The Tobacco BuyoutThe Tobacco Buyout

Scott SanfordScott Sanford

September 2005September 2005

OutreachOutreach500,000 official signup letters sent to quota holders and producers (6,000 printed in Spanish)

600,000 notices sent to quota holders and producers (6,000 printed in Spanish)

Ads in Progressive Farmer, Farm Journal, Flue-Cured Tobacco Farmer, and the Farm Progress family of magazines.

40 Regional radio ads

200 local newspaper ads running bimonthly from March to May

Bilingual national call center

Fair and Equitable Tobacco Reform ActFair and Equitable Tobacco Reform Act

Terminates tobacco quota program

Terminates tobacco price support

Provides transitional payments to quota holders and producers

Provides for assessments as a source of funds for payments

Establishes “Tobacco Trust Fund”

Provides for disposition of CCC loan stocks

Who is Getting Paid?Who is Getting Paid?

Contract payments are offered to tobacco quota owners and tobacco producers

Contract payments shall constitute full and fair consideration for the termination of such tobacco marketing quotas and related price support.

Contract payments are to be made during each of the fiscal years 2005 - 2014 in annual amounts equal to 1/10th of the total payment due each quota owner and quota producer.

Signup period for the program was March 14, 2005 through June 17, 2005.

Continuous sign-up (for those who missed original sign-up) is local FSA County Office (only for future payments).

November 1 each FY is cut-off for sign-up for the FY payment

How Much Are They Getting Paid?How Much Are They Getting Paid?

Contract payments are calculated based on quota levels established in the 2002 marketing year.

Contract payments to tobacco quota owners are determined by multiplying the base quota level by $7 per pound. Base quota

levels are determined by the basic quota established in the 2002 marketing year.

Contract payments to tobacco producers are determined by multiplying the base quota level by $3 per pound. Actual

payment rates vary according to the producer’s share of the risk associated with producing the quota during 2002 – 2004.

As of September 16, 2005, FY05 payments total $932 million.

What Can You Do With These What Can You Do With These Payments (Contracts)?Payments (Contracts)?

A recipient may receive CCC payments in 10 annual installments.

A recipient may involve a third party through—Assignment of payment, or,Successor-in-interest contract.

A recipient may arrange for a lump sum payment.

What Can You Do With These What Can You Do With These Payments (Contracts)?—Payments (Contracts)?—cont.cont.

Quota holder or producer contracts will not be eligible to be transferred if—

An assignment of payment is currently on file for the contract, or

The transferor has a delinquent debt (claim), or

The transferor has a TTPP receivable (i.e., overpayment).

Assignment of PaymentsAssignment of Payments

May be entered into at anytime.

All or any part of payment stream may be assigned.

Subject to administrative offset under the Debt Collection Improvement Act of 1966.

Revocable at any time with the consent of the assignee.

May be used beginning with the first payment in 2005.

Form CCC-959, Tobacco Transition Payment Program Assignment of Payment (March 31, 2005) must be used.

Successor-In-Interest ContractSuccessor-In-Interest Contract May be entered into starting with the fiscal year 2006.

May not be revoked.

Enter into a successor-in-interest contract by November 1st in order to receive the subsequent January payment.

Succeed to whole contract (partial successor-in-interest contracts are not allowed).

Prior and subsequent actions of the original contract holder will not affect the rights of the successor.

CCC will allow sale of successor-in-interest contracts to another party.

Flue Cured Tobacco Stabilization Corporation

Burley Tobacco Growers Cooperative Association

Burley Stabilization Corporation

Stemming Tobacco District

Eastern Tobacco

Type 22

Type 35

Western Tobacco

Type 23

Type 35

Wisconsin Cigar

Dark Tobacco

Total1

Tobacco Association Losses Incurred by CCC

Inventory Losses Related to CCC Held Tobacco LoansInventory Losses Related to CCC Held Tobacco Loans

$125,631,359.19

135,096,477.01

27,208,737.11

385,351.77

570,852.23

221,336.07

2,096,345.47

76,399.44

156,219.14

282,813.95

$291,725,891.381$287,210,590.32 losses recognized as of June 30, 2005 and $4,515,300.86 recognized after June 30, 2005.

CCC Tobacco Loan Stock Sales – FY 2005CCC Tobacco Loan Stock Sales – FY 2005

Burley/Flue

Burley/Flue

Minor

Minor

Burley

Total

26

28

29

30

31

3/25/2005

4/12/2005

4/22/2005

5/23/2005

6/19/2005

100,209,023

11,180,899

2,201,822

1,769,074

11,649,480

89,028,124

11,180,899

432,748

1,769,074

11,649,480

114,060,325

11,180,899

0

1,769,074

0

0

$163,743,034.16

$8,723,186.33

$773,612.13

$2,265,881.13

$30,057,649.90

$205,563,363.65

$1.84

$0.78

$1.79

$1.28

$2.58

$1.80

Tobacco Invitation Quantity Sales Average

Type # Date Quantity (lbs) Sold Balance Proceeds Price

Who Is Paying for the Buyout? Who Is Paying for the Buyout?

Each tobacco product manufacturer and importer that sells tobacco products in domestic commerce in the United States.

Treasury lists about 800 companies with permits to manufacture or import tobacco products.

National AssessmentNational Assessment

The national quarterly assessment reflects contract payments made to tobacco quota holders and producers and other expenditures of the Tobacco Trust Fund. The total assessment over 10 years is not to exceed $10.14 billion.

The national quarterly assessment is then apportioned to each class of tobacco using the following percentages:

• 96.331 Cigarettes• 2.783 Cigars• 0.539 Snuff• 0.171 Roll-Your-Own Tobacco• 0.111 Chewing Tobacco• 0.066 Pipe Tobacco

            

Cigarettes: small (#) 377,241,580,953 23,085,086,000 400,326,666,953 $19.50/thou 7,806,370,006 96.331

Cigarettes: large (#) 0 0 0 $40.95/thou 0 0

Cigars: small (#) 2,301,972,488 172,369,000 2,474,341,488 $1.828/thou 4,523,096 0.056

Cigars: large (#) 4,018,523,214 514,566,000 4,533,089,214 $48.75/thou 220,988,099 2.727

Snuff (lbs) 74,700,715 8,369 74,709,084 $0.585/lb 43,704,814 0.539

Chewing tobacco (lbs) 45,906,067 174,399 46,080,466 $0.195/lb 8,985,691 0.111

Pipe tobacco (lbs) 4,155,205 698,086 4,853,291 $1.0969/lb 5,323,575 0.066

Roll your own (lbs) 11,353,137 1,254,008 12,607,145 $1.0969/lb 13,828,777 0.171

Total         8,103,724,058 100.001

Calculation of Initial Assessments for Each Class of Tobacco Under Section 625 (c)

2003 Calendar Year Amount1 Maximum Estimated Allocation

Product Domestic Imports Total Tax Rate 2 Taxes by class (%)

1Source: Alcohol and Tobacco Tax and Trade Bureau, National Revenue Center, December 2003 Monthly Statistical Release, Re-issued August 19, 2004, Report Symbol TTB s 5200-12-2003. www.ttb.gov/tobacco/stats/index.htm.

2Source: Alcohol and Tobacco Tax and Trade Bureau, Tax and Fee Rate. www.ttb.gov/alcohol/info/atftaxes.htm.

Small cigarettes

Large cigarettes

Small cigars

Large cigars

Snuff

Chewing tobacco

Pipe

Roll your own

96.839

0.000

0.048

2.328

0.475

0.112

0.076

0.122

96.674

0.000

0.051

2.443

0.497

0.110

0.073

0.152

96.331

0.000

0.056

2.727

0.539

0.111

0.066

0.171

95.999

0.000

0.066

2.978

0.565

0.104

0.064

0.224

Class 2001 2002 2003 2004

Tobacco Class Market Shares by Taxes Paid, 2001- 2004Tobacco Class Market Shares by Taxes Paid, 2001- 2004

Percent

Manufacturer/Importer Assessments Manufacturer/Importer Assessments

Individual manufacturer/importer assessments are calculated by multiplying each company’s quarterly market share by the national quarterly assessment for that class of tobacco.

Each company’s market share is calculated by dividing the total taxes paid (total volume for cigars) by that company for the quarter by

the total taxes paid (total volume for cigars) by all companies that reported to CCC for that class of tobacco.

Any company with a market share of less than 0.0001 is excluded from the assessment.

A new market share is then calculated for each company by dividing the total taxes paid (total volume for cigars) by that company for the quarter by the total taxes paid (total volume for cigars) by all assessed companies.

Tobacco Class

Cigarettes Cigars SnuffRoll Your

OwnChewing Tobacco

Pipe Tobacco

Total1

Percent 96.331 2.783 0.539 0.171 0.111 0.066 100.001

Assessment $244,199,085 $7,054,905 $1,366,365 $433,485 $281,385 $167,310 $253,502,535

Tobacco Class

Cigarettes Cigars SnuffRoll Your

OwnChewing Tobacco

Pipe Tobacco

Total1

Percent 96.331 2.783 0.539 0.171 0.111 0.066 100.001

Assessment $512,232,475 $14,798,382 $2,866,090 $909,279 $590,234 $350,950 $531,747,409

1Since CCC had not incurred any costs this total is 1/40 th of the 10-year maximum total cost of the program of $10.14 billion.

