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Investments in Equity Securities | 12 Months Ended
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Dec. 31, 2022
Equity Method Investments and Joint Ventures [Abstract] |
Investments in Equity Securities | Investments in Equity Securities The carrying amount of our investments consisted of the following at December 31:
(in millions) |  | 2022 |  | 2021
ABI |  | $ | 8,975 |  |  | $ | 11,144 |
JUUL |  | 250 |  |  | 1,705 |
Cronos (1) |  | 375 |  |  | 632 |
Total |  | $ | 9,600 |  |  | $ | 13,481 |
(1) Our investment in Cronos at December 31, 2021 consisted of our equity method investment in Cronos of $617 million and also included the Cronos warrant and the Fixed-price Preemptive Rights (collectively, “Investment in Cronos”), which were measured at fair value. We irrevocably abandoned the Cronos warrant on December 15, 2022, and the Fixed-price Preemptive Rights had no value at December 31, 2022. See below for further discussion. (Income) losses from investments in equity securities consisted of the following:
| For the Years Ended December 31,
(in millions) | 2022 |  | 2021 |  | 2020
ABI (1) | $ | 1,973 |  |  | $ | 5,564 |  |  | $ | 223 |
Cronos (1) | 213 |  |  | 415 |  |  | (12) |
(Income) losses from investments under equity method of accounting | 2,186 |  |  | 5,979 |  |  | 211 |
JUUL (2) | 1,455 |  |  | — |  |  | (100) |
(Income) losses from investments in equity securities | $ | 3,641 |  |  | $ | 5,979 |  |  | $ | 111 |
(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 GAAP and (ii) adjustments to our investment required under the equity method of accounting. (2) Investment in JUUL is accounted for as an investment in an equity security measured at fair value. See below for further discussion. Investees’ summarized financial data for our equity method investments was as follows:
| For Altria’s Year Ended December 31,
| 2022 (1) |  | 2021 (1) |  | 2020 (1)
(in millions) | ABI |  | Other Investments |  | ABI |  | Other Investments |  | ABI |  | Other Investments
Net revenues | $ | 57,267 |  |  | $ | 947 |  |  | $ | 52,864 |  |  | $ | 1,313 |  |  | $ | 48,294 |  |  | $ | 37 |
Gross profit | $ | 31,588 |  |  | $ | 525 |  |  | $ | 30,653 |  |  | $ | 757 |  |  | $ | 28,438 |  |  | $ | (31) |
Earnings (losses) from continuing operations | $ | 7,879 |  |  | $ | (521) |  |  | $ | 7,434 |  |  | $ | (800) |  |  | $ | 4,265 |  |  | $ | 99 |
Net earnings (losses) | $ | 7,879 |  |  | $ | (521) |  |  | $ | 7,434 |  |  | $ | (800) |  |  | $ | 4,266 |  |  | $ | 98 |
Net earnings (losses) attributable to equity investments | $ | 5,838 |  |  | $ | (520) |  |  | $ | 5,780 |  |  | $ | (798) |  |  | $ | 3,323 |  |  | $ | 100 |
| At September 30,
| 2022 (1) |  | 2021 (1)
(in millions) | ABI |  | Other Investments |  | ABI |  | Other Investments
Current assets | $ | 24,164 |  |  | $ | 963 |  |  | $ | 21,593 |  |  | $ | 1,882 |
Long-term assets | $ | 182,087 |  |  | $ | 274 |  |  | $ | 190,082 |  |  | $ | 1,049 |
Current liabilities | $ | 32,649 |  |  | $ | 38 |  |  | $ | 33,540 |  |  | $ | 451 |
Long-term liabilities | $ | 96,497 |  |  | $ | 8 |  |  | $ | 105,973 |  |  | $ | 2,277 |
Convertible Preferred Stock | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 715 |
Noncontrolling interests | $ | 11,778 |  |  | $ | (3) |  |  | $ | 11,356 |  |  | $ | (3) |
(1) Reflects a one-quarter lag. Other Investments reflect summarized financial data of Cronos, as well as JUUL’s financial data for the periods during which we accounted for our investment in JUUL as an equity method investment under the fair value option. Investment in ABI At December 31, 2022, we had an approximate 10.0% 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. As of this filing, 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. At December 31, 2021, the fair value of our equity investment in ABI was $11.9 billion (carrying value of $11.1 billion), which exceeded its carrying value by $0.8 billion or approximately 7%. In the second quarter of 2022, the fair value declined below its carrying value and at June 30, 2022, the fair value was below its carrying value by $1.1 billion or approximately 9%. We concluded that the decline in fair value below its carrying value was temporary and, therefore, we did not record an impairment charge at that time. At September 30, 2022, the fair value of our equity investment in ABI of $9.0 billion was below its carrying value by $2.5 billion or approximately 22%. We concluded that the decline in fair value at September 30, 2022 was other than temporary as we anticipated that the full recovery to the carrying value would take longer than previously expected. In reaching this conclusion, we evaluated the factors related to the fair value decline, including the macroeconomic and geopolitical factors that have significantly impacted certain foreign exchange rates and global equity markets. As a result of our conclusion, we recorded a non-cash, pre-tax impairment charge of $2.5 billion during the third quarter of 2022, which was recorded to (income) losses from investments in equity securities in our consolidated statements of earnings. This impairment charge reflected the difference between the fair value of our equity investment in ABI using ABI’s share