Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Background and Basis of Presentation
When used in these notes, the terms “Altria,” “we,” “us” and “our” refer to either (i) Altria Group, Inc. and its consolidated subsidiaries or (ii) Altria Group, Inc. only and not its consolidated subsidiaries, as appropriate in the context.
▪Background: At September 30, 2024, our 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 is a wholly owned subsidiary of PM USA; UST LLC (“UST”), which, through its wholly owned subsidiary U.S. Smokeless Tobacco Company LLC (“USSTC”), is engaged in the manufacture and sale of moist smokeless tobacco products (“MST”) and snus products; Helix Innovations LLC (“Helix”), which operates in the United States, and Helix Innovations GmbH and its affiliates (“Helix International”), which operate in certain other countries, are engaged in the manufacture and sale of oral nicotine pouches; and NJOY, LLC (“NJOY”), which is engaged in the manufacture and sale of e-vapor products. Other wholly owned subsidiaries included Altria Group Distribution Company (“AGDC”), which provides sales and distribution services to our domestic operating companies; and Altria Client Services LLC (“ALCS”), which provides various support services to our companies in areas such as legal, regulatory, research and product development, consumer engagement, finance, human resources and external affairs. Our access to the operating cash flows of our subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by our subsidiaries. At September 30, 2024, our significant subsidiaries were not limited by contractual obligations in their ability to pay cash dividends or make other distributions with respect to their equity interests.
At September 30, 2024, we also owned a 75% economic interest in Horizon Innovations LLC (“Horizon”), a joint venture with JTI (US) Holding, Inc., a subsidiary of Japan Tobacco Inc., which owned the remaining 25% economic interest. Horizon is responsible for the U.S. marketing and commercialization of heated tobacco stick products owned by either party.
At September 30, 2024, we had investments in Anheuser-Busch InBev SA/NV (“ABI”) and Cronos Group Inc. (“Cronos”). In March 2024, we sold a portion of our investment in ABI (“ABI Transaction”). For further discussion of our investments and the ABI Transaction, see Note 6. Investments in Equity Securities.
▪Dividends and Share Repurchases: In August 2024, our Board of Directors (“Board of Directors” or “Board”) approved a 4.1% increase in the quarterly dividend rate to $1.02 per share of our common stock versus the previous rate of $0.98 per share. The current annualized dividend rate is $4.08 per share. Future dividend payments remain subject to the discretion of our Board.
In January 2023, our Board of Directors authorized a $1.0 billion share repurchase program (“January 2023 share repurchase program”), which we completed in December 2023.
In January 2024, our Board of Directors authorized a new $1.0 billion share repurchase program that it increased to $3.4 billion in March 2024 (as increased, “January 2024 share repurchase program”). We entered into accelerated share repurchase (“ASR”) transactions under two separate agreements with bank counterparties (collectively, “ASR Agreements”) to repurchase shares of our common stock having an aggregate value of $2.4 billion (“Repurchase Price”). In the first half of 2024, we paid the Repurchase Price and received 53.9 million shares of our common stock. The total number of shares repurchased under the ASR Agreements was based on volume-weighted average prices of our common stock during the term of the ASR transactions, less a discount. We funded the ASR transactions with proceeds from the ABI Transaction. The ASR transactions were accounted for as equity transactions and included in cost of repurchased stock on our condensed consolidated balance sheet when the shares were received. At September 30, 2024, we had $310 million remaining under the January 2024 share repurchase program. The timing of share repurchases depends upon marketplace conditions and other factors, and the program remains subject to the discretion of our Board.
Our share repurchase activity was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions, except per share data) | 2024 | (1) | 2023 | | 2024 | | 2023 |
| Total number of shares repurchased | 67.6 | | | 16.3 | | | 13.5 | | | 5.9 | |
| Aggregate cost of shares repurchased | $ | 3,090 | | | $ | 732 | | | $ | 680 | | | $ | 260 | |
| Average price per share of shares repurchased | $ | 45.68 | | | $ | 44.97 | | | $ | 50.37 | | | $ | 44.26 | |
(1) Includes 53.9 million shares repurchased under the ASR Agreements at an average price per share of $44.50.
▪Basis of Presentation: Our interim condensed consolidated financial statements are unaudited. Our management believes that all adjustments necessary for a fair statement of the interim results presented have been reflected in our interim condensed consolidated financial statements. All such adjustments were of a normal recurring nature. Net revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year.
These statements should be read in conjunction with our audited consolidated financial statements and related notes, which appear in our Annual Report on Form 10-K for the year ended December 31, 2023.
On January 1, 2024, we adopted Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU No. 2022-03”). This guidance clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance also specifies required disclosures for equity securities subject to contractual sale restrictions. We applied ASU No. 2022-03 for the fair value disclosure of our investment in ABI. For further discussion, see Note 6. Investments in Equity Securities.
For a description of issued accounting guidance applicable to, but not yet adopted by, us, see Note 15. New Accounting Guidance Not Yet Adopted.
Note 2. Acquisition of NJOY
On June 1, 2023, we acquired NJOY Holdings (“NJOY Transaction”), which provided us with full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE. The total consideration for the NJOY Transaction of approximately $2.9 billion consisted of approximately $2.75 billion in cash payments (net of cash acquired) plus the fair value of up to $500 million in additional cash payments contingent on receipt of U.S. Food and Drug Administration (“FDA”) authorizations with respect to NJOY’s menthol ($250 million), blueberry ($125 million) and watermelon ($125 million) pod products. The fair value of these contingent payments at December 31, 2023 and on the acquisition date was approximately $130 million, which was included in the total consideration.
In the second quarter of 2024, the FDA issued marketing granted orders for four NJOY menthol e-vapor products. As a result, we became obligated to make cash payments totaling $250 million under the acquisition agreement, which we made in July 2024. Additionally, we recorded a pre-tax charge of approximately $140 million for the change in the fair value of contingent payments for the nine months ended September 30, 2024. At September 30, 2024, the fair value of the remaining contingent payments, which relate to blueberry and watermelon pod products, was approximately $20 million.
Contingent payments related to the NJOY Transaction were recognized at their estimated fair value as of the acquisition date. Subsequent changes to the fair value of the liability resulting from contingent payments are recognized in earnings until the contingency is resolved. In determining the estimated fair value of contingent payments, we made certain judgments, estimates and assumptions, the most significant of which was the likelihood of certain potential regulatory outcomes. Contingent payments are classified in Level 3 of the fair value hierarchy.
Costs incurred for the NJOY Transaction are recognized as expenses in the period in which the costs are incurred and are included in our condensed consolidated statement of earnings as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | |
| (in millions) | 2024 | 2023 | | 2024 | | 2023 |
| Marketing, administration and research costs: | | | | | | | | |
| Change in fair value of contingent payments | $ | 140 | | | $ | — | | | $ | — | | | $ | — | | |
Other costs (1) | 47 | | | 54 | | | 44 | | | 13 | | |
| Interest and other debt expense, net: | | | | | | | | |
| Financing fees | — | | | 9 | | | — | | | 1 | | |
| Total NJOY Transaction costs | $ | 187 | | | $ | 63 | | | $ | 44 | | | $ | 14 | | |
(1) For the nine and three months ended September 30, 2024, substantially all of these costs were acquisition-related costs associated with patent infringement lawsuits related to the NJOY Transaction. For further discussion of the patent infringement lawsuits, see Note 14. Contingencies. For the nine months ended September 30, 2023, substantially all of these costs were acquisition-related costs, consisting primarily of transaction costs.
We funded the initial NJOY Transaction cash payments at closing through a combination of borrowings under a $2.0 billion term loan facility, the issuance of commercial paper and available cash. For further discussion regarding the term loan facility, see Note 12. Debt.
We accounted for this acquisition as a business combination. On June 1, 2024, we finalized our purchase price allocation for the NJOY Transaction. The amounts in the table below represent the final purchase price allocation to the assets acquired and
liabilities assumed in the NJOY Transaction, including measurement period adjustments made during the three months ended March 31, 2024.
| | | | | | | | | | | |
| (in millions) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Final Purchase Price Allocation |
| Cash and cash equivalents | $ | 22 | | $ | — | | $ | 22 | |
| Receivables | 7 | | — | | 7 | |
| Inventories | 19 | | — | | 19 | |
| Other assets | 7 | | — | | 7 | |
| Property, plant and equipment | 16 | | — | | 16 | |
| Other intangible assets: | | | |
| Developed technology (amortizable) | 1,000 | | — | | 1,000 | |
| Trademarks (amortizable) | 230 | | (40) | | 190 | |
Supplier agreements (amortizable) | 180 | | (180) | | — | |
| Accounts payable | (7) | | — | | (7) | |
| Accrued liabilities | (20) | | — | | (20) | |
| Deferred income taxes | (167) | | 66 | | (101) | |
| Total identifiable net assets | 1,287 | | (154) | | 1,133 | |
| Total consideration | 2,901 | | — | | 2,901 | |
Goodwill | $ | 1,614 | | $ | 154 | | $ | 1,768 | |
The excess of the total consideration over the identifiable net assets acquired in the NJOY Transaction primarily reflects the value of future growth opportunities in the e-vapor category. None of the goodwill or other intangible assets is deductible for tax purposes.
The significant assumptions used in determining the fair values of the identifiable intangible assets included volume growth rates, operating margins, the assessment of acquired technology life cycles and discount rates. We determined the fair values of the identifiable intangible assets using an income approach. The fair value measurements were primarily based on significant inputs that are not observable in the market, such as discounted cash flow analyses, and thus were classified in Level 3 of the fair value hierarchy. We amortize these intangible assets over a weighted-average period of approximately 18 years.
Note 3. Revenues from Contracts with Customers
We disaggregate net revenues based on product type. For further discussion, see Note 11. Segment Reporting.
In 2023, substantially all cash discounts, offered in contracts with our customers for prompt payment, were based on a flat rate per unit based on agreed-upon payment terms. Beginning in the first quarter of 2024 for PM USA and USSTC, cash discounts in contracts with our customers were based on a percentage of the list price based on agreed-upon payment terms. We record receivables net of the cash discounts on our condensed consolidated balance sheets.
