Asset Impairment, Exit and Implementation Costs

9 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

Asset Impairment, Exit and Implementation Costs

Asset Impairment, Exit and Implementation Costs:

Pre-tax asset impairment, exit and implementation costs consisted of the following:

		For the Nine Months Ended September 30,
		2020				2019
		Implementation Costs (1)		Total		Asset Impairment and Exit Costs		Implementation Costs (2)		Total
	(in millions)
Smokeable products		$	—	$	—	$	50	$	29	$	79
Oral tobacco products		—		—		9		3		12
Wine		395		395		—		—		—
All other		—		—		14		(7)		7
General corporate		—		—		1		—		1
Total		395		395		74		25		99
Plus amounts included in net periodic benefit income, excluding service cost (3)		—		—		12		—		12
Total		$	395	$	395	$	86	$	25	$	111

(1) Included in cost of sales in Altria’s condensed consolidated statements of earnings.

(2) Included in cost of sales ($1 million cost reversal) and marketing, administration and research costs ($26 million) in Altria’s condensed consolidated statements of earnings.

(3) Represents curtailment costs. See Note 6. Benefit Plans.

		For the Three Months Ended September 30,
	2020					2019
		Implementation Costs (1)		Total		Asset Impairment and Exit Costs		Implementation Costs (2)		Total
	(in millions)
Smokeable products		$	—	$	—	$	—	$	4	$	4
Oral tobacco products		—		—		1		—		1
Wine		1		1		—		—		—
Total		$	1	$	1	$	1	$	4	$	5

(1) Included in cost of sales in Altria’s condensed consolidated statements of earnings.

(2) Included in cost of sales ($1 million) and marketing, administration and research costs ($3 million) in Altria’s condensed consolidated statements of earnings.

Implementation costs for 2020 were related to Ste. Michelle’s strategic reset as discussed below. The 2019 pre-tax asset impairment, exit and implementation costs were primarily related to the cost reduction program announced in December 2018, which was completed in 2019.

The movement in the restructuring liabilities, substantially all of which were severance liabilities, related to the cost reduction program was as follows:

	(in millions)
Balances at December 31, 2019	$	67
Charges	—
Cash spent	(42)
Balances at September 30, 2020	$	25

Wine Business Strategic Reset

Evolving adult consumer preferences have posed strategic challenges for Ste. Michelle, which has seen slowing growth in the wine category and increased inventory levels in recent periods. Against a backdrop of product volume demand uncertainty and long-term non-cancelable grape purchase commitments, which have been further negatively impacted by government actions which restrict direct-to-consumer sales and on-premise sales and economic uncertainty surrounding the COVID-19 pandemic,

Ste. Michelle experienced additional increases in inventory levels that at March 31, 2020 significantly exceeded long-term forecasted demand.

During the nine and three months ended September 30, 2020, Ste. Michelle recorded pre-tax charges of $395 million and $1 million, respectively, which were included in cost of sales in Altria’s condensed consolidated statements of earnings. The charges consisted primarily of the following: (i) write-off of inventory ($292 million recorded in the first quarter of 2020) as Ste. Michelle no longer believes that the benefit of the blending and production plans for its inventory outweighs inventory carrying cost given the reduced product volume demand; and (ii) estimated losses on future non-cancelable grape purchase commitments that Ste. Michelle believes no longer have a future economic benefit ($100 million recorded in the first quarter of 2020). The non-cancelable grape purchase commitments will continue to require cash payments as grape commitments are fulfilled over the next five years.

Given such uncertainty in economic conditions and product volume demand, as well as long-term supply-side contractual challenges, Altria and Ste. Michelle undertook a review of the wine business. As a result, Altria and Ste. Michelle implemented a strategic reset in order to maximize Ste. Michelle’s profitability and achieve improved long-term cash-flow generation. This strategic reset includes: (i) an updated approach to forecasting demand; (ii) supply chain optimization; (iii) SKU rationalization to reduce the number of products and eliminate underperforming brands; and (iv) streamlining operations by reducing future capital expenditures, working capital requirements and ongoing operating costs.

Ste. Michelle expects to record charges of approximately $20 million in 2020, consisting of inventory disposal costs and other charges.