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Investments in Equity Securities | 6 Months Ended
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Jun. 30, 2024
Investments [Abstract] |
Investments in Equity Securities | Investments in Equity Securities The carrying amount of our investments consisted of the following:
(in millions) |  | June 30, 2024 |  | December 31, 2023
ABI |  | $ | 8,020 |  |  | $ | 9,676 |
Cronos |  | 315 |  |  | 335 |
Total |  | $ | 8,335 |  |  | $ | 10,011 |
(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) | 2024 | 2023 | 2024 | 2023
ABI (1) | $ | (434) |  | (2) | $ | (340) |  |  | $ | (121) |  |  | $ | (135) |  |
Cronos (1) | 20 |  |  | 43 |  |  | 2 |  |  | 8 |  |
(Income) losses from investments under equity method of accounting | (414) |  |  | (297) |  |  | (119) |  |  | (127) |  |
JUUL | — |  |  | 250 |  | (3) | — |  |  | — |  |
(Income) losses from investments in equity securities | $ | (414) |  |  | $ | (47) |  |  | $ | (119) |  |  | $ | (127) |  |
(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) Includes $165 million of the total pre-tax gain on the ABI Transaction discussed below. (3) Represents loss as a result of the disposition of our JUUL equity securities discussed below. Investment in ABI Prior to March 14, 2024, we had an approximate 10% ownership interest in ABI, consisting of approximately 185 million restricted shares of ABI (“Restricted Shares”) and approximately 12 million ordinary shares of ABI. Our 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. On March 14, 2024, we converted 60 million shares of our Restricted Shares to ordinary shares of ABI. In March 2024, we completed the ABI Transaction, which consisted of the following: ▪We sold 35 million ordinary shares of ABI in a global secondary offering for gross proceeds of approximately $2.2 billion (“Secondary Offering”). In connection with the Secondary Offering, we (i) agreed to a 180-day lockup with the lead underwriter with respect to our remaining approximately 159 million ABI shares (ending September 10, 2024) and (ii) granted the underwriters an option to purchase up to an additional 5.25 million ordinary shares of ABI, which the underwriters did not exercise prior to its expiration. ▪We sold $200 million of our ABI ordinary shares (approximately 3.3 million ordinary shares) to ABI in a private transaction. At June 30, 2024, we had an approximate 8.1% ownership interest in ABI, consisting of approximately 125 million Restricted Shares and approximately 34 million ordinary shares of ABI. As a result of the ABI Transaction, in the first quarter of 2024, we received pre-tax cash proceeds totaling approximately $2.4 billion and incurred transaction costs of approximately $62 million. In conjunction with the ABI Transaction, we entered into the ASR Agreements. For further discussion of the ASR Agreements, see Note 1. Background and Basis of Presentation. As a result of the ABI Transaction, we recorded the following pre-tax amounts in our condensed consolidated statement of earnings:
(in millions) | For the Six Months Ended June 30, 2024 |  |
Gain on partial sale of our investment | $ | 165 |  |  |  |  |  |  |
Transaction costs | (62) |  |  |  |  |  |  |
Total pre-tax gain on ABI Transaction | $ | 103 |  |  |  |  |  |  |
▪The pre-tax gain on the partial sale of our investment was recorded in (income) losses from investments in equity securities and includes a $408 million gain representing the excess of the selling price of the ABI shares sold over the carrying value of those shares, partially offset by a $243 million reclassification of the proportionate share of our pre-tax accumulated other comprehensive losses directly attributable to ABI and our designated net investment hedges related to our investment in ABI (see Note 7. Financial Instruments and Note 10. Other Comprehensive Earnings/Losses). ▪The pre-tax transaction costs were approximately $62 million ($59 million in marketing, administration and research costs and $3 million in interest and other debt expense, net), substantially all of which were underwriter fees. In addition, in conjunction with the ABI Transaction, we recorded an income tax benefit from the partial release of a valuation allowance of approximately $94 million in provision for income taxes in our condensed consolidated statement of earnings for the six months ended June 30, 2024. For further discussion, see Note 13. Income Taxes. We expect to maintain two seats on ABI’s board of directors through ABI’s 2025 annual general meeting. Following that meeting, as a result of our reduced ownership interest in ABI following the ABI Transaction, we expect to have one seat on ABI’s board of directors, in accordance with our rights as a holder of Restricted Shares. We will continue to account for our investment in ABI under the equity method of accounting because we have active representation on ABI’s board of directors and certain ABI board committees. Through this representation, we have the ability to exercise significant influence over the operating and financial policies of ABI and 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 investment in ABI was 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 after the expiration of the 180-day lockup period. The fair value of each Restricted Share is based on the value of an ordinary share. The fair value of our investment in ABI at June 30, 2024 and December 31, 2023 was $9.2 billion and $12.7 billion, respectively, which exceeded its carrying value of $8.0 billion and $9.7 billion, respectively, by approximately 15% and 32%, respectively. At June 30, 2024, the carrying value of our investment in ABI exceeded its share of ABI’s net assets attributable to equity holders of ABI by approximately $1.9 billion. Substantially all of this difference is comprised of goodwill and other indefinite-lived intangible assets (consisting primarily of trademarks). This difference represents a $0.6 billion reduction from December 31, 2023, primarily due to the ABI Transaction. Investment in Cronos At June 30, 2024, we had a 41.0% ownership interest in Cronos, consisting of approximately 157 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 investment in Cronos was 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 June 30, 2024, the fair value of our investment in Cronos exceeded its carrying value by approximately $50 million or approximately 16%. At December 31, 2023, the fair value of our investment in Cronos was less than its carrying value by $8 million or approximately 2%. Former Investment in JUUL Labs, Inc. (“JUUL”) In March 2023, we entered into a stock transfer agreement with JUUL under which we transferred to JUUL all of our beneficially owned JUUL equity securities and, in exchange, received a non-exclusive, irrevocable global license to certain of JUUL’s heated tobacco intellectual property. In addition, all other agreements between us and JUUL 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 the stock transfer agreement, for the six months ended June 30, 2023, we recorded a non-cash, pre-tax loss of $250 million on the disposition of our JUUL equity securities in (income) losses from investments in equity securities in our condensed consolidated statement of earnings.

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