Altria 10Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-08940

Altria Group, Inc.

(Exact name of registrant as specified in its charter)

Virginia

13-3260245

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer
Identification No.)

6601 West Broad Street,

Richmond,

Virginia

23230

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (804) 274-2200

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, $0.33 1/3 par value	MO	New York Stock Exchange
1.000% Notes due 2023	MO23A	New York Stock Exchange
1.700% Notes due 2025	MO25	New York Stock Exchange
2.200% Notes due 2027	MO27	New York Stock Exchange
3.125% Notes due 2031	MO31	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

At October 21, 2021, there were 1,836,988,822 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.

Table of Contents

ALTRIA GROUP, INC.

TABLE OF CONTENTS



		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Earnings (Losses) for the Nine and Three Months Ended September 30, 2021 and 2020	5

	Condensed Consolidated Statements of Comprehensive Earnings (Losses) for the Nine and Three Months Ended September 30, 2021 and 2020	6

	Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the Nine Months Ended September 30, 2021 and 2020	7

	Three Months Ended September 30, 2021 and 2020	8

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	9

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76

Item 4.	Controls and Procedures	77

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	77

Item 1A.	Risk Factors	77

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78





Item 6.	Exhibits	79

Signature	Signature	80

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)

______________________________


	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	2,957	$	4,945
Receivables	36		137
Inventories:
Leaf tobacco	644		844
Other raw materials	159		200
Work in process	30		502
Finished product	300		420
	1,133		1,966


Assets held for sale	1,490		—
Other current assets	404		69
Total current assets	6,020		7,117
Property, plant and equipment, at cost	4,418		5,150
Less accumulated depreciation	2,900		3,138
	1,518		2,012
Goodwill	5,177		5,177
Other intangible assets, net	12,326		12,615
Investments in equity securities ($1,740 million and $1,868 million at September 30, 2021 and December 31, 2020, respectively, measured at fair value)	13,874		19,529

Other assets	649		964
Total Assets	$	39,564	$	47,414

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share and per share data)

(Unaudited)

________________________________________________


	September 30, 2021		December 31, 2020
Liabilities

Current portion of long-term debt	$	1,105	$	1,500
Accounts payable	266		380
Accrued liabilities:
Marketing	680		523


Settlement charges	2,996		3,564
Other	1,109		1,494

Dividends payable	1,661		1,602
Liabilities held for sale	295		—
Total current liabilities	8,112		9,063
Long-term debt	27,022		27,971
Deferred income taxes	3,557		4,532
Accrued pension costs	280		551
Accrued postretirement health care costs	1,512		1,951
Other liabilities	307		381
Total liabilities	40,790		44,449
Contingencies (Note 12)	0		0
Redeemable noncontrolling interest	39		40
Stockholders’ (Deficit) Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935		935
Additional paid-in capital	5,846		5,910
Earnings reinvested in the business	30,685		34,679
Accumulated other comprehensive losses	(3,430)		(4,341)
Cost of repurchased stock (967,321,022 shares at September 30, 2021 and 947,542,152 shares at December 31, 2020)	(35,303)		(34,344)
Total stockholders’ (deficit) equity attributable to Altria	(1,267)		2,839
Noncontrolling interests	2		86
Total stockholders’ (deficit) equity	(1,265)		2,925
Total Liabilities and Stockholders’ (Deficit) Equity	$	39,564	$	47,414

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Losses)

(in millions of dollars, except per share data)

(Unaudited)

_____________________________________


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2021		2020		2021		2020
Net revenues	$	19,758	$	19,849	$	6,786	$	7,123
Cost of sales	5,348		5,909		1,858		1,961
Excise taxes on products	3,733		4,063		1,255		1,445
Gross profit	10,677		9,877		3,673		3,717
Marketing, administration and research costs	1,850		1,585		722		557

Operating income	8,827		8,292		2,951		3,160
Interest and other debt expense, net	869		893		266		310
Loss on early extinguishment of debt	649		—		—		—
Net periodic benefit income, excluding service cost	(152)		(58)		(63)		(3)
(Income) losses from equity investments	5,789		306		5,915		472
Impairment of JUUL equity securities	—		2,600		—		2,600
(Gain) loss on Cronos-related financial instruments	128		202		135		105

Earnings (losses) before income taxes	1,544		4,349		(3,302)		(324)
Provision (benefit) for income taxes	693		1,817		(582)		632
Net earnings (losses)	851		2,532		(2,720)		(956)
Net (earnings) losses attributable to noncontrolling interests	—		11		(2)		4
Net earnings (losses) attributable to Altria	$	851	$	2,543	$	(2,722)	$	(952)
Per share data:
Basic earnings (losses) per share attributable to Altria	$	0.46	$	1.37	$	(1.48)	$	(0.51)
Diluted earnings (losses) per share attributable to Altria	$	0.46	$	1.36	$	(1.48)	$	(0.51)

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings (Losses)

(in millions of dollars)

(Unaudited)

_____________________


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2021		2020		2021		2020
Net earnings (losses)	$	851	$	2,532	$	(2,720)	$	(956)
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans	383		27		6		(15)
ABI	495		(928)		161		(15)
Currency translation adjustments and other	33		(16)		5		23
Other comprehensive earnings (losses), net of deferred income taxes	911		(917)		172		(7)

Comprehensive earnings (losses)	1,762		1,615		(2,548)		(963)
Comprehensive (earnings) losses attributable to noncontrolling interests	—		11		(2)		4
Comprehensive earnings (losses) attributable to Altria	$	1,762	$	1,626	$	(2,550)	$	(959)

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

for the Nine Months Ended September 30, 2021 and 2020

(in millions of dollars, except per share data)

(Unaudited)

_______________________________________


	Attributable to Altria
	Common Stock		Additional Paid-in Capital		Earnings Reinvested in the Business		Accumulated Other Comprehensive Losses		Cost of Repurchased Stock		Non- controlling Interests		Total Stockholders’ (Deficit) Equity
Balances, December 31, 2020	$	935	$	5,910	$	34,679	$	(4,341)	$	(34,344)	$	86	$	2,925
Net earnings (losses) (1)	—		—		851		—		—		(4)		847
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		911		—		—		911
Stock award activity	—		13		—		—		13		—		26
Cash dividends declared ($2.62 per share)	—		—		(4,845)		—		—		—		(4,845)
Repurchases of common stock	—		—		—		—		(972)		—		(972)
Other (2)	—		(77)		—		—		—		(80)		(157)

Balances, September 30, 2021	$	935	$	5,846	$	30,685	$	(3,430)	$	(35,303)	$	2	$	(1,265)


	Attributable to Altria
	Common Stock		Additional Paid-in Capital		Earnings Reinvested in the Business		Accumulated Other Comprehensive Losses		Cost of Repurchased Stock		Non- controlling Interests		Total Stockholders’ (Deficit) Equity
Balances, December 31, 2019	$	935	$	5,970	$	36,539	$	(2,864)	$	(34,358)	$	97	$	6,319
Net earnings (losses) (1)	—		—		2,543		—		—		(13)		2,530
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		(917)		—		—		(917)
Stock award activity	—		3		—		—		14		—		17
Cash dividends declared ($2.54 per share)	—		—		(4,726)		—		—		—		(4,726)


Other	—		—		—		—		—		9		9
Balances, September 30, 2020	$	935	$	5,973	$	34,356	$	(3,781)	$	(34,344)	$	93	$	3,232

(1)Amounts attributable to noncontrolling interests for the nine months ended September 30, 2021 and 2020 exclude net earnings of $4 million and $2 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the condensed consolidated balance sheets.

(2) Represents the purchase of the remaining noncontrolling interests in Helix. For additional information, see Note 1. Background and Basis of Presentation.

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

for the Three Months Ended September 30, 2021 and 2020

(in millions of dollars, except per share data)

(Unaudited)

_______________________________________


	Attributable to Altria
	Common Stock		Additional Paid-in Capital		Earnings Reinvested in the Business		Accumulated Other Comprehensive Losses		Cost of Repurchased Stock		Non- controlling Interests		Total Stockholders’ (Deficit) Equity
Balances, June 30, 2021	$	935	$	5,840	$	35,065	$	(3,602)	$	(34,981)	$	2	$	3,259
Net earnings (losses) (1)	—		—		(2,722)		—		—		—		(2,722)
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		172		—		—		172
Stock award activity	—		6		—		—		—		—		6
Cash dividends declared $0.90 per share)	—		—		(1,658)		—		—		—		(1,658)
Repurchases of common stock	—		—		—		—		(322)		—		(322)

Balances, September 30, 2021	$	935	$	5,846	$	30,685	$	(3,430)	$	(35,303)	$	2	$	(1,265)


	Attributable to Altria
	Common Stock		Additional Paid-in Capital		Earnings Reinvested in the Business		Accumulated Other Comprehensive Losses		Cost of Repurchased Stock		Non- controlling Interests		Total Stockholders’ (Deficit) Equity
Balances, June 30, 2020	$	935	$	5,964	$	36,908	$	(3,774)	$	(34,345)	$	98	$	5,786
Net earnings (losses) (1)	—		—		(952)		—		—		(5)		(957)
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		(7)		—		—		(7)
Stock award activity	—		9		—		—		1		—		10
Cash dividends declared ($0.86 per share)	—		—		(1,600)		—		—		—		(1,600)


Balances, September 30, 2020	$	935	$	5,973	$	34,356	$	(3,781)	$	(34,344)	$	93	$	3,232

(1) Amounts attributable to noncontrolling interests for the three months ended September 30, 2021 and 2020 exclude net earnings of $2 million and $1 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)

_____________________


For the Nine Months Ended September 30,	2021		2020
Cash Provided by (Used in) Operating Activities
Net earnings (losses)	$	851	$	2,532
Adjustments to reconcile net earnings (losses) to operating cash flows:
Depreciation and amortization	190		192
Deferred income tax provision (benefit)	(1,180)		(111)
(Income) losses from equity investments	5,789		306
Dividends from ABI	119		108

(Gain) loss on Cronos-related financial instruments	128		202
Impairment of JUUL equity securities	—		2,600


Loss on early extinguishment of debt	649		—

Cash effects of changes:
Receivables	(7)		1
Inventories	118		136
Accounts payable	3		24
Income taxes	(200)		—
Accrued liabilities and other current assets	(104)		(504)
Accrued settlement charges	(568)		(140)
Pension plan contributions	(23)		(16)
Pension provisions and postretirement, net	(127)		(35)
Other, net (1)	104		549
Net cash provided by (used in) operating activities	5,742		5,844
Cash Provided by (Used in) Investing Activities
Capital expenditures	(102)		(162)



Other, net	60		55
Net cash provided by (used in) investing activities	$	(42)	$	(107)

(1) 2020 primarily reflects inventory-related amounts associated with the wine business strategic reset. For further discussion, see Note 9. Segment Reporting.

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)

_____________________


For the Nine Months Ended September 30,	2021		2020
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings	$	—	$	3,000
Repayment of short-term borrowings	—		(3,000)
Long-term debt issued	5,472		1,993
Long-term debt repaid	(6,542)		(1,000)
Repurchases of common stock	(972)		—
Dividends paid on common stock	(4,787)		(4,690)


Premiums and fees related to early extinguishment of debt	(623)		—
Other, net	(216)		(16)
Net cash provided by (used in) financing activities	(7,668)		(3,713)
Cash, cash equivalents and restricted cash:
Increase (decrease)	(1,968)		2,024
Balance at beginning of period	5,006		2,160
Balance at end of period	$	3,038	$	4,184

The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s condensed consolidated balance sheets:
	At September 30, 2021		At December 31, 2020
Cash and cash equivalents	$	2,957	$	4,945
Restricted cash included in other current assets (1)	—		1
Restricted cash included in other assets (1)	45		60
Cash included in assets held for sale (2)	36		—
Cash, cash equivalents and restricted cash	$	3,038	$	5,006

(1)Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals. See Note 12. Contingencies.

(2) Cash included in assets held for sale at September 30, 2021 is related to the Ste. Michelle Transaction. For further discussion, see Note 3. Assets Held for Sale.

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation

When used in these notes, the term “Altria,” refers to Altria Group, Inc. and its subsidiaries, unless the context requires otherwise.

▪Background: At September 30, 2021, Altria’s wholly owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco and is a wholly owned subsidiary of PM USA; UST LLC (“UST”), which through its wholly owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of moist smokeless tobacco products (“MST”), snus products and wine; Helix Innovations LLC (“Helix”), which operates in the United States and Canada, and Helix Innovations GmbH and its subsidiaries (“Helix ROW”), which operate internationally in the rest-of-world, are engaged in the manufacture and sale of on! oral nicotine pouches; and Philip Morris Capital Corporation (“PMCC”), which maintains a portfolio of finance assets, substantially all of which are leveraged leases.

On July 8, 2021, UST entered into a share purchase agreement pursuant to which it agreed to sell its subsidiary, International Wine & Spirits Ltd. (“IWS”), which includes Ste. Michelle. The sale was completed on October 1, 2021. At September 30, 2021, the assets and liabilities associated with the pending sale of IWS were classified as assets held for sale on Altria’s condensed consolidated balance sheet. For further discussion, see Note 3. Assets Held for Sale.

Altria owns 100% of the global on! business as a result of transactions in December 2020 and April 2021 to purchase the remaining 20% interest in (i) Helix ROW and (ii) Helix, respectively. The total purchase price of the December 2020 and April 2021 transactions was approximately $250 million.

Other Altria wholly owned subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria and its subsidiaries. Altria’s access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At September 30, 2021, Altria’s significant wholly owned subsidiaries were not limited by contractual obligations in their ability to pay cash dividends or make other distributions with respect to their equity interests.

At September 30, 2021, Altria’s investments in equity securities consisted of Anheuser-Busch InBev SA/NV (“ABI”), Cronos Group Inc. (“Cronos”) and JUUL Labs, Inc. (“JUUL”). Altria accounts for its investments in ABI and Cronos under the equity method of accounting using a one-quarter lag. Altria accounts for its equity investment in JUUL under the fair value option.

For further discussion of Altria’s investments in equity securities, see Note 4. Investments in Equity Securities.

▪Dividends and Share Repurchases: In August 2021, Altria’s Board of Directors (the “Board of Directors” or “Board”) approved a 4.7% increase in the quarterly dividend rate to $0.90 per share of Altria common stock versus the previous rate of $0.86 per share. The current annualized dividend rate is $3.60. Future dividend payments remain subject to the discretion of the Board.

In July 2019, the Board of Directors authorized a $1.0 billion share repurchase program. In April 2020, the Board rescinded the $500 million remaining in this program as part of Altria’s efforts to enhance its liquidity position in response to the COVID-19 pandemic. Altria did not repurchase any shares in 2020.

In January 2021, the Board authorized a new $2.0 billion share repurchase program, of which $1,028 million was remaining at September 30, 2021. In October 2021, the Board authorized a $1.5 billion expansion of this program to $3.5 billion. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board.

Altria’s share repurchase activity for the nine and three months ended September 30, 2021 was as follows:


(in millions, except per share data)	For the Nine Months Ended September 30, 2021		For the Three Months Ended September 30, 2021
Total number of shares repurchased	20.2		6.7
Aggregate cost of shares repurchased	$	972	$	322
Average price per share of shares repurchased	$	48.17	$	48.35

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▪Basis of Presentation: The interim condensed consolidated financial statements of Altria are unaudited. It is the opinion of Altria’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected in the interim condensed consolidated financial statements. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.

Certain immaterial prior year amounts have been reclassified to conform with the current year’s presentation.

These statements should be read in conjunction with Altria’s audited consolidated financial statements and related notes, which appear in Altria’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

On January 1, 2021, Altria adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). This guidance removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The adoption of ASU No. 2019-12 did not have a material impact on Altria’s condensed consolidated financial statements.

Additionally, on January 1, 2021, Altria adopted ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU No. 2020-01”). This guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The adoption of ASU No. 2020-01 did not have a material impact on Altria’s condensed consolidated financial statements.

For a description of issued accounting guidance applicable to, but not yet adopted by, Altria, see Note 13. New Accounting Guidance Not Yet Adopted.

Note 2. Revenues from Contracts with Customers

Altria disaggregates net revenues based on product type. For further discussion, see Note 9. Segment Reporting.

In 2020, a majority of Altria’s businesses offered cash discounts to customers for prompt payment and calculated cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms. Beginning in the first quarter of 2021 for USSTC and the third quarter of 2021 for PM USA, cash discounts were calculated as a flat rate per unit, based on agreed-upon payment terms. Altria’s businesses record receivables net of the cash discounts on Altria’s condensed consolidated balance sheets.

Altria’s businesses that receive payments in advance of product shipment record such payments as deferred revenue. These payments are included in other accrued liabilities on Altria’s condensed consolidated balance sheets until control of such products is obtained by the customer. Deferred revenue was $260 million and $301 million at September 30, 2021 and December 31, 2020, respectively. When cash is received in advance of product shipment, Altria’s businesses satisfy their performance obligations within three days of receiving payment. At September 30, 2021 and December 31, 2020, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.

Receivables were $144 million (including $108 million in assets held for sale) and $137 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, there were no expected differences between amounts recorded and subsequently received, and Altria’s businesses did not record an allowance for doubtful accounts against these receivables.

Altria’s businesses record an allowance for returned goods, which is included in other accrued liabilities on Altria’s condensed consolidated balance sheets. While all of Altria’s tobacco operating companies sell tobacco products with dates relative to freshness as printed on product packaging, it is USSTC’s policy to accept authorized sales returns from its customers for products that have passed such dates due to the limited shelf life of USSTC’s MST and snus products. Altria’s businesses record estimated sales returns, which are based principally on historical volume and return rates, as a reduction to revenues. Actual sales returns will differ from estimated sales returns to the extent actual results differ from estimated assumptions. Altria’s businesses reflect differences between actual and estimated sales returns in the period in which the actual amounts become known. These differences, if any, have not had a material impact on Altria’s condensed consolidated financial statements. All returned goods are destroyed upon return and not included in inventory. Consequently, Altria’s businesses do not record an asset for their right to recover goods from customers upon return.

Sales incentives include variable payments related to goods sold by Altria’s businesses. Altria’s businesses include estimates of variable consideration as a reduction to revenues upon shipment of goods to customers. The sales incentives that require significant estimates and judgments are as follows:

Price promotion payments- Altria’s businesses make price promotion payments, substantially all of which are made to their retail partners, to incent the promotion of certain product offerings in select geographic areas.

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Wholesale and retail participation payments- Altria’s businesses make payments to their wholesale and retail partners to incent merchandising and sharing of sales data in accordance with each business’s trade agreements.

These estimates primarily include estimated wholesale to retail sales volume and historical acceptance rates. Actual payments will differ from estimated payments to the extent actual results differ from estimated assumptions. Differences between actual and estimated payments are reflected in the period such information becomes available. These differences, if any, have not had a material impact on Altria’s condensed consolidated financial statements.

Note 3. Assets Held for Sale

On July 8, 2021, UST entered into a share purchase agreement pursuant to which it agreed to sell its subsidiary, IWS, which includes Ste. Michelle, to an entity controlled by investment funds managed by Sycamore Partners Management, L.P. in an all-cash transaction with a purchase price of approximately $1.2 billion and the assumption of certain liabilities of IWS and its subsidiaries (the “Ste. Michelle Transaction”).

At September 30, 2021, the assets and liabilities associated with the Ste. Michelle Transaction were classified as assets held for sale and were measured at their fair value less costs to sell, resulting in a pre-tax charge of $41 million. A reserve (as shown below), representing the adjustment to record the assets and liabilities at their fair value less costs to sell, was included as a component of assets held for sale in Altria’s condensed consolidated balance sheets at September 30, 2021. Altria recorded an additional pre-tax charge of $10 million for disposition-related costs related to the Ste. Michelle Transaction. The total pre-tax charges of $51 million were included in the wine segment and recorded in marketing, administration and research costs in Altria’s condensed consolidated statements of earnings (losses) for the nine and three months ended September 30, 2021.

On October 1, 2021, UST completed the sale of IWS and received approximately $1.2 billion in net cash proceeds. Altria expects to record additional adjustments related to the Ste. Michelle Transaction in the fourth quarter of 2021 and does not expect these adjustments to be material.

The major classes of assets and liabilities of IWS classified as held for sale at September 30, 2021 were as follows:


(in millions)	September 30, 2021
Assets held for sale
Cash and cash equivalents	$	36
Receivables	108
Inventories	715
Property, plant and equipment, net of accumulated depreciation	407
Other intangible assets, net	236
Other assets	29
Total assets	1,531
Reserve	(41)
Total assets held for sale	1,490

Liabilities held for sale
Accounts payable	114
Accrued liabilities	83
Accrued pension costs	49
Other liabilities	49
Total liabilities held for sale	295

Assets and liabilities held for sale, net	$	1,195

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Note 4. Investments in Equity Securities

The carrying amount of Altria’s investments consisted of the following:


(in millions)	September 30, 2021		December 31, 2020
ABI	$	11,237	$	16,651
JUUL	1,705		1,705
Cronos (1)	932		1,173
Total	$	13,874	$	19,529

(1) Atria’s investment in Cronos at September 30, 2021 consisted of Altria’s equity method investment in Cronos ($897 million), the Cronos warrant ($32 million) and the Fixed-price Preemptive Rights ($3 million), (collectively, “Investment in Cronos”). The Investment in Cronos at December 31, 2020 consisted of Altria’s equity method investment in Cronos ($1,010 million), the Cronos warrant ($139 million) and the Fixed-price Preemptive Rights ($24 million). See below for further discussion.

Income (losses) from equity investments accounted for under the equity method of accounting and fair value option consisted of the following:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
ABI (1)	$	(5,644)	$	(306)	$	(6,036)	$	(418)
Cronos	(145)		—		21		(54)
Income (losses) from investments under equity method of accounting	(5,789)		(306)		$	(6,015)	$	(472)
JUUL	—		—		100		—
Income (losses) from equity investments	$	(5,789)	$	(306)	$	(5,915)	$	(472)

(1) For the nine and three months ended September 30, 2021, Altria recorded a non-cash, pre-tax impairment charge of $6,157 million related to its equity investment in ABI. See below for further discussion.

Investment in ABI

At September 30, 2021, Altria 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 Altria 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.

The Restricted Shares were subject to a five-year lock-up period that ended October 10, 2021. As of this filing, Altria has not elected to convert its Restricted Shares into ordinary shares of ABI.

Altria accounts for its investment in ABI under the equity method of accounting because Altria has 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, Altria participates in ABI policy making processes.

Altria reports its share of ABI’s results using a one-quarter lag because ABI’s results are not available in time for Altria to record them in the concurrent period.

The fair value of Altria’s 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. Altria can convert its Restricted Shares to ordinary shares at its discretion. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.

In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and has not recovered. At December 31, 2020, the fair value of Altria’s equity investment in ABI was $13.8 billion (carrying value of $16.7 billion), which was less than its carrying value by approximately 17%. In preparing its financial statements for the period ended December 31, 2020, Altria evaluated the factors related to the fair value decline, including the impact on the fair value of ABI’s shares during the COVID-19 pandemic, which has negatively impacted ABI’s business. Altria evaluated the duration and magnitude of the fair value decline, ABI’s financial condition and near-term prospects and Altria’s intent and ability to hold its

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investment in ABI until recovery. Altria concluded that the decline in fair value of its investment in ABI at December 31, 2020 below its carrying value was temporary and, therefore, no impairment was recorded at that time.

Following the consideration of the same factors, Altria, in preparing its financial statements for the period ended September 30, 2021, concluded that the decline in fair value of its investment in ABI at September 30, 2021 was other than temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021, which was recorded to income (losses) from equity investments in its condensed consolidated statements of earnings (losses). This impairment charge reflects the difference between the fair value of Altria’s investment in ABI using ABI’s share price at September 30, 2021 and the carrying value of Altria’s equity investment in ABI at September 30, 2021. Altria continues to have confidence in ABI’s (i) long-term strategies, (ii) premium global brands, (iii) experienced management team and (iv) capability to successfully navigate its near-term challenges. Altria further expects that the impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business are transitory, but now also anticipates that the full recovery to carrying value will take longer than previously expected. This is evidenced by the resumption of declines in fair value during the third quarter of 2021, following positive share price momentum during the first half of 2021. At September 30, 2021, prior to recording the impairment charge, the fair value of Altria’s investment in ABI was below the carrying value by approximately 35%, which represents an additional 18% reduction in ABI’s share price since December 31, 2020. After recording the impairment charge, the fair value and carrying value of Altria’s equity investment in ABI at September 30, 2021 were $11.2 billion.

At September 30, 2021, the carrying value of Altria’s equity investment in ABI exceeded its share of ABI’s net assets attributable to equity holders of ABI by approximately $5.1 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, Altria made an investment in JUUL and received a 35% economic interest in JUUL through non-voting shares, which were convertible at Altria’s election into voting shares (“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”).

Altria received a broad preemptive right to purchase JUUL shares, exercisable each quarter upon dilution, to maintain its ownership percentage and is subject to a standstill restriction under which it may not acquire additional JUUL shares above its 35% interest. Furthermore, Altria agreed not to sell or transfer any of its JUUL shares until December 20, 2024.

On April 1, 2020, the U.S. Federal Trade Commission (“FTC”) issued an administrative complaint challenging Altria’s investment in JUUL. For further discussion, see Note 12. Contingencies - Antitrust Litigation.

In November 2020, Altria exercised its rights to convert its non-voting JUUL shares into voting shares. Altria does not currently intend to exercise its additional governance rights obtained upon Share Conversion, including the right to elect directors to JUUL’s board or to vote its JUUL shares other than as a passive investor, pending the outcome of the FTC administrative complaint. At September 30, 2021, Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.

Following Share Conversion in the fourth quarter of 2020, Altria elected to account for its equity method investment in JUUL under the fair value option. Under this option, Altria’s condensed consolidated statements of earnings (losses) include any cash dividends received from its investment in JUUL and any changes in the estimated fair value of its investment, which is calculated quarterly. Altria believes the fair value option provides quarterly transparency to investors as to the fair market value of Altria’s investment in JUUL, given the changes and volatility in the e-vapor category since Altria’s initial investment, as well as the lack of publicly available information regarding JUUL’s business or a market-derived valuation.

The following table provides a reconciliation of the beginning and ending balance of Altria’s investment in JUUL, which is classified in Level 3 of the fair value hierarchy:


	Investment
(in millions)	Balance
Balance at December 31, 2020	$	1,705
Unrealized gains (losses) included in income (losses) from equity investments	—
Balance at September 30, 2021	$	1,705

For the three months ended September 30, 2021, Altria recorded a non-cash, pre-tax unrealized gain of $100 million, as a result of changes in the estimated fair value of its investment in JUUL. At September 30, 2021, the estimated fair value of Altria’s JUUL investment was $1.7 billion, unchanged from its December 31, 2020 estimated fair value. There were no material

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changes to the significant assumptions used in the valuations, as described below, during the nine and three months ended September 30, 2021.

Prior to Share Conversion, Altria accounted for its investment in JUUL as an investment in an equity security. Since the JUUL shares do not have a readily determinable fair value, Altria elected to measure its 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 Altria’s 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, Altria reviewed its investment in JUUL for impairment by performing a qualitative assessment of impairment indicators on a quarterly basis in connection with the preparation of its financial statements. If this qualitative assessment indicated that Altria’s 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 fair value.

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 Altria’s financial statements for the period ended September 30, 2020, Altria performed a qualitative assessment of impairment indicators for its 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, Altria performed a quantitative valuation of its investment in JUUL during the third quarter of 2020 and recorded a non-cash, pre-tax charge of $2.6 billion for the nine and three months ended September 30, 2020, reported as impairment of JUUL equity securities in its condensed consolidated statements of earnings (losses). The impairment charge was driven by Altria’s 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.