price and the Euro to U.S dollar exchange rate at September 30, 2022 and the carrying value of our equity investment in ABI at September 30, 2022. After recording the impairment charge, each of the fair value and carrying value at September 30, 2022 was $9.0 billion. At December 31, 2022, the fair value of our equity investment in ABI was $11.9 billion (carrying value of $9.0 billion), which exceeded its carrying value by approximately 33%. At September 30, 2021, the fair value of our equity investment in ABI of $11.2 billion declined below its carrying value by $6.2 billion or approximately 35%. We concluded that the decline in fair value at September 30, 2021 was other than temporary. As a result of our conclusion, we recorded a non-cash, pre-tax impairment charge of $6.2 billion during the third quarter of 2021, which was recorded to (income) losses from investments in equity securities in our consolidated statements of earnings. After recording the impairment charge, each of the fair value and carrying value at September 30, 2021 was $11.2 billion. At December 31, 2022, the carrying value of our equity investment in ABI exceeded its share of ABI’s net assets attributable to equity holders of ABI by approximately $2.5 billion. Substantially all of this difference is comprised of goodwill and other indefinite-lived intangible assets (consisting primarily of trademarks). Investment in JUUL In December 2018, we made an investment in JUUL for $12.8 billion and received a 35% economic interest in JUUL through non-voting shares, which we converted at our election into voting shares in November 2020 (“Share Conversion”), and a security convertible into additional non-voting or voting shares, as applicable, upon settlement or exercise of certain JUUL convertible securities (the “JUUL Transaction”). At December 31, 2022, we had a 35% economic ownership interest in JUUL, consisting of 42 million voting shares. We are subject to a standstill restriction under which we may not acquire additional JUUL shares above our 35% interest and may not sell or transfer any of our JUUL shares until December 20, 2024. Furthermore, at the time of the investment, we agreed to non-competition obligations generally requiring that we participate in the e-vapor business only through JUUL. In January 2020, we amended certain JUUL Transaction agreements and entered into a new cooperation agreement. One of the provisions in the amendments was the option to be released from our non-compete obligation under certain circumstances, including if the carrying value of our investment in JUUL was not more than 10% of its initial carrying value of $12.8 billion. At June 30, 2022, the carrying value of our investment in JUUL was $450 million, which was less than 10% of our initial carrying value of $12.8 billion. As a result, in September 2022, we exercised our option to be released from our JUUL non-competition obligations, resulting in (i) the permanent termination of our non-competition obligations to JUUL, (ii) the loss of our JUUL board designation rights (other than the right to designate one independent director so long as our ownership continues to be at least 10%), our preemptive rights, our consent rights and certain other rights with respect to our investment in JUUL and (iii) the conversion of our JUUL shares to single vote common stock, significantly reducing our voting power. We do not currently intend to exercise our remaining governance rights or to vote our JUUL shares other than as a passive investor. Additionally, as part of the amendment to certain JUUL Transaction agreements in January 2020, we agreed not to pursue any claims against JUUL for indemnification or reimbursement except for any non-contractual claims for contribution or indemnity where a judgment has been entered against us and JUUL with respect to certain litigation in which we and JUUL are both defendants against third-party plaintiffs. In April 2020, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint challenging our investment in JUUL. In February 2022, the administrative law judge dismissed the FTC’s complaint. FTC complaint counsel appealed that decision to the FTC, which appeal remains pending. For further discussion, see Note 17. Contingencies - Antitrust Litigation. In June 2022, the U.S. Food and Drug Administration (“FDA”) issued marketing denial orders (“MDOs”) to JUUL ordering all of JUUL’s products currently marketed in the United States off the market. In July 2022, the FDA administratively stayed the MDOs on a temporary basis, citing its determination that there are scientific issues unique to the JUUL PMTAs that warrant additional review. This administrative stay temporarily suspends the MDOs and JUUL’s products remain on the market. Following Share Conversion in the fourth quarter of 2020, we elected to account for our equity method investment in JUUL under the fair value option. In making this election, we believed measuring our investment at fair value provided quarterly transparency to investors as to the fair market value of our investment in JUUL, given the changes and volatility in the e-vapor category since our initial investment, as well as the lack of publicly available information regarding JUUL’s business or a market-derived