What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 320 added, 478 removed, 690 unchanged (54% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

When used in this Quarterly Report on Form 10-Q (“Form 10-Q”), the terms “ Altria,” “we,” “us” and “our” refer to either (i) Altria Group, Inc.

The following discussion should be read in conjunction with the other sections in this Quarterly Report on Form 10-Q (“Form 10-Q”), including our condensed consolidated financial statements and related notes contained in Item 1.

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

When used in this Form 10-Q, the terms “ Altria,” “we,” “us” and “our” refer to either (i) Altria Group, Inc.

and its consolidated subsidiaries or (ii) Altria Group, Inc.

17 unchanged sentences

Our 2028 Goals are:

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

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

▪ Deliver a mid-single digits adjusted diluted EPS compounded annual growth rate in 2028 from our base in 2022;

▪ A progressive dividend goal targeting mid-single digits dividend per share growth annually through 2028;

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

1 unchanged sentence

tobacco space;

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

▪ Maintain a total adjusted OCI margin of at least 60% in each year through 2028 while investing behind innovative smoke-free products.

Smoke-Free Portfolio

1 unchanged sentence

▪ Approximately double our U.S.

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

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

Long-Term Growth

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

▪ Compete internationally in the top innovative oral tobacco markets and develop a pathway to participate in heated tobacco and e-vapor markets;

▪ Enter non-nicotine categories with broad commercial distribution of at least five products by 2028.

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

5 unchanged sentences

cigar manufacturer.

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

In smoke-free products, we own U.S.

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

1 unchanged sentence

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

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

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

marketing and commercialization of heated tobacco stick products (“HTS”).

As of this filing, there are no products in the U.S.

marketplace from the joint venture or exclusive rights agreement.

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

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

In exchange, we received a non-exclusive, irrevocable global license to certain of JUUL’s heated tobacco intellectual property.

Our investments in equity securities include Anheuser-Busch InBev SA/NV (“ABI”), the world’s largest brewer, and Cronos Group Inc.

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

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

(“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.

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

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

marketplace from the joint venture.

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.

Our investments in equity securities include Anheuser-Busch InBev SA/NV (“ABI”), the world’s largest brewer, and Cronos Group Inc.

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

In March 2024, we sold a portion of our ABI shares (“ABI Transaction”).

We used the proceeds from the sale to fund accelerated share repurchase (“ASR”) transactions for our common stock.

For further information on the ABI Transaction and the ASR transactions, see Note 5.

Investments in Equity Securities to our condensed consolidated financial statements in Item 1 (“Note 5”) and Note 1.

Background and Basis of Presentation to our condensed consolidated financial statements in Item 1 (“Note 1”), respectively.

Trends and Developments

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

In addition, we are aware of 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, 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.

In addition, we are aware of and address 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 cumulative effects of inflation, geopolitical events, recent regulatory actions, supply chain disruptions and illegal disposable 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 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 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.

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.

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

The annual rate of inflation remains above the Federal Reserve’s target of 2%, which is a key benchmark for the Federal Reserve in determining the timing and magnitude of changes to the Federal Funds Rate.

We continue to observe discretionary income pressures on adult tobacco consumers as a result of the cumulative effects of inflation and higher consumer debt levels.

During 2023 and the first quarter of 2024, cigarette retail share for the industry discount segment increased year-over-year and compared to the fourth quarter of 2023.

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

We expect discretionary income pressures to continue to influence adult tobacco consumers’ purchase behaviors in 2024.

Inflation also has a direct and adverse impact on our direct and indirect costs.

In the e-vapor category, illegal disposable product usage increased in 2023 and comprised over 50% of the e-vapor category.

We believe usage of these products continued to increase in the first quarter of 2024.

The primary impacts of this trend have been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines as well as declines in pod-based product volume within the e-vapor category.

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

1 unchanged sentence

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.

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.

dollar exchange rate, and in the global equity markets.

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

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

We expect volatility in domestic and global economies and disruptions in the supply and distribution chains to continue in 2024, resulting from several factors, including supply and demand imbalances across many commodity sectors, raw materials availability and geopolitical events.

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

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

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

See Note 5 for additional information on our investments in equity securities.

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.

1 unchanged sentence

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 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:

Consolidated Results of Operations for the Three Months Ended March 31, 2024

The changes in net earnings and diluted EPS for the three months ended March 31, 2024, from the three months ended March 31, 2023, were due primarily to the following:

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

For the nine months ended September 30, 2022

For the three months ended March 31, 2023

$ 1,787 $ 1.00

2022 NPM Adjustment Items

2022 Acquisition, disposition and integration-related items

2023 Acquisition and disposition-related items

2023 Tobacco and health and certain other litigation items

2022 JUUL changes in fair value

2023 Loss on disposition of JUUL equity securities

2023 ABI-related special items

3 unchanged sentences

2024 NPM Adjustment Items

2023 Acquisition, disposition and integration-related items

2024 Tobacco and health and certain other litigation items

2023 Loss on disposition of JUUL equity securities

2024 ABI-related special items

5 unchanged sentences

Operations (102) (0.05)

For the nine months ended September 30, 2023

$ 6,070 $ 3.40

2023 Reported Net Earnings

For the three months ended March 31, 2024

$ 2,129 $ 1.21

1 unchanged sentence

$ 2,129 $ 1.21

% Change 97.5 % 100%+

2023 Adjusted Net Earnings and Adjusted Diluted EPS

$ 6,739 $ 3.78

2022 Adjusted Net Earnings and Adjusted Diluted EPS

$ 6,629 $ 3.66

% Change 1.7 % 3.3 %

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

▪ Fewer Shares Outstanding:

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

▪ Operations:

The increase of $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 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 September 30, 2022

2022 Acquisition, disposition and integration-related items

2022 Tobacco and health and certain other litigation items

2022 JUUL changes in fair value

2022 ABI-related special items

2022 Cronos-related special items

2022 Income tax items

Subtotal 2022 special items

2023 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 Income tax items

Subtotal 2023 special items

Fewer shares outstanding — 0.01

Change in tax rate 14 0.01

Operations (39) (0.02)

For the three months ended September 30, 2023

$ 2,166 $ 1.22

2023 Reported Net Earnings

$ 1,787 $ 1.00

2022 Reported Net Earnings

% Change 19.1 % 21.0 %

10 unchanged sentences

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

2023 Forecasted Results

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 (“ACE”) .