Altria uses an income approach to estimate the fair value of its 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. Future cash flows were based on a range of scenarios that consider various potential regulatory and market outcomes.

In determining the estimated fair value of its investment in JUUL, as of September 30, 2021 and December 31, 2020, Altria made various judgments, estimates and assumptions, the most significant of which were 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, Altria made judgments regarding the (i) likelihood and extent of various potential regulatory actions and the continued adverse public perception impacting the e-vapor category and specifically JUUL, (ii) risk created by the number and types of legal cases pending against JUUL and (iii) expectations for the future state of the e-vapor category, including competitive dynamics.

Investment in Cronos

At September 30, 2021, Altria had a 41.9% ownership interest in Cronos, consisting of 156.6 million shares, which Altria accounts for under the equity method of accounting. Altria’s ownership percentage decreased from 43.5% at December 31, 2020 due to the issuance of additional shares by Cronos. Altria reports its share of Cronos’s results using a one-quarter lag because Cronos’s results are not available in time for Altria to record them in the concurrent period.

As part of its Investment in Cronos, at September 30, 2021, Altria owned:

▪anti-dilution protections to purchase Cronos common shares, exercisable each quarter upon dilution, to maintain its ownership percentage. Certain of the anti-dilution protections provide Altria 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”). Based on Altria’s assumptions as of September 30, 2021, Altria estimates the Fixed-price Preemptive Rights allows Altria to purchase up to an additional approximately 14 million common shares of Cronos; and

▪a warrant providing Altria the ability to purchase an additional approximate 10% of common shares of Cronos (approximately 83 million common shares at September 30, 2021) at a per share exercise price of CAD $19.00, which expires on March 8, 2023.

If exercised in full, the exercise prices for the warrant and Fixed-price Preemptive Rights are approximately CAD $1.6 billion and CAD $0.2 billion, respectively (approximately USD $1.3 billion and $0.2 billion, respectively, based on the CAD to USD exchange rate on October 25, 2021). At September 30, 2021, upon full exercise of the Fixed-price Preemptive Rights, to the

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extent such rights become available, and the warrant, Altria would own approximately 53% of the outstanding common shares of Cronos.

For a discussion of derivatives related to the Investment in Cronos, including Altria’s accounting for changes in the fair value of these derivatives, see Note 5. Financial Instruments.

The fair value of Altria’s 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. In September 2021, the fair value of Altria’s equity method investment in Cronos declined below its carrying value. At September 30, 2021, the fair value of Altria’s equity method investment in Cronos was less than its carrying value by $14 million or approximately 2%. The fair value of Altria’s equity method investment in Cronos exceeded its carrying value by $77 million or approximately 8% at December 31, 2020. Based on Altria’s evaluation of the duration and magnitude of the fair value decline at September 30, 2021, Altria concluded that the decline in fair value of its equity method investment in Cronos below its carrying value is temporary and, therefore, no impairment was recorded.

Note 5. Financial Instruments

Altria enters into derivative financial instruments to mitigate the potential impact of certain market risks, including foreign currency exchange rate risk. Altria uses various types of derivative financial instruments, including forward contracts, options and swaps. Altria does not enter into or hold derivative financial instruments for trading or speculative purposes.

Altria’s investment in ABI, whose functional currency is the Euro, exposes Altria to foreign currency exchange risk on the carrying value of its investment. To manage this risk, Altria designates certain foreign exchange contracts, including cross-currency swap contracts and forward contracts (collectively, “foreign currency contracts”), and Euro denominated unsecured long-term notes (“foreign currency denominated debt”) as net investment hedges of Altria’s investment in ABI.

In May 2021, all outstanding foreign currency contracts matured. When Altria has foreign currency contracts in effect, counterparties are domestic and international financial institutions. Under these contracts, Altria is exposed to potential losses due to non-performance by these counterparties. Altria manages its credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure Altria has with each counterparty and monitoring the financial condition of each counterparty. The counterparty agreements contain provisions that require Altria to maintain an investment grade credit rating. In the event Altria’s credit rating falls below investment grade, counterparties to Altria’s foreign currency contracts can require Altria to post collateral. No collateral was received or posted related to derivative assets and liabilities at December 31, 2020.

The following table provides (i) the aggregate notional amounts of foreign currency contracts and (ii) the aggregate carrying value and fair value of foreign currency denominated debt:


(in millions)	September 30, 2021		December 31, 2020
Foreign currency contracts (notional amounts)	$	—	$	1,066
Foreign currency denominated debt
Carrying value	4,905		5,171
Fair value	5,288		5,687

Altria’s estimates of the fair values of its foreign currency contracts are determined using valuation models with significant inputs that are readily available in public markets, or can be derived from observable market transactions, and therefore are classified in Level 2 of the fair value hierarchy. An adjustment for credit risk and non-performance risk is included in the fair values of foreign currency contracts.

The following table provides the aggregate carrying value and fair value of Altria’s total long-term debt:


(in millions)	September 30, 2021		December 31, 2020
Carrying value	$	28,127	$	29,471
Fair value	31,037		34,682

Altria’s estimate of the fair value of its total long-term debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy.

The Fixed-price Preemptive Rights and Cronos warrant, which are further discussed in Note 4. Investments in Equity Securities, are derivative financial instruments, which are required to be recorded at fair value. The fair values of the Fixed-price Preemptive Rights and Cronos warrant are estimated using Black-Scholes option-pricing models, adjusted for observable inputs (which are classified in Level 1 of the fair value hierarchy), including share price, and unobservable inputs, including

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probability factors and weighting of expected life, volatility levels and risk-free interest rates (which are classified in Level 3 of the fair value hierarchy) based on the following assumptions at:

Fixed-price Preemptive Rights

Cronos Warrant

September 30, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Share price (1)

C$7.15

C$8.84

C$7.15

C$8.84

Expected life (2)

0.81 year

1.05 years

1.43 years

2.18 years

Expected volatility (3)

67.32%

80.68%

67.32%

80.68%

Risk-free interest rate (4)(5)

0.24%

0.13%

0.39%

0.21%

Expected dividend yield (6)

—%

(1) Based on the closing market price for Cronos common stock on the Toronto Stock Exchange on the date indicated.

(2) Based on the weighted-average expected life of the Fixed-price Preemptive Rights (with a range from approximately 0.25 year to 4.00 years at September 30, 2021 and 0.25 year to 5 years at December 31, 2020) and the March 8, 2023 expiration date of the Cronos warrant.

(3) Based on a blend of historical volatility of the underlying equity security and implied volatility from traded options on the underlying equity security at September 30, 2021. Based on a blend of historical volatility levels of the underlying equity security and peer companies at December 31, 2020.

(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues (with a range from approximately 0.12% to 0.89% at September 30, 2021 and 0.06% to 0.39% at December 31, 2020) weighted for the remaining expected life of the Fixed-price Preemptive Rights.

(5) Based on the implied yield currently available on Canadian Treasury zero coupon issues and the expected life of the Cronos warrant.

(6) Based on Cronos’s expected dividend payments.

The following table provides a reconciliation of the beginning and ending balance of the Fixed-price Preemptive Rights and Cronos warrant, which are classified in Level 3 of the fair value hierarchy:


(in millions)
Balance at December 31, 2019	$	303

Pre-tax earnings (losses) recognized in net earnings (losses)	(140)
Balance at December 31, 2020	163
Pre-tax earnings (losses) recognized in net earnings (losses)	(128)
Balance at September 30, 2021	$	35

Altria elects to record the gross assets and liabilities of derivative financial instruments executed with the same counterparty on its condensed consolidated balance sheets. The fair values of Altria’s derivative financial instruments on a gross basis included on the condensed consolidated balance sheets were as follows:


	Fair Value of Assets					Fair Value of Liabilities
(in millions)	Balance Sheet Classification	September 30, 2021		December 31, 2020		Balance Sheet Classification	September 30, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	—	$	—	Other accrued liabilities	$	—	$	87
Foreign currency contracts	Other assets	—		—		Other liabilities	—		—
Total		$	—	$	—		$	—	$	87

Derivatives not designated as hedging instruments:
Cronos warrant	Investments in equity securities	$	32	$	139
Fixed-price Preemptive Rights	Investments in equity securities	3		24
Total		$	35	$	163

Total derivatives		$	35	$	163		$	—	$	87

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Altria records in its condensed consolidated statements of earnings (losses) 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. For the nine and three months ended September 30, 2021 and 2020, Altria recorded non-cash, pre-tax unrealized gains (losses), representing the changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant, as follows:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Fixed-price Preemptive Rights	$	(21)	$	(54)	$	(17)	$	(25)
Cronos warrant	(107)		(148)		(118)		(80)
Total	$	(128)	$	(202)	$	(135)	$	(105)

Net Investment Hedging

The pre-tax effects of Altria’s net investment hedges on accumulated other comprehensive losses and the condensed consolidated statements of earnings (losses) were as follows:


	Gain (Loss) Recognized in Accumulated Other Comprehensive Losses				Gain (Loss) Recognized in Net Earnings (Losses)				Gain (Loss) Recognized in Accumulated Other Comprehensive Losses				Gain (Loss) Recognized in Net Earnings (Losses)
	For the Nine Months Ended September 30,								For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Foreign currency contracts	$	16	$	(28)	$	7	$	33	$	—	$	(66)	$	—	$	8
Foreign currency denominated debt	270		(215)		—		—		118		(206)		—		—
Total	$	286	$	(243)	$	7	$	33	$	118	$	(272)	$	—	$	8

The changes in the fair value of the foreign currency contracts and in the carrying value of the foreign currency denominated debt due to changes in the Euro to USD exchange rate were recognized in accumulated other comprehensive losses related to ABI. Gains on the foreign currency contracts arising from components excluded from effectiveness testing were recognized in interest and other debt expense, net in the condensed consolidated statements of earnings (losses) based on an amortization approach.

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Note 6. Benefit Plans

Components of Net Periodic Benefit (Income) Cost

Net periodic benefit (income) cost consisted of the following:


	Pension				Postretirement				Pension				Postretirement
	For the Nine Months Ended September 30,								For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Service cost	$	51	$	55	$	15	$	13	$	17	$	18	$	5	$	5
Interest cost	139		188		29		44		46		62		8		14
Expected return on plan assets	(393)		(376)		(10)		(11)		(131)		(125)		(2)		(4)
Amortization:
Net loss	99		108		16		7		33		55		2		—
Prior service cost (credit)	3		4		(35)		(22)		1		2		(20)		(7)

Net periodic benefit (income) cost	$	(101)	$	(21)	$	15	$	31	$	(34)	$	12	$	(7)	$	8

Employer Contributions

Altria makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service regulations. Altria made employer contributions of $23 million to its pension plans and did not make any contributions to its postretirement plans during the nine months ended September 30, 2021. Currently, Altria anticipates making additional employer contributions to its pension plans of up to approximately $5 million and no additional contributions to its postretirement plans for the remainder of 2021. However, the foregoing estimates of 2021 contributions to the pension and postretirement plans are subject to change as a result of changes in tax and other benefit laws, changes in interest rates, as well as asset performance significantly above or below the assumed long-term rate of return for each respective plan.

During the second quarter of 2021, Altria announced several amendments to its salaried retiree healthcare plans, primarily changing its post-age 65 coverage to a private medicare marketplace. These amendments triggered a plan remeasurement as of May 31, 2021 and resulted in Altria recording a reduction of $432 million to its accrued postretirement health care costs liability and a corresponding reduction to its accumulated other comprehensive losses on its condensed consolidated balance sheet. Ongoing amortization has been adjusted to reflect these changes as of June 1, 2021 and is reflected in the amounts shown above.

Note 7. Earnings (Losses) per Share

Basic and diluted earnings (losses) per share (“EPS”) were calculated using the following:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Net earnings (losses) attributable to Altria	$	851	$	2,543	$	(2,722)	$	(952)
Less: Distributed and undistributed earnings attributable to share-based awards	(8)		(6)		(2)		(1)
Earnings (losses) for basic and diluted EPS	$	843	$	2,537	$	(2,724)	$	(953)

Weighted-average shares for basic EPS	1,849		1,858		1,842		1,858
Plus: contingently issuable performance stock units	—		1		—		1
Weighted-average shares for diluted EPS	1,849		1,859		1,842		1,859

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Note 8. Other Comprehensive Earnings/Losses

The following tables set forth the changes in each component of accumulated other comprehensive losses, net of deferred income taxes, attributable to Altria:


	For the Nine Months Ended September 30, 2021
(in millions)	Benefit Plans			ABI			Currency Translation Adjustments and Other		Accumulated Other Comprehensive Losses
Balances, December 31, 2020	$	(2,420)		$	(1,938)		$	17	$	(4,341)

Other comprehensive earnings (losses) before reclassifications	432		(1)	685			35		1,152
Deferred income taxes	(118)			(151)			—		(269)
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	314			534			35		883

Amounts reclassified to net earnings (losses)	92			(49)			(2)		41
Deferred income taxes	(23)			10			—		(13)
Amounts reclassified to net earnings (losses), net of deferred income taxes	69			(39)			(2)		28

Other comprehensive earnings (losses), net of deferred income taxes	383			495		(2)	33		911

Balances, September 30, 2021	$	(2,037)		$	(1,443)		$	50	$	(3,430)


	For the Three Months Ended September 30, 2021
(in millions)	Benefit Plans		ABI			Currency Translation Adjustments and Other		Accumulated Other Comprehensive Losses
Balances, June 30, 2021	$	(2,043)	$	(1,604)		$	45	$	(3,602)

Other comprehensive earnings (losses) before reclassifications	—		215			6		221
Deferred income taxes	(9)		(48)			—		(57)
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	(9)		167			6		164

Amounts reclassified to net earnings (losses)	20		(7)			(1)		12
Deferred income taxes	(5)		1			—		(4)
Amounts reclassified to net earnings (losses), net of deferred income taxes	15		(6)			(1)		8

Other comprehensive earnings (losses), net of deferred income taxes	6		161		(2)	5		172

Balances, September 30, 2021	$	(2,037)	$	(1,443)		$	50	$	(3,430)

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	For the Nine Months Ended September 30, 2020
(in millions)	Benefit Plans		ABI			Currency Translation Adjustments and Other		Accumulated Other Comprehensive Losses
Balances, December 31, 2019	$	(2,192)	$	(693)		$	21	$	(2,864)

Other comprehensive earnings (losses) before reclassifications	(75)		(1,211)			(16)		(1,302)
Deferred income taxes	19		260			—		279
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	(56)		(951)			(16)		(1,023)

Amounts reclassified to net earnings (losses)	111		29			—		140
Deferred income taxes	(28)		(6)			—		(34)
Amounts reclassified to net earnings (losses), net of deferred income taxes	83		23			—		106

Other comprehensive earnings (losses), net of deferred income taxes	27		(928)		(2)	(16)		(917)

Balances, September 30, 2020	$	(2,165)	$	(1,621)		$	5	$	(3,781)


	For the Three Months Ended September 30, 2020
(in millions)	Benefit Plans		ABI			Currency Translation Adjustments and Other		Accumulated Other Comprehensive Losses
Balances, June 30, 2020	$	(2,150)	$	(1,606)		$	(18)	$	(3,774)

Other comprehensive earnings (losses) before reclassifications	(75)		(71)			23		(123)
Deferred income taxes	19		22			—		41
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	(56)		(49)			23		(82)

Amounts reclassified to net earnings (losses)	55		44			—		99
Deferred income taxes	(14)		(10)			—		(24)
Amounts reclassified to net earnings (losses), net of deferred income taxes	41		34			—		75

Other comprehensive earnings (losses), net of deferred income taxes	(15)		(15)		(2)	23		(7)

Balances, September 30, 2020	$	(2,165)	$	(1,621)		$	5	$	(3,781)

(1) Reflects the remeasurement impact of salaried retiree healthcare plan amendments. For further discussion, see Note 6. Benefit Plans.

(2) Primarily reflects Altria’s share of ABI’s currency translation adjustments and the impact of Altria’s designated net investment hedges. For further discussion of designated net investment hedges, see Note 5. Financial Instruments.

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The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings (losses):


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Benefit Plans: (1)
Net loss	$	124	$	129	$	39	$	60
Prior service cost/credit	(32)		(18)		(19)		(5)
	92		111		20		55
ABI (2)	(49)		29		(7)		44
Currency Translation Adjustments and Other (2)	(2)		—		(1)		—
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings (losses)	$	41	$	140	$	12	$	99

(1) Amounts are included in net defined benefit plan costs. For further information related to defined benefit plans, see Note 6. Benefit Plans.

(2) Amounts are included in (income) losses from equity investments. For further information related to equity investments, see Note 4. Investments in Equity Securities.

Note 9. Segment Reporting

The products of Altria’s subsidiaries include smokeable tobacco products, consisting of combustible cigarettes manufactured and sold by PM USA, and machine-made large cigars and pipe tobacco manufactured and sold by Middleton; oral tobacco products, consisting of MST and snus products manufactured and sold by USSTC, and oral nicotine pouches manufactured and sold by Helix; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria’s reportable segments of smokeable products, oral tobacco products and wine. The financial services and the innovative tobacco products businesses, which include the heated tobacco business and Helix ROW, are included in all other.

Altria’s chief operating decision maker (the “CODM”) reviews operating companies income (loss) (“OCI”) to evaluate the performance of, and allocate resources to, the segments. OCI for the segments is defined as operating income before general corporate expenses and amortization of intangibles. Interest and other debt expense, net, along with net periodic benefit income/cost, excluding service cost, and provision (benefit) for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by the CODM.

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Segment data were as follows:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Net revenues:
Smokeable products	$	17,275	$	17,522	$	5,975	$	6,313
Oral tobacco products	1,945		1,901		626		640
Wine	494		434		177		157
All other	44		(8)		8		13
Net revenues	$	19,758	$	19,849	$	6,786	$	7,123
Earnings (losses) before income taxes:
OCI:
Smokeable products	$	7,901	$	7,609	$	2,753	$	2,789
Oral tobacco products	1,269		1,297		405		436
Wine	21		(347)		(24)		19
All other	(56)		(63)		(30)		(7)
Amortization of intangibles	(53)		(54)		(18)		(17)
General corporate expenses	(255)		(150)		(135)		(60)

Operating income	8,827		8,292		2,951		3,160
Interest and other debt expense, net	(869)		(893)		(266)		(310)
Loss on early extinguishment of debt	(649)		—		—		—
Net periodic benefit income, excluding service cost	152		58		63		3
Income (losses) from equity investments	(5,789)		(306)		(5,915)		(472)
Impairment of JUUL equity securities	—		(2,600)		—		(2,600)
Gain (loss) on Cronos-related financial instruments	(128)		(202)		(135)		(105)
Earnings (losses) before income taxes	$	1,544	$	4,349	$	(3,302)	$	(324)

The comparability of OCI for the reportable segments was affected by the following:

▪Non-Participating Manufacturer (“NPM”) Adjustment Items: Pre-tax (income) for NPM adjustment items was recorded to Altria’s condensed consolidated statements of earnings (losses) as follows:


	For the Nine Months Ended September 30,		For the Three Months Ended September 30,
(in millions)	2021		2021
Smokeable products segment	$	(53)	$	(21)
Interest and other debt expense, net	(23)		(23)
Total	$	(76)	$	(44)

NPM adjustment items result from the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation in Note 12. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded as reductions to cost of sales, which increased OCI in the smokeable products segment.

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▪Tobacco and Health and Certain Other Litigation Items: Pre-tax charges related to tobacco and health and certain other litigation items were recorded in Altria’s condensed consolidated statements of earnings (losses) as follows:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Smokeable products segment	$	72	$	73	$	29	$	34
General corporate	70		—		70		—
Interest and other debt expense, net	6		3		6		—
Total	$	148	$	76	$	105	$	34

The amounts shown in the table above for the smokeable products segment and general corporate were recorded in marketing, administration and research costs. For further discussion, see Note 12. Contingencies.

▪COVID-19 Special Items: Net pre-tax charges of $50 million ($41 million in the smokeable products segment and $9 million in the oral tobacco products segment) related to the COVID-19 pandemic were recorded in Altria’s condensed consolidated statements of earnings (losses) for the nine months ended September 30, 2020. The net pre-tax charges, which were directly related to disruptions caused by or efforts to mitigate the impact of the COVID-19 pandemic, were all recorded in costs of sales and included premium pay, personal protective equipment and health screenings, which were partially offset by certain employment tax credits. The COVID-19 special items do not include the inventory-related implementation costs associated with the wine business strategic reset discussed below. These implementation costs were due to increased inventory levels, which were further negatively impacted by the COVID-19 pandemic, including economic uncertainty and government restrictions.

▪Implementation, Acquisition and Disposition-Related Costs:

Ste. Michelle Transaction: For the nine and three months ended September 30, 2021, pre-tax disposition-related costs of $51 million were recorded in the wine segment, which consisted of a pre-tax charge of $41 million to record the assets and liabilities associated with the Ste. Michelle Transaction at their fair value less costs to sell and $10 million of other disposition-related costs. For further discussion, see Note 3. Assets Held for Sale.

Wine Business Strategic Reset: During the nine months ended September 30, 2020, Ste. Michelle recorded pre-tax implementation costs of $395 million associated with a strategic reset initiated in the first quarter of 2020 to maximize Ste. Michelle’s profitability and achieve improved long-term cash flow generation. Substantially all of the charges consisted of the following: (i) write-off of inventory ($292 million) as Ste. Michelle no longer believed that the benefit of the blending and production plans for its inventory outweighed inventory carrying cost given the reduced product volume demand; and (ii) estimated losses on future non-cancelable grape purchase commitments that Ste. Michelle believed no longer had a future economic benefit ($100 million). These charges were included in cost of sales in Altria’s condensed consolidated statements of earnings (losses).

Acquisition-Related Costs: For the nine months ended September 30, 2021, Altria recorded pre-tax acquisition-related costs of $37 million in the oral tobacco products segment primarily for the settlement of an arbitration related to the 2019 on! transaction. These costs were included in marketing, administration and research costs in Altria’s condensed consolidated statements of earnings (losses).

Note 10. Debt

Short-term Borrowings and Borrowing Arrangements

At September 30, 2021 and December 31, 2020, Altria had no short-term borrowings.

On August 18, 2021, Altria entered into an extension and amendment (the “Extension and Amendment”) to its $3.0 billion senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”). The Extension and Amendment extends the maturity date of the Credit Agreement from August 1, 2023 to August 1, 2024 and amends the Credit Agreement to update certain provisions regarding a successor interest rate to the London Interbank Offered Rate (“LIBOR”) and make certain other market updates. All other terms and conditions of the Credit Agreement remain in full force and effect. The Credit Agreement, which is used for general corporate purposes, includes an additional option, subject to certain conditions, for Altria to extend the expiration date for an additional one-year period.

At September 30, 2021, the Credit Agreement had available borrowings up to an aggregate principal amount of $3.0 billion.

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Pricing for interest and fees under the Credit Agreement may be modified in the event of a change in the rating of Altria’s long-term senior unsecured debt. Interest rates on borrowings under the Credit Agreement are expected to be based on LIBOR, or a fallback benchmark rate determined based on prevailing market convention, plus a percentage based on the higher of the ratings of Altria’s long-term senior unsecured debt from Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Financial Services LLC (“S&P”). The applicable percentage based on Altria’s long-term senior unsecured debt ratings at September 30, 2021 for borrowings under the Credit Agreement was 1.0%. The Credit Agreement does not include any other rating triggers, or any provisions that could require the posting of collateral.

The Credit Agreement includes various covenants, one of which requires Altria to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to Consolidated Interest Expense of not less than 4.0 to 1.0, calculated as of the end of the applicable quarter on a rolling four quarters basis. At September 30, 2021, the ratio of consolidated EBITDA to Consolidated Interest Expense, calculated in accordance with the Credit Agreement, was 9.8 to 1.0. At September 30, 2021, Altria was in compliance with its covenants in the Credit Agreement. The terms “Consolidated EBITDA” and “Consolidated Interest Expense,” each as defined in the Credit Agreement, include certain adjustments.

In March 2020, due to the uncertainty at that time in the global capital markets, including the commercial paper markets, resulting from the COVID-19 pandemic, Altria elected to borrow the full $3.0 billion available under the Credit Agreement as a precautionary measure to increase its cash position and preserve financial flexibility. In June 2020, Altria repaid the full amount outstanding under the Credit Agreement using the net proceeds from the issuance of long-term senior unsecured notes issued in May 2020 and available cash.

Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA.

Long-term Debt

The aggregate carrying value of Altria’s total long-term debt at September 30, 2021 and December 31, 2020 was $28.1 billion and $29.5 billion, respectively.

In May 2021, Altria repaid in full senior unsecured notes in the aggregate principal amount of $1.5 billion at maturity.

In February 2021, Altria issued long-term senior unsecured notes in the aggregate principal amount of $5.5 billion (the “Notes”). The net proceeds from the Notes were used (i) to fund the purchase and redemption of certain unsecured notes and payment of related fees and expenses, as described below, and (ii) for other general corporate purposes. The Notes contain the following terms:

▪$1.75 billion at 2.450%, due 2032, interest payable semiannually beginning August 4, 2021;

▪$1.50 billion at 3.400%, due 2041, interest payable semiannually beginning August 4, 2021;

▪$1.25 billion at 3.700%, due 2051, interest payable semiannually beginning August 4, 2021; and

▪$1.00 billion at 4.000%, due 2061, interest payable semiannually beginning August 4, 2021.

The Notes are Altria’s senior unsecured obligations and rank equally in right of payment with all of Altria’s existing and future senior unsecured indebtedness. Upon the occurrence of both (i) a change of control of Altria and (ii) the Notes ceasing to be rated investment grade by each of Moody’s, S&P and Fitch Ratings, Inc. within a specified time period, Altria will be required to make an offer to purchase the Notes at a price equal to 101% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to the date of repurchase as and to the extent set forth in the terms of the Notes.

The obligations of Altria under the Notes are guaranteed by PM USA.

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During the first quarter of 2021, Altria completed debt tender offers to purchase for cash certain of its long-term senior unsecured notes in an aggregate principal amount of $4,042 million. Details of the debt tender offers are as follows:


(in millions)	Principal Amount of Notes Purchased
2.850% Notes due 2022	$	795
2.950% Notes due 2023	132
4.000% Notes due 2024	624
3.800% Notes due 2024	655
4.400% Notes due 2026	430
4.800% Notes due 2029	1,094
9.950% Notes due 2038	65
10.200% Notes due 2039	18
6.200% Notes due 2059	229
	$	4,042

During the first quarter of 2021, Altria also redeemed all of its outstanding 3.490% Notes due 2022 in an aggregate principal amount of $1.0 billion.

As a result of the debt tender offers and redemption, during the first quarter of 2021, Altria recorded pre-tax losses on early extinguishment of debt of $649 million, which included premiums and fees of $623 million and the write-off of related unamortized debt discounts and debt issuance costs of $26 million.

At September 30, 2021 and December 31, 2020, accrued interest on long-term debt of $206 million and $458 million, respectively, was included in other accrued liabilities on Altria’s condensed consolidated balance sheets.

For a discussion of the fair value of Altria’s long-term debt and the designation of its Euro denominated senior unsecured notes as a net investment hedge of its investment in ABI, see Note 5. Financial Instruments.

