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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the other sections of this Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of risk factors that may affect future results in Item 1A. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Altria’s 2020 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Description of the Company

For a description of Altria, see Item 1. Business of this Form 10-K (“Item 1”), and Background in Note 1. Background and Basis of Presentation to the consolidated financial statements in Item 8.

Executive Summary

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, Altria refers to the following “adjusted” financial measures: adjusted operating companies income (loss) (“OCI”); adjusted OCI margins; adjusted net earnings attributable to Altria; adjusted diluted earnings per share attributable to Altria; and adjusted effective tax rates. These adjusted financial measures are not required by, or calculated in accordance with, United States generally accepted accounting principles (“GAAP”) and may not be calculated the same as similarly titled measures used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Except as noted in the 2022 Forecasted Results section below, when Altria provides a non-GAAP measure in this Form 10-K, it also provides a reconciliation of that non-GAAP financial measure to the most directly comparable GAAP financial measure. OCI for the segments is defined as operating income before general corporate expenses and amortization of intangibles. For a further description of these non-GAAP financial measures, see the Non-GAAP Financial Measures section below.

COVID-19 Pandemic

The COVID-19 pandemic has led to adverse impacts on the United States and global economies and continues to create economic uncertainty, including due to variants of the COVID-19 virus, even as COVID-19 vaccines have been and continue to be administered and certain portions of the United States and global economies have begun to operate with reduced restrictions on consumer movements and business operations. Uncertainty still surrounds the pandemic, including its duration, the impact of COVID-19 variants and the ultimate overall impact on United States and global economies, Altria’s operations and those of its investees. Altria continues to monitor the macroeconomic risks arising in part from the COVID-19 pandemic (including labor shortages, inflation and supply change shortages) and continues to carefully evaluate potential outcomes and work to mitigate risks. Specifically, Altria remains focused on any potential impact to its liquidity, operations, supply and distribution chains and on economic conditions. In terms of Altria’s liquidity,

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despite some temporary volatility in commercial paper markets in 2020, Altria has not experienced a material adverse impact to its liquidity.

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

Altria also continues to monitor the inflationary environment arising in part from the COVID-19 pandemic and its impact on Altria’s financial position and results of operations. For the year ended December 31, 2021, inflation did not have a material impact on Altria’s MSA expense or on direct materials and other costs. While Altria anticipates that inflation will continue at increased levels in 2022, it does not believe the impacts will be material to Altria’s financial position and results of operations. See Operating Results by Business Segment - Tobacco Space - State Settlement Agreements below for further discussion on MSA expense.

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

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

During 2021, ABI continued to be impacted by the COVID-19 pandemic, including the effects of COVID-19 variants, supply-chain constraints across certain markets, adverse transactional foreign exchange rates, inflation and commodity cost headwinds. While Altria considers the impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business to be transitory, Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic on ABI’s business and market valuation. See Note 6 for further discussion of Altria’s investment in ABI, including the recording of a $6.2 billion non-cash, pre-tax impairment charge in 2021.

Altria considered the impact of the COVID-19 pandemic on the business of JUUL, including its sales, distribution, operations, supply chain and liquidity, in conducting its periodic impairment assessment and quantitative valuations. JUUL’s operations were negatively impacted in 2020 and 2021 by the COVID-19 pandemic due to stay-at-home practices and government-mandated restrictions. While the impact was considered in Altria’s quantitative valuations conducted in connection with the preparation of its financial statements for the years ended December 31, 2021 and 2020, Altria does not believe the COVID-19 pandemic was a primary driver of the non-cash, pre-tax impairment charge recorded during 2020 or any quarterly changes in fair value recorded since the fourth quarter of 2020. Altria will continue to monitor the impact of the COVID-19 pandemic on JUUL’s business, including near-term supply chain constraints, component part shortages and inflation, in Altria’s quarterly quantitative valuations of JUUL. See Note 6 for further discussion of Altria’s investment in JUUL.

Altria considered the impact of the COVID-19 pandemic on the business of Cronos, including its sales, distribution, operations, supply chain and liquidity. During 2020 and 2021, Cronos was adversely impacted by the COVID-19 pandemic, due in part to government actions limiting access to retail stores in the United States and Canada. Altria will continue to monitor the impact of the COVID-19 pandemic on Cronos’s business, including as a result of new variants, near-term supply chain challenges, inflation and market valuation. See Note 6 for further discussion of Altria’s investment in Cronos.

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Consolidated Results of Operations

The changes in net earnings (losses) attributable to Altria and diluted earnings (losses) per share (“EPS”) attributable to Altria for the year ended December 31, 2021, from the year ended December 31, 2020, were due primarily to the following:

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

2020 NPM Adjustment Items 3 —

2020 Tobacco and health and certain other litigation items 62 0.03

2021 Tobacco and health and certain other litigation items (138) (0.07)

2021 Loss on early extinguishment of debt (496) (0.27)

Fewer shares outstanding — 0.03

Change in tax rate (33) (0.02)

2021 Adjusted Net Earnings and Adjusted Diluted EPS $ 8,519 $ 4.61

2020 Adjusted Net Earnings and Adjusted Diluted EPS $ 8,117 $ 4.36

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

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

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

▪Operations: The increase of $435 million in operations (which excludes the impact of special items shown above) was due primarily to the following:

▪higher OCI from the smokeable products segment;

▪lower losses in the all other category (primarily driven by reductions in the estimated residual values of certain assets at PMCC in 2020);

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

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

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

2022 Forecasted Results

Altria expects its 2022 full-year adjusted diluted EPS to be in a range of $4.79 to $4.93, representing a growth rate of 4% to 7% over its 2021 full-year adjusted diluted EPS of $4.61, as shown in the table below. Altria expects 2022 adjusted diluted EPS growth to be weighted toward the second half of the year. While the 2022 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions related to (i) the economy, including the impact of increased inflation, (ii) the impact of current and future COVID-19 variants and mitigation strategies, (iii) adult tobacco consumer dynamics, including tobacco usage occasions, available disposable income, purchasing patterns and adoption of smoke-free products and (iv) regulatory and legislative developments.

Altria’s 2022 full-year adjusted diluted EPS guidance range includes planned investments in support of its Vision, such as (i) costs to enhance its digital consumer engagement system, (ii) increased smoke-free product research, development and regulatory preparation expenses and (iii) marketplace activities in support of Altria’s smoke-free products. The guidance range also includes anticipated inflationary increases in MSA expenses and direct materials costs and Altria’s current expectation that PM USA will not have access to the IQOS system in 2022.

Altria expects its 2022 full-year adjusted effective tax rate will be in a range of 24.5% to 25.5%.

Reconciliation of 2021 Reported Diluted EPS to 2021 Adjusted Diluted EPS

NPM Adjustment Items (0.03)

Tobacco and health and certain other litigation items 0.07

ABI-related special items 2.66

Cronos-related special items 0.25

Loss on early extinguishment of debt 0.27

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

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

Non-GAAP Financial Measures

While Altria reports its financial results in accordance with GAAP, its management also reviews certain financial results, including OCI, OCI margins, net earnings (losses) attributable to Altria and diluted EPS, on an adjusted basis, which excludes certain income and expense items that management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition-related and disposition-related costs, COVID-19 special items, equity investment-related special items (including any changes in fair value of the equity investment and any related warrants and preemptive rights), certain tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (such dispute resolutions are referred to as “NPM Adjustment Items”). Altria’s management does not view any of these special items to be part of Altria’s underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Altria’s management also reviews income tax rates on an adjusted basis. Altria’s adjusted effective tax rate may exclude certain tax items from its reported effective tax rate.

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

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measures used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.

Discussion and Analysis

Critical Accounting Policies and Estimates

Note 2 includes a summary of the significant accounting policies and methods used in the preparation of Altria’s consolidated financial statements. In most instances, Altria must use an accounting policy or method because it is the only policy or method permitted under GAAP.

The preparation of financial statements includes the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during the reporting periods. If actual amounts are ultimately different from previous estimates, the revisions are included in Altria’s consolidated results of operations for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between Altria’s estimates and actual amounts in any year have not had a significant impact on its consolidated financial statements.

The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods, used in the preparation of Altria’s consolidated financial statements:

▪Revenue Recognition: Altria’s businesses generate substantially all of their revenue from sales contracts with customers. Net revenues are defined as revenues, which include excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns (also referred to as returned goods) and sales incentives. Altria’s businesses exclude from the transaction price sales taxes and value-added taxes imposed at the time of sale.

Altria’s businesses record sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction to revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers and consumers at the end of a period) based principally on historical volume, utilization and redemption rates. Expected payments for sales incentives are included in accrued marketing liabilities on Altria’s consolidated balance sheets.

For further discussion, see Note 3. Revenues from Contracts with Customers to the consolidated financial statements in Item 8.

▪Depreciation, Amortization, Impairment Testing and Asset Valuation: Altria depreciates property, plant and equipment and amortizes its definite-lived intangible assets using the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods up to 25 years, and buildings and building improvements over periods up to 50 years. Definite-lived intangible assets are amortized over their estimated useful lives up to 25 years.

Altria reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable. Altria performs undiscounted operating cash flow analyses to determine if an impairment exists. These analyses are affected by general economic conditions and projected growth rates. For purposes of recognition and measurement of an impairment for assets held for use, Altria groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If Altria determines that an impairment exists, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. Altria also reviews the estimated remaining useful lives of long-lived assets whenever events or changes in business circumstances indicate the lives may have changed.

Altria conducts a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently if an event occurs or circumstances change that would require Altria to perform an interim review. Altria has the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. If necessary, Altria will perform a single step quantitative impairment test. Additionally, Altria has the option to unconditionally bypass the qualitative assessment and perform a single step quantitative assessment. If the carrying value of a reporting unit that includes goodwill exceeds its fair value, which is determined using discounted cash flows, goodwill is considered impaired. The amount of impairment loss is measured as the difference between the carrying value and the fair value of a reporting unit, but is limited to the total amount of goodwill allocated to a reporting unit. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, which is determined using discounted cash flows, the intangible asset is considered impaired and is reduced to fair value in the period identified.

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Goodwill by reporting unit and indefinite-lived intangible assets at December 31, 2021 were as follows:

(in millions) Goodwill Indefinite-LivedIntangible Assets

Cigarettes $ 22 $ 2

Oral nicotine pouches 55 —

During 2021, Altria completed its annual impairment test of goodwill and indefinite-lived intangible assets performed as of October 1, 2021 and the results of this testing were as follows:

▪no impairment charges were recorded; and

▪the estimated fair values of all reporting units and the indefinite-lived intangible assets within all reporting units substantially exceeded their carrying values.

During 2020, Altria’s quantitative annual impairment test of goodwill and indefinite-lived intangible assets resulted in no impairment charges. For further discussion on goodwill, see Note 4. Goodwill and Other Intangible Assets, net to the consolidated financial statements in Item 8 (“Note 4”).

In 2021, Altria elected to perform a qualitative assessment for certain of its reporting units and indefinite-lived intangible assets. This qualitative assessment included the review of certain macroeconomic factors and entity-specific qualitative factors to determine if it was more likely than not that the fair values of its reporting units were below carrying value. For certain of its other reporting units and indefinite-lived intangible assets, Altria elected to unconditionally bypass the qualitative assessment and perform a single step quantitative assessment. Altria used an income approach to estimate the fair values of its reporting units and indefinite-lived intangible assets. 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. The weighted-average discount rate used in performing the valuations was approximately 10%.

In performing the 2021 discounted cash flow analysis, Altria made various judgments, estimates and assumptions, the most significant of which were volume, income, growth rates and discount rates. The analysis incorporated assumptions used in Altria’s long-term financial forecast, which is used by Altria’s management to evaluate business and financial performance, including allocating resources and evaluating results relative to setting employee compensation targets. The assumptions incorporated the highest and best use of Altria’s indefinite-lived intangible assets and also included perpetual growth rates for periods beyond the long-term financial forecast. The perpetual growth rate used in performing all of the valuations was 2%. Fair value calculations are sensitive to changes in these estimates and assumptions, some of which relate to broader macroeconomic conditions outside of Altria’s control.

Although Altria’s discounted cash flow analysis is based on assumptions that are considered reasonable and based on the best available information at the time that the discounted cash flow analysis is developed, there is significant judgment used in determining future cash flows. The following factors have the most potential to impact expected future cash flows and, therefore, Altria’s impairment conclusions: general economic conditions (such as continued uncertainty from the COVID-19 pandemic); federal, state and local regulatory developments; category growth rates; consumer preferences; success of planned new product expansions; competitive activity; and income and excise taxes. For further discussion of these factors, see Operating Results by Business Segment - Tobacco Space - Business Environment below.

While Altria’s management believes that the estimated fair values of each reporting unit and indefinite-lived intangible asset at December 31, 2021 are reasonable, actual performance in the short-term or long-term could be significantly different from forecasted performance, which could result in impairment charges in future periods.

For further discussion of goodwill and other intangible assets, see Note 4.

▪Investments in Equity Securities: Altria reviews its equity investments accounted for under the equity method of accounting (ABI and Cronos) for impairment by comparing the fair value of each of its investments to their carrying value. If the carrying value of an investment exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired and reduced to fair value, and the impairment is recognized in the period identified. The factors used to make this determination include the duration and magnitude of the fair value decline, the financial condition and near-term prospects of the investee, and Altria’s intent and ability to hold its investment until recovery.

Following Share Conversion (as defined in Note 6) in the fourth quarter of 2020, Altria elected to account for its equity investment in JUUL under the fair value option. Under this option, any cash dividends received and any changes in the fair value of the equity investment in JUUL, which is calculated quarterly using level 3 fair value measurements, are included in (income) losses from equity investments in the consolidated statements of earnings (losses).

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Investment in ABI

At December 31, 2021, Altria’s investment in ABI consisted of 185 million restricted shares of ABI (the “Restricted Shares”) and 12 million ordinary shares of ABI. The fair value of Altria’s equity investment in ABI is based on: (i) unadjusted quoted prices in active markets for ABI’s ordinary shares and was classified in Level 1 of the fair value hierarchy and (ii) observable inputs other than Level 1 prices, such as quoted prices for similar assets for the Restricted Shares, and was classified in Level 2 of the fair value hierarchy. Altria can convert its Restricted Shares to ordinary shares at its discretion. Therefore, the fair value of each Restricted Share is based on the value of an ordinary share.

The fair value of Altria’s equity investment in ABI at December 31, 2021 and 2020 was $11.9 billion (carrying value of $11.1 billion) and $13.8 billion (carrying value of $16.7 billion), respectively, which was above its carrying value by approximately 7% at December 31, 2021, and less than its carrying value by approximately 17% at December 31, 2020.

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

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

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

▪ABI’s share price continued to decline following the release of ABI’s second quarter of 2021 earnings report in which ABI’s performance in the first half of 2021 improved meaningfully versus the same period in 2020. Despite ABI’s second quarter of 2021 results, which also included top-line growth ahead of the pre-pandemic levels from the second quarter of 2019 as well as the reaffirmation of its 2021 outlook, ABI’s income growth was impacted by, among other things, transactional foreign exchange and commodity cost headwinds; and

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

Although Altria recorded an impairment charge on its investment in ABI during the third quarter of 2021, Altria continues to have confidence in ABI’s (i) long-term strategies, (ii) premium global brands, (iii) experienced management team and (iv) capability to successfully navigate its near-term challenges. While Altria considers the impacts related to the COVID-19 pandemic that have negatively impacted ABI’s global business to be transitory, Altria determined, as of the third quarter of 2021, that the full recovery to carrying value would take longer than previously expected.

At February 22, 2022, the fair value of Altria’s equity investment in ABI was $12.2 billion, which exceeded its carrying value by approximately 9%. Altria will continue to monitor its investment in ABI, including the impact of the COVID-19 pandemic and subsequent recovery on ABI’s business and market valuation.

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Investment in JUUL

At December 31, 2021, the estimated fair value of Altria’s investment in JUUL was $1.7 billion, unchanged from December 31, 2020, as Altria’s projections of lower JUUL revenues in the United States over time due to lower JUUL volume assumptions were offset by (i) the effect of passage of time on the projected cash flows and (ii) a decrease in the discount rate due to change in market factors.

Altria uses an income approach to estimate the fair value of its investment in JUUL. The income approach reflects the discounting of future cash flows for the United States and international markets at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing future cash flows. Future cash flows are based on a range of scenarios that consider various potential regulatory and market outcomes.