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

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

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

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

Reconciliation of 2022 Reported Diluted EPS to 2022 Adjusted Diluted EPS

2022 Reported diluted EPS $ 3.19

NPM Adjustment Items (0.03)

Tobacco and health and certain other litigation items 0.05

JUUL changes in fair value 0.81

ABI-related special items 1.12

Cronos-related special items 0.10

Income tax items (0.40)

2022 Adjusted diluted EPS

The following (income) expense items are excluded from our 2023 forecasted adjusted diluted EPS growth rate:

(Income) Expense Excluded from 2023 Forecasted Adjusted Diluted EPS

Tobacco and health and certain other litigation items $ 0.18

Loss on disposition of JUUL equity securities 0.14

ABI-related special items 0.02

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.

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

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

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

Non-GAAP Financial Measures

1 unchanged sentence

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, 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”).

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, certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (“NPM Adjustment Items”).

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

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

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

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

1 unchanged sentence

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 capital and other 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.

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, 2023 (“2023 Form 10-K”);

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

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

Critical Accounting Estimates

3 unchanged sentences

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).

This calculation may be affected by several factors, including general macroeconomic conditions;

governmental actions, including FDA regulatory actions and inaction;

changes in category growth (decline) rates as a result of changing adult tobacco consumer preferences;

success of planned new product expansions;

competitive activity;

unfavorable outcomes with respect to litigation proceedings, including actions brought against us alleging patent infringement;

and income and excise taxes.

At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 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.

The accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories in 2023 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, there may be a material adverse effect on the significant assumptions used in performing our valuation, including volume, revenue, income, perpetual growth rate and discount rate.

A hypothetical 1% increase to the discount rate used in our quantitative assessment as of December 31, 2023, which was our most sensitive assumption, would have resulted in an impairment charge to the Skoal intangible asset of approximately $150 million during 2023.

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 6% headroom as of December 31, 2023 and the current quarter operating results for Skoal , these conditions did not indicate an impairment was more likely than not as of March 31, 2024.

However, if Skoal ’s actual revenue and income or long-term outlook are significantly different from forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have a material non-cash impairment of our Skoal trademark in future periods.

Consolidated Operating Results

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

For the Three Months Ended March 31,

(in millions) 2024 2023

18 unchanged sentences

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:

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

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

2 unchanged sentences

NPM Adjustment Items (6) (1) (5) —

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

Tobacco and health and certain other litigation items

424 106 318 0.18

Loss on disposition of JUUL equity securities 250 — 250 0.14

ABI-related special items (86) (19) (67) (0.04)

5 unchanged sentences

$ 2,479 $ 692 $ 1,787 $ 1.00

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

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

Acquisition and disposition-related items (17) (5) (12) —

Tobacco and health and certain other litigation items 111 27 84 0.04

JUUL changes in fair value 1,355 — 1,355 0.76

Loss on disposition of JUUL equity securities 250 — 250 0.14

ABI-related special items (25) (5) (20) (0.01)

3 unchanged sentences

$ 2,824 $ 706 $ 2,118 $ 1.18

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

2023 Reported

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

NPM Adjustment Items (15) (4) (11) —

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

Tobacco and health and certain other litigation items

ABI-related special items 82 17 65 0.03

Income tax items — (29) 29 0.02

2023 Adjusted for Special Items

$ 3,011 $ 736 $ 2,275 $ 1.28

2022 Reported

$ 407 $ 183 $ 224 $ 0.12

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

The following special items affected the comparability of statements of earnings amounts for the three months ended March 31, 2024 and 2023:

▪ Tobacco and Health and Certain Other Litigation Items:

JUUL changes in fair value 100 — 100 0.06

For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 13.

Contingencies to our condensed consolidated financial statements in Item 1 (“Note 13”) and Tobacco and Health and Certain Other Litigation Items in Note 10, respectively.

▪ Loss on Disposition of JUUL Equity Securities:

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

We recorded a corresponding adjustment to the JUUL tax valuation allowance.

▪ ABI-Related Special Items:

Cronos-related special items 5 — 5 —

We recorded net pre-tax income of $86 million from our equity investment in ABI for the three months ended March 31, 2024, which consists primarily of a gain related to the ABI Transaction.

For further information on the gain related to the ABI Transaction, see Note 5.

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

▪ Income Tax Items:

2022 Adjusted for Special Items

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

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:

For a discussion of NPM Adjustment Items and a breakdown of these items by segment, see Health Care Cost Recovery Litigation in Note 13.

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:

For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 13 and Tobacco and Health and Certain Other Litigation Items in Note 10, respectively.

▪ 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 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.

For further discussion, see Note 5 and Note 12.

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

▪ ABI-Related Special Items:

We recorded net pre-tax 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.

We recorded income tax items of $71 million, for the three months ended March 31, 2024, due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses.

The valuation allowance release was due to our capital gain on the ABI Transaction.

For further discussion, see Note 12.

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

▪ Cronos-Related Special Items:

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

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

(in millions) 2023 2022 2023 2022

Loss on Cronos-related financial instruments $ — $ 14 $ — $ —

(Income) losses from investments in equity securities (1)

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 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.

▪ 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 $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 $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.

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

Net periodic benefit income, excluding service cost, decreased by $42 million (30.7%), due to higher discount rates resulting in higher interest costs and lower estimated return on assets due to lower fair value of plan assets at December 31, 2022, partially offset by lower amortization of net unrecognized losses in 2023.

For additional information, see Note 7.

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

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

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

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Net revenues, which include excise taxes billed to customers, decreased $143 million (2.5%), due primarily to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the oral tobacco products segment and the all other category.

Cost of sales was essentially unchanged, as higher per unit settlement charges and higher manufacturing costs in our smokeable products segment were mostly offset by lower shipment volume in our smokeable products segment.

Excise taxes on products decreased $97 million (10.1%), due to lower shipment volume in our smokeable products segment.

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.

Marketing, administration and research costs increased $34 million (5.9%), due primarily to transaction costs from our ABI Transaction, inflation impacts and higher project spending, partially offset by lower tobacco and health and certain other litigation charges (including an agreement in 2023 to resolve shareholder derivative lawsuits).

