Altria $MO, Masimo $MASI, and Dorman Products $DORM

Bedrock AI Red Flags - Dirty Laundry

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Filings from the week of July 26 - 30.


ALTRIA GROUP INC (MO)

10-Q | Market cap: $90B

In June, JUUL (Altria owns a 35% stake) agreed to a $40 million settlement with the North Carolina Attorney General over advertising practices. [1]

This is the seventh consecutive quarter where Altria did not record impairment on their investment in ABI with book value exceeding fair value by at least $2B. [2]

MO and ABI filed Q2 statements on July 29th. ABI’s share price dropped significantly the same day.

Altria had a working capital deficit at June 30, 2021, March 31, 2021, and December 31, 2020. [3]

  1. “In June 2021, JUUL reached a settlement with the North Carolina Attorney General, agreeing to pay the state approximately $40 million and to alter its business practices in the state by, among other restrictions, not (i) targeting its advertising to minors, (ii) using anyone in its marketing materials who is younger than 35 years old and (iii) paying for influencers to promote its products.”

  2. “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. ”

  3. “Altria had a working capital deficit at June 30, 2021 and December 31, 2020.”... “Altria had a working capital deficit at March 31, 2021 and December 31, 2020.”

MASIMO CORP (MASI)

10-Q | Market cap: $15B

The company’s Chairman and CEO also serves as the Chairman and CEO of Cercacor [1] and there are considerable transactions between the entities, including:

  • A cross licencing agreement with minimum annual royalty obligations of $5M

  • An administrative services agreement for the services the company provides to Cercacor.

  • A sublease of office space to Cercacor

The company has a time-share aircraft that is made available to the CEO for personal use for agreed reimbursement rates. [2]

The company is continuing their complaint against Apple, filing a new complaint with the ITC on June 30, 2021. [3]

  1. “Prior to our initial public offering in August 2007, our stockholders owned 99% of the outstanding shares of capital stock of Cercacor, and we believe that a number of our stockholders, including certain of our directors and executive officers, continue to own shares of Cercacor stock. Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor.“

  2. “The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates.”

  3. “On June 30, 2021, the Company filed a complaint with the U.S. International Trade Commission (ITC) against Apple for infringement of a number of other patents.”The company is dependent on their audio streaming contract with Tesla, comprising 36% and 60%

DORMAN PRODUCTS INC (DORM)

10-Q | Market cap: $3B

The company’s leases facilities from entities owned by their Executive Chairman and his family. [1]

The company sells receivables to manage cash flow due to increasing requests for extended payment terms from customers, selling $433M in the 6-months ended June 26,2021 [2]. Without such sales, the receivable balances would have been $593M higher at quarter-end. [3]

  1. “We lease our Colmar, PA facility and a portion of our Lewisberry, PA facility from entities in which Steven L. Berman, our Executive Chairman, and certain of his family members are owners.“

  2. “Payment Terms and Accounts Receivable Sales Programs Over the past several years we have continued to extend payment terms to certain customers as a result of customer requests and market demands. These extended terms have resulted in increased accounts receivable levels and significant uses of cash flows. We participate in accounts receivable sales programs with several customers that allow us to sell our accounts receivable to financial institutions to offset the negative cash flow impact of these payment terms extensions.”... “During the six months ended June 26, 2021 and June 27, 2020, we sold $433.7 million and $496.4 million of accounts receivable, respectively, under these programs.”

  3. If receivables had not been sold over the previous twelve months, approximately $593 million and $505 million of additional accounts receivable would have been outstanding at June 26, 2021 and December 26, 2020, respectively, based on our standard payment terms.

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