Asset Impairment, Exit and Implementation Costs

3 Months Ended

Mar. 31, 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 Three Months Ended March 31,
		2020				2019
		Implementation Costs ⁽¹⁾		Total		Asset Impairment and Exit Costs			Implementation Costs ⁽¹⁾		Total
	(in millions)
Smokeable products		$	—	$	—	$	36		$	8	$	44
Oral tobacco products		—		—		8			1		9
Wine		392		392		—			—		—
All other		—		—		(5		)	—		(5		)
General corporate		—		—		1			—		1
Total		392		392		40			9		49
Plus amounts included in net periodic benefit income, excluding service cost ⁽²⁾		—		—		12			—		12
Total		$	392	$	392	$	52		$	9	$	61

(1) Included in cost of sales for 2020 and marketing, administration and research costs for 2019 in Altria’s condensed consolidated statements of earnings.

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

Implementation costs for 2020 were related to Ste. Michelle’s inventory-related charges, as discussed below. The 2019 pre-tax asset impairment, exit and implementation costs were related to the cost reduction program, 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	(23		)
Balances at March 31, 2020	$	44

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 the economic uncertainty surrounding the COVID-19 pandemic, Ste. Michelle has experienced additional increases in inventory levels that at March 31, 2020 significantly exceed long-term forecasted demand.

As a result, in connection with the preparation of Altria’s first quarter financial statements, Ste. Michelle recorded pre-tax charges of $392 million, which were included in cost of sales in Altria’s condensed consolidated statement of earnings for the three months ended March 31, 2020. The charges consisted of the following: (i) write-off of inventory ($292 million) 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). Such 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.

Additionally, Ste. Michelle expects to record additional charges of approximately $25 million during the remainder of 2020, consisting of inventory disposal costs and other charges.