Note 11. Income Taxes

Earnings (losses) before income taxes, provision (benefit) for income taxes and income tax rates consisted of the following:


	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2021			2020			2021			2020
Earnings (losses) before income taxes	$	1,544		$	4,349		$	(3,302)		$	(324)
Provision (benefit) for income taxes	693			1,817			(582)			632
Income tax rate	44.9		%	41.8		%	17.6		%	(195.1)		%

Altria’s income tax rates for the nine and three months ended September 30, 2021 and 2020 are not comparable in a meaningful way due to the following significant pre-tax charges and valuation allowances:

▪the $6,157 million impairment of Altria’s equity investment in ABI during the nine and three months ended September 30, 2021; and

▪the $2,600 million impairment of Altria’s investment in JUUL during the nine and three months ended September 30, 2020 and valuation allowances associated with Altria’s investments in JUUL and Altria’s Investment in Cronos.

Altria’s income tax rates for the nine and three months ended September 30, 2021 differ from the U.S. federal statutory rate of 21%, due primarily to the state tax treatment of the impairment charge on Altria’s equity investment in ABI.

Altria’s income tax rates for the nine and three months ended September 30, 2020 differ from the U.S. federal statutory rate of 21%, due primarily to valuation allowances primarily attributable to deferred tax assets recorded in connection with the impairment of Altria’s investment in JUUL, and Altria’s Investment in Cronos.

For further information on the impairments of Altria’s equity investment in ABI and investment in JUUL, see Note 4. Investments in Equity Securities.

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The following chart provides a reconciliation of the beginning and ending valuation allowances for the period ended September 30, 2021:


(in millions)
Balance at beginning of year	$	2,817
Additions to valuation allowance charged to income tax expense	264
Reductions to valuation allowance credited to income tax benefit	(73)
Foreign currency translation	(4)
Balance at end of period	$	3,004

Altria determines the realizability of deferred tax assets based on the weight of available evidence, that it is more-likely-than-not that the deferred tax asset will not be realized. In reaching this determination, Altria considers all available positive and negative evidence, including the character of the loss, carryback and carryforward considerations, future reversals of temporary differences and available tax planning strategies.

The current changes in valuation allowances were due to deferred tax assets recorded in connection with Altria’s Investment in Cronos and changes in the estimated fair value of its investment in JUUL. The valuation allowance at the end of the period is primarily attributable to deferred tax assets recorded in connection with Altria’s investment in JUUL and Investment in Cronos.

Note 12. Contingencies

Legal proceedings covering a wide range of matters are pending or threatened in various U.S. and foreign jurisdictions against Altria and its subsidiaries, including PM USA and USSTC, as well as their respective indemnitees and Altria’s investees. Various types of claims may be raised in these proceedings, including product liability, unfair trade practices, antitrust, tax, contraband shipments, patent infringement, employment matters, claims alleging violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), claims for contribution and claims of competitors, shareholders or distributors. Legislative action, such as changes to tort law, also may expand the types of claims and remedies available to plaintiffs.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, have ranged in the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria or its subsidiaries may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, Altria or its subsidiaries under certain circumstances may have to pay more than their proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria or its subsidiaries also may be required to pay interest and attorneys’ fees.

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. States, including Florida, also may seek to repeal or alter bond cap statutes through legislation. Although Altria cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria, or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

Altria and its subsidiaries record provisions in the condensed consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 12. Contingencies: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending cases; and (iii) accordingly, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred.

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Altria and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria, or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Altria and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria to do so.

Judgments Paid and Provisions for Tobacco and Health and Certain Other Litigation Items (Including Engle Progeny Litigation): After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid judgments and settlements (including related costs and fees) totaling approximately $865 million and interest totaling approximately $218 million as of September 30, 2021. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $410 million and related interest totaling approximately $56 million.

The changes in Altria’s accrued liability for tobacco and health and certain other litigation items, including related interest costs, for the periods specified below are as follows:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020			2021		2020
Accrued liability for tobacco and health and certain other litigation items at beginning of period	$	9	$	14		$	—	$	22
Pre-tax charges for:
Tobacco and health and certain other litigation (1)	142		73			99		34
Related interest costs	6		3			6		—



Payments (1)	(60)		(81)			(8)		(47)
Accrued liability for tobacco and health and certain other litigation items at end of period	$	97	$	9		$	97	$	9

(1) Includes amounts related to certain other litigation and pre-trial resolution of certain tobacco and health cases.

The accrued liability for tobacco and health and certain other litigation items, including related interest costs, was included in accrued liabilities on Altria’s condensed consolidated balance sheets. Pre-tax charges for tobacco and health and certain other litigation were included in marketing, administration and research costs on Altria’s condensed consolidated statements of earnings (losses). Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria’s condensed consolidated statements of earnings (losses).

Security for Judgments: To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of September 30, 2021, PM USA has posted appeal bonds totaling approximately $45 million, which have been collateralized with restricted cash that are included in assets on the condensed consolidated balance sheets.

Overview of Altria and/or PM USA Tobacco-Related Litigation

Types and Number of U.S. Cases: Claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits; (iii) e-vapor cases alleging violation of RICO, fraud, failure to warn, design defect, negligence, antitrust and unfair trade practices; and (iv) other tobacco-related litigation described below. Plaintiffs’ theories of recovery and the defenses raised in tobacco-related litigation are discussed below.

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The table below lists the number of certain tobacco-related cases pending in the U.S. against PM USA and/or Altria as of October 25, 2021, October 27, 2020 and October 28, 2019:


	October 25, 2021	October 27, 2020	October 28, 2019
Individual Smoking and Health Cases (1)	179	142	95
Health Care Cost Recovery Actions (2)	1	1	1
E-vapor Cases (3)	2,951	1,145	—
Other Tobacco-Related Cases (4)	3	4	4

(1) Includes 18 cases filed in Illinois, 17 cases filed in New Mexico, 40 cases filed in Massachusetts and 70 non-Engle cases filed in Florida. Does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (these Engle progeny cases are discussed below in Smoking and Health Litigation - Engle Class Action). Also does not include 1,471 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages, but prohibited them from seeking punitive damages. Class members were prohibited from filing individual lawsuits after 2000 under the court-approved settlement.

(2) See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below.

(3) Includes 53 class action lawsuits, 2,548 individual lawsuits and 350 “third party” lawsuits relating to JUUL e-vapor products, which include school districts, state and local government, tribal and healthcare organization lawsuits. JUUL is an additional named defendant in each of these lawsuits. The 53 class action lawsuits include 28 cases in the Northern District of California (“Multidistrict Litigation” or “MDL”) involving plaintiffs whose claims were previously included in other class action complaints but were refiled as separate stand-alone class actions for procedural and other reasons.

(4) Includes 1 inactive smoking and health case alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs and 2 inactive class action lawsuits alleging that use of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment, breach of warranty or violations of RICO.

International Tobacco-Related Cases: As of October 25, 2021, (i) Altria is named as a defendant in 3 e-vapor class action lawsuits in Canada; (ii) PM USA is a named defendant in 10 health care cost recovery actions in Canada, 8 of which also name Altria as a defendant; and (iii) PM USA and Altria are named as defendants in 7 smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and Philip Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.

Tobacco-Related Cases Set for Trial: As of October 25, 2021, no Engle progeny or individual smoking and health cases against PM USA are set for trial through December 31, 2021. Trial dates are subject to change and many of the trials were postponed due to the COVID-19 pandemic; however, the courts are reopening and additional trials may be scheduled for the remainder of 2021.

Trial Results: Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 69 tobacco-related cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 44 of the 69 cases. These 44 cases were tried in Alaska (1), California (7), Connecticut (1), Florida (10), Louisiana (1), Massachusetts (4), Mississippi (1), Missouri (4), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2) and West Virginia (2).

Of the 25 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 20 have reached final resolution, and 2 cases (Gentile and Principe) that were initially returned in favor of plaintiffs were reversed post-trial and remain pending.

See Smoking and Health Litigation - Engle Progeny Trial Results below for a discussion of verdicts in state and federal Engle progeny cases involving PM USA as of October 25, 2021.

Smoking and Health Litigation

Overview: Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of unfair trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

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Non-Engle Progeny Litigation: Summarized below are the non-Engle progeny smoking and health cases pending during 2021 in which a verdict was returned in favor of plaintiff and against PM USA. Charts listing certain verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.

Principe: In February 2020, a jury in a Florida state court returned a verdict in favor of plaintiff and against PM USA, awarding approximately $11 million in compensatory damages. There was no claim for punitive damages. PM USA appealed the trial court verdict to the Third District Court of Appeal and, in September 2021, the appellate court reversed the trial court’s decision and found in favor of PM USA.

Greene: In September 2019, a jury in a Massachusetts state court returned a verdict in favor of plaintiffs and against PM USA, awarding approximately $10 million in compensatory damages. In May 2020, the court ruled on plaintiffs’ remaining claim and trebled the compensatory damages award to approximately $30 million. In February 2021, the trial court awarded plaintiffs attorneys’ fees and costs in the amount of approximately $2.3 million. Also in February 2021, PM USA served its post-trial motions to reverse the judgment or for a new trial. The trial court denied the post-trial motions in June 2021. In July 2021, PM USA appealed the judgment to the Appeals Court of Massachusetts.

Laramie: In August 2019, a jury in a Massachusetts state court returned a verdict in favor of plaintiff and against PM USA, awarding $11 million in compensatory damages and $10 million in punitive damages. PM USA appealed and, in February 2021, the Massachusetts Supreme Judicial Court asserted jurisdiction over the appeal. In September 2021, the Massachusetts Supreme Judicial Court affirmed the trial court award of $21 million in compensatory and punitive damages. PM USA recorded a pre-tax provision of approximately $27.1 million for the judgment, including interest, in the third quarter of 2021.

Gentile: In October 2017, a jury in a Florida state court returned a verdict in favor of plaintiff and against PM USA, awarding approximately $7.1 million in compensatory damages and allocating 75% of the fault to PM USA. PM USA appealed. In September 2019, the Florida Fourth District Court of Appeal reversed the judgment entered by the trial court, granted PM USA judgment on certain claims and remanded for a new trial on the remaining claims. Plaintiff petitioned the Florida Supreme Court for further review, which the court denied in January 2021.

Federal Government’s Lawsuit: See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America health care cost recovery case.

Engle Class Action: In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA appealed. In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs petitioned the Florida Supreme Court for further review.

In July 2006, the Florida Supreme Court ordered that the punitive damages award be vacated, that the class approved by the trial court be decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the mandate. The court further declared the following Phase I findings are entitled to res judicata effect in such individual actions brought within one year of the issuance of the mandate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to misrepresent information regarding the health effects or addictive nature of cigarettes with the intention of causing the public to rely on this information to their detriment; (vi) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vii) that all defendants sold or supplied cigarettes that were defective; and (viii) that defendants were negligent.

In August 2006, PM USA and plaintiffs sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion. In December 2006, the Florida Supreme Court refused to revise its July 2006 ruling, except that it revised the set of Phase I findings entitled to res judicata effect by excluding finding (v) listed above (relating to agreement to misrepresent information), and added the finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations of fact made by defendants. In February 2008, the trial court decertified the class.

Pending Engle Progeny Cases: The deadline for filing Engle progeny cases expired in January 2008, at which point a total of approximately 9,300 federal and state claims were pending. As of October 25, 2021, approximately 1,026 state court cases were pending against PM USA or Altria asserting individual claims by or on behalf of approximately 1,285 state court plaintiffs. Because of a number of factors, including docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates. While the Federal Engle Agreement (discussed below) resolved nearly all Engle progeny cases pending in federal court, as of October 25, 2021, 2 cases were pending against PM USA in federal court representing the cases excluded from that agreement.

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Engle Progeny Trial Results: As of October 25, 2021, 137 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. NaN verdicts were returned in favor of plaintiffs and 7 verdicts (Skolnick, Calloway, Oshinsky-Blacker, McCoy, Mahfuz, Neff and Frogel) that were initially returned in favor of plaintiffs were reversed post-trial or on appeal and remain pending.

NaN verdicts were returned in favor of PM USA, of which 44 were state cases. In addition, there have been a number of mistrials, only some of which have resulted in new trials as of October 25, 2021. The jury in one case, Garcia, awarded plaintiff compensatory damages and found plaintiff was entitled to punitive damages; however, the court declared a mistrial in the second phase of the trial regarding punitive damages because the jury was unable to determine the amount of the punitive damages. NaN verdicts (Pearson, D. Cohen, Collar and Chacon) that were returned in favor of PM USA were subsequently reversed for new trials. Juries in 2 cases (Reider and Banks) returned zero damages verdicts in favor of PM USA. Juries in 2 other cases (Weingart and Hancock) returned verdicts against PM USA awarding no damages, but the trial court in each case decided to award plaintiffs damages. NaN case, Pollari, resulted in a verdict in favor of PM USA following a retrial of an initial verdict returned in favor of plaintiff. Plaintiff and defendants appealed the verdict and the appellate court affirmed the judgement in favor of the defendants. NaN cases, Gloger, Rintoul (Caprio) and Duignan, resulted in verdicts in favor of plaintiffs following retrial of initial verdicts returned in favor of plaintiffs. Post-trial appeals are pending in those 3 cases. NaN cases, Freeman and Harris, resulted in an appellate reversal of a jury verdict in favor of plaintiff, and a judgment in favor of PM USA.

The charts below list the verdicts and post-trial developments in certain Engle progeny cases in which verdicts were returned in favor of plaintiffs. The first chart lists cases that are pending as of October 25, 2021 but where PM USA has determined an unfavorable outcome is not probable and the amount of loss cannot be reasonably estimated. The second chart lists cases that have concluded within the previous 12 months. Unless otherwise noted for a particular case, the jury’s award for compensatory damages will not be reduced by any finding of plaintiff’s comparative fault. Further, the damages noted reflect adjustments based on post-trial or appellate rulings. As of October 25, 2021, there are no Engle progeny cases where PM USA has recorded a provision in its condensed consolidated financial statements because PM USA has not determined for any currently pending case that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.

References below to “R.J. Reynolds,” “Lorillard” and “Liggett Group” are to R.J. Reynolds Tobacco Company, Lorillard Tobacco Company and Liggett Group, LLC, respectively.

Currently Pending Engle Cases with Verdicts Against PM USA

(rounded to nearest $ million)

Plaintiff

Verdict Date

Defendant(s)

Court

Compensatory Damages (1)

Punitive Damages
(PM USA)

Appeal Status

Lipp

September 2021

PM USA

Miami-Dade

$15 million

$28 million

Defendant’s post-trial motions denied. Defendant plans to appeal.

Garcia

May 2021

PM USA

Miami-Dade

$3 million

Mistrial

Appeal by defendant to Third District Court of Appeal pending.

Duignan

February 2020 (2)

PM USA and R.J. Reynolds

Pinellas

$3 million

$12 million

Appeal by defendants to Second District Court of Appeal pending.

Cuddihee

January 2020

PM USA

Duval

$3 million

Appeal by defendant to First District Court of Appeal pending.

Rintoul (Caprio)

November 2019 (2)

PM USA and R.J. Reynolds

Broward

$9 million

$74 million

Appeal by plaintiff and defendants to Fourth District Court of Appeal pending.

Gloger

November 2019 (2)

PM USA and R.J. Reynolds

Miami-Dade

$15 million

$11 million

Appeal by defendants to Third District Court of Appeal pending.

McCall

March 2019

PM USA

Broward

<$1 million (<$1 million PM USA)

New trial ordered on punitive damages.

Neff

March 2019

PM USA and R.J. Reynolds

Broward

$4 million

$2 million

Fourth District Court of Appeal reversed the judgment against defendants and remanded for a new trial. Plaintiff's motion for rehearing was denied.

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Plaintiff

Verdict Date

Defendant(s)

Court

Compensatory Damages (1)

Punitive Damages
(PM USA)

Appeal Status

Mahfuz

February 2019

PM USA and R.J. Reynolds

Broward

$12 million

$10 million

Fourth District Court of Appeal reversed the judgment against defendants and remanded for a new trial. Plaintiff's motion for rehearing was denied.

Holliman

February 2019

PM USA

Miami-Dade

$3 million

Defendant’s appeal to Third District Court of Appeal pending.

Chadwell

September 2018

PM USA

Miami-Dade

$2 million

Third District Court of Appeal affirmed the compensatory damages award. PM USA petitioned Florida Supreme Court for review. Case stayed pending Florida Supreme Court decision in Prentice.(3)

Kaplan

July 2018

PM USA and R.J. Reynolds

Broward

$2 million

Fourth District Court of Appeal affirmed the verdict and reaffirmed the verdict on rehearing. Defendants sought review of the decision before the Florida Supreme Court and the court stayed the case pending its decision in Sheffield.(3)

R. Douglas

November 2017

PM USA

Duval

<$1 million

Awaiting entry of final judgment by the trial court.

Sommers

April 2017

PM USA

Miami-Dade

$1 million

Third District Court of Appeal affirmed compensatory damages award and granted new trial on punitive damages. Florida Supreme Court denied PM USA’s petition for review of the Third District Court of Appeal’s decision. PM USA paid approximately $1 million for the compensatory damages award and awaits the new trial on punitive damages.(4) The trial court stayed the new trial on punitive damages pending Florida Supreme Court’s decision in Sheffield.(3)

Cooper (Blackwood)

September 2015

PM USA and R.J. Reynolds

Broward

$5 million

(<$1 million PM USA)

Fourth District Court of Appeal affirmed judgment and granted a new trial on punitive damages.

D. Brown

January 2015

PM USA

Federal Court - Middle District of Florida

$8 million

$9 million

Appeal by defendant to U.S. Court of Appeals for the Eleventh Circuit stayed pending Florida Supreme Court decision in Prentice.(3)

(1) PM USA’s portion of the compensatory damages award is noted parenthetically where the court has ruled that comparative fault applies.

(2) Plaintiff’s verdict following a retrial of an initial verdict in favor of plaintiff.

(3) PM USA is not a defendant in Prentice or Sheffield. Prentice and Sheffield are discussed below in Engle Progeny Appellate Issues.

(4) Plaintiff was granted an award of approximately $3 million in fees, costs and interest that PM USA appealed. The Florida Third District Court of Appeals affirmed the award and PM USA paid the award amount in March 2021.

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Engle Cases Concluded Within Past 12 Months (1)

(rounded to nearest $ million)

Plaintiff

Verdict Date

Defendant(s)

Court

Accrual Date

Payment Amount
(if any)

Payment Date

Berger (Cote)

September 2014

PM USA

Federal Court - Middle District of Florida

Fourth quarter of 2018 and first quarter of 2021

$29 million

February 2021

Santoro

March 2017

PM USA, R.J. Reynolds and Liggett Group

Broward

Second quarter of 2020 and first quarter of 2021

$1 million

January 2021

(1) In 6 cases in which PM USA paid the judgments more than a year ago, Naugle, Gore, M. Brown, Jordan, Theis and Landi, plaintiffs were awarded approximately $8 million, $2 million, $8 million, $4 million, $1 million and $3 million in fees and costs, respectively. PM USA has appealed in all of these cases, except Theis and Landi. In M. Brown, in March 2021 the Florida First District Court of Appeals affirmed the fee award and reversed the pre-judgment interest award and, in April 2021, PM USA paid $8.2 million in satisfaction of the fee award and post-judgment interest. In Theis, PM USA paid $1 million in satisfaction of fees and costs in May 2021 and, in Landi, PM USA paid approximately $1.5 million in satisfaction of fees, costs and interest in July 2021 (R.J. Reynolds paid approximately $1.5 million of the approximately $3 million award).

Engle Progeny Appellate Issues: The Florida appellate courts are considering the following appeals which may have wide application to other Engle progeny cases:

In Mary Sheffield v. R.J. Reynolds Tobacco Company, an Engle progeny case against R.J. Reynolds only, the Florida Supreme Court has taken jurisdiction to resolve the conflict among Florida’s District Courts of Appeal over whether the 1999 amendments to Florida’s punitive damages statute (including its caps and bar on multiple punitive damages awards for the same course of conduct) apply in wrongful death cases where the decedent was injured prior to the October 1, 1999 effective date of the amendments but died from his or her injuries after such effective date. Oral argument was held before the Florida Supreme Court in April 2021; a decision has not yet been issued.

In Linda Prentice v. R.J. Reynolds Tobacco Company, an Engle progeny case against R.J. Reynolds only, the Florida First District Court of Appeal in January 2020 reversed a judgment in favor of the plaintiff and remanded for a new trial. The court held that the trial court had erred by failing to instruct the jury that in order to prevail on her claim for conspiracy to commit fraudulent concealment, the plaintiff was required to prove that her decedent relied to his detriment on a statement that concealed or omitted material information about the health risks of smoking. That holding conflicts with decisions from the Second, Third, and Fourth District Courts of Appeal, which have each held that Engle plaintiffs do not need to prove reliance on a statement, and instead can prevail by proving reliance on the Engle defendants’ concealment of information. In August 2020, the Florida Supreme Court accepted jurisdiction in the case. As an alternative ground to approve the First District Court of Appeal’s decision in its favor in Prentice, R.J. Reynolds has asked the Florida Supreme Court to reconsider its prior decisions giving the Engle Phase I findings preclusive effect in Engle progeny cases, as described more fully in the section Engle Class Action above. Oral argument was held before the Florida Supreme Court in June 2021; a decision has not yet been issued.

Florida Bond Statute: In June 2009, Florida amended its existing bond cap statute by adding a $200 million bond cap that applies to all state Engle progeny lawsuits in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. Plaintiffs have been unsuccessful in various challenges to the bond cap statute in Florida state court.

No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engle progeny cases tried in federal court.

From time to time, legislation has been presented to the Florida legislature that would repeal the bond cap statute; however to date, no legislation repealing the statute has passed.

Other Smoking and Health Class Actions: Since the dismissal in May 1996 of a purported nationwide class action brought on behalf of allegedly addicted smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal courts. In general, these cases purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.

Class certification has been denied or reversed by courts in 61 smoking and health class actions involving PM USA in Arkansas (1), California (1), Delaware (1), the District of Columbia (2), Florida (2), Illinois (3), Iowa (1), Kansas (1), Louisiana (1), Maryland (1), Michigan (1), Minnesota (1), Nevada (29), New Jersey (6), New York (2), Ohio (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Puerto Rico (1), South Carolina (1), Texas (1) and Wisconsin (1). See Certain Other Tobacco-Related

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Litigation below for a discussion of “Lights” and “Ultra Lights” class action cases and medical monitoring class action cases pending against PM USA.

As of October 25, 2021, PM USA and Altria are named as defendants, along with other cigarette manufacturers, in 7 class actions filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan, British Columbia (2 separate cases) and Ontario, plaintiffs seek class certification on behalf of individuals who suffer or have suffered from various diseases, including chronic obstructive pulmonary disease, emphysema, heart disease or cancer, after smoking defendants’ cigarettes. In the actions filed in Alberta, Manitoba and Nova Scotia, plaintiffs seek certification of classes of all individuals who smoked defendants’ cigarettes. In March 2019, all of these class actions were stayed as a result of 3 Canadian tobacco manufacturers (none of which is related to Altria or its subsidiaries) seeking protection under Canada’s Companies’ Creditors Arrangement Act (which is similar to Chapter 11 bankruptcy in the U.S.). The companies entered into these proceedings following a Canadian appellate court upholding 2 smoking and health class action verdicts against those companies totaling approximately CAD $13 billion. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and PMI, which provides for indemnities for certain liabilities concerning tobacco products.

Health Care Cost Recovery Litigation

Overview: In the health care cost recovery litigation, governmental entities seek reimbursement of health care cost expenditures allegedly caused by tobacco products and, in some cases, of future expenditures and damages. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.

Although there have been some decisions to the contrary, most judicial decisions in the U.S. have dismissed all or most health care cost recovery claims against cigarette manufacturers. Nine federal circuit courts of appeals and eight state appellate courts, relying primarily on grounds that plaintiffs’ claims were too remote, have ordered or affirmed dismissals of health care cost recovery actions. The United States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five federal circuit courts of appeal.

In addition to the cases brought in the U.S., health care cost recovery actions have also been brought against tobacco industry participants, including PM USA and Altria, in Canada (10 cases), and other entities have stated that they are considering filing such actions.

Since the beginning of 2008, the Canadian Provinces of British Columbia, New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia have brought health care reimbursement claims against cigarette manufacturers. PM USA is named as a defendant in the British Columbia and Quebec cases, while both Altria and PM USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia cases. The Nunavut Territory and Northwest Territory have passed legislation permitting similar claims, but lawsuits based on this legislation have not been filed. All of these cases have been stayed pending resolution of proceedings in Canada involving 3 tobacco manufacturers (none of which are affiliated with Altria or its subsidiaries) under the Companies’ Creditors Arrangement Act discussed above. See Smoking and Health Litigation - Other Smoking and Health Class Actions above for a discussion of these proceedings. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and PMI that provides for indemnities for certain liabilities concerning tobacco products.

Settlements of Health Care Cost Recovery Litigation: In November 1998, PM USA and certain other tobacco product manufacturers entered into the 1998 Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia and certain U.S. territories to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other tobacco product manufacturers had previously entered into agreements to settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements require that the original participating manufacturers or “OPMs” (now PM USA, R.J. Reynolds and, with respect to certain brands, ITG Brands, LLC (“ITG”)) make annual payments of approximately $9.4 billion, subject to adjustments for several factors, including inflation, market share and industry volume. In addition, the OPMs are required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. For the three months ended September 30, 2021 and 2020, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $1.1 billion and $1.2 billion, respectively. For the nine months ended September 30, 2021 and 2020, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $3.2 billion and $3.3 billion, respectively. These amounts include PM USA’s estimate of amounts related to NPM Adjustments discussed below.

NPM Adjustment Disputes: The “NPM Adjustment” is a reduction in MSA payments made by the OPMs and those manufacturers that are subsequent signatories to the MSA (collectively, the “participating manufacturers” or “PMs”) that

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applies if the PMs collectively lose at least a specified level of market share to non-participating manufacturers since 1997, subject to certain conditions and defenses.

The independent auditor (“IA”) appointed under the MSA has calculated that PM USA’s share of the maximum potential NPM Adjustments for 2004-2020 is (exclusive of interest or earnings): $388 million for 2004; $181 million for 2005; $154 million for 2006; $185 million for 2007; $250 million for 2008; $211 million for 2009; $218 million for 2010; $166 million for 2011; $214 million for 2012; $224 million for 2013; $258 million for 2014; $313 million for 2015; $292 million for 2016; $302 million for 2017; $325 million for 2018; $444 million for 2019; and $572 million for 2020. These maximum amounts will be reduced, likely substantially, to reflect the NPM Adjustment settlements discussed below, and potentially for current and future calculation disputes and other developments. In addition, PM USA’s recovery of these amounts, even as reduced, is dependent upon subsequent determinations regarding state-specific defenses and disputes with other PMs.

Settlements of NPM Adjustment Disputes.

▪Multi-State Settlement. By the end of 2018, PM USA entered into a multi-state settlement of NPM Adjustment disputes with a total of 36 MSA states and territories in which PM USA settled the NPM Adjustment disputes through 2022 with 35 of the 36 states, and through 2024 with 1 state. Pursuant to the multi-state settlement, PM USA received $1.03 billion and expects to receive approximately $320 million in credits to offset PM USA’s MSA payments through 2029.

▪New York Settlement. In 2015, PM USA entered into a separate NPM Adjustment settlement with New York in which PM USA settled the NPM Adjustment disputes with New York in perpetuity. PM USA received $373 million pursuant to the New York settlement and expects to receive annual credits applied against the MSA payments due to New York going forward.

▪Montana Settlement. In 2020, PM USA entered into a separate NPM Adjustment settlement with Montana in which PM USA settled the NPM Adjustment disputes with Montana through 2030. This settlement resulted in a payment by PM USA of $4 million.

Continuing NPM Adjustment Disputes with States That Have Not Settled.

▪2004 NPM Adjustment. The PMs and the 10 states that have not settled the NPM Adjustment disputes are currently arbitrating NPM Adjustment disputes for 2004 in a multi-state arbitration. Hearings for 9 of the 10 states have concluded. In September 2021, the arbitration panels issued decisions finding that 2 states, Missouri and Washington, were not diligent in their enforcement of their escrow statutes in 2004 and, therefore, are subject to the NPM adjustment for 2004. The arbitration panels further found that the remaining 7 states were diligent in their enforcement and, therefore, are not subject to the NPM adjustment for 2004. The hearing for one remaining state is currently scheduled for February 2022. Several issues remain to be resolved by the arbitration panels that will affect the final amount of the 2004 NPM adjustment PM USA and other PMs will receive. PM USA recorded $21 million as a reduction to cost of sales in the third quarter of 2021 for its estimate of the minimum amount of the 2004 NPM adjustment it will receive. PM USA estimates it is entitled to interest of approximately $23 million in connection with the 2004 NPM adjustment, which it recorded as interest income in the third quarter of 2021.

▪2005-2007 NPM Adjustments. The PMs and the 10 states that have not settled the NPM Adjustment disputes are currently arbitrating NPM Adjustment disputes before a single arbitration panel. The arbitration encompasses three years, 2005-2007, for 9 of the 10 states, and one year, 2005, for 1 state. As of October 25, 2021, no decisions have resulted from the arbitration.

▪Subsequent Years. No assurance can be given as to when proceedings for 2008 and subsequent years will be scheduled or the precise form those proceedings will take.

Other Disputes Under the State Settlement Agreements: The payment obligations of the tobacco product manufacturers that are parties to the State Settlement Agreements, as well as the allocations of any NPM Adjustments and related settlements, have been and may continue to be affected by R.J. Reynolds’s acquisition of Lorillard in 2015 and its related sale of certain cigarette brands to ITG (the “ITG transferred brands”). PM USA filed motions to enforce the state settlement agreements in Florida, Minnesota, Texas and Mississippi in connection with various positions that R.J. Reynolds and ITG took with regard to the ITG transferred brands. After various court decisions in each of those states that were favorable to PM USA, those motions to enforce have now been resolved either through settlement or exhaustion of appeals. Despite these resolutions, PM USA continues to dispute the accuracy of certain submissions made by R.J. Reynolds and ITG concerning the calculation of certain payments relating to the ITG transferred brands and may pursue such claims.

In December 2019, the State of Mississippi filed a motion in Mississippi state court seeking to enforce the Mississippi State Settlement Agreement against PM USA, R.J. Reynolds and ITG concerning the tax rates used in the annual calculation of the net operating profit adjustment payments starting in 2018. The Mississippi state court held a hearing in October 2021 and has not yet issued a decision.

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In January 2021, PM USA and other PMs reached an agreement with several MSA states to waive the PMs’ claim under the most favored nation provision of the MSA in connection with a settlement between those MSA states and a non-participating manufacturer, S&M Brands, Inc. (“S&M Brands”), under which the states released certain claims against S&M Brands in exchange for receiving a portion of the funds S&M Brands deposited into escrow accounts in those states pursuant to the states’ escrow statutes. In consideration for waiving its most favored nation claim, PM USA received approximately $32 million from the escrow funds paid to those MSA states under their settlement with S&M Brands. These funds were received in January 2021 and were recorded in Altria’s condensed consolidated statement of earnings for the first quarter of 2021 as a reduction to cost of sales.

Federal Government’s Lawsuit: In 1999, the United States government filed a lawsuit in the U.S. District Court for the District of Columbia against various cigarette manufacturers, including PM USA, and others, including Altria, asserting claims under three federal statutes. The case ultimately proceeded only under the civil provisions of RICO. In August 2006, the district court held that certain defendants, including Altria and PM USA, violated RICO and engaged in seven of the eight “sub-schemes” to defraud that the government had alleged. Specifically, the court found that:

▪defendants falsely denied, distorted and minimized the significant adverse health consequences of smoking;

▪defendants hid from the public that cigarette smoking and nicotine are addictive;

▪defendants falsely denied that they control the level of nicotine delivered to create and sustain addiction;

▪defendants falsely marketed and promoted “low tar/light” cigarettes as less harmful than full-flavor cigarettes;

▪defendants falsely denied that they intentionally marketed to youth;

▪defendants publicly and falsely denied that ETS is hazardous to non-smokers; and

▪defendants suppressed scientific research.

The court did not impose monetary penalties on defendants, but ordered the following relief: (i) an injunction against “committing any act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States; (ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each; (iii) an injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes;” (iv) an injunction against conveying any express or implied health message or health descriptors on cigarette packaging or in cigarette advertising or promotional material, including “lights,” “ultra lights” and “low tar,” which the court found could cause consumers to believe one cigarette brand is less hazardous than another brand; (v) the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “light” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to ETS; (vi) the disclosure on defendants’ public document websites and in the Minnesota document repository of all documents produced to the government in the lawsuit or produced in any future court or administrative action concerning smoking and health until the third quarter of 2021, with certain additional requirements as to documents withheld from production under a claim of privilege or confidentiality; (vii) the disclosure of disaggregated marketing data to the government in the same form and on the same schedule as defendants now follow in disclosing such data to the FTC for a period of 10 years; (viii) certain restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette businesses within the U.S.; and (ix) payment of the government’s costs in bringing the action.

Following several years of appeals relating to the content of the corrective statements remedy described above, in October 2017, the district court approved the parties’ proposed consent order implementing corrective statements in newspapers and on television. The corrective statements began appearing in newspapers and on television in the fourth quarter of 2017. In April 2018, the parties reached agreement on the implementation details of the corrective statements on websites and onserts. The corrective statements began appearing on websites in the second quarter of 2018 and the onserts began appearing in the fourth quarter of 2018.

In 2014 and 2019, Altria and PM USA recorded provisions totaling approximately $36 million for the estimated costs of implementing the corrective communications remedy.

The requirements related to corrective statements at point-of-sale remain outstanding. In May 2014, the district court ordered further briefing on the issue, which was completed in June 2014. In May 2018, the parties submitted a joint status report and additional briefing on point-of-sale signage to the district court. In May 2019, the district court ordered a hearing on the point-of-sale signage issue. The hearing is currently scheduled for June 2022.

In June 2020, the United States government filed a motion with the district court asking for clarification as to whether the court-ordered injunction that applies to cigarettes also applies to HeatSticks, a heated tobacco product used with the IQOS electronic device. In August 2020, Altria and PM USA filed an opposition to the government’s motion and, in the alternative, a motion to

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modify the injunction to make clear it does not apply to HeatSticks. Regardless of the district court’s decisions on the pending motions, the government has indicated it will not oppose a modification to the injunction that permits PM USA to use the Modified Risk Tobacco Product claim authorized by the United States Food and Drug Administration for HeatSticks.

E-vapor Product Litigation

As of October 25, 2021, Altria and/or its subsidiaries, including PM USA, were named as defendants in 53 class action lawsuits relating to JUUL e-vapor products. JUUL is an additional named defendant in each of these lawsuits. The theories of recovery include violation of RICO, fraud, failure to warn, design defect, negligence and unfair trade practices. Plaintiffs seek various remedies, including compensatory and punitive damages and an injunction prohibiting product sales. The 53 class action lawsuits include 28 cases involving plaintiffs whose claims were previously included in other class action complaints but were refiled as separate stand-alone class actions for procedural and other reasons.

Altria and/or its subsidiaries, including PM USA, also have been named as defendants in other lawsuits involving JUUL e-vapor products, including 2,548 individual lawsuits, 350 “third party” lawsuits, which include school districts, state and local governments and tribal and healthcare organization lawsuits. JUUL is an additional named defendant in each of these lawsuits.

The majority of the individual and class action lawsuits mentioned above were filed in federal court. In October 2019, the United States Judicial Panel on Multidistrict Litigation ordered the coordination or consolidation of these lawsuits in the U.S. District Court for the Northern District of California for pretrial purposes.

Altria and its subsidiaries filed motions to dismiss certain claims in the class action and school district cases, including the federal RICO claim. In October 2020, the U.S. District Court for the Northern District of California granted the motion to dismiss the RICO class action claim without prejudice. Although it otherwise denied the motion, the court found that plaintiffs had not sufficiently alleged standing or causation with respect to their claim under California law. The court also granted the motion to dismiss the RICO claim in the cases filed by various school districts, but denied the motion in all other respects. The court gave plaintiffs the opportunity to amend their complaints to attempt to cure the deficiencies the court identified and plaintiffs filed their amended complaints in November 2020. In January 2021, Altria and its subsidiaries filed a renewed motion to dismiss the RICO claim, which the court denied in April 2021. In December 2020, the U.S. District Court for the Northern District of California and the parties selected 20 personal injury plaintiffs to be adjudicated as bellwether cases and in July 2021, the court set dates for the first 4 of such cases to commence in 2022.

An additional group of cases is pending in California state courts. In January 2020, the Judicial Council of California determined that this group of cases was appropriate for coordination and assigned the group to the Superior Court of California, Los Angeles County, for pretrial purposes.

JUUL also is named in a significant number of additional individual and class action lawsuits to which neither Altria nor any of its subsidiaries is currently named.

NaN of the “third party” lawsuits noted above against Altria and/or its subsidiaries and JUUL, as an additional named defendant, were initiated, individually, by the attorneys general of Alaska, Hawaii and Minnesota alleging violations of state consumer protection and other similar laws. JUUL is also named in other attorneys general lawsuits to which neither Altria nor any of its subsidiaries is currently named. JUUL settled 1 such lawsuit by agreeing to (i) pay approximately $40 million and (ii) certain restrictions on its sales and marketing activities.

IQOS Litigation

In April 2020, RAI Strategic Holdings, Inc. and R.J. Reynolds Vapor Co., which are affiliates of R.J. Reynolds, filed a lawsuit against Altria, PM USA, Altria Client Services LLC, PMI and its affiliate, Philip Morris Products S.A., in the United States District Court for the Eastern District of Virginia. The lawsuit asserts claims of patent infringement based on the sale of the IQOS electronic device and HeatSticks in the United States. Plaintiffs seek various remedies, including preliminary and permanent injunctive relief, treble damages and attorneys’ fees. Altria and PMI have been dismissed from the lawsuit. In June 2020, the remaining defendants filed a motion to dismiss certain of plaintiffs’ claims and also filed counterclaims against the plaintiffs for infringement of various patents owned by the remaining defendants. The case was stayed in December 2020 due to the COVID-19 pandemic; however, the stay was lifted with respect to defendants’ counterclaims in February 2021 and a trial is currently scheduled for April 2022.

Also in April 2020, a related action was filed against the same defendants by the same plaintiffs, as well as R.J. Reynolds, with the United States International Trade Commission (“ITC”). There, the plaintiffs also allege patent infringement, but the remedies sought include a prohibition on the importation of the IQOS electronic device, HeatSticks and component parts into the United States and on the sale of any such products previously imported into the United States. No damages are recoverable in the proceedings before the ITC. In May 2021, an administrative law judge found that the IQOS electronic device and HeatSticks infringe plaintiffs’ patents and recommended to the ITC a ban on the importation of the IQOS electronic device, HeatSticks and the infringing components into the United States. In September 2021, the ITC affirmed the administrative law judge’s initial determination and issued a limited exclusion order barring the importation of the IQOS electronic device,

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HeatSticks and the infringing components into the United States and a cease and desist order barring domestic sales, marketing and distribution of these imported products. The orders will become effective on November 29, 2021 unless rejected by the Biden Administration prior to that date. Defendants may appeal the orders to the United States Court of Appeals for the Federal Circuit; however, any ban on importation or on the sale, marketing and distribution of previously imported product is unlikely to be stayed pending the conclusion of the appeal. Due to this litigation, in October 2021, PM USA announced plans to begin removing the IQOS electronic device and HeatSticks from the marketplace as it awaits the outcome of administrative review.

An additional unrelated patent infringement case regarding the IQOS electronic device was filed in November 2020 in the United States District Court for the Northern District of Georgia against PM USA and Philip Morris Products S.A. seeking damages and equitable relief. In February 2021, defendants filed a motion to dismiss the lawsuit, which the court granted in July 2021. In August 2021, plaintiff filed a motion to amend the complaint.

Antitrust Litigation

In April 2020, the FTC issued an administrative complaint against Altria and JUUL alleging that Altria’s 35% investment in JUUL and the associated agreements constitute an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act of 1890 (“Sherman Act”) and Section 5 of the Federal Trade Commission Act of 1914, and substantially lessened competition in violation of Section 7 of the Clayton Antitrust Act (“Clayton Act”). If the FTC’s challenge is successful, the FTC may order a broad range of remedies, including divestiture of Altria’s minority investment in JUUL, rescission of the transaction and all associated agreements, a requirement of FTC approval of future agreements related to the development, manufacture, distribution or sale of e-vapor products and prohibition against any officer or director of either Altria or JUUL serving on the other party’s board of directors or attending meetings of the other party’s board of directors. The administrative trial was held before an FTC administrative law judge in June 2021. The post-trial briefing was completed in October 2021. The administrative law judge’s decision is subject to review by the FTC on its own motion or at the request of any party. The FTC then issues its ruling, which may be appealed to any United States Court of Appeals.

Also as of October 25, 2021, 16 putative class action lawsuits have been filed against Altria and JUUL in the United States District Court for the Northern District of California. The lawsuits initially named, in addition to the two companies, certain senior executives and certain members of the board of directors of both companies as defendants; however, those individuals currently or formerly affiliated with Altria were later dismissed. In November 2020 these lawsuits were consolidated into 3 complaints (one on behalf of direct purchasers, one on behalf of indirect purchasers and one on behalf of indirect resellers). The consolidated lawsuits, as amended, cite the FTC administrative complaint and allege that Altria and JUUL violated Sections 1, 2 and/or 3 of the Sherman Act and Section 7 of the Clayton Act and various state antitrust, consumer protection and unjust enrichment laws by restraining trade and/or substantially lessening competition in the U.S. closed-system electronic cigarette market. Plaintiffs seek various remedies, including treble damages, attorneys’ fees, a declaration that the agreements between Altria and JUUL are invalid, divestiture of Altria’s minority investment in JUUL and rescission of the transaction. Altria filed a motion to dismiss these lawsuits in January 2021. In August 2021, the United States District Court for the Northern District of California denied Altria’s motion to dismiss except with respect to plaintiffs’ claims for injunctive and equitable relief. However, plaintiffs were granted the opportunity to replead such claims by the trial court, which plaintiffs did in September 2021.

In November 2020, Altria exercised its rights to convert its non-voting JUUL shares to voting shares. However, pending the outcome of the FTC administrative complaint, Altria currently does not intend to exercise its additional governance rights obtained upon the conversion, including the right to elect directors to JUUL’s board or to vote its JUUL shares other than as a passive investor. For further discussion of Altria’s rights in the event of share conversion, see Note 4. Investments in Equity Securities - Investment in JUUL.

Shareholder Class Action and Shareholder Derivative Lawsuits

Shareholder Class Action: In October and December 2019, 2 purported Altria shareholders filed putative class action lawsuits against Altria, Howard A. Willard III, Altria’s former Chairman and Chief Executive Officer, and William F. Gifford, Jr., Altria’s former Vice Chairman and Chief Financial Officer and current Chief Executive Officer, in the United States District Court for the Eastern District of New York. In December 2019, the court consolidated the 2 lawsuits into a single proceeding. The consolidated lawsuit was subsequently transferred to the United States District Court for the Eastern District of Virginia. The lawsuit asserts claims under Sections 10(b) and 20(a) and under Rule 10b-5 of the Exchange Act. In April 2020, JUUL, its founders and some of its current and former executives were added to the lawsuit. The claims allege false and misleading statements and omissions relating to Altria’s investment in JUUL. Plaintiffs seek various remedies, including damages and attorneys’ fees. In July 2020, the defendants filed motions to dismiss plaintiffs’ claims, which the district court denied in March 2021.

Federal Shareholder Derivative Lawsuits: In August 2020, 2 purported Altria shareholders filed separate derivative lawsuits in the United States District Court for the Northern District of California on behalf of themselves and Altria, against Mr. Willard, Mr. Gifford, JUUL and certain of its executives and officers. These derivative lawsuits relate to Altria’s

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investment in JUUL, and assert claims of breach of fiduciary duty by the Altria defendants and aiding and abetting in that alleged breach of fiduciary duty by the remaining defendants. In March 2021, the United States District Court for the Northern District of California granted defendants’ motion to transfer both lawsuits to the United States District Court for the Eastern District of Virginia. NaN additional federal derivative lawsuits were filed in October 2020, January 2021 and March 2021, respectively, in the United States District Court for the Eastern District of Virginia against Mr. Willard, Mr. Gifford, Mr. Crosthwaite, certain members of Altria’s Board of Directors, JUUL, its founders and some of its current and former executives. These suits assert various claims, including breach of fiduciary duty, unjust enrichment, waste of corporate assets and violations of certain federal securities laws. The remedies sought in these lawsuits include damages, disgorgement of profits, reformation of Altria’s corporate governance and internal procedures, and attorneys’ fees. In April 2021, the court consolidated the 5 cases pending in the Eastern District of Virginia into a single action.

State Shareholder Derivative Lawsuits: NaN derivative lawsuits have been filed in Virginia state courts against Mr. Willard, Mr. Gifford, Mr. Crosthwaite (Altria’s former Chief Growth Officer and JUUL’s current Chief Executive Officer), certain members of Altria’s Board of Directors, JUUL, its founders and some of its current and former executives. The lawsuits were filed in September 2020, May 2021, June 2021, July 2021, August 2021 and August 2021, respectively. The lawsuits assert various claims, including breach of fiduciary duty, and seek remedies similar to those sought by plaintiffs in the cases pending in federal court in the Eastern District of Virginia. In July 2021 and September 2021, the court consolidated the first 4 of these state derivative cases into a single action.

Certain Other Tobacco-Related Litigation

“Lights/Ultra Lights” Cases and Other Smoking and Health Class Actions: Plaintiffs have sought certification of their cases as class actions, alleging among other things, that the uses of the terms “Lights” and/or “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment or breach of warranty, and have sought injunctive and equitable relief, including restitution and, in certain cases, punitive damages. These class actions have been brought against PM USA and, in certain instances, Altria or its other subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes. Defenses raised in these cases include lack of misrepresentation, lack of causation, injury and damages, the statute of limitations, non-liability under state statutory provisions exempting conduct that complies with federal regulatory directives, and the First Amendment. Twenty-one state courts in 23 “Lights” cases have refused to certify class actions, dismissed class action allegations, reversed prior class certification decisions or have entered judgment in favor of PM USA. As of October 25, 2021, 2 “Lights/Ultra Lights” class actions are pending in U.S. state court. Neither case is active.

As of October 25, 2021, 1 smoking and health case alleging personal injury or seeking court-supervised programs or ongoing medical monitoring and purporting to be brought on behalf of a class of individual plaintiffs, is pending in a U.S. state court. The case is currently inactive.

UST Litigation: UST and/or its tobacco subsidiaries have been named in a number of individual tobacco and health lawsuits over time. Plaintiffs’ allegations of liability in these cases have been based on various theories of recovery, such as negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of implied warranty, addiction and breach of consumer protection statutes. Plaintiffs have typically sought various forms of relief, including compensatory and punitive damages, and certain equitable relief, including but not limited to disgorgement. Defenses raised in these cases include lack of causation, assumption of the risk, comparative fault and/or contributory negligence, and statutes of limitations. As of October 25, 2021, there is 1 case pending against USSTC.

Environmental Regulation

Altria and its subsidiaries (and former subsidiaries) are subject to various federal, state and local laws and regulations concerning the discharge of materials into the environment, or otherwise related to environmental protection, including, in the U.S.: the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as “Superfund”), which can impose joint and several liability on each responsible party. Subsidiaries (and former subsidiaries) of Altria are involved in several matters subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. Altria’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations.

Altria provides for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change. Other than those amounts, it is not possible to reasonably estimate the cost of any environmental remediation and compliance efforts that subsidiaries of Altria may undertake in the future. In the opinion of management, however, compliance with environmental laws and regulations, including the payment of any remediation costs or damages and the making of related expenditures, has not had, and is not expected to have, a material adverse effect on Altria’s consolidated results of operations, capital expenditures, financial position or cash flows.

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Guarantees and Other Similar Matters

In the ordinary course of business, certain subsidiaries of Altria have agreed to indemnify a limited number of third parties in the event of future litigation. At September 30, 2021, Altria and certain of its subsidiaries (i) had $48 million of unused letters of credit obtained in the ordinary course of business; (ii) were contingently liable for guarantees related to their own performance, including $24 million for surety bonds; and (iii) had a redeemable noncontrolling interest of $39 million recorded on its condensed consolidated balance sheet. In addition, from time to time, subsidiaries of Altria issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on Altria’s liquidity.

Under the terms of a distribution agreement between Altria and PMI (the “Distribution Agreement”), entered into as a result of Altria’s 2008 spin-off of its former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria and PM USA for liabilities related to tobacco products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for liabilities related to tobacco products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. Altria does not have a related liability recorded on its condensed consolidated balance sheet at September 30, 2021 as the fair value of this indemnification is insignificant. PMI has agreed not to seek indemnification with respect to the IQOS patent litigation discussed above under Certain Other Tobacco-Related Litigation - IQOS Litigation, excluding the patent infringement case filed with the United States District Court for the Northern District of Georgia.

PM USA has issued guarantees relating to Altria’s obligations under its outstanding debt securities, borrowings under its $3.0 billion Credit Agreement and amounts outstanding under its commercial paper program.

Note 13. New Accounting Guidance Not Yet Adopted

The following table provides a description of issued accounting guidance applicable to, but not yet adopted by, Altria:


Standards	Description	Effective Date for Public Entity	Effect on Financial Statements
ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity	The guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Key provisions of the guidance include reducing the number of accounting models, simplifying the earnings per share calculations and expanding the disclosures related to convertible instruments.	The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.	Altria’s adoption of this guidance is not expected to have a material impact on its consolidated financial statements and related disclosures.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Description of the Company

When used in this Quarterly Report on Form 10-Q (“Form 10-Q”), the terms “Altria,” “we” and “our” refer to Altria Group, Inc. and its subsidiaries, unless the context requires otherwise.

Altria’s Vision by 2030 is to responsibly lead the transition of adult smokers to a smoke-free future (“Vision”). Altria is focused on moving adult smokers away from cigarettes by taking action to transition adult smokers to potentially less harmful choices.

For a description of Altria, see Background in Note 1. Background and Basis of Presentation to the condensed consolidated financial statements in Part I, Item 1. Financial Statements of this Form 10-Q (“Item 1”).

For a detailed description of Altria’s reportable segments, see Note 9. Segment Reporting to the condensed consolidated financial statements in Item 1 (“Note 9”).

Executive Summary

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, Altria refers to the following “adjusted” financial measures: adjusted operating companies income (loss) (“OCI”); adjusted OCI margins; adjusted net earnings attributable to Altria; adjusted diluted earnings per share attributable to Altria; and adjusted effective tax rates. These adjusted financial measures are not required by, or calculated in accordance with, United States generally accepted accounting principles (“GAAP”) and may not be calculated the same as similarly titled measures used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in isolation or as a

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substitute for the related financial information prepared in accordance with GAAP. Except as noted in the 2021 Forecasted Results section below, when Altria provides a non-GAAP measure in this Form 10-Q, it also provides a reconciliation of that non-GAAP financial measure to the most directly comparable GAAP financial measure. OCI for the segments is defined as operating income before general corporate expenses and amortization of intangibles. For a further description of these non-GAAP financial measures, see the Non-GAAP Financial Measures section below.

Ste. Michelle Transaction

On July 8, 2021, UST LLC (“UST”) entered into a share purchase agreement pursuant to which it agreed to sell its subsidiary, International Wine & Spirits Ltd. (“IWS”), which includes Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), to an entity controlled by investment funds managed by Sycamore Partners Management, L.P. in an all-cash transaction with a purchase price of approximately $1.2 billion and the assumption of certain liabilities of IWS and its subsidiaries (the “Ste. Michelle Transaction”). UST completed the sale of IWS on October 1, 2021. For further discussion, see Note 3. Assets Held for Sale to the condensed consolidated financial statements in Item 1 (“Note 3”).

COVID-19 Pandemic

The COVID-19 pandemic has led to adverse impacts on the U.S. and global economies and continues to create economic uncertainty even as COVID-19 vaccines have been and continue to be administered in 2021 and the U.S. and global economies have begun to operate with reduced restrictions on consumer movements and business operations. Although much uncertainty still surrounds the pandemic (including its duration, the impact of COVID-19 variants and ultimate overall impact on U.S and global economies, Altria and its subsidiaries’ operations and those of its investees), Altria continues to monitor the macroeconomic risks of the COVID-19 pandemic (including labor shortages and inflation) and continues to carefully evaluate potential outcomes and work to mitigate risks. Specifically, Altria remains focused on any potential impact to its liquidity, operations, supply and distribution chains and on economic conditions. In terms of Altria’s liquidity, despite some volatility in commercial paper markets in 2020, Altria has not experienced a material adverse impact to its liquidity.

As with so many other companies throughout the U.S. and globally, Altria’s operations have been affected by the COVID-19 pandemic. To date, Altria believes its tobacco businesses have not experienced any material adverse effects associated with governmental actions to restrict consumer movement or business operations, but continues to monitor these factors. Altria has implemented remote working for many employees and aligned with the social distancing protocols recommended by public health authorities for employees working at Altria facilities. Altria continues to believe that remote working due to the COVID-19 pandemic has had minimal impact on productivity. Also, Altria’s critical information technology systems have remained operational. Although Altria’s tobacco businesses previously suspended operations temporarily at several of their manufacturing facilities in March 2020, the businesses resumed operations at those facilities under enhanced safety protocols in April 2020 and all manufacturing facilities are currently operational under enhanced safety protocols. Altria continues to monitor the risks associated with facility disruptions and workforce availability as a result of uncertainty related to the COVID-19 pandemic.

Altria’s suppliers and those within its distribution chain continue to be subject to potential facility closures, remote working protocols and labor shortages. To date, Altria has not experienced any material disruptions to its supply chains or distribution systems, but is continuing to monitor these factors. Altria continues to monitor the risk that the business of one or more suppliers, distributors or any other entities within its supply and distribution chains may be disrupted.

In September 2021, the President of the United States issued an Executive Order charging the Occupational Safety and Health Administration (“OSHA”) with developing an emergency temporary standard requiring almost all employers mandate certain COVID-19 vaccination and testing requirements in the workplace. This mandate could have an adverse impact on worker availability at Altria’s subsidiaries’ or investees’ manufacturing, salesforce and administrative operations, or in their distribution and supply chains.

Altria believes that the COVID-19 pandemic altered adult tobacco consumer behaviors and purchasing patterns, particularly in the earlier stages of the pandemic. While the number of adult tobacco consumer trips to the store remain below pre-pandemic levels and tobacco expenditures per trip remain elevated, the environment continues to evolve as the effects of government stimulus have lessened and consumer mobility returns to more normal levels. Although Altria’s tobacco businesses have not experienced a material adverse impact to date by the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19 pandemic (including changes in COVID-19-related restrictions and guidelines) may impact adult tobacco consumers in the future. Altria continues to monitor the macroeconomic risks of the COVID-19 pandemic (including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants), and their effect on adult tobacco consumers, including stay-at-home practices and disposable income, which may be further impacted by unemployment rates and inflation. Altria also continues to monitor adult tobacco consumers’ purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products.

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Anheuser-Busch InBev SA/NV (“ABI”) continued to be impacted by the COVID-19 pandemic, including the effects of COVID-19 variants, supply-chain constraints across certain markets, transactional foreign exchange and commodity cost headwinds. During the first nine months of 2021, ABI’s share price continued to fluctuate, ultimately resulting in a lower share price at September 30, 2021 compared to December 31, 2020. As discussed in Note 4. Investment in Equity Securities to the condensed consolidated financial statements in Item 1 (“Note 4”), in preparing Altria’s financial statements for the period ended September 30, 2021, Altria concluded that the full recovery to the carrying value will take longer than previously expected, therefore, the decline in fair value of its investment in ABI at September 30, 2021 was other than temporary. In determining that the decline in fair value was other than temporary, Altria considered the continued impact of the COVID-19 pandemic on ABI’s global business along with several other factors. As a result, Altria recorded to income (losses) from equity investments in its condensed consolidated statements of earnings (losses) a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021. Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic on ABI’s business and market valuation.

Altria has considered the impact of the COVID-19 pandemic on the business of JUUL Labs, Inc. (“JUUL”), including its sales, distribution, operations, supply chain and liquidity, in conducting its periodic impairment assessment and quantitative valuations. JUUL’s operations were negatively impacted in 2020 by the COVID-19 pandemic due to stay-at-home practices and government-mandated restrictions. While the impact was considered in Altria’s quantitative valuations conducted in connection with the preparation of its financial statements for the nine months ended September 30, 2021 and during 2020, Altria does not believe the COVID-19 pandemic was a primary driver of the non-cash, pre-tax impairment charge recorded during 2020 or any quarterly changes in fair value recorded since the fourth quarter of 2020. Altria will continue to monitor the impact of the COVID-19 pandemic on JUUL’s business, including near-term supply chain constraints and component part shortages, in Altria’s quarterly quantitative valuations of JUUL.

Altria has considered the impact of the COVID-19 pandemic on the business of Cronos Group Inc. (“Cronos”), including its sales, distribution, operations, supply chain and liquidity. During 2020 and the first nine months of 2021, Cronos has been adversely impacted by the COVID-19 pandemic, due in part to government actions limiting access to retail stores in the United States and Canada, including the recording in 2020 of an impairment charge on certain goodwill and intangible assets. However, the continued rollout of vaccines in the United States and Canada has resulted in the easing of COVID-19 related restrictions in most of the United States and Canada during the third quarter of 2021. Altria will continue to monitor the impact of COVID-19 pandemic on Cronos’ business, including near-term supply chain challenges, and market valuation.

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Consolidated Results of Operations for the Nine Months Ended September 30, 2021

The changes in net earnings (losses) attributable to Altria and diluted earnings (losses) per share (“EPS”) attributable to Altria for the nine months ended September 30, 2021, from the nine months ended September 30, 2020, were due primarily to the following:


(in millions, except per share data)	Net Earnings (Losses)			Diluted EPS
For the nine months ended September 30, 2020	$	2,543		$	1.36

2020 Implementation and acquisition-related costs	314			0.17
2020 Tobacco and health and certain other litigation items	57			0.03
2020 Impairment of JUUL equity securities	2,600			1.40
2020 ABI-related special items	544			0.29
2020 Cronos-related special items	143			0.08
2020 COVID-19 special items	37			0.02
2020 Tax items	38			0.02
Subtotal 2020 special items	3,733			2.01
2021 NPM Adjustment Items	57			0.03
2021 Implementation, acquisition and disposition-related costs	(95)			(0.05)
2021 Tobacco and health and certain other litigation items	(113)			(0.06)


2021 ABI-related special items	(4,828)			(2.60)
2021 Cronos-related special items	(205)			(0.11)

2021 Loss on early extinguishment of debt	(496)			(0.27)
2021 Tax items	5			—
Subtotal 2021 special items	(5,675)			(3.06)
Fewer shares outstanding	—			0.02
Change in tax rate	(18)			(0.01)
Operations	268			0.14
For the nine months ended September 30, 2021	$	851		$	0.46

2021 Reported Net Earnings (Losses)	$	851		$	0.46
2020 Reported Net Earnings (Losses)	$	2,543		$	1.36
% Change	(66.5)		%	(66.2)		%

2021 Adjusted Net Earnings and Adjusted Diluted EPS	$	6,526		$	3.52
2020 Adjusted Net Earnings and Adjusted Diluted EPS	$	6,276		$	3.37
% Change	4.0		%	4.5		%

For a discussion of special items and other business drivers affecting the comparability of statements of earnings (losses) amounts and reconciliations of adjusted earnings attributable to Altria and adjusted diluted EPS attributable to Altria, see the Consolidated Operating Results section below.

▪Fewer Shares Outstanding: Fewer shares outstanding were due primarily to shares repurchased by Altria under its share repurchase program in 2021.

▪Change in Tax Rate: The change in the tax rate (which excludes the impact of special items shown in the table above) was driven primarily by higher state tax expense and foreign tax rate differential.

▪Operations: The increase of $268 million in operations (which excludes the impact of special items shown in the table above) was due primarily to the following:

•higher OCI from the smokeable products segment;

•favorable net periodic benefit income, excluding service cost; and

•higher income from Altria’s equity investment in ABI.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below.

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Consolidated Results of Operations for the Three Months Ended September 30, 2021

The changes in net earnings (losses) attributable to Altria and diluted EPS attributable to Altria for the three months ended September 30, 2021, from the three months ended September 30, 2020, were due primarily to the following:


(in millions, except per share data)	Net Earnings (Losses)			Diluted EPS
For the three months ended September 30, 2020	$	(952)		$	(0.51)

2020 Implementation and acquisition-related costs	8			—
2020 Tobacco and health and certain other litigation items	25			0.01
2020 Impairment of JUUL equity securities	2,600			1.40
2020 ABI-related special items	405			0.22
2020 Cronos-related special items	142			0.08

2020 Tax items	(13)			(0.01)
Subtotal 2020 special items	3,167			1.70
2021 NPM Adjustment Items	33			0.02
2021 Implementation, acquisition and disposition-related costs	(52)			(0.03)
2021 Tobacco and health and certain other litigation items	(80)			(0.04)

2021 JUUL changes in fair value	100			0.05
2021 ABI-related special items	(4,899)			(2.65)
2021 Cronos-related special items	(89)			(0.05)

2021 Tax items	8			—
Subtotal 2021 special items	(4,979)			(2.70)
Fewer shares outstanding	—			0.01
Change in tax rate	26			0.01
Operations	16			0.01
For the three months ended September 30, 2021	$	(2,722)		$	(1.48)

2021 Reported Net Earnings (Losses)	$	(2,722)		$	(1.48)
2020 Reported Net Earnings (Losses)	$	(952)		$	(0.51)
% Change	(100)%+			(100)%+

2021 Adjusted Net Earnings and Adjusted Diluted EPS	$	2,257		$	1.22
2020 Adjusted Net Earnings and Adjusted Diluted EPS	$	2,215		$	1.19
% Change	1.9		%	2.5		%

▪Fewer Shares Outstanding: Fewer shares outstanding were due primarily to shares repurchased by Altria under its share repurchase program in 2021.

▪Change in Tax Rate: The change in the tax rate (which excludes the impact of special items shown in the table above) was driven primarily by dividends associated with Altria’s equity investment in ABI.

▪Operations: The increase of $16 million in operations (which excludes the impact of special items shown in the table above) was due primarily to the following:

•higher income from Altria’s equity investment in ABI;

•favorable net periodic benefit income, excluding service cost; and

•lower interest and other debt expense, net;

partially offset by:

▪lower OCI.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below.

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2021 Forecasted Results

Altria narrows its guidance for 2021 full-year adjusted diluted EPS to be in a range of $4.58 to $4.62, representing a growth rate of 5% to 6% over its 2020 full-year adjusted diluted EPS base of $4.36, as shown in the first table below. While the 2021 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions related to (i) the economy (including unemployment rates and the impact of increased inflation), (ii) adult tobacco consumer dynamics, including stay-at-home practices, disposable income, purchasing patterns and adoption of smoke-free products, (iii) regulatory and legislative (including excise tax) developments and (iv) the timing and extent of COVID-19 vaccine administration and the impact of COVID-19 variants.

Altria’s 2021 full-year adjusted diluted EPS guidance range includes planned investments in support of its Vision to responsibly lead the transition of adult smokers to a smoke-free future, such as (i) marketplace investments to expand the availability and awareness of Altria’s smoke-free products, (ii) costs associated with building an industry-leading consumer engagement platform that enhances data collection and insights in support of adult tobacco consumer transition to smoke-free products and (iii) increased smoke-free product research and development expense. This forecasted growth rate excludes the (income) expense items in the second table below.

Altria continues to expect its 2021 full-year adjusted effective tax rate will be in a range of 24.5% to 25.5%.


Reconciliation of 2020 Reported Diluted EPS to 2020 Adjusted Diluted EPS
2020 Reported diluted EPS	$	2.40
Asset impairment, exit, implementation and acquisition-related costs	0.18
Tobacco and health and certain other litigation items	0.03
Impairment of JUUL equity securities	1.40
JUUL changes in fair value	(0.05)
ABI-related special items	0.32



Cronos-related special items	0.03
COVID-19 special items	0.02
Tax items	0.03
2020 Adjusted diluted EPS	$	4.36

The following (income) expense items are excluded from Altria’s 2021 forecasted adjusted diluted EPS growth rate:


(Income) Expense Excluded from 2021 Forecasted Adjusted Diluted EPS
NPM Adjustment Items	$	(0.03)
Implementation, acquisition and disposition-related costs	0.05
Tobacco and health and certain other litigation items	0.06


ABI-related special items	2.60
Cronos-related special items	0.11
Loss on early extinguishment of debt	0.27

	$	3.06

For a discussion of certain income and expense items excluded from the forecasted results above, see the Consolidated Operating Results section below.

Altria’s full-year adjusted diluted EPS guidance and full-year forecast for its adjusted effective tax rate exclude the impact of certain income and expense items, including those items noted in the Non-GAAP Financial Measures section below, that management believes are not part of underlying operations. Altria’s management cannot estimate on a forward-looking basis the impact of these items on its reported diluted EPS or its reported effective tax rate because these items, which could be significant, may be unusual or infrequent, are difficult to predict and may be highly variable. As a result, Altria does not provide a corresponding GAAP measure for, or reconciliation to, its adjusted diluted EPS guidance or its adjusted effective tax rate forecast.

Non-GAAP Financial Measures

While Altria reports its financial results in accordance with GAAP, its management also reviews certain financial results, including OCI, OCI margins, net earnings (losses) attributable to Altria and diluted EPS, on an adjusted basis, which excludes certain income and expense items that management believes are not part of underlying operations. These items may include,

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for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition-related and disposition-related costs, COVID-19 special items, equity investment-related special items (including any changes in fair value of the equity investment and any related warrants and preemptive rights), certain tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items”). Altria’s management does not view any of these special items to be part of Altria’s underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Altria’s management also reviews income tax rates on an adjusted basis. Altria’s adjusted effective tax rate may exclude certain tax items from its reported effective tax rate.

Altria’s management believes that adjusted financial measures provide useful additional insight into underlying business trends and results, and provide a more meaningful comparison of year-over-year results. Adjusted financial measures are used by management and regularly provided to Altria’s chief operating decision maker (the “CODM”) for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. These adjusted financial measures are not required by, or calculated in accordance with GAAP and may not be calculated the same as similarly titled measures used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.

Discussion and Analysis

Critical Accounting Policies and Estimates

Altria’s critical accounting policies and estimates are discussed in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”); there have been no material changes to these critical accounting policies and estimates, except as noted below.

Investment in ABI

At September 30, 2021, Altria’s investment in ABI consisted of 185 million restricted shares (the “Restricted Shares”) and 12 million ordinary shares of ABI. The fair value of Altria’s equity investment in ABI is based on (i) unadjusted quoted prices in active markets for ABI’s ordinary shares and, at September 30, 2021, 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.

In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and at September 30, 2021 had not recovered. In preparing its financial statements for the period ended September 30, 2021, Altria evaluated the factors related to the fair value decline, including the impact on the fair value of ABI’s shares during the COVID-19 pandemic, which has negatively impacted ABI’s business. Altria evaluated the duration and magnitude of the fair value decline at September 30, 2021, ABI’s financial condition and near-term prospects, and Altria’s intent and ability to hold its investment in ABI until recovery. In preparing its financial statements for the period ended September 30, 2021, Altria concluded that the decline in fair value of its investment in ABI at September 30, 2021 was other than temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021 to income (losses) from equity investments in its condensed consolidated statements of earnings (losses). This impairment charge reflected the difference between the fair value using ABI’s share price at September 30, 2021 and the carrying value of Altria’s equity investment in ABI at September 30, 2021, prior to recording the impairment charge. This conclusion was based on the following factors:

▪the fair value of Altria’s investment in ABI had been below its carrying value since October 2019 and had not fully recovered. At its lowest point in March 2020, the fair value of Altria’s investment in ABI was below its carrying value by approximately 52% and at December 31, 2020 had recovered to approximately 17%. During the first nine months of 2021, ABI’s share price continued to fluctuate, ultimately resulting in a share price decline of 18% since December 31, 2020. At September 30, 2021, prior to recording the impairment charge, the fair value of Altria’s investment in ABI was below its carrying value by approximately 35%;

▪the fair value of Altria’s investment in ABI historically exceeded its carrying value since October 2016 (when Altria obtained its ownership interest in ABI) with the exception of certain periods starting in September 2018 and since October 2019. Altria was optimistic about a near-term recovery because ABI’s share price demonstrated significant recovery, including during 2019, the second half of 2020 and the first half of 2021. However, during the third quarter of 2021, the decline in ABI’s share price resumed and, at September 30, 2021, the share price was lower than at December 31, 2020, erasing much of the recovery experienced in the second half of 2020 and first half of 2021;

▪ABI’s share price continued to decline following the release of ABI’s second quarter of 2021 earnings report in which ABI’s performance in the first half of 2021 improved meaningfully versus the same period in 2020. Despite ABI’s

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second quarter of 2021 results, which also included top-line growth ahead of the pre-pandemic levels from the second quarter of 2019 as well as the reaffirmation of its 2021 outlook, ABI’s income growth was impacted by, among other things, transactional foreign exchange and commodity cost headwinds; and

▪the industry disruption and volatility associated with the COVID-19 pandemic, including the impact of COVID-19 variants and related cost headwinds, have continued. While Altria continues to believe that ABI’s share price performance is not reflective of its underlying long-term equity value, and ABI’s share price will recover, Altria now believes that it will take longer than previously expected as Altria believes that COVID-19 variants, supply-chain constraints across certain markets, transactional foreign exchange and commodity cost headwinds may continue to impact ABI’s near-term financial results and share price performance.

Although Altria recorded an impairment charge on its investment in ABI during the nine and three months ended September 30, 2021, Altria continues to have confidence in ABI’s (i) long-term strategies, (ii) premium global brands, (iii) experienced management team and (iv) capability to successfully navigate its near-term challenges. Altria further expects that the adverse impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business are transitory, but now also anticipates that the full recovery to the carrying value will take longer than previously expected. During October 2021, ABI’s share price continued to fluctuate and at October 25, 2021, the fair value of Altria’s investment in ABI approximated its carrying value. Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic and subsequent recovery on ABI’s business and market valuation. For further discussion of Altria’s investment in ABI, see Note 4.

Investment in Cronos

The fair value of Altria’s 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. In September 2021, the fair value of Altria’s equity method investment in Cronos declined below its carrying value. At September 30 2021, the fair value of Altria’s equity method investment in Cronos was below its carrying value by $14 million or approximately 2%. Altria has evaluated the factors related to the fair value decline. Based on Altria’s evaluation of the duration and magnitude of the fair value decline at September 30, 2021, Altria concluded that the decline in fair value of its equity method investment in Cronos below its carrying value is temporary and, therefore, no impairment was recorded. At October 25, 2021, the fair value of Altria’s equity method investment in Cronos was below its carrying value by $26 million or approximately 3%.

Altria will continue to monitor its equity method investment in Cronos, including the impact of the COVID-19 pandemic on Cronos’s business and market valuation. If Altria were to conclude that the decline in fair value is other than temporary, Altria would determine and recognize, in the period identified, the impairment of its equity method investment, which could result in a material adverse effect on Altria’s consolidated financial position or earnings. For further discussion of Altria’s investment in Cronos, see Note 4.

Federal Excise Taxes

Congress is currently considering legislation that would significantly increase the federal excise tax for all tobacco products and create a new tax for e-vapor products and other products containing nicotine that are not currently subject to a tobacco federal excise tax. Additionally, e-vapor products and oral nicotine products not currently taxed would be subject to a federal excise tax that would vary based on the nicotine content.

Altria uses an income approach to estimate (i) the fair values of its goodwill and intangible assets when conducting its annual review of goodwill and indefinite-lived intangible assets for potential impairment (more frequently if events occur that would require an interim review) and (ii) the fair value of its investment in JUUL, when accounting for its equity method investment in JUUL under the fair value option. Altria believes that an excise tax on cigars, moist smokeless tobacco products (“MST”), e-vapor products and oral nicotine pouches at the current proposed rates could have a material adverse impact on the significant assumptions used in performing these valuations, including volume, operating margins and income.

At this time, it is unclear (i) whether proposed tobacco and nicotine taxes will be included in any final legislation and (ii) what the amounts of any such taxes that would be included, if enacted. If the proposed tobacco and nicotine federal excise taxes on cigars, MST and e-vapor products are included in any final legislation at the rates that are currently proposed, it could result in a material non-cash impairment of the Skoal trademark and a material decrease in the fair value of its investment in JUUL, either of which would have a material adverse effect on Altria’s consolidated financial position or earnings.

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Consolidated Operating Results


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
Net revenues:
Smokeable products	$	17,275	$	17,522	$	5,975	$	6,313
Oral tobacco products	1,945		1,901		626		640
Wine	494		434		177		157
All other	44		(8)		8		13
Net revenues	$	19,758	$	19,849	$	6,786	$	7,123
Excise taxes on products:
Smokeable products	$	3,620	$	3,950	$	1,218	$	1,407
Oral tobacco products	98		98		32		33
Wine	14		14		5		5
All other	1		1		—		—
Excise taxes on products	$	3,733	$	4,063	$	1,255	$	1,445
Operating income:
OCI:
Smokeable products	$	7,901	$	7,609	$	2,753	$	2,789
Oral tobacco products	1,269		1,297		405		436
Wine	21		(347)		(24)		19
All other	(56)		(63)		(30)		(7)
Amortization of intangibles	(53)		(54)		(18)		(17)
General corporate expenses	(255)		(150)		(135)		(60)

Operating income	$	8,827	$	8,292	$	2,951	$	3,160

As discussed further in Note 9, the CODM reviews OCI to evaluate the performance of, and allocate resources to, the segments. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments.

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The following table provides a reconciliation of adjusted net earnings (losses) attributable to Altria and adjusted diluted EPS attributable to Altria for the nine months ended September 30:


(in millions of dollars, except per share data)	Earnings (Losses) before Income Taxes		Provision (Benefit) for Income Taxes		Net Earnings (Losses)		Net Earnings (Losses) Attributable to Altria		Diluted EPS
2021 Reported	$	1,544	$	693	$	851	$	851	$	0.46
NPM Adjustment Items	(76)		(19)		(57)		(57)		(0.03)
Implementation, acquisition and disposition-related costs	117		22		95		95		0.05
Tobacco and health and certain other litigation items	148		35		113		113		0.06

ABI-related special items	6,111		1,283		4,828		4,828		2.60
Cronos-related special items	200		(5)		205		205		0.11

Loss on early extinguishment of debt	649		153		496		496		0.27
Tax items	—		5		(5)		(5)		—
2021 Adjusted for Special Items	$	8,693	$	2,167	$	6,526	$	6,526	$	3.52

2020 Reported	$	4,349	$	1,817	$	2,532	$	2,543	$	1.36

Implementation and acquisition-related costs	415		101		314		314		0.17
Tobacco and health and certain other litigation items	76		19		57		57		0.03
Impairment of JUUL equity securities	2,600		—		2,600		2,600		1.40
ABI-related special items	689		145		544		544		0.29
Cronos-related special items	144		1		143		143		0.08
COVID-19 special items	50		13		37		37		0.02
Tax items	—		(38)		38		38		0.02
2020 Adjusted for Special Items	$	8,323	$	2,058	$	6,265	$	6,276	$	3.37

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The following table provides a reconciliation of adjusted net earnings (losses) attributable to Altria and adjusted diluted EPS attributable to Altria for the three months ended September 30:


(in millions of dollars, except per share data)	Earnings (Losses) before Income Taxes		Provision (Benefit) for Income Taxes		Net Earnings (Losses)		Net Earnings (Losses) Attributable to Altria		Diluted EPS
2021 Reported	$	(3,302)	$	(582)	$	(2,720)	$	(2,722)	$	(1.48)
NPM Adjustment Items	(44)		(11)		(33)		(33)		(0.02)
Implementation, acquisition and disposition-related costs	61		9		52		52		0.03
Tobacco and health and certain other litigation items	105		25		80		80		0.04
JUUL changes in fair value	(100)		—		(100)		(100)		(0.05)
ABI-related special items	6,200		1,301		4,899		4,899		2.65
Cronos-related special items	89		—		89		89		0.05

Tax items	—		8		(8)		(8)		—
2021 Adjusted for Special Items	$	3,009	$	750	$	2,259	$	2,257	$	1.22

2020 Reported	$	(324)	$	632	$	(956)	$	(952)	$	(0.51)

Implementation and acquisition-related costs	12		4		8		8		—
Tobacco and health and certain other litigation items	34		9		25		25		0.01
Impairment of JUUL equity securities	2,600		—		2,600		2,600		1.40
ABI-related special items	513		108		405		405		0.22
Cronos-related special items	143		1		142		142		0.08

Tax items	—		13		(13)		(13)		(0.01)
2020 Adjusted for Special Items	$	2,978	$	767	$	2,211	$	2,215	$	1.19

The following special items affected the comparability of statements of earnings (losses) amounts for the nine and three months ended September 30, 2021 and 2020:

▪NPM Adjustment Items: For a discussion of NPM Adjustment Items and a breakdown of these items by segment, see Health Care Cost Recovery Litigation in Note 12. Contingencies to the condensed consolidated financial statements in Item 1 (“Note 12”) and NPM Adjustment Items in Note 9, respectively.

▪Implementation, Acquisition and Disposition-Related Costs: Pre-tax implementation, acquisition and disposition-related charges were $117 million and $61 million for the nine and three months ended September 30, 2021, respectively. Pre-tax implementation and acquisition-related costs were $415 million and $12 million for the nine and three months ended September 30, 2020, respectively. For a discussion of implementation, acquisition and disposition-related costs, see Note 9.

▪Tobacco and Health and Certain Other Litigation Items: For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 12 and Tobacco and Health and Certain Other Litigation Items in Note 9, respectively.

▪Impairment of JUUL Equity Securities: For the nine and three months ended September 30, 2020, Altria recorded a non-cash, pre-tax impairment charge of $2,600 million, reported as impairment of JUUL equity securities in its condensed consolidated statements of earnings (losses). A full tax valuation allowance was recorded in 2020 attributable to the tax benefit associated with the impairment charge. For further discussion, see Note 4 and Note 11. Income Taxes to the condensed consolidated financial statements in Item 1 (“Note 11”).

▪JUUL Changes in Fair Value: For the three months ended September 30, 2021, Altria recorded a non-cash, pre-tax unrealized gain of $100 million, reported as (income) losses from equity investments in its condensed consolidated statements of earnings (losses) as a result of changes in the estimated fair value of Altria’s investment in JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance. At September 30, 2021, the estimated fair value of Altria’s investment in JUUL was $1,705 million, unchanged from its December 31, 2020 estimated fair value. For further discussion, see Note 4.

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▪ABI-Related Special Items: Altria’s losses from its equity investment in ABI for the nine and three months ended September 30, 2021 included net pre-tax charges of $6,111 million and $6,200 million, respectively, substantially all of which related to an impairment of Altria’s equity investment in ABI. For further discussion, see Note 4.

Altria’s losses from its equity investment in ABI for the nine months ended September 30, 2020 included net pre-tax charges of $689 million, consisting primarily of (i) mark-to-market losses on certain ABI financial instruments associated with its share commitments, (ii) completion of the sale of its Australia subsidiary and (iii) goodwill impairment charges associated with its Africa businesses.

Altria’s losses from its equity investment in ABI for the three months ended September 30, 2020 included net pre-tax charges of $513 million, consisting primarily of ABI’s completion of the sale of its Australia subsidiary and goodwill impairment charges associated with its Africa businesses.

These amounts include Altria’s respective share of amounts recorded by ABI and may also include additional adjustments related to (i) conversion from international financial reporting standards to GAAP and (ii) adjustments to Altria’s investment required under the equity method of accounting.

▪Cronos-Related Special Items: For the nine and three months ended September 30, 2021 and 2020, Altria recorded net pre-tax (income) expense consisting of the following:


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(in millions)	2021		2020		2021		2020
(Gain) loss on Cronos-related financial instruments (1)	$	128	$	202	$	135	$	105
(Income) losses from equity investments (2)	72		(58)		(46)		38
Total Cronos-related special items - (income) expense	$	200	$	144	$	89	$	143

(1)Amounts are related to the non-cash change in the fair value of the warrant and certain anti-dilution protections (the “Fixed-price Preemptive Rights”) acquired in the Cronos transaction.

(2)Amounts include Altria’s share of special items recorded by Cronos and may also include adjustments to Altria’s investment required under the equity method of accounting.

For further discussion, see Note 4 and Note 5. Financial Instruments to the condensed consolidated financial statements in Item 1.

▪Loss on Early Extinguishment of Debt: During the first quarter of 2021, Altria recorded pre-tax losses of $649 million as a result of the completed debt tender offers and redemption of certain long-term senior unsecured notes. For further discussion, see Note 10. Debt to the condensed consolidated financial statements in Item 1 (“Note 10”).

▪COVID-19 Special Items: For the nine months ended September 30, 2020, Altria recorded net pre-tax charges totaling $50 million directly related to disruptions caused by or efforts to mitigate the impact of the COVID-19 pandemic. For further discussion and a breakdown of these costs by segment, see COVID-19 Special Items in Note 9.

▪Tax Items: Tax items for the nine months ended September 30, 2020 included net tax expense of $38 million, due primarily to tax expense of $17 million for a tax basis adjustment to Altria’s investment in ABI and net tax expense of $12 million for adjustments resulting from amended returns and audit adjustments related to prior years. Tax items for the three months ended September 30, 2020 included tax benefits of $13 million, due primarily to tax benefits of $17 million for a tax basis adjustment of Altria’s investment in ABI.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, decreased $91 million (0.5%), due primarily to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the wine and oral tobacco products segments and the financial services business.

Cost of sales decreased $561 million (9.5.%), due primarily to the inventory-related charges in the wine segment in 2020 (as discussed in Note 9), lower shipment volume in the smokeable products segment, NPM Adjustment Items in 2021 and COVID-19 special items in 2020, partially offset by higher per unit settlement charges, higher manufacturing costs and higher shipment volume in the wine segment.

Excise taxes on products decreased $330 million (8.1%), due primarily to lower shipment volume in the smokeable products segment.

Marketing, administration and research costs increased $265 million (16.7%), due primarily to higher general corporate expenses, higher spending in the oral tobacco products (including higher acquisition-related costs - as discussed in Note 9) and

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smokeable products segments, the charge associated with the Ste. Michelle Transaction and higher spending associated with the retail expansion of IQOS and Marlboro HeatSticks.

Operating income increased $535 million (6.5%), due primarily to higher operating results in the wine and smokeable products segments, partially offset by higher general corporate expenses and lower operating results in the oral tobacco products segment.

Net periodic benefit income, excluding service cost, increased by $94 million (100.0%+), due primarily to lower interest cost resulting from a decrease in discount rates and amendments to its salaried retiree healthcare plans during the second quarter of 2021. For further discussion, see Note 6. Benefit Plans to the condensed consolidated financial statements in Item 1 (“Note 6”).

Income (losses) from equity investments, which decreased $5,483 million (100.0%+), were negatively impacted by unfavorable special items from Altria’s equity investments in ABI (primarily due to the impairment of Altria’s equity investment in ABI in 2021) and Cronos (as shown above).

Altria’s income tax rate increased 3.1 percentage points to 44.9%. For further discussion, see Note 11.

Reported net earnings (losses) attributable to Altria of $851 million decreased $1,692 million (66.5%), due primarily to higher losses from equity investments and the loss on early extinguishment of debt, partially offset by the 2020 impairment of JUUL equity securities, higher operating income, lower loss on Cronos-related financial instruments and favorable net periodic benefit income, excluding service cost. Reported basic and diluted EPS attributable to Altria of $0.46, decreased by 66.4% and 66.2%, respectively, due to lower reported net earnings (losses) attributable to Altria, partially offset by fewer shares outstanding.

Adjusted net earnings attributable to Altria of $6,526 million increased $250 million (4.0%), due primarily to higher smokeable products segment OCI, favorable net periodic benefit income, excluding service cost, and higher income from Altria’s investment in ABI, partially offset by a higher income tax rate. Adjusted diluted EPS attributable to Altria of $3.52 increased by 4.5%, due to higher adjusted net earnings attributable to Altria and fewer shares outstanding.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, decreased $337 million (4.7%), due primarily to lower net revenues in the smokeable products segment.

Cost of sales decreased $103 million (5.3%), due primarily to lower shipment volume in the smokeable products segment and NPM Adjustment Items in 2021, partially offset by higher per unit settlement charges and higher manufacturing costs.

Excise taxes on products decreased $190 million (13.1%), due primarily to lower shipment volume in the smokeable products segment.

Marketing, administration and research costs increased $165 million (29.6%), due primarily to higher general corporate expenses, the charge associated with the Ste. Michelle Transaction, higher spending associated with the retail expansion of IQOS and Marlboro HeatSticks and higher spending in the oral tobacco products segment.

Operating income decreased $209 million (6.6%), due primarily to lower operating results in all reportable segments and higher general corporate expenses.

Interest and other debt expense, net decreased $44 million (14.2%), due primarily to lower interest costs in 2021 as a result of debt refinancing activities and interest income associated with NPM Adjustment Items in 2021.

Net periodic benefit income, excluding service cost, increased by $60 million (100.0%+), due primarily to lower interest cost resulting from a decrease in discount rates and amendments to its salaried retiree healthcare plans during the second quarter of 2021. For further discussion, see Note 6.

Income (losses) from equity investments, which decreased $5,443 million (100.0%+), were negatively impacted by unfavorable special items from Altria’s equity investment in ABI (primarily due to the impairment of Altria’s equity investment in ABI in 2021), partially offset by an increase in the estimated fair value of Altria’s investment in JUUL and Cronos’s special items (as shown above).

Altria’s income tax rate increased 212.7 percentage points to 17.6%. For further discussion, see Note 11.

Reported net earnings (losses) attributable to Altria of $(2,722) million decreased $1,770 million (100.0%+), due primarily to higher losses from equity investments and lower operating income, partially offset by the 2020 impairment of JUUL equity securities, favorable net periodic benefit income, excluding service cost, and lower interest and other debt expense, net. Reported basic and diluted EPS attributable to Altria of $(1.48), each decreased by 100.0%+, due to lower reported net earnings (losses) attributable to Altria, partially offset by fewer shares outstanding.

Adjusted net earnings attributable to Altria of $2,257 million increased $42 million (1.9%), due primarily to higher income from Altria’s equity investment in ABI, favorable net periodic income, excluding service cost, a lower income tax rate and

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lower interest and other debt expense, net, partially offset by lower OCI. Adjusted diluted EPS attributable to Altria of $1.22 increased by 2.5%, due to higher adjusted net earnings attributable to Altria and fewer shares outstanding.

Operating Results by Business Segment

Tobacco Space

Business Environment

Summary

The U.S. tobacco industry faces a number of business and legal challenges that have adversely affected and may adversely affect the business and sales volume of Altria’s tobacco subsidiaries and investees and Altria’s consolidated results of operations, cash flows or financial position. These challenges, some of which are discussed in more detail in Note 12, in Part I, Item 1A. Risk Factors of our 2020 Form 10-K, in Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended June 30, 2021 (“Second Quarter 2021 Form 10-Q”) and in Part II, Item 1A. Risk Factors of this Form 10-Q, include:

▪pending and threatened litigation and bonding requirements;

▪restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (the “FSPTCA”), and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the United States Food and Drug Administration (the “FDA”);

▪actual and proposed excise tax increases, as well as changes in tax structures and tax stamping requirements;

▪bans and restrictions on tobacco use imposed by governmental entities and private establishments and employers;

▪other federal, state and local government actions, including:

▪restrictions on the sale of certain tobacco products, the sale of tobacco products by certain retail establishments, the sale of tobacco products with characterizing flavors and the sale of tobacco products in certain package sizes;

▪additional restrictions on the advertising and promotion of tobacco products;

▪other actual and proposed tobacco-related legislation and regulation; and

▪governmental investigations;

▪reductions in cigarette and MST consumption levels due to growth of innovative tobacco products;

▪increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further restrict the availability and use of tobacco products;

▪changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as economic conditions, excise taxes and price gap relationships, may result in adult tobacco consumers switching to discount products or other lower-priced tobacco products;

▪the highly competitive nature of all tobacco categories, including, without limitation, competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation and the proliferation of innovative tobacco products, including e-vapor and oral nicotine pouch products;

▪illicit trade in tobacco products;

▪potential adverse changes in prices, availability and quality of tobacco, other raw materials and components; and

▪the COVID-19 pandemic.

In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences are continuing to impact the tobacco industry. Altria’s tobacco subsidiaries believe that a significant number of adult tobacco consumers switch among tobacco categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products and oral nicotine pouches. Adult smokers continue to transition from cigarettes to exclusive use of smoke-free tobacco product alternatives, which aligns with Altria’s Vision.

Until the second half of 2019, the e-vapor category experienced significant growth, and the number of adults who exclusively used e-vapor products also increased during that time, which, along with growth in oral nicotine pouches, negatively impacted consumption levels and sales volume of cigarettes and MST. Over the past two years, the legislative and regulatory activities discussed below negatively impacted growth in the e-vapor category. While these activities continue to impact the e-vapor category, the category has recently been experiencing a moderate rate of growth and has become increasingly competitive.

Oral nicotine pouch retail share of the total oral tobacco category has grown significantly over the past year from 7.7% year to date as of September 30, 2020 to 14.5% year to date as of September 30, 2021. The oral nicotine pouch category is also becoming increasingly competitive.

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We are monitoring the introduction of unregulated synthetic nicotine products, which may lead to further competition for regulated tobacco products, including oral nicotine pouches and e-vapor products, and may result in underage use of these unregulated products.

Altria and its tobacco subsidiaries believe the innovative tobacco products categories (in particular, e-vapor) will continue to be dynamic due to adult tobacco consumer exploration of a variety of tobacco product options, adult consumer perceptions of the relative risks of smoke-free products compared to cigarettes, FDA determinations on product applications and legislative actions.

In the nine months ended September 30, 2021, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 5%. Altria expects 2021 cigarette industry volume trends to continue to be most influenced by (i) changes to adult smoker stay-at-home practices, disposable income, purchasing patterns and adoption of smoke-free products, (ii) the economy (including unemployment rates, the impact of increased inflation and gasoline prices), (iii) fiscal stimulus, (iv) cross-category movement, (v) the timing and extent of COVID-19 vaccine administration and the impact of COVID-19 variants, (vi) adult smoker purchasing behavior of those who receive the vaccine and (vii) regulatory and legislative (including excise tax) developments.

Economic conditions also impact adult tobacco consumer purchase behavior. Prior economic downturns have resulted in adult tobacco consumers choosing discount products and other lower-priced tobacco products. Although the economic impact resulting from the COVID-19 pandemic has not meaningfully increased the growth of discount and lower priced tobacco products, in part due to stimulus payments, adult tobacco consumers may increasingly choose these products if economic conditions do not continue to improve. See Executive Summary in Item 7 above for further discussion.

Altria and its tobacco subsidiaries work to meet these evolving adult tobacco consumer preferences over time by developing, manufacturing, marketing and distributing products both within and outside the U.S. through innovation and adjacency growth strategies (including, where appropriate, arrangements with, or investments in, third parties).

FSPTCA and FDA Regulation

▪The Regulatory Framework: The FSPTCA, its implementing regulations and its 2016 deeming regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions:

▪impose restrictions on the advertising, promotion, sale and distribution of tobacco products (see Final Tobacco Marketing Rule below);

▪establish pre-market review pathways for new and modified tobacco products (see Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below);

▪prohibit any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without FDA authorization;

▪authorize the FDA to impose tobacco product standards that are appropriate for the protection of the public health; and

▪equip the FDA with a variety of investigatory and enforcement tools, including the authority to inspect product manufacturing and other facilities.

The FSPTCA also bans descriptors such as “light,” “low” or “mild” when used as descriptors of modified risk, unless expressly authorized by the FDA. In connection with a 2016 lawsuit initiated by John Middleton Co. (“Middleton”), the Department of Justice, on behalf of the FDA, informed Middleton that the FDA does not intend to bring an enforcement action against Middleton for the use of the term “mild” in the trademark “Black & Mild.” Consequently, Middleton dismissed its lawsuit without prejudice. If the FDA were to change its position at some later date, Middleton would have the opportunity to bring another lawsuit.

▪Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010 the FDA promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco (1) products (the “Final Tobacco Marketing Rule”). The May 2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including cigars, pipe tobacco and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives, but do not include any component or part that is not made or derived from tobacco.

The Final Tobacco Marketing Rule, as amended, among other things:

▪restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products;

▪prohibits sampling of all tobacco products except that sampling of smokeless tobacco products is permitted in qualified adult-only facilities;

(1)“Smokeless tobacco,” as used in this section of this Form 10-Q, refers to smokeless tobacco products first regulated by the FDA in 2009, including MST. It excludes oral nicotine pouches, which were first regulated by the FDA in 2016.

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▪prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos;

▪prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or cultural event, or any entry or team in any event; and

▪requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for other tobacco products, and gives the FDA the authority to require new warnings for any type of tobacco product (see FDA Regulatory Actions - Graphic Warnings below).

Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products and in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine.

▪Rulemaking and Guidance: From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, generally involve public comment and may include scientific review. The FDA also may request comments on broad topics through an Advanced Notice of Proposed Rulemaking (“ANPRM”). Altria’s tobacco subsidiaries actively engage with the FDA to develop and implement the FSPTCA’s regulatory framework, including submission of comments to various FDA policies and proposals and participation in public hearings and engagement sessions.

The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by U.S. states, territories and localities of their laws and regulations as well as of the State Settlement Agreements discussed below (see State Settlement Agreements below). Such enforcement efforts may adversely affect the ability of Altria’s tobacco subsidiaries and investees to market and sell regulated tobacco products in those states, territories and localities.

▪FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation: In July 2017, the FDA announced a “Comprehensive Plan for Tobacco and Nicotine Regulation” (“Comprehensive Plan”) designed to strike a balance between regulation and encouraging the development of innovative tobacco products that may be less risky than cigarettes. Since then, the FDA has issued additional information about its Comprehensive Plan in response to concerns associated with the rise in the use of e-vapor products by youth and the potential youth appeal of flavored tobacco products (see Underage Access and Use of Certain Tobacco Products below). As part of the Comprehensive Plan, the FDA:

▪issued ANPRMs relating to potential product standards for nicotine in cigarettes, flavors in all tobacco products (including menthol in cigarettes and characterizing flavors in all cigars); and, for e-vapor products, to protect against known public health risks such as concerns about youth exposure to liquid nicotine;

▪took actions to restrict youth access to e-vapor products;

▪reconsidered the processes used by the FDA to review certain reports and new product applications; and

▪revisited the timelines (previously extended by the FDA) to submit applications for tobacco products first regulated by the FDA in 2016.

▪Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products commercially marketed as of February 15, 2007 and not subsequently modified (“Grandfathered Products”) and new or modified products authorized through the pre-market tobacco product application (“PMTA”), Substantial Equivalence (“SE”) or SE Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.

The FDA pre-market authorization enforcement policy varies based on product type and date of availability in the market, specifically:

▪all tobacco products on the market as of February 15, 2007, and not subsequently modified, are Grandfathered Products and exempt from the pre-market authorization requirement;

▪cigarette and smokeless tobacco products that were modified or first introduced into the market between February 15, 2007 and March 22, 2011 are generally considered “Provisional Products” for which SE reports were required to be filed by March 22, 2011. These reports must demonstrate that the product has the same characteristics as a product on the market as of February 15, 2007 or to a product previously determined to be substantially equivalent, or has different characteristics but does not raise different questions of public health; and

▪tobacco products that were first regulated by the FDA in 2016, including cigars, e-vapor products and oral nicotine pouches that are not Grandfathered Products, are generally products for which either an SE report or PMTA needed to be filed by September 9, 2020.

Modifications to currently marketed products, including modifications that result from, for example, changes to the quantity of tobacco product(s) in a package, a manufacturer being unable to acquire ingredients or a supplier being unable to maintain the consistency required in ingredients, could trigger the FDA’s pre-market or SE review processes. Through these processes, a

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manufacturer could receive (i) a “not substantially equivalent” determination, (ii) a denial of a PMTA or (iii) a marketing order withdrawal by the FDA on one or more products, which would require the removal of the product or products from the market. Such actions could have a material adverse impact on the business and consolidated results of operations of our tobacco subsidiaries and investees, and the cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.

Provisional Products: Most cigarette and smokeless tobacco products currently marketed by Philip Morris USA Inc. (“PM USA”) and U.S. Smokeless Tobacco Company LLC (“USSTC”) are “Provisional Products”. Altria’s subsidiaries timely submitted SE reports for these Provisional Products. PM USA and USSTC have received SE determinations on certain Provisional Products. Those products that were found by the FDA to be not substantially equivalent (certain smokeless tobacco products) had been discontinued for business reasons prior to the FDA’s determinations; therefore, those determinations did not impact business results. PM USA and USSTC have other Provisional Products that continue to be subject to the FDA’s pre-market review process. In the meantime, they can continue marketing these products unless the FDA determines that a specific Provisional Product is not substantially equivalent.

In addition, the FDA has communicated that it will not review a certain subset of Provisional Product SE reports and that the products that are the subject of those reports can continue to be legally marketed without further FDA review. PM USA and USSTC have Provisional Products included in this subset of products.

While Altria’s cigarette and smokeless tobacco subsidiaries believe their current Provisional Products meet the statutory requirements of the FSPTCA, they cannot predict how the FDA will ultimately apply law, regulation and guidance to their various SE reports. Should Altria’s cigarette and smokeless tobacco subsidiaries receive unfavorable determinations on any SE reports currently pending with the FDA, they believe they can replace the vast majority of their respective product volumes with other FDA authorized products or with Grandfathered Products.

Non-Provisional Products: Cigarette and smokeless tobacco products introduced into the market or modified after March 22, 2011 are “Non-Provisional Products” and must receive a marketing order from the FDA prior to being offered for sale. Marketing orders for Non-Provisional Products may be obtained by filing an SE report, PMTA or using another pre-market pathway established by the FDA. Altria’s cigarette and smokeless tobacco subsidiaries may not be able to obtain a marketing order for non-provisional products because the FDA may determine that any such product does not meet the statutory requirements for approval.

Products Regulated in 2016: Manufacturers of products first regulated by the FDA in 2016, including cigars, oral nicotine pouches and e-vapor products, that were on the market as of August 8, 2016 and not subsequently modified must have filed an SE report or PMTA by the filing deadline of September 9, 2020 in order for their products to remain on the market. These products can remain on the market during FDA review through court-allowed, case-by-case discretion, so long as the report or application was timely filed with the FDA. Due to the large number of applications received by September 9, 2020, the FDA did not complete its review of all submitted applications by September 9, 2021; although it has issued various marketing denial orders on over 90% of the applications and issued marketing granted orders on a few applications for tobacco flavor e-vapor products. For those products still under FDA review, it is uncertain when and for how long the FDA may permit continued marketing and sale of those products pursuant to its case-by-case discretion. For products (new or modified) not on the market as of August 8, 2016, manufacturers must file an SE report or PMTA and receive FDA authorization prior to marketing and selling the product.

Helix Innovations LLC (“Helix”) submitted PMTAs for on! oral nicotine pouches in May 2020. JUUL submitted PMTAs to the FDA for its e-vapor device and the related tobacco and menthol flavors in July 2020. As of October 25, 2021, the FDA has not issued marketing order decisions for any on! or JUUL products. In addition, as of October 25, 2021, Middleton has received market orders or exemptions that cover over 98% of its cigar product volume and has pending timely filed SE reports for its remaining cigar product volume.

In December 2013, Altria’s subsidiaries entered into a series of agreements with Philip Morris International Inc. (“PMI”), including an agreement that grants Altria an exclusive right to commercialize certain of PMI’s heated tobacco products in the United States, subject to FDA authorization of the applicable products. PMI submitted a PMTA and a modified risk tobacco product application with the FDA for its electronically heated tobacco products comprising the IQOS Tobacco Heating System. In April 2019, the FDA authorized the PMTA for the IQOS Tobacco Heating System and in July 2020, the FDA authorized the marketing of this system as a modified risk tobacco product (“MRTP”) with a reduced exposure claim. The IQOS electronic device heats but does not burn tobacco. In December 2020, the FDA authorized the PMTA for IQOS 3, an updated version of the IQOS electronic device. The MRTP authorization for the original IQOS electronic device currently does not apply to the IQOS 3 device. PMI submitted an MRTP application for the IQOS 3 electronic device in March 2021, which is currently under review by the FDA.

In September 2021, in connection with a patent dispute, the United States International Trade Commission (“ITC”) issued a cease and desist order banning (i) the importation of the IQOS electronic device, HeatSticks and infringing components into the

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United States and (ii) the sale, marketing and distribution of such imported products in the United States. As a result, PM USA announced plans to begin removing the product from the marketplace. For a further discussion of the ITC decision, see Note 12.

In October 2021, the FDA authorized the marketing and sale of four of USSTC’s Verve oral nicotine products, including Green Mint and Blue Mint varieties, representing the first flavored product authorizations issued by the FDA for newly deemed products. These products are not currently marketed or sold.

Post-Market Surveillance: Manufacturers that receive product authorizations through the PMTA process must submit to the FDA post-market records and reports, as detailed in market orders. This includes notification of all marketing activities. The IQOS Tobacco Heating System is subject to this post-market surveillance requirement. The FDA may amend requirements of a market order or withdraw the market order based on this information if, among other reasons, it determines that the continued marketing of the products is no longer appropriate for the protection of the public health.

Effect of Adverse FDA Determinations: FDA review time frames have varied. It is therefore difficult to predict the duration of FDA reviews of SE reports or PMTAs. Failure of manufacturers to submit applications by the applicable deadline, an unfavorable determination on an application or the withdrawal by the FDA of a prior marketing order could result in the removal of products from the market. These manufacturers would have the option of marketing products that have received FDA pre-market authorization or Grandfathered Products. A “not substantially equivalent” determination, a denial of a PMTA or a marketing order withdrawal by the FDA on one or more products (which would require the removal of the product or products from the market) could have a material adverse impact on the business and consolidated results of operations of our tobacco subsidiaries and investees, and the cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL. Also, an adverse FDA determination on one or more innovative tobacco products could impede our ability to achieve our Vision.

▪FDA Regulatory Actions

▪Graphic Warnings: In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising. As a result of a March 2021 court order related to the COVID-19 pandemic and subsequent court orders resulting from a lawsuit brought by R.J. Reynolds Tobacco Company and others against the FDA, the final rule will be effective October 11, 2022. PM USA and other cigarette manufacturers have filed lawsuits challenging the final rule on substantive and procedural grounds.

In the preamble to the final rule, the FDA stated that it would not exempt HeatSticks, a heated tobacco product used with the IQOS electronic device, as part of the rulemaking, but would consider the HeatSticks marketing order, and other marketing orders, on a case-by-case basis. To date, the FDA has not taken any action to exempt HeatSticks from the graphic health warnings requirements.

▪Underage Access and Use of Certain Tobacco Products: The FDA announced regulatory actions in September 2018 to address underage access and use of e-vapor products. Altria has engaged with the FDA on this topic and has reaffirmed to the FDA its ongoing and long-standing commitment to preventing underage use. For example, during 2019, Altria advocated raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels to further address underage use, which is now federal law. See Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products below for further discussion.

Additionally, in March 2019, the FDA issued draft guidance further proposing restrictions to address underage e-vapor use. This guidance, which the FDA finalized in January 2020 and then revised in April 2020, states that the FDA intends to prioritize enforcement action against certain product categories, including cartridge-based, flavored e-vapor products and products targeted to minors.

▪Flavored Electronic Nicotine Delivery System (“ENDS”) Products: Some e-vapor product manufacturers filed PMTAs for flavored tobacco products. As of October 25, 2021, many of these manufacturers received marketing denial orders for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. FDA has communicated in these marketing denial orders that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications will require strong, product-specific evidence. A number of manufacturers are appealing the marketing denial orders for their products. If the FDA does not ultimately allow for the reintroduction of flavors other than tobacco, it could adversely affect the value of Altria’s investment in JUUL.

Some ENDS manufacturers, including some that have received marketing denial orders, have indicated their intention to market ENDS products containing synthetically-derived nicotine, which is not currently FDA-regulated. If these products are sold in higher volumes, and marketed outside of FDA oversight, it could adversely affect the value of

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Altria’s investment in JUUL, have a material adverse effect on Altria’s consolidated financial position or earnings and impede our ability to achieve our Vision.

▪Potential Product Standards

▪Nicotine in Cigarettes and Other Combustible Tobacco Products: In March 2018, the FDA issued an ANPRM seeking comments on the potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to non-addictive or minimally addictive levels. Among other issues, the FDA sought comments on (i) whether smokers would compensate by smoking more cigarettes to obtain the same level of nicotine as with their current product and (ii) whether the proposed rule would create an illicit trade of cigarettes containing nicotine at levels higher than a non-addictive threshold that may be established by the FDA. The FDA also sought comments on whether a nicotine product standard should apply to other combustible tobacco products, including cigars. Were the FDA to develop and finalize a product standard for nicotine in combustible products, and if the standard was appealed and upheld in the courts, it could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries.

▪Flavors in Tobacco Products: As discussed above under FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation, the FDA indicated that it is considering proposing rulemaking for a product standard that would seek to ban menthol in combustible tobacco products, including cigarettes and cigars, and that it intends to propose a product standard that would ban characterizing flavors in all cigars, including Grandfathered Products and those that have received SE determinations from the FDA - an intention reiterated in the FDA’s January 2020 guidance. In March 2018, the FDA issued an ANPRM seeking comments on the role, if any, that flavors (including menthol) in tobacco products may play in attracting youth and in helping some smokers switch to potentially less harmful forms of nicotine delivery. In the context of litigation, in April 2021, the FDA issued a response to a 2013 citizen petition requesting that the FDA prohibit menthol as a characterizing flavor in cigarettes. In the response, the FDA announced it intends to develop and propose two product standards within one year that would (i) ban menthol as a characterizing flavor in cigarettes and (ii) ban all characterizing flavors (including menthol) in cigars. While the FDA has yet to define “characterizing flavors” with respect to cigars, most of Middleton’s cigar products contain added flavors and may be subject to any action by the FDA to ban flavors in cigars.

If any such product standards become final and are appealed and upheld in the courts, it could have a material adverse effect on the business of our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.

▪NNN in Smokeless Tobacco: In January 2017, the FDA proposed a product standard for N-nitrosonornicotine (“NNN”) levels in finished smokeless tobacco products. If the proposed rule, in present form, were to become final and was appealed and upheld in the courts, it could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria and USSTC.

▪Good Manufacturing Practices: The FSPTCA requires that the FDA promulgate good manufacturing practice regulations (referred to by the FDA as “Requirements for Tobacco Product Manufacturing Practice”) for tobacco product manufacturers, but does not specify a timeframe for such regulations. Compliance with any such regulations could result in increased costs, which could have a material adverse effect on the financial position of Altria, its tobacco subsidiaries and its investees, including adversely affecting the value of Altria’s investment in JUUL.

▪Impact on Our Business; Compliance Costs and User Fees: FDA regulatory actions under the FSPTCA could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries in various ways. For example, actions by the FDA could:

▪impact the consumer acceptability of tobacco products;

▪delay, discontinue or prevent the sale or distribution of existing, new or modified tobacco products;

▪limit adult tobacco consumer choices;

▪impose restrictions on communications with adult tobacco consumers;

▪create a competitive advantage or disadvantage for certain tobacco companies;

▪impose additional manufacturing, labeling or packaging requirements;

▪impose additional restrictions at retail;

▪result in increased illicit trade in tobacco products; and/or

▪otherwise significantly increase the cost of doing business.

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The failure to comply with FDA regulatory requirements, even inadvertently, and FDA enforcement actions also could have a material adverse effect on the business of our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.

The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco, cigar and pipe tobacco manufacturers and importers to pay for the cost of regulation and other matters. The FSPTCA does not impose user fees on e-vapor or oral nicotine pouch manufacturers. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA user fees and then among manufacturers and importers within each respective category based on their relative market shares, all as prescribed by the FSPTCA and FDA regulations. Payments for user fees are adjusted for several factors, including market share and industry volume. For a discussion of the impact of the FDA user fee payments on Altria, see Debt and Liquidity - Payments Under State Settlement Agreements and FDA Regulation below. In addition, compliance with the FSPTCA’s regulatory requirements has resulted, and will continue to result, in additional costs for Altria’s tobacco businesses. The amount of additional compliance and related costs has not been material in any given quarter or year to date period but could become material, either individually or in the aggregate, to one or more of Altria’s tobacco subsidiaries.

▪Investigation and Enforcement: The FDA has a number of investigatory and enforcement tools available to it, including document requests and other required information submissions, facility inspections, examinations and investigations, injunction proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. Investigations or enforcement actions could result in significant costs or otherwise have a material adverse effect on the business of our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.

Excise Taxes

Tobacco products are subject to substantial excise taxes in the U.S. Significant increases in tobacco-related taxes or fees have been proposed or enacted (including with respect to e-vapor products) and are likely to continue to be proposed or enacted at the federal, state and local levels within the U.S. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies.

Federal, state and local cigarette excise taxes have increased substantially over the past two decades, far outpacing the rate of inflation. Between the end of 1998 and October 25, 2021, the weighted-average state cigarette excise tax increased from $0.36 to $1.89 per pack. As of October 25, 2021, one state, Maryland, has enacted new legislation increasing cigarette excise taxes in 2021.

A majority of states currently tax MST using an ad valorem method, which is calculated as a percentage of the price of the product, typically the wholesale price. This ad valorem method results in more tax being paid on premium products than is paid on lower-priced products of equal weight. Altria’s subsidiaries support legislation to convert ad valorem taxes on MST to a weight-based methodology because, unlike the ad valorem tax, a weight-based tax subjects cans of equal weight to the same tax. As of October 25, 2021, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for MST.

An increasing number of states and localities also are imposing excise taxes on e-vapor and oral nicotine pouches. As of October 25, 2021, 30 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor products. These taxes are calculated in varying ways and may differ based on the e-vapor product form. Similarly, 11 states and the District of Columbia have enacted legislation to tax oral nicotine pouches. Tax increases could have an adverse impact on the sales of these products.

Tax increases are expected to continue to have an adverse impact on product sales of Altria’s tobacco subsidiaries and JUUL through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments, or to counterfeit and contraband products. Lower sales volume and reported share performance of Altria’s tobacco subsidiaries’ products could have a material adverse effect on Altria’s consolidated financial position or earnings. In addition, excise taxes on e-vapor and oral nicotine products may negatively impact adult smokers’ transition to these products, which could impede our ability to achieve our Vision.

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International Treaty on Tobacco Control

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. As of October 25, 2021, 181 countries, as well as the European Community, have become parties to the FCTC. While the U.S. is a signatory of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the United States Senate. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would address various tobacco-related issues.

There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial restrictions on the manufacture, marketing, distribution and sale of tobacco products. It is not possible to predict the outcome of these proposals or the impact of any FCTC actions on legislation or regulation in the U.S., either indirectly or as a result of the U.S. becoming a party to the FCTC, or whether or how these actions might indirectly influence FDA regulation and enforcement.

State Settlement Agreements

As discussed in Note 12, during 1997 and 1998, PM USA and other major domestic cigarette manufacturers entered into the State Settlement Agreements. These settlements require participating manufacturers to make substantial annual payments, which are adjusted for several factors, including inflation, operating income, market share and industry volume. Increases in inflation can increase our financial liability under the State Settlement Agreements. The State Settlement Agreements’ inflation calculations require us to apply the higher of 3% or the United States Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (“CPI-U”) percentage rate as published in January of each year. For 2021, based on the latest CPI-U data, the inflation calculation may be above 3%, but Altria does not believe the increase would result in a material financial impact.

For a discussion of the impact of the State Settlement Agreements on Altria, see Debt and Liquidity - Payments Under State Settlement Agreements and FDA Regulation below and Note 12. The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and restrictions on the advertising and marketing of cigarettes and smokeless tobacco products. Among these are prohibitions of outdoor and transit brand advertising, payments for product placement and free sampling (except in adult-only facilities). The State Settlement Agreements also place restrictions on the use of brand name sponsorships and brand name non-tobacco products and prohibitions on targeting youth and the use of cartoon characters. In addition, the State Settlement Agreements require companies to affirm corporate principles directed at reducing underage use of cigarettes; impose requirements regarding lobbying activities; mandate public disclosure of certain industry documents; limit the industry’s ability to challenge certain tobacco control and underage use laws; and provide for the dissolution of certain tobacco-related organizations and place restrictions on the establishment of any replacement organizations.

In November 1998, USSTC entered into the Smokeless Tobacco Master Settlement Agreement (the “STMSA”) with the attorneys general of various states and U.S. territories to resolve the remaining health care cost reimbursement cases initiated against USSTC. The STMSA required USSTC to adopt various marketing and advertising restrictions. USSTC is the only smokeless tobacco manufacturer to sign the STMSA.

Other International, Federal, State and Local Regulation and Governmental and Private Activity

▪International, Federal, State and Local Regulation: A number of states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products. The legislation varies in terms of the type of tobacco products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or prohibitions. For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with characterizing flavors without providing an exception for mint- or wintergreen-flavored products. As of October 25, 2021, three states are considering legislation to ban flavors in one or more tobacco products, and six states (California, Massachusetts, New Jersey, Utah, New York and Illinois) and the District of Columbia have passed such legislation. Some of these states, such as New York, Utah and Illinois, exempt certain products that have received FDA market authorization through the PMTA pathway.

The legislation in California bans the sale of most tobacco products with characterizing flavors, including menthol, mint and wintergreen. Following enactment of the flavor ban in August 2020, several registered California voters filed a referendum against the legislation. In January 2021 the requisite number of registered California voters signed a petition to place the question of whether the legislation should be affirmed or overturned on the next statewide general election ballot, which will

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likely take place in 2022, unless a special statewide election is called earlier. As a result, the implementation of the legislation is delayed until after a vote on the referendum occurs.

Massachusetts passed legislation capping the amount of nicotine in e-vapor products. Similar legislation is pending in one other state.

Restrictions on e-vapor products also have been instituted or proposed internationally. For example, India and Singapore have instituted bans on e-vapor products.

Altria’s tobacco subsidiaries have challenged and will continue to challenge certain federal, state and local legislation and other governmental action, including through litigation. It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that could have a material adverse impact on the business and volume of our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL. Such action also could negatively impact adult smokers’ transition to these products, which could adversely affect our ability to achieve our Vision.

▪Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products: After a number of states and localities proposed and enacted legislation to increase the minimum age to purchase all tobacco products, including e-vapor products, in December 2019, the federal government passed legislation increasing the minimum age to purchase all tobacco products, including e-vapor products, to 21 nationwide. As of October 25, 2021, 39 states, the District of Columbia and Puerto Rico have enacted laws increasing the legal age to purchase tobacco products to 21. Although an increase in the minimum age to purchase tobacco products may have a negative impact on sales volume of our tobacco businesses, as discussed above under Underage Access and Use of Certain Tobacco Products, Altria supported raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels, reflecting its longstanding commitment to combat underage tobacco use.

▪Health Effects of Tobacco Products, Including E-vapor Products: Reports with respect to the health effects of smoking have been publicized for many years, including various reports by the U.S. Surgeon General. In 2019, there were public health advisories concerning vaping-related lung injuries and deaths and, more recently, there have been health concerns raised about potential increased risks associated with COVID-19 among smokers and vapers. Altria and its tobacco subsidiaries believe that the public should be guided by the messages of the U.S. Surgeon General and public health authorities worldwide in making decisions concerning the use of tobacco products, including e-vapor products.

Most jurisdictions within the U.S. have restricted smoking in public places and some have restricted vaping in public places. Some public health groups have called for, and various jurisdictions have adopted or proposed, bans on smoking and vaping in outdoor places, in private apartments and in cars transporting children. It is not possible to predict the results of ongoing scientific research or the types of future scientific research into the health risks of tobacco exposure and the impact of such research on legislation and regulation.

▪Other Legislation or Governmental Initiatives: In addition to the actions discussed above, other regulatory initiatives affecting the tobacco industry have been adopted or are being considered at the federal level and in a number of state and local jurisdictions. For example, during the COVID-19 pandemic, state and local governments required additional health and safety requirements of all businesses, including tobacco manufacturing and other facilities. State and local governments also mandated the temporary closure of some businesses. While many restrictions have eased, it is possible that tobacco manufacturing and other facilities and the facilities of our suppliers, our suppliers’ suppliers and our trade partners could be subject to additional government-mandated temporary closures and restrictions. In September 2021, the President of the United States issued an Executive Order charging OSHA with developing an emergency temporary standard requiring almost all employers to mandate certain COVID-19 vaccination and testing requirements in the workplace. This mandate could have an adverse impact on worker availability at Altria’s subsidiaries’ or investees’ manufacturing, salesforce and administrative operations, or in their distribution and supply chains.

Additionally, in recent years, legislation has been introduced or enacted at the state or local level to subject tobacco products to various reporting requirements and performance standards; establish educational campaigns relating to tobacco consumption or tobacco control programs or provide additional funding for governmental tobacco control activities; restrict the sale of tobacco products in certain retail establishments and the sale of tobacco products in certain package sizes; require tax stamping of smokeless tobacco products; require the use of state tax stamps using data encryption technology; and further restrict the sale, marketing and advertising of cigarettes and other tobacco products. Such legislation may be subject to constitutional or other challenges on various grounds, which may or may not be successful.

It is not possible to predict what, if any, additional legislation, regulation or other governmental action will be enacted or implemented (and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or the tobacco industry generally. It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that could have a material adverse impact on the business and volume of

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our tobacco subsidiaries and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco subsidiaries, including adversely affecting the value of Altria’s investment in JUUL.

▪Governmental Investigations: From time to time, Altria, its subsidiaries and investees are subject to governmental investigations on a range of matters. For example: (i) the U.S. Federal Trade Commission (the “FTC”) issued a Civil Investigative Demand (“CID”) to Altria while conducting its antitrust review of Altria’s investment in JUUL seeking information regarding, among other things, Altria’s role in the resignation of JUUL’s former chief executive officer and the hiring by JUUL of any current or former Altria director, executive or employee (see Note 12 for a description of the FTC’s administrative complaint against Altria and JUUL); (ii) the U.S. Securities and Exchange Commission (“SEC”) commenced an investigation relating to Altria’s acquisition, disclosures and accounting controls in connection with the JUUL investment; and (iii) the New York State Office of the Attorney General issued a subpoena to Altria seeking documents relating to Altria’s investment in and provision of services to JUUL. Additionally, JUUL is currently under investigation by various federal and state agencies, including the SEC, the FDA and the FTC, and state attorneys general. Such investigations vary in scope but at least some appear to include JUUL’s marketing practices, particularly as such practices relate to youth, and Altria may be asked in the context of those investigations to provide information concerning its investment in JUUL or relating to its marketing of Nu Mark LLC e-vapor products.

Private Sector Activity on E-Vapor

A number of retailers, including national chains, have discontinued the sale of e-vapor products. Reasons for the discontinuation include reported illnesses related to e-vapor product use and the uncertain regulatory environment. It is possible that this private sector activity could adversely affect the value of Altria’s investment in JUUL and have a material adverse effect on Altria’s consolidated financial position or earnings.

Illicit Trade in Tobacco Products

Illicit trade in tobacco products can have an adverse impact on the businesses of Altria, its tobacco subsidiaries and investees. Illicit trade can take many forms, including the sale of counterfeit tobacco products; the sale of tobacco products in the U.S. that are intended for sale outside the country; the sale of untaxed tobacco products over the Internet and by other means designed to avoid the collection of applicable taxes; and diversion into one taxing jurisdiction of tobacco products intended for sale in another. Counterfeit tobacco products, for example, are manufactured by unknown third parties in unregulated environments. Counterfeit versions of our tobacco subsidiaries’ and investees’ products can negatively affect adult tobacco consumer experiences with and opinions of those brands. Illicit trade in tobacco products also harms law-abiding wholesalers and retailers by depriving them of lawful sales and undermines the significant investment Altria’s tobacco subsidiaries and investees have made in legitimate distribution channels. Moreover, illicit trade in tobacco products results in federal, state and local governments losing tax revenues. Losses in tax revenues can cause such governments to take various actions, including increasing excise taxes; imposing legislative or regulatory requirements that may adversely impact Altria’s consolidated results of operations and cash flows, including adversely affecting the value of Altria’s investment in JUUL, and the businesses of its tobacco subsidiaries and investees; or asserting claims against manufacturers of tobacco products or members of the trade channels through which such tobacco products are distributed and sold.

Altria’s tobacco subsidiaries communicate with wholesale and retail trade members regarding illicit trade in tobacco products and how they can help prevent such activities, enforce wholesale and retail trade programs and policies that address illicit trade in tobacco products and, when necessary, litigate to protect their trademarks.

Price, Availability and Quality of Tobacco, Other Raw Materials, Ingredients and Component Parts

Shifts in crops (such as those driven by economic conditions and adverse weather patterns), government restrictions and mandated prices, production control programs, economic trade sanctions, import duties and tariffs, international trade disruptions, inflation, geopolitical instability, climate and environmental changes and disruptions due to man-made or natural disasters may increase the cost or reduce the supply or quality of tobacco or other raw materials or ingredients or component parts used to manufacture our companies’ and our investees’ products. Any significant change in the price, availability or quality of tobacco, other raw materials, ingredients or component parts used to manufacture our products and those of our investees could restrict our subsidiaries’ and investees’ ability to continue manufacturing and marketing existing products or impact adult consumer product acceptability and adversely affect our subsidiaries’ and investees’ profitability and businesses.

With respect to tobacco, as with other agricultural commodities, crop quality and availability can be influenced by variations in weather patterns, including those caused by climate change. Additionally, the price and availability of tobacco leaf can be influenced by economic conditions and imbalances in supply and demand. Economic conditions, including the economic effects of the COVID-19 pandemic, are unpredictable, which, among other factors, may result in changes in the patterns of demand for agricultural products and the cost of tobacco production which could impact tobacco leaf prices and tobacco supply. In addition, as consumer demand increases for smoke-free products and decreases for combustible products, the volume of

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tobacco leaf required for production may decrease. The reduced demand for tobacco leaf may result in the reduced supply and availability of domestic tobacco as growers divert resources to other crops.

Tobacco production in certain countries also is subject to a variety of controls, including government-mandated prices and production control programs. Moreover, certain types of tobacco are only available in limited geographies, including geographies experiencing political instability or government prohibitions on the import or export of tobacco, and loss of their availability could impair our subsidiaries’ ability to continue marketing existing products or impact adult tobacco consumer product acceptability.

The COVID-19 pandemic also may limit access to and increase the cost of raw materials, component parts and personal protective equipment as U.S. and global suppliers may temporarily shut down facilities or use different production schedules with lower productivity in order to address exposure to the virus or as a result of a government mandate. In addition, current labor market dynamics indicate labor shortages, with employers in a number of industries having difficulty employing workers. These shortages have led to certain increases in raw material, ingredient and component part prices and may lead to disruptions in the supply chain; however, to date, the impact has been immaterial. The effects of the COVID-19 pandemic and labor market dynamics outlined above may continue after the pandemic wanes as a result of the developing commercial and economic environment, including increased government spending. This environment has led to an increased rate of inflation that, to date, has not had a material impact on our businesses, revenues or profitability.

Timing of Sales

In the ordinary course of business, our tobacco subsidiaries are subject to many influences that can impact the timing of sales to customers, including the timing of holidays and other annual or special events, the timing of promotions, customer incentive programs and customer inventory programs, as well as the actual or speculated timing of pricing actions and tax-driven price increases.

Operating Results

Smokeable Products Segment

Financial Results

The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported OCI to adjusted OCI for the smokeable products segment:


	Operating Results
	For the Nine Months Ended September 30,								For the Three Months Ended September 30,
(in millions)	2021			2020			Change		2021			2020			Change
Net revenues	$	17,275		$	17,522		(1.4)	%	$	5,975		$	6,313		(5.4)	%
Excise taxes	(3,620)			(3,950)					(1,218)			(1,407)
Revenues net of excise taxes	$	13,655		$	13,572				$	4,757		$	4,906

Reported OCI	$	7,901		$	7,609		3.8	%	$	2,753		$	2,789		(1.3)	%

NPM Adjustment Items	(53)			—					(21)			—
Tobacco and health and certain other litigation items	72			73					29			34
COVID-19 special items	—			41					—			—
Adjusted OCI	$	7,920		$	7,723		2.6	%	$	2,761		$	2,823		(2.2)	%

Reported OCI margins (1)	57.9		%	56.1		%	1.8 pp		57.9		%	56.8		%	1.1 pp
Adjusted OCI margins (1)	58.0		%	56.9		%	1.1 pp		58.0		%	57.5		%	0.5 pp

(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, decreased $247 million (1.4%), due primarily to lower shipment volume ($1,539 million), partially offset by higher pricing ($1,284 million).

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Reported OCI increased $292 million (3.8%), due primarily to higher pricing ($1,273 million), NPM Adjustment Items in 2021 ($53 million) and COVID-19 special items in 2020 ($41 million), partially offset by lower shipment volume ($923 million), higher per unit settlement charges and higher marketing, administration and research costs ($27 million).

Adjusted OCI increased $197 million (2.6%), due primarily to higher pricing, partially offset by lower shipment volume, higher per unit settlement charges and higher marketing, administration and research costs.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, decreased $338 million (5.4%), due primarily to lower shipment volume ($925 million), partially offset by higher pricing ($570 million), which includes lower promotional investments.

Reported OCI decreased $36 million (1.3%), due primarily to lower shipment volume ($546 million) and higher per unit settlement charges, partially offset by higher pricing ($567 million), which includes lower promotional investments and NPM Adjustment Items in 2021 ($21 million).

Adjusted OCI decreased $62 million (2.2%), due primarily to lower shipment volume and higher per unit settlement charges, partially offset by higher pricing, which includes lower promotional investments.

Shipment Volume and Retail Share Results

The following table summarizes the smokeable products segment shipment volume performance:


	Shipment Volume
	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(sticks in millions)	2021	2020	Change		2021	2020	Change
Cigarettes:
Marlboro	63,122	67,890	(7.0)	%	21,368	24,258	(11.9)	%
Other premium	3,180	3,496	(9.0)	%	1,042	1,231	(15.4)	%
Discount	5,068	6,205	(18.3)	%	1,640	2,130	(23.0)	%
Total cigarettes	71,370	77,591	(8.0)	%	24,050	27,619	(12.9)	%
Cigars:
Black & Mild	1,356	1,317	3.0	%	424	468	(9.4)	%
Other	5	8	(37.5)	%	1	3	(66.7)	%
Total cigars	1,361	1,325	2.7	%	425	471	(9.8)	%
Total smokeable products	72,731	78,916	(7.8)	%	24,475	28,090	(12.9)	%

Note: Cigarettes shipment volume includes Marlboro; Other premium brands, such as Virginia Slims, Parliament, Benson & Hedges and Nat’s; and Discount brands, which include L&M, Basic and Chesterfield. Cigarettes volume includes units sold as well as promotional units, but excludes units sold for distribution to Puerto Rico, and units sold in U.S. Territories, to overseas military and by Philip Morris Duty Free Inc., none of which, individually or in the aggregate, is material to the smokeable products segment.

The following table summarizes cigarettes retail share performance:


	Retail Share
	For the Nine Months Ended September 30,					For the Three Months Ended September 30,
	2021		2020		Percentage Point Change	2021		2020		Percentage Point Change
Cigarettes:
Marlboro	43.2	%	42.8	%	0.4	43.2	%	43.2	%	—
Other premium	2.3		2.3		—	2.3		2.3		—
Discount	3.5		4.0		(0.5)	3.4		3.8		(0.4)
Total cigarettes	49.0	%	49.1	%	(0.1)	48.9	%	49.3	%	(0.4)

Note: Retail share results for cigarettes are based on data from IRI/Management Science Associates, Inc., a tracking service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers through the Store Tracking Analytical Reporting System (“STARS”). This service is not designed to

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capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets. It is IRI’s standard practice to periodically refresh its services, which could restate retail share results that were previously released in this service.

For a discussion of volume trends and factors that impact volume and retail share performance, see Tobacco Space - Business Environment above.

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

The smokeable products segment’s reported domestic cigarettes shipment volume decreased 8.0%, driven primarily by the industry’s rate of decline, trade inventory movements, calendar differences and other factors. When adjusted for trade inventory movements, calendar differences and other factors, the smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 5%. When adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volume decreased by an estimated 5%.

Shipments of premium cigarettes accounted for 92.9% and 92.0% of the smokeable products segment’s reported domestic cigarettes shipment volume for the nine months ended September 30, 2021 and 2020, respectively.

Total cigarettes industry discount category retail share increased 0.3 share points to 25.2%.

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

The smokeable products segment’s reported domestic cigarettes shipment volume decreased 12.9%, driven primarily by the industry’s rate of decline and trade inventory movements. When adjusted for trade inventory movements, the smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 7%. When adjusted for trade inventory movements and other factors, total estimated domestic cigarette industry volume decreased by an estimated 6.5%.

Shipments of premium cigarettes accounted for 93.2% and 92.3% of the smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended September 30, 2021 and 2020, respectively.

Total cigarettes industry discount category retail share increased 0.6 share points sequentially to 25.3%.

Pricing Actions

PM USA and Middleton executed the following pricing and promotional allowance actions during 2021 and 2020:

▪Effective August 15, 2021, PM USA increased the list price of Marlboro, L&M and Chesterfield by $0.14 per pack. In addition, PM USA increased the list price of all of its other cigarette brands by $0.17 per pack.

▪Effective January 24, 2021, PM USA increased the list price on all of its cigarette brands by $0.14 per pack.

▪Effective January 10, 2021, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.07 per five-pack.

▪Effective November 1, 2020, PM USA increased the list price on all of its cigarette brands by $0.13 per pack.

▪Effective June 21, 2020, PM USA increased the list price on all of its cigarette brands by $0.11 per pack.

▪Effective February 16, 2020, PM USA increased the list price on all of its cigarette brands by $0.08 per pack.

▪Effective January 12, 2020, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.08 per five-pack.

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Oral Tobacco Products Segment

Financial Results

The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported OCI to adjusted OCI for the oral tobacco products segment:


	Operating Results
	For the Nine Months Ended September 30,								For the Three Months Ended September 30,
(in millions)	2021			2020			Change		2021			2020			Change
Net revenues	$	1,945		$	1,901		2.3	%	$	626		$	640		(2.2)	%
Excise taxes	(98)			(98)					(32)			(33)
Revenues net of excise taxes	$	1,847		$	1,803				$	594		$	607

Reported OCI	$	1,269		$	1,297		(2.2)	%	$	405		$	436		(7.1)	%
Acquisition-related costs	37			6					—			4
COVID-19 special items	—			9					—			—
Adjusted OCI	$	1,306		$	1,312		(0.5)	%	$	405		$	440		(8.0)	%

Reported OCI margins (1)	68.7		%	71.9		%	(3.2) pp		68.2		%	71.8		%	(3.6) pp
Adjusted OCI margins (1)	70.7		%	72.8		%	(2.1) pp		68.2		%	72.5		%	(4.3) pp

(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, increased $44 million (2.3%), due primarily to higher pricing ($72 million), which includes higher promotional investments in on!, partially offset by lower shipment volume ($29 million), including unfavorable shipment volume mix between the segment’s MST and oral nicotine pouch products.

Reported OCI decreased $28 million (2.2%) due primarily to higher costs ($51 million), which includes higher acquisition-related costs and COVID-19 special items in 2020, and lower shipment volume ($45 million), including unfavorable shipment volume mix), partially offset by higher pricing ($72 million), which includes higher promotional investments in on!.

Adjusted OCI was essentially unchanged as lower volume, including unfavorable shipment volume mix, and higher costs were mostly offset by higher pricing, which includes higher promotional investments in on!. Adjusted OCI margins declined by 2.1 percentage point to 70.7%, due to changes in shipment volume mix between the segment’s MST and oral nicotine pouch products.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, decreased $14 million (2.2%), due primarily to lower shipment volume ($33 million), including unfavorable shipment volume mix, partially offset by higher pricing ($20 million), which includes higher promotional investments in on!.

Reported OCI decreased $31 million (7.1%), due primarily to lower shipment volume ($35 million), including unfavorable shipment volume mix and higher costs ($13 million), including lower acquisition-related costs, partially offset by higher pricing, which includes higher promotional investments in on!.

Adjusted OCI decreased $35 million (8.0%), due primarily to lower shipment volume, including unfavorable shipment volume mix, and higher costs, partially offset by higher pricing, which includes higher promotional investments in on!. Adjusted OCI margins declined by 4.3 percentage points to 68.2%, due to changes in shipment volume mix between the segment’s MST and oral nicotine pouch products.

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Shipment Volume and Retail Share Results

The following table summarizes oral tobacco products segment shipment volume performance:


	Shipment Volume
	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
(cans and packs in millions)	2021	2020	Change		2021	2020	Change
Copenhagen	378.4	395.0	(4.2)	%	121.4	131.1	(7.4)	%
Skoal	148.2	157.2	(5.7)	%	47.7	52.3	(8.8)	%
Other (includes Red Seal and on!)	87.7	65.0	34.9	%	29.7	23.3	27.5	%
Total oral tobacco products	614.3	617.2	(0.5)	%	198.8	206.7	(3.8)	%

Note: Oral tobacco products shipment volume includes cans and packs sold, as well as promotional units, but excludes international volume, which is currently not material to the oral tobacco products segment. New types of oral tobacco products, as well as new packaging configurations of existing oral tobacco products, may or may not be equivalent to existing MST products on a can-for-can basis. To calculate volumes of cans and packs shipped, one pack of snus or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed to be equivalent to one can of MST.

The following table summarizes oral tobacco products segment retail share performance (excluding international volume):


	Retail Share
	For the Nine Months Ended September 30,					For the Three Months Ended September 30,
	2021		2020		Percentage Point Change	2021		2020		Percentage Point Change
Copenhagen	29.8	%	32.1	%	(2.3)	29.2	%	31.8	%	(2.6)
Skoal	12.7		14.1		(1.4)	12.5		13.7		(1.2)
Other (includes Red Seal and on!)	5.4		3.9		1.5	6.1		4.5		1.6
Total oral tobacco products	47.9	%	50.1	%	(2.2)	47.8	%	50.0	%	(2.2)

Note: Retail share results for oral tobacco products are based on data from IRI InfoScan, a tracking service that uses a sample of stores to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes on the number of cans and packs sold. Oral tobacco products is defined by IRI as MST, snus and oral nicotine pouches. New types of oral tobacco products, as well as new packaging configurations of existing oral tobacco products, may or may not be equivalent to existing MST products on a can-for-can basis. For example, one pack of snus or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed to be equivalent to one can of MST. Because this service represents retail share performance only in key trade channels, it should not be considered a precise measurement of actual retail share. It is IRI’s standard practice to periodically refresh its InfoScan services, which could restate retail share results that were previously released in this service.

For a discussion of volume trends and factors that impact volume and retail share performance, see Tobacco Space - Business Environment above.

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

The oral tobacco products segment’s reported domestic shipment volume decreased 0.5%, driven primarily by retail share losses (primarily due to the growth of oral nicotine pouches) and calendar differences, partially offset by industry growth and trade inventory movements. When adjusted for trade inventory movements and calendar differences, the oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 0.5%.

Total oral tobacco products category industry volume increased by an estimated 3% over the six months ended September 30, 2021, driven by growth in oral nicotine pouches.

Retail share losses in the oral tobacco products segment, including Copenhagen, were due to the growth of oral nicotine pouches.

Three Months Ended September 30, 2021 Compared with the Three Months Ended September 30, 2020

The oral tobacco products segment’s reported domestic shipment volume decreased 3.8%, driven primarily by retail share losses (primarily due to the growth of oral nicotine pouches) and trade inventory movements, partially offset by industry growth, calendar differences and other factors. When adjusted for trade inventory movements and calendar differences, the oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 2.5%.

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The oral tobacco products segment’s retail share was 47.8% and Copenhagen continued to be the leading oral tobacco brand with retail share of 29.2%. Share losses in the oral tobacco products segment, including Copenhagen, were due to the growth of oral nicotine pouches.

Total U.S. oral tobacco category share for on! was 3.0% in the third quarter, an increase of 1.0 percentage point sequentially and an increase of 1.9 percentage points from the end of 2020.

As of September 30, 2021, Helix had broadened the U.S. distribution of on! to over 110,000 stores.

Pricing Actions

USSTC executed the following pricing actions during 2021 and 2020:

▪Effective October 26, 2021, USSTC increased the list price on its Copenhagen and Skoal brands by $0.08 per can. USSTC also increased the list price on its Husky brand by $0.12 per can. In addition, USSTC decreased the price on its Red Seal brand by $0.17 per can.

▪Effective June 29, 2021, USSTC increased the list price on its Skoal Blend products by $0.46 per can. USSTC also increased the list price on its Red Seal and Copenhagen brands and the balance of its Skoal products by $0.05 per can. In addition, USSTC decreased the price on its Husky brand by $1.65 per can.

▪Effective March 2, 2021, USSTC increased the list price on its Skoal Blend products by $0.16 per can. USSTC also increased the list price on its Husky, Red Seal and Copenhagen brands and the balance of its Skoal products by $0.08 per can.

▪Effective October 20, 2020, USSTC increased the list price on its Skoal Blend products by $0.15 per can. USSTC also increased the list price on its Husky and Red Seal brands and its Copenhagen and Skoal popular price products by $0.08 per can. In addition, USSTC increased the list price on the balance of its Copenhagen and Skoal products by $0.07 per can.

