What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-04-27 · 380 added, 228 removed, 733 unchanged (45% of the section changed)

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adjusted net earnings;

adjusted diluted earnings per share;

adjusted diluted earnings per share (“EPS”);

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.

We also refer to the ratio of debt-to-Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization, as defined in our Credit Agreement, which includes certain adjustments).

These 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 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.

For a further description of these non-GAAP financial measures, see the Non-GAAP Financial Measures section below.

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We are Moving Beyond Smoking ™, leading the way in moving adult smokers away from cigarettes by taking action to transition millions to potentially less harmful choices - believing it is a substantial opportunity for adult tobacco consumers, our businesses and society.

As we execute on our Vision, we established our 2028 Enterprise Goals (“2028 Goals”) to provide our investors with specific metrics to measure our progress.

Our 2028 Goals are:

▪ Deliver mid-single digits adjusted diluted EPS growth on a compounded annual basis through 2028;

▪ Maintain a new progressive dividend goal targeting mid-single digits dividend growth annually through 2028;

▪ Target a debt-to-Consolidated EBITDA ratio of approximately 2.0x;

▪ Maintain our leadership position in the U.S.

tobacco space;

▪ Maintain a total adjusted OCI margin of at least 60% in each of the next five years while investing behind innovative smoke-free products.

Smoke-Free Portfolio

smoke-free volumes by at least 35% from our 2022 base of 800 million units by 2028;

▪ Approximately double our U.S.

smoke-free net revenues to $5 billion by 2028 from our 2022 base of $2.6 billion, with $2 billion sourced from innovative smoke-free products.

Long-Term Growth

▪ Develop a strategy by the first half of 2024 to compete in the international innovative smoke-free and non-nicotine categories.

See Operating Results by Business Segment and Liquidity and Capital Resources for additional information on total adjusted OCI margin and debt-to-Consolidated EBITDA, respectively.

Our wholly owned subsidiaries include leading manufacturers of both combustible and smoke-free products.

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Our smoke-free portfolio includes ownership of U.S.

Smokeless Tobacco Company LLC (“USSTC”), the leading global moist smokeless tobacco (“MST”) manufacturer, and Helix Innovations LLC (“Helix”), a leading manufacturer of oral nicotine pouches.

Smokeless Tobacco Company LLC (“USSTC”), the leading global moist smokeless tobacco (“MST”) manufacturer, Helix Innovations LLC (“Helix”), a leading manufacturer of oral nicotine pouches, and NJOY, LLC (“NJOY”), currently the only e-vapor manufacturer with market authorizations from the U.S.

Food and Drug Administration (“FDA”) for a pod-based e-vapor product.

Additionally, we have a majority-owned joint venture, Horizon Innovations LLC (“Horizon”), for the U.S.

marketing and commercialization of heated tobacco stick products and, through a separate agreement, we have the exclusive U.S.

marketing and commercialization of heated tobacco stick products (“HTS”) and, through a separate agreement, we have the exclusive U.S.

commercialization rights to the IQOS Tobacco Heating System (“ IQOS System”) and Marlboro HeatSticks through April 2024.

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marketplace from the joint venture or exclusive rights agreement.

On March 3, 2023, we entered into a stock transfer agreement with JUUL Labs, Inc.

In March 2023, we entered into a stock transfer agreement with JUUL Labs, Inc.

(“JUUL”) pursuant to which we transferred to JUUL all of our beneficially owned JUUL equity securities.

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(“Cronos”), a leading Canadian cannabinoid company.

On March 3, 2023, we entered into a definitive agreement to acquire NJOY Holdings, Inc.

(“NJOY”), a U.S.

based e-vapor company, for approximately $2.75 billion in cash payable at closing plus up to an additional $500 million in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products (“NJOY Transaction”).

Following completion of the NJOY Transaction, NJOY will survive as a wholly owned subsidiary of Altria, and we will gain full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE , currently the only pod-based e-vapor product with market authorizations from the U.S.

Food and Drug Administration (“FDA”).

The completion of the NJOY Transaction is subject to customary closing conditions, including clearance from the U.S.

Federal Trade Commission (“FTC”), and is not subject to any financing condition.

The parties have filed for premerger clearance with the FTC under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), which remains under FTC review.

The current waiting period under the HSR Act expires in May 2023.

The brand portfolios of our tobacco operating companies include Marlboro , Black & Mild , Copenhagen , Skoal and on!

On June 1, 2023, we acquired NJOY Holdings, Inc.

(“NJOY Holdings”) for a total consideration of $2.9 billion (“NJOY Transaction”), which includes the fair value of contingent consideration and is subject to post-closing adjustments.

For further details, see Note 2.

Acquisition of NJOY to our condensed consolidated financial statements in Part 1, Item 1.

Financial Statements of this Form 10-Q (“Item 1”).

The brand portfolios of our tobacco operating companies include Marlboro , Black & Mild , Copenhagen , Skoal , on!

Trademarks and service marks related to Altria referenced in this Form 10-Q are the property of Altria or our subsidiaries or are used with permission.

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In this MD&A section, we discuss factors that have impacted our business as of the date of this Form 10-Q.

In addition, we are aware of certain trends and developments that could, individually or in the aggregate, have a material impact on our business, including the value of our investments in equity securities, in the future.

In this Trends and Developments section, we focus on the continued elevated rate of inflation, supply chain disruptions, ongoing geopolitical events and recent regulatory actions and their potential effects on our business, including impacts on adult tobacco consumers and their purchasing behaviors.

In addition, we are aware of and address, in this section and other MD&A sections, certain trends and developments that could, individually or in the aggregate, have a material impact on our business, including the value of our investments in equity securities, in the future.

We focus in this Trends and Developments section on the continued elevated rate of inflation, supply chain disruptions, ongoing geopolitical events and recent regulatory actions and their potential effects on our business, including impacts on adult tobacco consumers and their purchasing behaviors.

We continue to monitor the evolving macroeconomic and geopolitical landscapes.

While the most recent inflation report from the U.S.

Bureau of Labor Statistics showed a lower rate of increase, high rates of inflation have continued in 2023, driven by increased global energy, commodity and food prices, which were further exacerbated by other factors, including supply and demand imbalances, labor shortages and the Russian invasion of Ukraine.

High inflation, high gas prices and rising interest rates could continue to impact our business by negatively impacting adult tobacco consumers’ disposable income and future purchase behaviors.

During the first quarter of 2023, cigarette retail share for the industry discount segment increased.

We continue to expect potential fluctuations in discount product share for cigarettes and MST products as price sensitive adult tobacco consumers react to their economic conditions.

We will continue to monitor the effect of these dynamics on adult tobacco consumers and their purchase behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products.

Bureau of Labor Statistics showed a lower rate of increase, inflation remains above the Federal Reserve’s target of 2%, driven by increased global energy, commodity and food prices.

We continue to observe discretionary income pressures on adult tobacco consumers as a result of the cumulative effect of high inflation.

During the second quarter of 2023, cigarette retail share for the industry discount segment was up year-over-year but was unchanged from the first quarter of 2023.

We will continue to monitor the effect of these dynamics on adult tobacco consumer purchase behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products.

Increases in inflation also have a direct and adverse impact on our Master Settlement Agreement (“MSA”) expense and other direct and indirect costs.

We expect inflation to remain high in 2023, and the extent of any effects on adult tobacco consumers’ purchase behaviors depends in part on the magnitude and duration of such increased inflation levels.

We expect volatility in domestic and global economies and disruptions in the supply and distribution chains to continue in 2023, resulting from several factors, including the on-going impacts of inflation, supply and demand imbalances across many sectors such as energy and commodities, raw materials availability and geopolitical events.

We expect inflationary pressures to continue to impact adult tobacco consumers’ purchase behaviors for the remainder of the year.

Volatility in domestic and global economies and disruptions in the supply and distribution chains have continued in 2023, resulting from several factors, including the on-going impacts of inflation, supply and demand imbalances across many sectors such as energy and commodities, raw materials availability, congested shipping operations and geopolitical events.

We continue to work to mitigate the potential negative impacts of these macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors, the development of alternative sourcing strategies, entry into long-term supply contracts and prudent oversight of our liquidity.

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For example, the FDA has issued proposed product standards regarding menthol in cigarettes and characterizing flavors in cigars, and the Biden Administration published plans for future potential regulatory actions that include the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level for cigarettes and certain other combustible tobacco products.

In California, where a ban on flavored nicotine products went into effect in late 2022, we are observing early indications of unintended consequences, such as adult tobacco consumer adoption of adulterated and unregulated products and the development of illicit markets.

In California, where a ban on flavored nicotine products went into effect in late 2022, we continue to observe indications of negative unintended consequences of the ban, such as adult tobacco consumer adoption of adulterated and unregulated products and the development of illicit markets.

See Operating Results by Business Segment - Tobacco Space - Business Environment for additional information on the trends and developments discussed above.

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dollar exchange rate, and in the global equity markets.

We will continue to

monitor these conditions as they could affect our equity earnings that we receive from ABI and the fair value of our equity investment in ABI.

