Edgar Filing: ALTRIA GROUP, INC.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-08940

Altria Group, Inc.

(Exact name of registrant as specified in its charter)




Virginia		13-3260245
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6601 West Broad Street, Richmond, Virginia		23230
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (804) 274-2200

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

At October 19, 2015, there were 1,960,679,441 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.

Table of Contents

ALTRIA GROUP, INC.

TABLE OF CONTENTS




		Page No.
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014	3

	Condensed Consolidated Statements of Earnings for the Nine Months Ended September 30, 2015 and 2014	5

	Three Months Ended September 30, 2015 and 2014	6

	Condensed Consolidated Statements of Comprehensive Earnings for the Nine Months Ended September 30, 2015 and 2014	7

	Three Months Ended September 30, 2015 and 2014	8

	Condensed Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2014 and the Nine Months Ended September 30, 2015	9

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	10

	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69

Item 4.	Controls and Procedures	99

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	99

Item 1A.	Risk Factors	99

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	100

Item 6.	Exhibits	101

Signature	Signature	102

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)



	September 30, 2015		December 31, 2014
Assets
Cash and cash equivalents	$	1,907	$	3,321
Receivables	137		124
Inventories:
Leaf tobacco	863		991
Other raw materials	187		200
Work in process	393		429
Finished product	511		420
	1,954		2,040
Deferred income taxes	1,143		1,143
Other current assets	370		250
Total current assets	5,511		6,878
Property, plant and equipment, at cost	4,866		4,755
Less accumulated depreciation	2,850		2,772
	2,016		1,983
Goodwill	5,285		5,285
Other intangible assets, net	12,033		12,049
Investment in SABMiller	5,442		6,183
Finance assets, net	1,295		1,614
Other assets	417		483
Total Assets	$	31,999	$	34,475

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share and per share data)

(Unaudited)



	September 30, 2015			December 31, 2014
Liabilities
Current portion of long-term debt	$	3		$	1,000
Accounts payable	307			416
Accrued liabilities:
Marketing	766			618
Employment costs	146			186
Settlement charges	3,216			3,500
Other	1,019			925
Dividends payable	1,110			1,028
Total current liabilities	6,567			7,673
Long-term debt	12,918			13,693
Deferred income taxes	5,831			6,088
Accrued pension costs	903			1,012
Accrued postretirement health care costs	2,444			2,461
Other liabilities	420			503
Total liabilities	29,083			31,430
Contingencies (Note 10)
Redeemable noncontrolling interest	35			35
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935			935
Additional paid-in capital	5,800			5,735
Earnings reinvested in the business	27,118			26,277
Accumulated other comprehensive losses	(3,157		)	(2,682		)
Cost of repurchased stock (845,281,876 shares at September 30, 2015 and 834,486,794 shares at December 31, 2014)	(27,809		)	(27,251		)
Total stockholders’ equity attributable to Altria Group, Inc.	2,887			3,014
Noncontrolling interests	(6		)	(4		)
Total stockholders’ equity	2,881			3,010
Total Liabilities and Stockholders’ Equity	$	31,999		$	34,475

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)



	For the Nine Months Ended September 30,
	2015			2014
Net revenues	$	19,116		$	18,264
Cost of sales	5,733			5,799
Excise taxes on products	4,991			4,932
Gross profit	8,392			7,533
Marketing, administration and research costs	1,951			1,821
Changes to Mondelēz and PMI tax-related receivables/payables	41			5
Asset impairment and exit costs	4			(1		)
Operating income	6,396			5,708
Interest and other debt expense, net	609			596
Loss on early extinguishment of debt	228			—
Earnings from equity investment in SABMiller	(546		)	(753		)
Earnings before income taxes	6,105			5,865
Provision for income taxes	2,110			2,031
Net earnings	3,995			3,834
Net earnings attributable to noncontrolling interests	(1		)	—
Net earnings attributable to Altria Group, Inc.	$	3,994		$	3,834
Per share data:
Basic and diluted earnings per share attributable to Altria Group, Inc.	$	2.03		$	1.93
Dividends declared	$	1.605		$	1.48

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)



	For the Three Months Ended September 30,
	2015			2014
Net revenues	$	6,699		$	6,491
Cost of sales	1,932			2,079
Excise taxes on products	1,721			1,738
Gross profit	3,046			2,674
Marketing, administration and research costs	698			663
Changes to Mondelēz and PMI tax-related receivables/payables	41			5
Asset impairment and exit costs	—			7
Operating income	2,307			1,999
Interest and other debt expense, net	205			213
Earnings from equity investment in SABMiller	(187		)	(328		)
Earnings before income taxes	2,289			2,114
Provision for income taxes	761			717
Net earnings	1,528			1,397
Net earnings attributable to noncontrolling interests	—			—
Net earnings attributable to Altria Group, Inc.	$	1,528		$	1,397
Per share data:
Basic and diluted earnings per share attributable to Altria Group, Inc.	$	0.78		$	0.71
Dividends declared	$	0.565		$	0.52

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)



	For the Nine Months Ended September 30,
	2015			2014
Net earnings	$	3,995		$	3,834
Other comprehensive earnings (losses), net of deferred income taxes:
Currency translation adjustments	(3		)	(1		)
Benefit plans	121			71
SABMiller	(593		)	(146		)
Other comprehensive losses, net of deferred income taxes	(475		)	(76		)

Comprehensive earnings	3,520			3,758
Comprehensive earnings attributable to noncontrolling interests	(1		)	—
Comprehensive earnings attributable to Altria Group, Inc.	$	3,519		$	3,758

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)



	For the Three Months Ended September 30,
	2015			2014
Net earnings	$	1,528		$	1,397
Other comprehensive earnings (losses), net of deferred income taxes:
Currency translation adjustments	(2		)	(2		)
Benefit plans	40			22
SABMiller	(317		)	(245		)
Other comprehensive losses, net of deferred income taxes	(279		)	(225		)

Comprehensive earnings	1,249			1,172
Comprehensive earnings attributable to noncontrolling interests	—			—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,249		$	1,172

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the Year Ended December 31, 2014 and

the Nine Months Ended September 30, 2015

(in millions of dollars, except per share data)

(Unaudited)



	Attributable to Altria Group, Inc.
	Common Stock		Additional Paid-in Capital		Earnings Reinvested in the Business			Accumulated Other Comprehensive Losses			Cost of Repurchased Stock			Non-controlling Interests			Total Stockholders’ Equity
Balances, December 31, 2013	$	935	$	5,714	$	25,168		$	(1,378	)	$	(26,320	)	$	(1	)	$	4,118
Net earnings (losses)⁽¹⁾	—		—		5,070			—			—			(3		)	5,067
Other comprehensive losses, net of deferred income taxes	—		—		—			(1,304		)	—			—			(1,304		)
Stock award activity	—		21		—			—			8			—			29
Cash dividends declared ($2.00 per share)	—		—		(3,961		)	—			—			—			(3,961		)
Repurchases of common stock	—		—		—			—			(939		)	—			(939		)
Balances, December 31, 2014	935		5,735		26,277			(2,682		)	(27,251		)	(4		)	3,010
Net earnings (losses) ⁽¹⁾	—		—		3,994			—			—			(2		)	3,992
Other comprehensive losses, net of deferred income taxes	—		—		—			(475		)	—			—			(475		)
Stock award activity	—		65		—			—			(40		)	—			25
Cash dividends declared ($1.605 per share)	—		—		(3,153		)	—			—			—			(3,153		)
Repurchases of common stock	—		—		—			—			(518		)	—			(518		)
Balances, September 30, 2015	$	935	$	5,800	$	27,118		$	(3,157	)	$	(27,809	)	$	(6	)	$	2,881

⁽¹⁾

Net losses attributable to noncontrolling interests for the nine months ended September 30, 2015 and for the year ended December 31, 2014 exclude net earnings of $3 million for each period, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section in the condensed consolidated balance sheets at September 30, 2015 and December 31, 2014.

