Investments in Equity Securities

6 Months Ended

Jun. 30, 2023

The carrying amount of our current and former investments consisted of the following:


(in millions)	June 30, 2023		December 31, 2022
ABI	$	9,302	$	8,975
Cronos	341		375
JUUL	—		250
Total	$	9,643	$	9,600

(Income) losses from our current and former investments in equity securities consisted of the following:


	For the Six Months Ended June 30,						For the Three Months Ended June 30,
(in millions)	2023			2022			2023		2022
ABI (1)	$	(340)		$	(212)		$	(135)	$	(12)
Cronos (1)	43			186			8		120
(Income) losses from investments under equity method of accounting	(297)			(26)			(127)		108
JUUL	250		(2)	1,255		(3)	—		1,155		(3)
(Income) losses from investments in equity securities	$	(47)		$	1,229		$	(127)	$	1,263

(1) Includes our share of amounts recorded by our investees and additional adjustments, if required, related to (i) the conversion from international financial reporting standards to United States generally accepted accounting principles (“GAAP”) and (ii) adjustments to our investments required under the equity method of accounting.

(2) Represents loss as a result of the disposition of our JUUL equity securities discussed below.

(3) Represents the estimated change in fair value. Prior to the disposition of our JUUL equity securities on March 3, 2023, we accounted for our former investment in JUUL as an investment in an equity security measured at fair value.

Investment in ABI

At June 30, 2023, we had an approximate 10% ownership interest in ABI, consisting of 185 million restricted shares of ABI (the “Restricted Shares”) and 12 million ordinary shares of ABI. The Restricted Shares:

▪are unlisted and not admitted to trading on any stock exchange;

▪are convertible by us into ordinary shares of ABI on a one-for-one basis;

▪rank equally with ordinary shares of ABI with regards to dividends and voting rights; and

▪have director nomination rights with respect to ABI.

We have not elected to convert our Restricted Shares into ordinary shares of ABI.

We account for our investment in ABI under the equity method of accounting because we have the ability to exercise significant influence over the operating and financial policies of ABI, including having active representation on ABI’s board of directors and certain ABI board committees. Through this representation, we participate in ABI’s policy making processes.

We report our share of ABI’s results using a one-quarter lag because ABI’s results are not available in time for us to record them in the concurrent period.

The fair value of our equity investment in ABI is based on (i) unadjusted quoted prices in active markets for ABI’s ordinary shares and was classified in Level 1 of the fair value hierarchy and (ii) observable inputs other than Level 1 prices, such as quoted prices for similar assets for the Restricted Shares and was classified in Level 2 of the fair value hierarchy. We can convert our Restricted Shares to ordinary shares at our discretion. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.

The fair value of our equity investment in ABI at June 30, 2023 and December 31, 2022 was $11.2 billion and $11.9 billion, respectively, which exceeded its carrying value of $9.3 billion and $9.0 billion by approximately 20% and 33%, respectively.

Investment in Cronos

At June 30, 2023, we had a 41.1% ownership interest in Cronos, consisting of 156.6 million shares, which we account for under the equity method of accounting. We report our share of Cronos’s results using a one-quarter lag because Cronos’s results are not available in time for us to record them in the concurrent period.

The fair value of our equity method investment in Cronos is based on unadjusted quoted prices in active markets for Cronos’s common shares and was classified in Level 1 of the fair value hierarchy. At December 31, 2022, the fair value of our equity method investment in Cronos exceeded its carrying value by $22 million or approximately 6%.

At June 30, 2023, the fair value of our equity method investment in Cronos was less than its carrying value by $32 million or approximately 9%. Based on our evaluation of the duration and magnitude of the fair value decline, our evaluation of Cronos’s financial condition (including its strong cash position) and near-term prospects, and our intent and ability to hold our investment in Cronos until recovery, we concluded that the decline in fair value of our equity method investment in Cronos below its carrying value is temporary and, therefore, no impairment was recorded.

As part of our investment in Cronos, at June 30, 2023, we also owned anti-dilution protections to purchase Cronos common shares, exercisable each quarter upon dilution, to maintain our ownership percentage. Certain of the anti-dilution protections provide us the ability to purchase additional Cronos common shares at a per share exercise price of Canadian dollar (“CAD”) $16.25 upon the occurrence of specified events (“Fixed-price Preemptive Rights”). The Fixed-price Preemptive Rights had no value at June 30, 2023 and December 31, 2022. Prior to December 2022, we also owned a warrant providing us the ability to purchase an additional approximate 10% of common shares of Cronos at a per share exercise price of CAD $19.00, which would have expired on March 8, 2023. In December 2022, we irrevocably abandoned the Cronos warrant.

Former Investment in JUUL

In March 2023, we entered into the Stock Transfer Agreement with JUUL pursuant to which, among other things, we transferred to JUUL all of our beneficially owned JUUL equity securities. Concurrently with and in connection with the execution of the Stock Transfer Agreement, JUUL entered into an agreement with us that provides us with a non-exclusive, irrevocable global license to certain of the JUUL Heated Tobacco IP. In addition, all other agreements between us, on the one hand, and JUUL, on the other hand, were terminated or we were removed as parties thereto, other than certain litigation-related agreements and a license agreement relating to our non-trademark licensable intellectual property rights in the e-vapor field, which remain in force solely with respect to our e-vapor intellectual property as of or prior to March 3, 2023.

As a result of transferring to JUUL all of our beneficially owned JUUL equity securities pursuant to the Stock Transfer Agreement, for the three months ended March 31, 2023, we recorded a non-cash, pre-tax loss on the disposition of our JUUL equity securities of $250 million. Additionally, we considered specific facts and circumstances around the nature of the JUUL Heated Tobacco IP and determined that the fair value of such intellectual property was not material to our consolidated financial statements as of the date of the transaction. As a result, we did not record an asset associated with this intellectual property on our condensed consolidated balance sheet at March 31, 2023. The primary drivers of this conclusion were (i) our rights to the JUUL Heated Tobacco IP being non-exclusive, (ii) there being no product or technology transferred to us associated with the JUUL Heated Tobacco IP and (iii) there being no connection between the JUUL Heated Tobacco IP and our current product development plans.

In April 2020, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint challenging our former investment in JUUL. In June 2023, the FTC issued an order dismissing its complaint, which concluded the matter. For further discussion, see Note 13. Contingencies - Antitrust Litigation.