Receivables and deferred revenue associated with contracts with customers were as follows:
| | | | | | | | |
| (in millions) | September 30, 2024 | December 31, 2023 |
| Receivables | $ | 87 | | $ | 71 | |
| Deferred revenue | 218 | | 258 | |
At September 30, 2024 and December 31, 2023, we did not expect differences between amounts recorded as receivables and amounts that would be subsequently received; therefore, we did not record an allowance for credit losses against these receivables.
We record payments received by our businesses in advance of product shipment as deferred revenue. These payments are included in other accrued liabilities on our condensed consolidated balance sheets until control of such products is obtained by the customer. When cash is received in advance of product shipment, our companies satisfy their performance obligations within three days of receiving payment. At September 30, 2024 and December 31, 2023, there were no differences between amounts recorded as deferred revenue from contracts with customers and amounts subsequently recognized as revenue.
We record an allowance for returned goods, which is included in other accrued liabilities on our condensed consolidated balance sheets. It is USSTC’s policy to accept authorized sales returns from its customers for products that have passed the
freshness date printed on product packaging due to the limited shelf life of USSTC’s MST and snus products. We record estimated sales returns, which are based principally on historical volume and return rates, as a reduction to revenues. Actual sales returns will differ from estimated sales returns to the extent actual results differ from estimated assumptions. We reflect differences between actual and estimated sales returns in the period in which the actual amounts become known. These differences, if any, have not had a material impact on our condensed consolidated financial statements. All returned goods are destroyed upon return and not included in inventory. Consequently, we do not record an asset for USSTC’s right to recover goods from customers upon return.
Sales incentives include variable payments related to goods sold by our businesses. We include estimates of variable consideration as a reduction to revenues upon shipment of goods to customers. The sales incentives that require significant estimates and judgments are as follows:
▪Price promotion payments- We make price promotion payments, substantially all of which are made to our retail partners to incent the promotion of certain product offerings in select geographic areas.
▪Wholesale and retail participation payments- We make payments to our wholesale and retail partners to incent merchandising and sharing of sales data in accordance with our trade agreements.
These estimates primarily include estimated wholesale to retail sales volume and historical acceptance rates. Actual payments will differ from estimated payments to the extent actual results differ from estimated assumptions. Differences between actual and estimated payments are reflected in the period such information becomes available. These differences, if any, have not had a material impact on our condensed consolidated financial statements.
Note 4. Supplier Financing
We facilitate a voluntary supplier financing program through a third-party intermediary under which participating suppliers may elect to sell receivables due from us to participating third-party financial institutions at the sole discretion of both the suppliers and the financial institutions (“Program”). Our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether our supplier sells its receivable to a financial institution. We pay the third-party intermediary a nominal fee to administer the Program. Under the terms of the agreement with our third-party intermediary, ALCS has a direct obligation to pay the participating financial institutions or the participating suppliers when payment obligations are due, unless such obligations are satisfied by the applicable ALCS affiliate. Additionally, Altria guarantees the obligations of ALCS to those parties. We do not enter into agreements with any of the participating financial institutions in connection with the Program. The range of payment terms we negotiate with our suppliers (up to 120 days) is consistent irrespective of whether a supplier participates in the Program.
We have no economic interest in a supplier’s sale of a receivable. Once a qualifying supplier elects to participate in the Program and reaches an agreement with a participating third-party financial institution, the qualifying supplier elects which individual invoices it sells to the financial institution.
All outstanding balances under the Program are recorded in accounts payable on our condensed consolidated balance sheets, and the associated payments are included in operating activities within our condensed consolidated statements of cash flows.
At September 30, 2024 and December 31, 2023, confirmed outstanding obligations under the Program were $115 million and $119 million, respectively.
Note 5. Goodwill and Other Intangible Assets, net
Goodwill and other intangible assets, net, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | Other Intangible Assets, net |
| (in millions) | September 30, 2024 | | December 31, 2023 | | September 30, 2024 | | December 31, 2023 |
| Smokeable products segment | $ | 99 | | | $ | 99 | | | $ | 2,944 | | | $ | 2,963 | |
| Oral tobacco products segment | 5,078 | | | 5,078 | | | 8,687 | | | 9,065 | |
| Other | 1,768 | | | 1,614 | | | 1,379 | | | 1,658 | |
| Total | $ | 6,945 | | | $ | 6,791 | | | $ | 13,010 | | | $ | 13,686 | |
Other intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Indefinite-lived intangible assets | $ | 11,089 | | | $ | — | | | $ | 11,443 | | | $ | — | |
Definite-lived intangible assets | 2,621 | | | 700 | | | 2,841 | | | 598 | |
| Total other intangible assets | $ | 13,710 | | | $ | 700 | | | $ | 14,284 | | | $ | 598 | |
At September 30, 2024, substantially all of our indefinite-lived intangible assets consisted of (i) MST trademarks of $8.5 billion, which consists of Copenhagen, Skoal and other MST trademarks of $4.0 billion, $3.6 billion and $0.9 billion, respectively, from our 2009 acquisition of UST, and (ii) cigar trademarks of $2.6 billion from our 2007 acquisition of Middleton. Definite-lived intangible assets, consisting primarily of intellectual property (which includes developed technology), certain cigarette trademarks, e-vapor trademarks and customer relationships, are amortized over a weighted-average period of approximately 19 years. Pre-tax amortization expense for definite-lived intangible assets was $102 million and $87 million for the nine months ended September 30, 2024 and 2023, respectively, and $38 million and $42 million for the three months ended September 30, 2024 and 2023, respectively. We estimate our annualized amortization expense, which includes the impact of the NJOY Transaction and related measurement period adjustments, for each of the next five years to be approximately $150 million, assuming no additional transactions occur that require the amortization of intangible assets.
On April 30, 2024, we assigned the exclusive U.S. commercialization rights to the IQOS Tobacco Heating System (“IQOS System”) to Philip Morris International Inc. (“PMI”) pursuant to the terms of a purchase agreement entered into with PMI in October 2022 (“IQOS Transaction”). In exchange for the assignment of the U.S. commercialization rights to the IQOS System, we received total cash payments of approximately $2.8 billion ($1.0 billion in 2022 and $1.8 billion, including interest, in the third quarter of 2023), $2.7 billion of which was classified as a deferred gain on our condensed consolidated balance sheet at December 31, 2023. Upon the assignment of the U.S. commercialization rights to the IQOS System, we recorded a pre-tax gain of $2.7 billion for the nine months ended September 30, 2024 in our condensed consolidated statements of earnings.
The changes in goodwill and net carrying amount of intangible assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | For the Year Ended |
| September 30, 2024 | | December 31, 2023 |
| (in millions) | Goodwill | | Other Intangible Assets, net | | Goodwill | | Other Intangible Assets, net |
Balance at January 1 | $ | 6,791 | | | $ | 13,686 | | | $ | 5,177 | | | $ | 12,384 | |
Changes due to: | | | | | | | |
Acquisitions (1) | 154 | | | (220) | | | 1,614 | | | 1,430 | |
Asset impairment | — | | | (354) | | | — | | | — | |
Amortization | — | | | (102) | | | — | | | (128) | |
| Balance at end of period | $ | 6,945 | | | $ | 13,010 | | | $ | 6,791 | | | $ | 13,686 | |
(1) Substantially all of the 2023 amounts are attributable to the NJOY Transaction. The 2024 amounts represent the measurement period adjustments made during the three months ended March 31, 2024 related to the NJOY Transaction. For additional information regarding the NJOY Transaction, see Note 2. Acquisition of NJOY.
We conduct a required annual review of goodwill and indefinite-lived intangibles for potential impairment, and more frequently if an event occurs or circumstances change that would require us to perform an interim quantitative impairment assessment. There have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of September 30, 2024. We will perform our annual impairment testing during the fourth quarter of 2024.
At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 billion). Sales volumes of MST products, including Skoal, have been negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories. In connection with the preparation of our financial statements for the period ended June 30, 2024, we evaluated the accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories, which have contributed to reductions in sales volumes for MST products, including Skoal. We concluded that the expected impact from the sales volume declines on the Skoal trademark represented a triggering event, and as a result of this conclusion, we performed an interim impairment assessment as of June 30, 2024. As a result of (i) lower projected revenue and income due to lower volume assumptions, (ii) a decrease in the perpetual growth rate to 0% (1% at October 1, 2023 valuation) and (iii) an increase in the discount rate to 11.5% (11.0% at October 1, 2023 valuation), we
determined the estimated fair value of the Skoal trademark as of June 30, 2024, was below its carrying value and recorded a non-cash, pre-tax impairment of $354 million during the second quarter of 2024 in our condensed consolidated statements of earnings. Our estimate of the fair value and carrying value of the Skoal trademark at June 30, 2024 was $3.6 billion, after recording the impairment.
We used an income approach to estimate the fair value of the Skoal trademark. The income approach reflects the discounting of expected future cash flows at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing expected future cash flows. In performing the discounted cash flow analysis, we made various judgments, estimates and assumptions, the most significant of which were volume, revenue, income, operating margins, perpetual growth rate and discount rate. All significant inputs used in the valuation are classified in Level 3 of the fair value hierarchy.
Our annual impairment test of goodwill and indefinite-lived intangible assets as of October 1, 2023 resulted in no impairment charges. At September 30, 2024 and December 31, 2023, there were no accumulated impairment losses related to goodwill.
Note 6. Investments in Equity Securities
The carrying amount of our investments consisted of the following:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2024 | | December 31, 2023 |
| ABI | | $ | 7,846 | | | $ | 9,676 | |
| Cronos | | 307 | | | 335 | |
| | | | |
Total | | $ | 8,153 | | | $ | 10,011 | |
(Income) losses from our current and former investments in equity securities consisted of the following:
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| For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | |
| (in millions) | 2024 | 2023 | | 2024 | | 2023 |
ABI (1) | $ | (555) | | (2) | $ | (401) | | | $ | (121) | | | $ | (61) | | |
Cronos (1) | 25 | | | 46 | | | 5 | | | 3 | | |
| (Income) losses from investments under equity method of accounting | (530) | | | (355) | | | (116) | | | (58) | | |
| JUUL | — | | | 250 | | (3) | — | | | — | | |
| (Income) losses from investments in equity securities | $ | (530) | | | $ | (105) | | | $ | (116) | | | $ | (58) | | |
(1) Includes our share of amounts recorded by our investees and additional adjustments, if required, related to (i) the conversion from international financial reporting standards to United States generally accepted accounting principles (“GAAP”) and (ii) adjustments to our investments required under the equity method of accounting.
(2) Includes $165 million of the total pre-tax gain on the ABI Transaction discussed below.
(3) Represents loss as a result of the disposition of our JUUL equity securities discussed below.
Investment in ABI
Prior to March 14, 2024, we had an approximate 10% ownership interest in ABI, consisting of approximately 185 million restricted shares of ABI (“Restricted Shares”) and approximately 12 million ordinary shares of ABI. Our Restricted Shares:
▪are unlisted and not admitted to trading on any stock exchange;
▪are convertible by us into ordinary shares of ABI on a one-for-one basis;
▪rank equally with ordinary shares of ABI with regards to dividends and voting rights; and
▪have director nomination rights with respect to ABI.
On March 14, 2024, we converted 60 million shares of our Restricted Shares to ordinary shares of ABI. In March 2024, we completed the ABI Transaction, which consisted of the following:
▪We sold 35 million ordinary shares of ABI in a global secondary offering for gross proceeds of approximately $2.2 billion.
▪We sold $200 million of our ABI ordinary shares (approximately 3.3 million ordinary shares) to ABI in a private transaction.
At September 30, 2024, we had an approximate 8.1% ownership interest in ABI, consisting of approximately 125 million Restricted Shares and approximately 34 million ordinary shares of ABI. As a result of the ABI Transaction, in the first quarter of 2024, we received pre-tax cash proceeds totaling approximately $2.4 billion and incurred transaction costs of approximately
$62 million. In conjunction with the ABI Transaction, we entered into the ASR Agreements. For further discussion of the ASR Agreements, see Note 1. Background and Basis of Presentation.
As a result of the ABI Transaction, we recorded the following pre-tax amounts in our condensed consolidated statement of earnings:
| | | | | | | | | | | |
| (in millions) | For the Nine Months Ended September 30, 2024 | | |
| Gain on partial sale of our investment | $ | 165 | | | | | | | |
| Transaction costs | (62) | | | | | | | |
| Total pre-tax gain on ABI Transaction | $ | 103 | | | | | | | |
▪The pre-tax gain on the partial sale of our investment was recorded in (income) losses from investments in equity securities and includes a $408 million gain representing the excess of the selling price of the ABI shares sold over the carrying value of those shares, partially offset by a $243 million reclassification of the proportionate share of our pre-tax accumulated other comprehensive losses directly attributable to ABI and our designated net investment hedges related to our investment in ABI (see Note 7. Financial Instruments and Note 10. Other Comprehensive Earnings/Losses).
▪The pre-tax transaction costs were approximately $62 million ($59 million in marketing, administration and research costs and $3 million in interest and other debt expense, net), substantially all of which were underwriter fees.
In addition, in conjunction with the ABI Transaction, we recorded an income tax benefit from the partial release of a valuation allowance of approximately $94 million in provision for income taxes in our condensed consolidated statement of earnings for the nine months ended September 30, 2024. For further discussion, see Note 13. Income Taxes.
We expect to maintain two seats on ABI’s board of directors through ABI’s 2025 annual general meeting. Following that meeting, as a result of our reduced ownership interest in ABI following the ABI Transaction, we expect to have one seat on ABI’s board of directors, in accordance with our rights as a holder of Restricted Shares. We will continue to account for our investment in ABI under the equity method of accounting because we have active representation on ABI’s board of directors and certain ABI board committees. Through this representation, we have the ability to exercise significant influence over the operating and financial policies of ABI and participate in ABI’s policy making processes.
We report our share of ABI’s results using a one-quarter lag because ABI’s results are not available in time for us to record them in the concurrent period.
The fair value of our investment in ABI is based on (i) unadjusted quoted prices in active markets for ABI’s ordinary shares and is classified in Level 1 of the fair value hierarchy and (ii) observable inputs other than Level 1 prices, such as quoted prices for similar assets for the Restricted Shares and was classified in Level 2 of the fair value hierarchy. We can convert our Restricted Shares to ordinary shares at our discretion. The fair value of each Restricted Share is based on the value of an ordinary share.
The fair value of our investment in ABI at September 30, 2024 and December 31, 2023 was $10.5 billion and $12.7 billion, respectively, which exceeded its carrying value of $7.8 billion and $9.7 billion, respectively, by approximately 34% and 32%, respectively.
Investment in Cronos
At September 30, 2024, we had an approximate 41.0% ownership interest in Cronos, consisting of approximately 157 million shares, which we account for under the equity method of accounting. We report our share of Cronos’s results using a one-quarter lag because Cronos’s results are not available in time for us to record them in the concurrent period.
The fair value of our investment in Cronos is based on unadjusted quoted prices in active markets for Cronos’s common shares and is classified in Level 1 of the fair value hierarchy. At September 30, 2024, the fair value of our investment in Cronos exceeded its carrying value by approximately $39 million or approximately 13%. At December 31, 2023, the fair value of our investment in Cronos was less than its carrying value by $8 million or approximately 2%.
Former Investment in JUUL Labs, Inc. (“JUUL”)
In March 2023, we entered into a stock transfer agreement with JUUL under which we transferred to JUUL all of our beneficially owned JUUL equity securities and, in exchange, received a non-exclusive, irrevocable global license to certain of JUUL’s heated tobacco intellectual property. In addition, all other agreements between us and JUUL were terminated or we were removed as parties thereto, other than certain litigation-related agreements and a license agreement relating to our non-trademark licensable intellectual property rights in the e-vapor field, which remain in force solely with respect to our e-vapor intellectual property as of or prior to March 3, 2023. As a result of the stock transfer agreement, for the nine months ended September 30, 2023, we recorded a non-cash, pre-tax loss of $250 million on the disposition of our JUUL equity securities in (income) losses from investments in equity securities in our condensed consolidated statement of earnings.
Note 7. Financial Instruments
We enter into derivative financial instruments to mitigate the potential impact of certain market risks, including foreign currency exchange rate risk. We use various types of derivative financial instruments, including forward contracts, options and swaps. We do not enter into or hold derivative financial instruments for trading or speculative purposes.
Our investment in ABI, whose functional currency is the Euro, exposes us to foreign currency exchange risk on the carrying value of our investment. To manage this risk, we may designate certain foreign exchange contracts, including cross-currency swap contracts and forward contracts (collectively, “foreign currency contracts”), and Euro denominated unsecured long-term notes (“foreign currency denominated debt”) as net investment hedges of our investment in ABI.
At September 30, 2024 and December 31, 2023, we had no outstanding foreign currency contracts. When we have foreign currency contracts in effect, counterparties are domestic and international financial institutions. Under these contracts, we are exposed to potential losses in the event of non-performance by these counterparties. We manage our credit risk by entering into transactions with counterparties that have investment grade credit ratings, limiting the amount of exposure we have with each counterparty and monitoring the financial condition of each counterparty. The counterparty agreements contain provisions that require us to maintain an investment grade credit rating. In the event our credit rating falls below investment grade, counterparties to our foreign currency contracts can require us to post collateral.
The aggregate carrying value and fair value of our total long-term debt were as follows:
| | | | | | | | | | | |
| (in millions) | September 30, 2024 | | December 31, 2023 |
| Carrying value | $ | 25,155 | | | $ | 26,233 | |
| Fair value | 24,031 | | | 24,373 | |
| Foreign currency denominated debt included in long-term debt: | | | |
| Carrying value | 3,334 | | | 3,303 | |
| Fair value | 3,274 | | | 3,125 | |
Our estimate of the fair value of our total long-term debt is based on observable market information derived from a third-party pricing source and is classified in Level 2 of the fair value hierarchy.
Net Investment Hedging
We recognize changes in the carrying value of the foreign currency denominated debt due to changes in the Euro to U.S. dollar exchange rate in accumulated other comprehensive losses related to ABI.
We recognized pre-tax (gains) losses of our net investment hedges of $29 million and $(32) million for the nine months ended September 30, 2024 and 2023, respectively, and $127 million and $(101) million for the three months ended September 30, 2024 and 2023, respectively, in accumulated other comprehensive losses.
In addition, as a result of the ABI Transaction, for the nine months ended September 30, 2024, we reclassified $42 million of pre-tax gains from our designated net investments hedges included in accumulated other comprehensive losses to (income) losses from investments in equity securities in our condensed consolidated statement of earnings. For further discussion of the ABI Transaction and reclassification of accumulated other comprehensive losses, see Note 6. Investments in Equity Securities and Note 10. Other Comprehensive Earnings/Losses.
Note 8. Benefit Plans
Components of Net Periodic Benefit Cost (Income)
Net periodic benefit cost (income) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement | | Pension | | Postretirement |
| For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | 2024 | | 2023 | | 2024 | | 2023 | | 2024 | | 2023 | | 2024 | | 2023 |
| Service cost | $ | 31 | | | $ | 29 | | | $ | 11 | | | $ | 11 | | | $ | 10 | | | $ | 9 | | | $ | 3 | | | $ | 3 | |
| Interest cost | 242 | | | 250 | | | 46 | | | 49 | | | 81 | | | 84 | | | 14 | | | 15 | |
Expected return on plan assets | (349) | | | (364) | | | (4) | | | (5) | | | (116) | | | (121) | | | (1) | | | (1) | |
| Amortization: | | | | | | | | | | | | | | | |
| Net loss (gain) | 21 | | | 3 | | | (4) | | | (2) | | | 8 | | | 1 | | | (2) | | | (2) | |
Prior service cost (credit) | 4 | | | 4 | | | (30) | | | (30) | | | 1 | | | 1 | | | (10) | | | (10) | |
| | | | | | | | | | | | | | | |
| Net periodic benefit cost (income) | $ | (51) | | | $ | (78) | | | $ | 19 | | | $ | 23 | | | $ | (16) | | | $ | (26) | | | $ | 4 | | | $ | 5 | |
Employer Contributions
We make contributions to our pension plans to the extent that the contributions are tax deductible and pay benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service (“IRS”) regulations. We made employer contributions of $13 million to our pension plans and did not make any contributions to our postretirement plans during the nine months ended September 30, 2024. Currently, we anticipate making additional employer contributions of up to approximately $5 million to our pension plans and no contributions to our postretirement plans in 2024. However, the foregoing estimates of 2024 contributions to our pension and postretirement plans are subject to change as a result of changes in tax and other benefit laws, changes in interest rates and asset performance significantly above or below the assumed long-term rate of return for each respective plan.
Note 9. Earnings per Share
We calculated basic and diluted earnings per share (“EPS”) using the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Net earnings | | $ | 8,225 | | | $ | 6,070 | | | $ | 2,293 | | | $ | 2,166 | |
| Less: Distributed and undistributed earnings attributable to share-based awards | | (20) | | | (12) | | | (6) | | | (5) | |
| Earnings for basic and diluted EPS | | $ | 8,205 | | | $ | 6,058 | | | $ | 2,287 | | | $ | 2,161 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Weighted-average shares for basic and diluted EPS | | 1,726 | | | 1,780 | | | 1,703 | | | 1,773 | |
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in our EPS calculation pursuant to the two-class method.
Note 10. Other Comprehensive Earnings/Losses
Changes in each component of accumulated other comprehensive losses, net of deferred income taxes, attributable to Altria were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, 2024 |
| (in millions) | | Benefit Plans | | ABI | | Currency
Translation
Adjustments and Other | | Accumulated
Other
Comprehensive
Losses |
| Balances, December 31, 2023 | | $ | (1,493) | | | $ | (1,195) | | | $ | 15 | | | $ | (2,673) | |
| | | | | | | | |
Other comprehensive earnings (losses) before reclassifications | | — | | | (180) | | | (4) | | | (184) | |
| Deferred income taxes | | — | | | 38 | | | — | | | 38 | |
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | | — | | | (142) | | | (4) | | | (146) | |
| | | | | | | | |
| Amounts reclassified to net earnings | | (5) | | | 258 | | | — | | | 253 | |
| Deferred income taxes | | 1 | | | (52) | | | — | | | (51) | |
| Amounts reclassified to net earnings, net of deferred income taxes | | (4) | | | 206 | | | — | | | 202 | |
| | | | | | | | |
| Other comprehensive earnings (losses), net of deferred income taxes | | (4) | | | 64 | | (1) | (4) | | | 56 | |
| | | | | | | | |
| Balances, September 30, 2024 | | $ | (1,497) | | | $ | (1,131) | | | $ | 11 | | | $ | (2,617) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2024 |
| (in millions) | | Benefit Plans | | ABI | | Currency
Translation
Adjustments and Other | | Accumulated
Other
Comprehensive
Losses |
Balances, June 30, 2024 | | $ | (1,495) | | | $ | (801) | | | $ | 13 | | | $ | (2,283) | |
| | | | | | | | |
Other comprehensive earnings (losses) before reclassifications | | — | |
| (423) | | | (2) | | | (425) | |
| Deferred income taxes | | — | | | 92 | | | — | | | 92 | |
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | | — | | | (331) | | | (2) | | | (333) | |
| | | | | | | | |
| Amounts reclassified to net earnings | | (2) | | | 1 | | | — | | | (1) | |
| Deferred income taxes | | — | | | — | | | — | | | — | |
| Amounts reclassified to net earnings, net of deferred income taxes | | (2) | | | 1 | | | — | | | (1) | |
| | | | | | | | |
| Other comprehensive earnings (losses), net of deferred income taxes | | (2) | | | (330) | | (1) | (2) | | | (334) | |
| | | | | | | | |
| Balances, September 30, 2024 | | $ | (1,497) | | | $ | (1,131) | | | $ | 11 | | | $ | (2,617) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2023 |
| (in millions) | | Benefit Plans | | ABI | | Currency
Translation
Adjustments and Other | | Accumulated
Other
Comprehensive
Losses |
| Balances, December 31, 2022 | | $ | (1,436) | | | $ | (1,369) | | | $ | 34 | | | $ | (2,771) | |
| | | | | | | | |
Other comprehensive earnings (losses) before reclassifications | | — | | | 388 | | | 14 | | | 402 | |
| Deferred income taxes | | — | | | (82) | | | — | | | (82) | |
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | | — | | | 306 | | | 14 | | | 320 | |
| | | | | | | | |
| Amounts reclassified to net earnings | | (21) | | | (5) | | | — | | | (26) | |
| Deferred income taxes | | 5 | | | 1 | | | — | | | 6 | |
| Amounts reclassified to net earnings, net of deferred income taxes | | (16) | | | (4) | | | — | | | (20) | |
| | | | | | | | |
| Other comprehensive earnings (losses), net of deferred income taxes | | (16) | | | 302 | | (1) | 14 | | | 300 | |
| | | | | | | | |
| Balances, September 30, 2023 | | $ | (1,452) | | | $ | (1,067) | | | $ | 48 | | | $ | (2,471) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, 2023 |
| (in millions) | | Benefit Plans | | ABI | | Currency
Translation
Adjustments and Other | | Accumulated
Other
Comprehensive
Losses |
Balances, June 30, 2023 | | $ | (1,447) | | | $ | (1,303) | | | $ | 41 | | | $ | (2,709) | |
| | | | | | | | |
Other comprehensive earnings (losses) before reclassifications | | — | | | 316 | | | 7 | | | 323 | |
| Deferred income taxes | | — | | | (69) | | | — | | | (69) | |
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes | | — | | | 247 | | | 7 | | | 254 | |
| | | | | | | | |
| Amounts reclassified to net earnings | | (7) | | | (14) | | | — | | | (21) | |
| Deferred income taxes | | 2 | | | 3 | | | — | | | 5 | |
| Amounts reclassified to net earnings, net of deferred income taxes | | (5) | | | (11) | | | — | | | (16) | |
| | | | | | | | |
| Other comprehensive earnings (losses), net of deferred income taxes | | (5) | | | 236 | | (1) | 7 | | | 238 | |
| | | | | | | | |
| Balances, September 30, 2023 | | $ | (1,452) | | | $ | (1,067) | | | $ | 48 | | | $ | (2,471) | |
(1) Primarily reflects our share of ABI’s currency translation adjustments and the impact of our designated net investment hedges related to our investment in ABI. For further discussion of designated net investment hedges, see Note 7. Financial Instruments.
Pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Benefit Plans: (1) | | | | | | | | |
| Net loss | | $ | 21 | | | $ | 5 | | | $ | 7 | | | $ | 2 | |
| Prior service cost (credit) | | (26) | | | (26) | | | (9) | | | (9) | |
| | (5) | | | (21) | | | (2) | | | (7) | |
ABI (2) | | 258 | | | (5) | | | 1 | | | (14) | |
| | | | | | | | |
| Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings | | $ | 253 | | | $ | (26) | | | $ | (1) | | | $ | (21) | |
(1) Amounts are included in net periodic benefit income, excluding service cost. For further details, see Note 8. Benefit Plans.
(2) Amounts are included in (income) losses from investments in equity securities. For the nine months ended September 30, 2024, as a result of the ABI Transaction, we reclassified $243 million from our accumulated other comprehensive losses of which $285 million is directly attributable to ABI, partially offset by $42 million from our designated net investment hedges related to our investment in ABI. For further information, see Note 6. Investments in Equity Securities and Note 7. Financial Instruments.
Note 11. Segment Reporting
At September 30, 2024, our reportable segments were (i) smokeable products, consisting of combustible cigarettes and machine-made large cigars; and (ii) oral tobacco products, consisting of MST, snus and oral nicotine pouches.
Our all other category included (i) NJOY (beginning June 1, 2023); (ii) Horizon; (iii) Helix International; and (iv) other business activities, all of which consists of research and development (“R&D”) expense related to certain new product platforms and technologies.
Our chief operating decision maker (“CODM”) reviews operating companies income (loss) (“OCI”) to evaluate the performance of, and allocate resources to, our segments. OCI for our segments is defined as operating income before general corporate expenses and amortization of intangibles. Interest and other debt expense, net, along with net periodic benefit income, excluding service cost, 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 our CODM.
Segment data were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Net revenues: | | | | | | | | |
| Smokeable products | | $ | 15,941 | | | $ | 16,482 | | | $ | 5,540 | | | $ | 5,572 | |
| Oral tobacco products | | 2,084 | | | 1,993 | | | 722 | | | 685 | |
| All other | | 19 | | | 33 | | | (3) | | | 24 | |
| Net revenues | | $ | 18,044 | | | $ | 18,508 | | | $ | 6,259 | | | $ | 6,281 | |
| Earnings before income taxes: | | | | | | | | |
| OCI: | | | | | | | | |
| Smokeable products | | $ | 8,183 | | | $ | 8,092 | | | $ | 2,937 | | | $ | 2,743 | |
| Oral tobacco products | | 996 | | | 1,314 | | | 464 | | | 455 | |
| All other | | (291) | | | (17) | | | (119) | | | (4) | |
| Amortization of intangibles | | (102) | | | (87) | | | (38) | | | (42) | |
| General corporate expenses | | (427) | | | (551) | | | (92) | | | (63) | |
| Operating income | | 8,359 | | | 8,751 | | | 3,152 | | | 3,089 | |
| Interest and other debt expense, net | | 782 | | | 758 | | | 267 | | | 272 | |
| Net periodic benefit income, excluding service cost | | (74) | | | (95) | | | (25) | | | (33) | |
| (Income) losses from investments in equity securities | | (530) | | | (105) | | | (116) | | | (58) | |
Gain on the sale of IQOS System commercialization rights | | (2,700) | | | — | | | — | | | — | |
| | | | | | | | |
| Earnings before income taxes | | $ | 10,881 | | | $ | 8,193 | | | $ | 3,026 | | | $ | 2,908 | |
The comparability of OCI for our reportable segments was affected by the following:
▪Non-Participating Manufacturer (“NPM”) Adjustment Items: We recorded net pre-tax income for NPM adjustment items as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Smokeable products segment | | $ | (29) | | | $ | (15) | | | $ | (23) | | | $ | (15) | |
| Interest and other debt expense, net | | 2 | | | — | | | 2 | | | — | |
| Total | | $ | (27) | | | $ | (15) | | | $ | (21) | | | $ | (15) | |
| | | | | | | | |
| | | | | | | | |
We recorded the amounts shown in the table above in our smokeable products segment as reductions to cost of sales in our condensed consolidated statements of earnings, which resulted in increased OCI in our smokeable products segment. NPM adjustment items result from the resolutions of certain disputes with states and territories related to the NPM adjustment provision under the Master Settlement Agreement (“NPM Adjustment Items”). For further discussion, see Health Care Cost Recovery Litigation in Note 14. Contingencies.