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)



	For the Nine Months Ended September 30,
	2015			2014
Cash Provided by (Used in) Operating Activities
Net earnings	$	3,995		$	3,834
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	150			149
Deferred income tax benefit	(1		)	(36		)
Earnings from equity investment in SABMiller	(546		)	(753		)
Dividends from SABMiller	374			344
Loss on early extinguishment of debt	228			—
Cash effects of changes, net of the effects from acquisition of Green Smoke:
Receivables, net	9			10
Inventories	59			(20		)
Accounts payable	(102		)	(64		)
Income taxes	(6		)	17
Accrued liabilities and other current assets	22			(320		)
Accrued settlement charges	(284		)	(252		)
Pension plan contributions	(23		)	(12		)
Pension provisions and postretirement, net	78			17
Other	137			146
Net cash provided by operating activities	4,090			3,060

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)



	For the Nine Months Ended September 30,
	2015			2014
Cash Provided by (Used in) Investing Activities
Capital expenditures	$	(162	)	$	(116	)
Acquisition of Green Smoke, net of acquired cash	—			(93		)
Proceeds from finance assets	255			190
Other	2			79
Net cash provided by investing activities	95			60
Cash Provided by (Used in) Financing Activities
Long-term debt repaid	(1,793		)	(525		)
Repurchases of common stock	(518		)	(679		)
Dividends paid on common stock	(3,071		)	(2,864		)
Premiums and fees related to early extinguishment of debt	(226		)	—
Other	9			14
Net cash used in financing activities	(5,599		)	(4,054		)
Cash and cash equivalents:
Decrease	(1,414		)	(934		)
Balance at beginning of period	3,321			3,175
Balance at end of period	$	1,907		$	2,241

See notes to condensed consolidated financial statements.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation:

Background

At September 30, 2015, Altria Group, Inc.’s wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged predominantly in the manufacture and sale of cigarettes in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless tobacco products and wine. Altria Group, Inc.’s other operating companies included Nu Mark LLC (“Nu Mark”), a wholly-owned subsidiary that is engaged in the manufacture and sale of innovative tobacco products, and Philip Morris Capital Corporation (“PMCC”), a wholly-owned subsidiary that maintains a portfolio of finance assets, substantially all of which are leveraged leases. Other Altria Group, Inc. wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to certain Altria Group, Inc. operating subsidiaries, and Altria Client Services LLC, which provides various support services, such as legal, regulatory, finance, human resources and external affairs, to Altria Group, Inc. and its subsidiaries. Altria Group, Inc.’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 September 30, 2015, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their equity interests.

At September 30, 2015, Altria Group, Inc. also held approximately 27% of the economic and voting interest of SABMiller plc (“SABMiller”), which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. On October 13, 2015, Anheuser-Busch InBev SA/NV (“AB InBev”) and SABMiller announced an agreement in principle on key terms regarding AB InBev’s possible firm offer to effect a business combination with SABMiller for 44 British pounds in cash for each SABMiller share, with a partial share alternative available for approximately 41% of the SABMiller shares. On October 28, 2015, the U.K. Panel on Takeovers and Mergers extended the relevant takeover code deadline until November 4, 2015 to enable AB InBev to deliver a firm offer to effect the business combination. As previously announced, Altria Group, Inc. supports the proposed transaction and, subject to finalization of terms, is prepared to elect the partial share alternative. There can be no certainty, however, either that AB InBev will make a firm offer or as to the terms on which any firm offer will be made.

Dividends and Share Repurchases

During the third quarter of 2015, Altria Group, Inc.’s Board of Directors (the “Board of Directors”) approved an 8.7% increase in the quarterly dividend rate to $0.565 per common share versus the previous rate of $0.52 per common share. The current annualized dividend rate is $2.26 per Altria Group, Inc. common share. Future dividend payments remain subject to the discretion of the Board of Directors.

Altria Group, Inc.’s share repurchase activity was as follows:



	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2015		2014		2015		2014
	(in millions, except per share data)
Total number of shares repurchased	10.0		17.2		1.2		6.4
Aggregate cost of shares repurchased	$	518	$	679	$	63	$	275
Average price per share of shares repurchased	$	51.47	$	39.44	$	50.39	$	42.87

In April 2013, the Board of Directors authorized a $300 million share repurchase program and expanded it to $1.0 billion in August 2013 (as expanded, the “April 2013 share repurchase program”). During the three months ended September 30, 2014, Altria Group, Inc. completed the April 2013 share repurchase program, under which Altria Group, Inc. repurchased a total of 27.1 million shares of its common stock at an average price of $36.97 per share.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In July 2014, the Board of Directors authorized a $1.0 billion share repurchase program (the “July 2014 share repurchase program”). During the three months ended September 30, 2015, Altria Group, Inc. repurchased 1.2 million shares of its common stock (at an aggregate cost of approximately $63 million, and at an average price of $50.39 per share), completing the July 2014 share repurchase program. Under this program, Altria Group, Inc. repurchased a total of 20.4 million shares of its common stock at an average price of $48.90 per share.

In July 2015, the Board of Directors authorized a new $1.0 billion share repurchase program. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board of Directors.

Basis of Presentation

The interim condensed consolidated financial statements of Altria Group, Inc. are unaudited. It is the opinion of Altria Group, Inc.’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected in the interim condensed consolidated financial statements. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.

These statements should be read in conjunction with the consolidated financial statements and related notes, which appear in Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

Note 2. Acquisition of Green Smoke:

In April 2014, Nu Mark acquired the e-vapor business of Green Smoke, Inc. and its affiliates (“Green Smoke”) for a total purchase price of approximately $130 million. The acquisition complements Nu Mark’s capabilities and enhances its competitive position by adding e-vapor experience, broadening product offerings and strengthening supply chain capabilities.

Green Smoke’s financial position and results of operations have been consolidated with Altria Group, Inc. as of April 1, 2014.

Pro forma results, as well as net revenues and net earnings for Green Smoke subsequent to the acquisition, have not been presented because the acquisition of Green Smoke is not material to Altria Group, Inc.’s consolidated results of operations.

The purchase price allocation has been completed, and there were no changes subsequent to the acquisition date.

