ALTRIA GROUP, INC.
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.
Altria 's Vision by 2030 is to responsibly lead the transition of adult smokers
to a smoke-free future ("Vision"). Altria is focused on moving adult smokers
away from cigarettes by taking action to transition adult smokers to potentially
less harmful choices.
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 9. Segment
Reporting to the condensed consolidated financial statements in Item 1 ("Note
9").
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 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
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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.
Ste. Michelle Transaction
On July 8, 2021 , UST LLC ("UST") entered into a share purchase agreement
pursuant to which it agreed to sell its subsidiary, International Wine & Spirits
Ltd. ("IWS"), which includes Ste. Michelle Wine Estates Ltd. ("Ste. Michelle"),
to an entity controlled by investment funds managed by Sycamore Partners
Management, L.P. in an all-cash transaction with a purchase price of
approximately $1.2 billion and the assumption of certain liabilities of IWS and
its subsidiaries (the "Ste. Michelle Transaction"). UST completed the sale of
IWS on October 1, 2021 . For further discussion, see Note 3. Assets Held for Sale
to the condensed consolidated financial statements in Item 1 ("Note 3").
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 and the U.S. and global
economies have begun to operate with reduced restrictions on consumer movements
and business operations. Although much uncertainty still surrounds the pandemic
(including its duration, the impact of COVID-19 variants 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 (including labor shortages and inflation) 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 adverse 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
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 continue to be
subject to potential facility closures, remote working protocols and labor
shortages. To date, Altria has not experienced any material disruptions to its
supply chains or distribution systems, but is continuing to monitor these
factors. Altria continues to monitor the risk that the business of one or more
suppliers, distributors or any other entities within its supply and distribution
chains may be disrupted.
In September 2021 , the President of the United States issued an Executive Order
charging the Occupational Safety and Health Administration ("OSHA") with
developing an emergency temporary standard requiring almost all employers
mandate certain COVID-19 vaccination and testing requirements in the workplace.
This mandate could have an adverse impact on worker availability at Altria 's
subsidiaries' or investees' manufacturing, salesforce and administrative
operations, or in their distribution and supply chains.
Altria believes that the COVID-19 pandemic altered adult tobacco consumer
behaviors and purchasing patterns, particularly in the earlier stages of the
pandemic. While the number of adult tobacco consumer trips to the store remain
below pre-pandemic levels and tobacco expenditures per trip remain elevated, the
environment continues to evolve as the effects of government stimulus have
lessened and consumer mobility returns to more normal levels. Although Altria 's
tobacco businesses have not experienced a material adverse impact to date by the
COVID-19 pandemic, there is continued uncertainty as to how the COVID-19
pandemic (including changes in COVID-19-related restrictions and guidelines) may
impact adult tobacco consumers in the future. Altria continues to monitor the
macroeconomic risks of the COVID-19 pandemic (including risks associated with
the timing and extent of vaccine administration and the impact of COVID-19
variants), and their effect on adult tobacco consumers, including stay-at-home
practices and disposable income, which may be further impacted by unemployment
rates and inflation. Altria also continues to monitor adult tobacco consumers'
purchasing behaviors, including overall tobacco product expenditures, mix
between premium and discount brand purchases and adoption of smoke-free
products.
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Anheuser-Busch InBev SA /NV ("ABI") continued to be impacted by the COVID-19
pandemic, including the effects of COVID-19 variants, supply-chain constraints
across certain markets, transactional foreign exchange and commodity cost
headwinds. During the first nine months of 2021, ABI's share price continued to
fluctuate, ultimately resulting in a lower share price at September 30, 2021
compared to December 31, 2020 . As discussed in Note 4. Investment in Equity
Securities to the condensed consolidated financial statements in Item 1 ("Note
4"), in preparing Altria 's financial statements for the period ended September
30, 2021 , Altria concluded that the full recovery to the carrying value will
take longer than previously expected, therefore, the decline in fair value of
its investment in ABI at September 30, 2021 was other than temporary. In
determining that the decline in fair value was other than temporary, Altria
considered the continued impact of the COVID-19 pandemic on ABI's global
business along with several other factors. As a result, Altria recorded to
income (losses) from equity investments in its condensed consolidated statements
of earnings (losses) a non-cash, pre-tax impairment charge of $6.2 billion for
the nine and three months ended September 30, 2021 . Altria will continue to
monitor its investment in ABI, including the impact of the COVID-19 pandemic on
ABI's business and market valuation.
Altria has 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 nine months ended September 30, 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 any quarterly changes in fair
value recorded since the fourth quarter of 2020. Altria will continue to monitor
the impact of the COVID-19 pandemic on JUUL's business, including near-term
supply chain constraints and component part shortages, 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. During 2020 and the first nine months of 2021,
Cronos has been adversely 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. However, the continued rollout of vaccines in
the United States and Canada has resulted in the easing of COVID-19 related
restrictions in most of the United States and Canada during the third quarter of
2021. Altria will continue to monitor the impact of COVID-19 pandemic on Cronos'
business, including near-term supply chain challenges, and market valuation.
