected life of the Fixed-price Preemptive Rights. (5) Based on the implied yield currently available on Canadian Treasury zero coupon issues and the expected life of the Cronos warrant. (6) Based on Cronos’s expected dividend payments. The following table provides a reconciliation of the beginning and ending balance of the Fixed-price Preemptive Rights and Cronos warrant, which are classified in Level 3 of the fair value hierarchy:
(in millions) |  |  |
Balance at December 31, 2019 | $ | 303 |  |  |
Pre-tax earnings (losses) recognized in net earnings (losses) | (140) |  |  |
Balance at December 31, 2020 | 163 |  |  |
Pre-tax earnings (losses) recognized in net earnings (losses) | (128) |  |  |
Balance at September 30, 2021 | $ | 35 |  |  |
Altria elects to record the gross assets and liabilities of derivative financial instruments executed with the same counterparty on its condensed consolidated balance sheets. The fair values of Altria’s derivative financial instruments on a gross basis included on the condensed consolidated balance sheets were as follows:
| Fair Value of Assets |  | Fair Value of Liabilities
(in millions) | Balance Sheet Classification |  | September 30, 2021 |  | December 31, 2020 |  | Balance Sheet Classification | September 30, 2021 |  | December 31, 2020
Derivatives designated as hedging instruments: |
Foreign currency contracts | Other current assets |  | $ | — |  |  | $ | — |  |  | Other accrued liabilities | $ | — |  |  | $ | 87 |
Foreign currency contracts | Other assets |  | — |  |  | — |  |  | Other liabilities | — |  |  | — |
Total |  | $ | — |  |  | $ | — |  |  |  | $ | — |  |  | $ | 87 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Cronos warrant | Investments in equity securities |  | $ | 32 |  |  | $ | 139 |  |  |  |  |  |
Fixed-price Preemptive Rights | Investments in equity securities |  | 3 |  |  | 24 |  |  |  |  |  |
Total |  |  | $ | 35 |  |  | $ | 163 |  |  |  |  |  |
Total derivatives |  |  | $ | 35 |  |  | $ | 163 |  |  |  | $ | — |  |  | $ | 87 |
Altria records in its condensed consolidated statements of earnings (losses) any changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant as gains or losses on Cronos-related financial instruments in the periods in which the changes occur. For the nine and three months ended September 30, 2021 and 2020, Altria recorded non-cash, pre-tax unrealized gains (losses), representing the changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant, as follows:
| For the Nine Months Ended September 30, |  | For the Three Months Ended September 30,
(in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed-price Preemptive Rights | $ | (21) |  |  | $ | (54) |  |  | $ | (17) |  |  | $ | (25) |
Cronos warrant | (107) |  |  | (148) |  |  | (118) |  |  | (80) |
Total | $ | (128) |  |  | $ | (202) |  |  | $ | (135) |  |  | $ | (105) |
Net Investment Hedging The pre-tax effects of Altria’s net investment hedges on accumulated other comprehensive losses and the condensed consolidated statements of earnings (losses) were as follows:
|  | Gain (Loss) Recognized in Accumulated Other Comprehensive Losses |  | Gain (Loss) Recognized in Net Earnings (Losses) |  | Gain (Loss) Recognized in Accumulated Other Comprehensive Losses |  | Gain (Loss) Recognized in Net Earnings (Losses)
|  | For the Nine Months Ended September 30, |  | For the Three Months Ended September 30,
(in millions) |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency contracts |  | $ | 16 |  |  | $ | (28) |  |  | $ | 7 |  |  | $ | 33 |  |  | $ | — |  |  | $ | (66) |  |  | $ | — |  |  | $ | 8 |
Foreign currency denominated debt |  | 270 |  |  | (215) |  |  | — |  |  | — |  |  | 118 |  |  | (206) |  |  | — |  |  | — |
Total |  | $ | 286 |  |  | $ | (243) |  |  | $ | 7 |  |  | $ | 33 |  |  | $ | 118 |  |  | $ | (272) |  |  | $ | — |  |  | $ | 8 |
The changes in the fair value of the foreign currency contracts and in the carrying value of the foreign currency denominated debt due to changes in the Euro to USD exchange rate were recognized in accumulated other comprehensive losses related to ABI. Gains on the foreign currency contracts arising from components excluded from effectiveness testing were recognized in interest and other debt expense, net in the condensed consolidated statements of earnings (losses) based on an amortization approach.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration