Altria Group (MO) 10-K risk factor changes: FY2018 vs FY2017

We (1) may from time to time make written or oral forward-looking statements, including earnings guidance and other statements contained in filings with the SEC, reports to security [added: holders, press releases and investor webcasts.]

(1) This section uses the terms “we,” “our” and “us” when it is not necessary to distinguish among Altria [removed: Group, Inc.] and its various operating subsidiaries or when any distinction is clear from the context.

You should bear this in mind as you consider forward-looking statements and whether to invest in or remain invested in [removed: Altria Group, Inc.’s] [added: Altria’s] securities.

We elaborate on these and other risks we face throughout this [removed: document,] [added: Annual Report on Form 10-K] particularly in the “Business Environment” sections preceding our discussion of the operating results of our subsidiaries’ businesses below in Item 7.

Unfavorable litigation outcomes could materially adversely affect the consolidated results of operations, cash flows or financial position of Altria [removed: Group, Inc.,] or the businesses of one or more of its subsidiaries.

Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions [removed: 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-related claims, patent infringement, employment matters, claims for contribution and claims of [removed: competitors] [added: competitors, shareholders] and distributors.

The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may [added: be specified in a lawsuit bears little relevance to the ultimate outcome.]

In such cases, Altria [removed: 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 [removed: 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 [removed: Group, Inc.] or its subsidiaries may also be required to pay interest and attorneys’ fees.

As discussed in Note [removed: 18.][added: 19.]

Contingencies to the consolidated financial statements in Item 8 (“Note [removed: 18”),] [added: 19”),] 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.

Although we cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of [removed: Altria Group, Inc.,] [added: Altria,] or the businesses of one or more of its subsidiaries, could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

In certain litigation, Altria [removed: Group, Inc.] and its subsidiaries may face potentially significant non-monetary remedies, which may cause reputational harm.

For example, in the lawsuit brought by the United States Department of Justice, discussed in detail in Note [removed: 18,] [added: 19,] the district court did not impose monetary penalties but ordered significant non-monetary remedies, including the issuance of “corrective [removed: statements” that Altria Group, Inc. and PM USA began making in various media in the fourth quarter of 2017.][added: statements.”]

Altria [removed: Group, Inc.] and its subsidiaries have achieved substantial success in managing litigation.

It is possible that the consolidated results of operations, cash flows or financial position of [removed: Altria Group, Inc.,] [added: Altria,] or the businesses of one or more of its subsidiaries, could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation.

Altria [removed: 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.

However, Altria [removed: Group, Inc.] and its subsidiaries may enter into [added: settlement discussions in particular cases if they believe it is in the best interests of Altria to do so.]

Legal Proceedings of this Annual Report on Form 10-K (“Item 3”), Note [removed: 18] [added: 19] and Exhibits 99.1 and 99.2 to this Annual Report on Form 10-K for a discussion of pending tobacco-related litigation.

Significant federal, state and local governmental actions, including actions by the FDA, and various private sector actions may continue to have an adverse impact on [added: us and] our tobacco subsidiaries’ businesses and sales volumes.

[removed: Actions] [added: More broadly, actions] by the FDA and other federal, state or local governments or agencies, including those specific actions described in Tobacco Space - Business Environment in Item 7, may impact the adult tobacco consumer acceptability of or access to tobacco products (for example, through product [removed: standards),] [added: standards that may be proposed by the FDA for nicotine and flavors),] limit adult tobacco consumer choices, delay or prevent the launch of new or modified tobacco products or products with claims of reduced risk, require the recall or other removal of tobacco products from the marketplace (for example as a result of product contamination, [added: rulemaking that bans menthol,] a determination by the FDA that one or more tobacco products do not satisfy the statutory requirements for substantial equivalence, [removed: or] because the FDA requires that a [removed: modification to a] currently-marketed tobacco product proceed through the pre-market review [removed: process),] [added: process or because the FDA otherwise determines that removal is necessary for the protection of public health),] restrict communications to adult tobacco consumers, restrict the ability to differentiate tobacco products, create a competitive advantage or disadvantage for certain tobacco companies, impose additional manufacturing, labeling or packing requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business, or restrict or prevent the use of specified tobacco products in certain locations or the sale of tobacco products by certain retail establishments.

[removed: Any one or more of these actions may have a material adverse] impact on the business, consolidated results of operations, cash flows or financial position of Altria [removed: Group, Inc.] and its tobacco subsidiaries.

Tobacco products are subject to substantial taxation, which could have an adverse impact on sales of the tobacco products of [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries.

Tobacco products are subject to substantial excise taxes, and significant increases in tobacco product-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted within the United States at the [removed: state, federal] [added: federal, state] and local levels.

[added: Tax increases are expected to continue to have an adverse impact on sales of the tobacco products of our tobacco] subsidiaries through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments or to other low-priced or low-taxed tobacco products or to counterfeit and contraband products.

Such shifts may have an adverse impact on the reported share performance of tobacco products of [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries.

Our tobacco businesses face significant competition [removed: within their categories] [added: (including across categories)] and their failure to compete effectively could have an adverse effect on the consolidated results of operations or cash flows of [removed: Altria Group, Inc.,] [added: Altria,] or the business of [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries.

Each of [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries operates in highly competitive tobacco categories.

A highly competitive environment could negatively impact the profitability, market share and shipment volume of our tobacco subsidiaries, which could have an adverse effect on the consolidated results of operations or cash flows of [removed: Altria Group, Inc.][added: Altria.]

These settlements, among other factors, [removed: have] resulted in substantial cigarette price increases.

These manufacturers may fail to comply with related state escrow legislation or may avoid escrow deposit obligations on the majority of their sales by concentrating on certain states [removed: where escrow deposits are not required or are required on fewer than all such manufacturers’ cigarettes sold in such states.]

Altria [removed: Group, Inc.] and its subsidiaries may be unsuccessful in anticipating changes in adult consumer preferences, responding to changes in consumer purchase behavior or managing through difficult competitive and economic [removed: conditions.][added: conditions, which could have an adverse effect on the consolidated results of operations and cash flows of Altria or the business of Altria’s tobacco subsidiaries.]

| ▪ | develop, manufacture, market and distribute [added: new and innovative] products that appeal to adult consumers (including, where appropriate, through arrangements with, or investments in, third parties); |

Growth of [removed: this] [added: the e-vapor] product category [removed: could contribute] [added: and other innovative tobacco products has further contributed] to reductions in cigarette consumption levels and cigarette industry sales volume and [removed: could] [added: has] adversely [removed: affect] [added: affected] the growth rates of other tobacco products.

In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, which could have a material adverse effect on the business, consolidated results of operations, cash flows or financial position of Altria [removed: Group, Inc.] and its subsidiaries.

[removed: If parties to PMCC’s leases fail to manage through difficult economic and] competitive conditions, PMCC may have to increase its allowance for losses, which would adversely affect our earnings.

[removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries [added: and investees] may be unsuccessful in developing and commercializing adjacent products or processes, including innovative tobacco products that may reduce the health risks associated with current tobacco products and that appeal to adult tobacco consumers, which may have an adverse effect on their ability to grow new revenue streams and/or put them at a competitive disadvantage.

Altria [removed: Group, Inc.] and its subsidiaries have growth strategies involving moves and potential moves into adjacent products or processes, including innovative tobacco products.

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against Altria and its subsidiaries, including PM USA and UST and its subsidiaries, as well as their respective indemnitees.

Any one or more of these actions may have a material adverse

This competition also exists across categories as adult tobacco consumer preferences evolve.

Continued growth in these categories could have a material adverse impact on the business, results of operations, cash flows or financial position of PM USA and USSTC.

where escrow deposits are not required or are required on fewer than all such manufacturers’ cigarettes sold in such states.

See Tobacco Space - Business Environment - Summary in Item 7 and the immediately preceding risk factor for additional discussion concerning evolving adult tobacco consumer preferences, specifically the growth of e-vapor and other innovative tobacco products and the effects on our tobacco operating companies.

If parties to PMCC’s leases fail to manage through difficult economic and

These efforts include arrangements with, or investments in, third parties such as our minority investment in JUUL.

This minority investment subjects us to non-competition obligations restricting us from investing or engaging in the e-vapor business other than through JUUL, subject to limited exceptions.

Price, Availability and Quality of Tobacco, Other Raw Materials and Component Parts in Item 7.

We continue to make investments in

A challenge to our tax positions could adversely affect our tax rate, earnings or cash flow.

Tax laws and regulations, such as the 2017 Tax Cuts and Jobs Act (the “Tax Reform Act”), are complex and subject to varying interpretations.

A successful challenge to one or more of Altria’s tax positions could give rise to additional liabilities, including interest and potential penalties, as well as adversely affect our tax rate, earnings or cash flows.

it will always protect against improper actions by employees, investees or third parties.

In the fourth quarter of 2018, Altria incurred $209 million in goodwill and other intangible asset impairment charges related to Altria’s decision to refocus its innovative product efforts and the impairment of the Columbia Crest trademark (See Note 4.

Goodwill and Other Intangible Assets, net to the consolidated financial statements in Item 8 for a more detailed discussion).

the dividends that we receive from AB InBev will convert into fewer U.S. dollars.

For example, in October 2018, AB InBev announced a 50% rebase in the dividends it pays to its shareholders, which will result in a reduction of cash dividends Altria receives from AB InBev.

As discussed in the Discussion and Analysis - Critical Accounting Policies and Estimates in Item 7, if the carrying value of our investment in AB InBev exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired, which would result in impairment losses and could have a material adverse effect on Altria’s consolidated financial position or earnings.

Antitrust clearance required for the conversion of our non-voting JUUL shares into voting shares may not be obtained in a timely manner or at all, and the expected benefits of the JUUL transaction may not materialize in the expected manner or timeframe or at all.

Antitrust clearance required for the conversion of the non-voting JUUL shares held by us into voting shares may not be obtained in a timely manner or at all, and such clearance may be subject to unanticipated conditions.

Unless and until such antitrust clearance is obtained, including expiration or termination of any applicable waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any rules and regulations promulgated thereunder, our JUUL shares will not have voting rights and we will not be entitled to certain other rights, including the right to appoint any directors to the JUUL Board of Directors.

Accordingly, failure to obtain antitrust clearance would adversely affect us, including because it would substantially limit our rights with respect to our investment in JUUL and would prevent us from accounting for our investment in JUUL using the equity method.

In addition, regardless of whether antitrust clearance is obtained, the expected benefits of the JUUL transaction, such as any equity earnings and receipt of cash dividends, may not materialize in the expected manner or timeframe or at all, including due to the risks encountered by JUUL in its business, such as operational risks and regulatory risks at the international, federal and state levels, including actions by the FDA; unanticipated impacts on JUUL’s relationships with employees, customers, suppliers and other third parties; potential disruptions to JUUL’s management or current or future plans and operations due to the JUUL transaction; or domestic or international litigation developments, investigations, or otherwise.

See Item 7.

Tobacco Space - Business Environment for a discussion of certain FDA-related regulatory risks applicable to the e-vapor category.

Failure to realize the expected benefits of our JUUL investment could adversely affect the value of the investment.

As discussed in the Discussion and Analysis - Critical Accounting Policies and Estimates in Item 7, if a qualitative assessment of impairment of our JUUL investment were to indicate that its fair value is less than its carrying value, the investment would be written down to its fair value, which could have a material adverse effect on Altria’s consolidated financial position or earnings.

Our investment in JUUL includes non-competition, standstill and transfer restrictions that prevent us from gaining control of JUUL.

Furthermore, if our percentage ownership in JUUL were to decrease below certain levels, we would lose certain of our governance, consent, preemptive and other rights with respect to our investment in JUUL and may be unable to account for the investment under the equity method.

The shares of JUUL we hold generally cannot be sold or otherwise transferred for a six-year period that expires on December 20, 2024, subject to limited exceptions.

We have also generally agreed not to compete with JUUL in the e-vapor space

for at least six years, which may be extended at our election.

In addition, following receipt of antitrust clearance, our designees will comprise no more than one third of the members of the JUUL Board of Directors.

As a result, JUUL’s strategy and its material decisions are not controlled by us, and the terms of our agreements with JUUL mean that we are required to bear the risks associated with our investment in JUUL for at least a six-year period.

Further, in the event that our ownership percentage in JUUL were to decrease below certain levels due to transfers by us or otherwise, or if we elect not to extend our non-competition obligations beyond six years, we would lose some or all of our board designation rights, preemptive rights, consent rights and other rights with respect to our investment in JUUL.

Loss of these rights could adversely affect us by impairing our ability to influence JUUL and may prevent us from accounting for our investment under the equity method.

Our proposed investment in Cronos may not be completed within the anticipated timeframe or at all, and the expected benefits of the Cronos transaction may not materialize in the expected manner or timeframe or at all.

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holders, press releases and investor webcasts.

be specified in a lawsuit bears little relevance to the ultimate outcome.

settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so.

Tax increases are expected to continue to have an adverse impact on sales of the tobacco products of our tobacco

In the cigar category, additional competition has resulted from increased imports of machine-made large cigars manufactured offshore.

These efforts may include arrangements with, or

investments in, third parties.

In January 2017, USSTC announced that it was voluntarily recalling certain of its smokeless tobacco products manufactured at a USSTC facility due to product tampering.

USSTC recorded a charge during the first quarter of 2017 related to this recall.

may negatively affect the amount of credit available to us and may also increase our costs and adversely affect our earnings or our dividend rate.

adult consumers and others.

[removed: At] [added: In] December [removed: 31, 2017, Altria][added: 2018, Altria:]

For further discussion, see Note [removed: 6.][added: 3.]

[removed: Investment in AB InBev/SABMiller] [added: Long-Term Debt] to the consolidated financial statements in Item 8 (“Note [removed: 6”).][added: 10”).]

[removed: Altria Group, Inc.’s] [added: Altria’s] reportable segments are smokeable products, smokeless products and wine.

[removed: The financial services and the] innovative tobacco products businesses are included in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial contribution of [removed: Altria Group, Inc.’s] [added: Altria’s] innovative tobacco products businesses to [removed: Altria Group, Inc.’s] [added: Altria’s] consolidated results.

The changes in [removed: Altria Group, Inc.’s] [added: Altria’s] net earnings and diluted earnings per share (“EPS”) attributable to Altria [removed: Group, Inc.] for the year ended December 31, [removed: 2017,] [added: 2018,] from the year ended December 31, [removed: 2016,] [added: 2017,] were due primarily to the following:

| For the year ended December 31, [removed: 2016] [added: 2018] | $ | [removed: 14,239] [added: 6,963] | | | $ | [removed: 7.28] [added: 3.68] | |

| [removed: 2016] [added: 2017] NPM Adjustment Items | [removed: 11] [added: 2] | | | | [removed: 0.01] [added: —] | | |

| [removed: 2016] Asset impairment, exit, implementation and acquisition-related costs | [removed: 135 | | | | 0.07] [added: 0.23] | | |

| [removed: 2016] Tobacco and health litigation items | [removed: 71 | | | | 0.04] [added: 0.05] | | |

| [removed: 2016 SABMiller] [added: AB InBev] special items | [removed: (57 | | ) | |] (0.03 | | ) |

| [removed: 2016] [added: 2017] Gain on AB InBev/SABMiller business combination | [removed: (9,001] [added: (289] | | ) | | [removed: (4.61] [added: (0.15] | | ) |

| [removed: 2016] Tax items | [removed: (30 | | ) | | (0.02] [added: 0.11] | | [removed: )] |

| [removed: 2017] NPM Adjustment Items | [removed: (2] [added: (0.06] | | ) | [removed: | — | | |]

| 2017 Asset impairment, exit, implementation and acquisition-related costs | [removed: (55] [added: 55] | | [removed: )] | | [removed: (0.03] [added: 0.03] | | [removed: )] |

| 2017 Tobacco and health litigation items | [removed: (50] [added: 50] | | [removed: )] | | [removed: (0.03] [added: 0.03] | | [removed: )] |

| 2017 AB InBev special items | [removed: (105] [added: 105] | | [removed: )] | | [removed: (0.05] [added: 0.05] | | [removed: )] |

| [removed: 2017 Gain] [added: Loss] on AB InBev/SABMiller business combination | [removed: 289 | | | | 0.15] [added: 0.01] | | |

| 2017 Settlement charge for lump sum pension payments | [removed: (49] [added: 49] | | [removed: )] | | [removed: (0.03] [added: 0.03] | | [removed: )] |

| 2017 Tax items | [removed: 3,674] [added: (3,674] | | [added: )] | | [removed: 1.91] [added: (1.91] | | [added: )] |

| Subtotal 2017 special items | [removed: 3,702] [added: (3,702] | | [added: )] | | [removed: 1.92] [added: (1.92] | | [added: )] |

| Fewer shares outstanding | — | | | | [removed: 0.05] [added: 0.07] | | |

| Change in tax rate | [removed: 124] [added: 1,007] | | | | [removed: 0.06] [added: 0.53] | | |

| ▪ | Fewer Shares Outstanding: Fewer shares outstanding during [removed: 2017] [added: 2018] compared with [removed: 2016] [added: 2017] were due primarily to shares repurchased by Altria [removed: Group, Inc.] under its share repurchase [removed: program.] [added: programs.] |

| ▪ | Operations: The increase of [removed: $474] [added: $12] million in operations shown in the table above was due primarily to [removed: higher income from] the [removed: smokeable products and smokeless products segments.] [added: following:] |

[removed: 2018] [added: 2019] Forecasted Results

In [removed: February 2018,] [added: January 2019,] Altria [removed: Group, Inc.] forecasted that its [removed: 2018] [added: 2019] full-year adjusted diluted EPS growth rate is expected to be in the range of [removed: 15%] [added: 4%] to [removed: 19%] [added: 7%] over [removed: 2017] [added: its 2018] full-year adjusted diluted [removed: EPS.][added: EPS base of $3.99.]

This forecasted growth rate excludes the [removed: income and] [added: 2019 forecasted] expense items in the [added: second] table below.

Altria [removed: Group, Inc.] expects its [removed: 2018] [added: 2019] full-year adjusted effective tax rate will be in a range of approximately [removed: 23%] [added: 23.5%] to [removed: 24%.][added: 24.5%.]

[removed: Altria Group, Inc.’s] [added: Altria’s] full-year adjusted diluted EPS guidance and full-year forecast for its adjusted effective tax rate exclude the impact of certain income and expense items that management believes are not part of underlying operations.

These items may include, for example, loss on early extinguishment of debt, restructuring charges, [removed: gain] [added: asset impairment charges, loss/gain] on [removed: the Transaction,] AB InBev/SABMiller [added: business combination, AB InBev] special items, certain tax items, charges associated with tobacco and health litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the 1998 Master Settlement Agreement (such dispute resolutions are referred to as “NPM Adjustment Items” and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note [removed: 18).][added: 19).]

[removed: Altria Group, Inc.’s] [added: Altria’s] management cannot estimate on a forward-looking basis the impact of certain income and expense items, including those items noted in the preceding paragraph, on [removed: Altria Group, Inc.’s] [added: Altria’s] reported diluted EPS and reported effective tax rate because these items, which could be significant, may be infrequent, are difficult to predict and may be highly variable.

As a result, Altria [removed: Group, Inc.] does not provide a corresponding United States generally accepted accounting principles (“U.S. GAAP”) measure for, or reconciliation to, its adjusted diluted EPS guidance or its adjusted effective tax rate forecast.

[removed: In addition, the] [added: The] factors described in Item 1A represent continuing risks to this forecast.

[added: |] Expense [removed: (Income), Net] Excluded from [added: 2019 Forecasted] Adjusted Diluted EPS [added: | | | |]

| | 2018 | | | [removed: |] 2017 | | | [added: 2016 | |]

| Asset impairment, exit, implementation and acquisition-related costs [removed: | $ | — | |] [added: (1)] | $ | [removed: 0.03] [added: 0.08] | |

| [added: 2018] Tobacco and health litigation items | [removed: —] [added: (98] | | [added: )] | | [removed: 0.03] [added: (0.05] | | [added: )] |

| [added: 2018] AB InBev special items | [removed: —] [added: 68] | | | | [removed: 0.05] [added: 0.03] | | |

| [removed: Gain] [added: 2018 Loss] on AB InBev/SABMiller business combination | [removed: —] [added: (26] | | [added: )] | | [removed: (0.15] [added: (0.01] | | ) |

Business, and Background in Note 1.

The financial services and the

As discussed in Note 1, on January 1, 2018, Altria adopted several accounting standard updates (“ASU”).

In connection with the adoption of two of these ASUs (ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash and ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost), Altria restated certain prior year amounts.

| 2018 NPM Adjustment Items | 109 | | | | 0.06 | | |

| 2018 Asset impairment, exit, implementation and acquisition-related costs | (432 | | ) | | (0.23 | | ) |

| 2018 Tax items | (197 | | ) | | (0.11 | | ) |

| Subtotal 2018 special items | (576 | | ) | | (0.31 | | ) |

| Operations | 12 | | | | — | | |

| ▪ | higher earnings from Altria’s equity investment in AB InBev; and |

| ▪ | higher income from the smokeless products segment; |

| ▪ | lower income from the smokeable products and wine segments; and |

| ▪ | higher investment spending in the innovative tobacco products businesses. |

Altria’s 2019 guidance reflects its expectation for a higher full-year adjusted effective tax rate, primarily resulting from lower dividends from AB InBev; increased interest expense from the debt incurred from the Cronos and JUUL transactions; savings from the cost reduction program announced in December 2018, which Altria expects to build over the course of the year to an annualized level of approximately $575 million; and increased investments related to PM USA’s lead market plans for launching IQOS, once authorized by the FDA.

The guidance assumes little-to-no earnings or cash contributions from the Cronos and JUUL investments.

Altria expects the adjusted diluted EPS growth to come in the last three quarters of 2019, with a mid-single digit decline in the first quarter.

In the first quarter of 2019, Altria will have the increased interest expense without the full benefits of the cost reduction program and one fewer shipping day in the smokeable products segment.

| | | | |

| --- | --- | --- | --- |

| | | | |

| Reconciliation of 2018 Reported Diluted EPS to 2018 Adjusted Diluted EPS | | | |

| | 2018 | | |

| 2018 Reported diluted EPS | $ | 3.68 | |

| 2018 Adjusted diluted EPS | $ | 3.99 | |

| | | | |

| --- | --- | --- | --- |

| | | | |

| | 2019 | | |

| | $ | 0.12 | |

(1) Represents $0.04 for acquisition-related costs associated with the Cronos and JUUL transactions and $0.04 for the cost reduction program announced in December 2018.

(2) Represents a partial reversal of the tax basis benefit recorded in 2017 attributable to the deemed repatriation tax related to Altria’s investment in AB InBev.

certain income and expense items, including those items noted above.

Equity investments in which Altria does not have the ability to exercise significant influence over the operating and financial policies of the investee are accounted for as an investment in an equity security.

▪Revenue Recognition: On January 1, 2018, Altria adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and all related ASU amendments.

Altria’s businesses generate substantially all of their revenue from sales contracts with customers.

While Altria’s businesses enter into separate sales contracts with each customer for each product type, all sales contracts are similarly structured.

These contracts create an obligation to transfer product to the customer.

All performance obligations are satisfied within one year; therefore, costs to obtain contracts are expensed as incurred and unsatisfied performance obligations are not disclosed.

There is no financing component because Altria expects, at contract inception, that the period between when Altria transfers product to the customer and when the customer pays for that product will be one year or less.

Altria’s businesses define net revenues as revenues, which include excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns (also referred to as returned goods) and sales incentives.

At December 31, 2017, Altria Group, Inc.’s wholly-owned subsidiaries included PM USA, which is engaged in the manufacture and sale of cigarettes in the United States; 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; Nat Sherman, which is engaged in the manufacture and sale of super premium cigarettes and the sale of premium cigars; and UST, which through its wholly-owned subsidiaries, including USSTC and 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, a wholly-owned subsidiary that is engaged in the manufacture and sale of innovative tobacco products, and 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 and distribution services to certain Altria Group, Inc. operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas, such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria Group, Inc. and its subsidiaries.

In addition, Nu Mark, Middleton and Nat Sherman use third-party arrangements in the manufacture of their products.

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 December 31, 2017, 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, 2016, Altria Group, Inc. had an approximate 27% ownership of SABMiller, which Altria Group, Inc. accounted for under the equity method of accounting.

In October 2016, Legacy AB InBev completed the Transaction, and AB InBev became the holding company for the combined SABMiller and Legacy AB InBev businesses.