Investments in Equity Securities to our condensed consolidated financial statements in Part I, Item 1.

Financial Statements of this Form 10-Q (“Item 1”) for additional information on our investments in equity securities.

We will continue to monitor these conditions and other factors as they could affect our equity earnings that we receive from ABI and the fair value of our equity investment in ABI.

Investments in Equity Securities to our condensed consolidated financial statements in Item 1 (“Note 5”) for additional information on our investments in equity securities.

Our operating companies have not experienced any material adverse effects from the trends and developments discussed above.

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As the trends and developments discussed above evolve and new ones emerge, we will continue to evaluate the potential impacts on our business, investments and Vision.

Consolidated Results of Operations for the Three Months Ended March 31, 2023

The changes in net earnings and diluted earnings per share (“EPS”) for the three months ended March 31, 2023, from the three months ended March 31, 2022, were due primarily to the following:

Consolidated Results of Operations for the Six Months Ended June 30, 2023

The changes in net earnings and diluted EPS for the six months ended June 30, 2023, from the six months ended June 30, 2022, were due primarily to the following:

(in millions, except per share data) Net Earnings Diluted EPS

For the three months ended March 31, 2022

For the six months ended June 30, 2022

$ 2,850 $ 1.57

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2023 Cronos-related special items

2023 Income tax items

Subtotal 2023 special items

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Operations 128 0.08

For the three months ended March 31, 2023

For the six months ended June 30, 2023

$ 3,904 $ 2.18

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▪ Fewer Shares Outstanding:

Fewer shares outstanding were due to shares we repurchased under our $3.5 billion share repurchase program, which was completed in 2022.

Fewer shares outstanding were due to shares we repurchased under our share repurchase programs.

▪ Operations:

The increase of $67 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher income from our equity investment in ABI and lower interest and other debt expense, net.

The increase of $128 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI, higher income from our equity investment in ABI and lower interest and other debt expense, net, partially offset by lower net periodic benefit income.

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

Consolidated Results of Operations for the Three Months Ended June 30, 2023

The changes in net earnings and diluted EPS for the three months ended June 30, 2023, from the three months ended June 30, 2022, were due primarily to the following:

(in millions, except per share data) Net Earnings Diluted EPS

For the three months ended June 30, 2022

2022 Acquisition and disposition-related items

2022 Tobacco and health and certain other litigation items

2022 JUUL changes in fair value

2022 ABI-related special items

2022 Cronos-related special items

2022 Income tax items

Subtotal 2022 special items

2023 Acquisition and disposition-related items

2023 Tobacco and health and certain other litigation items

2023 ABI-related special items

2023 Cronos-related special items

2023 Income tax items

Subtotal 2023 special items

Fewer shares outstanding — 0.02

Change in tax rate 3 —

Operations 61 0.03

For the three months ended June 30, 2023

$ 2,117 $ 1.19

2023 Reported Net Earnings

$ 2,117 $ 1.19

2022 Reported Net Earnings

% Change 100%+ 100%+

2023 Adjusted Net Earnings and Adjusted Diluted EPS

$ 2,346 $ 1.31

2022 Adjusted Net Earnings and Adjusted Diluted EPS

$ 2,282 $ 1.26

% Change 2.8 % 4.0 %

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

▪ Fewer Shares Outstanding:

Fewer shares outstanding were due to shares we repurchased under our share repurchase programs.

▪ Operations:

The increase of $61 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI, partially offset by lower net periodic benefit income.

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

2023 Forecasted Results

We expect our 2023 full-year adjusted diluted EPS to be in a range of $4.98 to $5.13, representing a growth rate of 3% to 6% over our 2022 full-year adjusted diluted EPS base of $4.84, as shown in the first table below.

We expect our 2023 full-year adjusted diluted EPS to be in a range of $4.89 to $5.03, representing a growth rate of 1% to 4% from a 2022 full-year adjusted diluted EPS base of $4.84, as shown in the first table below.

Our 2023 full-year adjusted diluted EPS guidance range includes planned investments in support of our Vision, such as (i) continued smoke-free product research, development and regulatory preparation expenses, (ii) enhancement of our digital consumer engagement system and (iii) marketplace activities in support of our smoke-free products, including planned investments behind the U.S.

commercialization of NJOY ACE .

Our guidance range also includes estimated amortization charges of approximately $50 million related to intangible assets acquired in the NJOY Transaction.

While the 2023 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic.

We will continue to monitor conditions related to (i) the economy, including the impact of high inflation, rising interest rates and global supply chain disruptions, (ii) adult tobacco consumer dynamics, including disposable income, purchasing patterns and adoption of smoke-free products and (iii) regulatory and legislative developments.

This guidance range also includes lower expected net periodic benefit income due to market factors, including higher interest rates, and the impact of the 2022 completion of the wind-down of our former financial services business.

This guidance range does not include the potential financial impacts of the NJOY Transaction.

We continue to expect our 2023 full-year adjusted effective tax rate to be in a range of 24.5% to 25.5%.

Reconciliation of 2022 Reported Diluted EPS to 2022 Adjusted Diluted EPS

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

Our full-year adjusted diluted EPS forecast excludes the impact of certain income and expense items, including those items noted in the Non-GAAP Financial Measures section below, that our management believes are not part of underlying operations.

Other than as set forth in the table immediately above, our management cannot estimate on a forward-looking basis the impact of these items on our reported diluted EPS because these items, which could be significant, may be unusual or infrequent, are difficult to predict and may be highly variable.

As a result, we do not provide a corresponding GAAP measure for, or reconciliation to, our adjusted diluted EPS forecast.

Our full-year adjusted diluted EPS forecast and full-year forecast for our 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 our management believes are not part of underlying operations.

Other than as set forth in the table immediately above, our management cannot estimate on a forward-looking basis the impact of these items on our reported diluted EPS or our 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, we do not provide a corresponding GAAP measure for, or reconciliation to, our adjusted diluted EPS forecast or our adjusted effective tax rate forecast.

Non-GAAP Financial Measures

While we report our financial results in accordance with GAAP, our management reviews OCI, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate the performance of, and allocate resources to, our segments.

Our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our 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 and disposition-related items, equity investment-related special items (including any changes in fair value of our equity investment recorded at fair value and any changes in the fair value of related warrants and preemptive rights), certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (such dispute resolutions are referred to as “NPM Adjustment Items”).

Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can

distort underlying business trends and results.

Our management also reviews income tax rates on an adjusted basis.

Our adjusted effective tax rate may exclude certain income tax items from our reported effective tax rate.

Our 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.

Our management uses adjusted financial measures and regularly provides these to our chief operating decision maker (“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.

We report our financial results in accordance with GAAP.

However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our 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 and disposition-related items, equity investment-related special items (including any changes in fair value of our equity investment recorded at fair value and any changes in the fair value of related warrants and preemptive rights), certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (“NPM Adjustment Items”).

In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision.

Consolidated EBITDA, as defined in our Credit Agreement, is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources ) and includes certain adjustments.

Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results.

Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.

Our management believes that the foregoing financial measures provide useful additional insight into underlying business trends and results, and provide a more meaningful comparison of year-over-year results.

Our management uses these financial

measures and regularly provides these to our chief operating decision maker (“CODM”) for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

The foregoing 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.

The foregoing 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 2023 Forecasted Results section above, when we provide a non-GAAP measure in this Form 10-Q, we also provide a reconciliation of that non-GAAP financial measure to the most directly comparable GAAP financial measure.

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Consolidated Operating Results

For the Three Months Ended March 31,

For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) 2023 2022 2023 2022

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As discussed further in Note 10.

Segment Reporting to our condensed consolidated financial statements in Item 1 (“Note 8”), our CODM reviews OCI to evaluate the performance of, and allocate resources to, our segments.

Segment Reporting to our condensed consolidated financial statements in Item 1 (“Note 10”), our CODM reviews OCI, which is defined as operating income before general corporate expenses and amortization of intangibles, to evaluate the performance of, and allocate resources to, our segments.

Our management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of our business segments.

The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the three months ended March 31:

The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the six months ended June 30:

(in millions of dollars, except per share data) Earnings before Income Taxes Provision for Income Taxes Net Earnings Diluted

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Cronos-related special items 30 — 30 0.02

Income tax items — (3) 3 —

2023 Adjusted for Special Items

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$ 5,768 $ 1,439 $ 4,329 $ 2.38

The following special items affected the comparability of statements of earnings amounts for the three months ended March 31, 2023 and 2022:

The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the three months ended June 30:

(in millions of dollars, except per share data) Earnings before Income Taxes Provision for Income Taxes Net Earnings Diluted

2023 Reported

$ 2,806 $ 689 $ 2,117 $ 1.19

Acquisition and disposition-related items 18 5 13 —

Tobacco and health and certain other litigation items

290 73 217 0.12

ABI-related special items (3) (1) (2) —

Cronos-related special items 4 — 4 —

Income tax items — 3 (3) —

2023 Adjusted for Special Items

$ 3,115 $ 769 $ 2,346 $ 1.31

2022 Reported

$ 1,605 $ 714 $ 891 $ 0.49

Acquisition and disposition-related items 2 — 2 —

Tobacco and health and certain other litigation items 46 11 35 0.02

JUUL changes in fair value 1,155 — 1,155 0.64

ABI-related special items 112 23 89 0.05

Cronos-related special items 114 8 106 0.06

Income tax items — (4) 4 —

2022 Adjusted for Special Items

$ 3,034 $ 752 $ 2,282 $ 1.26

The following special items affected the comparability of statements of earnings amounts for the six and three months ended June 30, 2023 and 2022:

▪ NPM Adjustment Items:

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▪ Loss on Disposition and Changes in Fair Value of JUUL Equity Securities:

We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the three months ended March 31, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings.

We recorded a non-cash, pre-tax unrealized loss of $100 million for the three months ended March 31, 2022 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings as a result of a decrease in the estimated fair value of our investment in JUUL.

We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the six months ended June 30, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings.

We recorded non-cash, pre-tax unrealized losses of $1,255 million and $1,155 million for the six and three months ended June 30, 2022 respectively, as (income) losses from investments in equity securities in our condensed consolidated statement of earnings as a result of decreases in the estimated fair value of our former investment in JUUL.

We recorded corresponding adjustments to the JUUL tax valuation allowance in 2023 and 2022.

For further discussion, see Note 3.

Investments in Equity Securities to our condensed consolidated financial statements in Item 1 (“Note 3”) and Note 10.

For further discussion, see Note 5 and Note 12.

Income Taxes to our condensed consolidated financial statements in Item 1 (“Note 12”).

▪ ABI-Related Special Items:

We recorded net pre-tax income of $59 million from our equity investment in ABI for the three months ended March 31, 2022, consisting primarily of mark-to-market gains on certain ABI financial instruments associated with its share commitments.

For further discussion, see Note 3.

The ABI-related special items include our respective share of the amounts recorded by ABI and additional adjustments related to (i) conversion from international financial reporting standards to GAAP and (ii) adjustments to our investment required under the equity method of accounting.

We recorded net pre-tax losses of $53 million and $112 million from our equity investment in ABI for the six and three months ended June 30, 2022, respectively, consisting primarily of ABI’s non-cash impairment charge related to its investment in a joint venture with direct exposure to Russia and Ukraine.

The net pre-tax losses for the six months ended June 30, 2022 were partially offset by net mark-to-market gains on certain ABI financial instruments associated with its share commitments.

The ABI special items include our respective share of the amounts recorded by ABI and additional adjustments related to (i) conversion from international financial reporting standards to GAAP and (ii) adjustments to our investment required under the equity method of accounting.

▪ Cronos-Related Special Items:

We recorded net pre-tax expense consisting of the following:

For the Three Months Ended March 31,

For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) 2023 2022 2023 2022

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Total Cronos-related special items - (income) expense $ 30 $ 175 $ 4 $ 114

(1) Amounts include our share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to our investment in Cronos.

(1) Amounts include our share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to our investment in Cronos including the $107 million non-cash pre-tax impairment of our investment in Cronos in the second quarter of 2022.

We recorded corresponding adjustments to the Cronos tax valuation allowance in 2023 and 2022 relating to the special items.

For further discussion, see Note 5 and Note 12.

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

Net revenues, which include excise taxes billed to customers, decreased $173 million (2.9%), substantially all of which was due to lower net revenues in the smokeable products segment.

Cost of sales was essentially unchanged, as lower shipment volume in our smokeable products segment was mostly offset by higher per unit settlement charges and NPM Adjustment Items in 2022.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $208 million (1.7%), due primarily to lower net revenues in the smokeable products segment.

Cost of sales decreased $39 million (1.2%) due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges, NPM Adjustment Items in 2022 and higher manufacturing costs in our smokeable products segment.

Excise taxes on products decreased $216 million (9.6%), due to lower shipment volume in our smokeable products segment.

Marketing, administration and research costs increased $83 million (17.0%), due primarily to higher general corporate expenses (including an agreement to resolve shareholder derivative lawsuits in 2023 as discussed in Note 11).

Operating income decreased $127 million (4.4%), due primarily to higher general corporate expenses and lower operating results in our smokeable products segment.

Interest and other debt expense, net decreased $52 million (18.5%), due primarily to higher interest income due to higher rates and 2023 interest income associated with the sale of the IQOS System commercialization rights.

(Income) losses from investments in equity securities decreased $114 million (100%+), due primarily to the loss on the disposition of our JUUL equity securities, partially offset by 2022 changes in the estimated fair value of our former investment in JUUL equity securities and lower losses from our Cronos-related special items.

Reported net earnings of $1,787 million decreased $172 million (8.8%), due primarily to lower operating income and unfavorable results from our investments in equity securities, partially offset by lower interest and other debt expense, net.

Reported basic and diluted EPS of $1.00, each decreased by 7.4% due to lower reported net earnings, partially offset by fewer shares outstanding.

Adjusted net earnings of $2,118 million increased $71 million (3.5%) due primarily to higher income from our equity investment in ABI and lower interest and other debt expense, net.

Marketing, administration and research costs increased $374 million (35.6%), due primarily to higher general corporate expenses, which included agreements in 2023 to resolve certain JUUL-related litigation and shareholder derivative lawsuits as discussed in Note 13, and acquisition-related costs associated with the NJOY Transaction.

Operating income decreased $327 million (5.5%), due primarily to higher general corporate expenses, partially offset by higher operating results in our smokeable products and oral tobacco products segments.

Interest and other debt expense, net decreased $75 million (13.4%), due primarily to 2023 interest income associated with the sale of the IQOS System commercialization rights and higher interest income due to higher rates, partially offset by interest expense and fees associated with the term loan facility.

For additional information related to the term loan facility, see Liquidity and Capital Resources .

Net periodic benefit income, excluding service cost, decreased by $31 million (33.3%), due to higher discount rates resulting in higher interest costs and lower estimated return on assets due to lower fair value of plan assets at December 31, 2022, partially offset by lower amortization of net unrecognized losses in 2023.

For additional information, see Note 7.

Benefit Plans to our condensed consolidated financial statements in Item 1 (“Note 7”).

(Income) losses from investments in equity securities, which were favorable $1,276 million (100%+), were positively impacted by lower charges related to our former investment in JUUL equity securities, lower losses from our Cronos-related special items and higher income from our equity investment in ABI.

Reported net earnings of $3,904 million increased $1,054 million (37.0%), due primarily to favorable results from our investments in equity securities and lower interest and other debt expense, net, partially offset by lower operating income.

Reported basic and diluted EPS of $2.18, each increased by 38.9% due to higher reported net earnings and fewer shares outstanding.

Adjusted net earnings of $4,464 million increased $135 million (3.1%), due primarily to higher OCI, higher income from our equity investment in ABI and lower interest and other debt expense, net, partially offset by lower net periodic benefit income.

Adjusted diluted EPS of $2.50 increased by 5.0%, due to higher adjusted net earnings and fewer shares outstanding.

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $35 million (0.5%), due primarily to lower net revenues in the smokeable products segment.

Cost of sales decreased $27 million (1.6%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment.

Excise taxes on products decreased $99 million (8.5%), due to lower shipment volume in our smokeable products segment.

Marketing, administration and research costs increased $291 million (51.9%), due primarily to higher general corporate expenses, which included agreements in 2023 to resolve certain JUUL-related litigation as discussed in Note 13, and acquisition-related costs associated with the NJOY Transaction.

Operating income decreased $200 million (6.4%), due primarily to higher general corporate expenses, partially offset by higher operating results in our smokeable products and oral tobacco products segments.

Interest and other debt expense, net decreased $23 million (8.2%), due primarily to 2023 interest income associated with the sale of the IQOS System commercialization rights and higher interest income due to higher rates, partially offset by interest expense and fees associated with the term loan facility.

Net periodic benefit income, excluding service cost, decreased by $16 million (34.0%), due to higher discount rates resulting in higher interest costs and lower estimated return on assets due to lower fair value of plan assets at December 31, 2022, partially offset by lower amortization of net unrecognized losses in 2023.

For additional information, see Note 7.

(Income) losses from investments in equity securities, which were favorable $1,390 million (100%+), were positively impacted by 2022 charges related to our former investment in JUUL equity securities, higher income from our equity investment in ABI and lower losses from our Cronos-related special items.

Reported net earnings of $2,117 million increased $1,226 million (100%+), due primarily to favorable results from our investments in equity securities, partially offset by lower operating income.

Reported basic and diluted EPS of $1.19, each increased by (100%+) due to higher reported net earnings and fewer shares outstanding.

Adjusted net earnings of $2,346 million increased $64 million (2.8%), due primarily to higher OCI, partially offset by lower net periodic benefit income.

Adjusted diluted EPS of $1.31 increased by 4.0%, due to higher adjusted net earnings and fewer shares outstanding.

Operating Results by Business Segment

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These challenges, some of which are discussed in more detail in Note 13 and in Part I, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) and in Part II, Item 1A.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”), in Part II, Item 1A.

Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (“First Quarter Form 10-Q”) and in Part II, Item 1A.

Risk Factors in this Form 10-Q, include:

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▪ increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further restrict the availability and use of tobacco products or the ability to communicate with consumers through third-party digital platforms;

▪ changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as macroeconomic conditions (including inflation), excise taxes and price gap relationships, may result in adult tobacco consumers switching to lower-priced tobacco products;

▪ changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as macroeconomic conditions (including inflation), excise taxes and price gap relationships, each of which may result in adult tobacco consumers switching to lower-priced tobacco products;

▪ the highly competitive nature of all tobacco categories, including competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation and the proliferation of innovative tobacco products, such as e-vapor and oral nicotine pouch products;

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Adult smokers continue to transition from cigarettes to exclusive use of smoke-free tobacco product alternatives, which aligns with our Vision.

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

Over the past two years, the legislative and regulatory activities discussed below negatively impacted growth in the e-vapor category.

The total e-vapor category experienced an estimated volume decline of 11% for the three months ended March 31, 2023 compared to the same period in 2022, despite disposable e-vapor product volume growth.

In the first quarter of 2023, e-vapor industry volumes declined sequentially by 1%.

In March 2022, the U.S.

Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine.

The amendment became effective in April 2022.

Additionally, over the past year, the FDA has issued marketing denial orders (“MDOs”) for several vaping products.

The FDA has issued stays temporarily suspending the MDOs for further review of these products, allowing them to remain in market.

In addition, legislation recently became effective in California that bans the sale of most tobacco products with characterizing flavors.

We believe these activities, which may be subject to legal challenges, will further impact the competitive environment and e-vapor category landscape.

We are monitoring the sale and distribution of synthetic nicotine products, including in the form of e-vapor products and oral nicotine pouches.

Oral nicotine pouch retail share of the total oral tobacco category grew significantly from 19.1% year-to-date as of March 31, 2022 to 26.2% year-to-date as of March 31, 2023.

The oral nicotine pouch category continues to be increasingly competitive.

Oral nicotine pouch growth has sourced in significant part from smokeless tobacco and cigarette consumers.

We believe the innovative tobacco product categories will continue to be dynamic due to competition, adult tobacco consumer exploration of a variety of tobacco product options, adult tobacco consumer perceptions of the relative risks of smoke-free products compared to cigarettes, FDA determinations on product applications, FDA enforcement activity and legislative actions.

For the three months ended March 31, 2023, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 9%, compared to the three months ending March 31, 2022.

nicotine pouch category continued to grow significantly throughout the second quarter of 2023 to 29.1% of the U.S.

oral tobacco category, an increase of 8.4 share points versus the second quarter of 2022.

maintained share momentum during the second quarter of 2023 to achieve 7.0% of the total oral tobacco category, an increase of 2.1 share points when compared to the second quarter of 2022.

This represents a growth rate of 43% year-over-year, and this is the fifteenth consecutive quarter of on!

share growth.

Oral nicotine pouch growth has primarily sourced from adult smokeless tobacco and cigarette consumers.

For the second quarter 2023, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 70.9%, down 8.4 share points versus the second quarter of 2022.

Copenhagen continues to be the number one brand in the oral tobacco category with a share of 24.3% for the second quarter of 2023, a decrease of 3.0 share points when compared to the second quarter of 2022.

The total e-vapor category experienced an estimated volume decline of 1.0% for the second quarter of 2023 compared to the second quarter of 2022.

However, when compared to the first quarter of 2023, the e-vapor category grew by an estimated 3.0% in the second quarter of 2023.

We believe the innovative tobacco product categories will continue to be dynamic due to increasing competition, adult tobacco consumer exploration of a variety of tobacco product options, adult tobacco consumer perceptions of the relative risks of smoke-free products compared to cigarettes, FDA determinations on product applications, FDA enforcement activity and legislative actions.

For the second quarter of 2023, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 7.5% versus the second quarter of 2022.

Marlboro share was 42.1% in the second quarter of 2023, reflecting an increase of 0.1 share points as compared to the first quarter of 2023 and down 0.6 share points when compared to the second quarter of 2022.

The discount share of the cigarette category was 28.2% in the second quarter of 2023, unchanged sequentially versus the first quarter of 2023.

However, compared to the second quarter of 2022, total discount share increased by 1.8 share points in the second quarter of 2023.

We expect 2023 cigarette industry volume trends to be most influenced by (i) disposable income, purchasing patterns and adoption of smoke-free products, (ii) macroeconomic conditions (including inflation, gasoline prices and unemployment levels), (iii) cross-category movement and (iv) regulatory and legislative (including excise tax) developments.

Macroeconomic conditions (including a high inflationary environment) can impact adult tobacco consumer purchasing behavior.

For example, economic downturns have coincided with adult tobacco consumers modifying purchase behavior at retail, potentially reducing the amount of their regular brand purchases or selecting discount products and other lower priced

tobacco brands.

The Consumer Price Index (“CPI”) increased 5.0% for the 12 months ended March 2023, a decrease in the rate of CPI growth from the 8.5% increase over the 12 months ended March 2022.

Throughout the first three months ending March 31, 2023, gas prices remained fairly stable at below $3.50 per gallon.

In addition, low unemployment and stable wage inflation continued for the three months ending March 31, 2023.

Despite lower overall inflation, stable gas prices and low unemployment, elevated prices on other monthly expenses (including food, electricity and rent) continued to apply pricing pressures at retail for adult consumers.

Furthermore, the federal funds rate continued to increase, reaching 4.8% in March 2023, up 4.6% versus the prior year.

We believe that adult tobacco consumers adapted their purchasing patterns across a variety of goods and services to compensate for the pressures on disposable income.

As price sensitive adult tobacco consumers react to their economic conditions, we expect potential fluctuations in discount product share for cigarettes and MST products.

However, if macroeconomic conditions or other factors cause greater than expected discount share growth or a reduction in purchases at retail, such factors could have a material adverse effect on our business, results of operations, cash flows or financial position, including an adverse effect on the carrying value of our assets such as our tobacco product trademarks.

Discretionary income pressures persisted as the cumulative effect of inflation continued to impact adult tobacco consumers throughout the second quarter of 2023.

For the 12 months ended June 30, 2023, the Consumer Price Index (“CPI”) increased 3.0%.

For the month of June 2023, gas prices were $3.57 per gallon, an increase of $0.23 versus January 2023 and a decrease of $1.36 versus June 2022.

In addition, low unemployment and stable wage inflation continued for the six months ending June 30, 2023.

If macroeconomic conditions or other factors cause greater than expected discount share growth or a reduction in purchases at retail, such factors could have a material adverse effect on our business, results of operations, cash flows or financial position, including an adverse effect on the carrying value of our assets such as our tobacco product trademarks.

FSPTCA and FDA Regulation

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▪ 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;

(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.

▪ 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).

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Among other recommendations, the report urges the FDA to clearly define product pathways, accelerate PMTA decision-making, take enforcement actions against manufacturers and products that violate the law and address the need for risk communications to tobacco consumers.

In February 2023, the FDA responded and committed to develop a five-year strategic plan by December 2023 designed to address concerns raised by the report.

In February 2023, the FDA responded and committed to develop a five-year strategic plan by December 2023 designed to address concerns raised by the report and confirmed this intended timing in June 2023.

▪ Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement:

The FSPTCA permits the sale of tobacco products on the market as of February 15, 2007 and not subsequently modified (“Pre-existing Tobacco Products”) and new or modified products authorized through the PMTA, Substantial Equivalence (“SE”) or SE Exemption pathways.

(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.

Exemption pathways.

Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.

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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 review processes.

Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination or (ii) a denial of a PMTA.

Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination or (ii) a denial of a PMTA, either of which could result in a product being removed from the market.

In addition, new scientific data continues to be developed relating to innovative tobacco products, which could impact the FDA’s determination as to whether a product is, or continues to be, appropriate for the protection of public health and could, therefore, result in the removal of one or more products from the market.

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In September 2022, the FDA represented that it had resolved more than 99% of the timely applications it had received, with the vast majority resulting in a denial.

A number of the denials are subject to litigation challenges initiated by the affected manufacturers.

A number of the denials are subject to litigation

challenges initiated by the affected manufacturers.

For those products still under FDA review, it is uncertain when and for how long the FDA may permit continued marketing and sale of those products pursuant to its case-by-case discretion.

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oral nicotine pouches in May 2020.

As of April 24, 2023, the FDA has not issued marketing order decisions for any on!

In addition, as of April 24, 2023, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.

As of July 27, 2023, the FDA has not issued marketing order decisions for any on!

In addition, as of July 27, 2023, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.

In April 2019, the FDA authorized the PMTA for the IQOS System, and in July 2020, the FDA authorized the marketing of this system as an MRTP with a reduced exposure claim.