▪Effective July 21, 2020, USSTC increased the list price on its Skoal Blend products by $0.15 per can. USSTC also increased the list price on its Husky, Red Seal and Copenhagen brands and the balance of its Skoal products by $0.07 per can.

▪Effective February 18, 2020, USSTC increased the list price on its Skoal X-TRA products by $0.56 per can. USSTC also increased the list price on its Skoal Blend products by $0.16 cents per can and increased the list price on its Husky, Red Seal and Copenhagen brands and the balance of its Skoal products by $0.07 per can.

Wine Segment

Operating Results

Financial Results and Shipment Volume

The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported OCI to adjusted OCI for the wine segment:


	Operating Results
	For the Nine Months Ended September 30,								For the Three Months Ended September 30,
(in millions)	2021			2020			Change		2021			2020			Change
Net revenues	$	494		$	434		13.8	%	$	177		$	157		12.7	%
Excise taxes	(14)			(14)					(5)			(5)
Revenues net of excise taxes	$	480		$	420				$	172		$	152

Reported OCI (Loss)	$	21		$	(347)		100.0%+		$	(24)		$	19		(100.0)%+
Implementation and disposition-related costs	52			395					51			1
Adjusted OCI	$	73		$	48		52.1	%	$	27		$	20		35.0	%

Reported OCI margins (1)	4.4		%	(82.6)		%	87.0 pp		(14.0)		%	12.5		%	(26.5) pp
Adjusted OCI margins (1)	15.2		%	11.4		%	3.8 pp		15.7		%	13.2		%	2.5 pp

(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.

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Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, increased $60 million (13.8%), due to higher shipment volume, improved mix and higher pricing.

Reported OCI increased $368 million (100%+), due primarily to 2020 inventory-related charges discussed in Note 9 (included in implementation costs and charged to cost of sales), higher shipment volume, improved mix and higher pricing, partially offset by disposition-related charges recorded in the third quarter of 2021 related to the Ste. Michelle Transaction.

Adjusted OCI increased $25 million (52.1%), due primarily to higher shipment volume, improved mix and higher pricing.

For the nine months ended September 30, 2021, Ste. Michelle’s reported wine shipment volume increased 5.1% to 5,446 thousand cases.

Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020

Net revenues, which include excise taxes billed to customers, increased $20 million (12.7%), due primarily to improved mix and higher pricing.

Reported OCI decreased $43 million (100.0%+), due primarily to disposition-related charges related to the Ste. Michelle Transaction, partially offset by higher pricing and improved mix.

Adjusted OCI increased $7 million (35.0%), due primarily to higher pricing and improved mix.

For the three months ended September 30, 2021, Ste. Michelle’s reported wine shipment volume decreased 2.6% to 1,836 thousand cases.

Financial Review

Cash Provided by/Used in Operating Activities

During the first nine months of 2021, net cash provided by operating activities was $5,742 million compared with $5,844 million during the first nine months of 2020. This decrease was due primarily to higher settlement and income tax payments, partially offset by lower excise tax payments due to lower volume.

Altria had a working capital deficit at September 30, 2021 and December 31, 2020. Altria’s management believes that Altria has the ability to fund working capital deficits with cash provided by operating activities and borrowings through its access to credit and capital markets, as discussed in the Debt and Liquidity section below.

Cash Provided by/Used in Investing Activities

During the first nine months of 2021, net cash used in investing activities was $42 million compared with $107 million during the first nine months of 2020. This decrease was due primarily to lower capital expenditures.

Capital expenditures for 2021 are expected to be in the range of $150 million to $200 million, a reduction from the previous range of $200 million to $250 million, and are expected to be funded from operating cash flows.

Cash Provided by/Used in Financing Activities

During the first nine months of 2021, net cash used in financing activities was $7,668 million compared with $3,713 million during the first nine months of 2020. This change was due primarily to the following:

▪repayment of $5.0 billion of Altria senior unsecured notes in connection with the 2021 debt tender offers and redemption and the premiums and fees in connection with the debt tender offers described below and in Note 10;

▪proceeds of $2.0 billion from the issuance of long-term senior unsecured notes in 2020;

▪repayment of $1.5 billion in full of Altria senior unsecured notes at scheduled maturity in May 2021;

▪repurchases of common stock in 2021;

▪higher dividends paid in 2021; and

▪purchase of the remaining 20% interest in Helix;

partially offset by:

▪proceeds of $5.5 billion from the issuance of long-term senior unsecured notes used to repurchase and redeem senior unsecured notes in connection with the 2021 debt tender offers and redemption; and

▪repayment of $1.0 billion in full of Altria senior unsecured notes at scheduled maturity in January 2020.

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Debt and Liquidity

Source of Funds - Altria is a holding company. As a result, its access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. In addition, Altria receives cash dividends on its interest in ABI and will continue to do so as long as ABI pays dividends.

Credit Ratings - Altria’s cost and terms of financing and its access to commercial paper markets may be impacted by applicable credit ratings. The impact of credit ratings on the cost of borrowings under the Credit Agreement (as defined below) is discussed in Note 10.

At September 30, 2021, the credit ratings and outlook for Altria’s indebtedness by major credit rating agencies were:

Short-term Debt

Long-term Debt

Outlook

Moody’s Investors Service, Inc. (“Moody’s”)

P-2

Stable

Standard & Poor’s Financial Services LLC (“S&P”)

A-2

BBB

Stable

Fitch Ratings Inc.

BBB

Stable

Credit Lines - From time to time, Altria has short-term borrowing needs to meet its working capital requirements and generally uses its commercial paper program to meet those needs.

In August 2021, Altria entered into an extension and amendment to its $3.0 billion senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”). For further discussion, see Note 10.

Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA. For further discussion, see Supplemental Guarantor Financial Information below and Note 10.

Financial Market Environment - Altria believes it has adequate liquidity and access to financial resources to meet its anticipated obligations and ongoing business needs in the foreseeable future. Altria monitors the credit quality of its bank group and is not aware of any potential non-performing credit provider in that group.

Ste. Michelle Transaction - On October 1, 2021, UST received net cash proceeds of approximately $1.2 billion from the sale of its wine business.

Debt - At September 30, 2021 and December 31, 2020, Altria’s total debt was $28.1 billion and $29.5 billion, respectively.

In May 2021, Altria repaid in full senior unsecured notes in the aggregate principal amount of $1.5 billion at maturity.

During the first quarter of 2021, Altria (i) completed debt tender offers to purchase for cash certain of its long-term senior unsecured notes in the aggregate principal amount of $4,042 million and (ii) redeemed all of its outstanding 3.490% Notes due 2022 in an aggregate principal amount of $1.0 billion. As a result, for the nine months ended September 30, 2021, Altria recorded pre-tax losses on early extinguishment of debt of $649 million, which included premiums and fees of $623 million and the write-off of related unamortized debt discounts and debt issuance costs of $26 million.

As a result of the first quarter debt transactions, Altria reduced its near-term maturity towers and extended the weighted-average maturity of its debt. In addition, the weighted-average coupon interest rate on total long-term debt decreased to 4.0% at September 30, 2021 from 4.1% at December 31, 2020.

For further details on long-term debt, including the terms of the Notes, the debt tender offers and the redemption, see Note 10.

Guarantees and Other Similar Matters - As discussed in Note 12, Altria and certain of its subsidiaries had unused letters of credit obtained in the ordinary course of business, guarantees (including third-party guarantees) and a redeemable noncontrolling interest outstanding at September 30, 2021. From time to time, subsidiaries of Altria also issue lines of credit to affiliated entities. In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 10, PM USA has issued guarantees relating to Altria’s obligations under its outstanding debt securities, borrowings under the Credit Agreement and amounts outstanding under the commercial paper program. These items have not had, and are not expected to have, a significant impact on Altria’s liquidity. For further discussion regarding Altria’s liquidity, see the Debt and Liquidity section above.

Payments Under State Settlement Agreements and FDA Regulation - As discussed previously and in Note 12, PM USA has entered into State Settlement Agreements with the states and territories of the United States that call for certain payments. In addition, PM USA, Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. Altria’s subsidiaries recorded $3.4 billion and $3.6 billion of charges to cost of sales for the nine months ended September 30,

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2021 and 2020, respectively, and $1.2 billion and $1.3 billion of charges to cost of sales for the three months ended September 30, 2021 and 2020, in connection with the State Settlement Agreements and FDA user fees. For further discussion of the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement, see Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 12.

Based on current agreements, 2020 market share and estimated annual industry volume decline rates, the estimated amounts that Altria’s subsidiaries may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees are $4.5 billion on average for the next three years. These amounts exclude the potential impact of any NPM Adjustment Items.

The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year would generally be paid in the following year. The amounts charged to cost of sales for FDA user fees are generally paid in the quarter in which the fees are incurred. As previously stated, the payments due under the terms of the State Settlement Agreements and FDA user fees are subject to adjustment for several factors, including volume, operating income, inflation and certain contingent events and, in general, are allocated based on each manufacturer’s market share. The future payment amounts discussed above are estimates, and actual payment amounts will differ to the extent underlying assumptions differ from actual future results.

Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of September 30, 2021, PM USA had posted appeal bonds totaling $45 million, which have been collateralized with restricted cash that is included in assets on the condensed consolidated balance sheet.

Although litigation is subject to uncertainty and an adverse outcome or settlement of litigation could have a material adverse effect on the financial position, cash flows or results of operations of PM USA, UST or Altria in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 12, management expects cash flow from operations, together with Altria’s access to capital markets, to provide sufficient liquidity to meet ongoing business needs.

Equity and Dividends

Dividends paid during the first nine months of 2021 and 2020 were $4,787 million and $4,690 million, respectively, an increase of 2.1%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares repurchased by Altria in 2021 under its share repurchase program.

In August 2021, the Board of Directors (the “Board of Directors” or “Board”) declared a 4.7% increase in the quarterly dividend rate to $0.90 per share of Altria common stock versus the previous rate of $0.86 per share. The current annualized dividend rate is $3.60 per share. Altria maintains its long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. Future dividend payments remain subject to the discretion of the Board.

In October 2021, the Board authorized a $1.5 billion expansion of Altria’s existing share repurchase program from $2.0 billion to $3.5 billion, partially funded by the net cash proceeds from the Ste. Michelle Transaction. Altria expects to complete the expanded program by December 31, 2022. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board. For a discussion of Altria’s share repurchase programs, see Note 1. Background and Basis of Presentation to the condensed consolidated financial statements in Item 1 and Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Form 10-Q.

New Accounting Guidance Not Yet Adopted

See Note 13. New Accounting Guidance Not Yet Adopted to the condensed consolidated financial statements in Item 1 for a discussion of issued accounting guidance applicable to, but not yet adopted by, Altria.

Contingencies

See Note 12 for a discussion of contingencies.

Supplemental Guarantor Financial Information

PM USA (the “Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc. (the “Parent”), has guaranteed the Parent’s obligations under its outstanding debt securities, borrowings under its Credit Agreement and amounts outstanding under its commercial paper program (the “Guarantees”). Pursuant to the Guarantees, the Guarantor fully and unconditionally guarantees, as primary obligor, the payment and performance of the Parent’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release under certain customary circumstances as noted below.

The Guarantees provide that the Guarantor guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations. The liability of the Guarantor under the Guarantees is absolute and unconditional irrespective of: any lack of validity, enforceability or genuineness of any provision of any agreement or instrument relating thereto; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from any agreement or instrument relating thereto; any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Obligations; or any other circumstance that might otherwise constitute a defense available to, or

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a discharge of, the Parent or the Guarantor.

Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent transfer law, the Guarantees could be voided, or claims in respect of the Guarantees could be subordinated to the debts of the Guarantor, if, among other things, the Guarantor, at the time it incurred the Obligations evidenced by the Guarantees:

▪received less than reasonably equivalent value or fair consideration therefor; and

▪either:

▪was insolvent or rendered insolvent by reason of such occurrence;

▪was engaged in a business or transaction for which the assets of the Guarantor constituted unreasonably small capital; or

▪intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

In addition, under such circumstances, the payment of amounts by the Guarantor pursuant to the Guarantees could be voided and required to be returned to the Guarantor, or to a fund for the benefit of the Guarantor, as the case may be.

The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Guarantor would be considered insolvent if:

▪the sum of its debts, including contingent liabilities, was greater than the saleable value of its assets, all at a fair valuation;

▪the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

▪it could not pay its debts as they become due.

To the extent the Guarantees are voided as a fraudulent conveyance or held unenforceable for any other reason, the holders of the guaranteed debt obligations would not have any claim against the Guarantor and would be creditors solely of the Parent.

The obligations of the Guarantor under the Guarantees are limited to the maximum amount as will not result in the Guarantor’s obligations under the Guarantees constituting a fraudulent transfer or conveyance, after giving effect to such maximum amount and all other contingent and fixed liabilities of the Guarantor that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Guarantees. For this purpose, “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.

The Guarantor will be unconditionally released and discharged from the Obligations upon the earliest to occur of:

▪the date, if any, on which the Guarantor consolidates with or merges into the Parent or any successor;

▪the date, if any, on which the Parent or any successor consolidates with or merges into the Guarantor;

▪the payment in full of the Obligations pertaining to such Guarantees; and

▪the rating of the Parent’s long-term senior unsecured debt by S&P of A or higher.

The Parent is a holding company; therefore, its access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. Neither the Guarantor nor other 100% owned subsidiaries of the Parent that are not guarantors of the debt (“Non-Guarantor Subsidiaries”) are limited by contractual obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.

The following tables include summarized financial information for the Parent and the Guarantor. Transactions between the Parent and the Guarantor (including investment and intercompany balances as well as equity earnings) have been eliminated. The Parent’s and the Guarantor’s intercompany balances with Non-Guarantor Subsidiaries have been presented separately. This summarized financial information is not intended to present the financial position or results of operations of the Parent or the Guarantor in accordance with GAAP.

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Summarized Balance Sheets

(in millions of dollars)


	Parent				Guarantor
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Assets
Due from Non-Guarantor Subsidiaries	$	81	$	112	$	199	$	199
Other current assets	3,076		4,896		962		734
Total current assets	$	3,157	$	5,008	$	1,161	$	933


Due from Non-Guarantor Subsidiaries	$	4,790	$	4,790	$	—	$	—
Other assets	11,292		16,883		1,850		1,983
Total non-current assets	$	16,082	$	21,673	$	1,850	$	1,983

Liabilities
Due to Non-Guarantor Subsidiaries	$	1,232	$	1,169	$	756	$	656
Other current liabilities	3,123		3,688		4,071		4,539
Total current liabilities	$	4,355	$	4,857	$	4,827	$	5,195

Total non-current liabilities	$	28,923	$	30,958	$	1,052	$	1,268

Summarized Statements of Earnings (Losses)

(in millions of dollars)


	For the Nine Months Ended September 30, 2021
	Parent (1)		Guarantor
Net revenues	$	—	$	16,517
Gross profit	—		8,425
Net earnings (losses)	(5,611)		5,514

(1) For the nine months ended September 30, 2021, net earnings (losses) include $174 million of intercompany interest income from non-guarantor subsidiaries.

Cautionary Factors That May Affect Future Results

Forward-Looking and Cautionary Statements

We may from time to time make written or oral forward-looking statements, including earnings guidance and other statements contained in filings with the SEC, reports to security holders, press releases and investor webcasts. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “forecasts,” “intends,” “projects,” “goals,” “objectives,” “guidance,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans, estimates and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions that may prove to be inaccurate. Should known or unknown risks or uncertainties materialize, or should underlying estimates or assumptions prove inaccurate, actual results could differ materially from those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements and whether to invest in or remain invested in Altria’s securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in, or implied by, any forward-looking statements made by Altria; any such statement is qualified by reference to the following cautionary statements. We elaborate on these important factors and the risks we face throughout this Form 10-Q, particularly in Item 1A and the “Business Environment” section preceding our discussion of the operating results of our

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segments, and in our publicly filed reports, including our 2020 Form 10-K and our Second Quarter 2021 Form 10-Q. These factors include the following:

▪unfavorable litigation outcomes, including risks associated with adverse jury and judicial determinations, courts and arbitrators reaching conclusions at variance with our, our subsidiaries’ or our investees’ understanding of applicable law, bonding requirements in the jurisdictions that do not limit the dollar amount of appeal bonds, and certain challenges to bond cap statutes;

▪government (including the FDA) and private sector actions that impact adult tobacco consumer acceptability of, or access to, tobacco products;

▪tobacco product taxation, including lower tobacco product consumption levels and potential shifts in adult consumer purchases as a result of federal, state and local excise tax increases;

▪unfavorable outcomes of any government investigations of Altria, our subsidiaries or investees;

▪a successful challenge to our tax positions, an increase to the corporate income tax rate or other changes to federal or state tax laws;

▪the risks related to our and our investees’ international business operations, including failure to prevent violations of various U.S. and foreign laws and regulations such as foreign privacy laws and laws prohibiting bribery and corruption;

▪the risks associated with health epidemics and pandemics, including the COVID-19 pandemic and similar outbreaks, such as their impact on our financial performance and financial condition and on our subsidiaries’ and investees’ ability to continue manufacturing and distributing products, including as a result of labor shortages, and the impact of health epidemics and pandemics on general economic conditions (including any resulting recession or other economic crisis) and, in turn, adult consumer purchasing behavior, which may be further adversely impacted by any reductions in, or eliminations of, government stimulus or unemployment payments;

▪the failure of our tobacco subsidiaries and our investees to compete effectively in their respective markets;

▪the growth of the e-vapor category and other innovative tobacco products, including oral nicotine pouches, contributing to reductions in cigarette and MST consumption levels and sales volume;

▪our tobacco subsidiaries’ and our investees’ continued ability to promote brand equity successfully; to anticipate and respond to evolving adult consumer preferences; to develop, manufacture, market and distribute products that appeal to adult consumers (including, where appropriate, through arrangements with, and investments in third parties); to improve productivity; and to protect or enhance margins through cost savings and price increases;

▪changes, including in economic conditions (due to the COVID-19 pandemic or otherwise), that result in adult consumers choosing lower-priced brands, including discount brands;

▪the unsuccessful commercialization of adjacent products or processes by our tobacco subsidiaries and investees, including innovative tobacco products that may reduce the health risks associated with cigarettes and other traditional tobacco products, and that appeal to adult tobacco consumers;

▪significant changes in price, availability or quality of tobacco, other raw materials or component parts, including as a result of the COVID-19 pandemic;

▪the risks related to the reliance by our tobacco subsidiaries on a few significant facilities and a small number of key suppliers, distributors and distribution chain service providers, and the risk of an extended disruption at a facility of, or of service by, a supplier, distributor or distribution chain service provider of our tobacco subsidiaries or investees, including as a result of the COVID-19 pandemic;

▪required or voluntary product recalls as a result of various circumstances such as product contamination or FDA or other regulatory action;

▪the failure of our information systems or service providers’ information systems to function as intended, or cyber attacks or security breaches;

▪our inability to attract and retain the best talent due to the impact of decreasing social acceptance of tobacco usage, tobacco control actions and other factors;

▪impairment losses as a result of the write down of intangible assets, including goodwill;

▪the adverse effect of acquisitions, investments, dispositions or other events on our credit rating;

▪our inability to acquire attractive businesses or make attractive investments on favorable terms, or at all, or to realize the anticipated benefits from an acquisition or investment and our inability to dispose of businesses or investments on favorable terms or at all;

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▪the risks related to disruption and uncertainty in the credit and capital markets, including risk of access to these markets both generally and at current prevailing rates, which may adversely affect our earnings or dividend rate or both;

▪our inability to attract and retain investors due to the impact of decreasing social acceptance of tobacco usage or unfavorable environmental, social and governance ratings;

▪the risk that any challenge to our investment in JUUL, if successful, could result in a broad range of resolutions, including divestiture of the investment or rescission of the transaction;

▪the risks generally related to our investments in JUUL and Cronos, including our inability to realize the expected benefits of our investments in the expected time frames, or at all, due to the risks encountered by our investees in their businesses, such as operational, competitive, compliance, legislative and regulatory risks at the international, federal, state and local levels, including actions by the FDA, and adverse publicity; potential disruptions to our investees’ management or current or future plans and operations; domestic or international litigation developments, government investigations, tax disputes or otherwise; and impairment of our investment in Cronos and changes in the fair value of our investment in JUUL;

▪the risks related to our inability to acquire a controlling interest in JUUL as a result of standstill restrictions or to control the material decisions of JUUL, restrictions on our ability to sell or otherwise transfer our shares of JUUL until December 20, 2024, and non-competition restrictions for the same time period subject to certain exceptions;

▪the adverse effects of risks encountered by ABI in its business, including effects of the COVID-19 pandemic, foreign currency exchange rates and the impact of movements in ABI’s stock price on our equity investment in ABI, including on our reported earnings from and carrying value of our investment in ABI, which could result in additional impairments of our investment, and the dividends paid by ABI on the shares we own;

▪the risks related to our ownership percentage in ABI decreasing below certain levels, including additional tax liabilities, a reduction in the number of directors that we have the right to have appointed to the ABI board of directors and our potential inability to use the equity method of accounting for our investment in ABI;

▪the risk of challenges to the tax treatment of the consideration we received in the ABI/SABMiller business combination and the tax treatment of our equity investment; and

▪the risks, including criminal, civil or tax liability for Altria, related to Altria’s or Cronos’s failure to comply with applicable laws, including cannabis laws.

You should understand that it is not possible to predict or identify all factors and risks. Consequently, you should not consider the foregoing list to be complete. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The fair value of Altria’s long-term debt, all of which is fixed-rate debt, is subject to fluctuations resulting from changes in market interest rates. The following table provides the fair value of Altria’s long-term debt and the change in fair value based on a 1% increase or decrease in market interest rates at September 30, 2021 and December 31, 2020:


(in billions)	September 30, 2021		December 31, 2020
Fair value	$	31.0	$	34.7
Decrease in fair value from a 1% increase in market interest rates	2.8		2.7
Increase in fair value from a 1% decrease in market interest rates	3.3		3.1

Interest rates on borrowings under the Credit Agreement are expected to be based on the London Interbank Offered Rate, or a fallback benchmark rate determined based on prevailing market convention, plus a percentage based on the higher of the ratings of Altria’s long-term senior unsecured debt from Moody’s and S&P. The applicable percentage based on Altria’s long-term senior unsecured debt ratings at September 30, 2021 borrowings under the Credit Agreement was 1.0%. At September 30, 2021 and December 31, 2020, Altria had no borrowings under the Credit Agreement.

Equity Price Risk

The estimated fair values of the Fixed-price Preemptive Rights and the Cronos warrant are subject to equity price risk. The Fixed-price Preemptive Rights and warrant are recorded at fair value, which is estimated using Black-Scholes option-pricing models. The fair values of the Fixed-price Preemptive Rights and Cronos warrant are subject to fluctuations resulting from changes in the quoted market price of Cronos shares, the underlying equity security.

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The following table provides (i) fair values of the Fixed-price Preemptive Rights and Cronos warrants and (ii) the change in fair value based on a 10% increase or decrease in the quoted market price of Cronos shares at September 30, 2021 and December 31, 2020:


	Fixed-price Preemptive Rights				Cronos Warrant
(in millions)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Fair values	$	3	$	24	$	32	$	139
Change in fair value based on a 10% increase/decrease in the quoted market price of Cronos shares	1		6		11		28

Item 4. Controls and Procedures

Altria carried out an evaluation, with the participation of Altria’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Form 10-Q. Based upon that evaluation, Altria’s Chief Executive Officer and Chief Financial Officer concluded that Altria’s disclosure controls and procedures are effective.

There have been no changes in Altria’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

See Note 12 for a discussion of legal proceedings pending against Altria and its subsidiaries. See also Exhibits 99.1 and 99.2 to this Form 10-Q.

Item 1A. Risk Factors

Information regarding Risk Factors appears in Part I, Item 1A. Risk Factors of our 2020 Form 10-K and in Part II, Item 1A. Risk Factors of our Second Quarter 2021 Form 10-Q. Except as set forth below, there have been no material changes to the risk factors previously disclosed in our 2020 Form 10-K and in our Second Quarter 2021 Form 10-Q.

Risks Related to Litigation, Legislative or Regulatory Action

A challenge to our tax positions, an increase in the income tax rate or other changes to federal or state tax laws could adversely affect our earnings or cash flow.

Tax laws and regulations, such as the 2017 Tax Cuts and Jobs Act, are complex and subject to varying interpretations. A successful challenge to one or more of Altria’s tax positions (which could give rise to additional liabilities, including interest and potential penalties), an increase in the corporate income tax rate or other changes to federal or state tax laws, including changes in how foreign investments are taxed, could adversely affect our earnings or cash flow.

Risks Related to Our Investments

Altria recorded an impairment charge of $6.2 billion on its investment in ABI for the nine and three months ended September 30, 2021. If the carrying value of our investment in ABI exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired, which would result in additional impairment losses.

As discussed in Note 4, since October 2019, the carrying value of our investment in ABI has exceeded the fair value of our equity investment in ABI. In preparing our financial statements for the period ended September 30, 2021, we concluded that the decline in fair value of our investment in ABI below its carrying value was other than temporary at September 30, 2021. As a result, we recorded a non-cash, pre-tax impairment charge of $6.2 billion for the nine and three months ended September 30, 2021 to income (losses) from equity investments in Altria’s condensed consolidated statements of earnings (losses). This impairment charge reflects the difference between the fair value of our investment in ABI using ABI’s share price at September 30, 2021 and the carrying value of Altria’s equity investment in ABI at September 30, 2021. Additionally, if ABI is unable to successfully execute its business plans and strategies and the fair value of our investment in ABI continues to decrease, it could result in additional impairment losses, which could have a material adverse effect on our consolidated financial position or earnings.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January 2021, the Board of Directors authorized a new $2.0 billion share repurchase program, which it expanded to $3.5 billion in October 2021. Altria expects to complete the expanded program by December 31, 2022. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board.

Altria’s share repurchase activity for each of the three months in the period ended September 30, was as follows:


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2)

July 1-31, 2021	2,088,922	$	47.30	2,088,922	$	1,251,200,508
August 1-31, 2021	2,381,498	$	48.20	2,373,425	$	1,136,801,113
September 1-30, 2021	2,206,667	$	49.51	2,205,774	$	1,027,601,765
	6,677,087	$	48.35	6,668,121

(1) The total number of shares purchased includes (a) shares purchased under the January 2021 share repurchase program (which totaled 2,088,922 shares in July, 2,373,425 shares in August and 2,205,774 shares in September) and (b) shares withheld by Altria in an amount equal to the statutory withholding taxes for vested stock-based awards previously granted to eligible employees (which totaled 8,073 shares in August and 893 shares in September).

(2) This chart provides information for each of the three months in the period ended September 30. 2021; therefore, it does not reflect the October 2021 expansion of Altria’s share repurchase program discussed above.

Table of Contents

Item 6. Exhibits


4.1						Extension and Amendment No. 2 to the Credit Agreement, effective August 18, 2021, among Altria Group, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A. and Citibank, N.A., as administrative agents. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on August 18, 2021 (File No. 1-08940).

22						Guarantor Subsidiary of the Registrant. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2020 (File No. 1-08940).

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1						Certain Litigation Matters.

99.2						Trial Schedule for Certain Cases.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema.

101.CAL						XBRL Taxonomy Extension Calculation Linkbase.

101.DEF						XBRL Taxonomy Extension Definition Linkbase.

101.LAB						XBRL Taxonomy Extension Label Linkbase.

101.PRE						Taxonomy Extension Presentation Linkbase.

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALTRIA GROUP, INC.

/s/ SALVATORE MANCUSO

Salvatore Mancuso

Executive Vice President and

Chief Financial Officer

October 28, 2021

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Altria (MO) 10-Q2021 Q3 Quarterly report

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