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(1)

Amounts attributable to noncontrolling interests for the nine months ended September 30, 2017 and for the year ended December 31, 2016 exclude net earnings of $3 million and $5 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section on the condensed consolidated balance sheets at September 30, 2017 and December 31, 2016.

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▪	tax benefits of $232 million for the release of a valuation allowance related to deferred income tax assets for foreign tax credit carryforwards, which Altria Group, Inc. determined are more-likely-than-not to be fully utilized based upon new information received from AB InBev in the third quarter of 2017; and

▪	tax benefits of $36 million in 2017 for the reversal of tax accruals no longer required;

▪	tax expense of $114 million in 2017 for tax reserves related to the calculation of certain foreign tax credits.

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▪	Gentile: In October 2017, a jury in a Florida state court returned a verdict in favor of plaintiff, awarding approximately $7.1 million in compensatory damages and allocating 75% of the fault to PM USA (an amount of approximately $5.3 million).

▪

Bullock: In December 2015, a jury in the U.S. District Court for the Central District of California returned a verdict in favor of plaintiff, awarding $900,000 in compensatory damages. In January 2016, the plaintiff moved for a new trial, which the district court denied in February 2016. In March 2016, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit and plaintiff cross-appealed. Oral argument is scheduled for November 7, 2017.

▪	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 health care cost recovery case.

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2003 NPM Adjustment. With one exception (Montana), the courts have ruled that the states’ claims of diligent enforcement are to be submitted to arbitration. PM USA and other PMs entered into an agreement with most of the MSA states and territories concerning the 2003 NPM Adjustment, under which such states and territories would receive a partial liability reduction of 20% for the 2003 NPM Adjustment in the event the arbitration panel determined that they did not diligently enforce during 2003.

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2004 and Subsequent NPM Adjustments. PM USA believes that the MSA requires the states’ diligent enforcement claims for 2004 and thereafter to be determined in multi-state arbitrations. Some non-signatory states filed motions in their state courts contending that these claims are to be determined in separate arbitrations for individual states or that there is no arbitrable dispute for 2004. In September 2015, a Missouri intermediate appellate court ruled that Missouri was entitled to a single-state arbitration to determine whether Missouri diligently enforced for 2004. PM USA appealed this ruling, and in February 2017, the Supreme Court of Missouri reversed the decision of the intermediate appellate court, ruling that Missouri must submit to multi-state arbitration to arbitrate its diligent enforcement claim for 2004. In December 2015, a Wisconsin trial court ruled that Wisconsin must arbitrate its claim of diligent enforcement for 2004. As a result of these decisions, Missouri and Wisconsin have since joined the 2004 diligent enforcement arbitration. In November 2016, a New Mexico trial court ruled that New Mexico must arbitrate its diligent enforcement claim for 2004 in multi-state arbitration. New Mexico is appealing that ruling.

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▪	defendants falsely denied, distorted and minimized the significant adverse health consequences of smoking;

▪	defendants hid from the public that cigarette smoking and nicotine are addictive;

▪	defendants falsely denied that they control the level of nicotine delivered to create and sustain addiction;

▪	defendants falsely marketed and promoted “low tar/light” cigarettes as less harmful than full-flavor cigarettes;

▪	defendants falsely denied that they intentionally marketed to youth;

▪	defendants publicly and falsely denied that ETS is hazardous to non-smokers; and

▪	defendants suppressed scientific research.

▪	its application to defendants’ subsidiaries;

▪	the prohibition on the use of express or implied health messages or health descriptors, but only to the extent of extraterritorial application;

▪	its point-of-sale display provisions; and

▪	its application to Brown & Williamson Holdings.

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Larsen: In August 2005, a Missouri Court of Appeals affirmed the class certification order. In December 2009, the trial court denied plaintiffs’ motion for reconsideration of the period during which potential class members can qualify to become part of the class. The class period remains 1995-2003. In June 2010, PM USA’s motion for partial summary judgment regarding plaintiffs’ request for punitive damages was denied. In April 2010, plaintiffs moved for partial summary judgment as to an element of liability in the case, claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit described above). The plaintiffs’ motion was denied in December 2010. In June 2011, PM USA filed various summary judgment motions challenging the plaintiffs’ claims. In August 2011, the trial court granted PM USA’s motion for partial summary judgment, ruling that plaintiffs could not present a damages claim based on allegations that Marlboro Lights are more dangerous than Marlboro Reds. The trial court denied PM USA’s remaining summary judgment motions. Trial in the case began in September 2011 and, in October 2011, the court declared a mistrial after the jury failed to reach a verdict. In January 2014, the trial court reversed its prior ruling granting partial summary judgment against plaintiffs’ “more dangerous” claim and allowed plaintiffs to pursue that claim. In October 2014, PM USA filed motions to decertify the class and for partial summary judgment on plaintiffs’ “more dangerous” claim, which the court denied in June 2015. Upon retrial, in April 2016, the jury returned a verdict in favor of PM USA. In August 2016, plaintiffs filed a notice of appeal and PM USA cross-appealed. In November 2016, the court of appeals

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Aspinall: In August 2004, the Massachusetts Supreme Judicial Court affirmed the class certification order. In February 2014, the Massachusetts Superior Court ruled that plaintiffs’ recovery is limited to actual damages or $25 per class member if they cannot prove actual damages greater than $25. Trial began in October 2015 and concluded in November 2015. In February 2016, the trial court issued its “Findings of Fact and Conclusions of Law,” and awarded statutory damages of $25 per class member, for a total of $4.9 million, plus interest, attorneys’ fees and costs. In April 2016, subject to the court’s approval, the parties agreed to settle all claims for approximately $32 million. In the first quarter of 2016, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $32 million for the judgment plus interest and associated costs. In May 2016, PM USA paid approximately $32 million to plaintiffs’ escrow agent. In September 2016, the court approved the settlement in which PM USA agreed to pay approximately $15.3 million to the class and $16.5 million in attorneys’ fees and costs, and dismissed the case with prejudice, concluding this litigation.

▪

Miner: In November 2013, the Arkansas trial court granted class certification, which the Arkansas Supreme Court affirmed in February 2015. In June 2016, the trial court granted PM USA’s motion for partial summary judgment to limit any damages claimed by the plaintiffs’ class to purchases made prior to May 2003. In July 2016, the parties agreed to settle all claims for $45 million. In the third quarter of 2016, PM USA recorded a provision on its condensed consolidated balance sheet of $45 million. In November 2016, the trial court granted final approval of the settlement, concluding this litigation. In December 2016, PM USA paid $45 million to plaintiff’s escrow agent.

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▪	the date, if any, on which PM USA consolidates with or merges into Altria Group, Inc. or any successor;

▪	the date, if any, on which Altria Group, Inc. or any successor consolidates with or merges into PM USA;

▪	the payment in full of the Obligations pertaining to such Guarantees; and

▪	the rating of Altria Group, Inc.’s long-term senior unsecured debt by Standard & Poor’s Ratings Services of A or higher.

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▪	higher income from the smokeable products and smokeless products segments; and

▪	lower interest and other debt expense, net;

▪	lower earnings from Altria Group, Inc.’s equity investment in AB InBev/SABMiller.

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▪	Tobacco and Health Litigation Items: 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:

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▪	Asset Impairment, Exit and Implementation Costs: Pre-tax asset impairment, exit and implementation costs for the nine and three months ended September 30, 2017 were $71 million and $15 million, respectively. Pre-tax asset impairment, exit and implementation costs for the nine and three months ended September 30, 2016 were $130 million and $6 million, respectively.

▪

Loss on Early Extinguishment of Debt: During the third quarter of 2016, Altria Group, Inc. purchased for cash certain of its senior unsecured notes in an aggregate principal amount of $933 million in a debt tender offer. As a result of the debt tender offer, during the third quarter of 2016, Altria Group, Inc. recorded a pre-tax loss on early extinguishment of debt of $823 million, which included premiums and fees of $809 million and the write-off of related unamortized debt discounts and debt issuance costs of $14 million. For further discussion, see Note 7. Debt to the condensed consolidated financial statements in Item 1 (“Note 7”).

▪

Gain on AB InBev/SABMiller Business Combination: For the nine and three months ended September 30, 2017, Altria Group, Inc. recorded a pre-tax gain of $445 million and $37 million, respectively, related to AB InBev divestitures. For the nine and and three months ended September 30, 2016, Altria Group, Inc. recorded a pre-tax gain of $205 million and $48 million, respectively, for the change in the fair value of the derivative financial instruments that it entered into in connection with the Transaction. The pre-tax gains related to the AB InBev divestitures and the derivative financial instruments were included in gain on AB InBev/SABMiller business combination in Altria Group, Inc.’s condensed consolidated statements of earnings.

▪

AB InBev/SABMiller Special Items: Altria Group, Inc.’s earnings from its equity investment in AB InBev for the nine and three months ended September 30, 2017 included net pre-tax charges of $109 million and $34 million, respectively, consisting primarily of Altria Group, Inc.’s share of mark-to-market losses on AB InBev’s derivative financial instruments used to hedge certain share commitments. Altria Group, Inc.’s earnings from its equity investment in SABMiller for the nine months ended September 30, 2016 included net pre-tax charges of $147 million, consisting primarily of Altria Group, Inc.’s share of SABMiller’s asset impairment charges and costs related to the Transaction, partially offset by gains on asset disposals. Altria Group, Inc.’s earnings from its equity investment in SABMiller for the three months ended September 30, 2016 included net pre-tax gains of $40 million, consisting primarily of Altria Group, Inc.’s share of SABMiller’s gains on asset disposals, partially offset by costs related to the Transaction.

▪	Tax Items: Tax items for the three months ended September 30, 2017 of $155 million were due primarily to tax benefits for the release of a valuation allowance related to deferred income tax assets for foreign tax credit carryforwards and for the reversal of tax accruals no longer required, partially offset by tax expense for tax reserves related to the calculation of certain foreign tax credits.

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▪	pending and threatened litigation and bonding requirements;

▪	the requirement to issue “corrective statements” in various media in connection with the federal government’s lawsuit;

▪	restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the U.S. Food and Drug Administration (“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:

▪	increases in the minimum age to purchase tobacco products above the current federal minimum age of 18;

▪	restrictions on the sale of tobacco products by certain retail establishments, the sale of certain tobacco products with certain 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 product legislation and regulation; and

▪	governmental investigations;

▪	the diminishing prevalence of cigarette smoking and increased efforts by tobacco control advocates and others (including retail establishments) to further restrict tobacco use;

▪	changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as economic conditions, 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 the tobacco categories in which our tobacco subsidiaries operate, including competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation;

▪	illicit trade in tobacco products; and

▪	potential adverse changes in tobacco leaf and other raw material prices, availability and quality.

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▪	FSPTCA and FDA Regulation;

▪	Excise Taxes;

▪	International Treaty on Tobacco Control;

▪	State Settlement Agreements;

▪	Other Federal, State and Local Regulation and Activity;

▪	Illicit Trade in Tobacco Products;

▪	Price, Availability and Quality of Agricultural Products; and

▪	Timing of Sales.

▪	imposes restrictions on the advertising, promotion, sale and distribution of tobacco products, including at retail;

▪	bans descriptors such as “light,” “mild” or “low” or similar descriptors when used as descriptors of modified risk unless expressly authorized by the FDA;

▪	requires extensive product disclosures to the FDA and may require public disclosures;

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

▪	imposes reporting obligations relating to contraband activity and grants the FDA authority to impose recordkeeping and other obligations to address illicit trade in tobacco products;

▪	changes the language of the cigarette and smokeless tobacco product health warnings, enlarges their size 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 products;

▪

authorizes the FDA to adopt product regulations and related actions, including imposing tobacco product standards that are appropriate for the protection of the public health (e.g., related to the use of menthol in cigarettes, nicotine yields and other constituents or ingredients) and imposing manufacturing standards for tobacco products (see FDA’s Comprehensive Regulatory Plan for Tobacco and Nicotine Regulation, and FDA Regulatory Actions - Product Standards below);

▪	establishes pre-market review pathways for new and modified tobacco products for the FDA to follow (see Pre-Market Review Pathways below); and

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

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▪	the FDA’s planned issuance of advance notices of proposed rulemaking (“ANPRM”) seeking comments for potential future regulations establishing product standards for (i) nicotine in combustible cigarettes, (ii) flavors in tobacco products and (iii) e-vapor products (see FDA Regulatory Actions - Product Standards below);

▪	the FDA’s planned extension of the timelines to submit applications for Other Tobacco Products that were on the market as of August 8, 2016, which the FDA extended in August 2017 (see FDA Regulatory Actions - Substantial Equivalence and Other New Product Processes/Pathways below);

▪

the FDA’s reconsideration of whether its current plan, which is to review all “provisional” products pending in the substantial equivalence queue, is an effective use of its resources and, if not, whether it should continue to pursue its current approach to these reviews (see FDA Regulatory Actions - Substantial Equivalence and Other New Product Processes/Pathways below). A “provisional” product refers to cigarettes, cigarette tobacco and smokeless tobacco products modified or first commercially available after February 15, 2007 and before March 22, 2011; and

▪	the FDA’s planned issuance of foundational regulations identifying the information the FDA expects to be included in substantial equivalence reports and applications for “new tobacco products” and “modified risk tobacco products.” The FDA also plans to finalize guidance on how it intends to review new product applications for e-vapor products.

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▪	impact the consumer acceptability of tobacco products;

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

▪	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; or

▪	otherwise significantly increase the cost of doing business.

▪	bans the use of color and graphics in cigarette and smokeless tobacco product labeling and advertising;

▪	prohibits the sale of cigarettes, smokeless tobacco and covered tobacco products to persons under the age of 18;

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

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▪	requires the sale of cigarettes and smokeless tobacco in direct, face-to-face transactions;

▪	prohibits sampling of cigarettes and covered tobacco products and prohibits sampling of smokeless tobacco products except 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; and

▪	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.

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Nicotine in cigarettes: The potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to non-addictive or minimally addictive levels through achievable product standards. Specifically, the FDA intends to seek comments on the potential unintended consequences of such product standard, including (i) smokers compensating by smoking more cigarettes to obtain the same level of nicotine as with their current product and (ii) the illicit trade of cigarettes containing nicotine at levels higher than a non-addictive threshold that may be established by the FDA; and

▪	Flavors in all tobacco products: The role that flavors (including menthol) in tobacco products play in attracting youth and may play in helping some smokers switch to potentially less harmful forms of nicotine delivery.

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▪	Effective September 24, 2017, PM USA increased the list price on all of its cigarette brands by $0.10 per pack.

▪	Effective May 21, 2017, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.10 per five-pack.

▪	Effective March 19, 2017, PM USA increased the list price on Parliament by $0.12 per pack.  In addition, PM USA increased the list price on all of its other cigarette brands by $0.08 per pack.

▪	Effective November 13, 2016, PM USA reduced its wholesale promotional allowance on Marlboro by $0.02 per pack and L&M by $0.08 per pack.  In addition, PM USA increased the list price on Marlboro by $0.06 per pack and on all of its other cigarette brands by $0.08 per pack, except for L&M, which had no list price change.

▪	Effective May 15, 2016, PM USA increased the list price on all of its cigarette brands by $0.07 per pack.

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▪	Effective September 26, 2017, USSTC increased the list price on Copenhagen and Skoal popular price products by $0.12 per can. In addition, USSTC increased the list price on all its brands, except for Copenhagen and Skoal popular price products, by $0.07 per can.

▪	Effective April 25, 2017, USSTC increased the list price on all its brands by $0.07 per can.

▪	Effective December 6, 2016, USSTC increased the list price on Copenhagen and Skoal popular price products by $0.12 per can. In addition, USSTC increased the list price on all its brands, except for Copenhagen and Skoal popular price products, by $0.07 per can.

▪	Effective May 10, 2016, USSTC increased the list price on all its brands by $0.07 per can.

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▪	debt issuance of $2.0 billion of senior unsecured notes during the first nine months of 2016 used in part to repurchase senior unsecured notes in connection with the 2016 debt tender offer, as more fully described in Note 7;

▪	higher repurchases of common stock during the first nine months of 2017; and

▪	higher dividends paid during the first nine months of 2017;

▪	debt repayments of $0.9 billion and premiums and fees of $0.8 billion in connection with the debt tender offer during the first nine months of 2016.

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▪	promote brand equity successfully;

▪	anticipate and respond to new and evolving adult consumer preferences;

▪	develop, manufacture, market and distribute products that appeal to adult consumers (including, where appropriate, through arrangements with, or investments in, third parties);

▪	improve productivity; and

▪	protect or enhance margins through cost savings and price increases.

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12	Statements regarding computation of ratios of earnings to fixed charges.

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1	Certain Litigation Matters.

99.2	Trial Schedule for Certain Cases.

99.3	Definitions of Terms Related to Financial Covenants included in Altria Group, Inc.’s Amended and Restated 5-Year Revolving Credit Agreement, dated as of August 19, 2013. Incorporated by reference to Altria Group, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 (File No. 1-08940).

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