valuation. As a result of our loss of certain rights due to our exercise of our option to be released from our JUUL non-competition obligations in the third quarter of 2022, we determined that we no longer have the ability to exercise significant influence over the operating and financial policies of JUUL. Therefore, we are no longer able to account for our investment in JUUL as an equity method investment. Beginning with the period ended September 30, 2022, we account for our investment in JUUL as an investment in an equity security. We will continue to measure our investment in JUUL at fair value, in accordance with GAAP. Our consolidated statements of earnings include any cash dividends received from our investment in JUUL (none received to date) and any changes in the estimated fair value of our investment, which is calculated quarterly. The following table provides a reconciliation of the beginning and ending balance of our investment in JUUL, which is classified in Level 3 of the fair value hierarchy:
(in millions) |  | Investment Balance
Balance at December 31, 2020 |  | $ | 1,705 |
Unrealized gains (losses) included in (income) losses from investments in equity securities |  | — |
Balance at December 31, 2021 |  | 1,705 |
Unrealized gains (losses) included in (income) losses from investments in equity securities |  | (1,455) |
Balance at December 31, 2022 |  | $ | 250 |
Prior to Share Conversion, we accounted for our investment in JUUL as an investment in an equity security. Since the JUUL shares do not have a readily determinable fair value, we elected to measure our investment in JUUL at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There were no upward or downward adjustments to the carrying value of our investment in JUUL resulting from observable price changes in orderly transactions since the JUUL Transaction through the date of Share Conversion. In addition, prior to Share Conversion, we reviewed our investment in JUUL for impairment by performing a qualitative assessment of impairment indicators on a quarterly basis in connection with the preparation of our financial statements. If this qualitative assessment indicated that our investment in JUUL may be impaired, a quantitative assessment was performed. If the quantitative assessment indicated the estimated fair value of the investment was less than its carrying value, the investment was written down to its estimated fair value. 2022 Financial Activity ▪For the year ended December 31, 2022, we recorded non-cash, pre-tax unrealized losses of $1,455 million as a result of changes in the estimated fair value of our investment in JUUL. The decrease in the estimated fair value was primarily driven by (i) a decrease in the likelihood of a favorable outcome from the FDA for JUUL’s products that are currently marketed in the United States, which have received MDOs and are now under additional administrative review, (ii) a decrease in the likelihood of JUUL maintaining adequate liquidity to fund projected cash needs, which could result in JUUL seeking protection under bankruptcy or other insolvency laws, (iii) projections of higher operating expenses resulting in lower long-term operating margins, (iv) projections of lower JUUL revenues in the United States over time due to lower JUUL volume assumptions and (v) an increase in the discount rate due to changes in market factors, partially offset by the effect of passage of time on the projected cash flows. 2021 Financial Activity ▪For the year ended December 31, 2021, we recorded no change in the estimated fair value of our investment in JUUL. During the year ended December 31, 2021, the estimated fair value was primarily impacted by our projections of lower JUUL revenues in the United States over time due to lower JUUL volume assumptions offset by (i) the effect of passage of time on the projected cash flows and (ii) a decrease in the discount rate due to changes in market factors. 2020 Financial Activity ▪We recorded a non-cash pre-tax unrealized gain of $100 million for the fourth quarter and year ended December 31, 2020 as a result of an increase in the estimated fair value of our investment in JUUL. ▪In September 2020, JUUL announced a strategic update, which included its plans for a significant global workforce reduction, its evaluation of its resource allocation and the possibility of exiting various international markets. As part of the preparation of our financial statements for the period ended September 30, 2020, we performed a qualitative assessment of impairment indicators for our investment in JUUL and determined that JUUL’s strategic update was an indicator of impairment at September 30, 2020, given the significant deterioration in JUUL’s business prospects. Given the existence of this impairment indicator, we performed a quantitative valuation of our investment in JUUL during the third quarter of 2020 and recorded a non-cash, pre-tax impairment charge of $2.6 billion for the year ended December 31, 2020, reported as impairment of JUUL equity securities in our consolidated statements of earnings. The impairment charge was driven by our projections of lower JUUL revenues over time due to lower pricing assumptions and delays in JUUL achieving previously forecasted operating margin performance. These drivers were the result of (i) JUUL’s revised international expansion plans and (ii) the evolving U.S. e-vapor category and associated competitive dynamics. We use an income approach to estimate the fair value of our investment in JUUL. The income approach reflects the discounting of future cash flows for the U.S. and international markets at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing future cash flows. In determining the estimated fair value of our investment in JUUL, in 2022, 2021 and 2020, we made certain judgments, estimates and assumptions, the most significant of which were likelihood of certain potential regulatory and liquidity outcomes, sales volume, operating margins, discount rates and perpetual growth rates. All significant inputs used in the valuation are classified in Level 3 of the fair value hierarchy. Additionally, in determining these significant assumptions, we made judgments regarding the (i) likelihood of certain potential regulatory actions impacting the e-vapor category and specifically whether the FDA will ultimately authorize JUUL’s products, which have received MDOs and are now under additional administrative review; (ii) likelihood of JUUL maintaining adequate liquidity to fund projected cash needs, the absence of which could result in JUUL seeking protection under bankruptcy or other insolvency laws; (iii) risk created by the number and types of legal cases pending against JUUL; (iv) expectations for the future state of the e-vapor category, including competitive dynamics; and (v) timing of international expansion plans. Due to these uncertainties, our future cash flow projections of JUUL are based on a range of scenarios that consider certain potential regulatory, liquidity and market outcomes. Investment in Cronos At December 31, 2022, 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. Our ownership percentage decreased from 41.8% at December 31, 2021 due to the issuance of additional shares by Cronos. 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, 2021, each of the fair value and carrying value of our equity method investment in Cronos was $617 million. In the second quarter of 2022, the fair value of our equity method investment in Cronos declined below its carrying value and had not recovered as of June 30, 2022. At June 30, 2022, the fair value was less than its carrying value by approximately 20%. We concluded that the decline in fair value was other than temporary. As a result, we recorded a non-cash, pre-tax impairment charge of $107 million in the second quarter of 2022, which was recorded to (income) losses from investments in equity securities in our consolidated statements of earnings. The impairment charge reflects the difference between the fair value of our equity method investment in Cronos using Cronos’s share price and the Canadian dollar (“CAD”) to U.S. dollar exchange rate at June 30, 2022 and the carrying value of our equity method investment in Cronos at June 30, 2022. After recording the impairment charge, each of the fair value and carrying value at June 30, 2022 was $437 million. 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 December 31, 2021, the fair value of our equity method investment in Cronos was less than its carrying value by approximately 25%. We concluded that the decline in fair value at December 31, 2021 was other than temporary. As a result, we recorded a non-cash, pre-tax impairment charge of $205 million for the year ended December 31, 2021, which was recorded to (income) losses from investments in equity securities in our consolidated statement of earnings. After recording the impairment charge, each of the fair value and carrying value at December 31, 2021 was $617 million. As part of our Investment in Cronos, at December 31, 2022, 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 CAD $16.25 upon the occurrence of specified events (“Fixed-price Preemptive Rights”). Based on our assumptions as of December 31, 2022, we estimate the Fixed-price Preemptive Rights allows us to purchase up to an additional approximately 7 million common shares of Cronos. Prior to December 15, 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. On December 15, 2022, we irrevocably abandoned the Cronos warrant, and we no longer owned the warrant as of December 31, 2022. The Fixed-price Preemptive Rights are derivative financial instruments, which are required to be recorded at fair value and are classified in Level 3 of the fair value hierarchy. Prior to irrevocably abandoning the Cronos warrant on December 15, 2022, the Cronos warrant was also a derivative financial instrument recorded at fair value. We record in our consolidated statements of earnings any changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant as gains or losses on Cronos-related financial instruments in the periods in which the changes occur. We recorded non-cash, pre-tax unrealized losses, representing these changes, as follows:
| For the Years Ended December 31,
(in millions) | 2022 |  | 2021 |  | 2020
Fixed-price Preemptive Rights | $ | 1 |  |  | $ | 23 |  |  | $ | 45 |
Cronos warrant | 14 |  |  | 125 |  |  | 95 |
Total | $ | 15 |  |  | $ | 148 |  |  | $ | 140 |

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