ALTRIA GROUP, INC. - Quarter Report: 2021 March (Form 10-Q)

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 March 31, 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 April 20, 2021, there were 1,850,637,974 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.

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ALTRIA GROUP, INC.

TABLE OF CONTENTS



		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

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

	Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2021 and 2020	5

	Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2021 and 2020	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	7



	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65

Item 4.	Controls and Procedures	66

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66





Item 6.	Exhibits	67

Signature	Signature	68

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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)

______________________________


	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	5,792	$	4,945
Receivables	142		137
Inventories:
Leaf tobacco	754		844
Other raw materials	186		200
Work in process	471		502
Finished product	537		420
	1,948		1,966

Other current assets	147		69
Total current assets	8,029		7,117
Property, plant and equipment, at cost	5,154		5,150
Less accumulated depreciation	3,172		3,138
	1,982		2,012
Goodwill	5,177		5,177
Other intangible assets, net	12,598		12,615
Investments in equity securities ($1,778 million and $1,868 million at March 31, 2021 and December 31, 2020, respectively, measured at fair value)	20,133		19,529

Other assets	857		964
Total Assets	$	48,776	$	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)

________________________________________________


	March 31, 2021		December 31, 2020
Liabilities

Current portion of long-term debt	$	1,500	$	1,500
Accounts payable	271		380
Accrued liabilities:
Marketing	546		523


Settlement charges	4,539		3,564
Other	1,550		1,494

Dividends payable	1,598		1,602
Total current liabilities	10,004		9,063
Long-term debt	28,180		27,971
Deferred income taxes	4,727		4,532
Accrued pension costs	481		551
Accrued postretirement health care costs	1,952		1,951
Other liabilities	397		381
Total liabilities	45,741		44,449
Contingencies (Note 10)
Redeemable noncontrolling interest	40		40
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935		935
Additional paid-in capital	5,905		5,910
Earnings reinvested in the business	34,507		34,679
Accumulated other comprehensive losses	(3,774)		(4,341)
Cost of repurchased stock (954,184,118 shares at March 31, 2021 and 947,542,152 shares at December 31, 2020)	(34,660)		(34,344)
Total stockholders’ equity attributable to Altria	2,913		2,839
Noncontrolling interests	82		86
Total stockholders’ equity	2,995		2,925
Total Liabilities and Stockholders’ Equity	$	48,776	$	47,414

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)

_____________________________________


For the Three Months Ended March 31,	2021		2020
Net revenues	$	6,036	$	6,359
Cost of sales	1,608		2,173
Excise taxes on products	1,156		1,313
Gross profit	3,272		2,873
Marketing, administration and research costs	582		537

Operating income	2,690		2,336
Interest and other debt expense, net	308		275
Loss on early extinguishment of debt	649		—
Net periodic benefit (income) cost, excluding service cost	(43)		(27)
(Income) losses from equity investments	(51)		(157)

(Gain) loss on Cronos-related financial instruments	(110)		137

Earnings before income taxes	1,937		2,108
Provision for income taxes	516		558
Net earnings	1,421		1,550
Net (earnings) losses attributable to noncontrolling interests	3		2
Net earnings attributable to Altria	$	1,424	$	1,552
Per share data:
Basic and diluted earnings per share attributable to Altria	$	0.77	$	0.83

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)

_____________________


For the Three Months Ended March 31,	2021		2020
Net earnings	$	1,421	$	1,550
Other comprehensive earnings (losses), net of deferred income taxes:
Benefit plans	28		21
ABI	517		298
Currency translation adjustments and other	22		12
Other comprehensive earnings (losses), net of deferred income taxes	567		331

Comprehensive earnings (losses)	1,988		1,881
Comprehensive (earnings) losses attributable to noncontrolling interests	3		2
Comprehensive earnings (losses) attributable to Altria	$	1,991	$	1,883

See notes to condensed consolidated financial statements.

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Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the Three Months Ended March 31, 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’ Equity
Balances, December 31, 2020	$	935	$	5,910	$	34,679	$	(4,341)	$	(34,344)	$	86	$	2,925
Net earnings (1)	—		—		1,424		—		—		(4)		1,420
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		567		—		—		567
Stock award activity	—		(5)		—		—		9		—		4
Cash dividends declared ($0.86 per share)	—		—		(1,596)		—		—		—		(1,596)
Repurchases of common stock	—		—		—		—		(325)		—		(325)

Balances, March 31, 2021	$	935	$	5,905	$	34,507	$	(3,774)	$	(34,660)	$	82	$	2,995


	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’ Equity
Balances, December 31, 2019	$	935	$	5,970	$	36,539	$	(2,864)	$	(34,358)	$	97	$	6,319
Net earnings (1)	—		—		1,552		—		—		(3)		1,549
Other comprehensive earnings (losses), net of deferred income taxes	—		—		—		331		—		—		331
Stock award activity	—		(11)		—		—		12		—		1
Cash dividends declared ($0.84 per share)	—		—		(1,563)		—		—		—		(1,563)



Balances, March 31, 2020	$	935	$	5,959	$	36,528	$	(2,533)	$	(34,346)	$	94	$	6,637

(1)Amounts attributable to noncontrolling interests for the three months ended March 31, 2021 and 2020 exclude net earnings of $1 million 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 Three Months Ended March 31,	2021		2020
Cash Provided by (Used in) Operating Activities
Net earnings	$	1,421	$	1,550
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	63		65
Deferred income tax provision (benefit)	65		26
(Income) losses from equity investments	(51)		(157)


(Gain) loss on Cronos-related financial instruments	(110)		137


Loss on early extinguishment of debt	649		—
Cash effects of changes:
Receivables	(5)		5
Inventories	18		(5)
Accounts payable	(98)		(45)
Income taxes	396		495
Accrued liabilities and other current assets	(307)		(421)
Accrued settlement charges	975		1,073
Pension plan contributions	(3)		(4)
Pension provisions and postretirement, net	(32)		(20)
Other, net (1)	59		430
Net cash provided by (used in) operating activities	3,040		3,129
Cash Provided by (Used in) Investing Activities
Capital expenditures	(26)		(52)



Other, net	(3)		—
Net cash provided by (used in) investing activities	$	(29)	$	(52)

(1) 2020 reflects inventory-related amounts associated with the Wine Business Strategic Reset. For further discussion, see Note 8. 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 Three Months Ended March 31,	2021		2020
Cash Provided by (Used in) Financing Activities
Proceeds from short-term borrowings	$	—	$	3,000

Long-term debt issued	5,472		—
Long-term debt repaid	(5,042)		(1,000)
Repurchases of common stock	(325)		—
Dividends paid on common stock	(1,601)		(1,563)


Premiums and fees related to early extinguishment of debt	(623)		—
Other, net	(53)		(10)
Net cash provided by (used in) financing activities	(2,172)		427
Cash, cash equivalents and restricted cash:
Increase (decrease)	839		3,504
Balance at beginning of period	5,006		2,160
Balance at end of period	$	5,845	$	5,664

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 March 31, 2021		At December 31, 2020
Cash and cash equivalents	$	5,792	$	4,945
Restricted cash included in other current assets (1)	5		1
Restricted cash included in other assets (1)	48		60
Cash, cash equivalents and restricted cash	$	5,845	$	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 10. Contingencies.

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 March 31, 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; and Philip Morris Capital Corporation (“PMCC”), which maintains a portfolio of finance assets, substantially all of which are leveraged leases. In addition, at March 31, 2021, Altria owned an 80% interest in Helix Innovations LLC (“Helix”), which is engaged in the manufacture and sale of on! oral nicotine pouches in the United States and Canada. As a result of transactions in December 2020 and April 2021 to purchase the remaining 20% interest in (i) the on! international rest of world business (“Helix ROW”) and (ii) Helix’s on! business in the United States and Canada, respectively, Altria now owns 100% of the global on! business. 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 March 31, 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 March 31, 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 3. Investments in Equity Securities.

▪Share Repurchases: In July 2019, Altria’s Board of Directors (the “Board of Directors” or “Board”) 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. At March 31, 2021, Altria had $1,675 million remaining in this program. 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 three months ended March 31, 2021 was as follows:


(in millions, except per share data)	2021
Total number of shares repurchased	6.9
Aggregate cost of shares repurchased	$	325
Average price per share of shares repurchased	$	47.02

▪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

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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 11. 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 8. Segment Reporting.

A majority of Altria’s businesses offer cash discounts to customers for prompt payment and calculate 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, USSTC began calculating cash discounts 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 $264 million and $301 million at March 31, 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 March 31, 2021 and December 31, 2020, there were no differences between amounts recorded as deferred revenue and amounts subsequently recognized as revenue.

Receivables were $142 million and $137 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 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.

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.

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Note 3. Investments in Equity Securities

Altria’s investments consisted of the following:


	Carrying Amount
(in millions)	March 31, 2021		December 31, 2020
ABI	$	17,390	$	16,651
JUUL	1,505		1,705
Cronos (1)	1,238		1,173
Total	$	20,133	$	19,529

(1) March 31, 2021 included Altria’s equity method investment in Cronos ($965 million), the Cronos warrant ($235 million) and the Fixed-price Preemptive Rights ($38 million), (collectively, “Investment in Cronos”). The Investment in Cronos at December 31, 2020 included 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 Three Months Ended March 31,
(in millions)	2021		2020
ABI	$	318	$	134
Cronos	(67)		23
Income (losses) from investments under equity method of accounting	251		157
JUUL	(200)		—
Income (losses) from equity investments	$	51	$	157

Investment in ABI

At March 31, 2021, Altria had a 10.0% ownership interest in ABI, consisting of 185 million restricted shares of ABI (the “Restricted Shares”) and 12 million ordinary shares of ABI. The Restricted Shares:

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

▪are subject to a five-year lock-up (subject to limited exceptions) ending October 10, 2021;

▪are convertible into ordinary shares of ABI on a one-for-one basis after the end of this five-year lock-up period;

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

▪have director nomination rights with respect to 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 may, in certain instances, pledge or otherwise grant a security interest in all or part of its Restricted Shares. If the pledgee or security interest holder forecloses on the Restricted Shares, the relevant Restricted Shares will be automatically converted, one-for-one, into ordinary shares. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.

The fair value of Altria’s equity investment in ABI at March 31, 2021 and December 31, 2020 was $12.4 billion (carrying value of $17.4 billion) and $13.8 billion (carrying value of $16.7 billion), respectively, which was less than its carrying value by approximately 28% and 17%, respectively. In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and has not recovered. Altria has 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 has evaluated the duration and magnitude of the fair value decline at March 31, 2021, ABI’s financial condition and near-term prospects, and Altria’s intent and ability to hold its investment in ABI until recovery. Altria concluded, both at

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March 31, 2021 and December 31, 2020, that the decline in fair value of its investment in ABI below its carrying value was temporary and, therefore, no impairment was recorded.

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 10. 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 March 31, 2021, Altria had a 35% ownership interest in JUUL, consisting of 42 million voting shares.

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 fair value of the investment was less than its carrying value, the investment was written down to its fair value. During the three months ended March 31, 2020, Altria did not record an impairment charge on its investment in JUUL.

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 include any cash dividends received from its investment in JUUL and any changes in the 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.

Altria recorded a non-cash pre-tax unrealized loss of $200 million for the three months ended March 31, 2021 as a result of a decrease in the fair value of its investment in JUUL. The decrease in fair value was primarily driven by (i) Altria’s projections of lower JUUL revenues in the U.S. over time due to lower JUUL volume assumptions resulting from a continuation of heightened competitive dynamics in the U.S. e-vapor category and (ii) an increase in the discount rate due to a change in market factors.

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.

The following table provides a reconciliation of the beginning and ending balance of the JUUL investment, 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	(200)
Balance at March 31, 2021	$	1,505

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In determining the fair value of its investment in JUUL, as of March 31, 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 March 31, 2021, Altria had a 42.1% 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 March 31, 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 March 31, 2021, Altria estimates the Fixed-price Preemptive Rights allows Altria to purchase up to an additional approximately 24 million common shares of Cronos; and

▪a warrant providing Altria the ability to purchase up to an additional 10% of common shares of Cronos (approximately 83 million common shares at March 31, 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 $0.4 billion (approximately USD $1.3 billion and $0.3 billion, respectively, based on the CAD to USD exchange rate on April 26, 2021). At March 31, 2021, upon full exercise of the Fixed-price Preemptive Rights, to the 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 4. 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. The fair value of Altria’s equity method investment in Cronos at March 31, 2021 and December 31, 2020 was $1.5 billion (carrying value of $1.0 billion) and $1.1 billion (carrying value of $1.0 billion), respectively, which exceeded its carrying value by approximately 53% and 8% at March 31, 2021 and December 31, 2020, respectively.

Note 4. 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.

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)	March 31, 2021		December 31, 2020
Foreign currency contracts (notional amounts)	$	567	$	1,066
Foreign currency denominated debt
Carrying value	4,965		5,171
Fair value	5,372		5,687

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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 nonperformance 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)	March 31, 2021		December 31, 2020
Carrying value	$	29,680	$	29,471
Fair value	32,377		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 3. 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 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:

March 31, 2021

December 31, 2020

March 31, 2021

December 31, 2020

Fixed-price Preemptive Rights

Cronos Warrant

Share price (1)

C$11.88

C$8.84

C$11.88

C$8.84

Expected life (2)

0.97 years

1.05 years

1.93 years

2.18 years

Expected volatility (3)

81.54%

80.68%

81.54%

80.68%

Risk-free interest rate (4)(5)

0.15%

0.13%

0.22%

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 4.5 years at March 31, 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 March 31, 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 0.09% to 0.87% at March 31, 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	(140)
Balance at December 31, 2020	163
Pre-tax earnings (losses) recognized in net earnings	110
Balance at March 31, 2021	$	273

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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	March 31, 2021		December 31, 2020		Balance Sheet Classification	March 31, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	—	$	—	Other accrued liabilities	$	18	$	87
Foreign currency contracts	Other assets	—		—		Other liabilities	—		—

Total		$	—	$	—		$	18	$	87

Derivatives not designated as hedging instruments:
Cronos warrant	Investments in equity securities	$	235	$	139
Fixed-price Preemptive Rights	Investments in equity securities	38		24
Total		$	273	$	163

Total derivatives		$	273	$	163		$	18	$	87

Altria records in its condensed consolidated statements of earnings any changes in the fair values of the Fixed-price Preemptive Rights and Cronos warrant as gains or losses on Cronos-related financial instruments in the periods in which the changes occur. For the three months ended March 31, 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 Three Months Ended March 31,
(in millions)	2021		2020
Fixed-price Preemptive Rights	$	14	$	(35)
Cronos warrant	96		(102)
Total	$	110	$	(137)

Counterparties to Altria’s foreign currency contracts are domestic and international financial institutions. 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 March 31, 2021 and December 31, 2020.

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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 were as follows:


	Gain (Loss) Recognized in Accumulated Other Comprehensive Losses				Gain (Loss) Recognized in Net Earnings
	For the Three Months Ended March 31,
(in millions)	2021		2020		2021		2020
Foreign currency contracts	$	35	$	56	$	5	$	14
Foreign currency denominated debt	206		77		—		—
Total	$	241	$	133	$	5	$	14

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 based on an amortization approach.

Note 5. Benefit Plans

Components of Net Periodic Benefit (Income) Cost

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


	For the Three Months Ended March 31,
	Pension				Postretirement
(in millions)	2021		2020		2021		2020
Service cost	$	17	$	19	$	5	$	4
Interest cost	46		63		11		15
Expected return on plan assets	(131)		(126)		(4)		(3)
Amortization:
Net loss	33		27		7		3
Prior service cost (credit)	1		1		(6)		(7)

Net periodic benefit (income) cost	$	(34)	$	(16)	$	13	$	12

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 $3 million to its pension plans and did not make any contributions to its postretirement plans during the three months ended March 31, 2021. Currently, Altria anticipates making additional employer contributions to its pension and postretirement plans of up to approximately $30 million and $60 million, respectively, in 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.

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Note 6. Earnings per Share

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


	For the Three Months Ended March 31,
(in millions)	2021		2020
Net earnings attributable to Altria	$	1,424	$	1,552
Less: Distributed and undistributed earnings attributable to share-based awards	(3)		(2)
Earnings for basic and diluted EPS	$	1,421	$	1,550

Weighted-average shares for basic and diluted EPS	1,857		1,858

Note 7. 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 Three Months Ended March 31, 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	—		690			22		712
Deferred income taxes	—		(151)			—		(151)
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	—		539			22		561

Amounts reclassified to net earnings	38		(28)			—		10
Deferred income taxes	(10)		6			—		(4)
Amounts reclassified to net earnings, net of deferred income taxes	28		(22)			—		6

Other comprehensive earnings (losses), net of deferred income taxes	28		517		(1)	22		567

Balances, March 31, 2021	$	(2,392)	$	(1,421)		$	39	$	(3,774)

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	For the Three Months Ended March 31, 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	—		388			12		400
Deferred income taxes	—		(85)			—		(85)
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	—		303			12		315

Amounts reclassified to net earnings	28		(7)			—		21
Deferred income taxes	(7)		2			—		(5)
Amounts reclassified to net earnings, net of deferred income taxes	21		(5)			—		16

Other comprehensive earnings (losses), net of deferred income taxes	21		298		(1)	12		331

Balances, March 31, 2020	$	(2,171)	$	(395)		$	33	$	(2,533)

(1) 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 4. Financial Instruments.

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


	For the Three Months Ended March 31,
(in millions)	2021		2020
Benefit Plans: (1)
Net loss	$	43	$	34
Prior service cost/credit	(5)		(6)
	38		28
ABI (2)	(28)		(7)
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	10	$	21

(1) Amounts are included in net defined benefit plan costs. For further details, see Note 5. Benefit Plans.

(2) Amounts are included in (income) losses from equity investments. For further information, see Note 3. Investments in Equity Securities.

Note 8. 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, net periodic benefit income/cost, excluding service cost, and provision 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 Three Months Ended March 31,
(in millions)	2021		2020
Net Revenues:
Smokeable products	$	5,250	$	5,606
Oral tobacco products	626		601
Wine	150		146
All other	10		6
Net revenues	$	6,036	$	6,359
Earnings before Income Taxes:
OCI:
Smokeable products	$	2,372	$	2,370
Oral tobacco products	392		414
Wine	18		(379)
All other	(14)		(5)
Amortization of intangibles	(17)		(19)
General corporate expenses	(61)		(45)

Operating income	2,690		2,336
Interest and other debt expense, net	(308)		(275)
Loss on early extinguishment of debt	(649)		—
Net periodic benefit (income) cost, excluding service cost	43		27
Income (losses) from equity investments	51		157

Gain (loss) on Cronos-related financial instruments	110		(137)
Earnings before income taxes	$	1,937	$	2,108

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

▪Non-Participating Manufacturer (“NPM”) Adjustment Items: For the three months ended March 31, 2021, pre-tax income for NPM adjustment items of $32 million was recorded to cost of sales in the smokeable products segment. No NPM adjustment items were recorded for the three months ended March 31, 2020. 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 10. Contingencies).

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


	For the Three Months Ended March 31,
(in millions)	2021		2020
Smokeable products segment	$	35	$	22
Interest and other debt expense, net	—		2
Total	$	35	$	24

The amounts shown in the table above for the smokeable products segment were recorded in marketing, administration and research costs. For further discussion, see Note 10. Contingencies.

▪Implementation and Acquisition-Related Costs:

Wine Business Strategic Reset: During the three months ended March 31, 2021 and 2020, Ste. Michelle recorded pre-tax implementation costs of $1 million and $392 million, respectively, associated with the strategic reset initiated in the first quarter of 2020 to maximize Ste. Michelle’s profitability and achieve improved long-term cash flow generation. The charges in the first quarter of 2020 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

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longer have a future economic benefit ($100 million). These charges were included in cost of sales in Altria’s condensed consolidated statements of earnings.

Acquisition-Related Costs: For the three months ended March 31, 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.

Note 9. Debt

Short-term Borrowings and Borrowing Arrangements

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

At March 31, 2021, Altria had a senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”) that provides for borrowings up to an aggregate principal amount of $3.0 billion. The Credit Agreement, which is used for general corporate purposes, expires on August 1, 2023 and includes an option, subject to certain conditions, for Altria to extend the Credit Agreement for two additional one-year periods. 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 the London Interbank Offered Rate (“LIBOR”), or any mutually agreed upon benchmark rate, 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 March 31, 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 March 31, 2021, the ratio of consolidated EBITDA to Consolidated Interest Expense, calculated in accordance with the Credit Agreement, was 9.2 to 1.0. At March 31, 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 March 31, 2021 and December 31, 2020 was $29.7 billion and $29.5 billion, respectively.

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 three months ended March 31, 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 March 31, 2021 and December 31, 2020, accrued interest on long-term debt of $277 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 4. Financial Instruments.

Note 10. 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.

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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 10. 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.

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.

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.

The table below lists the number of certain tobacco-related cases pending in the U.S. against PM USA and/or Altria as of April 26, 2021, April 27, 2020 and April 22, 2019:


	April 26, 2021	April 27, 2020	April 22, 2019
Individual Smoking and Health Cases (1)	162	109	98
Health Care Cost Recovery Actions (2)	1	1	1
E-vapor Cases (3)	2,150	202	2
Other Tobacco-Related Cases (4)	3	4	—

(1) Includes 17 cases filed in New Mexico, 35 cases filed in Massachusetts and 62 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.

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

(3) Includes 47 class action lawsuits, 1,980 individual lawsuits and 123 “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 47 class action lawsuits include 21 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 one inactive smoking and health case alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs and two 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.

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International Tobacco-Related Cases: As of April 26, 2021, (i) Altria is named as a defendant in three e-vapor class action lawsuits in Canada; (ii) PM USA is a named defendant in 10 health care cost recovery actions in Canada, eight of which also name Altria as a defendant; and (iii) PM USA and Altria are named as defendants in seven 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 April 26, 2021, one Engle progeny case against PM USA is set for trial through June 30, 2021. Trial dates are subject to change and many of the trials were postponed due to the COVID-19 pandemic; however, the courts are beginning to reopen and trials may be scheduled for the second half 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 one case (Gentile) that was initially returned in favor of plaintiff was reversed post-trial and remains 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 April 26, 2021.

Judgments Paid and Provisions for Tobacco and Health 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 $841 million and interest totaling approximately $218 million as of March 31, 2021. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $399 million and related interest totaling approximately $56 million.

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


	For the Three Months Ended March 31,
(in millions)	2021		2020
Accrued liability for tobacco and health litigation items at beginning of period	$	9	$	14
Pre-tax charges for:
Tobacco and health litigation (1)	35		22
Related interest costs	—		2



Payments (1)	(36)		(28)
Accrued liability for tobacco and health litigation items at end of period	$	8	$	10

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

The accrued liability for tobacco and health 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 litigation were included in marketing, administration and research costs on Altria’s condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria’s condensed consolidated statements of earnings.

Security for Judgments: To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of March 31, 2021, PM USA has posted appeal bonds totaling approximately $53 million, which have been collateralized with restricted cash that are included in assets on the condensed consolidated balance sheets.

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,

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comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

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’s appeal is pending in the Third District Court of Appeal.

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 plaintiff 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.

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 has appealed and, in February 2021, the Massachusetts Supreme Judicial Court asserted jurisdiction over the appeal.

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 April 26, 2021, approximately 1,214 state court cases were pending against PM USA or Altria asserting individual claims by or on behalf of approximately 1,500 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 April 26, 2021, three cases were pending against PM USA in federal court representing the cases excluded from that agreement.

Engle Progeny Trial Results: As of April 26, 2021, 135 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Seventy-six verdicts were returned in favor of plaintiffs and five verdicts (Skolnick, Calloway, Oshinsky-Blacker, McCoy and Frogel) that were initially returned in favor of plaintiffs

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were reversed post-trial or on appeal and remain pending.

Fifty 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 April 26, 2021. Four verdicts (Pearson, D. Cohen, Collar and Chacon) that were returned in favor of PM USA were subsequently reversed for new trials. Juries in two cases (Reider and Banks) returned zero damages verdicts in favor of PM USA. Juries in two 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. One 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. Three 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. Two 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 April 26, 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 April 26, 2021, there are no 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

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 plaintiff and 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

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

Mahfuz

February 2019

PM USA and R.J. Reynolds

Broward

$12 million

$10 million

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

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. Defendants’ motion for rehearing pending.

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Plaintiff

Verdict Date

Defendant(s)

Court

Compensatory Damages (1)

Punitive Damages
(PM USA)

Appeal Status

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)

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.

(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) (2)

September 2014

PM USA

Federal Court - Middle District of Florida

Fourth quarter of 2018 and first quarter of 2021

$29 million

February 2021

Santoro (3)

March 2017

PM USA, R.J. Reynolds and Liggett Group

Broward

Second quarter of 2020 and first quarter of 2021

$1 million

January 2021

Dean (Kerrivan) (4)

October 2014

PM USA and R.J. Reynolds

Federal Court - Middle District of Florida

Third quarter of 2020

$26 million

August 2020

Landi (5)

June 2018

PM USA and R.J. Reynolds

Broward

Second quarter of 2020

$10 million

July 2020

(1) In four cases in which PM USA paid the judgments more than a year ago, Naugle, Gore, M. Brown and Jordan, plaintiffs were awarded approximately $8 million, $2 million, $8 million and $4 million in fees and costs, respectively. PM USA has appealed in all of these cases. 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.

(2) In January 2021, the Eleventh Circuit Court of Appeals affirmed the punitive damages award. As a result, in the first quarter of 2021, PM USA recorded a pre-tax provision of approximately $21 million, including interest, for the judgment and in February 2021 paid this amount plus an amount reflecting a pre-tax provision recorded in the fourth quarter of 2018 of approximately $6 million, including interest, for compensatory damages. Also in February 2021, PM USA paid additional fees in the amount of approximately $1.5 million.

(3) In January 2021, the Florida Supreme Court denied defendants’ appeal of the punitive damages award. As a result, in the first quarter of 2021, PM USA recorded a pre-tax provision of approximately $0.2 million, including interest, for the judgment and in January 2021 paid this amount plus an amount reflecting a pre-tax provision recorded in the second quarter of 2020 of approximately $0.8 million, including interest, for compensatory damages.

(4) In August 2020, the U.S. Court of Appeals for the Eleventh Circuit denied the defendants’ petition for rehearing. As a result, in the third quarter of 2020, PM USA recorded a pre-tax provision of approximately $26 million, reflecting its portion of the judgment plus interest, and paid this amount in August 2020.

(5) In June 2020, the Fourth District Court of Appeal affirmed the compensatory damages award. As a result, in the second quarter of 2020, PM USA recorded a pre-tax provision of approximately $10 million for the judgment plus interest and paid this amount in July 2020.

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 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 January 25, 2021, PM USA and Altria are named as defendants, along with other cigarette manufacturers, in seven class actions filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan, British Columbia (two 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

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stayed as a result of three 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 two 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 three 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 March 31, 2021 and 2020, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $0.9 billion and $1.1 billion, respectively. These amounts include PM USA’s estimate of amounts related to NPM Adjustments discussed below.

NPM Adjustment Disputes: PM USA is participating in proceedings regarding the NPM Adjustment for 2003-2020. 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 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 (the “IA”) appointed under the MSA calculates the maximum amount of the NPM Adjustment, if any, for each year.

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NPM Adjustment Disputes - Settlement with 36 States and Territories and Separate Settlements with Montana and New York.

PM USA has entered into three settlements of NPM Adjustment disputes with a total of 38 states and territories, one with 36 states and territories (the “multi-state settlement”), one with the State of New York and one with the State of Montana. In the multi-state settlement, PM USA, by the end of October 2017, had settled the NPM Adjustment disputes for 2003-2015 with 26 states in exchange for a total of $740 million. In 2018, PM USA agreed to settle the NPM Adjustment disputes for 2016 and 2017 with the 26 states mentioned above and PM USA settled the NPM Adjustment disputes for 2004-2017 with ten additional states. As a result of these two developments, PM USA will receive approximately $248 million, $68 million of which it received in April 2018, $121 million of which it received in April 2019, $47 million of which it received in April 2020 and $8 million of which it received in April 2021. In connection with these two developments, PM USA recorded a reduction to cost of sales in the amount of $39 million in 2017 and in the amount of $209 million in 2018. In the first quarter of 2019, PM USA also recorded a reduction to cost of sales in the amount of $52 million for its estimate of the 2018 NPM Adjustment settlement credit it expected to receive under the multi-state settlement.

In the first quarter of 2020, the PMs agreed that certain conditions set forth in the multi-state settlement had been met. As a result, PM USA’s and the other PMs’ settlement with Pennsylvania was extended to include NPM Adjustments for 2018-2024. In the third quarter of 2020, PM USA and the other PMs also agreed with the other 35 states to extend the settlement with those states to include NPM Adjustments for 2018-2022. As a result of these two developments, PM USA will receive approximately $361 million in credits to offset PM USA’s MSA payments through 2029.

In the NPM Adjustment settlement with New York, which was entered into in 2015, PM USA has received approximately $373 million for 2004-2019. PM USA expects to receive cash amounts annually, pursuant to the NPM Adjustment settlement with New York.

As discussed below, in November 2020, PM USA and other PMs reached a resolution with Montana with respect to NPM adjustments for 2005-2019.

The New York settlement, the Montana settlement and the multi-state settlement also contain provisions resolving certain disputes regarding the application of the NPM Adjustment going forward.

2003 and Subsequent NPM Adjustments - Continuing Disputes with States that have not Settled.

▪2003 NPM Adjustment. In September 2013, an arbitration panel issued rulings regarding the 15 states and territories that remained in the arbitration, ruling that six of them did not establish valid defenses to the NPM Adjustment for 2003. In June 2014, two of these six states joined the multi-state settlement discussed above. With respect to the remaining four states, following the outcome of challenges in state courts, PM USA ultimately recorded $74 million primarily as a reduction to cost of sales, with the final adjustment being recorded in the third quarter of 2017. Subsequently, another one of the six states joined the multi-state settlement. Two potential disputes remain outstanding regarding the amount of interest due to PM USA and there is no assurance that PM USA will prevail in either of these disputes.

▪2004 and Subsequent NPM Adjustments. PM USA has continued to pursue the NPM Adjustments for 2004 and subsequent years in multi-state arbitrations against the states that did not join the settlements discussed above.

In September 2019, a New Mexico state appellate court affirmed a trial court’s order compelling New Mexico to arbitrate the 2004 NPM Adjustment claims in the multi-state arbitration with the other states. In November 2019, the New Mexico Supreme Court declined to review that decision. The arbitration hearing for New Mexico has been scheduled for October 2021.

The Montana state courts ruled that Montana may litigate its claims in state court, rather than participate in a multi-state arbitration and the PMs agreed not to contest the applicability of the 2004 NPM Adjustment to Montana. In April 2020, the State of Montana filed a motion in Montana state court against the PMs, including PM USA, claiming that Montana’s share of the NPM Adjustment amounts should have been paid to the state in advance of the resolution of disputes over the applicability of those adjustments. Montana’s share of the amounts PM USA placed in the disputed payments account established pursuant to the terms of the MSA on account of the NPM Adjustment disputes was approximately $13.8 million. The matter was resolved by agreement in November 2020 resulting in a settlement payment from PM USA of approximately $4 million, which was recorded to cost of sales in the fourth quarter of 2020, and the release to Montana of its share of PM USA’s money in the disputed payments account for the NPM Adjustment disputes. As part of the agreement, the PMs agreed not to contest the application of the NPM Adjustment to Montana for 2005-2030.

Other than Montana and New Mexico, all of the non-settling states participated in a 2004 multi-state arbitration. As of April 29, 2021, no decisions have resulted from the arbitration.

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The PMs have reached an agreement with the states that have not settled (with the exception of Missouri) that the next round of NPM arbitrations will encompass three years, 2005-2007, and the parties have selected an arbitration panel for the 2005-2007 arbitration. Missouri is participating in the arbitration, but has agreed to arbitrate only one year, 2005, before the panel. The hearings in this arbitration have not yet been scheduled. 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.

The IA 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 above, and potentially for current and future calculation disputes and other developments. Finally, PM USA’s recovery of these amounts, even as reduced, is dependent upon subsequent determinations regarding state-specific defenses and disputes with other PMs.

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”). In particular, both R.J. Reynolds and ITG have asserted that they do not have to make payments on the ITG transferred brands under the Florida, Minnesota and Texas State Settlement Agreements or include the ITG transferred brands for purposes of certain calculations under the State Settlement Agreements. PM USA believes that R.J. Reynolds’s and ITG’s positions violate the State Settlement Agreements and applicable law. PM USA further believes that these actions: (i) improperly increased PM USA’s payments for 2015-2020; (ii) may improperly increase PM USA’s payments for subsequent years; (iii) improperly decreased PM USA’s share of the 2015-2020 NPM Adjustments and of the settlements of related disputes; and (iv) may improperly decrease PM USA’s share of NPM Adjustments and related settlements for subsequent years.

In January 2017, PM USA and the State of Florida each filed a motion in Florida state court against R.J. Reynolds and ITG seeking to enforce the Florida State Settlement Agreement. In August 2018, the Florida trial court entered final judgment ruling that R.J. Reynolds (and not ITG) must make settlement payments under the Florida State Settlement Agreement on the ITG transferred brands, and ordering R.J. Reynolds to pay PM USA approximately $9.8 million (inclusive of interest) for the 2015-2017 period. Both R.J. Reynolds and PM USA filed notices of appeal and, in July 2020, the Florida Fourth District Court of Appeal affirmed the trial court’s decision. In September 2020, the Florida Fourth District Court of Appeal denied R.J. Reynolds’s motions for rehearing. In October 2020, R.J. Reynolds petitioned the Florida Supreme Court to review the appellate court decision; the petition was denied in December 2020.

In March 2018, PM USA and the State of Minnesota filed pleadings in Minnesota state court asserting claims against R.J. Reynolds and ITG, similar to those made in Florida, and seeking to enforce the Minnesota State Settlement Agreement. In September 2019, the Minnesota court granted the State of Minnesota’s and PM USA’s motions to enforce the agreement against R.J. Reynolds. The Minnesota court concluded, however, that it could not yet resolve the question of ITG’s liability under the Minnesota State Settlement Agreement. An evidentiary hearing on the question of ITG’s potential liability was held in the third quarter of 2020. In March 2021, the parties resolved these disputes and agreed, among other requirements, that ITG would (i) be considered a party to the Minnesota State Settlement Agreement for the ITG transferred brands and (ii) assume the payment obligations under the Minnesota State Settlement Agreement for the ITG transferred brands beginning with the payment for the 2020 calendar year. The parties also resolved issues relating to payments due with respect to the ITG transferred brands and issues relating to the allocation of the profit adjustment with respect to the ITG transferred brands under the Minnesota State Settlement Agreement. At the parties’ request, the Minnesota court so ordered the parties’ resolution and dismissed the pending motions to enforce under the Minnesota State Settlement Agreement.

In December 2018, PM USA filed a motion in Mississippi state court seeking to enforce the Mississippi State Settlement Agreement against R.J. Reynolds and ITG with respect to the accuracy of certain submissions made by R.J. Reynolds and ITG concerning the calculation of payments relating to the ITG transferred brands. A hearing in the case is currently scheduled for August 2021. In December 2019, in a separate matter, 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. A hearing is scheduled for October 2021.

In January 2019, PM USA and the State of Texas each filed a motion in federal court in the Eastern District of Texas asserting claims against R.J. Reynolds and ITG, similar to those made in Florida and Minnesota, seeking to enforce the Texas State Settlement Agreement. In February 2020, the Texas court granted the State of Texas’s and PM USA’s motions to enforce the settlement agreement against R.J. Reynolds. The Texas court, however, deferred the ultimate resolution of the motions to enforce against ITG, because it concluded that question was dependent upon the outcome of separate litigation pending between

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ITG and R.J. Reynolds in the Delaware Court of Chancery. In August 2020, R.J. Reynolds appealed the Eastern District of Texas’s ruling to the U.S. Court of Appeals for the Fifth Circuit. ITG and the State of Texas also have filed notices of appeal, each of which is limited to the issue of how payments of statutory fees are treated under the Eastern District of Texas’s ruling. The appeals remain pending.

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 had 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. Such funds were received in January 2021 and were recorded in the financials 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 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 July 2021.

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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 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 April 26, 2021, Altria and/or its subsidiaries, including PM USA, were named as defendants in 47 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 also sought to add antitrust claims due to the recent administrative complaint filed by the FTC. Although the MDL court denied this request in the class action lawsuits, the individual antitrust claims remain pending before the same court. See Antitrust Litigation below for further discussion. Plaintiffs seek various remedies, including compensatory and punitive damages and an injunction prohibiting product sales. The 47 class action lawsuits include 21 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 1,980 individual lawsuits, 123 “third party” lawsuits, which include school districts, state and local governments, including the states of Alaska, Hawaii and Minnesota, 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.

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.

No case in which Altria or any of its subsidiaries is named has been set for trial.

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.

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.

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. No damages are recoverable in the proceedings before the ITC. A hearing before an administrative law judge was held in January 2021. The administrative law judge has set an initial determination date in May 2021.

An additional 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.

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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 (“FTC Act”), 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, 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 will take place before an FTC administrative law judge and is currently scheduled to begin in June 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 is subject to appellate review.

Also as of April 26, 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 three 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 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 3. Investments in Equity Securities - Investment in JUUL.

Shareholder Class Action and Shareholder Derivative Lawsuits

In October and December 2019, two 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 two 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.

In August 2020, two 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 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. A third derivative lawsuit was filed in September 2020 in the Circuit Court for Henrico County, Virginia against Mr. Willard, Mr. Gifford, Kevin C. Crosthwaite (Altria’s former Chief Growth Officer and current JUUL Chief Executive Officer) and certain members of Altria’s Board of Directors. This suit asserts a claim for breach of fiduciary duty. Plaintiffs seek various remedies, including damages, disgorgement of profits, reformation of Altria’s corporate governance and internal procedures, and attorneys’ fees. The fourth, fifth and sixth 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 are similar to those sought by plaintiffs in the Virginia lawsuit. In April 2021, the court consolidated the five cases pending in the Eastern District of Virginia into a single action.

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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 April 26, 2021, two “Lights/Ultra Lights” class actions are pending in U.S. state court. Neither case is active.

As of April 26, 2021, one 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 April 26, 2021, there is one 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.

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 March 31, 2021, Altria and certain of its subsidiaries (i) had $49 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 $25 million for surety bonds; and (iii) had a redeemable noncontrolling interest of $40 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 March 31, 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.

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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 11. 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 is in the process of evaluating the impact of this guidance 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.

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 8. Segment Reporting to the condensed consolidated financial statements in Item 1 (“Note 8”).

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 (“EPS”) 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 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.

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. Although much uncertainty still surrounds the pandemic, including its duration 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 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 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

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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 are also subject to potential facility closures and remote working protocols. To date, Altria has not experienced any material disruptions to its supply chains or distribution systems, but is continuing to monitor these factors. The majority of retail stores in which Altria’s tobacco products are sold, including convenience stores, have been deemed to be essential businesses by authorities and have remained open. Altria continues to monitor the risk that one or more suppliers, distributors or any other entities within its supply and distribution chain closes temporarily or permanently.

Although Altria’s tobacco businesses have not been materially impacted to date by the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19 pandemic may impact adult tobacco consumers in the future. Altria continues to monitor the macroeconomic risks of the COVID-19 pandemic (including the availability of vaccines) and their effect on adult tobacco consumers, including stay-at-home practices and disposable income (which may be impacted by unemployment rates and fiscal stimulus). 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 non-combustible products.

Altria has experienced adverse impacts to its alcohol assets due to the COVID-19 pandemic. In the wine business, in 2020 Ste. Michelle Wine Estates Ltd.’s (“Ste. Michelle”) direct-to-consumer sales and on-premise wine sales in restaurants, bars and hospitality venues and on cruise lines were negatively impacted by disruptions arising from the COVID-19 pandemic, which also may have an impact on adult wine consumers going forward. These impacts in 2020 contributed to Ste. Michelle recording pre-tax inventory-related charges of $392 million in the first quarter of 2020 in connection with its strategic reset of the wine business. Ste. Michelle continues to monitor the impact of the COVID-19 pandemic associated risks to its business, results of operations, cash flows and financial position.

Anheuser-Busch InBev SA/NV (“ABI”) continues to be impacted by the COVID-19 pandemic. In 2020, these impacts included (i) a 50% reduction to its final 2019 dividend and a decision to forgo its interim 2020 dividend; (ii) the withdrawal of its earnings guidance for 2020 due to uncertainty and volatility related to the impact of the COVID-19 pandemic; and (iii) a goodwill impairment charge related to its Africa businesses. While ABI stated in its year end 2020 earnings report that it expects its financial results in 2021 to improve meaningfully versus 2020, ABI did not provide earnings guidance for 2021 given the continued uncertainty. The extreme market disruption and volatility associated with the COVID-19 pandemic resulted in a steep decline in ABI’s stock price in the first half of 2020. Although there was a gradual recovery in ABI’s stock price in the second half of 2020 and again in April 2021, the fair value of Altria’s investment in ABI continues to be below the carrying value. While Altria believes that this decline is temporary, it will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic on ABI’s business and market valuation.

Altria 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 three months ended March 31, 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 the changes in fair value recorded in the fourth quarter of 2020 or for the three months ended March 31, 2021. Altria will continue to monitor the impact of the COVID-19 pandemic on JUUL’s business 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. Cronos has been and continues to be 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. Altria will continue to monitor its investment in Cronos, including the impact of the COVID-19 pandemic on Cronos’s business and market valuation.

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Consolidated Results of Operations for the Three Months Ended March 31, 2021

The changes in net earnings attributable to Altria and diluted EPS attributable to Altria for the three months ended March 31, 2021, from the three months ended March 31, 2020, were due primarily to the following:


(in millions, except per share data)	Net Earnings			Diluted EPS
For the three months ended March 31, 2020	$	1,552		$	0.83

2020 Implementation and acquisition-related costs	300			0.16
2020 Tobacco and health litigation items	19			0.01

2020 ABI-related special items	44			0.03
2020 Cronos-related special items	95			0.05

2020 Tax items	24			0.01
Subtotal 2020 special items	482			0.26
2021 NPM Adjustment Items	24			0.01
2021 Implementation and acquisition-related costs	(37)			(0.02)
2021 Tobacco and health litigation items	(26)			(0.01)

2021 JUUL changes in fair value	(200)			(0.10)
2021 ABI-related special items	100			0.05
2021 Cronos-related special items	70			0.04

2021 Loss on early extinguishment of debt	(496)			(0.27)
2021 Tax items	6			—
Subtotal 2021 special items	(559)			(0.30)

Change in tax rate	(27)			(0.01)
Operations	(24)			(0.01)
For the three months ended March 31, 2021	$	1,424		$	0.77

2021 Reported Net Earnings	$	1,424		$	0.77
2020 Reported Net Earnings	$	1,552		$	0.83
% Change	(8.2)		%	(7.2)		%

2021 Adjusted Net Earnings and Adjusted Diluted EPS	$	1,983		$	1.07
2020 Adjusted Net Earnings and Adjusted Diluted EPS	$	2,034		$	1.09
% Change	(2.5)		%	(1.8)		%

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

▪Change in Tax Rate: The change in the tax rate was driven primarily by lower dividends from ABI.

▪Operations: The decrease of $24 million in operations (which excludes the impact of special items shown in the table above) was due primarily to the unfavorable timing of interest expense.

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

2021 Forecasted Results

Altria expects its 2021 full-year adjusted diluted EPS to be in a range of $4.49 to $4.62, representing a growth rate of 3% 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) unemployment rates, (ii) fiscal stimulus, (iii) adult tobacco consumer dynamics, including stay-at-home practices, disposable income, purchasing patterns and adoption of non-combustible products, (iv) regulatory and legislative (including excise tax) developments, (v) the timing and breadth of COVID-19 vaccine administration and (vi) expectations for adjusted earnings contributions from its alcohol assets.

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 non-combustible future, such as (i) marketplace investments to expand the availability and awareness of Altria’s non-combustible products, (ii) costs associated with building an industry-leading consumer

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engagement platform that enhances data collection and insights in support of adult tobacco consumer conversion to non-combustible products and (iii) increased non-combustible product research and development expense. Altria expects 2021 adjusted diluted EPS growth to come in the last three quarters of the year. 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 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	$	(0.01)
Implementation and acquisition-related costs	0.02
Tobacco and health litigation items	0.01

JUUL changes in fair value	0.10
ABI-related special items	(0.05)
Cronos-related special items	(0.04)
Loss on early extinguishment of debt	0.27

	$	0.30

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 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, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition-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 litigation items, and resolutions of certain nonparticipating 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

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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 March 31, 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 March 31, 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. Altria may, in certain instances, pledge or otherwise grant a security interest in all or part of its Restricted Shares. In the event the pledgee or security interest holder were to foreclose on the Restricted Shares, the encumbered Restricted Shares will be automatically converted, one-for-one, into ordinary shares. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.

The fair value of Altria’s equity investment in ABI at March 31, 2021 and December 31, 2020 was $12.4 billion (carrying value of $17.4 billion) and $13.8 billion (carrying value of $16.7 billion), respectively, which was less than its carrying value by approximately 28% and 17%, respectively. At April 26, 2021, the fair value of Altria’s investment had increased to approximately $13.9 billion. In October 2019, the fair value of Altria’s equity investment in ABI declined below its carrying value and at April 26, 2021 has not recovered. 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 March 31, 2021, ABI’s financial condition and near-term prospects, and Altria’s intent and ability to hold its investment in ABI until recovery. Altria concluded, both at March 31, 2021 and December 31, 2020, that the decline in fair value of its investment in ABI below its carrying value was temporary and, therefore, no impairment was recorded. This conclusion was based on the following factors:

▪a history of significant recovery in ABI’s stock price during 2019 and recoveries during 2020 (following the steep decline in the first quarter of 2020 associated with the impacts of the COVID-19 pandemic on its business) and in April 2021, all of which Altria believes indicate investor confidence in ABI’s ability to implement its business strategies and deleveraging plans as well as its ability to recover from the impacts of the COVID-19 pandemic;

▪the continued industry disruption and volatility associated with the COVID-19 pandemic, resulting in stock performance for ABI that Altria does not believe is reflective of actual underlying equity values;

▪ABI’s proactive actions to preserve financial flexibility and commitment to its long-term deleveraging initiative, including the following actions since December 31, 2019: (i) ABI’s 50% reduction to its final 2019 dividend and its decision to forgo its interim 2020 dividend; (ii) ABI’s completion of the sale of its Australia subsidiary and of a minority stake in its U.S. based metal container operations; and (iii) ABI’s continuation of its refinancing efforts through issuance and redemption activity, specifically front-end maturities into longer dated maturities and reduction in gross debt levels;

▪ABI’s global platform (world’s largest brewer by volume and one of the world’s top ten consumer products companies by revenue) with strong market positions in key markets, new product innovations, geographic diversification, experienced management team, strict financial discipline (cost management and efficiency) and expected earnings and history of performance; and

▪the strategic plans implemented by ABI in response to the adverse impacts of the COVID-19 pandemic, including its ability to leverage learnings from recovering markets and respond quickly to the evolving environment to better position ABI for a robust recovery. This was evidenced by:

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▪ABI’s performance in the second half of 2020, which represented improvement over the first half of 2020 and reinforced its confidence in the future potential of the beer category and its business; and

▪ABI stating in its year end 2020 earnings report that it expects financial results in 2021 to improve meaningfully versus 2020. ABI stated that its 2021 outlook, which is subject to change as it continues to monitor ongoing developments, reflects, among other factors, its current assessment of the scale and magnitude of the COVID-19 pandemic.

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. 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 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 ABI, see Note 3. Investments in Equity Securities to the condensed consolidated financial statements in Item 1 (“Note 3”).

Consolidated Operating Results


	For the Three Months Ended March 31,
(in millions)	2021		2020
Net Revenues:
Smokeable products	$	5,250	$	5,606
Oral tobacco products	626		601
Wine	150		146
All other	10		6
Net revenues	$	6,036	$	6,359
Excise Taxes on Products:
Smokeable products	$	1,121	$	1,278
Oral tobacco products	31		31
Wine	4		4

Excise taxes on products	$	1,156	$	1,313
Operating Income:
OCI:
Smokeable products	$	2,372	$	2,370
Oral tobacco products	392		414
Wine	18		(379)
All other	(14)		(5)
Amortization of intangibles	(17)		(19)
General corporate expenses	(61)		(45)

Operating income	$	2,690	$	2,336

As discussed further in Note 8, 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 attributable to Altria and adjusted diluted EPS attributable to Altria for the three months ended March 31:


(in millions of dollars, except per share data)	Earnings before Income Taxes		Provision for Income Taxes		Net Earnings		Net Earnings Attributable to Altria		Diluted EPS
2021 Reported	$	1,937	$	516	$	1,421	$	1,424	$	0.77
NPM Adjustment Items	(32)		(8)		(24)		(24)		(0.01)
Implementation and acquisition-related costs	48		11		37		37		0.02
Tobacco and health litigation items	35		9		26		26		0.01

JUUL changes in fair value	200		—		200		200		0.10
ABI-related special items	(128)		(28)		(100)		(100)		(0.05)
Cronos-related special items	(70)		—		(70)		(70)		(0.04)

Loss on early extinguishment of debt	649		153		496		496		0.27
Tax items	—		6		(6)		(6)		—
2021 Adjusted for Special Items	$	2,639	$	659	$	1,980	$	1,983	$	1.07

2020 Reported	$	2,108	$	558	$	1,550	$	1,552	$	0.83

Implementation and acquisition-related costs	395		95		300		300		0.16
Tobacco and health litigation items	24		5		19		19		0.01

ABI-related special items	56		12		44		44		0.03
Cronos-related special items	89		(6)		95		95		0.05
Tax items	—		(24)		24		24		0.01
2020 Adjusted for Special Items	$	2,672	$	640	$	2,032	$	2,034	$	1.09

The following special items affected the comparability of statements of earnings amounts for the three months ended March 31, 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 10. Contingencies to the condensed consolidated financial statements in Item 1 (“Note 10”) and NPM Adjustment Items in Note 8, respectively.

▪Implementation and Acquisition-Related Costs: Pre-tax implementation and acquisition-related costs were $48 million and $395 million for the three months ended March 31, 2021 and 2020, respectively. For a discussion of implementation and acquisition-related costs, see Note 8.

▪Tobacco and Health Litigation Items: For a discussion of tobacco and health litigation items and a breakdown of these costs by segment, see Note 10 and Tobacco and Health Litigation Items in Note 8, respectively.

▪JUUL Changes in Fair Value: For the three months ended March 31, 2021, Altria recorded a non-cash pre-tax unrealized loss of $200 million reported as (income) losses from equity investments in its condensed consolidated statement of earnings as a result of a decrease in the fair value of Altria’s investment in JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance. For further discussion, see Note 3.

▪ABI-Related Special Items: Altria’s earnings from its equity investment in ABI for the three months ended March 31, 2021 included net pre-tax income of $128 million, consisting primarily of (i) ABI’s completion of the issuance of a minority stake in its U.S.-based metal container operations, (ii) mark-to-market gains on certain ABI financial instruments associated with its share commitments and (iii) charges associated with an early bond termination by ABI.

Altria’s earnings from its equity investment in ABI for the three months ended March 31, 2020 included net pre-tax charges of $56 million, consisting primarily of (i) mark-to-market losses on certain ABI financial instruments associated with its share commitments and (ii) ABI’s completion in October 2019 of ABI’s initial public offering of a minority stake of its Asia Pacific subsidiary.

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.

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▪Cronos-Related Special Items: For the three months ended March 31, 2021 and 2020, Altria recorded net pre-tax (income) expense consisting of the following:


	For the Three Months Ended March 31
(in millions)	2021		2020
(Gain) loss on Cronos-related financial instruments (1)	$	(110)	$	137
(Income) losses from equity investments (2)	40		(48)
Total Cronos-related special items - (income) expense	$	(70)	$	89

(1)The 2021 and 2020 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 primarily include Altria’s share of Cronos’s non-cash change in the fair value of Cronos’s derivative financial instruments associated with the issuance of additional shares.

For further discussion, see Note 3 and Note 4. Financial Instruments to the condensed consolidated financial statements in Item 1.

▪Loss on Early Extinguishment of Debt: For the three months ended March 31, 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 9. Debt to the condensed consolidated financial statements in Item 1 (“Note 9”).

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Net revenues, which include excise taxes billed to customers, decreased $323 million (5.1%), due primarily to lower net revenues in the smokeable products segment.

Cost of sales decreased $565 million (26.0%), due primarily to the inventory-related charges in the wine segment in 2020 (as discussed in Note 8), lower shipment volume in the smokeable products segment and favorable NPM Adjustment Items in 2021.

Excise taxes on products decreased $157 million (12.0%), due primarily to lower smokeable products shipment volume.

Marketing, administration and research costs increased $45 million (8.4%), due primarily to higher acquisition-related costs in the oral tobacco products segment (as discussed in Note 8).

Operating income increased $354 million (15.2%), due primarily to higher operating results in the wine segment, partially offset by lower operating results in the oral tobacco products segment.

Interest and other debt expense, net, increased $33 million (12.0%), due primarily to unfavorable timing of interest expense.

Income (losses) from equity investments, which decreased $106 million (67.5%), were negatively impacted by the non-cash pre-tax unrealized loss of $200 million as a result of a decrease in the fair value of Altria’s investment in JUUL and unfavorable special items from Altria’s equity investment in Cronos (as shown above), partially offset by favorable ABI-related special items.

Reported net earnings attributable to Altria of $1,424 million decreased $128 million (8.2%), due primarily to the loss on early extinguishment of debt and the non-cash unrealized loss as a result of a decrease in the fair value of Altria’s investment in JUUL, partially offset by higher operating income and favorable Cronos-related and ABI-related special items. Reported diluted and basic EPS attributable to Altria of $0.77, each decreased by 7.2%, due to lower net earnings attributable to Altria.

Adjusted net earnings attributable to Altria of $1,983 million decreased $51 million (2.5%), due primarily to unfavorable timing of interest and other debt expense, net and a higher adjusted tax rate. Adjusted diluted EPS attributable to Altria of $1.07 decreased by 1.8%, due to lower adjusted net earnings attributable to Altria.

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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 10 and in Part I, Item 1A. Risk Factors of the 2020 Form 10-K, 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;

▪the diminishing prevalence of cigarette smoking;

▪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 convert from cigarettes to exclusive use of non-combustible tobacco product alternatives.

Up until the second half of 2019, the e-vapor category had 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 moist smokeless tobacco products (“MST”). Growth in the e-vapor category was negatively impacted by the legislative and regulatory activities discussed below. However, the e-vapor category is now experiencing a moderate rate of growth and has become increasingly competitive.

Oral nicotine pouch retail share of the total oral tobacco category has doubled since the first quarter of 2020. The oral nicotine pouch category is becoming increasingly competitive and we are also monitoring the introduction of new unregulated synthetic nicotine pouches, which may lead to further competition for oral nicotine pouches.

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

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Domestic cigarette industry volume for 2020 was unchanged versus the prior year, which Altria believes was the result of stay-at-home practices due to the COVID-19 pandemic and higher tobacco discretionary spending. In the first quarter of 2021, we estimate that adjusted domestic cigarette industry volume declined by 2%. Altria expects 2021 cigarette industry volume trends to be most influenced by (i) adult smoker stay-at-home practices, (ii) unemployment rates, (iii) fiscal stimulus, (iv) cross-category movement, (v) the timing and breadth of COVID-19 vaccine administration and (vi) adult smoker purchasing behavior of those who receive the vaccine.

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 downturn 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 still 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;

▪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).

(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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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.

▪Rulemaking and Guidance: From time to time, the FDA issues proposed rules or 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.

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 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 action 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 PM USA and 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 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

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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. At the FDA’s discretion, these products can remain on the market during FDA review for up to one year from the date of the application with additional case-by-case discretion to remain on the market after that time, so long as the report or application was timely filed with the FDA. It is uncertain when and for how long FDA may permit such products to remain on the market 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 the product.

Helix Innovations LLC (“Helix”) submitted PMTAs for on! oral nicotine pouches in May 2020, which are presently under review by the FDA. JUUL submitted PMTAs to the FDA for its e-vapor device and the related tobacco and menthol flavors in July 2020. Middleton has received market orders or exemptions that cover over 97% of its cigar product volume and filed SE reports for its remaining cigar product volume by the filing deadline.

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 has disclosed that it plans to seek an MRTP authorization for the IQOS 3 electronic device.

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 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 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.

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▪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. The final rule requires that the graphic health warnings (i) be located beneath the cellophane and comprise the top 50% of the front and rear panels of cigarette packages and (ii) occupy 20% of a cigarette advertisement and be located at the top of the advertisement. As a result of a court order related to the COVID-19 pandemic and an additional court ruling in March 2021 resulting from a lawsuit brought by R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and others against the FDA, the final rule will be effective April 14, 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.

In March 2019, the FDA issued draft guidance further proposing restrictions to address youth e-vapor use. This guidance, which the FDA finalized in January 2020, states that the FDA intends to prioritize enforcement action against:

▪cartridge-based, flavored e-vapor products (other than tobacco and menthol flavors) unless such products have received market authorization from the FDA; and

▪all e-vapor products (in any format or flavor):

▪for which a manufacturer has failed or is failing to take adequate measures to prevent access by those under the age of 21 (referred to in the FDA guidance as “minors”);

▪targeted to minors and the marketing for which is likely to promote use of such products by minors; or

▪offered for sale after the court-ordered filing deadline and for which the manufacturer has either not submitted a PMTA or for which an application was timely filed but an adverse decision on the application was issued by the FDA.

E-vapor product manufacturers, however, may continue to file PMTAs for flavored tobacco products. FDA enforcement action could result in tobacco products being removed from the market unless and until these products receive pre-market authorization from the FDA. JUUL ceased its sales of all cartridge-based, flavored e-vapor products (other than tobacco and menthol) in 2019. If FDA enforcement action is taken against currently marketed JUUL e-vapor products, and a significant number of those products are removed from the market or if the FDA does not ultimately allow for the reintroduction of flavors other than tobacco and menthol, it 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.

The January 2020 guidance effectively permits the continued sale (subject to the exceptions discussed above) of certain flavored e-vapor products, including flavored disposable e-vapor products. If, as a result, these flavored e-vapor products are sold in higher volumes than JUUL’s e-vapor products, it 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.

▪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

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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, the FDA has stated its intention to issue a response by April 29, 2021 to a 2013 citizen petition requesting that the FDA prohibit menthol as a characterizing flavor in cigarettes. If the FDA decides to ban menthol in cigarettes, 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.

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. The FDA also may ban characterizing flavors in all other tobacco products, including oral nicotine pouches. If these regulations 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 may 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.

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 inflation, 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.

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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., including as a result of the COVID-19 pandemic as a way for governments to address potential budget shortfalls. 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 April 26, 2021, the weighted-average state cigarette excise tax increased from $0.36 to $1.89 per pack. As of April 26, 2021, one state, Maryland, has enacted new legislation increasing cigarette excise taxes in 2021, but various increases are under consideration or have been proposed.

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 April 26, 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 April 26, 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 sales of cigarettes and MST products of Altria’s tobacco subsidiaries 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. Such shifts may have an adverse impact on the sales volume and reported share performance of cigarettes and MST products of Altria’s tobacco subsidiaries.

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 April 26, 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 10, 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. 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 10. The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and restrictions on the

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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 (1) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (2) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes, (3) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (4) 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 April 26, 2021, 17 states and the District of Columbia have proposed legislation to ban flavors in one or more tobacco products, and five states, California, Massachusetts, New Jersey, Utah and New York, have passed such legislation. Some of these states, such as New York and Utah, 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 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. Additionally, in October 2020, Altria’s tobacco operating companies, along with several other parties including R.J. Reynolds, filed a lawsuit challenging the flavor ban and seeking to enjoin its implementation.

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

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.

▪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 April 26, 2021, 34 states and the District of Columbia 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

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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.

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, amid the COVID-19 pandemic, state and local governments have required additional health and safety requirements of all businesses, including tobacco manufacturing and other facilities. State and local governments also have mandated the temporary closure of some businesses. 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 these government-mandated temporary closures. 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 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; (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

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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 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, 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’ products. Any significant change in the price, quality or availability of tobacco, other raw materials, ingredients or component parts used to manufacture our products could restrict our subsidiaries’ ability to continue manufacturing and marketing existing products or impact adult consumer product acceptability and adversely affect our subsidiaries’ 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 economic 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 non-combustible products and decreases for combustible products, the volume of 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 temporarily shut down facilities in order to address exposure to the virus or as a result of a government mandate.

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.

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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 Three Months Ended March 31,
(in millions)	2021			2020			Change
Net revenues	$	5,250		$	5,606		(6.4)	%
Excise taxes	(1,121)			(1,278)
Revenues net of excise taxes	$	4,129		$	4,328

Reported OCI	$	2,372		$	2,370		0.1	%

NPM Adjustment Items	(32)			—
Tobacco and health litigation items	35			22

Adjusted OCI	$	2,375		$	2,392		(0.7)	%

Reported OCI margins (1)	57.4		%	54.8		%	2.6 pp
Adjusted OCI margins (1)	57.5		%	55.3		%	2.2 pp

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

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Net revenues, which include excise taxes billed to customers, decreased $356 million (6.4%), due primarily to lower shipment volume ($715 million), partially offset by higher pricing ($368 million), which includes higher promotional investments.

Reported OCI was essentially unchanged, as higher pricing ($364 million), which includes higher promotional investments, lower costs ($62 million) and NPM Adjustment Items ($32 million), were mostly offset by lower shipment volume ($428 million) and higher per unit settlement charges.

Adjusted OCI decreased $17 million (0.7%), due primarily to lower shipment volume and higher per unit settlement charges, partially offset by higher pricing, which includes higher promotional investments, and lower costs.

Shipment Volume and Retail Share Results

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


	Shipment Volume
	For the Three Months Ended March 31,
(sticks in millions)	2021	2020	Change
Cigarettes:
Marlboro	19,415	21,842	(11.1)	%
Other premium	981	1,137	(13.7)	%
Discount	1,618	2,045	(20.9)	%
Total cigarettes	22,014	25,024	(12.0)	%
Cigars:
Black & Mild	479	430	11.4	%
Other	1	2	(50.0)	%
Total cigars	480	432	11.1	%
Total smokeable products	22,494	25,456	(11.6)	%

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.

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The following table summarizes cigarettes retail share performance:


	Retail Share
	For the Three Months Ended March 31,
	2021		2020		Percentage Point Change
Cigarettes:
Marlboro	43.1	%	42.7	%	0.4
Other premium	2.3		2.3		—
Discount	3.6		4.0		(0.4)
Total cigarettes	49.0	%	49.0	%	—

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 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.

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

The smokeable products segment’s reported domestic cigarettes shipment volume decreased 12.0%, driven primarily by trade inventory movements, the industry’s rate of decline, one fewer shipping day and other factors. When adjusted for trade inventory movements, one fewer shipping day and other factors, the smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 3.5%. When adjusted for trade inventory movements, one fewer shipping day and other factors, total estimated domestic cigarette industry volumes decreased by an estimated 2%.

Shipments of premium cigarettes accounted for 92.7% and 91.8% of the smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended March 31, 2021 and 2020, respectively.

Total cigarettes industry discount category retail share increased 0.1 share point to 25.3%.

Reported cigar shipment volume increased 11.1%.

Pricing Actions

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

▪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 Three Months Ended March 31,
(in millions)	2021			2020			Change
Net revenues	$	626		$	601		4.2	%
Excise taxes	(31)			(31)
Revenues net of excise taxes	$	595		$	570

Reported OCI	$	392		$	414		(5.3)	%
Acquisition-related costs	37			2

Adjusted OCI	$	429		$	416		3.1	%

Reported OCI margins (1)	65.9		%	72.6		%	(6.7) pp
Adjusted OCI margins (1)	72.1		%	73.0		%	(0.9) pp

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

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Net revenues, which include excise taxes billed to customers, increased $25 million (4.2%), due primarily to higher pricing ($26 million), which includes higher promotional investments in on!.

Reported OCI decreased $22 million (5.3%), due primarily to higher costs ($41 million, which includes higher acquisition-related costs), partially offset by higher pricing, which includes higher promotional investments.

Adjusted OCI increased $13 million (3.1%), due primarily to higher pricing, which includes higher promotional investments, partially offset by higher costs.

Shipment Volume and Retail Share Results

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


	Shipment Volume
	For the Three Months Ended March 31,
(cans and packs in millions)	2021	2020	Change
Copenhagen	122.9	125.0	(1.7)	%
Skoal	48.2	51.3	(6.0)	%
Other (includes Red Seal and on!)	26.8	20.4	31.4	%
Total oral tobacco products	197.9	196.7	0.6	%

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.

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


	Retail Share
	For the Three Months Ended March 31,
	2021		2020		Percentage Point Change
Copenhagen	30.2	%	32.4	%	(2.2)
Skoal	12.9		14.4		(1.5)
Other (includes Red Seal and on!)	5.0		3.6		1.4
Total oral tobacco products	48.1	%	50.4	%	(2.3)

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.

Three Months Ended March 31, 2021 Compared with the Three Months Ended March 31, 2020

The oral tobacco products segment’s reported domestic shipment volume increased 0.6%, driven primarily by the growth of on! oral nicotine pouches and trade inventory movements, partially offset by retail share losses (primarily due to the growth of oral nicotine pouches), calendar differences and other factors. When adjusted for trade inventory movements, calendar differences and other factors, the oral tobacco products segment’s reported domestic shipment volume increased by an estimated 0.5%.

Total oral tobacco products category industry volume increased by an estimated 5% over the six months ended March 31, 2021, driven by growth in oral nicotine pouches.

The oral tobacco products segment’s retail share was 48.1% for the three months ended March 31, 2021 and Copenhagen continued to be the leading oral tobacco brand with retail share of 30.2% for the three months ended March 31, 2021. Share losses in the oral tobacco products segment, including Copenhagen, were due to the growth of oral nicotine pouches.

In the first quarter of 2021, Helix expanded the distribution of on! by an additional 15,000 stores. on! was available in approximately 93,000 stores as of March 31, 2021. on!’s retail share of the total oral tobacco category was 1.7% in the first quarter of 2021, an increase of 0.6% from the fourth quarter of 2020. on!’s retail share of the oral tobacco category in stores with on! distribution was 3.1% for the twelve months ended March 31, 2021, an increase of 0.7% from the twelve months ended December 31, 2020. Helix continues to expect unconstrained on! manufacturing capacity for the U.S. market by mid-year 2021.

Pricing Actions

USSTC executed the following pricing actions during 2021 and 2020:

▪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.

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Wine Segment

Business Environment

Ste. Michelle is a producer and supplier of premium varietal and blended table wines and of sparkling wines. Ste. Michelle is a leading producer of Washington state wines, primarily Chateau Ste. Michelle and 14 Hands, and owns wineries in or distributes wines from several other domestic and foreign wine regions. Ste. Michelle holds an 85% ownership interest in Michelle-Antinori, LLC, which owns Stag’s Leap Wine Cellars in Napa Valley. Ste. Michelle also owns Conn Creek in Napa Valley, Patz & Hall in Sonoma and Erath in Oregon. In addition, Ste. Michelle imports and markets Antinori wine and Champagne Nicolas Feuillatte products in the United States. Ste. Michelle works to meet evolving adult consumer preferences over time by developing, marketing and distributing products through innovation.

Ste. Michelle’s business is subject to significant competition, including competition from many larger, well-established domestic and international companies, as well as from many smaller wine producers. Wine segment competition is primarily based on quality, price, consumer and trade wine tastings, competitive wine judging, third-party acclaim and advertising. Substantially all of Ste. Michelle’s sales occur in the United States through state-licensed distributors. Ste. Michelle also sells to domestic consumers through retail and e-commerce channels and exports wines to international distributors.

Adult consumer preferences among alcohol categories and within the wine category can shift due to a variety of factors, including changes in taste preferences, demographics or social trends, and changes in leisure, dining and beverage consumption patterns and economic conditions. Evolving adult consumer preferences pose strategic challenges for Ste. Michelle, which has seen slowing growth in the wine category and increases in inventory levels in recent periods. Ste. Michelle has been experiencing product volume demand uncertainty, which was further negatively impacted in 2020 by the COVID-19 pandemic (including economic uncertainty and government actions that restrict direct-to-consumer sales and on-premise sales).

As a result of wine inventory levels significantly exceeding long-term forecasted demand, at March 31, 2020, Ste. Michelle recorded pre-tax charges of $392 million consisting of (i) the write-off of inventory ($292 million) and (ii) estimated losses on future non-cancelable grape purchase commitments ($100 million). For further discussion, see Note 8. Evolving adult consumer preferences, the current economic downturn, an extended disruption in on-premise sales or facility shutdowns, either voluntary or government-mandated, could result in a further slowdown in the wine category and otherwise have a material adverse effect on Ste. Michelle’s wine business, the consolidated results of operations, cash flows or financial position of Ste. Michelle.

As with other agricultural commodities, grape quality and availability can be influenced by plant disease and infestation, as well as by variations in weather patterns, such as fires and smoke damage from fires, including those caused by climate change. For example, in 2019, freezing temperatures reduced grape production and resulted in fewer grapes being available to Ste. Michelle. Additionally, Ste. Michelle experienced some impact from the fires in the western United States during 2020.

Federal, state and local governmental agencies regulate the beverage alcohol industry through various means, including licensing requirements, pricing rules, labeling and advertising restrictions, and distribution and production policies. Further regulatory restrictions or additional excise or other taxes on the manufacture and sale of alcoholic beverages could have an adverse effect on Ste. Michelle’s wine business.

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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 Three Months Ended March 31,
(in millions)	2021			2020			Change
Net revenues	$	150		$	146		2.7	%
Excise taxes	(4)			(4)
Revenues net of excise taxes	$	146		$	142

Reported OCI (Loss)	$	18		$	(379)		100.0+ %
Implementation costs	1			392
Adjusted OCI	$	19		$	13		46.2	%

Reported OCI margins (1)	12.3		%	(100.0)%+			100.0+ pp
Adjusted OCI margins (1)	13.0		%	9.2		%	3.8 pp

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

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Net revenues, which include excise taxes billed to customers, increased $4 million (2.7%), due primarily to higher pricing.

Reported OCI increased $397 million (100.0%+), due primarily to 2020 inventory-related charges discussed in Note 8 (included in implementation costs and charged to cost of sales).

Adjusted OCI increased $6 million (46.2%), due primarily to higher pricing and lower costs.

For the three months ended March 31, 2021, Ste. Michelle’s reported wine shipment volume of 1,745 thousand cases increased 1.7%.

Financial Review

Cash Provided by/Used in Operating Activities

During the first three months of 2021, net cash provided by operating activities was $3,040 million compared with $3,129 million during the first three months of 2020. This decrease was due primarily to lower net revenues, net of excise taxes.

Altria had a working capital deficit at March 31, 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 three months of 2021, net cash used in investing activities was $29 million compared with $52 million during the first three months of 2020. This decrease was due primarily to lower capital expenditures.

Cash Provided by/Used in Financing Activities

During the first three months of 2021, net cash used in financing activities was $2,172 million compared with net cash provided by financing activities of $427 million during the first three months of 2020. This change was due primarily to the following:

▪payment 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 9;

▪proceeds of $3.0 billion from short-term borrowings in 2020;

▪repurchases of common stock in 2021;

▪higher dividends paid in 2021;

partially offset by:

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

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

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 Altria’s Credit Agreement is discussed in Note 9.

At March 31, 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.

At March 31, 2021, Altria’s Credit Agreement, which is used for general corporate purposes, had $3.0 billion available and Altria was in compliance with the covenants in the Credit Agreement. Altria expects to continue to meet the covenants in the Credit Agreement. For further discussion, including interest and covenants in the Credit Agreement, see Note 9.

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 9.

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.

COVID-19 Pandemic - Despite the uncertainty surrounding the COVID-19 pandemic, including its duration, severity and ultimate overall impact on the global and U.S. economies and the businesses of Altria’s operating companies, including some volatility in the commercial paper markets in March 2020, Altria has not experienced a material impact to its liquidity.

Debt - At March 31, 2021 and December 31, 2020, Altria’s total debt was $29.7 billion and $29.5 billion, respectively.

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 three months ended March 31, 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 these 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 March 31, 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 9.

Guarantees and Other Similar Matters - As discussed in Note 10, 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 March 31, 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 9, 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 10, 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.

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Altria’s subsidiaries recorded $1.0 billion and $1.1 billion of charges to cost of sales for the three months ended March 31, 2021 and 2020, respectively, 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 10.

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 March 31, 2021, PM USA had posted appeal bonds totaling $53 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 LLC or Altria in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 10, 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 three months of 2021 and 2020 were $1,601 million and $1,563 million, respectively, an increase of 2.4%, reflecting a higher dividend rate. The current annualized dividend rate is $3.44 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 Altria’s Board of Directors (the “Board of Directors” or “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 11. 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 10 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 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

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▪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
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Assets
Due from Non-Guarantor Subsidiaries	$	125	$	112	$	199	$	199
Other current assets	6,023		4,896		745		734
Total current assets	$	6,148	$	5,008	$	944	$	933


Due from Non-Guarantor Subsidiaries	$	4,790	$	4,790	$	—	$	—
Other assets	17,582		16,883		1,955		1,983
Total non-current assets	$	22,372	$	21,673	$	1,955	$	1,983

Liabilities
Due to Non-Guarantor Subsidiaries	$	1,047	$	1,169	$	729	$	656
Other current liabilities	3,431		3,688		5,972		4,539
Total current liabilities	$	4,478	$	4,857	$	6,701	$	5,195

Total non-current liabilities	$	31,394	$	30,958	$	1,261	$	1,268

Summarized Statements of Earnings (Losses)

(in millions of dollars)


	For the Three Months Ended March 31, 2021
	Parent (1)		Guarantor
Net revenues	$	—	$	4,986
Gross profit	—		2,543
Net earnings (losses)	(452)		1,643

(1) For the three months ended March 31, 2021, net earnings includes $58 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,

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particularly in the “Business Environment” section preceding our discussion of the operating results of our segments, and in our publicly filed reports, including our 2020 Form 10-K. 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 or an increase to the corporate income tax rate;

▪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, 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 impacted by any changes in government stimulus or unemployment payments;

▪the failure of our tobacco and wine 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 and wine 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 and wine 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 or wine 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 risks related to Ste. Michelle’s wine business, including competition, unfavorable changes in grape supply, and changes in adult consumer preferences that have resulted and may continue to result in increased inventory levels and inventory write offs, and governmental regulations;

▪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 impairment of our investment, and the dividends paid by ABI on the shares we own;

▪the risks related to our inability to transfer our equity securities in ABI until October 10, 2021, and, if our ownership percentage decreases below certain levels, the adverse effects of 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 March 31, 2021 and December 31, 2020:


(in billions)	March 31, 2021		December 31, 2020
Fair value	$	32.4	$	34.7
Decrease in fair value from a 1% increase in market interest rates	2.9		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 (“LIBOR”), or any mutually agreed upon benchmark rate, 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 March 31, 2021 borrowings under the Credit Agreement was 1.0%. At March 31, 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

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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.

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 March 31, 2021 and December 31, 2020:


	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
(in millions)	Fixed-price Preemptive Rights				Cronos Warrant
Fair values	$	38	$	24	$	235	$	139
Change in fair value based on a 10% increase/decrease in the quoted market price of Cronos shares	10		6		45		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 10 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 the 2020 Form 10-K. There have been no material changes to the risk factors previously disclosed in the 2020 Form 10-K.

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 (the “January 2021 share repurchase program”). Altria expects to complete the January 2021 share repurchase program by June 30, 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 March 31, 2021, 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

January 1-31, 2021	—	$	—	—	$	2,000,000,000
February 1-28, 2021	1,862,657	$	43.99	1,722,464	$	1,924,167,584
March 1-31, 2021	5,189,991	$	48.01	5,189,991	$	1,675,000,043
	7,052,648	$	46.95	6,912,455

(1) The total number of shares purchased includes (a) shares purchased under the January 2021 share repurchase program (which totaled 1,722,464 shares in February and 5,189,991 shares in March) 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 140,193 shares in February).

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Item 6. Exhibits

10.1 2015 Stock Compensation Plan for Non-Employee Directors, as amended and restated effective March 31, 2021.

10.2 Form of Restricted Stock Unit Agreement (202 1 ).

10.3 Form of Performanc e Stock Unit Agreement (2021).

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 Chie f 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 XBRL 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

April 29, 2021