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Switching completely to this product from cigarettes reduces risk of lung cancer.” USSTC’s authorization to use this claim is subject to the FDA’s post-market surveillance requirements.

In June 2023, we completed our acquisition of NJOY Holdings, the parent of NJOY.

As a result of the acquisition, NJOY became a wholly owned subsidiary of Altria, and we gained full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE , currently the only pod-based e-vapor product with market authorizations from the FDA.

In March 2020, NJOY submitted PMTAs to the FDA with respect to two NJOY ACE Menthol products, both of which were amended in December 2022 and remain pending.

Post-Market Surveillance :

Manufacturers that receive product authorizations through the PMTA process must adhere to the FDA post-market record keeping and reporting requirements, as detailed in market orders and in the final PMTA rule that went into effect in November 2021.

This includes notification of all marketing activities.

The requirements include prior notification of 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.

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We have engaged with the FDA on this topic and have reaffirmed to the FDA our ongoing and long-standing commitment to preventing underage use.

For example, we 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.

For example, we 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 addition, through our retailer incentive program, stores representing over 80% of PM USA’s cigarette volume have implemented point-of-sale age validation technology.

Additionally, the FDA issued final guidance in April 2020, stating that it intends to prioritize enforcement action against certain product categories, including cartridge-based, flavored e-vapor products and products targeted to minors.

Additionally, the FDA issued final guidance in April 2020, stating that it intended to prioritize enforcement action against certain product categories, including pod-based, flavored e-vapor products and products targeted to minors.

More recently, the FDA has taken enforcement action aimed at manufacturers and retailers of certain disposable flavored electronic nicotine delivery system products

▪ Electronic Nicotine Delivery System Products :

As of April 24, 2023, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth.

As of July 27, 2023, many manufacturers of menthol and other flavored e-vapor products have received marketing denial orders (“MDOs”) for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth.

The FDA has communicated in these MDOs that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications require strong, product-specific evidence.

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The FDA also sought comments on whether a nicotine product standard should apply to other combustible tobacco products, including cigars.

In January 2023, the Biden Administration published its Fall 2022 Unified Regulatory Agenda, which includes the FDA’s plans to propose, by October 2023, a product standard that would establish a maximum nicotine level in cigarettes and other

combustible tobacco products.

In June 2023, the Biden Administration published its Spring 2023 Unified Regulatory Agenda, which includes the FDA’s plans to propose, by December 2023, a product standard that would establish a maximum nicotine level in cigarettes and other combustible tobacco products.

Any proposed product standard would proceed through the rulemaking process, which we believe will take multiple years to complete.

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(i) banning menthol in cigarettes and (ii) banning all characterizing flavors (including menthol) in cigars.

The Biden Administration’s Fall 2022 Unified Regulatory Agenda includes the FDA’s plans to complete rulemaking with respect to these proposed product standards by the end of 2023.

The Biden Administration’s Spring 2023 Unified Regulatory Agenda includes the FDA’s plans to complete rulemaking with respect to these proposed product standards by August 2023.

We submitted comments during the notice-and-comment period and plan to continue engaging with the FDA through the rulemaking process.

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In January 2017, the FDA proposed a product standard for NNN levels in finished smokeless tobacco products.

If any one or more of the foregoing potential product standards were to become final and was appealed and upheld in the courts, it could have a material adverse effect on our business, results of operations, cash flows or financial position, including a material adverse effect on the carrying value of our assets such as our cigar trademarks.

▪ Good Manufacturing Practices:

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▪ establishing the ability to trace all components or parts, ingredients, additives and materials, as well as each batch of finished or bulk tobacco products, to aid in investigations of those that do not meet specifications.

We plan to engage with the FDA through the rulemaking process, including during the notice-and-comment period.

We plan to engage with the FDA through the rulemaking process, including during the notice-and-comment period, which closes on September 6, 2023.

If the proposed rule were to take effect, compliance with these requirements could result in increased costs.

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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 24, 2023, the weighted-average state cigarette excise tax increased from $0.36 to $1.89 per pack.

As of April 24, 2023, no state has enacted new legislation increasing excise taxes in 2023.

However, various increases are under consideration or have been proposed.

Between the end of 1998 and July 27, 2023, the weighted-average state cigarette excise tax increased from $0.36 to $1.89 per pack.

As of July 27, 2023, one state, New York, has enacted new legislation increasing excise taxes in 2023.

The increase in New York will become effective in September 2023.

Various other 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.

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We 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 24, 2023, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for MST.

As of July 27, 2023, 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 products and oral nicotine pouches.

As of April 24, 2023, 30 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor products.

As of July 27, 2023, 32 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.

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Lower sales volume and reported share performance of our operating companies’ products could have a material adverse effect on our business, results of operations, cash flows or financial position.

In addition, substantial excise tax increases on e-vapor and oral nicotine products may negatively impact adult smokers’ transition to these products, which could materially adversely affect our ability to achieve our Vision.

In addition, substantial excise tax increases on e-vapor and oral nicotine products may

negatively impact adult smokers’ transition to these products, which could materially adversely affect our ability to achieve our Vision.

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 24, 2023, 181 countries, as well as the European Union, have become parties to the FCTC.

As of July 27, 2023, 181 countries, as well as the European Union, have become parties to the FCTC.

While the United States 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 U.S.

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however, the increase in the annual payments did not have a material impact on our financial position.

We believe that inflation will continue at increased levels in 2023, but do not expect the

corresponding increase in annual payments to result in a material financial impact.

We believe that inflation will continue at increased levels in 2023, but do not expect the corresponding increase in annual payments to result in a material financial impact.

However, we will continue to monitor the impact of increased inflation on the macroeconomic environment and our businesses.

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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 24, 2023, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and six states (California, Massachusetts, New Jersey, Utah, New York and Illinois) and the District of Columbia have passed such legislation.

Some of these states, such as New York, Utah and Illinois, exempt certain products that have received FDA market authorization through the PMTA pathway.

As of July 27, 2023, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and seven states (California, Illinois, Massachusetts, New Jersey, New York, Rhode Island and Utah) and the District of Columbia have passed such legislation.

Some of these states, such as New York, Utah and Illinois,

exempt certain products that have received FDA market authorization through the PMTA pathway.

The legislation in California, which became effective in December 2022, bans the sale of most tobacco products with characterizing flavors, including menthol, mint and wintergreen.

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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 24, 2023, 42 states, the District of Columbia and Puerto Rico have enacted laws increasing the legal age to purchase tobacco products to 21.

As of July 27, 2023, 42 states, the District of Columbia and Puerto Rico have enacted laws increasing the legal age to purchase tobacco products to 21.

Although an increase in the minimum age to purchase tobacco products may have a negative impact on our operating companies’ sales volumes, as discussed above under Underage Access and Use of Certain Tobacco Products, we support raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels, reflecting our longstanding commitment to combat underage tobacco use.

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Surgeon General.

We believe that the

public should be guided by the messages of the U.S.

We believe that the public should be guided by the messages of the U.S.

Surgeon General and public health authorities worldwide in making decisions concerning the use of tobacco products, including e-vapor products.

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From time to time, we are subject to governmental investigations on a range of matters.

For example, we are subject to a number of governmental investigations with respect to our former investment in JUUL, which we divested in March 2023, including the following:

(i) the FTC issued a Civil Investigative Demand (“CID”) to us while conducting its antitrust review of our former investment in JUUL seeking information regarding, among other things, our role in the resignation of JUUL’s former chief executive officer and the hiring by JUUL of any current or former Altria director, executive or employee (see Note 11 for a description of the FTC’s administrative complaint against us and JUUL);

For example, we currently are, or recently have been, subject to a number of governmental investigations with respect to our former investment in JUUL, which we divested in March 2023, including the following:

(i) the FTC issued a Civil Investigative Demand to us while conducting its antitrust review of our former investment in JUUL seeking information regarding, among other things, our role in the resignation of JUUL’s former chief executive officer and the hiring by JUUL of

any current or former Altria director, executive or employee (see Note 13 for a description of the FTC’s administrative complaint against us and JUUL);

(ii) the SEC commenced an investigation relating to our acquisition, disclosures and accounting controls in connection with the JUUL investment;

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For a discussion of our disposition of our interest in JUUL, see Note 5.

Additionally, JUUL is currently under investigation by various federal and state agencies, including the SEC, the FDA and the FTC, and state attorneys general.

Additionally, JUUL is currently, or recently has been, 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 include JUUL’s marketing practices, particularly as such practices relate to youth, and we may be asked in the context of those investigations to provide information concerning our former investment in JUUL or relating to our marketing of Nu Mark LLC e-vapor products.

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and diversion into one taxing jurisdiction of tobacco products intended for sale in another.

tobacco products, for example, are manufactured by unknown third parties in unregulated environments.

Counterfeit tobacco products, for example, are manufactured by unknown third parties in unregulated environments.

Counterfeit versions of our products can negatively affect adult tobacco consumer experiences with and opinions of those brands.

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Shifts in crops (such as those driven by economic conditions and adverse weather patterns), government restrictions and mandated prices, production control programs, economic trade sanctions, import duties and tariffs, international trade disruptions, inflation, geopolitical instability, climate and environmental changes and disruptions due to man-made or natural disasters may increase the cost or reduce the supply or quality of tobacco, other raw materials, ingredients or component parts used to manufacture our operating companies’ products.

Any significant change in such factors could negatively impact our ability to continue manufacturing and marketing existing products or impact adult consumer product acceptability and have a material adverse effect on our business and profitability.

Any significant change in such factors could negatively impact our ability to continue manufacturing and marketing existing products, increase our costs or negatively impact adult consumer product acceptability and have a material adverse effect on our business and profitability.

As with other agricultural commodities, tobacco price, quality and availability can be influenced by variations in weather patterns, including those caused by climate change, and macroeconomic conditions and imbalances in supply and demand, among other factors.

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The reduced demand for tobacco leaf may result in the reduced supply and availability of domestic tobacco as growers divert resources to other crops or cease farming.

The unavailability or unacceptability of any one or more particular varieties of tobacco leaf necessary to manufacture our operating companies’ products could negatively impact our ability to continue marketing existing products or impact adult tobacco consumer product acceptability, which could result in increased costs to us.

Current macroeconomic conditions and geopolitical instability (including high inflation, high gas prices, rising interest rates, labor shortages, supply and demand imbalances and the Russian invasion of Ukraine) have caused and continue to cause worldwide disruptions and delays to supply chains and commercial markets, which limit access to, and increase the cost of, raw materials, ingredients and component parts (for example, tobacco leaf and resins and aluminum used in our packaging).

Current macroeconomic conditions and geopolitical instability (including the cumulative effects of high inflation over the past several quarters, high gas prices, rising interest rates, labor shortages, supply and demand imbalances and the Russian invasion of Ukraine) have caused and continue to cause worldwide disruptions and delays to supply chains and commercial markets, which limit access to, and increase the cost of, raw materials, ingredients and component parts (for example, tobacco leaf and resins and aluminum used in our packaging).

We have implemented and continue to implement various strategies to help secure sufficient supplies of raw materials, ingredients and component parts for production.

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Operating Results

The following table provides reconciliations of reported OCI to adjusted OCI for our reportable segments, all other category and total OCI and provides the related OCI margins:

For the Six Months Ended June 30, 2023

(in millions) Smokeable Products Oral Tobacco Products All Other Total

Net revenues $ 10,910 $ 1,308 $ 9 $ 12,227

Excise taxes (1,969) (57) — (2,026)

Revenues net of excise taxes $ 8,941 $ 1,251 $ 9 $ 10,201

Reported OCI $ 5,349 $ 859 $ (13) $ 6,195

Tobacco and health and certain other litigation items 52 — — 52

Adjusted OCI $ 5,401 $ 859 $ (13) $ 6,247

Reported OCI margin (1)

59.8 % 68.7 % (100%+) 60.7 %

Adjusted OCI margin (1)

60.4 % 68.7 % (100%+) 61.2 %

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

Smokeable Products Segment

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Operating Results

For the Three Months Ended March 31,

(in millions) 2023 2022 Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Net revenues $ 10,910 $ 11,138 (2.0) % $ 5,820 $ 5,873 (0.9) %

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Reported OCI margins (1)

60.1 % 60.6 % (0.5) pp

59.8 % 59.4 % 0.4 pp 59.6 % 58.3 % 1.3 pp

Adjusted OCI margins (1)

60.4 % 59.5 % 0.9 pp

60.4 % 59.3 % 1.1 pp 60.4 % 59.1 % 1.3 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, 2023 Compared with Three Months Ended March 31, 2022

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $228 million (2.0%), due primarily to lower shipment volume ($1,196 million), partially offset by higher pricing ($960 million), which includes higher promotional investments.

Reported OCI decreased $56 million (2.2%), due primarily to lower shipment volume ($404 million), higher per unit settlement charges and NPM Adjustment Items in 2022 ($60 million), partially offset by higher pricing, which includes higher promotional investments.

Adjusted OCI was essentially unchanged as higher pricing, which includes higher promotional investments, was mostly offset by lower shipment volume and higher per unit settlement charges.

Reported OCI increased $28 million (0.5%), due primarily to higher pricing, which includes higher promotional investments, partially offset by lower shipment volume ($741 million), higher per unit settlement charges, NPM Adjustment Items in 2022 ($60 million) and higher costs.

Adjusted OCI increased $90 million (1.7%), due primarily to as higher pricing, which includes higher promotional investments, partially offset by lower shipment volume, higher per unit settlement charges and higher costs.

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $53 million (0.9%), due primarily to lower shipment volume ($542 million), partially offset by higher pricing ($488 million), which includes higher promotional investments.

Reported and adjusted OCI increased $84 million (3.0%) and $86 million (3.1%), respectively, due primarily to higher pricing, which includes higher promotional investments, partially offset by lower shipment volume ($337 million), higher per unit settlement charges and higher costs.

Shipment Volume and Retail Share Results

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Shipment Volume

For the Three Months Ended March 31,

(sticks in millions) 2023 2022 Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

(sticks in millions) 2023 2022 Change 2022 2021 Change

Marlboro 34,902 38,325 (8.9) % 18,506 20,035 (7.6) %

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The following table summarizes our cigarettes retail share performance:

For the Three Months Ended March 31,

2023 2022 Percentage Point Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

Marlboro 42.0 % 42.7 % (0.7) 42.1 % 42.7 % (0.6)

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and Circana Group, L.P.

(“Circana”), formerly IRI, as well as, Management Science Associates, Inc.

(“Circana”), as well as, Management Science Associates, Inc.

Circana is a newly formed company reflecting the recent merger of IRI and NPD Group, Inc.

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This service is not designed to capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets.

It is retail services’ standard practice to periodically refresh their retail scan services, which could restate retail share results that were previously released in this service.

It is retail services’ standard practice to periodically refresh their retail scan services, which could restate retail share results that were previously released in these services.

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, 2023 Compared with the Three Months Ended March 31, 2022

Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 11.4%, driven primarily by the industry’s decline rate, retail share losses (both of which were impacted by macroeconomic pressures on adult tobacco consumers’ disposable income) and trade inventory movements, partially offset by calendar differences.

When adjusted for trade inventory movements and calendar differences, our smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 11%.

When adjusted for calendar differences, trade inventory movements and other factors, total estimated domestic cigarette industry volume decreased by an estimated 9%.

Shipments of premium cigarettes accounted for 94.3% and 93.3% of our smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended March 31, 2023 and 2022, respectively.

Marlboro ’s retail share of the total cigarette category decreased 0.6 share points versus the prior year and 0.2 share points sequentially to 42.0%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

However, Marlboro ’s share of the premium segment grew to 58.5%, an increase of 0.7 share points versus the prior year and 0.1 share point sequentially.

Total cigarettes industry discount segment retail share increased 1.8 share points versus the prior year and 0.5 share points sequentially to 28.2%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022

Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 10.0%, driven primarily by the industry’s decline rate, retail share losses (both of which were impacted by macroeconomic pressures on adult tobacco consumers’ disposable income), partially offset by calendar differences.

When adjusted for calendar differences and trade inventory movements, our smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 10.5%.

When adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volume decreased by an estimated 8%.

Shipments of premium cigarettes accounted for 94.5% and 93.4% of our smokeable products segment’s reported domestic cigarettes shipment volume for the six months ended June 30, 2023 and 2022, respectively.

Marlboro ’s retail share of the total cigarette category decreased 0.7 share points to 42.0%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

Total cigarettes industry discount segment retail share increased 1.8 share points to 28.2%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 8.7%, driven primarily by the industry’s decline rate and retail share losses (both of which were impacted by macroeconomic pressures on adult tobacco consumers’ disposable income), partially offset by trade inventory movements.

When adjusted for trade inventory movements, our smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 10%.

When adjusted for trade inventory movements and other factors, total estimated domestic cigarette industry volume decreased by an estimated 7.5%.

Shipments of premium cigarettes accounted for 94.6% and 93.5% of our smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended June 30, 2023 and 2022, respectively.

Marlboro ’s retail share of the total cigarette category decreased 0.6 share points to 42.1%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

Marlboro ’s retail share increased 0.1 share point from the first quarter of 2023.

Additionally, Marlboro ’s share of the premium segment grew to 58.6%, an increase of 0.5 share points versus the prior year and 0.1 share point sequentially.

Total cigarettes industry discount segment retail share was unchanged from the first quarter of 2023.

For a discussion regarding discount product dynamics in 2023 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Tobacco Space - Business Environment - Summary above.

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PM USA and Middleton executed the following pricing and promotional allowance actions during 2023 and 2022:

▪ Effective June 11, 2023, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.15 per five-pack.

▪ Effective April 23, 2023, PM USA increased the list price of Marlboro , L&M and Basic by $0.15 per pack.

PM USA also increased the list price of all its other cigarette brands by $0.20 per pack.