Note 3. Benefit Plans:

Subsidiaries of Altria Group, Inc. sponsor noncontributory defined benefit pension plans covering the majority of all employees of Altria Group, Inc. and its subsidiaries. However, employees hired on or after a date specific to their employee group are not eligible to participate in these noncontributory defined benefit pension plans but are instead eligible to participate in a defined contribution plan with enhanced benefits. This transition for new hires occurred from October 1, 2006 to January 1, 2008. In addition, effective January 1, 2010, certain employees of UST’s subsidiaries and Middleton who were participants in noncontributory defined benefit pension plans ceased to earn additional benefit service under those plans and became eligible to participate in a defined contribution plan with enhanced benefits. Altria Group, Inc. and its subsidiaries also provide health care and other benefits to the majority of retired employees.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Service cost	$	65		$	51		$	22		$	17
Interest cost	252			258			84			86
Expected return on plan assets	(405		)	(389		)	(135		)	(129		)
Amortization:
Net loss	175			111			58			36
Prior service cost	6			8			2			3
Net periodic pension cost	$	93		$	39		$	31		$	13

Employer Contributions

Altria Group, Inc. makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service (“IRS”) regulations. Employer contributions of $23 million were made to Altria Group, Inc.’s pension plans during the nine months ended September 30, 2015. Currently, Altria Group, Inc. anticipates making additional employer contributions to its pension plans during the remainder of 2015 of up to approximately $10 million, based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following:



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Service cost	$	13		$	11		$	4		$	3
Interest cost	75			80			24			26
Amortization:
Net loss	33			17			10			3
Prior service credit	(30		)	(32		)	(10		)	(11		)
Net postretirement health care costs	$	91		$	76		$	28		$	21

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4. Earnings Per Share:

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



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Net earnings attributable to Altria Group, Inc.	$	3,994		$	3,834		$	1,528		$	1,397
Less: Distributed and undistributed earnings attributable to unvested restricted shares and restricted stock units (also known as deferred stock)	(8		)	(9		)	(3		)	(3		)
Earnings for basic and diluted EPS	$	3,986		$	3,825		$	1,525		$	1,394

Weighted-average shares for basic and diluted EPS	1,962			1,981			1,958			1,976

Note 5. Other Comprehensive Earnings/Losses:

The following tables set forth the changes in each component of accumulated other comprehensive losses, net of deferred income taxes, attributable to Altria Group, Inc.:



	For the Nine Months Ended September 30, 2015
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2014	$	(2	)	$	(2,040	)	$	(640	)		$	(2,682	)

Other comprehensive losses before reclassifications	(4		)	—			(927		)		(931		)
Deferred income taxes	1			—			324				325
Other comprehensive losses before reclassifications, net of deferred income taxes	(3		)	—			(603		)		(606		)

Amounts reclassified to net earnings	—			198			14				212
Deferred income taxes	—			(77		)	(4		)		(81		)
Amounts reclassified to net earnings, net of deferred income taxes	—			121			10				131

Other comprehensive (losses) earnings, net of deferred income taxes	(3		)	121			(593		)	⁽¹⁾	(475		)

Balances, September 30, 2015	$	(5	)	$	(1,919	)	$	(1,233	)		$	(3,157	)

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)



	For the Three Months Ended September 30, 2015
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, June 30, 2015	$	(3	)	$	(1,959	)	$	(916	)		$	(2,878	)

Other comprehensive losses before reclassifications	(3		)	—			(493		)		(496		)
Deferred income taxes	1			—			173				174
Other comprehensive losses before reclassifications, net of deferred income taxes	(2		)	—			(320		)		(322		)

Amounts reclassified to net earnings	—			64			5				69
Deferred income taxes	—			(24		)	(2		)		(26		)
Amounts reclassified to net earnings, net of deferred income taxes	—			40			3				43

Other comprehensive (losses) earnings, net of deferred income taxes	(2		)	40			(317		)	⁽¹⁾	(279		)

Balances, September 30, 2015	$	(5	)	$	(1,919	)	$	(1,233	)		$	(3,157	)



	For the Nine Months Ended September 30, 2014
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2013	$	—		$	(1,273	)	$	(105	)		$	(1,378	)

Other comprehensive losses before reclassifications	(1		)	—			(280		)		(281		)
Deferred income taxes	—			—			98				98
Other comprehensive losses before reclassifications, net of deferred income taxes	(1		)	—			(182		)		(183		)

Amounts reclassified to net earnings	—			116			56				172
Deferred income taxes	—			(45		)	(20		)		(65		)
Amounts reclassified to net earnings, net of deferred income taxes	—			71			36				107

Other comprehensive (losses) earnings, net of deferred income taxes	(1		)	71			(146		)	⁽¹⁾	(76		)

Balances, September 30, 2014	$	(1	)	$	(1,202	)	$	(251	)		$	(1,454	)

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)



	For the Three Months Ended September 30, 2014
	Currency Translation Adjustments			Benefit Plans			SABMiller				Accumulated Other Comprehensive Losses
	(in millions)
Balances, June 30, 2014	$	1		$	(1,224	)	$	(6	)		$	(1,229	)

Other comprehensive losses before reclassifications	(2		)	—			(430		)		(432		)
Deferred income taxes	—			—			151				151
Other comprehensive losses before reclassifications, net of deferred income taxes	(2		)	—			(279		)		(281		)

Amounts reclassified to net earnings	—			36			53				89
Deferred income taxes	—			(14		)	(19		)		(33		)
Amounts reclassified to net earnings, net of deferred income taxes	—			22			34				56

Other comprehensive (losses) earnings, net of deferred income taxes	(2		)	22			(245		)	⁽¹⁾	(225		)

Balances, September 30, 2014	$	(1	)	$	(1,202	)	$	(251	)		$	(1,454	)

⁽¹⁾ For the nine and three months ended September 30, 2015 and 2014, Altria Group, Inc.’s proportionate share of SABMiller’s other comprehensive earnings/losses consisted primarily of currency translation adjustments.

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



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Benefit Plans: ⁽¹⁾
Net loss	$	222		$	140		$	72		$	44
Prior service cost/credit	(24		)	(24		)	(8		)	(8		)
	198			116			64			36

SABMiller ⁽²⁾	14			56			5			53

Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	212		$	172		$	69		$	89

⁽¹⁾ Amounts are included in net defined benefit plan costs. For further details, see Note 3. Benefit Plans.

⁽²⁾ Amounts are included in earnings from equity investment in SABMiller.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 6. Segment Reporting:

The products of Altria Group, Inc.’s subsidiaries include smokeable products comprised of cigarettes manufactured and sold by PM USA and machine-made large cigars and pipe tobacco manufactured and sold by Middleton; smokeless products, substantially all of which are manufactured and sold by USSTC; and wine produced and/or distributed by Ste. Michelle. The products and services of these subsidiaries constitute Altria Group, Inc.’s reportable segments of smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in all other.

Altria Group, Inc.’s chief operating decision maker reviews operating companies income to evaluate the performance of, and allocate resources to, the segments. Operating companies income for the segments is defined as operating income before amortization of intangibles and general corporate expenses. Interest and other debt expense, net, and provision for income taxes are centrally managed at the corporate level and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by Altria Group, Inc.’s chief operating decision maker.

Segment data were as follows:



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Net revenues:
Smokeable products	$	17,235		$	16,428		$	6,040		5,859
Smokeless products	1,393			1,345			482			466
Wine	461			428			166			153
All other	27			63			11			13
Net revenues	$	19,116		$	18,264		$	6,699		$	6,491
Earnings before income taxes:
Operating companies income (loss):
Smokeable products	$	5,831		$	5,160		$	2,121		$	1,840
Smokeless products	830			804			286			280
Wine	97			81			35			31
All other	(139		)	(143		)	(35		)	(89		)
Amortization of intangibles	(16		)	(15		)	(6		)	(5		)
General corporate expenses	(166		)	(174		)	(53		)	(53		)
Changes to Mondelēz and PMI tax-related receivables/payables	(41		)	(5		)	(41		)	(5		)
Operating income	6,396			5,708			2,307			1,999
Interest and other debt expense, net	(609		)	(596		)	(205		)	(213		)
Loss on early extinguishment of debt	(228		)	—			—			—
Earnings from equity investment in SABMiller	546			753			187			328
Earnings before income taxes	$	6,105		$	5,865		$	2,289		$	2,114

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The comparability of operating companies income for the reportable segments was affected by the following:

Non-Participating Manufacturer (“NPM”) Adjustment Items - For the nine and three months ended September 30, 2015 and 2014, pre-tax income for NPM adjustment items was recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:



	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2015		2014		2015		2014
	(in millions)
Smokeable products segment	$	126	$	43	$	126	$	—
Interest and other debt expense, net	—		47		—		—
Total	$	126	$	90	$	126	$	—

These adjustments resulted from the settlement of, and determinations made in connection with, disputes with certain states and territories related to the NPM adjustment provision under the 1998 Master Settlement Agreement (such settlements and determinations are referred to collectively as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 10. Contingencies). The amounts shown in the table above for the smokeable products segment were recorded by PM USA as reductions to cost of sales, which increased operating companies income in the smokeable products segment.

Tobacco and Health Litigation Items - For the nine and three months ended September 30, 2015 and 2014, pre-tax charges related to certain tobacco and health litigation items were recorded in Altria Group, Inc.’s condensed consolidated statements of earnings as follows:



	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2015		2014		2015		2014
	(in millions)
Smokeable products segment	$	102	$	22	$	54	$	3
General corporate	—		15		—		—
Interest and other debt expense, net	13		2		13		1
Total	$	115	$	39	$	67	$	4

During the third quarter of 2015, PM USA recorded pre-tax charges of $54 million in marketing, administration and research costs related to tobacco and health judgments in six state Engle progeny lawsuits, as well as $13 million in interest costs related to those cases. During the first quarter of 2015, PM USA and certain other cigarette manufacturers reached a tentative agreement to resolve approximately 415 pending federal Engle progeny cases. As a result of the tentative agreement, during the first quarter of 2015, PM USA recorded a pre-tax provision of approximately $43 million in marketing, administration and research costs. For further discussion, see Smoking and Health Litigation in Note 10. Contingencies.

During the second quarter of 2014, Altria Group, Inc. and PM USA recorded an aggregate pre-tax charge of $31 million in marketing, administration and research costs for the estimated costs of implementing the corrective communications remedy in connection with the federal government’s lawsuit against Altria Group, Inc. and PM USA. For further discussion, see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit in Note 10. Contingencies.

Asset Impairment and Exit Costs - During the second quarter of 2014, PM USA sold its Cabarrus, North Carolina manufacturing facility for approximately $66 million in connection with the previously completed manufacturing optimization program associated with PM USA’s closure of the manufacturing facility in 2009. As a result, during the second quarter of 2014, PM USA recorded a pre-tax gain of $10 million.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7. Finance Assets, net:

In 2003, PMCC ceased making new investments and began focusing exclusively on managing its portfolio of finance assets in order to maximize its operating results and cash flows from its existing lease portfolio activities and asset sales. Accordingly, PMCC’s operating companies income will fluctuate over time as investments mature or are sold.

At September 30, 2015, finance assets, net, of $1,295 million were comprised of investments in finance leases of $1,337 million, reduced by the allowance for losses of $42 million. At December 31, 2014, finance assets, net, of $1,614 million were comprised of investments in finance leases of $1,656 million, reduced by the allowance for losses of $42 million.

During the second quarter of 2015, as a result of the commencement of marketing efforts to sell certain aircraft within PMCC’s portfolio, PMCC determined that the estimated unguaranteed residual values on these aircraft should be reduced by $35 million. This decrease in unguaranteed residual values resulted in a reduction to PMCC’s net revenues of $29 million in the second quarter of 2015. There were no such adjustments for the three months ended September 30, 2015 and the nine months ended September 30, 2014.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. During the nine months ended September 30, 2014, PMCC determined that its allowance for losses exceeded the amount required based on management’s assessment of the credit quality and size of PMCC’s leasing portfolio. As a result, for the nine months ended September 30, 2014, PMCC reduced its allowance for losses by $10 million. This decrease to the allowance for losses was recorded as a reduction to marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. PMCC believes that, as of September 30, 2015, the allowance for losses of $42 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may increase or decrease its allowance for losses if such conditions change in the future.

The activity in the allowance for losses on finance assets for the nine months ended September 30, 2015 and 2014 was as follows:



	For the Nine Months Ended September 30,
	2015		2014
	(in millions)
Balance at beginning of the year	$	42	$	52
Decrease to allowance	—		(10		)
Balance at September 30	$	42	$	42

All PMCC lessees were current on their lease payment obligations as of September 30, 2015.

The credit quality of PMCC’s investments in finance leases as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at September 30, 2015 and December 31, 2014 was as follows:



	September 30, 2015		December 31, 2014
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	214	$	417
“BBB+/Baa1” to “BBB-/Baa3”	722		833
“BB+/Ba1” and Lower	401		406
Total	$	1,337	$	1,656

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 8. Debt:

At September 30, 2015 and December 31, 2014, Altria Group, Inc. had no short-term borrowings.

Effective August 19, 2015, Altria Group, Inc. entered into an extension agreement (the “Extension Agreement”) to amend its $3.0 billion senior unsecured 5-year revolving credit agreement, dated as of August 19, 2013 (the “Credit Agreement”). The Extension Agreement extends the expiration date of the Credit Agreement from August 19, 2019 to August 19, 2020 pursuant to the terms of the Credit Agreement. All other terms and conditions of the Credit Agreement remain in full force and effect. The Credit Agreement was previously amended in 2014 to extend the expiration date from August 19, 2018 to August 19, 2019.

Any borrowings under the Credit Agreement are guaranteed by PM USA as further discussed in Note 11. Condensed Consolidating Financial Information. At September 30, 2015, credit available to Altria Group, Inc. under the Credit Agreement was $3.0 billion.

Long-term Debt

During the third quarter of 2015, Altria Group, Inc. repaid in full at maturity senior unsecured notes in the aggregate principal amount of $1.0 billion.

During the first quarter of 2015, Altria Group, Inc. completed a debt tender offer to purchase for cash $793 million aggregate principal amount of its senior unsecured 9.700% notes due 2018. As a result of the debt tender offer, during the first quarter of 2015, Altria Group, Inc. recorded a pre-tax loss on early extinguishment of debt of $228 million, which included premiums and fees of $226 million and the write-off of the related unamortized debt discount and debt issuance costs of $2 million.

Altria Group, Inc.’s estimate of the fair value of its debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy. The aggregate fair value of Altria Group, Inc.’s total long-term debt at September 30, 2015 and December 31, 2014, was $14.5 billion and $17.0 billion, respectively, as compared with its carrying value of $12.9 billion and $14.7 billion, respectively.

