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Acquisition of NJOY | 6 Months Ended
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Jun. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Acquisition of NJOY | Acquisition of NJOY On June 1, 2023, we acquired NJOY Holdings (“NJOY Transaction”), which provided us with full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE. The total consideration for the NJOY Transaction of approximately $2.9 billion consisted of approximately $2.75 billion in cash payments (net of cash acquired) plus the fair value of up to $500 million in additional cash payments contingent on receipt of U.S. Food and Drug Administration (“FDA”) authorizations with respect to NJOY’s menthol ($250 million), blueberry ($125 million) and watermelon ($125 million) pod products. The fair value of these contingent payments at March 31, 2024, December 31, 2023 and on the acquisition date was approximately $130 million, which was included in the total consideration. On June 21, 2024, the FDA issued marketing granted orders for four NJOY menthol e-vapor products. As a result, we became obligated to make cash payments totaling $250 million under the acquisition agreement, which payments occurred in July 2024. Additionally, we recorded a pre-tax charge of approximately $140 million for the change in the fair value of contingent payments for the six and three months ended June 30, 2024, as an acquisition-related cost in marketing, administration and research costs in our condensed consolidated statement of earnings. At June 30, 2024, the fair value of total contingent payments was approximately $270 million after recording the fair value adjustment. Contingent payments related to the NJOY Transaction were recognized at their estimated fair value as of the acquisition date. Subsequent changes to the fair value of the liability resulting from contingent payments are recognized in earnings until the contingency is resolved. In determining the estimated fair value of contingent payments, we made certain judgments, estimates and assumptions, the most significant of which was the likelihood of certain potential regulatory outcomes. Contingent payments are classified in Level 3 of the fair value hierarchy. Costs incurred for the NJOY Transaction are recognized as expenses in the period in which the costs are incurred. For the six and three months ended June 30, 2023, we incurred $49 million and $41 million, respectively, for acquisition-related costs, consisting primarily of transaction costs and financing fees, which were included in marketing, administration and research costs and interest and other debt expense, net, respectively, in our condensed consolidated statements of earnings. We funded the initial NJOY Transaction cash payments at closing through a combination of borrowings under a $2.0 billion term loan facility, the issuance of commercial paper and available cash. For further discussion regarding the term loan facility, see Note 12. Debt. We accounted for this acquisition as a business combination. On June 1, 2024, we finalized our purchase price allocation for the NJOY Transaction. The amounts in the table below represent the final purchase price allocation to assets acquired and liabilities assumed in the NJOY Transaction, including measurement period adjustments made during the three months ended March 31, 2024. We recorded no measurement period adjustments in 2023 or during the three months ended June 30, 2024.
(in millions) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Final Purchase Price Allocation
Cash and cash equivalents | $ | 22 |  | $ | — |  | $ | 22 |
Receivables | 7 |  | — |  | 7 |
Inventories | 19 |  | — |  | 19 |
Other assets | 7 |  | — |  | 7 |
Property, plant and equipment | 16 |  | — |  | 16 |
Other intangible assets: |  |  |
Developed technology (amortizable) | 1,000 |  | — |  | 1,000 |
Trademarks (amortizable) | 230 |  | (40) |  | 190 |
Supplier agreements (amortizable) | 180 |  | (180) |  | — |
Accounts payable | (7) |  | — |  | (7) |
Accrued liabilities | (20) |  | — |  | (20) |
Deferred income taxes | (167) |  | 66 |  | (101) |
Total identifiable net assets | 1,287 |  | (154) |  | 1,133 |
Total consideration | 2,901 |  | — |  | 2,901 |
Goodwill | $ | 1,614 |  | $ | 154 |  | $ | 1,768 |
The excess of the total consideration over the identifiable net assets acquired in the NJOY Transaction primarily reflects the value of future growth opportunities in the e-vapor category. None of the goodwill or other intangible assets is deductible for tax purposes. The significant assumptions used in determining the fair values of the identifiable intangible assets included volume growth rates, operating margins, the assessment of acquired technology life cycles, discount rates, as well as other factors. We determined the fair values of the identifiable intangible assets using an income approach. The fair value measurements were primarily based on significant inputs that are not observable in the market, such as discounted cash flow analyses, and thus are classified in Level 3 of the fair value hierarchy. We amortize these intangible assets over a weighted-average period of approximately 18 years.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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