▪ Effective January 22, 2023, PM USA increased the list price of Marlboro , L&M , Basic and Chesterfield by $0.15 per pack.

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▪ Effective January 9, 2022, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.13 per five-pack.

▪ Effective April 23, 2023, PM USA increased the list price of Marlboro , L&M and Basic by $0.15 per pack.

▪ Effective July 23, 2023, PM USA increased the list price of Marlboro , L&M and Basic by $0.16 per pack.

PM USA also increased the list price of all its other cigarette brands by $0.21 per pack.

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Operating Results

For the Three Months Ended March 31,

(in millions) 2023 2022 Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Net revenues $ 1,308 $ 1,278 2.3 % $ 680 $ 665 2.3 %

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Reported and Adjusted OCI margins (1)

69.3 % 69.7 % (0.4) pp

68.7 % 68.8 % (0.1) pp 68.0 % 67.9 % 0.1 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, 2023 Compared with Three Months Ended March 31, 2022

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, increased $30 million (2.3%), due primarily to higher pricing ($79 million), which includes higher promotional investments, partially offset by lower shipment volume and a higher percentage of on!

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Reported and adjusted OCI increased $22 million (2.6%), due primarily to higher pricing, which includes higher promotional investments , partially offset by lower volume/mix ($56 million).

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Net revenues, which include excise taxes billed to customers, increased $15 million (2.3%), due primarily to higher pricing ($40 million), which includes higher promotional investments, partially offset by lower volume/mix ($28 million) .

Reported and adjusted OCI increased $13 million (3.0%), due primarily to higher pricing, which includes higher promotional investments , partially offset by lower volume/mix ($31 million).

Shipment Volume and Retail Share Results

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Shipment Volume

For the Three Months Ended March 31,

(cans and packs in millions) 2023 2022 Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

(cans and packs in millions) 2023 2022 Change 2023 2022 Change

Copenhagen 223.9 238.3 (6.0) % 114.9 123.1 (6.7) %

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

For the Three Months Ended March 31,

2023 2022 Percentage Point Change

For the Six Months Ended June 30, For the Three Months Ended June 30,

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

Copenhagen 24.8 % 27.7 % (2.9) 24.3 % 27.3 % (3.0)

Skoal 10.1 11.6 (1.5) 9.9 11.5 (1.6)

6.7 4.5 2.2 7.0 4.9 2.1

Other 3.0 3.1 (0.1) 2.8 3.1 (0.3)

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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 retail services’ standard practice to periodically refresh their retail scan services, which could restate retail share results that were previously released in this service.

It is retail services’ standard practice to periodically refresh their retail scan services, which could restate retail share results that were previously released in these services.

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, 2023 Compared with Three Months Ended March 31, 2022

Our oral tobacco products segment’s reported domestic shipment volume decreased 1.8%, driven primarily by retail share losses, trade inventory movements and other factors, partially offset by calendar differences and the industry’s growth rate.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Our oral tobacco products segment’s reported domestic shipment volume decreased 1.8%, driven primarily by retail share losses and other factors, partially offset by the industry’s growth rate, calendar differences and trade inventory movements.

When adjusted for calendar differences and trade inventory movements, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 2.5%.

Total oral tobacco products category industry volume increased by an estimated 1% for the six months ended March 31, 2023, primarily driven by growth in oral nicotine pouches, partially offset by declines in MST volumes.

Total oral tobacco products category industry volume increased by an estimated 2.5% for the six months ended June 30, 2023, primarily driven by growth in oral nicotine pouches, partially offset by declines in MST volumes.

Our oral tobacco products segment’s retail share was 44.6%, and Copenhagen continued to be the leading oral tobacco brand with a retail share of 24.8%.

In the oral tobacco products segment, share declines for MST products were primarily driven by the share growth of oral nicotine pouches.

Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022

Our oral tobacco products segment’s reported domestic shipment volume decreased 1.7%, driven primarily by retail share losses, partially offset by the industry’s growth rate, trade inventory movements and calendar differences.

When adjusted for trade inventory movements and calendar differences, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 2.5%.

Our oral tobacco products segment’s retail share was 44.0%, and Copenhagen continued to be the leading oral tobacco brand with a retail share of 24.3%.

’s retail share increased 0.5 share points from the first quarter of 2023.

In the oral tobacco products segment, share declines for MST products were primarily driven by the share growth of oral nicotine pouches.

nicotine pouch category grew to 29.1% of the U.S.

oral tobacco category, an increase of 7.1 share points versus the prior year.

oral tobacco category, an increase of 8.4 share points.

In addition, on!

share of the nicotine pouch category grew to 24.6%, an increase of 3.3 share points versus the prior year.

’s share of the nicotine pouch category grew to 24.0%, an increase of 2.1 share points.

Pricing Actions

USSTC executed the following pricing actions during 2023 and 2022:

▪ Effective April 25, 2023, USSTC increased the list price on its Copenhagen popular price products , Red Seal and Husky brands by $0.09 per can.

In addition, USSTC increased the list price on its Skoal brands and on the balance of its Copenhagen brands by $0.10 per can.

▪ Effective January 24, 2023, USSTC increased the list price on its Copenhagen, Skoal, Red Seal and Husky brands by $0.09 per can.

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USSTC also increased the list price on its Husky brand by $0.12 per can.

▪ Effective April 25, 2023, USSTC increased the list price on its Copenhagen popular price products , Red Seal and Husky brands by $0.09 per can.

In addition, USSTC increased the list price on its Skoal brands and on the balance of its Copenhagen brands by $0.10 per can.

• Effective July 23, 2023, Helix increased the list price on its on!

brand by $0.09 per can.

Liquidity and Capital Resources

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Our access to the operating cash flows of our wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans.

At March 31, 2023, our 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 June 30, 2023, our 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.

In addition, we receive cash dividends on our interest in ABI and will continue to do so as long as ABI pays dividends.

At March 31, 2023, we had $3.9 billion of cash and cash equivalents.

At June 30, 2023, we had $0.9 billion of cash and cash equivalents.

In addition to having access to the operating cash flows of our wholly owned subsidiaries, our capital resources include access to credit markets in the form of commercial paper, availability under our $3.0 billion senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”), which we use for general corporate purposes, and access to credit markets through the issuance of long-term senior unsecured notes.

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Debt to our condensed consolidated financial statements in Item 1 (“Note 11”).

At March 31, 2023, the credit ratings and outlook for our indebtedness by major credit rating agencies were:

At June 30, 2023, the credit ratings and outlook for our indebtedness by major credit rating agencies were:

Short-term Debt Long-term Debt Outlook

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(“Moody’s”) P-2 A3 Stable

Standard & Poor’s Financial Services LLC (“S&P”) A-2 BBB Stable

Standard & Poor’s Financial Services LLC (“S&P”) A-2 BBB Positive (1)

Fitch Ratings Inc.

F2 BBB Stable

(1) On June 16, 2023, S&P changed its outlook for our indebtedness to Positive from Stable.

Credit Lines - From time to time, we have short-term borrowing needs to meet our working capital requirements arising from the timing of annual MSA payments, quarterly income tax payments and quarterly dividend payments, and generally use our commercial paper program to meet those needs.

At March 31, 2023, we had availability under the Credit Agreement for borrowings of up to an aggregate principal amount of $3.0 billion, and we were in compliance with the covenants in the Credit Agreement.

We expect to continue to meet the covenants in the Credit Agreement.

We monitor the credit quality of our bank group and are not aware of any potential non-performing credit provider in that group.

Credit Agreement - At June 30, 2023, we had availability under our Credit Agreement for borrowings of up to an aggregate principal amount of $3.0 billion, and we were in compliance with the covenants in our Credit Agreement.

We expect to continue to meet the covenants in our Credit Agreement.

We monitor the credit quality of our bank group and do not know of any potential non-performing credit provider in that group.

For further discussion on short-term borrowings, see Note 11.

Debt - At March 31, 2023 and December 31, 2022, our total debt was $25.4 billion and $26.7 billion, respectively.

In February 2023, we repaid in full our 1.000% senior unsecured Euro notes in the aggregate principal amount of $1.3 billion (€1.25 billion) at maturity.

As a result of the repayment and changes in the Euro exchange rate, the weighted-average coupon interest rate on our total long-term debt increased to approximately 4.2% at March 31, 2023 from approximately 4.0% at December 31, 2022.

Term Loan Facility - In June 2023, we entered into a $2.0 billion term loan facility and borrowed the full amount available to fund a portion of the cash payments paid at closing in connection with the NJOY Transaction.

We repaid the term loan facility in full in July 2023.

For further details on the term loan facility, see Note 11.

Long-Term Debt - At June 30, 2023 and December 31, 2022, our total long-term debt was $25.2 billion and $26.7 billion, respectively.

In May 2023, we repaid in full our 2.950% senior unsecured notes in the aggregate principal amount of $218 million at maturity.

In addition, in February 2023, we repaid in full our 1.000% senior unsecured Euro notes in the aggregate principal amount of $1.3 billion (€1.25 billion) at maturity.