▪Asset Impairment: We recorded a non-cash, pre-tax impairment of the Skoal trademark of $354 million for the nine months ended September 30, 2024 in our oral tobacco products segment. For further discussion, see Note 5. Goodwill and Other Intangible Assets, net.
▪Tobacco and Health and Certain Other Litigation Items: We recorded pre-tax charges related to tobacco and health and certain other litigation items as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Smokeable products segment | | $ | 59 | | | $ | 65 | | | $ | 21 | | | $ | 13 | |
| General corporate expenses | | 30 | | | 348 | | | — | | | 10 | |
| Interest and other debt expense, net | | 1 | | | 11 | | | 1 | | | — | |
| Total | | $ | 90 | | | $ | 424 | | | $ | 22 | | | $ | 23 | |
| | | | | | | | |
| | | | | | | | |
We recorded the amounts shown in the table above in our smokeable products segment and general corporate expenses in marketing, administration and research costs in our condensed consolidated statements of earnings. For further discussion, see Note 14. Contingencies.
▪Other Business Activities: Our R&D investments have evolved and shifted from our traditional tobacco businesses to new product platforms and technologies. Beginning January 1, 2024, our R&D expense is aligned with how our CODM now evaluates performance results and allocates resources for segment reporting. For the nine and three months ended September 30, 2024, using this approach, we recorded the majority of our pre-tax R&D expense of $165 million and $61 million, respectively, in our all other category, which now includes other business activities related to R&D expense for certain new product platforms and technologies. For the nine and three months ended September 30, 2023, the majority of our pre-tax R&D expense of $149 million and $51 million, respectively, was recorded in our smokeable products segment.
Note 12. Debt
Short-term Borrowings and Borrowing Arrangements
At September 30, 2024 and December 31, 2023, we had no short-term borrowings.
In June 2023, we entered into a $2.0 billion term loan facility and borrowed the full amount available to fund a portion of the cash payments at the closing of the NJOY Transaction. In July 2023, upon receipt of the remaining payment of approximately $1.8 billion (including interest) from PMI related to the sale of the IQOS System commercialization rights, we repaid the term loan facility in full.
We have a $3.0 billion senior unsecured 5-year revolving credit agreement (“Credit Agreement”) that expires on October 24, 2028 and includes an option, subject to certain conditions, for us to extend the term for two additional one-year periods. We intend to use any borrowings under our Credit Agreement for general corporate purposes.
At September 30, 2024, we had availability under our Credit Agreement for borrowings of up to an aggregate principal amount of $3.0 billion.
Pricing for interest and fees under our Credit Agreement may be modified in the event of a change in the rating of our long-term senior unsecured debt. We expect interest rates on borrowings under our Credit Agreement to be based on the Term Secured Overnight Financing Rate, plus a percentage based on the higher of the ratings of our long-term senior unsecured debt from Moody’s Investors Service, Inc. and Standard & Poor’s Financial Services LLC. The applicable percentage for borrowings under our Credit Agreement at September 30, 2024 was 1.0% based on our long-term senior unsecured debt ratings on that date. Our Credit Agreement does not include any other rating triggers or any provisions that could require the posting of collateral.
Our Credit Agreement includes various covenants, one of which requires us to maintain a ratio of Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) to Consolidated Interest Expense of not less than 4.0 to 1.0, calculated as of the end of the applicable quarter on a rolling four quarters basis. At September 30, 2024, we were in compliance with our covenants in our Credit Agreement. The terms “Consolidated EBITDA” and “Consolidated Interest Expense,” each as defined in our Credit Agreement, include certain adjustments.
PM USA guarantees any borrowings under our Credit Agreement and any amounts outstanding under our commercial paper program.
Long-term Debt
The aggregate carrying value of our total long-term debt at September 30, 2024 and December 31, 2023 was $25.2 billion and $26.2 billion, respectively.
During the first quarter of 2024, we repaid in full at maturity our 4.000% and 3.800% senior unsecured notes in the aggregate principal amounts of $776 million and $345 million, respectively.
At September 30, 2024 and December 31, 2023, accrued interest on long-term debt of $209 million and $410 million, respectively, was included in other accrued liabilities on our condensed consolidated balance sheets.
For a discussion of the fair value of our long-term debt and the designation of our Euro denominated senior unsecured notes as a net investment hedge of our investment in ABI, see Note 7. Financial Instruments.
Note 13. Income Taxes
Earnings before income taxes, provision for income taxes and income tax rates consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, | | For the Three Months Ended September 30, |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Earnings before income taxes | | $ | 10,881 | | $ | 8,193 | | $ | 3,026 | | $ | 2,908 |
| Provision for income taxes | | 2,656 | | 2,123 | | 733 | | 742 |
| Income tax rate | | 24.4 | % | | 25.9 | % | | 24.2 | % | | 25.5 | % |
Our income tax rate for the nine months ended September 30, 2024 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense, partially offset by an income tax benefit from the partial release of a valuation allowance recorded against a deferred tax asset associated with our JUUL-related losses. The valuation allowance release was due to our capital gain on the ABI Transaction. Our income tax rate for the three months ended September 30, 2024 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense.
Our income tax rate for the nine months ended September 30, 2023 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense and a valuation allowance recorded against a deferred tax asset related to the disposition of our former investment in JUUL. Our income tax rate for the three months ended September 30, 2023 differs from the U.S. federal statutory rate of 21%, due primarily to state tax expense.
The following chart provides a reconciliation of the beginning and ending valuation allowances for the nine months ended September 30, 2024:
| | | | | | | | |
| (in millions) | | |
| Balance at beginning of year | | $ | 2,256 | |
| Additions to valuation allowance charged to income tax expense | | 7 | |
| Releases of valuation allowance credited to income tax benefit | | (94) | |
| Foreign currency translation | | 1 | |
Reductions to valuation allowance due to NJOY Transaction (no impact to earnings) | | (4) | |
| Balance at end of period | | $ | 2,166 | |
We determine deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We determine the realizability of deferred tax assets based on the weight of all available positive and negative evidence. In reaching this determination, we consider the character of the assets and the possible sources of taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. There is a potential that sufficient positive evidence may be available in future periods to cause us to further reduce or eliminate the valuation allowance on certain deferred tax assets. That change to the valuation allowance would result in the recognition of previously unrecognized deferred tax assets and a decrease in income tax expense in the period the release would be recorded.
The changes in the valuation allowances for the nine months ended September 30, 2024 were due primarily to the ABI Transaction. The cumulative valuation allowance at September 30, 2024 was primarily attributable to deferred tax assets recorded in connection with the unrealized capital losses related to our former investment in JUUL and our investment in Cronos. As we continue to evaluate all sources of potential income that may become available to utilize these losses, our valuation allowance position may change. For further discussion of the ABI Transaction, see Note 6. Investments in Equity Securities.
Agreement with the IRS
In October 2024, we entered into an agreement with the IRS regarding the tax treatment of the $6.4 billion ordinary loss we recognized in 2023 for cash tax purposes with respect to a portion of our tax basis associated with our former investment in JUUL. We fully reserved for the tax benefit associated with this ordinary loss by recording an unrecognized tax benefit in
2023. As a result of the agreement, we expect to record a tax benefit of approximately $0.9 billion in our consolidated statement of earnings in the fourth quarter of 2024 for the reversal of the unrecognized tax benefit, which results in the partial release of a valuation allowance against our JUUL-related losses.
Consistent with the terms of the agreement, we claimed a $4.0 billion ordinary loss and a $2.4 billion capital loss on our 2023 tax return. After giving effect to the agreement and $1.7 billion of capital losses previously utilized against capital gains related to the IQOS Transaction, we have $5.6 billion (which includes $0.9 billion of capital loss carryforwards available to offset capital gains through 2028) of the $12.8 billion tax loss related to our former investment in JUUL remaining to offset future potential capital gains. For financial statement purposes, none of the tax benefit for the $5.6 billion has been recognized.
Note 14. Contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various United States and foreign jurisdictions against Altria and certain of our subsidiaries, including PM USA and NJOY, as well as our indemnitees. Various types of claims may be raised in these proceedings, including product liability, unfair trade practices, antitrust, income tax liability, contraband shipments, patent infringement, employment matters, environmental matters, claims alleging violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), claims for contribution and claims of competitors, shareholders or distributors. Legislative action, such as changes to tort law, also may expand the types of claims and remedies available to plaintiffs.
Litigation is subject to uncertainty, and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related and other litigation are or can be significant and, in certain cases, have ranged in the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrates that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. In certain cases, plaintiffs claim that defendants’ liability is joint and several. In such cases, we 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, under certain circumstances, we may have to pay more than our proportionate share of any bonding- or judgment-related amounts. Furthermore, in those cases where plaintiffs are successful, we also may be required to pay interest and attorneys’ fees.
Although PM USA historically has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico limit the dollar amount of bonds or require no bond at all. However, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases, and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. States, including Florida, also may seek to repeal or alter bond cap statutes through legislation. Although we cannot predict the outcome of such challenges, it is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.
We record provisions in our condensed consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except to the extent discussed elsewhere in this Note 14. Contingencies: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending cases; and (iii) accordingly, management has not provided any amounts in our condensed consolidated financial statements for unfavorable outcomes, if any. Litigation defense costs are expensed as incurred.
We have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. We believe, and have been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts. We have defended, and will continue to defend, vigorously against litigation challenges. However, we may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.
Judgments Paid and Provisions for Tobacco and Health (Including Engle Progeny Litigation) and Certain Other Litigation Items: The changes in our accrued liability for tobacco and health and certain other litigation items, including related interest costs, for the periods specified below are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | For the Three Months Ended September 30, | | |
| (in millions) | 2024 | | 2023 | | 2024 | | 2023 | | |
| Accrued liability for tobacco and health and certain other litigation items at beginning of period | $ | 346 | | | $ | 71 | | | $ | 151 | | | $ | 381 | | | |
| Pre-tax charges for: | | | | | | | | | |
Tobacco and health and certain other litigation (1) | 59 | |
| 75 | | | 21 | | | 23 | | | |
Shareholder derivative lawsuits (2) | — | | | 98 | | | — | | | — | | | |
JUUL-related settlements (3) | 30 | | | 240 | | | — | | | — | | | |
| Related interest costs | 1 | | | 11 | | | 1 | | | — | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Payments | (300) | | | (122) | | | (37) | | | (31) | | | |
| Accrued liability for tobacco and health and certain other litigation items at end of period | $ | 136 | | | $ | 373 | | | $ | 136 | | | $ | 373 | | | |
| | | | | | | | | |
(1) Includes judgments, settlements and fee disputes associated with tobacco and health and certain other litigation.
(2) See Federal and State Shareholder Derivative Lawsuits below for a discussion of the settlement of the federal and state shareholder derivative lawsuits.
(3) Includes the settlement of certain e-vapor product litigation relating to JUUL e-vapor products. See E-vapor Product Litigation below for a discussion of these settlements.
The accrued liability for tobacco and health and certain other litigation items, including related interest costs, was included in accrued liabilities and other liabilities on our condensed consolidated balance sheets. Pre-tax charges except for related interest costs were included in marketing, administration and research costs in our condensed consolidated statements of earnings. Pre-tax charges for related interest costs were included in interest and other debt expense, net in our condensed consolidated statements of earnings.
After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, since October 2004, PM USA has paid judgments and settlements (including related costs and fees) totaling approximately $1.1 billion and interest totaling approximately $242 million as of September 30, 2024. These amounts include payments for Engle progeny judgments (and related costs and fees) totaling approximately $449 million and related interest totaling approximately $61 million.
Security for Judgments: To obtain stays of judgments pending appeal, PM USA has posted various forms of security. As of September 30, 2024, PM USA has posted appeal bonds totaling approximately $31 million, which have been collateralized with restricted cash and are included in assets on our condensed consolidated balance sheets.
Overview of Tobacco-Related Litigation
Types and Number of U.S. Cases: Claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits; (iii) e-vapor cases alleging violation of RICO, fraud, failure to warn, design defect, negligence, antitrust, patent infringement and unfair trade practices; and (iv) other tobacco-related litigation described below. Plaintiffs’ theories of recovery and the defenses raised in tobacco-related litigation are discussed below.
The table below lists the number of certain tobacco-related cases pending in the United States against us as of:
| | | | | | | | | | | | | | | | | |
| October 28, 2024 | | October 23, 2023 | | October 24, 2022 |
Individual Smoking and Health Cases (1) | 178 | | 167 | | 161 |
Health Care Cost Recovery Actions (2) | 1 | | 1 | | 1 |
| E-vapor Cases | 75 (3) | | 5,177 | | 4,351 |
Other Tobacco-Related Cases (4) | 3 | | 3 | | 3 |
(1) Includes as of October 28, 2024, 19 cases filed in Illinois, 17 cases filed in New Mexico, 74 cases filed in Massachusetts, 11 cases filed in Oregon, two cases filed in Hawaii and 26 non-Engle cases filed in Florida. Does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle class (these Engle progeny cases are discussed below in Smoking and Health Litigation - Engle Progeny Cases). Also does not include approximately 146 Broin cases. For further discussion of the Broin cases, see Other Smoking and Health Class Actions below.
(2) See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below.
(3) In May 2023, we reached agreement on terms to resolve the majority of the Multidistrict Litigation lawsuits, and, in March 2024, the court granted final approval of the settlement. Pending final dismissal of these cases, as of October 28, 2024, the remaining cases include 20 individual cases that opted out of the settlement, 16 class action lawsuits (three class action lawsuits pending in Canada and 13 class actions participating in the settlement but pending dismissal) and one individual state court case relating to the Multidistrict Litigation. Also includes 38 cases brought by Native American tribes that are subject to a separate settlement and are pending dismissal. For further discussion of the Multidistrict Litigation settlement and the settlement of the cases brought by Native American tribes, see E-vapor Product Litigation below.
(4) Includes as of October 28, 2024, one inactive smoking and health case alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs and two inactive class action lawsuits alleging that use of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment, breach of warranty or violations of RICO.
International Tobacco-Related Cases: As of October 28, 2024, (i) Altria is named as a defendant in three e-vapor class action lawsuits in Canada; (ii) PM USA is a named defendant in 10 health care cost recovery actions in Canada, eight of which also name Altria as a defendant; and (iii) PM USA and Altria are named as defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement (defined below) between Altria and PMI that provides for indemnities for certain liabilities concerning tobacco products.
Tobacco-Related Cases Set for Trial: As of October 28, 2024, one Engle progeny case, one individual smoking and health case and no e-vapor cases are set for trial through December 31, 2024. Trial dates are subject to change.
Trial Results: Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 84 tobacco-related cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 53 of the 84 cases. Of the 31 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 27 have reached final resolution.
See Smoking and Health Litigation - Engle Progeny Trial Results below for a discussion of verdicts in state and federal Engle progeny cases involving PM USA as of October 28, 2024.
Smoking and Health Litigation
Overview: Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of unfair trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health cases seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, statutes of limitations and preemption by the Federal Cigarette Labeling and Advertising Act.
Non-Engle Progeny Litigation: Summarized below are the non-Engle progeny smoking and health cases pending in which verdicts were returned in favor of plaintiff and against PM USA and remain outstanding or cases concluded within the last 12 months where PM USA paid a final judgment. Charts listing certain verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.
Taylor: In April 2024, a jury in an Oregon state court returned a verdict in favor of plaintiff and against PM USA, awarding less than $1 million in compensatory damages. The jury found that plaintiff was not entitled to punitive damages. Plaintiff has appealed the judgment, and the appeal remains pending. PM USA filed post-trial motions, which were denied, and PM USA
has noticed an appeal from the final judgment and the trial court’s denial of the post-trial motions. The parties filed a motion to stay execution pending appeal, and the court has stayed execution of the final judgment pending conclusion of appellate activity.
Ricapor-Hall: In August 2023, a jury in a Hawaii state court returned a verdict in favor of plaintiff and against PM USA, awarding $6 million in compensatory damages and $8 million in punitive damages. In October 2023, the court entered judgment against PM USA for $11 million, having reduced the compensatory damages award to $3 million based on the jury’s finding on comparative fault and a set-off against plaintiff’s settlements with other defendants. We filed post-trial motions challenging the verdict, which were denied in March 2024. In April 2024, we filed a notice of appeal and a motion to stay execution pending appeal, and the court has stayed execution of the final judgment pending resolution of PM USA’s appeal rights. PM USA’s appeal remains pending, and plaintiff has noticed a cross-appeal.
Woodley: In February 2023, a jury in a Massachusetts state court returned a verdict in favor of plaintiff and against PM USA, awarding $5 million in compensatory damages. There was no claim for punitive damages. Following the denial of PM USA’s post-trial motions, PM USA appealed the judgment to the Appeals Court of Massachusetts, and the appeal remains pending.
Fontaine: In September 2022, a jury in a Massachusetts state court returned a verdict in favor of plaintiff and against PM USA, awarding approximately $8 million in compensatory damages and $1 billion in punitive damages. In September 2023, the court denied PM USA’s motion for a new trial and partially granted PM USA’s motion for remittitur, reducing the punitive damages award to $56 million. In December 2023, the court entered a final judgment awarding plaintiff $8 million in compensatory damages, $56 million in punitive damages and prejudgment interest. PM USA has noticed an appeal to the Appeals Court of Massachusetts, and the appeal remains pending.
Federal Government’s Lawsuit: See Health Care Cost Recovery Litigation - Federal Government’s Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America health care cost recovery case.
Engle Progeny Cases: Engle progeny cases are individual smoking and health lawsuits filed by Florida resident plaintiffs against one or more cigarette manufacturer defendants. The lawsuits arose following the Florida Supreme Court’s decertification of the class in Engle, et. al. v. R.J. Reynolds Tobacco Co., et. al., a smoking and health class action lawsuit filed in Florida state court against multiple defendants, including PM USA, in which the jury returned a verdict in favor of the plaintiff class and the trial court assessed punitive damages against the defendants. In July 2006, the Florida Supreme Court mandated that the trial court’s punitive damages award be vacated, that the class approved by the trial court be decertified and that members of the decertified class could file individual actions against defendants within one year of issuance of the mandate. Plaintiffs in Engle progeny lawsuits are entitled to rely on certain liability findings from the class action lawsuit, substantially reducing each plaintiff’s burden of proof. These liability findings stipulate: (i) that smoking causes various diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants’ cigarettes were defective and unreasonably dangerous; (iv) that defendants concealed or omitted material information not otherwise known or available knowing that the material was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vi) that defendants sold or supplied cigarettes that were defective; and (vii) that defendants were negligent.
Pending Engle Progeny Cases: The deadline for filing Engle progeny cases expired in January 2008, at which point a total of approximately 9,300 federal and state claims were pending. As of October 28, 2024, approximately 223 state court cases were pending against PM USA or Altria asserting individual claims by or on behalf of approximately 256 state court plaintiffs. Because of a number of factors, including docketing delays, duplicated filings and overlapping dismissal orders, these numbers are estimates. Each federal Engle progeny case has been resolved.
Engle Progeny Trial Results: As of October 28, 2024, 146 federal and state Engle progeny cases involving PM USA have resulted in verdicts. Eighty-eight were returned in favor of plaintiffs, five of which have been reversed post-trial or on appeal and remain pending. Fifty-eight verdicts were returned in favor of PM USA, two of which have been reversed post-trial or on appeal and remain pending. In addition, there have been a number of mistrials, only some of which have resulted in new trials as of October 28, 2024.
Post-trial activity in a case can result in final resolution that differs from the initial verdict. In many cases, parties have appealed either compensatory or punitive damages awards or both. Courts also have increased and decreased the amounts of punitive damages juries have awarded, declared mistrials and vacated judgments, in whole or in part, with respect to compensatory and punitive damages awards. Initial verdicts have been reversed in whole or in part on appeal or following retrial. Juries have returned verdicts in favor of or against PM USA awarding no damages. In cases where juries returned verdicts against PM USA awarding no damages, some trial courts have decided to award plaintiff damages notwithstanding the verdict. Cases also have been dismissed with or without prejudice before or after a verdict.
The charts below list the verdicts in and post-trial status of certain Engle progeny cases in which verdicts were returned in favor of plaintiffs. The first chart lists cases that are pending as of October 28, 2024 where PM USA has determined an unfavorable outcome is not probable and the amount of loss cannot be reasonably estimated, and the second chart lists cases that have concluded in the past 12 months. In this Note 14. Contingencies, references to “R.J. Reynolds” are to R.J. Reynolds Tobacco Company. Unless otherwise noted for a particular case, the jury’s award for compensatory damages will not be reduced by any finding of plaintiff’s comparative fault. Further, the damages noted reflect adjustments based on post-trial or appellate rulings.
Currently Pending Engle Cases with Verdicts Against PM USA
(rounded to nearest $ million)
| | | | | | | | | | | | | | | | | | | | |
| Plaintiff | Verdict Date | Defendant(s) | Court | Compensatory Damages(1) | Punitive Damages
(PM USA) | Post-Trial Status |
| Garcia | June 2024 | PM USA | Miami-Dade | $2 million | $10 million | Appeals to the Third District Court of Appeal pending. |
| Chacon | October 2023 | PM USA | Miami-Dade | <$1 million | <$1 million | Appeals to the Third District Court of Appeal pending. |
| Lipp | September 2021 | PM USA | Miami-Dade | $15 million | $28 million | Third District Court of Appeal reversed and remanded for a new trial. Plaintiff's motion for rehearing pending. |
| McCall | March 2019 | PM USA | Broward | <$1 million (<$1 million PM USA) | <$1 million | Appeal to the Fourth District Court of Appeal pending. |
Kaplan (McLaughlin) | July 2018 | PM USA and R.J. Reynolds | Broward | $2 million | $0 | Appeal to the Fourth District Court of Appeal pending. |
Cooper (Blackwood) | September 2015 | PM USA and R.J. Reynolds | Broward | $5 million (<$1 million PM USA) | $0 | Retrial of punitive damages claim pending. |
(1) PM USA’s portion of the compensatory damages award is noted parenthetically where the court has ruled that comparative fault applies.
Engle Cases Concluded Within Past 12 Months
(rounded to nearest $ million)
| | | | | | | | | | | | | | |
| Plaintiff | Verdict Date | Defendant(s) | Court | Payment Amount for Damages (if any) |
| Chadwell | September 2018 | PM USA | Miami-Dade | $2 million |
| Schertzer | April 2022 | PM USA and R.J. Reynolds | Miami-Dade | $4 million |
| Hoffman | January 2023 | PM USA | Miami-Dade | $3 million |
| Levine | September 2022 | PM USA and R.J. Reynolds | Miami-Dade | $1 million |
| Duignan | February 2020 | PM USA and R.J. Reynolds | Pinellas | $4 million |
| Ferraiuolo | November 2023 | PM USA and R.J. Reynolds | Duval | <$1 million |
| Garcia | May 2021 | PM USA | Miami-Dade | $3 million |
Other Smoking and Health Class Actions: Since the dismissal in May 1996 of a purported nationwide class action brought on behalf of allegedly addicted smokers, plaintiffs have filed numerous putative smoking and health class action suits in various state and federal courts. In general, these cases have purported to be brought on behalf of residents of a particular state or states (although a few cases have purported to be nationwide in scope) and have raised addiction claims and, in many cases, claims of physical injury as well.
Class certification has been denied or reversed by courts in 61 smoking and health class actions involving PM USA in Arkansas (1), California (1), Delaware (1), the District of Columbia (2), Florida (2), Illinois (3), Iowa (1), Kansas (1), Louisiana (1), Maryland (1), Michigan (1), Minnesota (1), Nevada (29), New Jersey (6), New York (2), Ohio (1), Oklahoma (1), Oregon (1), Pennsylvania (1), Puerto Rico (1), South Carolina (1), Texas (1) and Wisconsin (1). See Certain Other Tobacco-Related Litigation below for a discussion of “Lights” and “Ultra Lights” class action cases and medical monitoring class action cases pending against PM USA.
As of October 28, 2024, PM USA and Altria are named as defendants, along with other cigarette manufacturers, in seven class actions filed in the Canadian provinces of Alberta, Manitoba, Nova Scotia, Saskatchewan, British Columbia and Ontario. In Saskatchewan, British Columbia (two separate cases) and Ontario, plaintiffs seek class certification on behalf of individuals who suffer or have suffered from various diseases, including chronic obstructive pulmonary disease, emphysema, heart disease or cancer, after smoking defendants’ cigarettes. In the actions filed in Alberta, Manitoba and Nova Scotia, plaintiffs seek certification of classes of all individuals who smoked defendants’ cigarettes. In March 2019, all of these class actions were stayed as a result of three Canadian tobacco manufacturers (none of which is related to us) seeking protection under Canada’s
Companies’ Creditors Arrangement Act (which is similar to Chapter 11 bankruptcy in the United States). The companies entered into these proceedings following a Canadian appellate court upholding two smoking and health class action verdicts against those companies totaling approximately CAD $13 billion. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and PMI, which provides for indemnities for certain liabilities concerning tobacco products.
As of October 28, 2024, PM USA is named as a defendant in approximately 146 cases brought by flight attendants against United States cigarette manufacturers seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida that was settled in 1997 (Broin). The terms of the court-approved settlement in that case allowed class members to file individual lawsuits seeking compensatory damages but prohibited them from seeking punitive damages. Class members were prohibited from filing individual lawsuits after 2000 under the court-approved settlement. In July 2024, we reached agreement on terms to resolve approximately 627 individual Broin lawsuits. Accordingly, in the second quarter of 2024, we recorded a pre-tax provision of $4 million related to the settlement of these cases, which we paid in the third quarter of 2024.
Health Care Cost Recovery Litigation
Overview: In the health care cost recovery litigation, governmental entities seek reimbursement of health care cost expenditures allegedly caused by tobacco products and, in some cases, of future expenditures and damages. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.
Although there have been some decisions to the contrary, most judicial decisions in the United States have dismissed all or most health care cost recovery claims against cigarette manufacturers. Nine federal circuit courts of appeals and eight state appellate courts, relying primarily on grounds that plaintiffs’ claims were too remote, have ordered or affirmed dismissals of health care cost recovery actions. The U.S. Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five federal circuit courts of appeal.
In addition to the cases brought in the United States, health care cost recovery actions have been brought against tobacco industry participants, including PM USA and Altria, in Canada (10 cases), and other entities have stated that they are considering filing such actions.
Since the beginning of 2008, the Canadian Provinces of British Columbia, New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia have brought health care reimbursement claims against cigarette manufacturers. PM USA is named as a defendant in the British Columbia and Quebec cases, while both Altria and PM USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan, Prince Edward Island and Nova Scotia cases. The Nunavut Territory and Northwest Territory have passed legislation permitting similar claims, but lawsuits based on this legislation have not been filed. All of these cases have been stayed pending resolution of proceedings in Canada involving three tobacco manufacturers (none of which are affiliated with us) under the Companies’ Creditors Arrangement Act discussed above. See Smoking and Health Litigation - Other Smoking and Health Class Actions above for a discussion of these proceedings. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria and PMI that provides for indemnities for certain liabilities concerning tobacco products.
Settlements of Health Care Cost Recovery Litigation: In November 1998, PM USA and certain other tobacco product manufacturers entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia and certain United States territories to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other tobacco product manufacturers had previously entered into agreements to settle similar claims brought by Mississippi, Florida, Texas and Minnesota (together with the MSA, the “State Settlement Agreements”). The State Settlement Agreements require that the original participating manufacturers or “OPMs” (now PM USA, R.J. Reynolds and, with respect to certain brands, ITG Brands, LLC (“ITG”)) make annual payments of approximately $10.4 billion, subject to adjustments for several factors, including inflation, market share and industry volume. In addition, the OPMs are required to make quarterly payments settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million, on a pro rata basis based on market share. These quarterly payments will end in the fourth quarter of 2024. For the three months ended September 30, 2024 and 2023, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $900 million for each period. For the nine months ended September 30, 2024 and 2023, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements was approximately $2.7 billion and $2.8 billion, respectively. These amounts include PM USA’s estimate of amounts related to NPM Adjustments discussed below.
Non-Participating Manufacturer (“NPM”) Adjustment Disputes: The “NPM Adjustment” is a reduction in MSA payments made by the OPMs and those manufacturers that are subsequent signatories to the MSA (collectively, the “participating
manufacturers” or “PMs”) that applies if the PMs collectively lose at least a specified level of market share to non-participating manufacturers since 1997, subject to certain conditions and defenses. The applicability of this reduction has been subject to certain disputes, some of which have been resolved via settlement, as discussed below.
Settlements of NPM Adjustment Disputes.