Note 9. Income Taxes:

The income tax rate of 34.6% was unchanged for the nine months ended September 30, 2015 compared with the nine months ended September 30, 2014. The income tax rate of 33.2% for the three months ended September 30, 2015 decreased 0.7 percentage points from the three months ended September 30, 2014, due primarily to the following:


▪	the reversal of $59 million of tax reserves and associated interest due primarily to the closure in August 2015 of the IRS audit of Altria Group, Inc. and its consolidated subsidiaries’ 2007-2009 tax years (“IRS 2007-2009 Audit”) that was recorded during the third quarter of 2015; and


▪	the resolution of various Kraft Foods Inc. (now known as Mondelēz International, Inc. (“Mondelēz”)) and Philip Morris International Inc. (“PMI”) tax matters in the third quarters of 2015 and 2014, as discussed further below;

partially offset by:


▪	a $41 million reversal of foreign tax credits primarily associated with SABMiller dividends that was recorded during the third quarter of 2015; and


▪	a $19 million reversal of tax accruals no longer required that was recorded during the third quarter of 2014.

As discussed in the 2014 Form 10-K, Altria Group, Inc. recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes on its condensed consolidated statements of earnings. At September 30, 2015, Altria Group, Inc. had $12 million of accrued interest and penalties included in its liability for tax contingencies. At December 31, 2014, Altria Group, Inc. had $57 million of accrued interest and penalties included in its liability for tax contingencies, of which approximately $7 million related to PMI, for which PMI was responsible under its tax sharing agreement discussed further below.

Under tax sharing agreements entered into in connection with the 2007 and 2008 spin-offs between Altria Group, Inc. and its former subsidiaries Mondelēz and PMI, respectively, Mondelēz and PMI are responsible for their respective pre-spin-off tax

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

obligations. Altria Group, Inc., however, remains severally liable for Mondelēz’s and PMI’s pre-spin-off federal tax obligations pursuant to regulations governing federal consolidated income tax returns, and continued to include the pre-spin-off federal income tax reserves of Mondelēz and PMI in its liability for uncertain tax positions. As of September 30, 2015, there were no remaining pre-spin-off tax reserves related to PMI, and as of December 31, 2014, there were no remaining pre-spin-off tax reserves related to Mondelēz.

During the third quarters of 2015 and 2014, net tax benefits of $41 million and $5 million, respectively, were recorded for Mondelēz and PMI tax matters relating to the IRS 2007-2009 Audit. These net tax benefits were offset by changes to Mondelēz and PMI tax-related receivables/payables, which were recorded as decreases to operating income on Altria Group, Inc.’s condensed consolidated statements of earnings. Due to the respective offsets, the Mondelēz and PMI tax matters had no impact on Altria Group, Inc.’s net earnings for the nine and three months ended September 30, 2015 and 2014.

Altria Group, Inc.’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the year 2007 and forward, with years 2010 to 2013 currently under examination by the IRS as part of an audit conducted in the ordinary course of business.

Altria Group, Inc. is subject to income taxation in many jurisdictions. Uncertain tax positions reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria Group, Inc. At September 30, 2015, Altria Group, Inc.’s total unrecognized tax benefits were $135 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at September 30, 2015 was $86 million, along with $49 million affecting deferred taxes. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $5 million. At December 31, 2014, Altria Group, Inc.’s total unrecognized tax benefits were $258 million. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate at December 31, 2014 was $207 million, along with $51 million affecting deferred taxes. However, the impact on net earnings at December 31, 2014 would be $177 million, as a result of a net receivable from PMI of $30 million.

Note 10. Contingencies:

Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria Group, Inc. and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees. Various types of claims may be raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors or distributors.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, range in the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, Altria Group, Inc. or its subsidiaries may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, Altria Group, Inc. or its subsidiaries under certain circumstances may have to pay more than their proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, Altria Group, Inc. or its subsidiaries may also be required to pay interest and attorneys’ fees.

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although Altria Group, Inc. cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Altria Group, Inc. and its subsidiaries record provisions in the condensed consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 10. Contingencies: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending tobacco-related cases; and (iii) accordingly, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred.

Altria Group, Inc. and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Altria Group, Inc. and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so.

Overview of Altria Group, Inc. and/or PM USA Tobacco-Related Litigation

Types and Number of Cases

Claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding; (iii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits; (iv) class action suits alleging that the uses of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment, breach of warranty or violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”); and (v) other tobacco-related litigation described below. Plaintiffs’ theories of recovery and the defenses raised in pending smoking and health, health care cost recovery and “Lights/Ultra Lights” cases are discussed below.

The table below lists the number of certain tobacco-related cases pending in the United States against PM USA and, in some instances, Altria Group, Inc. as of October 26, 2015, October 27, 2014 and October 21, 2013.



Type of Case	Number of Cases Pending as of October 26, 2015	Number of Cases Pending as of October 27, 2014	Number of Cases Pending as of October 21, 2013
Individual Smoking and Health Cases⁽¹⁾	65	67	68
Smoking and Health Class Actions and Aggregated Claims Litigation ⁽²⁾	5	5	6
Health Care Cost Recovery Actions ⁽³⁾	1	1	1
“Lights/Ultra Lights” Class Actions	12	13	15

⁽¹⁾ Does not include 2,538 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages, but prohibited them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action).

⁽²⁾ Includes as one case the 600 civil actions (of which 344 were actions against PM USA) that were to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution did not preclude a trial in two phases in this case. Issues related to defendants’ conduct and whether punitive damages are permissible were tried in the first phase. Trial in the first phase of this case began

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

in April 2013. In May 2013, the jury returned a verdict in favor of defendants on the claims for design defect, negligence, failure to warn, breach of warranty, and concealment and declined to find that the defendants’ conduct warranted punitive damages. Plaintiffs prevailed on their claim that ventilated filter cigarettes should have included use instructions for the period 1964 - 1969. The second phase will consist of trials to determine liability and compensatory damages. In November 2013, plaintiffs filed their notice of appeal to the West Virginia Supreme Court of Appeals. In November 2014, the West Virginia Supreme Court of Appeals affirmed the final judgment and, in January 2015, denied plaintiffs’ petition for rehearing. In April 2015, plaintiffs filed a petition for writ of certiorari with the United States Supreme Court, which the Supreme Court denied in June 2015. In July 2015, the trial court entered an order that will result in the entry of final judgment in favor of defendants and against all but 30 plaintiffs who potentially have a claim against one or more defendants that may be pursued in a second phase of trial. The court intends to try the claims of these 30 plaintiffs in six consolidated trials, each with a group of five plaintiffs. The first trial is currently scheduled to begin May 1, 2017. Dates for the five remaining consolidated trials have not been scheduled.

⁽³⁾ See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below.

International Tobacco-Related Cases

As of October 26, 2015, PM USA is a named defendant in ten health care cost recovery actions in Canada, eight of which also name Altria Group, Inc. as a defendant. PM USA and Altria Group, Inc. are also named defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

Tobacco-Related Cases Set for Trial

As of October 26, 2015, 5 Engle progeny cases, no individual smoking and health cases and no “Lights/Ultra Lights” class actions against PM USA are set for trial through December 31, 2015. One “Lights/Ultra Lights” class action is currently in trial. Cases against other companies in the tobacco industry are also scheduled for trial during this period. Trial dates are subject to change.