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Consolidated Results of Operations for the Nine Months Ended September 30, 2021
The changes in net earnings (losses) attributable to Altria and diluted earnings
(losses) per share ("EPS") attributable to Altria for the nine months ended
September 30, 2021 , from the nine months ended September 30, 2020 , were due
primarily to the following:
Net Earnings
(in millions, except per share data) (Losses) Diluted EPS For the nine months ended September 30, 2020$ 2,543 $ 1.36 2020 Implementation and acquisition-related costs 314 0.17 2020 Tobacco and health and certain other litigation items 57 0.03 2020 Impairment of JUUL equity securities 2,600 1.40 2020 ABI-related special items 544 0.29 2020 Cronos-related special items 143 0.08 2020 COVID-19 special items 37 0.02 2020 Tax items 38 0.02 Subtotal 2020 special items 3,733 2.01 2021 NPM Adjustment Items 57 0.03 2021 Implementation, acquisition and disposition-related costs (95) (0.05) 2021 Tobacco and health and certain other litigation items (113) (0.06) 2021 ABI-related special items (4,828) (2.60) 2021 Cronos-related special items (205) (0.11) 2021 Loss on early extinguishment of debt (496) (0.27) 2021 Tax items 5 - Subtotal 2021 special items (5,675) (3.06) Fewer shares outstanding - 0.02 Change in tax rate (18) (0.01) Operations 268 0.14 For the nine months ended September 30, 2021 $ 851$ 0.46 2021 Reported Net Earnings (Losses) $ 851$ 0.46 2020 Reported Net Earnings (Losses)$ 2,543 $ 1.36 % Change (66.5) % (66.2) % 2021 Adjusted Net Earnings and Adjusted Diluted EPS$ 6,526 $ 3.52 2020 Adjusted Net Earnings and Adjusted Diluted EPS$ 6,276 $ 3.37 % Change 4.0 % 4.5 % For a discussion of special items and other business drivers affecting the comparability of statements of earnings (losses) amounts and reconciliations of adjusted earnings attributable toAltria and adjusted diluted EPS attributable toAltria , see the Consolidated Operating Results section below. ?Fewer Shares Outstanding: Fewer shares outstanding were due primarily to shares repurchased byAltria under its share repurchase program in 2021. ?Change in Tax Rate: The change in the tax rate (which excludes the impact of special items shown in the table above) was driven primarily by higher state tax expense and foreign tax rate differential. ?Operations: The increase of$268 million in operations (which excludes the impact of special items shown in the table above) was due primarily to the following: •higher OCI from the smokeable products segment; •favorable net periodic benefit income, excluding service cost; and •higher income fromAltria 's equity investment in ABI. For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below. 44 -------------------------------------------------------------------------------- Table of Contents Consolidated Results of Operations for the Three Months EndedSeptember 30, 2021 The changes in net earnings (losses) attributable toAltria and diluted EPS attributable toAltria for the three months endedSeptember 30, 2021 , from the three months endedSeptember 30, 2020 , were due primarily to the following: Net
Earnings
(in millions, except per share data) (Losses) Diluted EPS For the three months ended September 30, 2020 $
(952)
2020 Implementation and acquisition-related costs 8 - 2020 Tobacco and health and certain other litigation items 25 0.01 2020 Impairment of JUUL equity securities 2,600 1.40 2020 ABI-related special items 405 0.22 2020 Cronos-related special items 142 0.08 2020 Tax items (13) (0.01) Subtotal 2020 special items 3,167 1.70 2021 NPM Adjustment Items 33 0.02 2021 Implementation, acquisition and disposition-related costs (52) (0.03) 2021 Tobacco and health and certain other litigation items (80) (0.04) 2021 JUUL changes in fair value 100 0.05 2021 ABI-related special items (4,899) (2.65) 2021 Cronos-related special items (89) (0.05) 2021 Tax items 8 - Subtotal 2021 special items (4,979) (2.70) Fewer shares outstanding - 0.01 Change in tax rate 26 0.01 Operations 16 0.01 For the three months ended September 30, 2021 $
(2,722)
2021 Reported Net Earnings (Losses)$ (2,722) $ (1.48) 2020 Reported Net Earnings (Losses)$ (952) $ (0.51) % Change (100)%+ (100)%+ 2021 Adjusted Net Earnings and Adjusted Diluted EPS$ 2,257 $ 1.22 2020 Adjusted Net Earnings and Adjusted Diluted EPS$ 2,215 $ 1.19 % Change 1.9 % 2.5 % For a discussion of special items and other business drivers affecting the comparability of statements of earnings (losses) amounts and reconciliations of adjusted earnings attributable toAltria and adjusted diluted EPS attributable toAltria , see the Consolidated Operating Results section below. ?Fewer Shares Outstanding: Fewer shares outstanding were due primarily to shares repurchased byAltria under its share repurchase program in 2021. ?Change in Tax Rate: The change in the tax rate (which excludes the impact of special items shown in the table above) was driven primarily by dividends associated withAltria 's equity investment in ABI. ?Operations: The increase of$16 million in operations (which excludes the impact of special items shown in the table above) was due primarily to the following: •higher income fromAltria 's equity investment in ABI; •favorable net periodic benefit income, excluding service cost; and •lower interest and other debt expense, net; partially offset by: ?lower OCI. For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below. 45 -------------------------------------------------------------------------------- Table of Contents 2021 Forecasted ResultsAltria narrows its guidance for 2021 full-year adjusted diluted EPS to be in a range of$4.58 to$4.62 , representing a growth rate of 5% 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) the economy (including unemployment rates and the impact of increased inflation), (ii) adult tobacco consumer dynamics, including stay-at-home practices, disposable income, purchasing patterns and adoption of smoke-free products, (iii) regulatory and legislative (including excise tax) developments and (iv) the timing and extent of COVID-19 vaccine administration and the impact of COVID-19 variants.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 smoke-free future, such as (i) marketplace investments to expand the availability and awareness ofAltria 's smoke-free products, (ii) costs associated with building an industry-leading consumer engagement platform that enhances data collection and insights in support of adult tobacco consumer transition to smoke-free products and (iii) increased smoke-free product research and development expense. 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 and certain other 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
(Income) Expense Excluded from 2021 Forecasted Adjusted Diluted EPS NPM Adjustment Items
$ (0.03)
Implementation, acquisition and disposition-related costs 0.05 Tobacco and health and certain other litigation items
0.06
ABI-related special items 2.60
Cronos-related special items 0.11
Loss on early extinguishment of debt 0.27
$ 3.06
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 (losses) attributable to Altria and diluted EPS, on an adjusted
basis, which excludes certain income and expense items that management believes
are not part of underlying operations. These items may include,
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for example, loss on early extinguishment of debt, restructuring charges, asset
impairment charges, acquisition-related and disposition-related costs, COVID-19
special items, equity investment-related special items (including any changes in
fair value of the equity investment and any related warrants and preemptive
rights), certain tax items, charges associated with tobacco and health and
certain other litigation items, and resolutions of certain non-participating
manufacturer ("NPM") adjustment disputes under the 1998 Master Settlement
Agreement (such dispute resolutions are referred to as "NPM Adjustment Items").
Altria 's management does not view any of these special items to be part of
Altria 's underlying results as they may be highly variable, may be unusual or
infrequent, are difficult to predict and can distort underlying business trends
and results. Altria 's management also reviews income tax rates on an adjusted
basis. Altria 's adjusted effective tax rate may exclude certain tax items from
its reported effective tax rate.
Altria 's management believes that adjusted financial measures provide useful
additional insight into underlying business trends and results, and provide a
more meaningful comparison of year-over-year results. Adjusted financial
measures are used by management and regularly provided to Altria 's chief
operating decision maker (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 September 30, 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
September 30, 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.
In October 2019 , the fair value of Altria 's equity investment in ABI declined
below its carrying value and at September 30, 2021 had not recovered. In
preparing its financial statements for the period ended September 30, 2021 ,
Altria evaluated the factors related to the fair value decline, including the
impact on the fair value of ABI's shares during the COVID-19 pandemic, which has
negatively impacted ABI's business. Altria evaluated the duration and magnitude
of the fair value decline at September 30, 2021 , ABI's financial condition and
near-term prospects, and Altria 's intent and ability to hold its investment in
ABI until recovery. In preparing its financial statements for the period ended
September 30, 2021 , Altria concluded that the decline in fair value of its
investment in ABI at September 30, 2021 was other than temporary. As a result,
Altria recorded a non-cash, pre-tax impairment charge of $6.2 billion for the
nine and three months ended September 30, 2021 to income (losses) from equity
investments in its condensed consolidated statements of earnings (losses). This
impairment charge reflected the difference between the fair value using ABI's
share price at September 30, 2021 and the carrying value of Altria 's equity
investment in ABI at September 30, 2021 , prior to recording the impairment
charge. This conclusion was based on the following factors:
?the fair value of Altria 's investment in ABI had been below its carrying value
since October 2019 and had not fully recovered. At its lowest point in March
2020 , the fair value of Altria 's investment in ABI was below its carrying value
by approximately 52% and at December 31, 2020 had recovered to approximately
17%. During the first nine months of 2021, ABI's share price continued to
fluctuate, ultimately resulting in a share price decline of 18% since December
31, 2020 . At September 30, 2021 , prior to recording the impairment charge, the
fair value of Altria 's investment in ABI was below its carrying value by
approximately 35%;
?the fair value of Altria 's investment in ABI historically exceeded its carrying
value since October 2016 (when Altria obtained its ownership interest in ABI)
with the exception of certain periods starting in September 2018 and since
October 2019 . Altria was optimistic about a near-term recovery because ABI's