Upon completion of the Transaction, Altria Group, Inc. had a 9.6% ownership of AB InBev based on AB InBev’s shares outstanding.

Subsequently, Altria Group, Inc. purchased approximately 12 million ordinary shares of AB InBev, increasing Altria Group, Inc.’s ownership to approximately 10.2% at December 31, 2016.

Group, Inc. had an approximate 10.2% ownership of AB InBev, which Altria Group, Inc. accounts for under the equity method of accounting using a one-quarter lag.

As a result of the one-quarter lag and the timing of the completion of the Transaction, no earnings from Altria Group, Inc.’s equity investment in AB InBev were recorded for the year ended December 31, 2016.

Altria Group, Inc. receives cash dividends on its interest in AB InBev if and when AB InBev pays such dividends.

In January 2017, Altria Group, Inc. acquired Nat Sherman, which joined PM USA and Middleton as part of Altria Group, Inc.’s smokeable products segment.

The following executive summary is intended to provide significant highlights of the Discussion and Analysis that follows.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| 2016 Loss on early extinguishment of debt | 541 | | | | 0.28 | | |

| 2016 Patent litigation settlement | 13 | | | | 0.01 | | |

| Subtotal 2016 special items | (8,317 | | ) | | (4.25 | | ) |

| Operations | 474 | | | | 0.25 | | |

| ▪ | Change in Tax Rate: The change in tax rate was driven primarily by no tax being due on the dividends Altria Group, Inc. received from AB InBev during 2017 as a result of a deemed repatriation tax associated with the Tax Reform Act (as defined below). For further discussion, see Note 14. Income Taxes to the consolidated financial statements in Item 8 (“Note 14”). |

Altria Group, Inc.’s 2018 guidance reflects investments in focus areas for long-term growth, including innovative product development and launches, regulatory science, brand equity, retail fixtures and future retail concepts.

| Settlement charge for lump sum pension payments | — | | | | 0.03 | | |

| | $ | 0.09 | | | $ | (1.92 | ) |

(1) Represents tax expense for a tax basis adjustment related to the deemed repatriation tax associated with the Tax Reform Act (as defined below).

of net revenues and expenses during the reporting periods.

▪Revenue Recognition: Altria Group, Inc.’s businesses recognize revenues, net of sales incentives and sales returns, and including shipping and handling charges billed to customers, upon shipment of goods when title and risk of loss pass to customers.

Altria Group, Inc.’s businesses also include excise taxes billed to customers in net revenues.

| E-vapor | 111 | | | | 31 | | |

| Total | $ | 5,307 | | | $ | 12,125 | |

At December 31, 2017, the fair value of the Columbia Crest trademark exceeded its book value of $54 million by approximately 9%.

Results for Columbia Crest in 2017 were negatively impacted by increased competitive activity and continued trade inventory reductions.

The analysis incorporated assumptions used in Altria Group, Inc.’s long-term financial forecast, which is used by Altria Group, Inc.’s

Such programs include discounts, coupons, rebates, in-store display incentives, event marketing and volume-based incentives.

Consumer engagement programs are expensed as incurred.

Payments under the State Settlement Agreements and the FDA user fees are based on variable factors, such as volume, operating income, market share and inflation, depending on the subject payment.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”).

Altria Group, Inc. may be required to adjust these provisional estimates based on (i) additional guidance related to, or interpretation of, the Tax Reform Act and associated tax laws and (ii) additional information to be received from AB InBev, including information regarding AB InBev’s accumulated earnings and associated taxes for the 2016 and 2017 tax years.

At December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] the fair value of [removed: Altria Group, Inc.’s total] [added: Altria’s long-term] debt was [removed: $15.3] [added: $12.5] billion and [removed: $15.1] [added: $15.3] billion, respectively.

The fair value of [removed: Altria Group, Inc.’s] [added: Altria’s long-term] debt is subject to fluctuations resulting from changes in market interest rates.

A 1% increase in market interest rates at December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] would decrease the fair value of [removed: Altria Group, Inc.’s total] [added: Altria’s long-term] debt by approximately [removed: $1.2] [added: $0.8] billion [removed: for each period.][added: and $1.2 billion, respectively.]

A 1% decrease in market interest rates at December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] would increase the fair value of [removed: Altria Group, Inc.’s total] [added: Altria’s long-term] debt by approximately [removed: $1.3] [added: $0.9] billion and [removed: $1.4] [added: $1.3] billion, respectively.

Interest rates on borrowings under the Credit Agreement are expected to be based on [removed: LIBOR] [added: the London Interbank Offered Rate (“LIBOR”)] plus a percentage based on the higher of the ratings of [removed: Altria Group, Inc.’s] [added: Altria’s] long-term senior unsecured debt from Moody’s and Standard & Poor’s.

The applicable percentage based on [removed: Altria Group, Inc.’s] [added: Altria’s] long-term senior unsecured debt ratings at December 31, [removed: 2017] [added: 2018] for borrowings under the Credit Agreement was [removed: 1.125%.][added: 1.0%.]

At December 31, [removed: 2017,] [added: 2018,] Altria [removed: Group, Inc.] had no borrowings under the Credit Agreement.

Interest Rates

▪General: Altria Group, Inc. [added: (“Altria”)] is a holding company incorporated in the Commonwealth of Virginia in 1985.

At December 31, [removed: 2017, Altria Group, Inc.’s] [added: 2018, Altria’s] wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged 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; Sherman Group Holdings, LLC and its subsidiaries (“Nat Sherman”), which are engaged in the manufacture and sale of super premium cigarettes and the sale of premium cigars; and UST LLC (“UST”), which through its wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste.

[removed: Altria Group, Inc.’s] [added: Altria’s] other operating companies included [removed: 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”), [removed: a wholly-owned subsidiary that] [added: which] maintains a portfolio of finance assets, substantially all of which are leveraged [removed: leases.][added: leases, and Nu Mark LLC (“Nu Mark”), both of which are wholly-owned subsidiaries.]

Other Altria [removed: Group, Inc.] wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales and distribution services to certain Altria [removed: Group, Inc.] operating subsidiaries, and Altria Client Services [removed: LLC,] [added: LLC (“ALCS”),] which provides various support services in [removed: areas,] [added: areas] such as legal, regulatory, consumer engagement, finance, human resources and external affairs to Altria [removed: Group, Inc.] and its subsidiaries.

At September 30, 2016, Altria [removed: Group, Inc.] had an approximate 27% ownership of SABMiller plc (“SABMiller”), which Altria [removed: Group, Inc.] accounted for under the equity method of accounting.

In October 2016, Anheuser-Busch InBev SA/NV (“Legacy AB InBev”) completed its business combination with SABMiller, and Altria [removed: Group, Inc.] received cash and shares representing a 9.6% ownership in the combined company (the [removed: “Transaction”).][added: “AB InBev Transaction”).]

Subsequently, Altria [removed: Group, Inc.] purchased approximately 12 million ordinary shares of AB InBev, increasing [removed: Altria Group, Inc.’s] [added: Altria’s] ownership to approximately 10.2% at [removed: December 31, 2016.]

At December 31, [removed: 2017,] [added: 2018,] Altria [removed: Group, Inc.] had an approximate [removed: 10.2%] [added: 10.1%] ownership of AB InBev, which Altria [removed: Group, Inc.] accounts for under the equity method of accounting using a one-quarter lag.

As a result of the one-quarter lag and the timing of the completion of the [added: AB InBev] Transaction, no earnings from [removed: Altria Group, Inc.’s] [added: Altria’s] equity investment in AB InBev were recorded for the year ended December 31, 2016.

For further discussion, see Note [removed: 6.][added: 7.]

Investment in AB InBev/SABMiller to the consolidated financial statements in Item [removed: 8.][added: 8 (“Note 7”).]

In January 2017, Altria [removed: Group, Inc.] acquired Nat Sherman, which joined PM USA and Middleton as part of [removed: Altria Group, Inc.’s] [added: Altria’s] smokeable products segment.

▪Source of Funds: Because Altria [removed: Group, Inc.] is a holding company, its access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries.

In addition, Altria [removed: Group, Inc.] receives cash dividends on its interest in AB InBev [removed: if] and [removed: when] [added: will continue to do so as long as] AB InBev pays [removed: such] dividends.

[removed: Altria Group, Inc.’s] [added: Altria’s] reportable segments are smokeable products, smokeless products and wine.

The financial services and the innovative tobacco products businesses are included in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial contribution of [removed: Altria Group, Inc.’s] [added: Altria’s] innovative tobacco products businesses to [removed: Altria Group, Inc.’s] [added: Altria’s] consolidated results.

Segment Reporting to the consolidated financial statements in Item [removed: 8 (“Note 15”).][added: 8.]

[removed: Goodwill and Other Intangible Assets, net] [added: Investment in JUUL] to the consolidated financial statements in Item 8 (“Note [removed: 3”).][added: 8”).]

[removed: Altria Group, Inc.’s] [added: Altria’s] tobacco operating companies include PM USA, USSTC and other subsidiaries of UST, [removed: Middleton, Nu Mark] [added: Middleton] and Nat Sherman.

Altria Group Distribution Company provides sales and distribution services to [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco operating companies.

The products of [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries include smokeable tobacco products, consisting of [added: combustible] cigarettes manufactured and sold by PM USA and Nat Sherman, machine-made large cigars and pipe tobacco manufactured and sold by Middleton and premium cigars sold by Nat Sherman; smokeless tobacco [added: products, consisting of moist smokeless tobacco (“MST”) and snus] products manufactured and sold by USSTC; and innovative tobacco products, including e-vapor products [added: previously] manufactured and sold by Nu Mark.

Total smokeable products segment’s cigarettes shipment volume in the United States was [removed: 116.6] [added: 109.8] billion units in [removed: 2017,] [added: 2018,] a decrease of [removed: 5.1%] [added: 5.8%] from [removed: 2016.][added: 2017.]

Total smokeable products segment’s cigars shipment volume was approximately [removed: 1.5] [added: 1.6] billion units in [removed: 2017,] [added: 2018,] an increase of [removed: 9.9%] [added: 3.8%] from [removed: 2016.][added: 2017.]

▪Smokeless tobacco products: USSTC is the leading producer and marketer of [removed: moist smokeless tobacco (“MST”)] [added: MST] products.

Total smokeless products segment’s shipment volume was [removed: 841.3] [added: 832.6] million units in [removed: 2017,] [added: 2018,] a decrease of [removed: 1.4%] [added: 1.0%] from [removed: 2016.][added: 2017.]

[removed: ▪Innovative tobacco products:] [added: Prior to that time,] Nu Mark [removed: participates] [added: participated] in the e-vapor category and [removed: has] developed and commercialized other innovative tobacco products.

In April 2014, Nu Mark acquired the e-vapor business of Green Smoke, Inc. and its [removed: affiliates (“Green Smoke”),] [added: affiliates,] which began selling e-vapor products in 2009.

In [added: 2018 and] 2017, [removed: Altria Group, Inc.’s] [added: Altria’s] subsidiaries purchased certain intellectual property related to innovative tobacco products.

In December 2013, [removed: Altria Group, Inc.’s] [added: Altria’s] subsidiaries entered into a series of agreements with Philip Morris International Inc. [removed: (“PMI”) pursuant to which Altria Group, Inc.’s subsidiaries provide] [added: (“PMI”), including] an [removed: exclusive license to PMI to sell Nu Mark’s e-vapor products outside the United States, and PMI’s subsidiaries provide] [added: agreement that grants Altria] an exclusive [removed: license to Altria Group, Inc.’s subsidiaries] [added: right] to [removed: sell two] [added: commercialize certain] of PMI’s heated tobacco [removed: product platforms] [added: products] in the United [removed: States.][added: States, subject to the United States Food and Drug Administration’s (“FDA”) authorization.]

[removed: In the fourth quarter of 2016,] PMI submitted a [removed: Modified Risk Tobacco Product (“MRTP”)] [added: pre-market tobacco product] application [added: and a modified risk tobacco product application] for [removed: an] [added: its] electronically heated tobacco [removed: product] [added: product, IQOS,] with the [removed: United States Food and Drug Administration’s (“FDA”)] [added: FDA’s] Center for Tobacco Products [removed: and filed its corresponding pre-market tobacco product application] in the first quarter of [removed: 2017.][added: 2017 and the fourth quarter of 2016, respectively.]

Upon regulatory authorization by the [removed: FDA, Altria Group, Inc.’s] [added: FDA and subject to certain performance obligations, Altria’s] subsidiaries will have an exclusive license to [removed: sell this heated tobacco product] [added: commercialize IQOS] in the United States.

▪Distribution, Competition and Raw Materials: [removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries sell their tobacco products principally to wholesalers (including distributors), large retail organizations, including chain stores, and the armed services.

[removed: The FSPTCA imposes restrictions on the advertising,] promotion, sale and distribution of tobacco products, including at retail.

[removed: Altria Group, Inc.’s] [added: Altria’s] tobacco subsidiaries believe there is an adequate supply of tobacco in the world markets to satisfy their current and anticipated production requirements.

Risk Factors of this Annual Report on Form 10-K (“Item 1A”) and Tobacco Space - Business Environment - Price, Availability and Quality of [removed: Agricultural Products] [added: Tobacco, Other Raw Materials and Component Parts] in Item 7 for a discussion of risks associated with tobacco supply.

Michelle’s total [removed: 2017] [added: 2018] wine shipment volume of approximately [removed: 8.5] [added: 8.2] million cases decreased [removed: 8.6%] [added: 3.3%] from [removed: 2016.][added: 2017.]

[removed: Wine segment competition is primarily] based on quality, price, consumer and trade wine tastings, competitive wine judging, third-party acclaim and advertising.

For further [removed: information on PMCC’s finance assets,] [added: information,] see Note [removed: 7.][added: 16.]

▪Customers: The largest customer of PM USA, USSTC, Middleton and Nat Sherman, McLane Company, Inc., accounted for approximately [removed: 26%, 25% and] [added: 27%,] 26% [added: and 25%] of [removed: Altria Group, Inc.’s] [added: Altria’s] consolidated net revenues for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively.

In addition, Core-Mark Holding Company, Inc. accounted for approximately [removed: 14%,] 14% [removed: and 10%] of [removed: Altria Group, Inc.’s] [added: Altria’s] consolidated net revenues for [added: each of] the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015, respectively.][added: 2016.]

In December 2018, Altria announced the decision to refocus its innovative product efforts, which included Nu Mark’s discontinuation of production and distribution of all e-vapor products.

Prior to that time, Nu Mark was engaged in the manufacture and sale of innovative tobacco products.

December 31, 2016.

On December 20, 2018, Altria purchased, through a wholly-owned subsidiary, shares of non-voting convertible common stock of JUUL Labs, Inc. (“JUUL”), representing a 35% economic interest for $12.8 billion.

JUUL is engaged in the manufacture and sale of e-vapor products globally.

If and when antitrust clearance is obtained, Altria’s non-voting shares will automatically convert to voting shares (“Share Conversion”).

At December 31, 2018, Altria accounted for its investment in JUUL as an investment in an equity security.

Upon Share Conversion, Altria expects to account for its investment in JUUL under the equity method of accounting.

For further discussion, see Note 8.

On December 7, 2018, Altria announced that it entered into an agreement to purchase, through a subsidiary, approximately 146.2 million newly issued common shares of Cronos Group Inc. (“Cronos”), a global cannabinoid company headquartered in Toronto, Canada.

Cronos shareholders approved the transaction on February 21, 2019.

The closing of this transaction remains subject to certain customary closing conditions, including receipt of required regulatory approval.

Altria expects the transaction to close in the first half of 2019.

Upon completion of this transaction, Altria will own an approximate 45% equity interest in Cronos.

Additionally, the agreement includes a warrant to purchase up to an additional approximately 72.2 million common shares of Cronos at a per share exercise price of Canadian dollar (“CAD”) $19.00.

The purchase price for the approximate 45% equity interest and warrant is approximately CAD $2.4 billion (approximately U.S. dollar (“USD”) $1.8 billion, based on the CAD to USD exchange rate on February 22, 2019), to be paid on the date of the closing of the transaction.

Upon full exercise of the warrant, which expires four years after issuance, Altria would own approximately 55% of the outstanding common shares of Cronos.

The exercise price for the warrant is approximately CAD $1.4 billion (approximately USD $1.0 billion, based on the CAD to USD exchange rate on February 22, 2019).

As part of the agreement, upon completion of this transaction, Altria will have the right to nominate four directors, including one independent director, to serve on Cronos’ Board of Directors, which will be expanded from five to seven directors.

Altria expects to account for its investment in Cronos under the equity method of accounting.

In January and February 2019, Altria entered into derivative financial instruments in the form of forward contracts, which mature on April 15, 2019, to hedge Altria’s exposure to foreign

currency exchange rate movements in the CAD to USD, in relation to the CAD $2.4 billion purchase price for the Cronos transaction.

The aggregate notional amounts of the forward contracts were approximately USD $1.8 billion (CAD $2.4 billion).

The forward contracts do not qualify for hedge accounting; therefore, changes in the fair values of the forward contracts will be recorded as gains or losses in Altria’s consolidated statements of earnings in the periods in which the changes occur.

Altria expects to receive cash dividends from JUUL, if and when JUUL pays such dividends.

▪Innovative tobacco products: In December 2018, Altria announced the decision to refocus its innovative product efforts, which includes Nu Mark’s discontinuation of production and distribution of all e-vapor products.

The FSPTCA imposes restrictions on the advertising,

Wine segment competition is primarily

Sales to two distributors accounted for approximately 64% of net revenues for the wine segment for the year ended December 31, 2018.

As a result of the cost reduction program announced in December 2018, there will be a reduction of approximately 900 employees, substantially all of which are expected to depart by February 28, 2019.

In addition, as of

As discussed in Note 2.

At December 31, 2017, 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.

Financial Information About Segments

Altria Group, Inc.’s chief operating decision maker (the “CODM”) 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 general corporate expenses and amortization of intangibles.

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 the CODM.

Net revenues and operating companies income (together with a reconciliation to earnings before income taxes) attributable to each such segment for each of the last three years are set forth in Note 15.

Information about total assets by segment is not disclosed because such information is not reported to or used by the CODM.

Segment goodwill and other intangible assets, net, are disclosed in Note 3.

The accounting policies of the segments are the same as those described in Note 2.

Summary of Significant Accounting Policies to the consolidated financial statements in Item 8 (“Note 2”).

The relative percentages of operating companies income (loss) attributable to each reportable segment and the all other category were as follows:

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | 2017 | | 2016 | | 2015 | |

| Smokeable products | 85.8 | % | 86.2 | % | 87.4 | % |

| Smokeless products | 13.2 | | 13.1 | | 12.8 | |

| Wine | 1.5 | | 1.8 | | 1.8 | |

| All other | (0.5 | ) | (1.1 | ) | (2.0 | ) |

| Total | 100.0 | % | 100.0 | % | 100.0 | % |

For items affecting the comparability of the relative percentages of operating companies income (loss) attributable to each reportable segment, see Note 15.

In addition, Nu Mark sources the production of its e-vapor products through overseas contract manufacturing arrangements.

Further, in July 2015, Altria Group, Inc. announced the expansion of its strategic framework with PMI to include a joint research, development and technology-sharing agreement.

Under this agreement, Altria Group, Inc.’s subsidiaries and PMI will collaborate to develop e-vapor products for commercialization in the United States by Altria Group, Inc.’s subsidiaries and in markets outside the United States by PMI.

This agreement also provides for exclusive technology cross licenses, technical information sharing and cooperation on scientific assessment, regulatory engagement and approval related to e-vapor products.

Finance Assets, net to the consolidated financial statements in Item 8.

▪Research and Development: Research and development expense for the years ended December 31, 2017, 2016 and 2015 is set forth in Note 17.

Additional Information to the consolidated financial statements in Item 8.

related expenditures, has not had, and is not expected to have, a material adverse effect on Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position or cash flows.

Financial Information About Geographic Areas

Substantially all of Altria Group, Inc.’s net revenues are from sales generated in the United States for each of the last three fiscal years and substantially all of Altria Group, Inc.’s long-lived assets are located in the United States.

Investors may read and copy any document that Altria Group, Inc. files, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.

Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Altria Group, Inc.’s SEC filings.

The information required by this Item is included in Note [removed: 18] [added: 19] and Exhibits 99.1 and 99.2 to this Annual Report on Form 10-K.

[removed: Altria Group, Inc.’s] [added: Altria’s] consolidated financial statements and accompanying notes for the year ended December 31, [removed: 2017] [added: 2018] were filed on Form 8-K on [removed: February 1, 2018] [added: January 31, 2019] (such consolidated financial statements and accompanying notes are also included in Item 8).

The following summarizes certain developments in [removed: Altria Group, Inc.’s] [added: Altria’s] litigation since the filing of the Form 8-K.

[removed: ▪Engle] [added: | ▪ | Engle] Progeny Trial Results: [added: |]

In [removed: Gloger,] [added: Holliman,] in February [removed: 2018,] [added: 2019,] a Miami-Dade [removed: County] [added: county] jury returned a verdict in favor of plaintiff and against PM USA [removed: and R.J. Reynolds Tobacco Company (“R.J. Reynolds”)] awarding [removed: $7.5] [added: approximately $3] million in compensatory [added: damages and no punitive] damages.

| | |

| --- | --- |

In Chadwell, in February 2019, PM USA and plaintiff appealed to the Florida Third District Court of Appeal.

In L.

Martin, in February 2019, the Florida Third District Court of Appeal affirmed the judgment in favor of plaintiff.

In Berger, in February 2019, PM USA filed motions challenging the punitive damages award.

In February 2019, the United States Supreme Court denied PM USA’s petition for review in the McKeever, Pardue, Jordan, M.

Brown, Boatright and Searcy cases.

Smoking and Health Litigation

The jury also awarded plaintiff $5 million in punitive damages against each defendant.

PM USA posted a bond in the amount of $2.5 million.

Defendants filed various post-trial motions, which remain pending, and appealed to the Florida Third District Court of Appeal.

In Wallace, in February 2018, PM USA filed an appeal to the Florida Fifth District Court of Appeal and posted a bond in the amount of approximately $3 million.

In Allen, in February 2018, the Florida Supreme Court denied PM USA’s petition to invoke the court’s discretionary jurisdiction.

PM USA will record a pre-tax provision of approximately $10 million for the judgment plus interest in the first quarter of 2018.

In Gore, in February 2018, the Florida Fourth District Court of Appeal affirmed the judgment in favor of plaintiff, withdrew the comparative fault reduction for the compensatory damages award and granted plaintiff leave to seek a new trial on punitive damages.

PM USA will record a pre-tax provision of approximately $1 million for the judgment plus interest in the first quarter of 2018.

In Bryant, in February 2018, the trial court denied all post-trial motions and entered final judgment in favor of plaintiff.

10-K 1 [removed: a2017form10-kq4.htm] [added: a2018form10-kq4.htm] FORM 10-K

For the fiscal year ended December 31, [removed: 2017][added: 2018]

| Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Website, if any,] every Interactive Data File required to be submitted [removed: 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 [removed: and post] such files) þ Yes ¨ No |

As of June 30, [removed: 2017,] [added: 2018,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $143] [added: $107] billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.

| Class | Outstanding at February [removed: 13, 2018] [added: 12, 2019] |

| Common Stock, $0.33 1/3 par value | [removed: 1,900,449,362] [added: 1,874,430,847] shares |

| Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May [removed: 17, 2018,] [added: 16, 2019,] to be filed with the Securities and Exchange Commission on or about April [removed: 5, 2018,] [added: 4, 2019,] are incorporated by reference into Part III hereof. |

| Item 1. | [removed: [Business](#s5A1854845FC95BF1B6EE787997E5C80D)] [added: [Business](#s7EC21A0926795834A5B79853F2202488)] | [removed: [1](#s5A1854845FC95BF1B6EE787997E5C80D)] [added: [1](#s7EC21A0926795834A5B79853F2202488)] |

| Item 1A. | [Risk [removed: Factors](#s161A0C8A0D6F57818F05AD7BBDF42045)] [added: Factors](#s84AAB8F96E8056F9B0662BA5581703B8)] | [removed: [4](#s161A0C8A0D6F57818F05AD7BBDF42045)] [added: [4](#s84AAB8F96E8056F9B0662BA5581703B8)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#sAE76864438C55B668E9915F99B70117E)] [added: Comments](#s8646196E00C855349CFBC966955A7BA2)] | [removed: [9](#sAE76864438C55B668E9915F99B70117E)] [added: [10](#s8646196E00C855349CFBC966955A7BA2)] |

| Item 2. | [removed: [Properties](#s011F63BF711350B88E0EFAF2934D58AB)] [added: [Properties](#sA36A619DC4DC5BD786862749BA3D149E)] | [removed: [10](#s011F63BF711350B88E0EFAF2934D58AB)] [added: [10](#sA36A619DC4DC5BD786862749BA3D149E)] |

| Item 3. | [Legal [removed: Proceedings](#sA886872240AD51CDB0A4A8606FE29AAF)] [added: Proceedings](#sAD856D5BD1FC592D80989677630AA140)] | [removed: [10](#sA886872240AD51CDB0A4A8606FE29AAF)] [added: [11](#sAD856D5BD1FC592D80989677630AA140)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s784C3D98CE985F9EA922384D386781ED)] [added: Disclosures](#s22ACE29857215331BD65FD8B4356A995)] | [removed: [10](#s784C3D98CE985F9EA922384D386781ED)] [added: [11](#s22ACE29857215331BD65FD8B4356A995)] |

| Item 5. | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s4BDDB2C91C6A5D6BA4F88D878AACB186)] [added: Securities](#s53CAA740795E5CA3925E2B90630D9645)] | [removed: [11](#s4BDDB2C91C6A5D6BA4F88D878AACB186)] [added: [12](#s53CAA740795E5CA3925E2B90630D9645)] |

| Item 6. | [Selected Financial [removed: Data](#sD03CB46FBC215F89B27C829C2D5B1AD1)] [added: Data](#sD4200944C16552909BE4639E2BB8CC0F)] | [removed: [13](#sD03CB46FBC215F89B27C829C2D5B1AD1)] [added: [13](#sD4200944C16552909BE4639E2BB8CC0F)] |

| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sE4EAEE5CEC8C501A8FD3E08D8B908D84)] [added: Operations](#s6B497A73416D5A3E889849F9CF47A657)] | [removed: [14](#sE4EAEE5CEC8C501A8FD3E08D8B908D84)] [added: [13](#s6B497A73416D5A3E889849F9CF47A657)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sF34B5F47ABDF511E9EFBA6E5390D8885)] [added: Risk](#sCEB78529E1B7501EA816F289C96CE406)] | [removed: [38](#sF34B5F47ABDF511E9EFBA6E5390D8885)] [added: [37](#sCEB78529E1B7501EA816F289C96CE406)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s806366F827B356A18B99C5E1B0CF44D8)] [added: Data](#s3777646060AD589CA60D93C04B81768F)] | [removed: [39](#s806366F827B356A18B99C5E1B0CF44D8)] [added: [38](#s3777646060AD589CA60D93C04B81768F)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sD83A8CBD4DC252E99CBAA5C5609B10B2)] [added: Disclosure](#s928FCF337FA15DDCBA078210551E584B)] | [removed: [111](#sD83A8CBD4DC252E99CBAA5C5609B10B2)] [added: [98](#s928FCF337FA15DDCBA078210551E584B)] |

| Item 9A. | [Controls and [removed: Procedures](#sDB3B734F52455A3291D33DB7F91BAD2C)] [added: Procedures](#s099A6023A8795FAFBFF30EA21DF79D71)] | [removed: [111](#sDB3B734F52455A3291D33DB7F91BAD2C)] [added: [98](#s099A6023A8795FAFBFF30EA21DF79D71)] |

| Item 9B. | [Other [removed: Information](#sC45447E8083E5ADBACA0237429313CDD)] [added: Information](#sEBC392BC5D8A5F2482E6B1AD28CAC5A6)] | [removed: [111](#sC45447E8083E5ADBACA0237429313CDD)] [added: [98](#sEBC392BC5D8A5F2482E6B1AD28CAC5A6)] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s16909A138FD058B2BC61A37A1EB9E777)] [added: Governance](#s08E82C9DF2B1552D8BCF79435EE14B29)] | [removed: [111](#s16909A138FD058B2BC61A37A1EB9E777)] [added: [98](#s08E82C9DF2B1552D8BCF79435EE14B29)] |

| Item 11. | [Executive [removed: Compensation](#sD55ADAEABFFB55B59284CE1862AE64B9)] [added: Compensation](#sA3F99542B55E54DEAC057E2FE0738BF3)] | [removed: [112](#sD55ADAEABFFB55B59284CE1862AE64B9)] [added: [99](#sA3F99542B55E54DEAC057E2FE0738BF3)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sC5D93C10FB43543298D798430121B2DC)] [added: Matters](#s2E6A5460A42C570D9ABD8486BF41D2D4)] | [removed: [112](#sC5D93C10FB43543298D798430121B2DC)] [added: [99](#s2E6A5460A42C570D9ABD8486BF41D2D4)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s8B443DE0A64A5440B52835E302650949)] [added: Independence](#s432B87AB606957A08E7D8B4FD6460210)] | [removed: [113](#s8B443DE0A64A5440B52835E302650949)] [added: [99](#s432B87AB606957A08E7D8B4FD6460210)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#s3F63B7D0462E563DA0FBAF8D4DBA65A2)] [added: Services](#sDC51529575FF5E96928A58E556D97569)] | [removed: [113](#s3F63B7D0462E563DA0FBAF8D4DBA65A2)] [added: [99](#sDC51529575FF5E96928A58E556D97569)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s99F655341B2E50BF88A440966F245E6C)] [added: Schedules](#s33D3CE96835551058F37AB5163DA8356)] | [removed: [113](#s99F655341B2E50BF88A440966F245E6C)] [added: [100](#s33D3CE96835551058F37AB5163DA8356)] |

| Item 16. | [Form 10-K [removed: Summary](#s02D1F154BCE1574C96D4A320D3B2DCD9)] [added: Summary](#s765D807BFA325061B22F34552E1AA367)] | [removed: [117](#s02D1F154BCE1574C96D4A320D3B2DCD9)] [added: [104](#s765D807BFA325061B22F34552E1AA367)] |

| 1.000% Notes due 2023 | New York Stock Exchange |

| 1.700% Notes due 2025 | New York Stock Exchange |

| 2.200% Notes due 2027 | New York Stock Exchange |

| 3.125% Notes due 2031 | New York Stock Exchange |

| [Signatures](#sA18DC75D4DD75B1EB00E642F1179077B) | | [105](#sA18DC75D4DD75B1EB00E642F1179077B) |

| [Signatures](#s29113CF9554153F8BF8EFCD360E62C3E) | | [118](#s29113CF9554153F8BF8EFCD360E62C3E) |

[removed: In 2017, Altria Client Services LLC purchased the previously leased] [added: At December 31, 2018, ALCS owned] property in Richmond, Virginia that serves as the headquarters facility for [removed: Altria Group, Inc.,] [added: Altria,] PM USA, USSTC, Middleton, [removed: Nu Mark] and certain other subsidiaries.

At December 31, [removed: 2017,] [added: 2018,] PM USA owned and operated a manufacturing site located in Richmond, Virginia (“Richmond Manufacturing [removed: Center”),] [added: Center”)] that PM USA uses in the manufacturing of cigarettes.

[removed: Portions] [added: PM USA leases portions] of this facility [removed: are leased by] [added: to] Middleton and USSTC for use in the manufacturing of cigars and smokeless tobacco products, respectively.

At December 31, [removed: 2017,] [added: 2018,] the smokeable products segment used [removed: five] [added: four] manufacturing and processing facilities, including the [removed: Richmond Manufacturing Center.]

Middleton, in addition to [added: leasing space at] the Richmond Manufacturing Center, [added: owns and] operates [removed: two] [added: a] manufacturing and processing [removed: facilities - one, which it owns,] [added: facility] in King of Prussia, [removed: Pennsylvania, and one, which it leases, in Limerick, Pennsylvania,] [added: Pennsylvania] that [removed: are] [added: is] used in the manufacturing and processing of cigars and pipe tobacco.

In addition, PM USA owns a research and technology center in Richmond, Virginia that is leased to [removed: an affiliate, Altria Client Services LLC.][added: ALCS.]

At December 31, [removed: 2017,] [added: 2018,] in addition to the Richmond Manufacturing Center, the smokeless products segment used [removed: five] [added: four] smokeless tobacco manufacturing and processing [removed: facilities] [added: facilities, one] located in Clarksville, Tennessee; [removed: Franklin Park, Illinois;] [added: one in] Nashville, Tennessee; and two facilities in Hopkinsville, Kentucky, all of which are owned and operated by [removed: USSTC, with the exception of the facility leased by USSTC in Franklin Park, Illinois.][added: USSTC.]

At December 31, [removed: 2017,] [added: 2018,] the wine segment used 12 wine-making facilities - seven in Washington, four in California and one in Oregon.

The plants and properties owned or leased and operated by Altria [removed: Group, Inc.] and its subsidiaries are maintained in good [added: condition and are believed to be suitable and adequate for present needs.]

Richmond Manufacturing Center.

As disclosed in Note 4.

Asset Impairment, Exit and Implementation Costs to the consolidated financial statements in Item 8 (“Note 4”), in October 2016, Altria Group, Inc. announced the consolidation of certain of its operating companies’ manufacturing facilities to streamline operations and achieve greater efficiencies.

Middleton is in the process of transferring its Limerick, Pennsylvania operations to the Richmond Manufacturing Center.

USSTC is in the process of transferring its Franklin Park, Illinois operations to its Nashville, Tennessee facility and the Richmond Manufacturing Center.

The consolidation is expected to be substantially completed by the end of the first quarter of 2018.

condition and are believed to be suitable and adequate for present needs.

The graph below compares the cumulative total shareholder return of [removed: Altria Group, Inc.’s] [added: Altria’s] common stock for the last five years with the cumulative total return for the same period of the S&P 500 Index and the Altria [removed: Group, Inc.] Peer Group (1).

The graph assumes the investment of $100 in common stock and each of the indices as of the market close on December 31, [removed: 2012] [added: 2013] and the reinvestment of all dividends on a quarterly basis.

[removed: ][added: ]

| Date | | Altria [removed: Group, Inc.] | | | | Altria [removed: Group, Inc.] Peer Group | | | | S&P 500 | | |

| December [removed: 2012] [added: 2013] | | $ | 100.00 | | | $ | 100.00 | | | $ | 100.00 | |

(1)In [removed: 2017,] [added: 2018,] the Altria [removed: Group, Inc.] Peer Group consisted of U.S.-headquartered consumer product companies that are competitors to [removed: Altria Group, Inc.’s tobacco] [added: Altria’s] operating companies subsidiaries or that have been selected on the basis of revenue or market capitalization: Campbell Soup Company, The Coca-Cola Company, Colgate-Palmolive Company, Conagra Brands, Inc., General Mills, Inc., The Hershey Company, Kellogg Company, [added: Keurig Dr Pepper Inc.,] Kimberly-Clark Corporation, The Kraft Heinz Company, [added: Molson Coors Brewing Company,] Mondelēz International, [removed: Inc., PepsiCo, Inc., Reynolds American] Inc. and [removed: British American Tobacco p.l.c.][added: PepsiCo, Inc.]

The principal stock exchange on which [removed: Altria Group, Inc.’s] [added: Altria’s] common stock (par value $0.33 1/3 per share) is listed is the New York Stock [removed: Exchange.][added: Exchange under the trading symbol “MO”.]

At February [removed: 13, 2018,] [added: 12, 2019,] there were approximately [removed: 64,000] [added: 61,000] holders of record of [removed: Altria Group, Inc.’s] [added: Altria’s] common stock.

Issuer Purchases of Equity Securities During the Quarter Ended December 31, [removed: 2017][added: 2018]

In January 2018, [removed: the] [added: Altria’s] Board of Directors [added: (the “Board of Directors”)] authorized a [removed: new] $1.0 billion share repurchase [removed: program,] [added: program that it expanded to $2.0 billion in May 2018 (as expanded, the “January 2018 share repurchase program”),] which Altria [removed: Group, Inc.] expects to complete by the end of [removed: 2018.][added: the second quarter of 2019.]

[removed: Altria Group, Inc.’s] [added: Altria’s] share repurchase activity for each of the three months in the period ended December 31, [removed: 2017,] [added: 2018,] was as follows:

| (1) | The total number of shares purchased includes (a) shares purchased under the [removed: July 2015] [added: January 2018] share repurchase program (which totaled [removed: 2,982,371] [added: 2,136,091] shares in October, [removed: 2,790,984] [added: 1,909,568] shares in November and [removed: 2,587,120] [added: 2,075,590] shares in December) and (b) shares withheld by Altria [removed: Group, Inc.] in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards (which totaled [removed: 1,066] [added: 51] shares in [removed: October] [added: October, 91,158 shares in November] and [removed: 7,315] [added: 182] shares in [removed: November).] [added: December).] |

| December 2014 | | $ | 134.51 | | | $ | 112.06 | | | $ | 113.68 | |

| December 2015 | | $ | 165.58 | | | $ | 128.34 | | | $ | 115.24 | |

| December 2016 | | $ | 199.46 | | | $ | 136.93 | | | $ | 129.02 | |

| December 2017 | | $ | 218.30 | | | $ | 147.96 | | | $ | 157.17 | |

| December 2018 | | $ | 159.17 | | | $ | 141.06 | | | $ | 150.27 | |

For 2018, Altria removed BTI from the Altria Peer Group as BTI no longer meets the pre-defined Altria Peer Group criteria as a U.S.-headquartered company.

In addition, Altria has added U.S.-headquartered consumer product companies Keurig Dr Pepper Inc. and Molson Coors Brewing Company to the Altria Peer Group.

| October 1- October 31, 2018 | | 2,136,142 | | | $ | 61.78 | | | 2,136,091 | | | $ | 569,444,104 | |

| November 1- November 30, 2018 | | 2,000,726 | | | $ | 59.80 | | | 1,909,568 | | | $ | 454,690,573 | |

| December 1- December 31, 2018 | | 2,075,772 | | | $ | 52.52 | | | 2,075,590 | | | $ | 345,671,297 | |

| For the Quarter Ended December 31, 2018 | | 6,212,640 | | | $ | 58.05 | | | 6,121,249 | | | | | |

| December 2013 | | $ | 128.56 | | | $ | 124.66 | | | $ | 132.37 | |

| December 2014 | | $ | 172.93 | | | $ | 139.49 | | | $ | 150.48 | |

| December 2015 | | $ | 212.87 | | | $ | 162.74 | | | $ | 152.55 | |

| December 2016 | | $ | 256.43 | | | $ | 177.01 | | | $ | 170.78 | |

| December 2017 | | $ | 280.65 | | | $ | 193.86 | | | $ | 208.05 | |

headquartered in London, England.

For 2017, Altria Group, Inc. Peer Group total shareholder return calculation includes RAI through July 24, 2017 and BTI American Depository Receipts for the remainder of the year.

The table below discloses the high and low sales prices and cash dividends declared per share for Altria Group, Inc.’s common stock as reported by the New York Stock Exchange.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Price Per Share | | | | | | | | Cash Dividends Declared Per Share | | |

| | High | | | | Low | | | | | | |

| 2017: | | | | | | | | | | | |

| Fourth Quarter | $ | 74.38 | | | $ | 62.32 | | | $ | 0.66 | |

| Third Quarter | $ | 74.98 | | | $ | 60.01 | | | $ | 0.66 | |

| Second Quarter | $ | 77.79 | | | $ | 69.79 | | | $ | 0.61 | |

| First Quarter | $ | 76.55 | | | $ | 67.25 | | | $ | 0.61 | |

| 2016: | | | | | | | | | | | |

| Fourth Quarter | $ | 68.03 | | | $ | 60.82 | | | $ | 0.61 | |

| Third Quarter | $ | 70.15 | | | $ | 62.46 | | | $ | 0.61 | |

| Second Quarter | $ | 69.26 | | | $ | 59.48 | | | $ | 0.565 | |

| First Quarter | $ | 63.15 | | | $ | 56.15 | | | $ | 0.565 | |

In July 2015, Altria Group, Inc.’s Board of Directors (the “Board of Directors”) authorized a $1.0 billion share repurchase program that it expanded to $3.0 billion in October 2016 and to $4.0 billion in July 2017 (as expanded, the “July 2015 share repurchase program”).

The July 2015 share repurchase program was completed in January 2018.

| October 1- October 31, 2017 | | 2,983,437 | | | $ | 64.36 | | | 2,982,371 | | | $ | 383,869,878 | |

| November 1- November 30, 2017 | | 2,798,299 | | | $ | 64.98 | | | 2,790,984 | | | $ | 202,512,372 | |

| December 1- December 31, 2017 | | 2,587,120 | | | $ | 71.16 | | | 2,587,120 | | | $ | 18,411,335 | |

| For the Quarter Ended December 31, 2017 | | 8,368,856 | | | $ | 66.67 | | | 8,360,475 | | | | | |

(in millions of dollars, except per share [removed: and employee] data)

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Net revenues | $ | [removed: 25,576] [added: 25,364] | | | $ | [removed: 25,744] [added: 25,576] | | | $ | [removed: 25,434] [added: 25,744] | | | $ | [removed: 24,522] [added: 25,434] | | | $ | [removed: 24,466] [added: 24,522] | |

| Net earnings (1)(2) | [removed: 10,227] [added: 6,967] | | | | [removed: 14,244] [added: 10,227] | | | | [removed: 5,243] [added: 14,244] | | | | [removed: 5,070] [added: 5,243] | | | | [removed: 4,535] [added: 5,070] | | |

| Net earnings attributable to Altria [removed: Group, Inc.] (1)(2) | [removed: 10,222] [added: 6,963] | | | | [removed: 14,239] [added: 10,222] | | | | [removed: 5,241] [added: 14,239] | | | | [removed: 5,070] [added: 5,241] | | | | [removed: 4,535] [added: 5,070] | | |

| Basic [removed: and Diluted] EPS — net earnings attributable to Altria [removed: Group, Inc.] (1)(2) | [removed: 5.31] [added: 3.69] | | | | [removed: 7.28] [added: 5.31] | | | | [removed: 2.67] [added: 7.28] | | | | [removed: 2.56] [added: 2.67] | | | | [removed: 2.26] [added: 2.56] | | |

| Dividends declared per share | [removed: 2.54] [added: 3.00] | | | | [removed: 2.35] [added: 2.54] | | | | [removed: 2.17] [added: 2.35] | | | | [removed: 2.00] [added: 2.17] | | | | [removed: 1.84] [added: 2.00] | | |

| Total assets [removed: (2)] [added: (2)(3)] | [removed: 43,202] [added: 55,638] | | | | [removed: 45,932] [added: 43,202] | | | | [removed: 31,459] [added: 45,932] | | | | [removed: 33,440] [added: 31,459] | | | | [removed: 33,858] [added: 33,440] | | |

| Long-term debt | [removed: 13,030] [added: 11,898] | | | | [removed: 13,881] [added: 13,030] | | | | [removed: 12,843] [added: 13,881] | | | | [removed: 13,610] [added: 12,843] | | | | [removed: 13,907] [added: 13,610] | | |

| Total debt [added: (3)] | [removed: 13,894] [added: 25,746] | | | | [removed: 13,881] [added: 13,894] | | | | [removed: 12,847] [added: 13,881] | | | | [removed: 14,610] [added: 12,847] | | | | [removed: 14,432] [added: 14,610] | | |

(1) Certain [added: 2018 and] 2017 amounts include the impact of the enactment of the Tax Reform [removed: Act (as defined in Item 7).][added: Act.]

For further discussion, see Note [removed: 14 in Item 8.][added: 15.]

(2) Certain 2016 amounts include the impact of the gain on [added: the] AB InBev/SABMiller business combination.

For further information, see Note [removed: 6 in Item 8.][added: 7.]

| Diluted EPS— net earnings attributable to Altria (1)(2) | 3.68 | | | | 5.31 | | | | 7.28 | | | | 2.67 | | | | 2.56 | | |

Income Taxes to the consolidated financial statements in Item 8 (“Note 15”).

(3) Certain 2018 amounts include the impact of the investment in JUUL.

For further discussion, see Note 8 and Note 9.

Short-Term Borrowings and Borrowing Arrangements to the consolidated financial statements in Item 8 (“Note 9”).

| Summary of Operations: | | | | | | | | | | | | | | | | | | | |

| Cost of sales | 7,543 | | | | 7,746 | | | | 7,740 | | | | 7,785 | | | | 7,206 | | |

| Excise taxes on products | 6,082 | | | | 6,407 | | | | 6,580 | | | | 6,577 | | | | 6,803 | | |

| Operating income | 9,556 | | | | 8,762 | | | | 8,361 | | | | 7,620 | | | | 8,084 | | |

| Interest and other debt expense, net | 705 | | | | 747 | | | | 817 | | | | 808 | | | | 1,049 | | |

| Earnings from equity investment in AB InBev/SABMiller | 532 | | | | 795 | | | | 757 | | | | 1,006 | | | | 991 | | |

| Gain on AB InBev/SABMiller business combination | 445 | | | | 13,865 | | | | 5 | | | | — | | | | — | | |

| Earnings before income taxes (2) | 9,828 | | | | 21,852 | | | | 8,078 | | | | 7,774 | | | | 6,942 | | |

| Pre-tax profit margin (2) | 38.4 | | % | | 84.9 | | % | | 31.8 | | % | | 31.7 | | % | | 28.4 | | % |

| (Benefit) provision for income taxes (1)(2) | (399 | | ) | | 7,608 | | | | 2,835 | | | | 2,704 | | | | 2,407 | | |

| Weighted average shares (millions) — Basic and Diluted | 1,921 | | | | 1,952 | | | | 1,961 | | | | 1,978 | | | | 1,999 | | |

| Capital expenditures | 199 | | | | 189 | | | | 229 | | | | 163 | | | | 131 | | |

| Depreciation | 188 | | | | 183 | | | | 204 | | | | 188 | | | | 192 | | |

| Property, plant and equipment, net | 1,914 | | | | 1,958 | | | | 1,982 | | | | 1,983 | | | | 2,028 | | |

| Inventories | 2,225 | | | | 2,051 | | | | 2,031 | | | | 2,040 | | | | 1,879 | | |

| Total stockholders’ equity (1)(2) | 15,380 | | | | 12,773 | | | | 2,873 | | | | 3,010 | | | | 4,118 | | |

| Common dividends declared as a % of Basic and Diluted EPS (1)(2) | 47.8 | | % | | 32.3 | | % | | 81.3 | | % | | 78.1 | | % | | 81.4 | | % |

| Book value per common share outstanding (1)(2) | 8.09 | | | | 6.57 | | | | 1.47 | | | | 1.53 | | | | 2.07 | | |

| Market price per common share — high/low | 77.79-60.01 | | | | 70.15-56.15 | | | | 61.74-47.31 | | | | 51.67-33.80 | | | | 38.58-31.85 | | |

| Closing price per common share at year end | 71.41 | | | | 67.62 | | | | 58.21 | | | | 49.27 | | | | 38.39 | | |

| Price/earnings ratio at year end — Basic and Diluted (1)(2) | 13 | | | | 9 | | | | 22 | | | | 19 | | | | 17 | | |

| Number of common shares outstanding at year end (millions) | 1,901 | | | | 1,943 | | | | 1,960 | | | | 1,971 | | | | 1,993 | | |

| Approximate number of employees | 8,300 | | | | 8,300 | | | | 8,800 | | | | 9,000 | | | | 9,000 | | |

[added: | Due to] Altria [removed: Group, Inc.] and [removed: Subsidiaries][added: subsidiaries | — | | | | — | | | | 4,790 | | | | (4,790 | | ) | | — | | |]

| at December 31, | [added: | | 2018 | | | |] 2017 | | | | 2016 | | |

| Cash and cash equivalents | [added: | |] $ | [added: 1,333 | | | $ |] 1,253 | | | $ | 4,569 | |

| Receivables | 142 | | | | [removed: 151] [added: 142] | | |

| Leaf tobacco | [removed: 941] [added: 940] | | | | [removed: 892] [added: 941] | | |

| Other raw materials | [removed: 170] [added: 186] | | | | [removed: 164] [added: 170] | | |

| Work in process | [removed: 560] [added: 647] | | | | [removed: 512] [added: 560] | | |

| Finished product | [removed: 554] [added: 558] | | | | [removed: 483] [added: 554] | | |

| Income taxes | [removed: 461] [added: 167] | | | | [removed: 269] [added: 461] | | |

| Other current assets | [removed: 263] [added: 326] | | | | [removed: 220] [added: 263] | | |

| Total current assets | [removed: 4,344] [added: 4,299] | | | | [removed: 7,260] [added: 4,344] | | |

| Land and land improvements | [removed: 302] [added: 309] | | | | [removed: 316] [added: 302] | | |

| Buildings and building equipment | [removed: 1,437] [added: 1,442] | | | | [removed: 1,481] [added: 1,437] | | |

| Machinery and equipment | [removed: 2,975] [added: 2,981] | | | | [removed: 2,917] [added: 2,975] | | |

| Construction in progress | [removed: 165] [added: 218] | | | | [removed: 121] [added: 165] | | |

| Less accumulated depreciation | [removed: 2,965] [added: 3,012] | | | | [removed: 2,877] [added: 2,965] | | |

| Goodwill | [removed: 5,307] [added: 5,196] | | | | [removed: 5,285] [added: 5,307] | | |

| Other intangible assets, net | [removed: 12,400] [added: 12,279] | | | | [removed: 12,036] [added: 12,400] | | |

| Investment in AB InBev | [removed: 17,952] [added: 17,696] | | | | [removed: 17,852] [added: 17,952] | | |

| Finance assets, net | [removed: 899] [added: (313] | | [added: )] | | [removed: 1,028] [added: (404] | | [added: )] |

| Total Assets | $ | [removed: 43,202] [added: 55,638] | | | $ | [removed: 45,932] [added: 43,202] | |

| Current portion of long-term debt | [removed: $] [added: 1,144] | [removed: 864] | | | [removed: $] [added: 864] | [removed: —] | |

| Accounts payable | [removed: 374] [added: 399] | | | | [removed: 425] [added: 374] | | |

| Marketing | [removed: 695] [added: 586] | | | | [removed: 747] [added: 695] | | |

| Employment costs | [removed: 188] [added: 189] | | | | [removed: 289] [added: 188] | | |

| Settlement charges | [removed: 2,442] [added: 3,454] | | | | [removed: 3,701] [added: 2,442] | | |

| Other | [removed: 971] [added: 1,214] | | | | [removed: 1,025] [added: 971] | | |

| Dividends payable | [removed: 1,258] [added: 1,503] | | | | [removed: 1,188] [added: 1,258] | | |

| Total current liabilities | [removed: 6,792] [added: 21,193] | | | | [removed: 7,375] [added: 6,792] | | |

| Long-term debt | [removed: 13,030] [added: 11,898] | | | | [removed: 13,881] [added: 13,030] | | |

| Deferred income taxes | [removed: 5,247] [added: 5,172] | | | | [removed: 8,416] [added: 5,247] | | |

| Accrued pension costs | [removed: 445] [added: 544] | | | | [removed: 805] [added: 445] | | |

| Accrued postretirement health care costs | [removed: 1,987] [added: 1,749] | | | | [removed: 2,217] [added: 1,987] | | |

| Other liabilities | [removed: 283] [added: 254] | | | | [removed: 427] [added: 283] | | |

| Total liabilities | [removed: 27,784] [added: 40,810] | | | | [removed: 33,121] [added: 27,784] | | |

| Contingencies (Note [removed: 18)] [added: 19)] | | | | | | | |

| Redeemable noncontrolling interest | [removed: 38] [added: 39] | | | | 38 | | |

| Additional paid-in capital | [removed: 5,952] [added: 5,961] | | | | [removed: 5,893] [added: 5,952] | | |

| Earnings reinvested in the business | [removed: 42,251] [added: 43,962] | | | | [removed: 36,906] [added: 42,251] | | |

| Accumulated other comprehensive losses | [removed: (1,897] [added: (2,547] | | ) | | [removed: (2,052] [added: (1,897] | | ) |

| Cash and cash equivalents | $ | 1,333 | | | $ | 1,253 | |

| | 2,331 | | | | 2,225 | | |

| | 4,950 | | | | 4,879 | | |

| | 1,938 | | | | 1,914 | | |

| Investment in JUUL | 12,800 | | | | — | | |

| Short-term borrowings | $ | 12,704 | | | $ | — | |

| Cost of sales | 7,373 | | | | 7,531 | | | | 7,765 | | |

| Gross profit | 12,254 | | | | 11,963 | | | | 11,572 | | |

| Operating income | 9,115 | | | | 9,593 | | | | 8,761 | | |

| Net periodic benefit (income) cost, excluding service cost | (34 | | ) | | 37 | | | | (1 | | ) |

| Diluted earnings per share attributable to Altria | $ | 3.68 | | | $ | 5.31 | | | $ | 7.28 | |

| Investment in JUUL | | | (12,800 | | ) | | — | | | | — | | |

Consolidated Statements of Cash Flows (Continued)

__________________

| Proceeds from short-term borrowings | | | $ | 12,800 | | | $ | — | | | $ | — | |

| Other, net | | | (132 | | ) | | (47 | | ) | | (21 | | ) |

| Increase (decrease) | | | 119 | | | | (3,337 | | ) | | 2,205 | | |

| Balance at beginning of year | | | 1,314 | | | | 4,651 | | | | 2,446 | | |

| Balance at end of year | | | $ | 1,433 | | | $ | 1,314 | | | $ | 4,651 | |

| The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported on Altria’s consolidated balance sheets: | | | | | | | | | | | | | |

| | | | | | | | | | | | | | |

| Restricted cash included in other current assets (1) | | | 57 | | | | 25 | | | | — | | |

| Restricted cash included in other assets (1) | | | 43 | | | | 36 | | | | 82 | | |

| Cash, cash equivalents and restricted cash | | | $ | 1,433 | | | $ | 1,314 | | | $ | 4,651 | |

(1) Restricted cash consisted of cash deposits collateralizing appeal bonds posted by PM USA to obtain stays of judgments pending appeals.

See Note 19.

| Reclassification due to adoption of ASU 2018-02 (2) | — | | | | — | | | | 408 | | | | (408 | | ) | | — | | | | — | | | | — | | |

| Net earnings (1) | — | | | | — | | | | 6,963 | | | | — | | | | — | | | | — | | | | 6,963 | | |

| Balances, December 31, 2018 | $ | 935 | | | $ | 5,961 | | | $ | 43,962 | | | $ | (2,547 | ) | | $ | (33,524 | ) | | $ | 2 | | | $ | 14,789 | |

See Note 19.

(2) For further discussion, see Note 15.

Income Taxes.

_______________________________

In December 2018, Altria announced the decision to refocus its innovative product efforts, which includes the discontinuation of production and distribution of all MarkTen and Green Smoke e-vapor products.

Prior to that time, Nu Mark was engaged in the manufacture and sale of innovative tobacco products.

On December 20, 2018, Altria purchased, through a wholly-owned subsidiary, shares of non-voting convertible common stock of JUUL Labs, Inc. (“JUUL”), representing a 35% economic interest for $12.8 billion.

JUUL is engaged in the manufacture and sale of e-vapor products globally.

If and when antitrust clearance is obtained, Altria’s non-voting shares will automatically convert to voting shares (“Share Conversion”).

At December 31, 2018, Altria accounted for its investment in JUUL as an investment in an equity security.

Upon Share Conversion, Altria expects to account for its investment in JUUL under the equity method of accounting.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | 2,225 | | | | 2,051 | | |

| | 4,879 | | | | 4,835 | | |

| | 1,914 | | | | 1,958 | | |

| Other assets | 386 | | | | 513 | | |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Cost of sales | 7,543 | | | | 7,746 | | | | 7,740 | | |

| Gross profit | 11,951 | | | | 11,591 | | | | 11,114 | | |

| Reduction of PMI tax-related receivable | — | | | | — | | | | 41 | | |

| Operating income | 9,556 | | | | 8,762 | | | | 8,361 | | |

| Other | | | (20 | | ) | | 120 | | | | 201 | | |

| Payment for derivative financial instruments | | | (5 | | ) | | (3 | | ) | | (132 | | ) |

| (Decrease) increase | | | (3,316 | | ) | | 2,200 | | | | (952 | | ) |

| Balances, December 31, 2014 | $ | 935 | | | $ | 5,735 | | | $ | 26,277 | | | $ | (2,682 | ) | | $ | (27,251 | ) | | $ | (4 | ) | | $ | 3,010 | |

| Net earnings (losses) (1) | — | | | | — | | | | 5,241 | | | | — | | | | — | | | | (3 | | ) | | 5,238 | | |

Notes to Consolidated Financial Statements

_________________________

ended December 31, 2016.

In January 2017, Altria Group, Inc. acquired Nat Sherman, which joined PM USA and Middleton as part of Altria Group, Inc.’s smokeable products segment.

Stock Plans.

Group, Inc. groups assets and liabilities at the lowest level for which cash flows are separately identifiable.

▪Derivative Financial Instruments: In November 2017, Altria Group, Inc. adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands hedge accounting for both financial and nonfinancial risk components to better portray the economic results of an entity’s risk management activities in its financial statements.

In addition, the guidance includes certain targeted improvements to simplify the application of hedge accounting.

At adoption, Altria Group, Inc. had no derivative or nonderivative financial instruments designated in hedging relationships.

Adoption of the guidance had no impact on prior years.

of the net investment being hedged.

and is not expected to have, a material adverse effect on Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position or cash flows (see Note 18.

▪Finance Leases: Income attributable to leveraged leases is initially recorded as unearned income and subsequently recognized as revenue over the terms of the respective leases at constant after-tax rates of return on the positive net investment balances.

Investments in leveraged leases are stated net of related nonrecourse debt obligations.

Finance leases include unguaranteed residual values that represent PMCC’s estimates at lease inception as to the fair values of assets under lease at the end of the non-cancelable lease terms.

The estimated residual values are reviewed at least annually by PMCC’s management.

This review includes analysis of a number of factors, including activity in the relevant industry.

If necessary, revisions are recorded to reduce the residual values.

PMCC considers rents receivable past due when they are beyond the grace period of their contractual due date.

PMCC stops recording income (“non-accrual status”) on rents receivable when contractual payments become 90 days past due or earlier if management believes there is significant uncertainty of collectability of rent payments, and resumes recording income when collectability of rent payments is reasonably certain.

Payments received on rents receivable that are on non-accrual status are used to reduce the rents receivable balance.

Write-offs to the allowance for losses are recorded when amounts are deemed to be uncollectible.

determining income tax provisions and in evaluating tax positions.

Altria [removed: Group, Inc.] carried out an evaluation, with the participation of [removed: Altria Group, Inc.’s] [added: Altria’s] management, including [removed: Altria Group, Inc.’s] [added: its] Chief Executive Officer and Chief Financial Officer, of the effectiveness of [removed: Altria Group, Inc.’s] [added: its] disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K.

Based upon that evaluation, [removed: Altria Group, Inc.’s] [added: Altria’s] Chief Executive [removed: Officer and Chief Financial Officer concluded]

[added: Officer and Chief Financial Officer concluded] that [removed: Altria Group, Inc.’s] [added: Altria’s] disclosure controls and procedures are effective.

There have been no changes in [removed: Altria Group, Inc.’s] [added: Altria’s] internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, [removed: Altria Group, Inc.’s] [added: its] internal control over financial reporting.

Except for the information relating to the executive officers set forth in Item 10, the information called for by Items 10-14 is hereby incorporated by reference to [removed: Altria Group, Inc.’s] [added: Altria’s] definitive proxy statement for use in connection with its Annual Meeting of Shareholders to be held on May [removed: 17, 2018] [added: 16, 2019] that [removed: will] [added: is expected to] be filed with the SEC on or about April [removed: 5, 2018] [added: 4, 2019] (the “proxy statement”), and, except as indicated therein, made a part hereof.

Refer to [removed: “Proposals Requiring Your Vote] [added: “Board and Governance Matters] - Proposal 1 - Election of Directors,” “Ownership of Equity Securities of Altria - Section 16(a) Beneficial Ownership Reporting Compliance” and “Board and Governance Matters - [removed: Committees of Our] Board [removed: of Directors”] [added: and Committee Governance”] sections of the proxy statement.

Executive Officers as of February [removed: 13, 2018:][added: 12, 2019:]

| [removed: Martin J. Barrington] [added: Howard A. Willard III] | [removed: Chairman,] [added: Chairman and] Chief Executive Officer [removed: and President] | [removed: 64] [added: 55] |

| Daniel J. Bryant | Vice President and Treasurer | [removed: 48] [added: 49] |

| Kevin C. Crosthwaite, Jr. | [removed: President and] [added: Senior Vice President,] Chief [removed: Executive Officer, Philip Morris USA Inc.] [added: Strategy and Growth Officer] | [removed: 42] [added: 43] |

| Ivan S. Feldman | Vice President and Controller | [removed: 51] [added: 52] |

| Murray R. Garnick | Executive Vice President and General Counsel | [removed: 58] [added: 59] |

| William F. Gifford, Jr. | [removed: Executive] Vice [removed: President] [added: Chairman] and Chief Financial Officer | [removed: 47] [added: 48] |

| Craig A. Johnson | President and Chief Executive Officer, Altria Group Distribution Company | [removed: 65] [added: 66] |

| Salvatore Mancuso | Senior Vice President, [removed: Strategy, Planning] [added: Finance] and Procurement | [removed: 52] [added: 53] |

| W. Hildebrandt Surgner, Jr. | Vice President, Corporate Secretary and Associate General Counsel | [removed: 52] [added: 53] |

| Charles N. Whitaker | Senior Vice President, [added: Chief] Human [removed: Resources, Compliance and Information Services] [added: Resources Officer] and Chief Compliance Officer | [removed: 51] [added: 52] |

All of the above-mentioned officers have been employed by Altria [removed: Group, Inc.] or its subsidiaries in various capacities during the past five years.

[removed: Group, Inc.] [added: Mr. Begley has been continuously employed by Altria] subsidiaries in positions across their businesses, including [added: Innovative Tobacco Products, Brand Management, and] Strategy and Business Development, [removed: Brand Management and Sales] since [removed: 1997.][added: 1995.]

[removed: Altria Group, Inc. has adopted the Altria Code of Conduct for Compliance] and Integrity, which complies with requirements set forth in Item 406 of Regulation S-K.

Altria [removed: Group, Inc.] has also adopted a code of business conduct and ethics that applies to the members of its Board of Directors.

These documents are available free of charge on [removed: Altria Group, Inc.’s] [added: Altria’s] website at www.altria.com.

Any waiver granted by Altria [removed: Group, Inc.] to its principal executive officer, principal financial officer or controller under the Code of Conduct, and certain amendments to the Code of Conduct, will be disclosed on [removed: Altria Group, Inc.’s] [added: Altria’s] website at www.altria.com within the time period required by applicable rules.

In addition, Altria [removed: Group, Inc.] has adopted corporate governance guidelines and charters for its Audit, Compensation and Nominating, Corporate Governance and Social Responsibility Committees and the other committees of the Board of Directors.

All of these documents are available free of charge on [removed: Altria Group, Inc.’s] [added: Altria’s] website at www.altria.com.

The information on the respective websites of Altria [removed: Group, Inc.] and its subsidiaries is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings Altria [removed: Group, Inc.] makes with the SEC.

| Jody L. Begley | Senior Vice President, Tobacco Products | 47 |

Effective June 1, 2018, Mr. Begley was elected Senior Vice President, Tobacco Products of Altria.

As previously announced, Mr. Feldman will retire as Vice President and Controller, effective April 30, 2019.

Steven D’Ambrosia was elected to replace Mr. Feldman upon his retirement.

Mr. D’Ambrosia currently serves as Senior Director,

Accounting and Reporting, a position he has held since August 2014.

Prior to this role, he served as Director, Reporting and Analysis from 2008 through July 2014.

Mr. D’Ambrosia has been continuously employed by Altria subsidiaries in various accounting, financial reporting, planning and analysis positions since 1995.

In addition, as previously announced, Mr. Johnson will retire as President and Chief Executive Officer, Altria Group Distribution Company, effective March 1, 2019.

Altria has adopted the Altria Code of Conduct for Compliance

| James E. Dillard III | Senior Vice President, Research, Development and Sciences | 54 |

| Brian W. Quigley | President and Chief Executive Officer, U.S. Smokeless Tobacco Company LLC | 44 |

| Howard A. Willard III | Executive Vice President and Chief Operating Officer | 54 |

Effective April 25, 2017, Mr. Crosthwaite was appointed President and Chief Executive Officer, Philip Morris USA Inc. Mr. Crosthwaite has been continuously employed by Altria

Effective July 1, 2017, Mr. Garnick was appointed Executive Vice President and General Counsel of Altria Group, Inc. Mr. Garnick previously served as Deputy General Counsel of

Altria Client Services LLC and has been continuously employed by Altria Group, Inc. or its subsidiaries since 2008.

Effective August 24, 2017, Mr. Dillard, previously Senior Vice President, Research, Development and Regulatory Affairs of Altria Group, Inc., was appointed Senior Vice President, Research, Development and Sciences of Altria Group, Inc.

Effective January 1, 2018, Mr. Surgner, previously Corporate Secretary and Senior Assistant General Counsel of Altria Group, Inc., was appointed Vice President, Corporate Secretary and Associate General Counsel of Altria Group, Inc.

As previously announced, effective upon the conclusion of the Annual Meeting of Shareholders on May 17, 2018, Mr. Barrington will retire as Chairman, Chief Executive Officer and President and Mr. Willard will become Chairman and Chief Executive Officer.

Additionally, Mr. Gifford will become Vice Chairman and Chief Financial Officer, effective upon the conclusion of the Annual Meeting of Shareholders.

Refer to “Executive Compensation,” [removed: “Compensation Committee Matters - Compensation Committee Interlocks] and [removed: Insider Participation,” “Compensation Committee Matters - Compensation Committee Report for the Year Ended December 31, 2017” and] “Board and Governance Matters - [removed: Directors -] Director Compensation” sections of the proxy statement.

The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under [removed: Altria Group, Inc.’s] [added: Altria’s] equity compensation plans at December 31, [removed: 2017,] [added: 2018,] were as follows:

| (1) | The following plans have been approved by Altria [removed: Group, Inc.] shareholders and have shares referenced in column (a) or column (c): the 2010 Performance Incentive Plan, the 2015 Performance Incentive Plan and the 2015 Stock Compensation Plan for Non-Employee Directors. |

| (2) | Represents [removed: 2,384,501shares] [added: 2,129,626 shares] of restricted stock units and [removed: 221,981] [added: 356,620] shares that may be issued upon vesting of performance stock units if maximum performance measures are achieved. |

| (3) | Includes [removed: 38,161,242] [added: 37,033,741] shares available under the 2015 Performance Incentive Plan and [removed: 920,942] [added: 880,291] shares available under the 2015 Stock Compensation Plan for Non-Employee Directors, and excludes shares reflected in column (a). |

| Equity compensation plans approved by shareholders (1) | 2,486,246 | $— | 37,914,032 |

| Equity compensation plans approved by shareholders (1) | 2,606,482 (2) | $— | 39,082,184 (3) |

Refer to “Related Person Transactions and Code of Conduct” and “Board and Governance Matters - [added: Altria Board of] Directors - Director Independence Determinations” sections of the proxy statement.

| Consolidated Balance Sheets at December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] | [removed: [39](#s91DB9E2A5CD553B9B955BC1A9BF8E3B3)] [added: [38](#sBB9E41B3D1BB53E6BD2784BCF6519574)] |

| Consolidated Statements of Earnings for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] | [removed: [41](#s0DA05F2BEAA45663815BE5DBE8B5838F)] [added: [40](#s1A7AFED43CE356CBB850B83604969B82)] |

| Consolidated Statements of Comprehensive Earnings for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] | [removed: [42](#sA397A2D5785E516297947A411DF54654)] [added: [41](#s981D04E0BCDA50B8BBA840CCD2957B05)] |

| Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] | [removed: [43](#sEB37BF3C396753F2B78C93F529962F9F)] [added: [42](#sEF1F8F6647DA53A7881ABFA0626F4633)] |

| Consolidated Statements of Stockholders’ Equity for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] | [removed: [44](#sE7A1FB4ACC015628B969C369155DB857)] [added: [44](#s4B0D7E35B9DE53B18496B2425DBF5A54)] |

| Notes to Consolidated Financial Statements | [removed: [45](#sEAD96F31C8EA50C59A865676529C8E72)] [added: [45](#sABD27C2E4EDC5813A32EEE2A4A723491)] |

| Report of Independent Registered Public Accounting Firm | [removed: [109](#s09E7F9FB15A5517389722FB8CDC79AAC)] [added: [96](#s5C8AD902513D508B9CC2DEC3D9E6F839)] |

| Report of Management on Internal Control Over Financial Reporting | [removed: [110](#sF2E8FC186092578CA66EFA3F0CA3E984)] [added: [97](#sDEBBA43D2B4857878CCFEB6DB15D880B)] |

In accordance with Regulation S-X Rule 3-09, the audited financial statements of AB InBev for the year ended December 31, [removed: 2017] [added: 2018] will be filed by amendment within six months after AB InBev’s year ended December 31, [removed: 2017.][added: 2018.]

| | [removed: 2.3] [added: 10.14] | | [removed: [Agreement and Plan of Merger] [added: [Employee Matters Agreement] by and [removed: among UST Inc.,] [added: between] Altria Group, [removed: Inc.,] [added: Inc.] and [removed: Armchair Merger Sub,] [added: Philip Morris International] Inc., dated as of [removed: September 7,] [added: March 28,] 2008. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: September 8,] [added: March 28,] 2008 (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508191587/dex21.htm)] [added: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508069389/dex102.htm)] |

| | [removed: 2.4] [added: 10.13] | | [removed: [Amendment No. 1 to the] [added: [Intellectual Property] Agreement [removed: and Plan of Merger, dated as of September 7, 2008,] by and [removed: among UST Inc., Altria Group, Inc.,] [added: between Philip Morris International Inc.] and [removed: Armchair Merger Sub, Inc.,] [added: PM USA,] dated as of [removed: October 2,] [added: January 1,] 2008. Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: October 3,] [added: March 28,] 2008 (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508205684/dex21.htm)] [added: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508069389/dex104.htm)] |

| | 3.2 | | [Amended and Restated [removed: By-laws] [added: By-Laws] of Altria Group, Inc., effective as of [removed: October 28, 2015.] [added: May 17, 2018.] Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: October 29, 2015] [added: February 1, 2018] (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000076418015000093/exhibit31amendedandrestate.htm)] [added: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000076418018000013/exhibit31amendedandrestate.htm)] |

| | [removed: 4.7] [added: 4.9] | | The Registrant agrees to furnish copies of any instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries to the Commission upon request. |

| | 10.11 | | [Term Sheet effective December 17, 2012, between Philip Morris [removed: USA] [added: USA,] Inc., the other participating manufacturers, and various states and territories for settlement of the 2003 - 2012 Non-Participating Manufacturer Adjustment with those states. Incorporated by reference to Altria Group, Inc.’s Current Report on From 8-K filed on December 18, 2012 (File No. 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000076418012000037/exhibit101termsheet.htm) |

| | [removed: 10.13] [added: 10.39] | | [removed: [Tax Sharing Agreement by and between Altria Group, Inc. and Kraft Foods Inc. (now known as Mondelēz International, Inc.), dated as] [added: [Form] of [removed: March 30, 2007.] [added: Executive Confidentiality and Non-Competition Agreement (January 2011).] Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: March 30, 2007] [added: January 27, 2011] (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312507070747/dex103.htm)] [added: 1-08940).*](http://www.sec.gov/Archives/edgar/data/764180/000119312511015974/dex103.htm)] |

| | [removed: 10.14] [added: 10.31] | | [removed: [Intellectual Property Agreement by and between Philip Morris International Inc. and Philip Morris USA Inc.,] [added: [Form of Restricted Stock Unit Agreement,] dated as of January [removed: 1, 2008.] [added: 28, 2015.] Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: March 28, 2008] [added: January 30, 2015] (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508069389/dex104.htm)] [added: 1-08940).*](http://www.sec.gov/Archives/edgar/data/764180/000076418015000006/exhibit101formofrestricted.htm)] |

| | [removed: 10.15] [added: 10.32] | | [removed: [Employee Matters Agreement by and between Altria Group, Inc. and Philip Morris International Inc.,] [added: [Form of Restricted Stock Unit Agreement,] dated as of [removed: March 28, 2008.] [added: January 26, 2016.] Incorporated by reference to Altria Group, Inc.’s Current Report on Form 8-K filed on [removed: March] [added: January] 28, [removed: 2008] [added: 2016] (File No. [removed: 1-08940).](http://www.sec.gov/Archives/edgar/data/764180/000119312508069389/dex102.htm)] [added: 1-08940).*](http://www.sec.gov/Archives/edgar/data/764180/000076418016000117/exhibit101formofrestricted.htm)] |