Trial Results

Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 56 smoking and health, “Lights/Ultra Lights” and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 38 of the 56 cases. These 38 cases were tried in Alaska (1), California (6), Florida (10), Louisiana (1), Massachusetts (1), Mississippi (1), Missouri (3), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2) and West Virginia (2). A motion for a new trial was granted in one of the cases in Florida and in the case in Alaska. In the Alaska case (Hunter), the trial court withdrew its order for a new trial upon PM USA’s motion for reconsideration. Oral argument of plaintiff’s appeal of this ruling occurred in September 2014. See Types and Number of Cases above for a discussion of the trial results in In re: Tobacco Litigation (West Virginia consolidated cases).

Of the 18 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 15 have reached final resolution. A verdict against defendants in one health care cost recovery case (Blue Cross/Blue Shield) was reversed and all claims were dismissed with prejudice. In addition, a verdict against defendants in a purported “Lights” class action in Illinois (Price) was reversed and the case was dismissed with prejudice in December 2006, but plaintiff is seeking to reinstate the verdict, which an intermediate appellate court ordered in April 2014. PM USA filed a petition for leave to appeal, which automatically stayed the April 2014 order. In September 2014, the Illinois Supreme Court granted PM USA’s motion for leave to appeal. Oral argument occurred in May 2015. See “Lights/Ultra Lights” Cases - The Price Case below for a discussion of developments in Price.

As of October 26, 2015, 87 state and federal Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s Engle decision as follows: 47 verdicts were returned in favor of plaintiffs; 38 verdicts were returned in favor of PM USA; and two verdicts that were initially returned in favor of plaintiffs were reversed on appeal and remain pending. See Smoking and Health Litigation - Engle Progeny Trial Court Results below for a discussion of these verdicts.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Judgments Paid and Provisions for Tobacco and Health Litigation Items (Including Engle Progeny Litigation)

After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid in the aggregate judgments (and related costs and fees) totaling approximately $279 million and interest totaling approximately $144 million as of October 26, 2015. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $22 million and interest totaling approximately $3 million.

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



	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2015			2014			2015			2014
	(in millions)
Accrued liability for tobacco and health litigation items at beginning of period	$	39		$	3		$	77		$	34
Pre-tax charges for:
Tobacco and health judgments	59			6			54			3
Related interest costs	13			2			13			1
Tentative agreement to resolve federal Engle progeny cases	43			—			—			—
Implementation of corrective communications remedy pursuant to the federal government’s lawsuit	—			31			—			—
Payments	(13		)	(4		)	(3		)	—
Accrued liability for tobacco and health litigation items at end of period	$	141		$	38		$	141		$	38

The accrued liability for tobacco and health litigation items, including related interest costs, was included in liabilities on Altria Group, Inc.’s condensed consolidated balance sheets. Pre-tax charges for tobacco and health judgments, the tentative agreement to resolve federal Engle progeny cases (discussed below under “Tentative Agreement to Resolve Federal Engle Progeny Cases”) and corrective communications were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net on Altria Group, Inc.’s condensed consolidated statements of earnings.

Security for Judgments

To obtain stays of judgments pending current appeals, as of September 30, 2015, PM USA has posted various forms of security totaling approximately $69 million, the majority of which has been collateralized with cash deposits that are included in other assets on the condensed consolidated balance sheet.

Smoking and Health Litigation

Overview

Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Non-Engle Progeny Litigation

Summarized below are the non-Engle progeny smoking and health cases pending during 2015 in which verdicts were returned in favor of plaintiffs and against PM USA. Charts listing the verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.

Schwarz: In March 2002, an Oregon jury awarded $168,500 in compensatory damages and $150 million in punitive damages against PM USA. In May 2002, the trial court reduced the punitive damages award to $100 million. In May 2006, the Oregon Court of Appeals affirmed the compensatory damages verdict, reversed the award of punitive damages and remanded the case to the trial court for a second trial to determine the amount of punitive damages, if any. In June 2006, plaintiff petitioned the Oregon Supreme Court to review the portion of the court of appeals’ decision reversing and remanding the case for a new trial on punitive damages. In June 2010, the Oregon Supreme Court affirmed the court of appeals’ decision and remanded the case to the trial court for a new trial limited to the question of punitive damages. In December 2010, the Oregon Supreme Court reaffirmed its earlier ruling and awarded PM USA approximately $500,000 in costs. In March 2011, PM USA filed a claim against the plaintiff for its costs and disbursements on appeal, plus interest. Trial on the amount of punitive damages began in January 2012. In February 2012, the jury awarded plaintiff $25 million in punitive damages. In September 2012, PM USA filed a notice of appeal from the trial court’s judgment with the Oregon Court of Appeals. In July 2015, the Oregon Court of Appeals affirmed the judgment in favor of plaintiff. On September 16, 2015, PM USA filed a petition for review with the Oregon Supreme Court.

Federal Government’s Lawsuit: See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America healthcare cost recovery case.

Engle Class Action

In July 2000, in the second phase of the Engle smoking and health class action in Florida, a jury returned a verdict assessing punitive damages totaling approximately $145 billion against various defendants, including $74 billion against PM USA. Following entry of judgment, PM USA appealed.

In May 2001, the trial court approved a stipulation providing that execution of the punitive damages component of the Engle judgment will remain stayed against PM USA and the other participating defendants through the completion of all judicial review. As a result of the stipulation, PM USA placed $500 million into an interest-bearing escrow account that, regardless of the outcome of the judicial review, was to be paid to the court and the court was to determine how to allocate or distribute it consistent with Florida Rules of Civil Procedure. In May 2003, the Florida Third District Court of Appeal reversed the judgment entered by the trial court and instructed the trial court to order the decertification of the class. Plaintiffs petitioned the Florida Supreme Court for further review.

In July 2006, the Florida Supreme Court ordered that the punitive damages award be vacated, that the class approved by the trial court be decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the mandate. The court further declared the following Phase I findings are entitled to res judicata effect in such individual actions brought within one year of the issuance of the mandate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to misrepresent information regarding the health effects or addictive nature of cigarettes with the intention of causing the public to rely on this information to their detriment; (vi) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vii) that all defendants sold or supplied cigarettes that were defective; and (viii) that defendants were negligent. The court also reinstated compensatory damages awards totaling approximately $6.9 million to two individual plaintiffs and found that a third plaintiff’s claim was barred by the statute of limitations. In February 2008, PM USA paid approximately $3 million, representing its share of compensatory damages and interest, to the two individual plaintiffs identified in the Florida Supreme Court’s order.

In August 2006, PM USA sought rehearing from the Florida Supreme Court on parts of its July 2006 opinion, including the ruling (described above) that certain jury findings have res judicata effect in subsequent individual trials timely brought by Engle class members. The rehearing motion also asked, among other things, that legal errors that were raised but not

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

expressly ruled upon in the Florida Third District Court of Appeal or in the Florida Supreme Court now be addressed. Plaintiffs also filed a motion for rehearing in August 2006 seeking clarification of the applicability of the statute of limitations to non-members of the decertified class. In December 2006, the Florida Supreme Court refused to revise its July 2006 ruling, except that it revised the set of Phase I findings entitled to res judicata effect by excluding finding (v) listed above (relating to agreement to misrepresent information), and added the finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations of fact made by defendants. In January 2007, the Florida Supreme Court issued the mandate from its revised opinion. Defendants then filed a motion with the Florida Third District Court of Appeal requesting that the court address legal errors that were previously raised by defendants but have not yet been addressed either by the Florida Third District Court of Appeal or by the Florida Supreme Court. In February 2007, the Florida Third District Court of Appeal denied defendants’ motion. In May 2007, defendants’ motion for a partial stay of the mandate pending the completion of appellate review was denied by the Florida Third District Court of Appeal. In May 2007, defendants filed a petition for writ of certiorari with the United States Supreme Court, which the United States Supreme Court denied later in 2007.

In February 2008, the trial court decertified the class, except for purposes of the May 2001 bond stipulation, and formally vacated the punitive damages award pursuant to the Florida Supreme Court’s mandate. In April 2008, the trial court ruled that certain defendants, including PM USA, lacked standing with respect to allocation of the funds escrowed under the May 2001 bond stipulation and would receive no credit at that time from the $500 million paid by PM USA against any future punitive damages awards in cases brought by former Engle class members.

In May 2008, the trial court, among other things, decertified the limited class maintained for purposes of the May 2001 bond stipulation and, in July 2008, severed the remaining plaintiffs’ claims except for those of Howard Engle. The only remaining plaintiff in the Engle case, Howard Engle, voluntarily dismissed his claims with prejudice.

Engle Progeny Cases

The deadline for filing Engle progeny cases, as required by the Florida Supreme Court’s Engle decision, expired in January 2008. As of October 26, 2015, approximately 3,070 state court cases were pending against PM USA or Altria Group, Inc. asserting individual claims by or on behalf of approximately 4,050 state court plaintiffs. Furthermore, as of October 26, 2015, approximately 460 cases were pending against PM USA in federal district court asserting individual claims by or on behalf of a similar number of federal court plaintiffs. Most of these federal cases are pending in the U.S. District Court for the Middle District of Florida. Moreover, most of these federal cases are subject to resolution pursuant to the agreement described below under Tentative Agreement to Resolve Federal Engle Progeny Cases. Because of a number of factors, including, but not limited to, docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates.

In July 2013, the district court issued an order transferring, for case management purposes, all the Middle District of Florida Engle progeny cases to a judge presiding in the District of Massachusetts. The order directed that the cases will remain in the Middle District of Florida and that such judge will be designated a judge of that district for purposes of managing the cases. The U.S. District Court for the Middle District of Florida dismissed a significant number of cases, of which approximately 750 were appealed by plaintiffs to the U.S. Court of Appeals for the Eleventh Circuit. In September 2014, the Eleventh Circuit affirmed those dismissals.

Tentative Agreement to Resolve Federal Engle Progeny Cases

In February 2015, PM USA, R.J. Reynolds Tobacco Company (“R.J. Reynolds”) and Lorillard Tobacco Company (“Lorillard”) reached a tentative agreement to resolve approximately 415 pending federal Engle progeny cases (the “Federal Engle Agreement”). Under the terms of the Federal Engle Agreement, PM USA paid into escrow approximately $43 million in March 2015, which was included in other current assets on Altria Group, Inc.’s condensed consolidated balance sheet at September 30, 2015. PM USA recorded a pre-tax provision of approximately $43 million in the first quarter of 2015. Federal cases that were in trial as of February 25, 2015 and those that have previously reached final verdict are not included in the Federal Engle Agreement. The Federal Engle Agreement is conditioned on approval by all federal court plaintiffs in the cases resolved by the Federal Engle Agreement or as the parties otherwise agree. In February 2015, the U.S. District Court for the Middle District of Florida issued an order staying all upcoming federal trials pending final approval of the Federal Engle Agreement and, in May 2015, approved the plaintiffs’ proposed plan for distribution among the plaintiffs of the amount in escrow. On August 20, 2015, plaintiffs filed a joint proposed consent order seeking final approval of the Federal Engle Agreement. On September 10, 2015,

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the Magistrate Judge issued a report and recommendation approving the final distribution plan and award schedule of the settlement funds. The report and recommendation is subject to approval by the district court.

Engle Progeny Trial Results

As of October 26, 2015, 87 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Forty-seven verdicts were returned in favor of plaintiffs and two verdicts (Graham and Skolnick) that were initially returned in favor of plaintiffs were reversed on appeal and remain pending.

Thirty-eight verdicts were returned in favor of PM USA, of which 29 were state cases (Gelep, Kalyvas, Gil de Rubio, Warrick, Willis, Russo (formerly Frazier), C. Campbell, Rohr, Espinosa, Oliva, Weingart, Junious, Szymanski, Hancock, D. Cohen, LaMotte, J. Campbell, Dombey, Haldeman, Blasco, Gonzalez, Banks, Surico, Baum, Bishop, Vila, McMannis, Collar and Suarez) and 9 were federal cases (Gollihue, McCray, Denton, Wilder, Jacobson, Reider, Davis, Starbuck and Sowers). In addition, there have been a number of mistrials, only some of which have resulted in new trials as of October 26, 2015. The juries in the Reider and Banks cases returned zero damages verdicts in favor of PM USA. The juries in the Weingart and Hancock cases returned verdicts against PM USA awarding no damages, but the trial court in each case granted an additur. In the Russo case (formerly Frazier), however, the Florida Third District Court of Appeal reversed the judgment in defendants’ favor in April 2012 and remanded the case for a new trial. Defendants sought review of the case in the Florida Supreme Court, which was granted in September 2013. In April 2015, the Florida Supreme Court affirmed the reversal, rejecting defendants’ argument that the statute of repose applies to fraud and conspiracy claims in Engle progeny cases, and defendants moved for a rehearing in the Florida Supreme Court, which the Florida Supreme Court denied on September 25, 2015. In the trial court, the case was retried and, in April 2015, the jury returned a verdict in favor of defendants.

The charts below list the verdicts and post-trial developments in certain Engle progeny cases in which verdicts were returned in favor of plaintiffs (including Hancock, where the verdict originally was returned in favor of PM USA). The first chart lists such cases that are pending as of October 26, 2015; the second chart lists such cases that were pending within the previous 12 months, but that are now concluded.

Currently-Pending Cases

___________________________________________________________________________________________________

Plaintiff: Marchese

Date: October 2015

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $1 million in compensatory damages and allocating 22.5% of the fault to PM USA. The jury also awarded plaintiff $250,000 in punitive damages against each defendant.

Post-Trial Developments:

On October 19, 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial.

___________________________________________________________________________________________________

Plaintiff: Duignan

Date: September 2015

Verdict:

A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $6 million in compensatory damages and allocating 37% of the fault to PM USA. The jury also awarded plaintiff $3.5 million in punitive damages against PM USA.

Post-Trial Developments:

On September 22, 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. On September 25, 2015, PM USA filed various post-trial motions, including motions to set aside the verdict and for a new trial, which the court denied on October 26, 2015.

___________________________________________________________________________________________________

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Plaintiff: Cooper

Date: September 2015

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $4.5 million in compensatory damages and allocating 10% of the fault to PM USA (an amount of $450,000).

Post-Trial Developments:

On September 23, 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a directed verdict.

___________________________________________________________________________________________________

Plaintiff: Jordan

Date: August 2015

Verdict:

A Duval County jury returned a verdict in favor of plaintiff and against PM USA awarding approximately $7.8 million in compensatory damages and allocating 60% of the fault to PM USA. The jury also awarded approximately $3.2 million in punitive damages.

Post-Trial Developments:

On August 17, 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault, and PM USA filed various post-trial motions, including motions to set aside the verdict and for a new trial.

___________________________________________________________________________________________________

Plaintiff: Merino

Date: July 2015

Verdict:

A Miami-Dade County jury returned a verdict in favor of plaintiff and against PM USA awarding $8 million in compensatory damages and allocating 70% of the fault to PM USA. The jury also awarded $6.5 million in punitive damages.

Post-Trial Developments:

On August 10, 2015, the trial court denied all post-trial motions, including motions to set aside the verdict and for a new trial, and entered final judgment without any deduction for plaintiff’s comparative fault. On September 1, 2015, PM USA filed a notice of appeal to the Florida Third District Court of Appeal and, on September 3, 2015, posted a bond in the amount of $5 million.

___________________________________________________________________________________________________

Plaintiff: McCoy

Date: July 2015

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Lorillard awarding $1.5 million in compensatory damages and allocating 20% of the fault to PM USA. The jury also awarded $3 million in punitive damages against each defendant.

Post-Trial Developments:

On July 28, 2015, defendants filed various post-trial motions, including motions to set aside the verdict and for a new trial. On August 10, 2015, the trial court denied the post-trial motions and entered final judgment without any deduction for plaintiff’s comparative fault. ___________________________________________________________________________________________________

Plaintiff: M. Brown

Date: May 2015

Verdict:

In May 2015, a Duval County jury returned a verdict in favor of plaintiff and against PM USA in a partial retrial. In 2013, a jury returned a partial verdict against PM USA, but was deadlocked as to (i) the amount of compensatory damages, (ii) whether punitive damages should be awarded and, if so, (iii) the amount of punitive damages. In the partial retrial, the jury was asked to

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

address these issues. In May 2015, the jury awarded $6.375 million in compensatory damages, but did not award any punitive damages.

Post-Trial Developments:

In May 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault, and PM USA posted a bond in the amount of $5 million. Additionally, PM USA filed post-trial motions, including motions to set aside the verdict and for a new trial, as well as filed a notice of appeal to the Florida First District Court of Appeal. In June 2015, the Florida First District Court of Appeal stayed the appeal until the trial court disposed of the post-trial motions. The trial court denied the last of PM USA’s post-trial motions on August 11, 2015, and, on August 21, 2015, plaintiff cross-appealed.

___________________________________________________________________________________________________

Plaintiff: Gore

Date: March 2015

Verdict:

An Indian River County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $2 million in compensatory damages and allocating 23% of the fault to PM USA (an amount of $460,000).

Post-Trial Developments:

In April 2015, defendants filed post-trial motions, including motions to set aside the verdict and for a new trial. On September 20, 2015, the trial court entered final judgment with a deduction for plaintiff’s comparative fault. On October 13, 2015, defendants filed a notice of appeal to the Florida Fourth District Court of Appeal and, on October 14, 2015, PM USA posted a bond in the amount of $460,000.

____________________________________________________________________________________________________

Plaintiff: Pollari

Date: March 2015

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $10 million in compensatory damages and allocating 42.5% of the fault to PM USA. The jury also awarded $1.5 million in punitive damages against each defendant.

Post-Trial Developments:

In April 2015, PM USA filed post-trial motions, including motions to set aside the verdict and for a new trial. In April 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault.

___________________________________________________________________________________________________

Plaintiff: Zamboni

Date: February 2015

Verdict:

A jury in the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds awarding $340,000 in compensatory damages and allocating 10% of the fault to PM USA (an amount of $34,000).

Post-Trial Developments:

In April 2015, PM USA and R.J. Reynolds filed a motion for judgment in defendants’ favor in accordance with the Eleventh Circuit’s decision in Graham. In June 2015, the trial court stayed the case pending the Eleventh Circuit’s final disposition in the Graham case, discussed below.

____________________________________________________________________________________________________

Plaintiff: Caprio

Date: February 2015

Verdict:

A Broward County jury returned a partial verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group LLC (“Liggett Group”). The jury found against defendants on class membership, allocating 25% of the fault to PM USA. The jury also found $559,172 in economic damages. The jury deadlocked with respect to the intentional torts, certain elements of compensatory damages and punitive damages.

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Post-Trial Developments:

In March 2015, PM USA filed post-trial motions, including motions to set aside the partial verdict and for a new trial. In May 2015, the court denied all of PM USA’s post-trial motions and defendants filed a notice of appeal to the Florida Fourth District Court of Appeal.

____________________________________________________________________________________________________

Plaintiff: McKeever

Date: February 2015

Verdict:

A Broward County jury returned a verdict in favor of plaintiff and against PM USA awarding approximately $5.8 million in compensatory damages and allocating 60% of the fault to PM USA. The jury also awarded plaintiff approximately $11.63 million in punitive damages. However, the jury found in favor of PM USA on the statute of repose defense to plaintiff’s intentional tort and punitive damages claims.

Post-Trial Developments:

In March 2015, PM USA filed various post-trial motions, including motions to set aside the verdict and motions for a new trial. In April 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In June 2015, the trial court denied PM USA’s post-trial motions, and PM USA posted a bond in the amount of $5 million. PM USA also filed a notice of appeal to the Florida Fourth District Court of Appeal in June 2015.

___________________________________________________________________________________________________

Plaintiff: D. Brown

Date: January 2015

Verdict:

A jury in the U.S. District Court for the Middle District of Florida returned a verdict against PM USA awarding plaintiff approximately $8.3 million in compensatory damages and allocating 55% of the fault to PM USA. The jury also awarded plaintiff $9 million in punitive damages.

Post-Trial Developments:

In February 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. In March 2015, PM USA filed various post-trial motions, including motions to alter or amend the judgment and for a new trial or, in the alternative, remittitur of the damages awards, all of which the court denied. In July 2015, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. On August 6, 2015, the Court of Appeals granted PM USA’s motion to stay the appeal pending disposition of Graham.

____________________________________________________________________________________________________

Plaintiff: Allen

Date: November 2014

Verdict:

A Duval County jury returned a verdict against PM USA and R.J. Reynolds awarding plaintiff approximately $3.1 million in compensatory damages and allocating 6% of the fault to PM USA. The jury also awarded approximately $7.76 million in punitive damages against each defendant. This was a retrial of a 2011 trial that awarded plaintiff $6 million in compensatory damages and $17 million in punitive damages against each defendant.

Post-Trial Developments:

In December 2014, defendants filed various post-trial motions, including motions to set aside the verdict and motions for a new trial, which the court denied in July 2015. On August 14, 2015, the trial court entered final judgment without any deduction for plaintiff’s comparative fault. Defendants filed a notice of appeal to the Florida First District Court of Appeal on September 10, 2015 and, on September 11, 2015, PM USA posted a bond in the amount of approximately $2.5 million.

____________________________________________________________________________________________________

Plaintiff: Perrotto

Date: November 2014

Verdict:

A Palm Beach County jury returned a verdict against PM USA, R.J. Reynolds, Lorillard and Liggett Group awarding plaintiff

Table of Contents

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

approximately $4.1 million in compensatory damages and allocating 25% of the fault to PM USA (an amount of approximately $1.02 million).

Post-Trial Developments:

In December 2014, the trial court entered final judgment with a deduction for plaintiff’s comparative fault, and plaintiff filed a motion for a new trial. In addition, in December 2014, defendants filed various post-trial motions, including motions to set aside the verdict and motions for a new trial.

____________________________________________________________________________________________________

Plaintiff: Boatright

Date: November 2014