share price demonstrated significant recovery, including during 2019, the second
half of 2020 and the first half of 2021. However, during the third quarter of
2021, the decline in ABI's share price resumed and, at September 30, 2021 , the
share price was lower than at December 31, 2020 , erasing much of the recovery
experienced in the second half of 2020 and first half of 2021;
?ABI's share price continued to decline following the release of ABI's second
quarter of 2021 earnings report in which ABI's performance in the first half of
2021 improved meaningfully versus the same period in 2020. Despite ABI's
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second quarter of 2021 results, which also included top-line growth ahead of the
pre-pandemic levels from the second quarter of 2019 as well as the reaffirmation
of its 2021 outlook, ABI's income growth was impacted by, among other things,
transactional foreign exchange and commodity cost headwinds; and
?the industry disruption and volatility associated with the COVID-19 pandemic,
including the impact of COVID-19 variants and related cost headwinds, have
continued. While Altria continues to believe that ABI's share price performance
is not reflective of its underlying long-term equity value, and ABI's share
price will recover, Altria now believes that it will take longer than previously
expected as Altria believes that COVID-19 variants, supply-chain constraints
across certain markets, transactional foreign exchange and commodity cost
headwinds may continue to impact ABI's near-term financial results and share
price performance.
Although Altria recorded an impairment charge on its investment in ABI during
the nine and three months ended September 30, 2021 , Altria continues to have
confidence in ABI's (i) long-term strategies, (ii) premium global brands, (iii)
experienced management team and (iv) capability to successfully navigate its
near-term challenges. Altria further expects that the adverse impacts related to
the COVID-19 pandemic that have negatively impacted ABI's global business are
transitory, but now also anticipates that the full recovery to the carrying
value will take longer than previously expected. During October 2021 , ABI's
share price continued to fluctuate and at October 25, 2021 , the fair value of
Altria 's investment in ABI approximated its carrying value. 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. For further
discussion of Altria 's investment in ABI, see Note 4.
Investment in Cronos
The fair value of Altria 's equity method investment in Cronos is based on
unadjusted quoted prices in active markets for Cronos's common shares and was
classified in Level 1 of the fair value hierarchy. In September 2021 , the fair
value of Altria 's equity method investment in Cronos declined below its carrying
value. At September 30 2021 , the fair value of Altria 's equity method investment
in Cronos was below its carrying value by $14 million or approximately 2%.
Altria has evaluated the factors related to the fair value decline. Based on
Altria 's evaluation of the duration and magnitude of the fair value decline at
September 30, 2021 , Altria concluded that the decline in fair value of its
equity method investment in Cronos below its carrying value is temporary and,
therefore, no impairment was recorded. At October 25, 2021 , the fair value of
Altria 's equity method investment in Cronos was below its carrying value by $26
million or approximately 3%.
Altria will continue to monitor its equity method investment in Cronos,
including the impact of the COVID-19 pandemic on Cronos'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 equity method 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 Cronos, see Note 4.
Federal Excise Taxes
Congress is currently considering legislation that would significantly increase
the federal excise tax for all tobacco products and create a new tax for e-vapor
products and other products containing nicotine that are not currently subject
to a tobacco federal excise tax. Additionally, e-vapor products and oral
nicotine products not currently taxed would be subject to a federal excise tax
that would vary based on the nicotine content.
Altria uses an income approach to estimate (i) the fair values of its goodwill
and intangible assets when conducting its annual review of goodwill and
indefinite-lived intangible assets for potential impairment (more frequently if
events occur that would require an interim review) and (ii) the fair value of
its investment in JUUL, when accounting for its equity method investment in JUUL
under the fair value option. Altria believes that an excise tax on cigars, moist
smokeless tobacco products ("MST"), e-vapor products and oral nicotine pouches
at the current proposed rates could have a material adverse impact on the
significant assumptions used in performing these valuations, including volume,
operating margins and income.
At this time, it is unclear (i) whether proposed tobacco and nicotine taxes will
be included in any final legislation and (ii) what the amounts of any such taxes
that would be included, if enacted. If the proposed tobacco and nicotine federal
excise taxes on cigars, MST and e-vapor products are included in any final
legislation at the rates that are currently proposed, it could result in a
material non-cash impairment of the Skoal trademark and a material decrease in
the fair value of its investment in JUUL, either of which would have a material
adverse effect on Altria 's consolidated financial position or earnings.
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