Operating income decreased $83 million (3.0%), due primarily to lower operating results in our smokeable products segment and all other category, partially offset by lower general corporate expenses and higher operating results in our oral tobacco products segment.

Interest and other debt expense, net increased $25 million (10.9%), due primarily to 2023 interest income associated with the sale of the IQOS Tobacco Heating System (“ IQOS System”) commercialization rights.

For further discussion regarding the sale of the IQOS System, see Operating Results by Business Segment - Business Environment - FSPTCA and FDA Regulation below.

(Income) losses from investments in equity securities, which were favorable $375 million (100+%), were positively impacted by the 2023 loss on the disposition of our JUUL equity securities and favorable results from our equity investment in ABI (due primarily to our gain on the ABI Transaction.)

Provision for income taxes decreased $82 million (11.8%), due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses.

The valuation allowance release was due to our capital gain on the ABI Transaction.

For further discussion, see Note 12.

Reported net earnings of $2,129 million increased $342 million (19.1%), due primarily to favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income.

Reported basic and diluted EPS of $1.21, each increased by 21.0% due to higher reported net earnings and fewer shares outstanding.

Adjusted net earnings of $2,022 million decreased $96 million (4.5%), due primarily to lower OCI.

Adjusted diluted EPS of $1.28 was unchanged, due to lower adjusted net earnings offset by fewer shares outstanding.

Adjusted diluted EPS of $1.15 decreased by 2.5%, due to lower adjusted net earnings, partially offset by fewer shares outstanding.

Operating Results by Business Segment

Tobacco Space

Business Environment

1 unchanged sentence

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

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:

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), include:

▪ pending and threatened litigation and bonding requirements;

▪ 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;

▪ 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;

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

9 unchanged sentences

▪ 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 and lower shipment volumes;

▪ 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;

▪ the highly competitive nature of all tobacco categories, including competitive disadvantages related to the impact on cigarette prices due to the settlement of certain healthcare cost recovery litigation and the proliferation of innovative tobacco products, such as e-vapor and oral nicotine pouch products;

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

2 unchanged sentences

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.

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

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

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

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 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.

For the first quarter of 2024, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 9% versus the first quarter of 2023.

We believe these declines primarily are attributable to the historic secular rate of decline, the growth of illegal disposable e-vapor products and continued macroeconomic pressures on adult tobacco consumer discretionary income.

We continue to estimate that the growth of illegal 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 disposable e-vapor products are largely distributed through non-traditional, untracked retail channels, and this is a trend we will continue to carefully monitor.

We expect cigarette industry volume trends for the remainder of 2024 to be most influenced by (i) continued macroeconomic and discretionary income pressures on adult tobacco consumers (including inflation, interest rates, gasoline prices and unemployment levels), (ii) cross-category movement, including to illegal e-vapor products, and (iii) regulatory and legislative (including excise tax) developments.

The macroeconomic and discretionary income pressures on adult tobacco consumers, as well as seasonal trends in the discount segment influenced discount share performance.

For the first quarter of 2024, the discount share of the cigarette category was 29.1%, an increase of 0.4 share points sequentially and an increase of 0.8 share points versus the first quarter of 2023.

Marlboro share was 42.0% in the first quarter of 2024, a decrease of 0.3 share points sequentially and unchanged versus the first quarter of 2023.

Marlboro share in the premium segment of the industry remained stable sequentially at 59.3% and increased 0.7 share points versus the first quarter of 2023.

nicotine pouch category continued to grow significantly throughout the first quarter of 2024 to 40.1% of the U.S.

oral tobacco category, an increase of 13.8 share points versus the first quarter of 2023.

maintained year over year share momentum through the first quarter of 2024 to achieve 7.1% of the total oral tobacco category, an increase of 0.2 share points versus the fourth quarter of 2023 and an increase of 0.2 share points sequentially.

Oral nicotine pouch growth primarily has sourced from adult smokeless tobacco and cigarette consumers, negatively impacting smokeless and cigarette product volumes.

For the first quarter 2024, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 59.9%, down 13.8 share points versus the first quarter of 2023.

Copenhagen had an oral tobacco category share of 20.1% for the first quarter of 2024, a decrease of 5.2 share points when compared to the first quarter of 2023.

Through the first quarter of 2024, NJOY distribution grew to over 80,000 stores.

During the same period, reported shipment volume of NJOY consumables (including NJOY ACE and NJOY DAILY ) was approximately 10.9 million units, and NJOY device shipment volume was approximately 1 million units.

The NJOY share of the e-vapor category reached 4.3% in the first quarter of 2024, an increase of 0.6 share points sequentially.

Despite overall improvements in macroeconomic conditions (stabilizing inflation, low unemployment and stable wage inflation), discretionary income pressures persisted for adult tobacco consumers through the first quarter of 2024 due to the cumulative effects of inflation.

The March 2024 Consumer Price Index (CPI) was 3.5%, exceeding the Federal Reserve’s target of 2%.

Although inflation rates remained lower than prior years, increased prices on certain expenditures, such as groceries and gas, continued to put pressure on adult tobacco consumer discretionary income.

Gas prices throughout the first quarter of 2024 were lower overall than prior years but remained consistently above $3.00 month-over-month and began to increase through March 2024.

The average gas price for the month of March 2024 was $3.43 per gallon.

In addition to rising costs of certain expenses, the Federal Funds Rate has remained above historical levels, although stable at 5.33% through the first quarter of 2024.

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.

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

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

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.

10 unchanged sentences

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.

In March 2022, the U.S.

Effective April 2022, the U.S.

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

The amendment became effective in April 2022.

See Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below for additional information on the effects of the statutory change.

10 unchanged sentences

▪ Rulemaking and Guidance:

From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, generally involve public comment and may include scientific review.

From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, that generally involve public comment and may include scientific review.

The FDA also may request comments on broad topics through an Advanced Notice of Proposed Rulemaking (“ANPRM”).

1 unchanged sentence

The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by states, territories and localities of their laws and regulations as well as of the State Settlement Agreements (see State Settlement Agreements below).

Such enforcement efforts may adversely affect our operating companies’ ability to market and sell regulated tobacco products in those states, territories and localities.

▪ FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation:

In July 2017, the FDA announced a “Comprehensive Plan for Tobacco and Nicotine Regulation” (“Comprehensive Plan”) designed to strike a balance between regulation and encouraging the development of innovative tobacco products that may be less risky than cigarettes.

Since then, the FDA has issued additional information about its Comprehensive Plan in response to concerns associated with the rise in the use of e-vapor products by youth and the potential youth appeal of flavored tobacco products (see FDA Regulatory Actions - Underage Access and Use of Certain Tobacco Products below).

As part of the Comprehensive Plan, the FDA:

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

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

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

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 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

Such enforcement efforts may adversely affect our operating companies’ ability to market and sell tobacco products in those states, territories and localities.

▪ FDA’s Five-Year Strategic Plan for Tobacco and Nicotine Regulation:

In December 2023, in response to the Reagan-Udall Foundation’s report of its operational evaluation of the FDA’s Center for Tobacco Products, the FDA released its five-year strategic plan to address concerns raised by the report.

The Reagan-Udall Report urged the FDA to clearly define product pathways, accelerate 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.

The FDA’s five-year strategic plan lists five goals:

▪ develop, advance and communicate comprehensive and impactful tobacco regulations and guidance;

▪ ensure timely, clear and consistent product application review;

▪ strengthen compliance of regulated industry using all available tools, including robust enforcement actions;

▪ enhance knowledge and understanding of the risks associated with tobacco product use;

▪ advance operational excellence.

Although the FDA, in conjunction with other federal entities, has engaged in some enforcement activity, insufficient 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 addition, the FDA’s failure to clearly define product pathways and accelerate PMTA decision making has resulted in a market with few authorized smoke-free products available to adult tobacco consumers.

(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.

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:

26 unchanged sentences

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.

8 unchanged sentences

oral nicotine pouches in May 2020.

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.

As of April 22, 2024, the FDA has not issued marketing order decisions for any on!

In addition, as of April 22, 2024, 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 a modified risk tobacco product (“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.

International Trade Commission (“ITC”) issued a cease and desist order, effective as of November 29, 2021, banning (i) the importation of the IQOS devices, Marlboro HeatSticks and infringing components into the United States and (ii) the sale, marketing and distribution of such imported products in the United States.

In September 2021, in connection with a patent dispute, the ITC issued a cease and desist order, effective as of November 29, 2021, banning (i) the importation of the IQOS devices, Marlboro HeatSticks and infringing components into the United States and (ii) the sale, marketing and distribution of such imported products in the United States.

As a result, PM USA removed the products from the marketplace.

1 unchanged sentence

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

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

(“PMI”) effective April 2024 in exchange for a total cash payment of approximately $2.7 billion (plus interest).

commercialization rights to the IQOS System to PMI effective April 2024 in exchange for a total cash payment of approximately $2.7 billion (plus interest).

government has asserted that the agreement to assign those rights required district court approval and was subject to PMI becoming bound by a court-ordered injunction against engaging in certain conduct and requiring the communication of corrective statements.

The issue has yet to be litigated before the district court.

In October 2021, the FDA authorized the marketing and sale of four of USSTC’s Verve oral nicotine products, including Green Mint and Blue Mint varieties, representing the first flavored product authorizations issued by the FDA for newly deemed innovative products.

5 unchanged sentences

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 remain pending.

In March 2020, NJOY submitted PMTAs to the FDA with respect to two NJOY ACE menthol products and two NJOY DAILY menthol products, all four of which remain pending.

The FDA issued marketing denial orders (“MDOs”) for four NJOY ACE and four NJOY DAILY flavored products.

NJOY filed for a supervisory review by the FDA of the marketing denial orders for the NJOY ACE and NJOY DAILY flavored products, all of which are pending.

Post-Market Surveillance :

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

The requirements include prior notification of marketing activities.

9 unchanged sentences

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.

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

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

In December 2022, the U.S.

District Court for the Eastern District of Texas found in favor of cigarette manufacturers in one such suit and blocked the rule, finding it unconstitutional on the basis that it compelled speech in violation of the First Amendment.

The FDA has appealed the decision.

The FDA appealed the decision, and, in March 2024, the U.S.

Court of Appeals for the Fifth Circuit reversed the trial court and remanded the case for further proceedings.

▪ Underage Access and Use of Certain Tobacco Products :

2 unchanged sentences

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.

We continue to advocate in states that have not yet raised the minimum legal age to purchase all tobacco products to 21.

See Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products below for further discussion.

1 unchanged sentence

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.

However, despite some enforcement activity, insufficient 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.

▪ Electronic Nicotine Delivery System Products :

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.

As of April 22, 2024, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth.

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 challenging the MDOs for their products.

In January 2024, the U.S.

Court of Appeals for the Fifth Circuit ruled that the FDA process and procedure for addressing an e-vapor PMTA violated federal law and that, among other things, the FDA failed to give the manufacturer plaintiff fair notice of, and repeatedly changed positions with respect to, the information required to obtain a PMTA.

The court decided the case en banc , with all judges on the court hearing the case.

Courts of Appeal have upheld adverse FDA determinations, and there are pending requests that the U.S.

Supreme Court review these decisions.

▪ Potential Product Standards

3 unchanged sentences

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

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

In December 2023, the Biden Administration published its Fall 2023 Unified Regulatory Agenda, which includes the FDA’s plans to propose, by April 2024, a product standard that would establish a maximum nicotine level in cigarettes and other combustible tobacco products.

As of April 22, 2024, the FDA has not proposed this product standard.

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

2 unchanged sentences

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

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.

The Biden Administration’s Fall 2023 Unified Regulatory Agenda includes the FDA’s plans to have completed rulemaking with respect to these proposed product standards by March 2024.

As of April 22, 2024, 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.

13 unchanged sentences

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

The Biden Administration’s Fall 2023 Unified Regulatory Agenda includes the FDA’s plans to have completed rulemaking with respect to this proposed rule by October 2024.

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

27 unchanged sentences

Federal, state and local cigarette excise taxes have increased substantially over the past two decades, far outpacing the rate of inflation.

Between the end of 1998 and October 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.

Between the end of 1998 and April 22, 2024, the weighted-average state cigarette excise tax increased from $0.36 to $1.90 per pack.

Only one state, New York, enacted new legislation increasing excise taxes in 2023.

As of April 22, 2024, no states have enacted excise tax increases in 2024.

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

A majority of states currently tax MST using an ad valorem method, which is calculated as a percentage of the price of the product, typically the wholesale price.

1 unchanged sentence

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 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.

As of April 22, 2024, 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 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.

As of April 22, 2024, 32 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor products.

These taxes are calculated in varying ways and may differ based on the e-vapor product form.

5 unchanged sentences

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005.

As of October 23, 2023, 182 countries, as well as the European Union, have become parties to the FCTC.

As of April 22, 2024, 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.

14 unchanged sentences

For a discussion of the impact of the State Settlement Agreements on us, see Liquidity and Capital Resources - Payments Under State Settlement Agreements and FDA Regulation below and Note 13.

The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and restrictions on the advertising and marketing of cigarettes and smokeless tobacco products.

The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and

restrictions on the advertising and marketing of cigarettes and smokeless tobacco products.

Among these are prohibitions of outdoor and transit brand advertising, payments for product placement and free sampling (except in adult-only facilities).

9 unchanged sentences

▪ International, Federal, State and Local Regulation:

Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products.

Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings, (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products and (v) requires manufacturers of e-vapor products to certify that they are in compliance with FDA requirements to be allowed to sell in the state.

The legislation varies in terms of the type of tobacco products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or prohibitions.

For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with characterizing flavors without providing an exception for mint- or wintergreen-flavored products.

As of October 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.

As of April 22, 2024, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and six states (California, 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 one other state.

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

Legislation relating to this issue is pending in two other states.

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

1 unchanged sentence

We have challenged and will continue to challenge certain federal, state and local legislation and other governmental action, including through litigation.

Certain legislation imposing restrictions on tobacco products, such as state laws requiring manufacturers of e-vapor products to certify that they are in compliance with federal law in order to sell products in the state, aligns with our Vision, and we actively engage with lawmakers in support of such legislation.

It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that could have a material adverse impact on our business, results of operations, cash flows or financial position.

2 unchanged sentences

After a number of states and localities proposed and enacted legislation to increase the minimum age to purchase all tobacco products, including e-vapor products, in December 2019, the federal government passed legislation increasing the minimum age to purchase all tobacco products, including e-vapor products, to 21 nationwide.

As of October 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.

As of April 22, 2024, 43 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, we support raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels, as discussed above under Underage Access and Use of Certain Tobacco Products , reflecting our longstanding commitment to combat underage tobacco use.

▪ Health Effects of Tobacco Products, Including E-vapor Products:

3 unchanged sentences

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

It is not possible to predict the results of ongoing scientific research or the types of future scientific research into the health risks of tobacco exposure and the impact of such research on legislation and regulation.

Most jurisdictions within the United States have restricted smoking in public places and some have restricted vaping in public places.

Some public health groups have called for, and various jurisdictions have adopted or proposed, bans on smoking and vaping in outdoor places, in private apartments and in cars transporting children.

▪ Other Legislation or Governmental Initiatives:

9 unchanged sentences

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.

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.

4 unchanged sentences

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:

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);

(i) the FTC issued a Civil Investigative Demand to us while conducting its antitrust review of our former investment in JUUL seeking information regarding, among other things, our role in the resignation of JUUL’s former chief executive officer and the hiring by JUUL of any current or former Altria director, executive or employee (see Note 13 for a description of the FTC’s administrative complaint against us and JUUL);

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

and (iii) the New York State Office of the Attorney General and the Commonwealth of Massachusetts Office of the Attorney General, separately, issued independent subpoenas to us seeking documents relating to our former investment in and provision of services to JUUL.

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

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

Such investigations vary in scope but at least some include JUUL’s marketing practices, particularly as such practices relate to youth, and we may be asked in the context of those investigations to provide information concerning our former investment in JUUL or relating to our marketing of Nu Mark LLC e-vapor products.

We are a party to lawsuits initiated by the attorneys general of Alaska, Hawaii and New Mexico relating to our former investment in JUUL.

In April 2023, we agreed to settle a lawsuit initiated by the attorney general of Minnesota.

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

In April 2023, January 2024, February 2024 and April 2024, we agreed to settle the lawsuits relating to our former investment in JUUL initiated by the attorneys general of Minnesota, Alaska, Hawaii and New Mexico, respectively.

Private Sector Activity on Tobacco Products

4 unchanged sentences

Illicit Trade in Tobacco Products

Illicit trade in tobacco products can have an adverse impact on our business.

Illicit trade in tobacco products can have an adverse impact on our businesses, including the sales volumes and market shares of our companies’ innovative and smoke-free products and traditional tobacco products.

Illicit trade can take many forms, including the sale of counterfeit tobacco products;

8 unchanged sentences

Moreover, illicit trade in tobacco products results in federal, state and local governments losing tax revenues.

Losses in tax revenues can cause such governments to take various actions, including increasing excise taxes, imposing legislative or regulatory requirements, or asserting claims against manufacturers of tobacco products or members of the trade channels through which such tobacco products are distributed and sold, each of which may have an adverse effect on our business, results of operations, cash flows or financial position.

Losses in tax revenues can cause such governments to take various actions, including increasing excise

taxes, imposing legislative or regulatory requirements, or asserting claims against manufacturers of tobacco products or members of the trade channels through which such tobacco products are distributed and sold, each of which may have an adverse effect on our business, results of operations, cash flows or financial position.

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.

1 unchanged sentence

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

Prohibitory policies, such as California’s ban on the sale of flavored tobacco products, which went into effect in 2022, can have unintended negative consequences, including the proliferation of counterfeit and unregulated products.

We actively engage with regulators, state and federal lawmakers, our trade partners and other stakeholders to bring awareness to these issues.

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.

All but one defendant was dismissed from this suit without prejudice on procedural grounds in January 2024, and we voluntarily dismissed the remaining defendant in February 2024.

We filed a new lawsuit against five manufacturers, four brick-and-mortar retailers and three online retailers of illicit “Elf Bar” e-vapor products in February 2024 in federal court in California.

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

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

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

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

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

For varieties of tobacco only available in limited geographies, government-mandated prices and production control programs, political instability or government prohibitions on the import or export of tobacco in certain countries pose additional risks to price, availability and quality.

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, 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.

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

In addition, as consumer demand increases for innovative smoke-free products and decreases for combustible and MST products, the volume of tobacco leaf required for production of these products has decreased, resulting in reduced tobacco leaf demand.

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 or the unavailability of nicotine extract 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.

