Subsequent Events

9 Months Ended

Sep. 30, 2022

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Altria and PMI Purchase Agreement

On October 19, 2022 (the “Effective Date”), ALCS and Altria (solely with respect to certain provisions thereunder) entered into an agreement (the “Purchase Agreement”) with Triaga, Inc. (“Triaga”), a subsidiary of PMI, and PMI (solely with respect to certain provisions thereunder), to, among other things, transition and ultimately conclude our relationship with respect to the IQOS Tobacco Heating System® (“IQOS System”) in the U.S. Under the terms of the Purchase Agreement, Triaga paid ALCS $1.0 billion upon entry into the Purchase Agreement and is obligated to make an additional payment of $1.7 billion (plus interest thereon from the Effective Date at a per annum rate equal to 6%) to ALCS by July 15, 2023, for a total cash payment of approximately $2.7 billion (plus interest). For the consideration received, ALCS has agreed to assign to Triaga exclusive U.S. commercialization rights to the IQOS System effective April 30, 2024. PMI will not have access to the Marlboro brand name or other brand assets, as PM USA owns the Marlboro trademark in the U.S.

We expect to record the $2.7 billion pre-tax transaction amount as a deferred gain on our consolidated balance sheet in the fourth quarter of 2022. We expect to recognize this gain in earnings when we relinquish our rights to the IQOS System.

Altria and Japan Tobacco Joint Venture

On October 26, 2022, Altria, through PM USA, entered into a joint venture with JTI (US) Holding, Inc. (“JTIUH”), a subsidiary of Japan Tobacco Inc., for the U.S. marketing and commercialization of heated tobacco stick (“HTS”) products. HTS products are defined in the joint venture agreement as products that include both (i) a tobacco heating device intended to heat the consumable without combusting and (ii) a consumable that meets the definition of a cigarette under the U.S. Federal Cigarette Labeling and Advertising Act. The joint venture is structured to exist in perpetuity and forms the Horizon Innovations LLC (“Horizon”) entity, which is responsible for the U.S. commercialization of current and future HTS products owned by either party. Upon pre-market tobacco application (“PMTA”) authorization, Horizon will become the exclusive entity through which the parties market and commercialize HTS products in the U.S. The parties expect to jointly prepare FDA filings for the latest version of Ploom HTS products. Upon PMTA authorization of Ploom HTS products, JTIUH will supply Ploom heated tobacco stick devices and PM USA will manufacture Marlboro HTS consumables for U.S. commercialization.

PM USA holds a 75% economic interest in Horizon, with JTIUH having a 25% economic interest. The parties plan to collaborate on a global smoke-free partnership. However, if an international heated tobacco joint venture between the parties is not reached over the next five years, PM USA may elect to increase its economic interest in Horizon to 80%. PM USA is responsible for making initial capital contributions to Horizon of up to $150 million, as charges are incurred. Any additional capital contributions made to Horizon after the initial $150 million will be split according to economic ownership. The parties will both maintain independent ownership of their respective intellectual property, including any intellectual property acquired that supports the development of future HTS products. The parties have agreed to commercialization milestones for Horizon, which include distribution requirements and minimum levels of cumulative marketing investment. Distribution requirements include minimum cumulative numbers of stores where devices and consumables are sold, minimum cumulative weighted distribution and minimum cumulative number of new metro areas where at least one direct retail store is established and fully operational.

Horizon is governed by a board of managers. The board is comprised of four individuals designated by PM USA and three individuals designated by JTIUH. Both PM USA and JTIUH are also entitled to designate up to three board observers.

We expect to include the financial results of Horizon as part of our “all other” category in our consolidated financial statements, with the 25% ownership interest held by JTIUH to be reported as a non-controlling interest.