In determining the fair value of its investment in JUUL in 2021, Altria made various judgments, estimates and assumptions, the most significant of which were sales volume, operating margins, discount rates and perpetual growth rates. All significant inputs used in the valuation are classified in Level 3 of the fair value hierarchy. The discount rates used in performing the valuations ranged from 17.0% to 19.0% at December 31, 2021. The perpetual growth rates used in performing each valuation ranged from (0.5%) to 0.0%. Additionally in determining these significant assumptions, Altria made judgments regarding the: (i) likelihood and extent of various potential regulatory actions and the continued adverse public perception impacting the e-vapor category and specifically JUUL; (ii) risk created by the number and types of legal cases pending against JUUL; (iii) expectations for the future state of the e-vapor category including competitive dynamics; and (iv) timing of international expansion plans.

Although Altria’s discounted cash flow analyses were based on assumptions that Altria’s management considered reasonable and were based on the best available information at the time that the analyses were developed, there is significant judgment used in determining future cash flows. If the following factors, in isolation, significantly deviate from current expectations, Altria believes that they have the potential to materially impact Altria’s significant assumptions of sales volume, operating margins, discount rate, and perpetual growth rate, thus potentially materially decreasing Altria’s valuation of its investment in JUUL:

▪adverse developments related to litigation;

▪a successful challenge by the FTC in its administrative complaint against Altria and JUUL, for a further discussion, see Item 3 and Note 18;

▪a substantial increase in state and federal e-vapor excise taxes;

▪adverse publicity due to underage use of e-vapor products and other factors;

▪supply chain constraints and component part shortages, if not transitory;

▪unanticipated adverse impacts on JUUL’s relationships with employees, customers, suppliers and other third parties;

▪unfavorable financial and market performance, including substantial changes in competitive dynamics;

▪delay in timing of international expansion plans;

▪disruption in JUUL’s current and future plans or operations in domestic and international markets; and

▪unfavorable regulatory and legislative developments at the international, federal, state and local levels such as the potential removal of certain e-vapor products from the market as a result of FDA enforcement action or the potential denial of new tobacco product applications for e-vapor products.

If the following factors, in isolation, significantly deviate from current expectations, Altria believes that they have the potential to materially impact Altria’s significant assumptions of sales volume, operating margins, discount rate, and perpetual growth rate, thus potentially materially increasing Altria’s valuation of its investment in JUUL:

▪favorable developments related to litigation;

▪favorable financial and market performance, including substantial changes in competitive dynamics;

▪improvement of public perception around JUUL and the e-vapor category; and

▪favorable regulatory and legislative developments at the international, federal, state and local levels such as FDA authorization of future tobacco product applications for JUUL flavored e-vapor products, which are currently not permitted in the market without authorization.

While Altria’s management believes that the recorded value of its investment in JUUL at December 31, 2021 represents its best estimate of the fair value of the investment, JUUL’s actual performance in the short term or long term could be significantly different from forecasted performance due to changes in the factors noted above. Additionally, the value of Altria’s investment in JUUL could be significantly impacted by changes in the discount rate, which could be caused by numerous factors, including changes in market inputs, as well as risks specific to JUUL and its litigation environment.

Investment in Cronos

The fair value of Altria’s equity method investment in Cronos is based on unadjusted quoted prices in active markets for Cronos’s common shares and was classified in Level 1 of the fair value hierarchy. The fair value of Altria’s equity method investment in Cronos

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at December 31, 2020 was $1.1 billion (carrying value of $1.0 billion), which exceeded its carrying value by approximately 8% at December 31, 2020.

In September 2021, the fair value of Altria’s equity method investment in Cronos declined below its carrying value (by approximately 2% as of September 30, 2021) and had not recovered as of December 31, 2021. Accounting guidance requires the evaluation of the following factors when determining if the decline in fair value is other than temporary: (i) the duration and magnitude of the fair value decline; (ii) the financial condition and near-term prospects of the investee; and (iii) the investor’s intent and ability to hold its equity method investment until full recovery to its carrying value in the near-term. In preparing its financial statements for the year ended December 31, 2021, Altria evaluated these factors and determined that there was not sufficient evidence to conclude that the impairment was temporary. As a result, Altria recorded a non-cash, pre-tax impairment charge of $205 million for the year ended December 31, 2021, which was recorded to (income) losses from equity investments in its consolidated statement of earnings (losses). The impairment charge reflects the difference between the fair value of Altria’s equity method investment in Cronos using Cronos’s share price at December 31, 2021 and the carrying value of Altria’s equity method investment in Cronos at December 31, 2021. At December 31, 2021, prior to recording the impairment charge, the fair value of Altria’s equity method investment in Cronos was less than its carrying value by approximately 25%. After recording the impairment charge, the fair value and carrying value of Altria’s equity method investment in Cronos at December 31, 2021 were $617 million.

At February 22, 2022, the fair value of Altria’s equity method investment in Cronos was $524 million, which was less than its carrying value by approximately 15%. Altria will continue to assess the fair value of its equity method investment in Cronos to determine if any decline in fair value below its carrying value is other than temporary.

For further discussion of Altria’s investments in ABI, JUUL and Cronos, see Note 6.

▪Marketing Costs: Altria’s businesses promote their products with consumer incentives, trade promotions and consumer engagement programs. These consumer incentive and trade promotion activities, which include discounts, coupons, rebates, in-store display incentives and volume-based incentives, do not create a distinct deliverable and are, therefore, recorded as a reduction of revenues. Consumer engagement program payments are made to third parties. Altria’s businesses expense these consumer engagement programs, which include event marketing, as incurred and such expenses are included in marketing, administration and research costs in Altria’s consolidated statements of earnings (losses). For interim reporting purposes, Altria’s businesses charge consumer engagement programs and certain consumer incentive expenses to operations as a percentage of sales, based on estimated sales and related expenses for the full year.

▪Contingencies: As discussed in Note 18 and Item 3, legal proceedings covering a wide range of matters are pending or threatened in various U.S. and foreign jurisdictions against Altria and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees and Altria’s investees. In 1998, PM USA and certain other U.S. tobacco product manufacturers entered into the MSA with 46 states and various other governments and jurisdictions to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other U.S. tobacco product manufacturers had previously entered into agreements to settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). PM USA’s portion of ongoing adjusted payments and legal fees is based on its relative share of the settling manufacturers’ domestic cigarette shipments, including roll-your-own cigarettes, in the year preceding that in which the payment is due. In addition, PM USA, Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. Payments under the State Settlement Agreements and the FDA user fees are based on variable factors, such as volume, operating income, market share and inflation, depending on the subject payment. Altria’s subsidiaries account for the cost of the State Settlement Agreements and FDA user fees as a component of cost of sales. Altria’s subsidiaries recorded approximately $4.6 billion and $4.7 billion of charges to cost of sales for the years ended December 31, 2021 and 2020, respectively, in connection with the State Settlement Agreements and FDA user fees.

Altria and its subsidiaries record provisions in the consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed in Note 18 and Item 3: (i) management has concluded that it is not probable that a loss has been incurred in any pending litigation; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any pending case; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred and included in marketing, administration and research costs in the consolidated statements of earnings (losses).

▪Employee Benefit Plans: Altria provides a range of benefits to certain employees and retired employees, including pension, postretirement health care and postemployment benefits. Altria records annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions as to discount rates, assumed rates of return on plan assets, mortality, compensation increases, turnover rates and health care cost trend rates. Altria reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. Any effect of the modifications is generally amortized over future periods.

Altria recognizes the funded status of its defined benefit pension and other postretirement plans on the consolidated balance sheet and records as a component of other comprehensive earnings (losses), net of deferred income taxes, the gains or losses and prior service

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costs or credits that have not been recognized as components of net periodic benefit cost (income). The gains or losses and prior service costs or credits recorded as components of other comprehensive earnings (losses) are subsequently amortized into net periodic benefit cost (income) in future years.

Due to changes in market inputs, Altria’s discount rate assumptions for its pension and postretirement plans obligations increased to 3.0% and 2.9%, respectively, at December 31, 2021 from 2.7% and 2.6%, respectively, at December 31, 2020. Altria presently anticipates net pre-tax pension and postretirement income of $103 million in 2022 versus net pre-tax income of $114 million in 2021, excluding amounts in each year related to settlement and curtailment. This anticipated change is due primarily to: (i) lower expected return on plan assets due to the change in the target asset allocation for its pension plan assets for 2022, which lowered the expected rate of return from 6.6% in 2021 to 6.1% in 2022; (ii) higher interest costs, driven by the impact of higher discount rates; and (iii) lower amortization of unrecognized losses, primarily driven by the impact of higher discount rates and changes to mortality rate assumptions. Assuming no change to the shape of the yield curve, a 50 basis point decrease (increase) in Altria’s discount rates would increase (decrease) Altria’s pension and postretirement expense by approximately $10 million. Similarly, a 50 basis point decrease (increase) in the expected return on plan assets would increase (decrease) Altria’s pension and postretirement expense by approximately $40 million.

For additional information see Note 16. Benefit Plans to the consolidated financial statements in Item 8 (“Note 16”).

▪Income Taxes: Significant judgment is required in determining income tax provisions and in evaluating tax positions. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Altria determines the realizability of deferred tax assets based on the weight of available evidence, that it is more likely than not that the deferred tax asset will not be realized. In reaching this determination, Altria considers all available positive and negative evidence, including the character of the loss, carryback and carryforward considerations, future reversals of temporary differences and available tax planning strategies.

Altria recognizes a benefit for uncertain tax positions when a tax position taken or expected to be taken in a tax return is more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Altria recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes in its consolidated statements of earnings (losses).

Altria recognized income tax benefits and charges in the consolidated statements of earnings (losses) during 2021 and 2020 as a result of various tax events.

For additional information on income taxes, see Note 14. Income Taxes to the consolidated financial statements in Item 8 (“Note 14”).

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Consolidated Operating Results

For the Years Ended December 31,

Net Revenues:

Excise Taxes on Products:

All other 2 1

Operating Income:

OCI:

Amortization of intangibles (72) (72)

General corporate expenses (345) (227)

Corporate asset impairment and exit costs — 1

As discussed further in Note 15, the CODM reviews OCI to evaluate the performance of, and allocate resources to, the segments. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments.

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The following table provides a reconciliation of adjusted net earnings attributable to Altria and adjusted diluted EPS attributable to Altria for the years ended December 31:

Tobacco and health and certain other litigation items 182 44 138 138 0.07

Tax items — 3 (3) (3) —

NPM Adjustment Items 4 1 3 3 —

Tobacco and health and certain other litigation items 83 21 62 62 0.03

The following special items affected the comparability of statements of earnings (losses) amounts.

▪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 18 and NPM Adjustment Items in Note 15, respectively.

▪Asset Impairment, Exit, Implementation, Acquisition and Disposition-Related Costs: For the years ended December 31, 2021 and 2020, Altria recorded pre-tax asset impairment, exit and implementation costs of $1 million and $407 million, respectively. For further discussion of asset impairment, exit and implementation costs, including a breakdown of these costs by segment, see Note 5. Asset Impairment, Exit and Implementation Costs to the consolidated financial statements in Item 8 (“Note 5”).

For the years ended December 31, 2021 and 2020, Altria also recorded pre-tax acquisition and disposition-related costs of $119 million and $24 million, respectively. The 2021 costs included a net pre-tax charge of $51 million related to the Ste. Michelle Transaction and $37 million for the settlement of an arbitration related to the 2019 on! transaction. For further discussion of these acquisition and disposition-related costs, see Note 15.

▪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 18 and Tobacco and Health and Certain Other Litigation Items in Note 15, respectively.

▪Impairment of JUUL Equity Securities: For the year ended December 31, 2020, Altria recorded a non-cash, pre-tax impairment charge of $2,600 million, reported as impairment of JUUL equity securities in its consolidated statements of earnings (losses). A full tax valuation allowance was recorded in 2020 attributable to the tax benefit associated with the impairment charge. For further discussion, see Note 6 and Note 14.

▪JUUL Changes in Fair Value: For the year ended December 31, 2021, there was no change in the estimated fair value of Altria’s investment in JUUL. For the year ended December 31, 2020, Altria recorded a non-cash, pre-tax unrealized gain of $100 million, reported as (income) losses from equity investments in its consolidated statements of earnings (losses) as a result of an increase

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in the estimated fair value of Altria’s investment in JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance. For further discussion, see Note 6 and Note 14.

▪ABI-Related Special Items: Altria’s losses from its equity investment in ABI for the year ended December 31, 2021, included net pre-tax charges of $6,203 million, substantially all of which related to a non-cash impairment ($6,157 million) of Altria’s equity investment in ABI. For further discussion, see Note 6.

Altria’s losses from its equity investment in ABI for the year ended December 31, 2020 included net pre-tax charges of $763 million, consisting primarily of Altria’s share of ABI’s (i) mark-to-market losses on certain ABI financial instruments associated with its share commitments, (ii) completion of the sale of its Australia subsidiary and (iii) goodwill impairment charge associated with its Africa businesses.

These amounts include Altria’s 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 Altria’s investment required under the equity method of accounting.

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

Loss on Cronos-related financial instruments (1) $ 148 $ 140

(Income) losses from equity investments (2) 318 (89)

Total Cronos-related special items - (income) expense $ 466 $ 51

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

(2) Amounts include Altria’s share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to Altria’s investment in Cronos including the $205 million non-cash, pre-tax impairment of Altria’s investment in Cronos in 2021, discussed above.

For further discussion, see Note 6 and Note 7. Financial Instruments to the consolidated financial statements in Item 8.

▪Loss on Early Extinguishment of Debt: During 2021, Altria recorded pre-tax losses of $649 million as a result of the completed debt tender offers and redemption of certain long-term senior unsecured notes. For further discussion, see Note 9. Long-TermDebt to the consolidated financial statements in Item 8 (“Note 9”).

▪COVID-19 Special Items: For the year ended December 31, 2020, Altria recorded net pre-taxcharges totaling $50 million directly related to disruptions caused by or efforts to mitigate the impact of the COVID-19 pandemic. For further discussion and a breakdown of these costs by segment, see Note 15.

▪Tax Items: For the year ended December 31, 2020, Altria recorded net tax expense of $50 million, due primarily to net tax expense of $27 million for adjustments resulting from amended returns and audit adjustments related to prior years, and tax expense of $23 million for a tax basis adjustment to Altria’s investment in ABI.

2021 Compared with 2020

Net revenues, which include excise taxes billed to customers, decreased $140 million (0.5%), due primarily to lower net revenues in the smokeable products and wine segments (resulting from the sale of the wine business in October 2021), partially offset by higher net revenues in the financial services business (primarily driven by reductions in the estimated residual values of certain assets at PMCC in 2020) and the oral tobacco products segment.

Cost of sales decreased $699 million (8.9%), due primarily to changes in the wine segment, which included the inventory-related charges in 2020 (as discussed in Note 15) and the sale of the wine business in October 2021, lower shipment volume in the smokeable products segment, NPM Adjustment Items in 2021 and COVID-19 special items in 2020, partially offset by higher per unit settlement charges, higher manufacturing costs and volume and mix in the oral tobacco products segment.

Excise taxes on products decreased $410 million (7.7%), due primarily to lower shipment volume in the smokeable products segment.

Marketing, administration and research costs increased $278 million (12.9%), due primarily to higher general corporate expenses (including an agreement to resolve a shareholder class action lawsuit in 2021 as discussed in Note 18), higher spending in the oral tobacco products (including higher acquisition-related costs as discussed in Note 15) and smokeable products segments and higher spending associated with the retail expansion of IQOS and Marlboro HeatSticks.

Operating income increased $687 million (6.3%), due primarily to higher operating results in the smokeable products and wine segments and the all other category (primarily driven by reductions in the estimated residual value of certain assets at PMCC in 2020), partially offset by higher general corporate expenses and lower operating results in the oral tobacco products segment.

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Net periodic benefit income, excluding service cost, increased by $125 million (100.0%+), due primarily to lower interest cost resulting from a decrease in discount rates and amendments to Altria’s salaried retiree healthcare plans during 2021. For further discussion, see Note 16.

(Income) losses from equity investments, which decreased $5,868 million (100.0%+), were negatively impacted by higher losses from Altria’s equity investment in ABI (primarily due to the non-cash impairment of Altria’s equity investment in ABI in 2021 discussed above), unfavorable Cronos special items (as discussed above) and a non-cash, unrealized gain resulting from an increase in the estimated fair value of Altria’s investment in JUUL in 2020.

Reported net earnings (losses) attributable to Altria of $2,475 million decreased $1,992 million (44.6%), due primarily to higher net losses from Altria’s equity investments and the loss on early extinguishment of debt, partially offset by the 2020 impairment of JUUL equity securities, higher operating income and favorable net periodic benefit income, excluding service cost. Reported basic and diluted EPS attributable to Altria of $1.34, each decreased by 44.2%,due to lower reported net earnings (losses) attributable to Altria, partially offset by fewer shares outstanding.

Adjusted net earnings attributable to Altria of $8,519 million increased $402 million (5.0%), due primarily to higher smokeable products segment OCI, favorable net periodic benefit income, excluding service cost, higher income from Altria’s investment in ABI and lower losses in the all other category (primarily driven by reductions in the estimated residual values of certain assets at PMCC in 2020), partially offset by a higher income tax rate. Adjusted diluted EPS attributable to Altria of $4.61 increased by 5.7%, due to higher adjusted net earnings attributable to Altria and fewer shares outstanding.

Operating Results by Business Segment

Tobacco Space

Business Environment

Summary

The U.S. tobacco industry faces a number of business and legal challenges that have adversely affected and may adversely affect the business and sales volume of Altria’s tobacco operating companies and investees and Altria’s consolidated results of operations, cash flows or financial position or Altria’s ability to achieve its Vision. These challenges, some of which are discussed in more detail in Note 18, Item 1A and Item 3, include:

▪pending and threatened litigation and bonding requirements;

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

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

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

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

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

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

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

▪governmental investigations;

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

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

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

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

▪illicit trade in tobacco products;

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

▪the COVID-19 pandemic.

In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences are continuing to impact the tobacco industry. Altria’s tobacco operating companies believe that a significant number of adult tobacco consumers switch among tobacco

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categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products and oral nicotine pouches. Adult smokers continue to transition from cigarettes to exclusive use of smoke-free tobacco product alternatives, which aligns with Altria’s Vision.

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

Over the past two years, the legislative and regulatory activities discussed below negatively impacted growth in the e-vapor category. While these activities continue to impact the e-vapor category, the category experienced moderate growth in 2021 and remains competitive.

Oral nicotine pouch retail share of the total oral tobacco category grew significantly over the prior year from 8.4% during 2020 to 15.4% during 2021. The oral nicotine pouch category has become increasingly competitive.

We are monitoring the sale and continued introduction of unregulated synthetic nicotine products, which may lead to further competition for regulated tobacco products, including oral nicotine pouches and e-vapor products, and may result in underage use of these unregulated products if not marketed responsibly by manufacturers.

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

For the year ended December 31, 2021, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 5.5%. Altria expects 2022 cigarette industry volume trends to continue to be most influenced by (i) changes to adult smoker stay-at-home practices, disposable income, purchasing patterns and adoption of smoke-free products, (ii) economic conditions (including unemployment rates, the impact of increased inflation and gasoline prices), (iii) fiscal stimulus, (iv) cross-category movement, (v) the timing and extent of COVID-19 vaccine administration and the impact of COVID-19 variants, and (vi) regulatory and legislative (including excise tax) developments.

Economic conditions (including a high inflationary environment) can also impact adult tobacco consumer purchasing behavior. For example, economic downturns have resulted in adult tobacco consumers choosing discount products and other lower priced tobacco products. Although the economic impact resulting from the COVID-19 pandemic did not meaningfully increase the growth of discount and lower priced tobacco products throughout much of the pandemic, in part due to stimulus payments, discount cigarette products resumed share growth in the second half of 2021 driven primarily by deep discount products. Share gains for discount cigarette products typically coincide with rising gas prices, higher inflation and increased consumer mobility. We expect fluctuations in discount cigarette product segment share to continue as price sensitive adult tobacco consumers react to economic conditions in the current high inflationary environment.

FSPTCA and FDA Regulation

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

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

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

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

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

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

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

▪Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010, the FDA promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco(1) products (the “Final Tobacco Marketing Rule”). The May

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

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2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including cigars, pipe tobacco and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives, but do not include any component or part that is not made or derived from tobacco.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

▪Grandfathered Products are exempt from the pre-market authorization requirement;

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

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

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Modifications to currently marketed products, including modifications that result from, for example, changes to the quantity of tobacco product(s) in a package, a manufacturer being unable to acquire ingredients or a supplier being unable to maintain the consistency required in ingredients, could trigger the FDA’s pre-market or SE review processes. Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination, (ii) a denial of a PMTA or (iii) a marketing order withdrawal by the FDA on one or more products, which would require the removal of the product or products from the market. Such actions could have a material adverse impact on the business and consolidated results of operations of Altria’s tobacco operating companies and investees, and the cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL.

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

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

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

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

Products Regulated in 2016: Manufacturers of products first regulated by the FDA in 2016, including cigars, oral nicotine pouches and e-vapor products, that were on the market as of August 8, 2016 and not subsequently modified must have filed an SE report or PMTA by the filing deadline of September 9, 2020 in order for their products to remain on the market. These products can remain on the market during FDA review through court-allowed, case-by-case discretion, so long as the report or application was timely filed with the FDA. Due to the large number of applications received by September 9, 2020, the FDA did not complete its review of all submitted applications by September 9, 2021, although it represents that it has made decisions on more than 98% of the applications, with most being marketing denial orders and a few marketing granted orders for tobacco flavor e-vapor products. A number of the marketing denial orders are subject to litigation challenges initiated by the affected manufacturers. For those products still under FDA review, it is uncertain when and for how long the FDA may permit continued marketing and sale of those products pursuant to its case-by-case discretion. For products (new or modified) not on the market as of August 8, 2016, manufacturers must file an SE report or PMTA and receive FDA authorization prior to marketing and selling the product.

Helix submitted PMTAs for on! oral nicotine pouches in May 2020. JUUL submitted PMTAs to the FDA for its e-vapor device and the related tobacco and menthol flavors in July 2020. As of February 22, 2022, the FDA has not issued marketing order decisions for any on! or JUUL products. In addition, as of February 22, 2022, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.

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

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

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marketplace. For a further discussion of the ITC decision, see Note 18. For a further discussion of risks associated with the agreements with PMI, see Risks Related to Our Businesses in Item 1A.

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. These products are not currently marketed or sold.

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

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

▪FDA Regulatory Actions

▪Graphic Warnings:In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising. As a result of a March 2021 court order related to the COVID-19 pandemic and subsequent court orders resulting from a lawsuit brought by R.J. Reynolds Tobacco Company and others against the FDA, the final rule is presently anticipated to become effective on April 9, 2023. PM USA and other cigarette manufacturers have filed lawsuits challenging the final rule on substantive and procedural grounds.

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

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

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

▪Flavored Electronic Nicotine Delivery System (“ENDS”) Products: Some e-vapor product manufacturers filed PMTAs for flavored tobacco products. As of February 22, 2022, many of these manufacturers received marketing denial orders for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. FDA has communicated in these marketing denial orders that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications will require strong, product-specific evidence. A number of manufacturers are appealing the marketing denial orders for their products. If the FDA does not ultimately allow for the reintroduction of flavors other than tobacco, it could adversely affect the value of Altria’s investment in JUUL.

Some ENDS manufacturers, including some that have received marketing denial orders, have indicated their intention to market ENDS products containing synthetically-derived nicotine, which is not currently FDA-regulated. If these products are sold in higher volumes, and marketed outside of FDA oversight, it could adversely affect the value of Altria’s investment in JUUL, have a material adverse effect on Altria’s consolidated financial position or earnings and adversely affect Altria’s ability to achieve its Vision.

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▪Potential Product Standards

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

▪Flavors in Tobacco Products:As discussed above under FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation,the FDA indicated that it is considering proposing rulemaking for a product standard that would seek to ban menthol in combustible tobacco products, including cigarettes and cigars, and that it intends to propose a product standard that would ban characterizing flavors in all cigars, including Grandfathered Products and those that have received SE determinations from the FDA - an intention reiterated in the FDA’s January 2020 guidance. In March 2018, the FDA issued an ANPRM seeking comments on the role, if any, that flavors (including menthol) in tobacco products may play in attracting youth and in helping some smokers switch to potentially less harmful forms of nicotine delivery. In the context of litigation, in April 2021, the FDA issued a response to a 2013 citizen petition requesting that the FDA prohibit menthol as a characterizing flavor in cigarettes. In the response, the FDA announced it intends to develop and propose two product standards, which are expected by the second quarter of 2022, that would (i) ban menthol as a characterizing flavor in cigarettes and (ii) ban all characterizing flavors (including menthol) in cigars. While the FDA has yet to define “characterizing flavors” with respect to cigars, most of Middleton’s cigar products contain added flavors and may be subject to any action by the FDA to ban flavors in cigars.

If any such product standards become final and are appealed and upheld in the courts, it could have a material adverse effect on the business of Altria’s tobacco operating companies, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL (due to the impact on JUUL’s business) if the FDA pursues broader flavor restrictions beyond cigarettes and cigars.

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

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

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

▪impact the consumer acceptability of tobacco products;

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

▪limit adult tobacco consumer choices;

▪impose restrictions on communications with adult tobacco consumers;

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

▪impose additional manufacturing, labeling or packaging requirements;

▪impose additional restrictions at retail;

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

▪otherwise significantly increase the cost of doing business.

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

The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco, cigar and pipe tobacco manufacturers and importers to pay for the cost of regulation and other matters. The FSPTCA does not impose user fees on e-vapor or oral nicotine pouch

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

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

Excise Taxes

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

During 2021, Congress considered legislation that would have significantly increased the federal excise tax for all tobacco products and created a new tax for e-vapor products and other products containing nicotine that are not currently subject to a tobacco federal excise tax (“novel tobacco products”). The U.S. House of Representatives removed the proposal to increase the federal excise tax on tobacco products currently subject to the tax from the legislation it was considering, but retained the proposed nicotine tax for novel tobacco products. The U.S. Senate debated the legislation and removed the nicotine tax for novel tobacco products; however, as of February 22, 2022, the legislation is still pending before the Senate and could be subject to further tax related amendments.

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 February 22, 2022, the weighted-average state cigarette excise tax increased from $0.36 to $1.89 per pack. As of February 22, 2022, no state has enacted new legislation increasing cigarette excise taxes in 2022, but various increases are under consideration or have been proposed.

A majority of states currently tax MST using an ad valorem method, which is calculated as a percentage of the price of the product, typically the wholesale price. This ad valorem method results in more tax being paid on premium products than is paid on lower-priced products of equal weight. Altria supports 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 February 22, 2022, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for MST.

An increasing number of states and localities also are imposing excise taxes on e-vapor and oral nicotine pouches. As of February 22, 2022, 30 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor products. These taxes are calculated in varying ways and may differ based on the e-vapor product form. Similarly, 11 states and the District of Columbia have enacted legislation to tax oral nicotine pouches.

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

International Treaty on Tobacco Control

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. As of February 22, 2022, 181 countries, as well as the European Union, have become parties to the FCTC. While the United States is a signatory of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the U.S. Senate. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would address various tobacco-related issues.

There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial restrictions on the manufacture, marketing, distribution and sale of tobacco products. It is not possible to predict the outcome of these

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proposals or the impact of any FCTC actions on legislation or regulation in the U.S., either indirectly or as a result of the U.S. becoming a party to the FCTC, or whether or how these actions might indirectly influence FDA regulation and enforcement.

State Settlement Agreements

As discussed in Note 18, during 1997 and 1998, PM USA and other major domestic cigarette manufacturers entered into the State Settlement Agreements. These settlements require participating manufacturers to make substantial annual payments, which are adjusted for several factors, including inflation, operating income, market share and industry volume. Increases in inflation can increase our financial liability under the State Settlement Agreements. The State Settlement Agreements’ inflation calculations require us to apply the higher of 3% or the U.S. Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (“CPI-U”) percentage rate as published in January of each year. As of December 2021, the inflation calculation was approximately 7% based on the latest CPI-U data; however, the increase in the annual payments did not have a material impact on Altria’s financial position. Altria believes that inflation will continue at increased levels in 2022, but does not expect the corresponding increase in annual payments to result in a material financial impact. However, we will continue to monitor conditions related to the impact of increased inflation on the macro-economic environment.

For a discussion of the impact of the State Settlement Agreements on Altria, see Liquidity and Capital Resources - Payments Under State Settlement Agreements and FDA Regulation below and Note 18. The State Settlement Agreements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and restrictions on the advertising and marketing of cigarettes and smokeless tobacco products. Among these are prohibitions of outdoor and transit brand advertising, payments for product placement and free sampling (except in adult-only facilities). The State Settlement Agreements also place restrictions on the use of brand name sponsorships and brand name non-tobacco products and prohibitions on targeting youth and the use of cartoon characters. In addition, the State Settlement Agreements require companies to affirm corporate principles directed at reducing underage use of cigarettes; impose requirements regarding lobbying activities; limit the industry’s ability to challenge certain tobacco control and underage use laws; and provide for the dissolution of certain tobacco-related organizations and place restrictions on the establishment of any replacement organizations.

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

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

▪International, Federal, State and Local Regulation: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. 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 February 22, 2022, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and six states (California, Massachusetts, New Jersey, Utah, New York and Illinois) and the District of Columbia have passed such legislation. Some of these states, such as New York, Utah and Illinois, exempt certain products that have received FDA market authorization through the PMTA pathway.

The legislation in California bans the sale of most tobacco products with characterizing flavors, including menthol, mint and wintergreen. Following enactment of the flavor ban in August 2020, several registered California voters filed a referendum against the legislation. In January 2021 the requisite number of registered California voters signed a petition to place the question of whether the legislation should be affirmed or overturned on the next statewide general election ballot, which will likely take place in November 2022, unless a special statewide election is called earlier. As a result, the implementation of the legislation is delayed until after a vote on the referendum occurs.

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

Restrictions on e-vapor and oral nicotine pouch products also have been instituted or proposed internationally.

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

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▪Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products: After a number of states and localities proposed and enacted legislation to increase the minimum age to purchase all tobacco products, including e-vapor products, in December 2019, the federal government passed legislation increasing the minimum age to purchase all tobacco products, including e-vapor products, to 21 nationwide. As of February 22, 2022, 39 states, the District of Columbia and Puerto Rico have enacted laws increasing the legal age to purchase tobacco products to 21. Although an increase in the minimum age to purchase tobacco products may have a negative impact on sales volume of our tobacco businesses, as discussed above under Underage Access and Use of Certain Tobacco Products, Altria supports raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels, reflecting its longstanding commitment to combat underage tobacco use.

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

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

▪Other Legislation or Governmental Initiatives: In addition to the actions discussed above, other regulatory initiatives affecting the tobacco industry have been adopted or are being considered at the federal level and in a number of state and local jurisdictions. For example, during the COVID-19 pandemic, state and local governments required additional health and safety requirements of all businesses, including tobacco manufacturing and other facilities. State and local governments also mandated the temporary closure of some businesses. While many restrictions have eased, it is possible that tobacco manufacturing and other facilities and the facilities of our suppliers, our suppliers’ suppliers and our trade partners could be subject to additional government-mandated temporary closures and restrictions.

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

It is not possible to predict what, if any, additional legislation, regulation or other governmental action will be enacted or implemented (and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or the tobacco industry generally. It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that could have a material adverse impact on the business and volume of Altria’s tobacco operating companies and investees, and the consolidated results of operations, cash flows or financial position of Altria and its tobacco operating companies, including adversely affecting the value of Altria’s investment in JUUL.

▪Governmental Investigations: From time to time, Altria and its subsidiaries and investees are subject to governmental investigations on a range of matters. For example: (i) the FTC issued a Civil Investigative Demand (“CID”) to Altria while conducting its antitrust review of Altria’s investment in JUUL seeking information regarding, among other things, Altria’s role in the resignation of JUUL’s former chief executive officer and the hiring by JUUL of any current or former Altria director, executive or employee (see Note 18 and Item 3 for a description of the FTC’s administrative complaint against Altria and JUUL); (ii) the SEC commenced an investigation relating to Altria’s acquisition, disclosures and accountingcontrols 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 Altria seeking documents relating to Altria’s investment in and provision of services to JUUL. Additionally, JUUL is currently under investigation by various federal and state agencies, including the SEC, the FDA and the FTC, and state attorneys general. Such investigations vary in scope but at least some appear to include JUUL’s marketing practices, particularly as such practices relate to youth, and Altria may be asked in the context of those investigations to provide information concerning its investment in JUUL or relating to its marketing of Nu Mark LLC e-vapor products.

Private Sector Activity on E-Vapor

A number of retailers, including national chains, have discontinued the sale of e-vapor products. Reasons for the discontinuation include reported illnesses related to e-vapor product use and the uncertain regulatory environment. It is possible that this private sector activity

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could adversely affect the value of Altria’s investment in JUUL and have a material adverse effect on Altria’s consolidated financial position or earnings.

Illicit Trade in Tobacco Products

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

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

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

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

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

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

The COVID-19 pandemic also may limit access to and increase the cost of raw materials, component parts and personal protective equipment as United States and global suppliers may temporarily shut down facilities or use different production schedules with lower productivity in order to address exposure to the virus or as a result of a government mandate. In addition, (i) current labor market dynamics indicate labor shortages, with employers in a number of industries having difficulty employing workers and (ii) supply chain dynamics reflect failures and delays resulting from various issues including labor shortages, logistical problems and weather-related incidents. These labor shortages and supply failures and delays have led to certain increases in raw material (for example, resins used in our packaging), ingredient and component part prices and may lead to supply chain disruptions; however, to date, the impact on our operating companies and investees has been immaterial. However, the effects of the COVID-19 pandemic, labor market dynamics and supply chain disruptions outlined above may continue, which could adversely affect our subsidiaries’ and investees’ profitability and businesses. Recent economic conditions reflect an increased rate of inflation. To date, higher inflation has not had a material impact on our or our investees’ businesses, revenues or profitability. Although Altria anticipates inflation will continue at elevated levels in 2022, it is not expected to have a material impact on our or our investees’ businesses, revenues or profitability.

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 products. For example, additional

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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 tobacco operating companies’ products.

Timing of Sales

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

Operating Results

Smokeable Products Segment

Financial Results

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

Operating Results

For the Years Ended December 31,

NPM Adjustment Items (53) 4

Tobacco and health and certain other litigation items 83 79

COVID-19 special items — 41

Reported OCI margins (1) 57.4 % 55.7 %

Adjusted OCI margins (1) 57.6 % 56.4 %

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

2021 Compared with 2020

Net revenues, which include excise taxes billed to customers, decreased $223 million (1.0%), due primarily to lower shipment volume ($1,931 million), partially offset by higher pricing ($1,703 million).

Reported OCI increased $409 million (4.1%), due primarily to higher pricing ($1,688 million), NPM Adjustment Items in 2021 ($53 million) and COVID-19 special items in 2020 ($41 million), partially offset by lower shipment volume ($1,158 million), higher per unit settlement charges and higher costs ($38 million).

Adjusted OCI increased $313 million (3.1%), due primarily to higher pricing, partially offset by lower shipment volume, higher per unit settlement charges and higher costs.

Marketing, administration and research costs for the smokeable products segment include PM USA’s cost of administering and litigating product liability claims. Litigation defense costs are influenced by a number of factors, including the number and types of cases filed, the number of cases tried annually, the results of trials and appeals, the development of the law controlling relevant legal issues, and litigation strategy and tactics. For further discussion on these matters, see Note 18 and Item 3. For the years ended December 31, 2021 and 2020, product liability defense costs for PM USA were $111 million and $110 million, respectively. Product liability defense costs have decreased since 2019 driven by the COVID-19 pandemic and fewer trials as a result of court closures due to the COVID-19 pandemic, which may continue into 2022. Once regular trial activity resumes, PM USA expects product liability defense costs to return to amounts similar to 2019, which were $151 million.

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Shipment Volume and Retail Share Results

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

Shipment Volume

For the Years Ended December 31,

Cigarettes:

Cigars:

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

The following table summarizes cigarettes retail share performance:

Retail Share

For the Years Ended December 31,

Cigarettes:

Other premium 2.3 2.3

Note: Retail share results for cigarettes are based on data from IRI/Management Science Associates, Inc., a tracking service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers through the Store Tracking Analytical Reporting System (“STARS”). This service is not designed to capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets. It is IRI’s standard practice to periodically refresh its services, which could restate retail share results that were previously released in this service.

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

2021 Compared with 2020

The smokeable products segment’s reported domestic cigarettes shipment volume decreased 7.5%, driven primarily by the industry’s rate of decline, trade inventory movements, retail share losses, calendar differences and other factors. When adjusted for trade inventory movements, calendar differences and other factors, the smokeable products segment’s reported domestic cigarettes shipment volume decreased by an estimated 6%. When adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volume decreased by an estimated 5.5%.

Shipments of premium cigarettes accounted for 93.0% and 92.1% of the smokeable products segment’s reported domestic cigarettes shipment volume for 2021 and 2020, respectively.

Total cigarettes industry discount category retail share increased 0.5 share points to 25.4% in 2021 versus 2020. For a discussion regarding discount category dynamics in 2021 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Tobacco Space - Business Environment - Summary above.

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Pricing Actions

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

▪Effective December 12, 2021, PM USA increased the list price of Marlboro, L&M and Chesterfield by $0.15 per pack. In addition, PM USA increased the list price of all of its other cigarette brands by $0.20 per pack.

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

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

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

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

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

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

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

In addition:

▪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.

Oral Tobacco Products Segment

Financial Results

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

Operating Results

For the Years Ended December 31,

Revenues net of excise taxes $ 2,476 $ 2,403

COVID-19 special items — 9

Reported OCI margins (1) 67.0 % 71.5 %

Adjusted OCI margins (1) 68.5 % 71.7 %

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

2021 Compared with 2020

Net revenues, which include excise taxes billed to customers, increased $75 million (3.0%), due primarily to higher pricing ($105 million), which includes higher promotional investments in on!, partially offset by volume and mix ($36 million) due primarily to a shift between MST and on! shipment volumes resulting in a higher percentage of 2021 on! volume versus 2020 (“volume/mix”).

Reported OCI decreased $59 million (3.4%) due primarily to higher costs ($98 million), which include higher acquisition-related costs and COVID-19 special items in 2020, and volume/mix ($61 million), partially offset by higher pricing, which includes higher promotional investments in on!.

Adjusted OCI decreased $28 million (1.6%) due primarily to higher costs and volume/mix, partially offset by higher pricing, which includes higher promotional investments in on!.

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Shipment Volume and Retail Share Results

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

Shipment Volume

For the Years Ended December 31,

Other (includes Red Seal and on!) 119.3 88.7

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

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

Retail Share

For the Years Ended December 31,

Other (includes Red Seal and on!) 5.8 4.2

Total oral tobacco products 47.8 % 49.9 %

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

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

2021 Compared with 2020

The oral tobacco products segment’s reported domestic shipment volume was essentially unchanged as the industry’s growth rate and trade inventory movements were essentially offset by retail share losses and calendar differences. When adjusted for trade inventory movements and calendar differences, the oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 0.5%.

Total oral tobacco products category industry volume increased by an estimated 2% over the six months ended December 31, 2021, driven by growth in oral nicotine pouches.

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

Total U.S. oral tobacco category share for on! nicotine pouches grew to 3.9% in the fourth quarter of 2021, an increase of 2.8 percentage points versus the fourth quarter of 2020.

In 2021, Helix achieved unconstrained on! manufacturing capacity for the current estimated size of the U.S. oral nicotine pouch category.

As of December 31, 2021, on! was available for sale in approximately 117,000 U.S. stores.

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Pricing Actions

USSTC executed the following pricing actions during 2021 and 2020:

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

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

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

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

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

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

In addition:

▪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.

Wine Segment

Financial Results

Full-year 2021 results include wine business financial results for the period January 1, 2021 through September 30, 2021 as a result of the Ste. Michelle Transaction. For further discussion, see Item 1.

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

Operating Results

For the Years Ended December 31,

Excise taxes (14) (19)

Revenues net of excise taxes $ 480 $ 595

Adjusted OCI $ 73 $ 51

Reported OCI margins (1) 4.4 % (60.5) %

Adjusted OCI margins (1) 15.2 % 8.6 %

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

2021 Compared with 2020

Net revenues, which include excise taxes billed to customers, decreased $120 million (19.5%).

Reported OCI and adjusted OCI increased $381 million (100%+) and $22 million (43.1%), respectively.

Reported OCI for the year ended December 31, 2021 included disposition-related charges associated with the Ste. Michelle Transaction (as discussed in Note 15).

Reported OCI for the year ended December 31, 2020 included inventory-related charges related to the strategic reset of the wine business (as discussed in Note 5).

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Liquidity and Capital Resources

Altria is a holding company that is primarily dependent on the capital resources of its subsidiaries to satisfy its liquidity requirements. Altria’s access to the operating cash flows of its wholly owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At December 31, 2021, Altria’s significant wholly owned subsidiaries were not limited by contractual obligations in their ability to pay cash dividends or make other distributions with respect to their equity interests. In addition, Altria receives cash dividends on its interest in ABI and will continue to do so as long as ABI pays dividends.

At December 31, 2021, Altria had $4.5 billion of cash and cash equivalents. In addition to having access to the operating cash flows of its wholly owned subsidiaries, Altria’s capital resources include access to credit markets in the form of commercial paper, borrowings available under its $3.0 billion Credit Agreement (as defined below) and its 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, Altria primarily uses its net cash from operating activities for payment of dividends, share repurchases under its share repurchase programs, repayment of debt, acquisition of or investments in businesses and assets, and capital expenditures.

Altria believes its cash and cash equivalents balance, along with its future cash flows from operations and capacity for borrowings through its access to the credit and capital markets, provide sufficient liquidity to meet its business operations and satisfy its projected cash requirements for the next 12 months and the foreseeable future.

Capital Markets and Other Matters

Credit Ratings - Altria’s cost and terms of financing and its access to commercial paper markets may be impacted by applicable credit ratings. The impact of credit ratings on the cost of borrowings under the Credit Agreement is discussed in Note 8. Short-Term Borrowings and Borrowing Arrangements to the consolidated financial statements in Item 8 (“Note 8”).

At December 31, 2021, the credit ratings and outlook for Altria’s indebtedness by major credit rating agencies were:

Short-term Debt Long-term Debt Outlook

Moody’s Investors Service, Inc. (“Moody’s”) P-2 A3 Stable

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

Fitch Ratings Inc. F2 BBB Stable

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

In August 2021, Altria entered into an extension and amendment to its $3.0 billion senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”). Altria monitors the credit quality of its bank group and is not aware of any potential non-performing credit provider in that group. For further discussion on short-term borrowings, see Note 8.

Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA. For further discussion, see Supplemental Guarantor Financial Information below and Note 9.

Debt - At December 31, 2021 and 2020, Altria’s total debt was $28.0 billion and $29.5 billion, respectively.

In May 2021, Altria repaid in full its 4.75% senior unsecured notes in the aggregate principal amount of $1.5 billion at maturity.

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

During the first quarter of 2021, Altria (i) completed debt tender offers to purchase for cash certain of its long-term senior unsecured notes in the aggregate principal amount of $4,042 million and (ii) redeemed all of its outstanding 3.490% Notes due 2022 in an aggregate principal amount of $1.0 billion. As a result, for the year ended December 31, 2021, Altria recorded pre-tax losses on early extinguishment of debt of $649 million, which included premiums and fees of $623 million and the write-off of related unamortized debt discounts and debt issuance costs of $26 million. As a result of the debt transactions, Altria reduced its near-term maturity towers, extended the weighted-average maturity of its debt and lowered its weighted-average coupon interest rate on total long-term debt.

All of Altria’s long-term debt outstanding at December 31, 2021 and 2020 was fixed-rate debt. The weighted-average coupon interest rate on total long-term debt was approximately 4.0% and 4.1% at December 31, 2021 and 2020, respectively.

For further details on long-term debt, see Note 9.

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Ste. Michelle Transaction - On October 1, 2021, UST received net cash proceeds of approximately $1.2 billion from the Ste. Michelle Transaction, which was used to partially fund the expansion of the January 2021 share repurchase program as discussed in Note 10. Capital Stock to the consolidated financial statements in Item 8 (“Note 10”).

In October 2020, Altria filed a registration statement on Form S-3 with the SEC, under which Altria may offer debt securities or warrants to purchase debt securities from time to time over a three-year period from the date of filing.

Off-Balance Sheet Arrangements and Other Future Contractual Obligations

Altria has no off-balance sheet arrangements, including special purpose entities, other than guarantees and contractual obligations that are discussed below.

Guarantees and Other Similar Matters - As discussed in Note 18, Altria and certain of its subsidiaries had unused letters of credit obtained in the ordinary course of business and guarantees (including third-party guarantees) outstanding at December 31, 2021. From time to time, subsidiaries of Altria also issue lines of credit to affiliated entities. In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 9, PM USA has issued guarantees relating to Altria’s obligations under its outstanding debt securities, borrowings under the Credit Agreement and amounts outstanding under the commercial paper program. These items have not had, and are not expected to have, a significant impact on Altria’s liquidity.

Long-Term Debt and Interest on Borrowings - In addition to maturities of long-term debt, Altria makes interest payments based on stated coupon interest rates. For information on annual debt maturities and interest payments, see Note 9.

Purchase Obligations - Altria has entered into purchase obligations for inventory and production costs (such as raw materials, indirect materials and services, contract manufacturing, packaging, storage and distribution) and other commitments for projected needs to be used in the normal course of business. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). At December 31, 2021, purchase obligations for inventory and production costs for the next 12 months were $827 million and $1,274 million thereafter (a decrease from $1,095 million and $2,902 million at December 31, 2020, respectively, driven primarily by the Ste. Michelle Transaction).

At December 31, 2021, Altria had $609 million of other purchase obligation commitments for marketing, capital expenditures, information technology and professional services, which occur through the ordinary course of business. Substantially all of these commitments are expected to be satisfied within 12 months. Accounts payable and accrued liabilities are reflected on Altria’s consolidated balance sheet at December 31, 2021 and are excluded from the amounts above.

Payments Under State Settlement Agreements and FDA Regulation - As discussed previously and in Note 18, PM USA has entered into State Settlement Agreements with the states and territories of the United States that call for certain payments. In addition, PM USA, Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. For further discussion of the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the MSA, see Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 18.

Based on current agreements, estimated market share, estimated annual industry volume decline rates and inflation rates, the estimated amounts that Altria’s subsidiaries may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees are $4.4 billion on average for the next three years. These amounts exclude the potential impact of any NPM Adjustment Items.

The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year are generally paid in the following year. The amounts charged to cost of sales for FDA user fees are generally paid in the quarter in which the fees are incurred. Altria’s subsidiaries paid approximately $4.7 billion and $4.5 billion for the years ended December 31, 2021 and 2020, 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.

Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of December 31, 2021, PM USA had posted appeal bonds totaling $50 million, which have been collateralized with restricted cash that is included in assets on the consolidated balance sheet.

Although litigation is subject to uncertainty and an adverse outcome or settlement of litigation could have a material adverse effect on the financial position, cash flows or results of operations of PM USA, UST or Altria in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 18, Item 3 and Item 1A, management expects cash flow from operations, together with Altria’s access to capital markets, to provide sufficient liquidity to meet ongoing business needs.

Other Long-Term Liabilities - Altria had $1.5 billion of accrued postretirement health care costs on its consolidated balance sheet at December 31, 2021 and estimates approximately $100 million of annual payments. In addition, Altria has accrued pension obligations, substantially all of which are funded from plan assets. For further information on Altria’s postretirement health care and pension

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obligations, see Note 16. Altria is unable to estimate the timing of payments of other long-term liabilities (accrued postemployment costs, income taxes and tax contingencies, and other accruals) included on its consolidated balance sheet at December 31, 2021.

Equity and Dividends

As discussed in Note 11. Stock Plans to the consolidated financial statements in Item 8, during 2021 Altria granted an aggregate of 1.1 million restricted stock units and 0.2 million performance stock units to eligible employees.

At December 31, 2021, the number of shares to be issued upon vesting of restricted stock units and performance stock units was not significant.

Dividends paid in 2021 and 2020 were approximately $6.4 billion and $6.3 billion, respectively, an increase of 2.5%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares repurchased by Altria in 2021 under its share repurchase program.

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

For a discussion of Altria’s share repurchase programs, see Note 10 and Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in this Form 10-K.

Financial Review

Cash Provided by/Used in Operating Activities

During 2021, net cash provided by operating activities was $8.4 billion, essentially unchanged from 2020 as higher net revenues, net of excise taxes, in the smokeable products and oral tobacco products segments were mostly offset by higher settlement and income tax payments.

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

Cash Provided by/Used in Investing Activities

During 2021, net cash provided by investing activities was $1.2 billion compared with net cash used in investing activities of $0.1 billion during 2020. This change was due primarily to proceeds from the Ste. Michelle Transaction, higher proceeds from finance asset sales and lower capital expenditures.

Capital expenditures for 2021 decreased 26.8% to $169 million. Capital expenditures were lower due primarily to the timing of projects and the sale of the wine business. Capital expenditures for 2022 are expected to be in the range of $200 million to $250 million, and are expected to be funded from operating cash flows.

Cash Provided by/Used in Financing Activities

During 2021, net cash used in financing activities was $10.0 billion compared with $5.4 billion during 2020. This increase was due primarily to the following:

▪repayment of $5.0 billion of Altria senior unsecured notes in connection with the 2021 debt tender offers and redemption and payments of $0.6 billion for the premiums and fees in connection with the debt tender offers described above and in Note 9;

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

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

▪repurchases of common stock in 2021; and

▪higher dividends paid in 2021;

partially offset by:

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

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

New Accounting Guidance Not Yet Adopted

See Note 2for a discussion of issued accounting guidance applicable to, but not yet adopted by, Altria.

Contingencies

See Note 18 and Item 3 for a discussion of contingencies.

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Supplemental Guarantor Financial Information

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

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