In addition, the nicotine used in our operating companies’ innovative smoke-free products is extracted from tobacco produced in one country.

If we are unable to identify alternate sources of nicotine for our companies’ innovative products, we could be exposed to supply risk.

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

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

In addition, government taxes, restrictions and prohibitions on the sale and use of certain products may limit access to, and increase the costs of, raw materials and component parts and, potentially, impede our ability to sell certain of our operating companies’ products.

For example, additional taxes on the use of certain single-use plastics have been proposed by the U.S.

Congress, which, if passed, could increase the costs of, and impair our ability to, source certain materials used in the packaging for our operating companies’ products.

For example, certain states have passed extended producer responsibility legislation concerning packaging.

Because certain of our products’ packaging consists of single-use plastics, single-use plastic bans and extended producer responsibility mandates could result in bans on some of our product packaging or our products and adversely impact our costs and revenues.

Additional taxes and limitations on the use of certain single-use plastics have been proposed by the U.S.

Congress and various state and local governments.

These existing and potential future laws and regulations could increase the costs of, and impair our ability to, source certain materials used in the packaging for our products.

We work to mitigate these risks by maintaining inventory levels of certain tobacco varieties that cover several years, purchasing raw materials, ingredients and component parts from disperse geographic regions throughout the world and entering into long-term contracts with some of our tobacco growers and direct material suppliers.

To date, the impact on us of changes in the price, availability and quality of tobacco, other raw materials, ingredients and component parts has not been material.

To date, the impact on us of changes in the

price, availability and quality of tobacco, other raw materials, ingredients and component parts has not been material.

However, the effects of the current macroeconomic and geopolitical conditions on prices, availability and quality of such items may continue, which could have a material adverse effect on our business, results of operations, cash flows or financial position.

3 unchanged sentences

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 Nine Months Ended September 30, 2023

For the Three Months Ended March 31, 2024

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

11 unchanged sentences

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

For further information on our reportable segments, see Note 10.

Smokeable Products Segment

2 unchanged sentences

Operating Results

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

(in millions) 2023 2022 Change 2023 2022 Change

For the Three Months Ended March 31,

(in millions) 2024 2023 Change

Net revenues $ 4,906 $ 5,090 (3.6) %

6 unchanged sentences

Reported OCI margins (1)

59.8 % 59.1 % 0.7 pp 59.7 % 58.5 % 1.2 pp

59.9 % 60.1 % (0.2) pp

Adjusted OCI margins (1)

60.1 % 59.2 % 0.9 pp 59.6 % 58.9 % 0.7 pp

60.2 % 60.4 % (0.2) pp

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

Nine Months Ended September 30, 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 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

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Net revenues, which include excise taxes billed to customers, decreased $184 million (3.6%), due primarily to lower shipment volume ($589 million), partially offset by higher pricing ($403 million), which includes higher promotional investments.

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.

Reported and adjusted OCI decreased $64 million (2.6%) and (2.5%), respectively, due primarily to lower shipment volume ($380 million) and higher per unit settlement charges and manufacturing costs ($105 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($15 million).

Shipment Volume and Retail Share Results

1 unchanged sentence

Shipment Volume

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

(sticks in millions) 2023 2022 Change 2023 2022 Change

For the Three Months Ended March 31,

(sticks in millions) 2024 2023 Change

Marlboro 14,973 16,396 (8.7) %

8 unchanged sentences

Other premium brands, such as Virginia Slims , Parliament and Benson & Hedges ;

and Discount brands, which include L&M , Basic and Chesterfield.

and Discount brands, which include L&M and Basic.

Cigarettes volume includes units sold as well as promotional units but excludes units sold for distribution to Puerto Rico, U.S.

1 unchanged sentence

The following table summarizes our cigarettes retail share performance:

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

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

For the Three Months Ended March 31,

2024 2023 Percentage Point Change

Marlboro 42.0 % 42.0 % —

2 unchanged sentences

Total cigarettes 46.4 % 47.0 % (0.6)

Retail share results for cigarettes are based on data from Circana, Inc.

and Circana Group, L.P.

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

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

Retail share results for cigarettes are based on data from Circana, LLC (“Circana”), as well as, Management Science Associates, Inc.

Circana maintains a blended retail service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends.

Similar to prior reporting, this service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes.

For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers through the Store Tracking Analytical Reporting System (“STARS”), as provided by MSA.

For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers through the Store Tracking Analytical Reporting System (“STARS”), as provided by Management Science Associates, Inc.

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

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

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

Nine Months Ended September 30, 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.

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

For a discussion of volume trends and factors that impact volume and retail share performance, see Operating Results by Business Segment - Business Environment - Summary above.

Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023

Our smokeable products segment’s reported and estimated adjusted domestic cigarettes shipment volume decreased 10%, driven primarily by the industry’s decline rate (impacted by macroeconomic pressures on adult tobacco consumers’ discretionary 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 9%.

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 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 0.3 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 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.

Shipments of premium cigarettes accounted for 95.6% and 94.3% of our smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended March 31, 2024 and 2023, respectively.

Marlboro retail share decreased 0.3 share points sequentially.

Additionally, Marlboro share of the premium segment was 59.3%, an increase of 0.7 share points versus the prior year and unchanged sequentially.

Total cigarettes industry discount category retail share was 29.1%, an increase of 0.8 share points versus the prior year and 0.4 share points sequentially, primarily due to increased macroeconomic pressures on adult tobacco consumers’ discretionary income.

For a discussion regarding discount category dynamics in 2024 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Business Environment - Summary above.

Pricing Actions

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

PM USA and Middleton executed the following pricing actions during 2024 and 2023:

▪ Effective January 14, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol) , L&M and Basic by $0.15 per pack.

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

▪ Effective 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.

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

5 unchanged sentences

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

▪ Effective October 16, 2022, PM USA increased the list price of Marlboro , L&M , Basic and Chesterfield by $0.15 per pack.

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

▪ Effective July 17, 2022, PM USA increased the list price on all of its cigarette brands by $0.15 per pack.

▪ Effective May 22, 2022, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.17 per five-pack.

▪ Effective April 24, 2022, PM USA increased the list price of Marlboro , L&M , Basic and Chesterfield by $0.15 per pack.

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

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

▪ Effective April 14, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol) , L&M and Basic by $0.20 per pack.

PM USA also increased the list price of all its other cigarette brands by $0.25 per pack.

▪ Effective April 21, 2024, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.16 per five-pack.

Oral Tobacco Products Segment

2 unchanged sentences

Operating Results

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

(in millions) 2023 2022 Change 2023 2022 Change

For the Three Months Ended March 31,

(in millions) 2024 2023 Change

Net revenues $ 651 $ 628 3.7 %

3 unchanged sentences

Reported and Adjusted OCI margins (1)

68.9 % 68.0 % 0.9 pp 69.3 % 66.4 % 2.9 pp

69.5 % 69.3 % 0.2 pp

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

Nine Months Ended September 30, 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 $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).

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Net revenues, which include excise taxes billed to customers, increased $23 million (3.7%), due primarily to higher pricing ($60 million), which includes lower promotional investments, partially offset by lower shipment volume and a higher percentage of on!

shipment volume relative to MST (“volume/mix”) ($35 million).

Reported and adjusted OCI increased $19 million (4.6%), due primarily to higher pricing, which includes lower promotional investments, partially offset by lower volume/mix ($39 million).

Shipment Volume and Retail Share Results

1 unchanged sentence

Shipment Volume

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

For the Three Months Ended March 31,

(cans and packs in millions) 2024 2023 Change

Copenhagen 99.1 109.0 (9.1) %

8 unchanged sentences

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

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

2023 2022 Percentage Point Change 2023 2022 Percentage Point Change

For the Three Months Ended March 31,

2024 2023 Percentage Point Change

Copenhagen 20.1 % 25.3 % (5.2)

Skoal 8.0 10.1 (2.1)

6.8 4.7 2.1 6.9 5.2 1.7

Other 2.6 3.1 (0.5)

7 unchanged sentences

Because this service represents retail share performance only in key trade channels, it should not be considered a precise measurement of actual retail share.

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

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

Nine Months Ended September 30, 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.

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

For a discussion of volume trends and factors that impact volume and retail share performance, see Operating Results by Business Segment - Business Environment - Summary above.

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Our oral tobacco products segment’s reported domestic shipment volume decreased 3.1%, driven primarily by retail share losses and trade inventory movements, partially offset by the industry’s growth rate, calendar differences 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 4%.

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.

Total oral tobacco products category industry volume increased by an estimated 9.5% for the six months ended March 31, 2024, primarily driven by growth in oral nicotine pouches, partially offset by declines in MST volumes.

Our oral tobacco products segment’s retail share was 37.8%, as share declines for MST products were primarily driven by oral nicotine pouch segment share growth.

oral tobacco category share for on!

nicotine pouches was 7.1%, an increase of 0.7 share points versus the prior year and 0.2 share points sequentially,

nicotine pouch category grew to 40.1% of the U.S.

1 unchanged sentence

In addition, on!

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

’s share of the nicotine pouch category was 17.6%, a decrease of 6.8 share points versus the prior year.

Pricing Actions

USSTC executed the following pricing actions during 2024 and 2023:

▪ Effective January 23, 2024, USSTC increased the list price on its Copenhagen , Skoal and Red Seal brands by $0.11 per can.

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

5 unchanged sentences

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

▪ Effective July 26, 2022, USSTC increased the list price on its Copenhagen popular price products by $0.13 per can.

USSTC also decreased the list price on select Copenhagen brands by $0.11 per can.

In addition, USSTC increased the list price on its Skoal and Red Seal brands and the balance of its Copenhagen brands by $0.09 per can and increased the list price on its Husky brand by $0.12 per can.

▪ Effective May 24, 2022, USSTC increased the list price on its Copenhagen , Skoal and Red Seal brands by $0.09 per can.

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

▪ Effective February 22, 2022, USSTC increased the list price on its Copenhagen , Skoal and Red Seal brands by $0.08 per can.

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

▪ Effective April 23, 2024, USSTC increased the list price on its Copenhagen , Skoal and Red Seal brands by $0.10 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.

Reported domestic shipment volumes for the three months ended March 31, 2024 for NJOY consumables (1) and devices were approximately 10.9 million units and 1.0 million units, respectively.

In the first quarter of 2024, retail share of NJOY in the U.S.

multi-outlet and convenience channel was 4.3%, an increase of 0.6 share points sequentially.

(1) E-vapor shipment volume includes NJOY ACE pods and DAILY disposables.

Liquidity and Capital Resources

1 unchanged sentence

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 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.

At March 31, 2024, 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 we hold shares in ABI and ABI pays dividends.

At March 31, 2024, we had $3.6 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 (“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 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.

We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under our 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 our New Credit Agreement is discussed in Note 11.

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

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

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

At March 31, 2024, the credit ratings and outlook for our indebtedness by major credit rating agencies were:

Short-term Debt Long-term Debt Outlook

5 unchanged sentences

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 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.

At March 31, 2024, we had availability under our Credit Agreement for borrowings of up to an aggregate principal amount of $3.0 billion, and we were in compliance with the covenants in our Credit Agreement.

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

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

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

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

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

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

Long-Term Debt - At 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 September 30, 2023 from approximately 4.0% at December 31, 2022.

Long-Term Debt - At March 31, 2024 and December 31, 2023, our total long-term debt was $25.0 billion and $26.2 billion, respectively.

In January and February 2024, we repaid in full at maturity our 4.000% and 3.800% senior unsecured notes, respectively, in the aggregate principal amounts of $776 million and $345 million, respectively.

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

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)

At March 31, 2024, our debt-to-Consolidated net earnings and debt-to-Consolidated EBITDA ratios were calculated as follows:

For the Twelve Months Ended March 31, 2024 (1)

(in millions)

5 unchanged sentences

(Income) loss from investments in equity securities and noncontrolling interests, net (618)

(Gain) loss on Cronos-related financial instruments 1

Dividends from less than 50% owned affiliates 163

Consolidated EBITDA $ 12,032

Current portion of long-term debt (2)

Long-term debt (2)

Total Debt (2)

2 unchanged sentences

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

(2) Balance at September 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 September 30, 2023.

(2) Balance at March 31, 2024, which is classified as long-term debt on the condensed consolidated balance sheet.

ABI Transaction - As discussed in Note 5, in March 2024, we received pre-tax cash proceeds from the ABI Transaction of approximately $2.4 billion and paid transaction costs of approximately $62 million.

We used the proceeds from the ABI Transaction to fund the ASR transactions discussed below.

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, any borrowings under our New Credit Agreement and amounts outstanding under our commercial paper program.

As further discussed in Note 4.

Supplier Financing to our condensed consolidated financial statements in Item 1 and Note 13, as part of the supplier financing program, Altria guarantees the financial obligations of Altria Client Services LLC under the financing program agreement.

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

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

Payments Under State Settlement Agreements and FDA Regulation - As discussed in Note 13, PM USA has entered into State Settlement Agreements with the states, the District of Columbia and certain U.S.

Payments Under State Settlement Agreements and FDA Regulation - PM USA has entered into State Settlement Agreements with the states, the District of Columbia and certain U.S.

territories that call for certain payments.

2 unchanged sentences

Based on current agreements, estimated market share, estimated annual industry volume decline rates and inflation rates, the estimated amounts that we may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees are $3.5 billion on average for the next three years.

These amounts exclude the potential impact of any NPM Adjustment Items.

The estimated amount for 2024 includes PM USA’s obligations under the State Settlement Agreements to pay settling plaintiffs’ attorneys’ fees.

We expect PM USA’s obligation to pay these fees will terminate in the fourth quarter of 2024.

In addition, the amount excludes the potential impact of any NPM Adjustment Items.

The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year 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 $3.5 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 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 $2.9 billion in April 2024 for amounts accrued in 2023 under the State Settlement Agreements.

We recorded $0.9 billion and $1.0 billion of charges to cost of sales for the three months ended March 31, 2024 and 2023, 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 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 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.

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

Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of March 31, 2024, PM USA had posted appeal bonds totaling $38 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), 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.

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

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

Equity and Dividends

During the first 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.

During the first three months of 2024 and 2023, we paid dividends of $1,733 million and $1,683 million, respectively, an increase of 3.0%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase programs.

Our current annualized dividend rate is $3.92 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.

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

Background and Basis of Presentation to our condensed consolidated financial statements in Item 1 and Part II, Item 2.

We have a progressive dividend goal targeting mid-single digits dividend growth annually.

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

ASR - In March 2024, we increased our $1.0 billion share repurchase program to $3.4 billion.

The increase was funded with proceeds from the ABI Transaction.

As of March 31, 2024, we paid $2.4 billion for the repurchase of our common stock in the ASR transactions, and we expect final settlement to occur by June 30, 2024.

For further discussion of our share repurchase programs, see Note 1 and Part II, Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds of this Form 10-Q.

1 unchanged sentence

Cash Provided by/Used in Operating Activities

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.

During the first three months of 2024, net cash provided by operating activities was $2,877 million compared with $2,984 million during the first three months of 2023.

This decrease was due primarily to lower net revenues, partially offset by lower federal excise tax payments.

We had a working capital deficit at March 31, 2024 and December 31, 2023, and believe we have the ability to fund working capital deficits with cash provided by operating activities, borrowings under our Credit Agreement and access to the credit and capital markets.

Cash Provided by/Used in Investing Activities

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.

During the first three months of 2024, net cash provided by investing activities was $2,316 million compared with net cash used in investing activities of $56 million during the first three months of 2023.

This change was due primarily to proceeds from the ABI Transaction.

Cash Provided by/Used in Financing Activities

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.

During the first three months of 2024, net cash used in financing activities was $5,268 million compared with $3,045 million during the first three months of 2023.

This increase was due to the ASR transactions and higher dividends paid in 2024, partially offset by lower repayments of long-term debt.

New Accounting Guidance Not Yet Adopted

3 unchanged sentences

Supplemental Guarantor Financial Information

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

(the “Parent”), has guaranteed the Parent’s obligations under its outstanding debt securities, borrowings under its 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.

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

(“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 (“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 (“Obligations”), subject to release under certain customary circumstances as noted below.

The Guarantees provide that the Guarantor guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations.

34 unchanged sentences

Parent Guarantor

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

March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023

Due from Non-Guarantor Subsidiaries

13 unchanged sentences

(in millions of dollars)

For the Nine Months Ended September 30, 2023

For the Three Months Ended March 31, 2024

Guarantor (2)

2 unchanged sentences

Net earnings (losses) (66) 1,736

(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.

(1) For the three months ended March 31, 2024, net earnings (losses) include $92 million of intercompany interest income from non-guarantor subsidiaries and $122 million of interest expense from non-guarantor subsidiaries.

(2) For the three months ended March 31, 2024, net earnings (losses) include $83 million of intercompany interest income from non-guarantor subsidiaries.

Cautionary Factors That May Affect Future Results

9 unchanged sentences

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, First Quarter Form 10-Q and Second Quarter Form 10-Q.

These factors and risks include the following:

1 unchanged sentence

▪ our inability to compete effectively;

▪ 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;

▪ the growth of the e-vapor category, including illegal 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;

1 unchanged sentence

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

▪ the risks associated with significant federal, state and local government actions, including FDA regulatory actions, and various private sector actions;

▪ the risks associated with significant federal, state and local government actions, including FDA regulatory actions and inaction, and various private sector actions;

▪ increases in tobacco product-related taxes;

4 unchanged sentences

▪ the risk that we could decide, or be required to, recall products;

▪ the various risks related to health epidemics and pandemics, such as the COVID-19 pandemic, and the measures that international, federal, state and local governments, agencies, law enforcement and health authorities implement to address them;

▪ the various risks related to health epidemics and pandemics and the measures that international, federal, state and local governments, agencies, law enforcement and health authorities implement to address them;

▪ our inability to attract and retain a highly skilled and diverse workforce due to the decreasing social acceptance of tobacco usage, tobacco control actions and other factors;

5 unchanged sentences

▪ a downgrade or potential downgrade of our credit ratings;

▪ our inability to attract investors due to increasing investor expectations of our performance relating to environmental, social and governance factors;

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

▪ our failure to comply with personal data protection and privacy laws;

▪ our inability to attract investors due to increasing investor expectations of our performance relating to corporate responsibility, including environmental, social and governance, factors;

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

▪ our failure, or the failure of our key service providers or key suppliers, to comply with laws related to personal data protection, privacy, artificial intelligence and information security;

▪ the risk that the expected benefits of our investment in ABI may not materialize in the expected manner or timeframe or at all, including due to macroeconomic and geopolitical conditions;

10 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis