What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-08-01 · 296 added, 241 removed, 872 unchanged (38% of the section changed)

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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.

(“NJOY Holdings”) for a total consideration of approximately $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.

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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.

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

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

Trends and Developments

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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 focus in this Trends and Developments section on the continued elevated rate of inflation, supply chain disruptions, ongoing geopolitical events, recent regulatory actions and illicit e-vapor products and their effects or 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, inflation remains above the Federal Reserve’s target of 2%, driven by increased global energy, commodity and food prices.

While inflation reports during 2023 from the U.S.

Bureau of Labor Statistics have shown a decline in the 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.

During the third quarter of 2023, cigarette retail share for the industry discount segment was up year-over-year but was unchanged from the first half 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 inflationary pressures to continue to impact adult tobacco consumers’ purchase behaviors for the remainder of the year.

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

In the e-vapor category, illegal flavored disposable product usage has continued to increase through 2023 and currently comprises a significant portion of the e-vapor category.

One of the impacts of this trend has been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines.

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.

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Tobacco companies are subject to broad and evolving regulatory and legislative frameworks that could have a material impact on our business.

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 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.

For example, the FDA has submitted for final review 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 continue to observe indications of negative unintended consequences of the ban, such as adult tobacco consumer adoption of 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.

We expect adverse macroeconomic and geopolitical landscapes, which have impacted global businesses, including ABI, to continue in 2023.

ABI’s business has continued to be impacted by foreign exchange rate fluctuations, inflation and commodity cost headwinds.

Adverse macroeconomic and geopolitical landscapes have continued in 2023, which have impacted global businesses, including ABI.

In particular, ABI’s business has been impacted by foreign exchange rate fluctuations, inflation and commodity cost headwinds.

Additionally, the macroeconomic and geopolitical factors have contributed to significant changes in certain foreign exchange rates, including the Euro to U.S.

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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.

Additionally, we do not believe that these trends and developments have impacted our ability to achieve our Vision.

The trends and developments discussed above have not had a material adverse impact on our condensed consolidated financial statements, but we continue to monitor these trends and developments and potential financial impacts.

Additionally, we do not believe that these trends and developments have materially impacted our ability to achieve our Vision.

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 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:

Consolidated Results of Operations for the Nine Months Ended September 30, 2023

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

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

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

$ 3,074 $ 1.69

2022 NPM Adjustment Items

2022 Acquisition and disposition-related items

2022 Acquisition, disposition and integration-related items

2022 Tobacco and health and certain other litigation items

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Subtotal 2022 special items

2023 Acquisition and disposition-related items

2023 NPM Adjustment Items

2023 Acquisition, disposition and integration-related items

2023 Tobacco and health and certain other litigation items

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2023 Cronos-related special items

2023 Income tax items

Subtotal 2023 special items

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Operations 89 0.05

For the six months ended June 30, 2023

For the nine months ended September 30, 2023

$ 6,070 $ 3.40

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▪ Operations:

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.

The increase of $89 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 investments in equity securities, net;

• lower interest and other debt expense, net;

partially offset by:

• lower net periodic benefit income;

• higher amortization of intangible assets (due primarily to the NJOY Transaction).

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:

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

The changes in net earnings and diluted EPS for the three months ended September 30, 2023, from the three months ended September 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

For the three months ended September 30, 2022

2022 Acquisition, disposition and integration-related items

2022 Tobacco and health and certain other litigation items

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Subtotal 2022 special items

2023 Acquisition and disposition-related items

2023 NPM Adjustment Items

2023 Acquisition, disposition and integration-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

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Operations (39) (0.02)

For the three months ended June 30, 2023

For the three months ended September 30, 2023

$ 2,166 $ 1.22

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▪ 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.

The decrease of $39 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.

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 $4.89 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.

We narrow our 2023 full-year adjusted diluted EPS forecast to be in a range of $4.91 to $4.98, representing a growth rate of 1.5% to 3% 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 .

commercialization of NJOY ACE (“ACE”) .

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

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Cronos-related special items 0.02

Income tax items 0.02

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

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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”).

These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items (including any changes in fair value of our equity investment recorded at fair value), 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.

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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.

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.

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.

Discussion and Analysis

Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”);

there have been no material changes to these critical accounting estimates, except as noted below.

Critical Accounting Estimates

Depreciation, Amortization, Impairment Testing and Asset Valuation

We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment and more frequently if an event occurs or circumstances change that would require an interim review.

When performing a quantitative assessment of our reporting units and indefinite-lived intangible assets, we use an income approach to estimate fair values.

The income approach reflects the discounting of expected future cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing expected future cash flows.

This calculation may be affected by several factors, including general macroeconomic conditions, U.S.

risk-free interest rates, changes in category growth rates (for example, as a result of changing adult tobacco consumer preferences) and competitive activity.

At December 31, 2022, the estimated fair value of our Skoal trademark exceeded its carrying value of $3.9 billion by approximately 12% ($0.5 billion).

MST products, including Skoal , have continued to be negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories.

The accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories in the current year have continued to contribute to reductions in sales volumes for MST products, including Skoal .

We believe if there is further acceleration in the decline in sales volume for Skoal that results in material revenue declines or if there are changes in general macroeconomic condit ions, such as U.S.

interest rates continuing to rise , there may be a material adverse effect on the significant assumptions used in performing our valuation, including volume, revenue, income, operating margins, perpetual growth rate and discount rate.

These adverse effects, including if Skoal ’s actual revenue and income or long-term outlook are significantly different from forecasted performance or if the discount rate used to estimate the fair value increases, could result in a material non-cash impairment of our Skoal trademark in future periods, which could have a material adverse effect on our consolidated financial statements.

Although the above referenced conditions indicate there has been a shift in adult consumer preferences, specifically related to MST products and oral nicotine pouches, considering the approximately 12% headroom as of December 31, 2022 and the current year operating results for Skoal , these conditions did not indicate an impairment was more likely than not as of September 30, 2023.

Consolidated Operating Results

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

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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 six months ended June 30:

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

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

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

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$ 8,193 $ 2,123 $ 6,070 $ 3.40

Acquisition and disposition-related items 1 — 1 —

NPM Adjustment Items (15) (4) (11) —

Acquisition, disposition and integration-related items 14 4 10 —

Tobacco and health and certain other litigation items

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Cronos-related special items 30 — 30 0.02

Income tax items — (29) 29 0.02

2023 Adjusted for Special Items

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NPM Adjustment Items (60) (15) (45) (0.02)

Acquisition and disposition-related items 9 2 7 —

Acquisition, disposition and integration-related items 10 2 8 —

Tobacco and health and certain other litigation items 101 25 76 0.04

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$ 8,831 $ 2,202 $ 6,629 $ 3.66

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

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

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

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$ 2,908 $ 742 $ 2,166 $ 1.22

Acquisition and disposition-related items 18 5 13 —

NPM Adjustment Items (15) (4) (11) —

Acquisition, disposition and integration-related items 13 4 9 —

Tobacco and health and certain other litigation items

290 73 217 0.12

ABI-related special items 82 17 65 0.03

Cronos-related special items 4 — 4 —

Income tax items — (29) 29 0.02

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$ 407 $ 183 $ 224 $ 0.12

Acquisition and disposition-related items 2 — 2 —

Acquisition, disposition and integration-related items 1 — 1 —

Tobacco and health and certain other litigation items 43 11 32 0.02

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$ 3,063 $ 763 $ 2,300 $ 1.28

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

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

▪ NPM Adjustment Items:

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Contingencies to our condensed consolidated financial statements in Item 1 (“Note 13”) and NPM Adjustment Items in Note 10, respectively.

▪ Acquisition, Disposition and Integration-Related Items:

For a discussion of acquisition and integration-related costs and disposition-related interest income for the nine and three months ended September 30, 2023, see Note 2.

Acquisition of NJOY to our condensed consolidated financial statements in Item 1 (“Note 2”) and Note 4.

G oodwill and Other Intangible Assets, net , to our condensed consolidated financial statements in Item 1, respectively.

▪ Tobacco and Health and Certain Other Litigation 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 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 a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the nine months ended September 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 $1,355 million and $100 million for the nine and three months ended September 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.

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▪ ABI-Related Special Items:

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.

We recorded net pre-tax losses of $54 million and $82 million from our equity investment in ABI for the nine and three months ended September 30, 2023, respectively, consisting primarily of mark-to-market losses on certain ABI financial instruments associated with its share commitments.

We recorded net pre-tax losses of $2,560 million and $2,507 million from our equity investment in ABI for the nine and three months ended September 30, 2022, respectively, substantially all of which related to our non-cash impairment of our equity investment in ABI.

For further discussion, see Note 5.

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.

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

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

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Total Cronos-related special items - (income) expense $ 30 $ 180 $ — $ 5

(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.

(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 our $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.

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

▪ Income Tax Items:

We recorded income tax items of $29 million, for the nine and three months ended September 30, 2023, due primarily to tax expense associated with a tax basis adjustment related to our investment in ABI.

We recorded income tax items of $33 million and $42 million for the nine and three months ended September 30, 2022, respectively, due primarily to tax benefits associated with the release of a valuation allowance related to our prior Cronos warrant, partially offset by tax expense for tax reserves related to the disallowance of certain state tax credits.

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $477 million (2.5%), 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.

Cost of sales decreased $176 million (3.6%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges, lower NPM Adjustment Items and higher manufacturing costs in our smokeable products segment.

Excise taxes on products decreased $350 million (10.4%), due to lower shipment volume in our smokeable products segment.

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.

Marketing, administration and research costs increased $399 million (24.4%), 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, and higher amortization of intangible assets due primarily to the NJOY Transaction.

Operating income decreased $350 million (3.8%), due primarily to higher general corporate expenses and higher amortization of intangible assets, partially offset by higher operating results in our oral tobacco products segment.

Interest and other debt expense, net decreased $74 million (8.9%), 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.

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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.

Benefit Plans to our condensed consolidated financial statements in Item 1.

(Income) losses from investments in equity securities, which were favorable $3,812 million (100%+), were positively impacted by favorable results from our equity investment in ABI (due primarily to our non-cash impairment of our investment in ABI in 2022), lower charges related to our former investment in JUUL equity securities and lower losses from our Cronos-related special items.

Provision for income taxes increased $512 million (31.8%), due primarily to lower pre-tax earnings in 2022 associated with our non-cash impairment of our investment in ABI.

Reported net earnings of $6,070 million increased $2,996 million (97.5%), 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, unfavorable income tax items and lower net periodic benefit income.

Reported basic and diluted EPS of $3.40, each increased by 100%+ 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 net earnings of $6,739 million increased $110 million (1.7%), due primarily to higher OCI, higher income from our investments in equity securities and lower interest and other debt expense, net, partially offset by lower net periodic benefit income and higher amortization.

Adjusted diluted EPS of $3.78 increased by 3.3%, due to higher adjusted net earnings and fewer shares outstanding.

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

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

Net revenues, which include excise taxes billed to customers, decreased $269 million (4.1%), 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.

Cost of sales decreased $137 million (8.0%), due primarily to lower shipment volume in our smokeable products segment.

Excise taxes on products decreased $134 million (11.8%), 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.

Marketing, administration and research costs increased $25 million (4.3%), due primarily to higher amortization from the NJOY Transaction.

Operating income decreased $23 million (0.7%), due primarily to lower operating results in our smokeable products segment, partially offset by higher operating results in our oral tobacco products segment.

(Income) losses from investments in equity securities, which were favorable $2,536 million (100%+), were positively impacted by favorable special items from our investment in ABI (due primarily to our non-cash impairment of our investment in ABI in 2022) and 2022 charges related to our former investment in JUUL equity securities.

Provision for income taxes increased $599 million (100%+), due primarily to lower pre-tax earnings in 2022 associated with our non-cash impairment of our investment in ABI and the release of a valuation allowance related to our prior Cronos warrant.

Reported net earnings of $2,166 million increased $1,942 million (100%+), due primarily to favorable special items from our investments in equity securities, partially offset by unfavorable income tax items.

Reported basic and diluted EPS of $1.22, 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.

Adjusted net earnings of $2,275 million decreased $25 million (1.1%), due primarily to lower OCI.

Adjusted diluted EPS of $1.28 was unchanged, due to lower adjusted net earnings offset by 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”), 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:

Risk Factors of our 2022 Form 10-K and in Part II, Item 1A.

Risk Factors of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2023 (“First Quarter Form 10-Q”) and June 30, 2023 (“Second Quarter Form 10-Q”), include:

▪ pending and threatened litigation and bonding requirements;

▪ restrictions and requirements imposed by the FSPTCA, and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the FDA;

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

▪ the FDA’s failure to effectively address illegal e-vapor products on the market;

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

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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, 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;

▪ illicit trade in tobacco products;

▪ illicit trade in tobacco products, including illegal e-vapor products;

▪ potential adverse changes in prices, availability and quality of tobacco, other raw materials and component parts, including as a result of changes in macroeconomic and geopolitical conditions.

In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences continue to impact the tobacco industry.

In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences continue to impact the tobacco industry, including negatively impacting cigarette and MST shipment volumes.

We believe that a significant number of adult tobacco consumers switch among tobacco categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products and oral nicotine pouches.

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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 and acquisitions).

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.

For the third quarter of 2023, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 8% versus the third quarter of 2022.

While macroeconomic conditions

continued to impact cigarette industry volume through the third quarter of 2023, we believe that there is more cross-category movement than previously estimated.

We estimate that the growth of illegal flavored disposable e-vapor products, which we discuss in more detail below, contributed to cigarette industry volume declines in a range of 1.5% to 2.5% over the last 12 months.

By design, these illegal flavored disposable e-vapor products are largely distributed through non-traditional, untracked retail channels, and this is a trend we will continue to carefully monitor.

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

Compared to the third quarter of 2022, total discount share increased by 1.1 share points in the third quarter of 2023.

Marlboro share was 42.3% in the third quarter of 2023, reflecting an increase of 0.3 share points as compared to the second quarter of 2023 and down 0.3 share points when compared to the third quarter of 2022.

We expect cigarette industry volume trends for the remainder of 2023 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, including to illegal e-vapor products, and (iv) regulatory and legislative (including excise tax) developments.

nicotine pouch category continued to grow significantly throughout the third quarter of 2023 to 32.3% of the U.S.

oral tobacco category, an increase of 9.8 share points versus the third quarter of 2022.

maintained year over year share momentum during the third quarter of 2023 to achieve 6.9% of the total oral tobacco category, an increase of 1.7 share points when compared to the third quarter of 2022.

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.

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.

For the third quarter 2023, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 67.7%, down 9.8 share points versus the third quarter of 2022.

Copenhagen achieved an oral tobacco category share of 23.1% for the third quarter of 2023, a decrease of 3.7 share points when compared to the third quarter of 2022.

For the third quarter of 2023, reported shipment volume of NJOY ACE was approximately 7.5 million pods.

NJOY ACE distribution grew to approximately 42,000 stores, and NJOY ACE is now distributed in the top 25 convenience store chains by e-vapor volume.

Discretionary income pressures persisted as the cumulative effect of inflation impacted adult tobacco consumers throughout the third quarter of 2023.

For the 12 months ended September 30, 2023, the Consumer Price Index (“CPI”) increased 3.7%.

For the month of September 2023, gas prices were $3.84 per gallon, an increase of $0.50 versus January 2023 and an increase of $0.14 versus September 2022.

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

We continue to monitor changing conditions within the tobacco business environment and impacts on our business.

For example, we monitor changes in macroeconomic conditions that increase discretionary income pressures on adult tobacco consumers, which impact domestic cigarette industry volume decline and discount share growth and reduce purchases at retail.

We are also monitoring growth of illegal flavored disposable e-vapor products and the related impact on domestic cigarette industry volume decline.

In addition, the growth of the nicotine pouch category has reduced the size of the MST category and could impact the carrying value of our assets such as our tobacco product trademarks.

Changes in these and other conditions could have a material adverse effect on our business, results of operations, cash flows or financial position.

FSPTCA and FDA Regulation

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In connection with a 2016 lawsuit initiated by Middleton, the U.S.

Department of Justice, on behalf of the FDA, informed Middleton that the FDA does not intend to bring an enforcement action against Middleton for the use of the term “mild” in the trademark “Black & Mild.” Consequently, Middleton dismissed its lawsuit without prejudice.

Department of Justice, on behalf of the FDA, informed Middleton that the FDA does not intend to bring an enforcement action against Middleton for the use of the

term “mild” in the trademark “Black & Mild.” Consequently, Middleton dismissed its lawsuit without prejudice.

If the FDA were to change its position at some later date, Middleton would have the opportunity to bring another lawsuit.

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In December 2022, the Reagan-Udall Foundation published a report on its operational evaluation of the FDA’s Center for Tobacco Products.

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 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

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

To date, the FDA’s lack of

(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.

enforcement actions against certain product categories that violate the law, including disposable and flavored e-vapor products and products targeted to minors, have allowed such products to proliferate on the market.

In February 2023, the FDA committed to developing a five-year strategic plan by December 2023 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:

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

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

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

▪ Pre-existing Tobacco Products are exempt from the pre-market authorization requirement;

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Thereafter, unless the FDA granted the product a marketing order, the product is unlawful and subject to possible FDA enforcement.

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, either of which could result in a product being removed from the market.

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 or contract manufacturer being unable to maintain the consistency required in ingredients or manufacturing processes, could trigger the FDA’s pre-market review processes.

Additionally, a manufacturer may be unable to maintain consistency in manufacturing processes as it increases the scale of its manufacturing operations in response to market expansion or product introduction.

These circumstances could cause a manufacturer to receive (i) a “not substantially equivalent” determination or (ii) a denial or withdrawal 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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Cigarette and smokeless tobacco products introduced into the market or modified after March 22, 2011 are “Non-Provisional Products” and must receive a marketing order from the FDA prior to being offered for sale.

Marketing orders for Non-Provisional Products may be obtained by filing an SE report, PMTA or using another pre-market pathway established by the FDA.

Marketing orders for Non-

Provisional Products may be obtained by filing an SE report, PMTA or using another pre-market pathway established by the FDA.

PM USA and USSTC may not be able to obtain a marketing order for non-provisional products because the FDA may determine that any such product does not meet the statutory requirements for approval.

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These products can remain on the market during FDA review through court-allowed, case-by-case discretion, so long as the report or application was timely filed with the FDA.

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.

In September 2022, the FDA represented that it had resolved more than 99% of the timely applications it had received, the vast majority of which were for e-vapor products and resulted in denials.

A number of the denials are subject to 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 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.

As of October 23, 2023, the FDA has not issued marketing order decisions for any on!

In addition, as of October 23, 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.

In December 2020, the FDA authorized the PMTA for IQOS 3, an updated version of the IQOS devices, and in March 2022 authorized the marketing of the IQOS 3 device as an MRTP with the same reduced exposure claim.

In January 2023, the FDA authorized PMTAs for three new tobacco-flavored varieties of Marlboro HeatSticks .

In September 2021, in connection with a patent dispute, the U.S.

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For a further discussion of the ITC decision, see Note 13.

We have agreed to assign the exclusive U.S.

In October 2022, we agreed to assign the exclusive U.S.

commercialization rights to the IQOS System to Philip Morris International Inc.

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The authorized claim for Copenhagen Classic Snuff is “IF YOU SMOKE, CONSIDER THIS:

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.

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 described below.

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.

In March 2020, NJOY submitted PMTAs to the FDA with respect to two NJOY ACE Menthol products, both of which remain pending.

Post-Market Surveillance :

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In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising.

The final rule was set to become effective on October 6, 2023.

However, PM USA and other cigarette manufacturers filed lawsuits challenging the final rule on substantive and procedural grounds.

and other cigarette manufacturers filed lawsuits challenging the final rule on substantive and procedural grounds.

In December 2022, the U.S.

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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.

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

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

However, the FDA’s lack of enforcement actions against product categories that violate the law, including disposable and flavored e-vapor products and products targeted to minors, have allowed such products to proliferate on the market.

▪ Electronic Nicotine Delivery System Products :

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.

As of October 23, 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.

A number of these manufacturers are appealing the MDOs for their products.

A number of these manufacturers are challenging the MDOs for their products.

▪ Potential Product Standards

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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.

The FDA has not completed rulemaking with respect to either proposed product standard, but in October 2023 submitted the two proposed product standards to the White House Office of Management and Budget for review.

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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▪ 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, which closes on September 6, 2023.

We engaged with the FDA through the rulemaking process, including during the notice-and-comment period, which closed in October 2023.

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

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▪ impact the consumer acceptability of tobacco products;

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

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

▪ limit adult tobacco consumer choices;

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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 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.

Between the end of 1998 and October 23, 2023, the weighted-average state cigarette excise tax increased from $0.36 to $1.90 per pack.

As of October 23, 2023, one state, New York, has enacted new legislation increasing excise taxes in 2023.

The increase in New York became effective in September 2023.

Various other increases are under consideration or have been proposed.

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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 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.

As of October 23, 2023, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have

adopted a weight-based tax methodology for MST.

North Carolina has passed legislation that will cause the state to adopt a weight-based tax methodology for MST in July 2025.

An increasing number of states and localities also are imposing excise taxes on e-vapor products and oral nicotine pouches.

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.

As of October 23, 2023, 33 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 July 27, 2023, 181 countries, as well as the European Union, have become parties to the FCTC.

As of October 23, 2023, 182 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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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 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.

As of October 23, 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.

Massachusetts passed legislation capping the amount of nicotine in e-vapor products.

Similar legislation is pending in four other states.

Similar legislation is pending in one other state.

Similar restrictions to those enacted or proposed in various U.S.

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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 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.

As of October 23, 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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Such legislation may be subject to constitutional or other challenges on various grounds, which may or may not be successful.

In addition, if a pandemic or similar health emergency occurs, state and local governments may reimpose additional health and safety requirements for all businesses, which could result in the potential temporary closure of certain businesses and facilities.

temporary closure of certain businesses and facilities.

It is possible that tobacco manufacturing and other facilities and the facilities of our suppliers, our suppliers’ suppliers and our trade partners could be subject to additional government-mandated temporary closures and restrictions.

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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);

Federal Trade Commission (“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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the sale of untaxed tobacco products over the Internet and by other means designed to avoid the collection of applicable taxes;

the sale of unregulated products;

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

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

Illegal disposable e-vapor products may be designed to appeal to youth and are manufactured without scientific standards, exposing consumers to undocumented risks.

Illicit trade in tobacco products also harms law-abiding wholesalers and retailers by depriving them of lawful sales and undermines the significant investment we have made in legitimate distribution channels.

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We communicate with wholesale and retail trade members regarding illicit trade in tobacco products and how we can help prevent such activities, enforce wholesale and retail trade programs and policies that address illicit trade in tobacco products and, when necessary, litigate to protect our trademarks.

We also engage with the FDA and other government agencies to advocate for a well-regulated U.S.

tobacco industry that embraces harm reduction and the enforcement of existing regulatory frameworks.

When appropriate, we also take legal action to protect our lawful e-vapor product business, such as the lawsuit we filed in federal court in California against manufacturers of illegal e-vapor products in October 2023.

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

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In addition, as consumer demand increases for smoke-free products and decreases for combustible products, the volume of tobacco leaf required for production may decrease, resulting in reduced demand.

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 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, and increased costs.

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 have a material adverse effect on our business and profitability.

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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

For the Nine Months Ended September 30, 2023

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

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Reported OCI $ 8,092 $ 1,314 $ (17) $ 9,389

NPM Adjustment Items (15) — — (15)

Tobacco and health and certain other litigation items 65 — — 65

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Operating Results

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 Change 2023 2022 Change

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

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

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Net revenues, which include excise taxes billed to customers, decreased $538 million (3.2%), due primarily to lower shipment volume ($1,921 million), partially offset by higher pricing ($1,380 million), which includes higher promotional investments.

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

Reported OCI decreased $20 million (0.2%), due primarily to lower shipment volume ($1,186 million), higher per unit settlement charges, higher costs ($62 million) and lower NPM Adjustment Items ($45 million), partially offset by higher pricing, which includes higher promotional investments.

Adjusted OCI increased $19 million (0.2%), due primarily to higher pricing, which includes higher promotional investments, partially offset by lower shipment volume, higher per unit settlement charges and higher costs.

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

Net revenues, which include excise taxes billed to customers, decreased $310 million (5.3%), due primarily to lower shipment volume ($725 million), partially offset by higher pricing ($420 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.

Reported OCI decreased $48 million (1.7%), due primarily to lower shipment volume ($445 million) and higher costs ($39 million), partially offset by higher pricing, which includes higher promotional investments, and NPM Adjustment Items in 2023 ($15 million).

Adjusted OCI decreased $71 million (2.5%), due primarily to lower shipment volume and higher costs, partially offset by higher pricing, which includes higher promotional investments.

Shipment Volume and Retail Share Results

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Shipment Volume

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(sticks in millions) 2023 2022 Change 2023 2022 Change

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The following table summarizes our cigarettes retail share performance:

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

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

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.

Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022

Our smokeable products segment’s reported and adjusted domestic cigarettes shipment volume decreased 10.5%, driven primarily by the industry’s decline rate (impacted by macroeconomic pressures on adult tobacco consumers’ disposable income and the growth of illicit e-vapor products) and retail share losses.

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

Shipments of premium cigarettes accounted for 94.6% and 93.5% of our smokeable products segment’s reported domestic cigarettes shipment volume for the nine months ended September 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.

Total cigarettes industry discount segment retail share increased 1.6 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.

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

Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 11.6%, driven primarily by the industry’s decline rate (impacted by macroeconomic pressures on adult tobacco consumers’ disposable income and the growth of illicit e-vapor products), retail share losses, calendar differences and trade inventory movements.

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

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 95.0% and 93.8% of our smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended September 30, 2023 and 2022, respectively.

Marlboro ’s retail share of the total cigarette category decreased 0.3 share points to 42.3%, 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.

Marlboro’s retail share increased 0.3 share points from the second quarter of 2023.

Additionally, Marlboro ’s share of the premium segment grew to 58.9%, an increase of 0.4 share points versus the prior year and 0.3 share points sequentially.

Total cigarettes industry discount segment retail share increased 1.1 share points to 28.2%, primarily due to increased macroeconomic pressures on adult tobacco consumers’ disposable income and increased competitive activity.

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

Total cigarettes industry discount segment retail share was unchanged from the first and second 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 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.

▪ 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.

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

▪ Effective October 15, 2023, PM USA increased the list price of Marlboro , L&M and Basic by $0.17 per pack.

PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.

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Operating Results

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 Change 2023 2022 Change

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

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

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Net revenues, which include excise taxes billed to customers, increased $45 million (2.3%), due primarily to higher pricing ($132 million), which includes higher promotional investments, partially offset by lower shipment volume and a higher percentage of on!

shipment volume relative to MST (“volume/mix”) versus 2022 ($86 million).

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).

Reported and adjusted OCI increased $52 million (4.1%), due primarily to higher pricing, which includes higher promotional investments, and lower costs ($12 million) , partially offset by lower volume/mix ($93 million).

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

Net revenues, which include excise taxes billed to customers, increased $15 million (2.2%), due primarily to higher pricing ($53 million), which includes lower promotional investments, partially offset by lower volume/mix ($36 million) .

Reported and adjusted OCI increased $30 million (7.1%), due primarily to higher pricing, which includes lower promotional investments, and lower costs ($15 million) , partially offset by lower volume/mix ($37 million).

Shipment Volume and Retail Share Results

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Shipment Volume

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

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

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

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

For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

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

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.

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Our oral tobacco products segment’s reported domestic shipment volume decreased 2.3%, driven primarily by retail share losses in MST, partially offset by the industry’s growth rate, calendar differences, trade inventory movements and other factors.

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 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.

Total oral tobacco products category industry volume increased by an estimated 5% for the six months ended September 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 43.7%, as share declines for MST products were primarily driven by the category share growth of oral nicotine pouches.

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

Our oral tobacco products segment’s reported domestic shipment volume decreased 3.3%, driven primarily by retail share losses in MST and calendar differences, partially offset by the industry’s growth rate and other factors.

When adjusted for calendar differences, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 2%.

Our oral tobacco products segment’s retail share was 42.1%, as share declines for MST products were primarily driven by the category share growth of oral nicotine pouches.

nicotine pouch category grew to 32.3% of the U.S.

oral tobacco category, an increase of 8.4 share points.

oral tobacco category, an increase of 9.8 share points versus the prior year.

In addition, on!

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

’s share of the nicotine pouch category was 21.4%.

Pricing Actions

USSTC executed the following pricing actions during 2023 and 2022:

• Effective August 22, 2023, USSTC increased the list price on its Copenhagen, Red Seal and Skoal brands by $0.09 per can.

In addition, USSTC decreased the list price on select Husky brands by $0.18 per can.

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

brand by $0.09 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.

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

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

brand by $0.09 per can.

Our NJOY e-vapor business is reported in our all other category.

Reported domestic shipment volume (1) of ACE for the three months ended September 30, 2023 was approximately 7.5 million pods.

The retail share of ACE pods in U.S.

multi-outlet and convenience stores was essentially unchanged since the completion of the NJOY Transaction.

We continue to expect ACE distribution to reach a total of 70,000 stores by the end of 2023, representing approximately 70% of e-vapor volume and 55% of cigarette volume sold in the U.S.

multi-outlet and convenience channel.

(1) E-vapor shipment volume and retail share includes NJOY ACE.

Shipment volume includes pods.

Retail share results are based on data from Circana, a tracking service that uses a sample of stores to project market share and depict share trends.

Liquidity and Capital Resources

We are a holding company that is primarily dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements.

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 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.

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

At September 30, 2023, our significant 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 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.

At September 30, 2023, we had $1.5 billion of cash and cash equivalents.

In addition to having access to the operating cash flows of our 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 (“New Credit Agreement”), which we use for general corporate purposes, and access to credit markets through the issuance of long-term senior unsecured notes.

For additional information, see Capital Markets and Other Matters below.

In addition to funding current operations, we primarily use our net cash from operating activities for payment of dividends, share repurchases under our share repurchase programs, repayment of debt, acquisitions of or investments in businesses and assets, and capital expenditures.

We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under the Credit Agreement and access to credit and capital markets, provide sufficient liquidity to meet the needs of our business operations and to satisfy our projected cash requirements for the next 12 months and the foreseeable future.

We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under the New Credit Agreement and access to credit and capital markets, provide sufficient liquidity to meet the needs of our business operations and to satisfy our projected cash requirements for the next 12 months and the foreseeable future.

Capital Markets and Other Matters

Credit Ratings - Our cost and terms of financing and our access to commercial paper markets may be impacted by applicable credit ratings.

The impact of credit ratings on the cost of borrowings under the Credit Agreement is discussed in Note 11.

The impact of credit ratings on the cost of borrowings under our New Credit Agreement is discussed in Note 11.

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

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

At September 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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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.

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.

Credit Agreement - At September 30, 2023, we had availability under our prior 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 prior credit agreement.

On October 24, 2023, we terminated our prior credit agreement and entered into our New Credit Agreement.

The terms of our New

Credit Agreement are substantially similar to those of our prior credit agreement.

We expect to continue to meet the covenants in our New 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.

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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.

Long-Term Debt - At September 30, 2023 and December 31, 2022, our total long-term debt was $25.1 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.

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 September 30, 2023 from approximately 4.0% at December 31, 2022.

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

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

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

For the Twelve Months Ended September 30, 2023 (1)

(in millions)

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Depreciation and amortization 257

EBITDA 12,138

(Income) loss from investments in equity securities and noncontrolling interests, net (171)

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Consolidated EBITDA $ 12,131

Short-term borrowings (1)

Current portion of long-term debt (2)

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Total Debt / Consolidated EBITDA 2.1

(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.

(1) Calculated as of the end of the applicable quarter on a rolling four quarters basis.

(2) Balance at September 30, 2023.

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

In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 11, PM USA has issued guarantees relating to our obligations under our outstanding debt securities, borrowings under the Credit Agreement and amounts outstanding under the commercial paper program.

In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 11, PM USA has issued guarantees relating to our obligations under our outstanding debt securities, any borrowings under our New Credit Agreement and amounts outstanding under our commercial paper program.

These items have not had, and are not expected to have, a significant impact on our liquidity.

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The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year are generally paid in April of the following year.

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

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.

As previously stated, the payments due under the terms of the State Settlement Agreements and FDA user fees are subject to adjustment for several factors, including volume, operating income, inflation and certain contingent events and, in general, are allocated based

on each manufacturer’s market share.

The 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 $3.5 billion and $3.8 billion for the nine months ended September 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 $3.0 billion and $3.2 billion of charges to cost of sales for the nine months ended September 30, 2023 and 2022, respectively, and $1.0 billion and $1.1 billion of charges to cost of sales for the three months ended September 30, 2023 and 2022, respectively, in connection with the State Settlement Agreements and FDA user fees.

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 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-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of September 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 - 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.

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), through a combination of a $2.0 billion term loan facility (which we repaid in full in July 2023), 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.

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Equity and Dividends

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.

During the first nine months of 2023 and 2022, we paid dividends of $5,040 million and $4,908 million, respectively, an increase of 2.7%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase programs.

In August 2023, our Board of Directors (“Board of Directors” or “Board”) declared a 4.3% increase in the quarterly dividend rate to $0.98 per share of our common stock versus the previous rate of $0.94 per share.

Our current annualized dividend rate is $3.92 per share.

In March 2023, we established a new progressive dividend goal that targets mid-single digits dividend growth annually.

Future dividend payments remain subject to the discretion of our Board of Directors (“Board of Directors” or “Board”).

Future dividend payments remain subject to the discretion of our Board.

For a discussion of our share repurchase programs, see Note 1.

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Cash Provided by/Used in Operating Activities

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.

During the first nine months of 2023, net cash provided by operating activities was $6,060 million compared with $5,637 million during the first nine months of 2022.

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

We had a working capital deficit at September 30, 2023 and December 31, 2022, and believe we have the ability to fund working capital deficits with cash provided by operating activities, borrowings under our New Credit Agreement and access to the credit and capital markets.

Cash Provided by/Used in Investing Activities

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.

During the first nine months of 2023, net cash used in investing activities was $1,217 million compared with $215 million during the first nine months of 2022.

This increase was due primarily to the NJOY Transaction, partially offset by proceeds from the sale of IQOS System commercialization rights.

Cash Provided by/Used in Financing Activities

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:

▪ 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.

During the first nine months of 2023, net cash used in financing activities was $7,353 million compared with $7,476 million during the first nine months of 2022.

This decrease was due primarily to lower share repurchases, partially offset by higher repayments of long-term debt and higher dividends paid on our common stock.

New Accounting Guidance Not Yet Adopted

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PM USA (the “Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc.

(the “Parent”), has guaranteed the Parent’s obligations under its outstanding debt securities, borrowings under its Credit Agreement and amounts outstanding under its commercial paper program (the “Guarantees”).

(the “Parent”), has guaranteed the Parent’s obligations under its outstanding debt securities, borrowings under its New Credit Agreement and amounts outstanding under its commercial paper program (the “Guarantees”).

Pursuant to the Guarantees, the Guarantor fully and unconditionally guarantees, as primary obligor, the payment and performance of the Parent’s obligations under the guaranteed debt instruments (the “Obligations”), subject to release under certain customary circumstances as noted below.

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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

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

September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Due from Non-Guarantor Subsidiaries

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(in millions of dollars)

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

Guarantor (2)

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Net earnings (losses) (11,300) 5,743

(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.

(1) For the nine months ended September 30, 2023, net earnings (losses) include an approximate $10.8 billion loss related to the cancellation of certain interests in a non-guarantor subsidiary, $217 million of intercompany interest income from non-guarantor subsidiaries and $271 million of interest expense from non-guarantor subsidiaries.

(2) For the nine months ended September 30, 2023, net earnings (losses) include $172 million of intercompany interest income from non-guarantor subsidiaries.

Cautionary Factors That May Affect Future Results

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You should bear this in mind as you consider our forward-looking statements and whether to invest in or remain invested in our securities.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes, including with respect to our ability to achieve our Vision, to differ materially from those contained in, or implied by, any forward-looking statements we made.

Any such statement is qualified by reference to the following cautionary statements.

We elaborate on these important factors and the risks we face throughout this Form 10-Q, particularly in 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 and our First Quarter Form 10-Q.

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

These factors and risks include the following:

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▪ our inability to compete effectively;

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

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

▪ our failure to commercialize innovative products, including tobacco products that may reduce health risks relative to other tobacco products and appeal to adult tobacco consumers;

▪ changes, including in macroeconomic and geopolitical conditions (including inflation), that result in shifts in adult tobacco consumer disposable income and purchasing behavior, including choosing lower-priced and discount brands or products;

▪ unfavorable outcomes with respect to litigation proceedings or any governmental investigations;

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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