As a result of the repayments and changes in the Euro exchange rate, the weighted-average coupon interest rate on our total long-term debt increased to approximately 4.2% at June 30, 2023 from approximately 4.0% at December 31, 2022.

For further details on long-term debt, see Note 11.

Guarantees and Other Similar Matters - As discussed in Note 11, we had unused letters of credit obtained in the ordinary course of business and guarantees (including third-party guarantees) outstanding at March 31, 2023.

At June 30, 2023, our debt-to-Consolidated net earnings and debt-to-Consolidated EBITDA ratios were calculated as follows:

For the Twelve Months Ended June 30, 2023

(in millions)

Consolidated net earnings $ 6,818

Interest and other debt expense, net 983

Provision for income taxes 1,578

Depreciation and amortization 231

(Income) loss from investments in equity securities and noncontrolling interests, net 2,365

(Gain) loss on Cronos-related financial instruments 1

Dividends from less than 50% owned affiliates 163

Consolidated EBITDA $ 12,139

Short-term borrowings (1)

Current portion of long-term debt (1)

Long-term debt (1)

Total Debt $ 27,195

Total Debt / Consolidated net earnings 4.0

Total Debt / Consolidated EBITDA 2.2

(1) Balance at June 30, 2023.

Guarantees and Other Similar Matters - As discussed in Note 13, we had unused letters of credit obtained in the ordinary course of business and guarantees (including third-party guarantees) outstanding at June 30, 2023.

From time to time, we also issue lines of credit to affiliated entities.

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The amounts charged to cost of sales for FDA user fees are generally paid in the quarter in which the fees are incurred.

We paid approximately $3.2 billion in April 2023 for amounts accrued in 2022 under the State Settlement Agreements.

We recorded $1.0 billion of charges to cost of sales for the three months ended March 31, 2023 and 2022, respectively, in connection with the State Settlement Agreements and FDA user fees.

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.

We paid approximately $3.4 billion and $3.7 billion for the six months ended June 30, 2023 and 2022, respectively, in connection with the State Settlement Agreements and FDA user fees, primarily all of which was paid in the second quarter of each period.

We recorded $2.0 billion and $2.1 billion of charges to cost of sales for the six months ended June 30, 2023 and 2022, respectively, and $1.0 billion and $1.1 billion of charges to cost of sales for the three months ended June 30, 2023 and 2022, respectively, in connection with the State Settlement Agreements and FDA user fees.

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.

For further discussion on the potential impact of inflation on future payments, see Operating Results by Business Segment - Tobacco Space - State Settlement Agreements .

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, 2023, PM USA had posted appeal bonds totaling $46 million, which have been collateralized with restricted cash that is included in assets on our condensed consolidated balance sheet.

Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of June 30, 2023, PM USA had posted appeal bonds totaling $34 million, which have been collateralized with restricted cash that is included in assets on our condensed consolidated balance sheet.

Litigation is subject to uncertainty, and an adverse outcome or settlement of litigation could have a material adverse effect on our results of operations, cash flows or financial position in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 13.

NJOY Acquisition - In March 2023, we entered into a definitive agreement to acquire NJOY for approximately $2.75 billion in cash payable at closing plus up to an additional $500 million in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products.

We have multiple sources of funding for the NJOY Transaction, including our operating cash flows, access to credit markets, committed short-term bank financing and future cash payments from PMI, as discussed below.

The completion of the NJOY Transaction is subject to customary closing conditions and is not subject to any financing condition.

For further discussion, see Executive Summary - Our Business above.

Altria and PMI Purchase Agreement - In 2022, we entered into an agreement with PMI to, among other things, transition and ultimately conclude our relationship with respect to the IQOS System in the United States.

We received a payment of $1.0 billion in 2022 and expect to receive an additional payment of $1.7 billion (plus interest) by July 2023 for a total cash payment of approximately $2.7 billion (plus interest).

We expect to use the cash proceeds for several items, which may include investments in pursuit of our Vision, repayment of debt, share repurchases and general corporate purposes.

NJOY Acquisition - On June 1, 2023, we acquired NJOY Holdings and funded the NJOY Transaction cash payments at closing of approximately $2.75 billion (net of cash acquired), which is subject to closing adjustments, through a combination of a $2.0 billion term loan facility, the issuance of commercial paper and available cash.

We may also be obligated to pay up to $500 million in additional cash payments that are contingent on receipt of FDA authorizations with respect to certain NJOY products.

For further discussion, see Note 2.

Acquisition of NJOY to our condensed consolidated financial statements in Item 1.

IQOS Purchase Agreement - In 2022, we entered into an agreement with PMI to, among other things, transition and ultimately conclude our relationship with respect to the IQOS System in the United States.

We received a payment of $1.0 billion in 2022 and an additional payment of approximately $1.8 billion (including interest) in July 2023.

Equity and Dividends

During the first three months of 2023 and 2022, we paid dividends of $1,683 million and $1,645 million, respectively, an increase of 2.3%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase program.

During the first six months of 2023 and 2022, we paid dividends of $3,365 million and $3,279 million, respectively, an increase of 2.6%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase programs.

Our current annualized dividend rate is $3.76 per share.

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Cash Provided by/Used in Operating Activities

During the first three months of 2023, net cash provided by operating activities was $2,984 million compared with $3,075 million during the first three months of 2022.

This decrease was due primarily to lower net revenues.

We had a working capital deficit at March 31, 2023 and December 31, 2022.

During the first six months of 2023, net cash provided by operating activities was $3,108 million compared with $2,561 million during the first six months of 2022.

This increase was due primarily to lower State Settlement Agreements and income tax payments.

We had a working capital deficit at June 30, 2023 and December 31, 2022.

Our management believes that we have the ability to fund working capital deficits with cash provided by operating activities, borrowings under the Credit Agreement and access to the credit and capital markets.

Cash Provided by/Used in Investing Activities

During the first three months of 2023, net cash used in investing activities was $56 million compared with $34 million during the first three months of 2022.

This increase was due primarily to higher capital expenditures and proceeds from finance asset sales in 2022.

During the first six months of 2023, net cash used in investing activities was $2,858 million compared with $150 million during the first six months of 2022.

This increase was due primarily to the NJOY Transaction.

Cash Provided by/Used in Financing Activities

During the first three months of 2023, net cash used in financing activities was $3,045 million compared with $2,232 million during the first three months of 2022.

This increase was due primarily to the following:

▪ repayment of $1.3 billion in full of our 1.000% senior unsecured Euro notes at their scheduled maturity in February 2023;

▪ higher dividends paid in 2023;

During the first six months of 2023, net cash used in financing activities was $3,418 million compared with $4,373 million during the first six months of 2022.

This decrease was due primarily to the following:

▪ proceeds from the term loan facility;

▪ lower repurchases of common stock in 2023;

partially offset by:

▪ repurchases of common stock in 2022.

▪ repayment of $1.3 billion in full of our 1.000% senior unsecured Euro notes at maturity in February 2023;

▪ repayment of $0.2 billion in full of our 2.950% senior unsecured notes at maturity in May 2023;

▪ higher dividends paid in 2023.

New Accounting Guidance Not Yet Adopted

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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.

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.

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.

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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.

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.

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Parent Guarantor

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Due from Non-Guarantor Subsidiaries

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(in millions of dollars)

For the Three Months Ended March 31, 2023

For the Six Months Ended June 30, 2023

Guarantor (2)

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Net earnings (losses) (11,093) 3,788

(1) For the three months ended March 31, 2023, net earnings (losses) includes $57 million of intercompany interest income and $89 million of interest expense from non-guarantor subsidiaries.

(2) For the three months ended March 31, 2023, net earnings (losses) includes $58 million of intercompany interest income from non-guarantor subsidiaries.

(1) For the six months ended June 30, 2023, net earnings (losses) include an approximate $10.8 billion loss related to the cancellation of certain interests in a non-guarantor subsidiary, $125 million of intercompany interest income from non-guarantor subsidiaries and $175 million of interest expense from non-guarantor subsidiaries.

(2) For the six months ended June 30, 2023, net earnings (losses) include $115 million of intercompany interest income from non-guarantor subsidiaries.

Cautionary Factors That May Affect Future Results

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We elaborate on these important factors and the risks we face throughout this Form 10-Q, particularly in the “Executive Summary” and “Business Environment” sections preceding our discussion of the operating results of our segments above, in Part II, Item 1A.

Risk Factors in this Form 10-Q, and in our other publicly filed reports, including our 2022 Form 10-K.

Risk Factors in this Form 10-Q, and in our other publicly filed reports, including our 2022 Form 10-K and our First Quarter Form 10-Q.

These factors and risks include the following:

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and potential reductions in the number of directors that we can have appointed to the ABI board of directors;

▪ the risks related to the FTC’s challenge with respect to our former investment in JUUL, which, if successful, could result in a broad range of resolutions, as well as the outcome of certain other related putative class actions;

▪ the risks associated with our investment in Cronos, including legal, regulatory and reputational risks and the risk that the expected benefits of the transaction may not materialize in the expected timeframe or at all.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis