It was only six years ago that British American Tobacco (NYSE: BTI) spent a fortune to greatly expand its presence in the U.S. cigarette market. The 2017 acquisition of Reynolds cost the company $49.4 billion, half in cash and half in stock. British American Tobacco's debt-heavy balance sheet is partially a result of this cigarette megadeal.

Reynolds brought with it a portfolio of popular brands, including Newport, Camel, and American Spirit. But with cigarette consumption in the U.S. in decline, those brands are worth far less today than what British American Tobacco paid in 2017. The company announced on Wednesday that it is taking a non-cash impairment charge of approximately $31 billion to reduce the carrying value of its acquired U.S. cigarette brands. Going even further, the company will begin amortizing the remaining value of those brands in 2024.

When one company acquires another, any amount above and beyond the net worth of the acquired company goes on the acquiree's balance sheet as intangible assets. Some intangible assets are amortized from the start, reducing earnings. Goodwill, a class of intangible assets that isn't amortized, must be written down when it becomes clear that its value hasn't held up.

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Source Fool.com