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.
Ste. Michelle Transaction
On July 8, 2021, UST LLC ("UST") entered into a Share Purchase Agreement
pursuant to which UST agreed to sell its subsidiary, International Wine &
Spirits Ltd. ("IWS"), which includes Ste. Michelle Wine Estates Ltd. ("Ste.
Michelle"), in the Ste. Michelle Transaction (as defined in Wine Segment
Business Environment). For further discussion, see Note 13. Subsequent Event to
the condensed consolidated financial statements in Item 1 ("Note 13").
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 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 are also 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. The
majority of retail stores in which Altria's tobacco products are sold, including
convenience stores, were deemed to be essential businesses by authorities and
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.
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Altria believes that the COVID-19 pandemic has altered adult tobacco consumer
behaviors and purchasing patterns. Many adult tobacco consumers have adopted
stay-at-home practices, which Altria believes have contributed to more tobacco
usage occasions compared to pre-pandemic levels. Altria also believes that many
adult tobacco consumers have had higher tobacco discretionary spending during
the COVID-19 pandemic due to a variety of factors, including federal government
stimulus payments and enhanced unemployment benefit payments, and lower
non-tobacco discretionary spend due to their stay-at-home practices. Altria also
estimates that, due to the COVID-19 pandemic, the number of adult tobacco
consumers trips to the store to purchase tobacco products has decreased versus
pre-pandemic levels, but the tobacco expenditures per trip have increased.
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, fiscal stimulus 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.
Altria has experienced adverse impacts to its alcohol assets due to the COVID-19
pandemic. In the wine business in 2020, Ste. Michelle's direct-to-consumer sales
and on-premise wine sales in restaurants, bars and hospitality venues and on
cruise lines were adversely impacted by disruptions arising from the COVID-19
pandemic. The adverse 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. In the first half
of 2021, Ste. Michelle's operations continued to be adversely impacted by
disruptions arising from the COVID-19 pandemic. However, as the U.S. Center for
Disease Control and Prevention relaxed COVID-19 guidelines and local government
ordinances eased, Ste. Michelle restarted certain on-premise events and its
on-premise wine sales improved compared to prior quarters. 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. However, ABI's performance in the first half
of 2021 improved meaningfully versus the same period in 2020, including top-line
growth in the second quarter of 2021 ahead of second quarter of 2019
pre-pandemic levels. 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. While there has been significant recovery in ABI's stock
price since the first half of 2020, including renewed momentum in the second
quarter of 2021, ABI's stock price remains volatile as demonstrated by its
recent decline in July 2021. The fair value of Altria's investment in ABI
continues to be below the carrying value. Altria believes that this decline is
temporary and 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 six months ended June 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 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 half of 2021, Cronos has
been 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 removal of COVID-19 related restrictions in most of
the United States and the gradual easing of COVID-19 restrictions in Canada at
the end of the second quarter of 2021. 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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Table of Contents Consolidated Results of Operations for the Six Months Ended June 30, 2021 The changes in net earnings attributable to Altria and diluted EPS attributable to Altria for the six months ended June 30, 2021, from the six months ended June 30, 2020, were due primarily to the following:


   (in millions, except per share data)                   Net Earnings      Diluted EPS
   For the six months ended June 30, 2020                $     3,495       $     1.88

   2020 Implementation and acquisition-related costs             306             0.16
   2020 Tobacco and health litigation items                       32             0.02

   2020 ABI-related special items                                139             0.07
   2020 Cronos-related special items                               1                -
   2020 COVID-19 special items                                    37             0.02
   2020 Tax items                                                 51             0.03
   Subtotal 2020 special items                                   566             0.30
   2021 NPM Adjustment Items                                      24             0.01
   2021 Implementation and acquisition-related costs             (43)           (0.02)
   2021 Tobacco and health litigation items                      (33)           (0.02)

   2021 JUUL changes in fair value                              (100)           (0.05)
   2021 ABI-related special items                                 71             0.04
   2021 Cronos-related special items                            (116)           (0.06)

   2021 Loss on early extinguishment of debt                    (496)           (0.27)
   2021 Tax items                                                 (3)               -
   Subtotal 2021 special items                                  (696)           (0.37)
   Fewer shares outstanding                                        -             0.01
   Change in tax rate                                            (44)           (0.02)
   Operations                                                    252             0.13
   For the six months ended June 30, 2021                $     3,573       $     1.93

   2021 Reported Net Earnings                            $     3,573       $     1.93
   2020 Reported Net Earnings                            $     3,495       $     1.88
   % Change                                                      2.2  %           2.7  %

   2021 Adjusted Net Earnings and Adjusted Diluted EPS   $     4,269       $     2.30
   2020 Adjusted Net Earnings and Adjusted Diluted EPS   $     4,061       $     2.18
   % Change                                                      5.1  %           5.5  %



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.
?Fewer Shares Outstanding: Fewer shares outstanding were due primarily to shares
repurchased by Altria under its share repurchase program in 2021.
?Change in Tax Rate: The change in the tax rate (which excludes the impact of
special items shown in the table above) was driven primarily by lower dividends
from ABI.
?Operations: The increase of $252 million in operations (which excludes the
impact of special items shown in the table above) was due primarily to higher
OCI in all reportable segments.
For further details, see the Consolidated Operating Results and Operating
Results by Business Segment sections below.
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Table of Contents Consolidated Results of Operations for the Three Months Ended June 30, 2021 The changes in net earnings attributable to Altria and diluted EPS attributable to Altria for the three months ended June 30, 2021, from the three months ended June 30, 2020, were due primarily to the following:


   (in millions, except per share data)                   Net Earnings      Diluted EPS
   For the three months ended June 30, 2020              $     1,943       $     1.04

   2020 Implementation and acquisition-related costs               6                -
   2020 Tobacco and health litigation items                       13             0.01

   2020 ABI-related special items                                 95             0.05
   2020 Cronos-related special items                             (94)           (0.05)
   2020 COVID-19 special items                                    37             0.02
   2020 Tax items                                                 27             0.02
   Subtotal 2020 special items                                    84             0.05

   2021 Implementation and acquisition-related costs              (6)               -
   2021 Tobacco and health litigation items                       (7)               -

   2021 JUUL changes in fair value                               100             0.05
   2021 ABI-related special items                                (29)           (0.02)
   2021 Cronos-related special items                            (186)           (0.10)

   2021 Tax items                                                 (9)               -
   Subtotal 2021 special items                                  (137)           (0.07)

   Change in tax rate                                            (17)           (0.01)
   Operations                                                    276             0.15
   For the three months ended June 30, 2021              $     2,149       $     1.16

   2021 Reported Net Earnings                            $     2,149       $     1.16
   2020 Reported Net Earnings                            $     1,943       $     1.04
   % Change                                                     10.6  %          11.5  %

   2021 Adjusted Net Earnings and Adjusted Diluted EPS   $     2,286       $     1.23
   2020 Adjusted Net Earnings and Adjusted Diluted EPS   $     2,027       $     1.09
   % Change                                                     12.8  %          12.8  %



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 (which excludes the impact of
special items shown in the table above) was driven primarily by lower dividends
from ABI.
?Operations: The increase of $276 million in operations (which excludes the
impact of special items shown in the table above) was due primarily to higher
OCI in all reportable segments.
For further details, see the Consolidated Operating Results and Operating
Results by Business Segment sections below.
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2021 Forecasted Results
Altria narrows its guidance for 2021 full-year adjusted diluted EPS to be in a
range of $4.56 to $4.62, representing a growth rate of 4.5% to 6% over its 2020
full-year adjusted diluted EPS base of $4.36, as shown in the first table below.
This range includes the estimated impact of the recently announced Ste. Michelle
Transaction (see Note 13), which is expected to close in the second half of
2021. 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) fiscal stimulus,
(iii) adult tobacco consumer dynamics, including stay-at-home practices,
disposable income, purchasing patterns and adoption of smoke-free products, (iv)
regulatory and legislative (including excise tax) developments, (v) the timing
and extent of COVID-19 vaccine administration and the impact of COVID-19
variants 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 smoke-free future, such as (i) marketplace investments to expand
the availability and awareness of Altria'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
conversion 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 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                               0.02

JUUL changes in fair value                                        0.05
ABI-related special items                                        (0.04)
Cronos-related special items                                      0.06
Loss on early extinguishment of debt                              0.27

                                                               $  0.37

Note: The amounts in the table above do not include the charge that Altria will record in the second half of 2021, which Altria does not expect to be material to its financial statements, related to the Ste. Michelle Transaction. For further discussion, see Note 13. 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


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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 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 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 June 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 June 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.
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 June 30, 2021 and
December 31, 2020 was $14.2 billion (carrying value of $17.2 billion) and $13.8
billion (carrying value of $16.7 billion), respectively, which was less than its
carrying value by approximately 17% in both periods. At July 26, 2021, the fair
value of Altria's investment had decreased to approximately $13.6 billion. In
October 2019, the fair value of Altria's equity investment in ABI declined below
its carrying value and at July 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 June 30, 2021, ABI's financial condition and near-term
prospects, and Altria's intent and ability to hold its investment in ABI until
recovery. Altria concluded, both at June 30, 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 the second half of 2020 (following the steep decline in the
first half of 2020 associated with the impacts of the COVID-19 pandemic on its
business) and renewed momentum in the second quarter of 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;
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?the continued industry disruption and volatility associated with the COVID-19
pandemic, including the impact of COVID-19 variants, which Altria believes is
resulting in stock price performance for ABI that has continued into July 2021
and is not 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:
?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's performance in the first half of 2021, which improved meaningfully versus
the same period in 2020, including top-line growth in the second quarter of 2021
ahead of second quarter of 2019 pre-pandemic levels. This is consistent with the
performance and resilience of the category that ABI anticipated when it reported
its 2020 earnings and provided its outlook for 2021. ABI continues to state that
its 2021 outlook, which is subject to change as it continues to monitor for
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").
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