National Assessment

September 2005

March and June 2005

1This total includes one-fortieth of the estimated $9.6 billion in contract payments; $287,210,591 in CCC loan losses; and $4,531,501 for payments to a financial institution to help carry out this program.

CLASS: Cigarettes

Gross Excise Taxes PaidApril 2005-June 2005

Assessment9/1/2005

Total Taxes Paid by Class of Tobacco

(1)

Total Taxes Paid by Your Company

Your Company’s

Share(2)

Total Taxes Paid by Assessed Companies

(3)

Your Company’s Share

(3)

Your Company’s Assessment

(4)

$1,994,385,856 $1,047,108 .0005 $1,993,459,087 .000525272 $269,061

(1) Total gross taxes paid by all companies that reported to CCC for this class of tobacco.(2) Rounded to 4 decimal places as required by 7 U.S.C. 518-519a.(3) Excludes those companies with a market share of less than .0001.(4) Share of assessment (.000525272) multiplied by national quarterly assessment for class of tobacco ($269,061).

Gross Removals Subject to TaxApril 2005-June 2005

Assessment9/1/2005

Total Volume by Class of Tobacco

(1)

Your Company’s Total

Your Company’s Share (2)

Volume of Gross Removals by Assessed Companies (3)

Your Company’s Share

(3)

Your Company’s Assessment

(4)

2,074,030,716 1,920,000 .0009 2,072,463,641 .000926434 $ 13,710

(1) Total gross taxes paid by all companies that reported to CCC for this class of tobacco.(2) Rounded to 4 decimal places as required by 7 U.S.C. 518-519a.(3) Excludes those companies with a market share of less than .0001.(4) Share of assessment (.000926434) multiplied by national quarterly assessment for class of tobacco ($ 13,710).

CLASS: Cigars

Manufacturer/Importer AssessmentsManufacturer/Importer Assessments

Class Cigarettes Cigars Snuff Roll-own Chew Pipe Total

Units Number Number Pounds Pounds Pounds Pounds  

January-March 2005

Total Units 85,613,009,876 2,056,728,869 18,943,461 3,405,071 9,621,804 1,075,095  

Total Excise Taxes Paid $1,669,704,040 $52,065,146 $11,082,451 $3,735,137 $1,876,582 $1,178,779 $1,739,642,135

Total Companies Reporting 91 135 13 27 15 20  

Total Companies Assessed1 67 69 6 26 14 20  

Total Excise Taxes Paid by              

Assessed Companies $1,669,166,963 $52,014,485 $11,081,538 $3,735,069 $1,876,564 $1,178,779 $1,739,053,398

Total Assessment $244,199,085 $7,054,905 $1,366,365 $433,485 $281,385 $167,310 $253,502,535

Share of Assessment 96.331% 2.783% 0.539% 0.171% 0.111% 0.066% 100.001%

Total Units of Assessed Companies 85,585,657,938 2,055,388,574 18,941,979 3,405,009 9,621,714 1,075,095  

Assessment per unit $0.0029 $0.0034 $0.0721 $0.1273 $0.0292 $0.1556  

Smallest assessment $12,381 $371 $282 $46 $16 $14  

April-June 2005

Total Units 102,275,102,944 2,074,030,716 20,766,393 3,894,131 10,714,176 1,202,797  

Total Excise Taxes Paid $1,994,385,856 $47,696,851 $12,147,721 $4,271,602 $2,093,148 $1,316,065 $2,061,911,243

Total Companies Reporting 88 149 12 31 16 27  

Total Companies Assessed1 64 82 7 27 15 24  

Total Excise Taxes Paid by              

Assessed Companies $1,993,459,087 $47,633,318 $12,147,271 $4,271,093 $2,093,127 $1,315,992 $2,060,919,888

Total Assessment $512,232,475 $14,798,382 $2,866,090 $909,279 $590,234 $350,950 $531,747,410

Share of Assessment 96.331% 2.783% 0.539% 0.171% 0.111% 0.066% 100.001%

Total Units of Assessed Companies 102,227,457,189 2,072,463,641 20,765,623 3,893,657 10,714,065 1,202,722  

Assessment per unit $0.0050 $0.0071 $0.1380 $0.2335 $0.0551 $0.2918  

Smallest assessment $37,279 $796 $183 $63 $39 $33  

1Market share of 0.01% or higher.

Tobacco Assessment Summary