Altria Reports Significant Progress in Building Up Its Noncombustible Business Platform

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Altria Reports Significant Progress in Building Up Its Noncombustible Business Platform

02/06/2020
Altria's headquarters

RICHMOND, Va. — As other electronic cigarettes and vapor products face increased regulatory scrutiny, Altria Group Inc. continues to move its non-combustible tobacco product lineup forward.

"Despite the unexpected challenges related to our investment in Juul, which led to impairment charges and reported losses, we made significant progress advancing and building our noncombustible business platform with the launch of IQOS and completion of the on! transaction," said Howard Willard, Altria's chairman and CEO.

"We enter 2020 with continued focus on harm reduction. We believe Altria's enhanced business platform best positions us to succeed under various future category scenarios," he added in the Richmond-based company's fourth-quarter 2019 earnings released on Jan. 30.

According to the company, its heat-not-burn IQOS system is now commercialized in two lead markets: Atlanta and Richmond. With the two markets combined, the product's Heatsticks are distributed across more than 500 retail stores.

In addition, there are more than 100 trained IQOS professionals to provided guided trials to adult smokers, Altria added.

As for its oral nicotine pouches, on! is available in 15,000 stores across the United States, including three of the top five chains for smokeless volume.

Altria & Juul Changes

As for its investment in Juul Labs Inc., Altria recorded a fourth-quarter, non-cash pre-tax impairment charge of $4.1 billion related to the transaction. According to company, the latest impairment is primarily due to the increased number of legal cases pending against San Francisco-based Juul and the expectation that the number of legal cases will continue to increase.

Since Oct. 31, the number of legal cases pending against the vapor company has increased by more than 80 percent.

For 2019, Altria recorded a total of $8.6 billion in non-cash pre-tax impairment charges to its Juul investment, bringing the value of the investment to $4.2 billion as of Dec. 31.

In December 2018, Altria announced it was taking a $12.8-billion minority stake in Juul. Now, the two companies have revised the terms of that investment.

According to provisions of the revised terms, Altria and Juul are focusing their work together on pre-market tobacco product applications (PMTA) based on rigorous scientific research and data-driven underage use prevention efforts.

As a result, Altria will continue to provide regulatory affairs services to Juul, which includes supporting the company in preparing and submitting its PMTA. Altria will discontinue all other services by the end of March 2020 that were part of the original investment agreement.

In addition, Juul will, upon antitrust clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act, restructure its board of directors to consist of two directors designated by Altria, three independent directors, the Juul CEO and three directors designated by Juul stockholders other than Altria.

Upon antitrust clearance, the restructured Juul board will add a nominating committee and a litigation oversight committee to its existing compensation and audit committees.

Altria expects resolution to antitrust clearance in the first half of 2020.

According to company, it also now has the option to be released from its non-compete obligation if Juul is prohibited by federal law from selling e-vapor products in the U.S. for at least a year, or if Altria's carrying value of its investment in Juul is not more than 10 percent of its initial carrying value of $12.8 billion.

"This agreement is a continuation of the reset initiated by Juul's leadership team." Willard said. "We look forward to working with the company under this structure to support Juul's commitment to working with regulators and submitting the best possible PMTA."

Altria is the parent company of Philip Morris USA, U.S. Smokeless Tobacco Co., John Middleton, Nat Sherman, Ste. Michelle Wine Estates and Philip Morris Capital Corp.