▪Multi-State Settlement. As of January 2022, a total of 36 states and territories had settled NPM Adjustment disputes relating to varying periods of time. In March 2022, August 2023 and February 2024, Illinois, Iowa and Idaho, respectively, joined the multi-state settlement, bringing the total number of states and territories that have joined the multi-state settlement to 39. In the first quarter of 2022, PM USA recorded $80 million, $20 million of which related to the 2019 through 2021 “transition years,” as a reduction in cost of sales as a result of Illinois joining the multi-state settlement. As a result of Iowa joining the multi-state settlement, PM USA will receive approximately $19 million for 2005 through 2022, $4 million of which relates to the 2020 through 2022 “transition years.” Accordingly, PM USA recorded $19 million as a reduction in cost of sales in the third quarter of 2023. As a result of Idaho joining the multi-state settlement, PM USA will receive approximately $8 million for 2005 through 2023, $2 million of which relates to the 2021 through 2023 “transition years.” In connection with this development, PM USA recorded $8 million as a reduction in cost of sales in the first quarter of 2024. Pursuant to the multi-state settlement, PM USA has received $1.37 billion since the first group of states entered the NPM Adjustment dispute settlement in 2014 and expects to receive annual credits applied against PM USA’s MSA payments through 2041.
▪New York Settlement. In 2015, PM USA entered into a separate NPM Adjustment settlement in which PM USA settled the NPM Adjustment disputes with New York in perpetuity. PM USA has received $572 million pursuant to the New York settlement and expects to receive annual credits applied against the MSA payments due to New York going forward.
▪Montana Settlement. In 2020, PM USA entered into a separate NPM Adjustment settlement in which PM USA settled the NPM Adjustment disputes with Montana through 2030, resulting in a payment from PM USA to Montana for an immaterial amount.
▪Massachusetts Settlement. In 2024, PM USA entered into a separate NPM Adjustment settlement in which PM USA settled the NPM Adjustment disputes with Massachusetts through 2011. As a result of this settlement, PM USA will receive $28 million. Accordingly, PM USA recorded $28 million as a reduction in costs of sales in the third quarter of 2024.
Continuing NPM Adjustment Disputes with States That Have Not Settled.
▪2004 NPM Adjustment. The PMs and the nine states that had not settled the NPM Adjustment disputes for 2004 participated in a multi-state arbitration. Iowa subsequently joined the multistate settlement in August 2023. The arbitration panel found three of the remaining eight states that have not settled the NPM Adjustment disputes, Washington, Missouri and New Mexico, were not diligent in the enforcement of their escrow statutes in 2004, and PM USA received approximately $52 million on account of the 2004 NPM Adjustment as a credit against its April 2023 MSA payment. PM USA recorded $44 million and $8 million in third quarter of 2021 and fourth quarter of 2022, respectively. Washington, Missouri and New Mexico have challenged those determinations in their respective state courts, and several issues remain to be resolved by the state trial and appellate courts that may affect the final amount of the 2004 NPM adjustment PM USA and other PMs will receive.
▪2005-2007 NPM Adjustments. The PMs and the six states that have not settled the NPM Adjustment disputes are currently arbitrating NPM Adjustment disputes before a single arbitration panel. The arbitration encompasses three years, 2005 through 2007, for five of the six states, and one year, 2005, for one state. As of October 28, 2024, the arbitration panel had issued decisions for Maryland, Washington and Wisconsin, finding Maryland and Wisconsin diligent for all three years and Washington not diligent for all three years. PM USA recorded $14 million as a reduction of costs of sales and $21 million as interest income in the fourth quarter of 2023 for its estimate of the minimum amount of the 2005 through 2007 NPM Adjustment it will receive.
▪Subsequent Years. No assurance can be given as to when proceedings for 2008 and subsequent years will be scheduled or the precise form those proceedings will take.
Other Disputes under the State Settlement Agreements: The payment obligations of the tobacco product manufacturers that are parties to the State Settlement Agreements, as well as the allocations of any NPM Adjustments and related settlements, have been and may continue to be affected by R.J. Reynolds’s acquisition of Lorillard Tobacco Company in 2015 and its related sale of certain cigarette brands to ITG (the “ITG transferred brands”). PM USA continues to dispute how the ITG transferred brands are treated in allocating the NPM Adjustments and profit adjustments under the State Settlement Agreements.
In December 2019, the State of Mississippi filed a motion in Mississippi state court seeking to enforce the Mississippi State Settlement Agreement against PM USA, R.J. Reynolds and ITG concerning the tax rates used in the annual calculation of the net operating profit adjustment payments starting in 2018. The Mississippi state court held a hearing in October 2021 and
issued a decision in June 2022 granting the State’s motion. PM USA appealed the court’s decision in June 2024. In September 2024, PM USA and Mississippi settled their dispute over the profit adjustment payments. Pursuant to the settlement, PM USA paid $7 million to Mississippi for 2018 through 2023. Accordingly, PM USA recorded $5 million of expense to cost of sales and $2 million of interest expense in the third quarter of 2024.
In May 2023, PM USA and R.J. Reynolds filed a motion in the United States District Court for the Eastern District of Texas seeking to enforce the Texas State Settlement Agreement against the State of Texas concerning the same tax rate issue raised by the State of Mississippi. The State of Texas filed a cross-motion to enforce, and the court found in favor of the State of Texas. As of October 28, 2024, the court had not made a determination on damages. PM USA intends to appeal.
In July 2024, the State of Minnesota filed a motion in Minnesota state court seeking to enforce the Minnesota State Settlement Agreement against PM USA, R.J. Reynolds and ITG concerning the same state tax issues raised by Mississippi and Texas. The motion remains pending.
Federal Government’s Lawsuit: In 1999, the U.S. government filed a lawsuit in the U.S. District Court for the District of Columbia against various cigarette manufacturers, including PM USA, and others, including Altria, asserting claims under three federal statutes. The case ultimately proceeded only under the civil provisions of RICO. In August 2006, the district court held that certain defendants, including Altria and PM USA, violated RICO and engaged in certain “sub-schemes” to defraud that the government had alleged.
The court did not impose monetary penalties on defendants, but ordered various types of non-monetary relief, including an injunction against conveying any express or implied health message or health descriptors on cigarette packaging or in cigarette advertising or promotional material, including “lights,” “ultra lights” and “low tar,” which the court found could cause consumers to believe one cigarette brand is less hazardous than another brand, and the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “light” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to ETS.
Corrective statements appeared in newspapers and on television for four months and one year, respectively, beginning in the fourth quarter of 2017, and the onserts appeared for two weeks at a time for a total of twelve weeks over two years beginning in the fourth quarter of 2018. Corrective statements have appeared on websites since the second quarter of 2018. In December 2022, the district court entered a consent order approving a settlement with respect to corrective statements on point-of-sale signage. In addition to the $28 million of provisions recorded in 2022, we recorded in the first quarter of 2024 provisions of $15 million for estimated costs of implementing the corrective statements on point-of-sale signage remedy.
In May 2024, we entered into an agreement with the U.S. government resolving its concerns regarding our assignment of the exclusive U.S. commercialization rights to the IQOS System to PMI and whether the court-ordered injunction that applies to cigarettes discussed above also applies to HeatSticks, a heated tobacco product used with the IQOS System. Under the agreement, PM USA agreed to obtain district court approval for any future similar transaction and to post additional point-of-sale signage containing the corrective statements referenced above. The cost of implementing the additional point-of-sale signage did not require an increase to the previously recorded provisions for point-of-sale signage discussed above. Pursuant to the settlement, PM USA voluntarily dismissed its appeal of the district court’s ruling that HeatSticks are subject to the court’s injunction.
E-vapor Product Litigation
We have been named as defendants in federal class action lawsuits, individual lawsuits and “third party” lawsuits relating to JUUL e-vapor products, which include school districts, state and local governments and tribal and healthcare organization lawsuits. We refer to this litigation in the United States collectively as the “Multidistrict Litigation.” The theories of recovery in the Multidistrict Litigation include violation of RICO, fraud, failure to warn, design defect, negligence, public nuisance and unfair trade practices. Plaintiffs seek various remedies, including compensatory and punitive damages, restitution or remediation (for plaintiffs that are government entities) and an injunction prohibiting product sales. We also have been named as defendants in a group of cases pending in a consolidated California state court proceeding.
In May 2023, we reached agreement on terms to resolve the majority of the Multidistrict Litigation lawsuits as well as the majority of the group of cases pending in a consolidated California state court proceeding for $235 million, for which amount we recorded a pre-tax provision in the second quarter of 2023. In March 2024, the court granted final approval of the class action settlement, and we paid the settlement amount in the second quarter of 2024. The settlement applies to all of the Multidistrict Litigation except 38 “third party” cases brought by Native American tribes, which we separately agreed to settle in July 2024 and are pending dismissal. We recorded a pre-tax provision for $20 million in the second quarter of 2024 related to the settlement of these cases and paid the settlement amount in October 2024. Neither settlement applies to three class action lawsuits pending in Canada, the cases brought by state attorneys general, discussed below, or 17 putative class action antitrust lawsuits. For a description of the antitrust cases not subject to the settlement, see Antitrust Litigation below.
Four of the “third party” lawsuits noted above against us and JUUL were initiated, individually, by the attorneys general of Alaska, Hawaii, Minnesota and New Mexico alleging violations of state consumer protection and other similar laws. In April 2023, January 2024, February 2024 and April 2024, we agreed to settle the Minnesota, Alaska, Hawaii and New Mexico lawsuits, respectively, for immaterial amounts.
In May 2023, Fuma International LLC (“Fuma”) filed a lawsuit against Altria and our affiliates Nu Mark LLC (“Nu Mark”), AGDC, ALCS and NJOY in the United States District Court for the Eastern District of Virginia asserting claims of patent infringement based on the sale of various Nu Mark and NJOY products, including NJOY ACE, in the United States. In August 2023, we entered into an agreement with Fuma resulting in NJOY’s acquisition of the patents that Fuma asserted in its lawsuit. The parties separately agreed that Fuma would dismiss its patent infringement claims in exchange for $10 million, and such claims were dismissed in August 2023. We recorded a pre-tax provision for $10 million in the third quarter of 2023 related to the agreement and paid such amount to Fuma in August 2023.
In June 2023, JUUL and VMR Products LLC (“VMR”) filed a lawsuit against Altria and our affiliates AGDC, ALCS, NJOY Holdings and NJOY in the United States District Court for the District of Arizona asserting claims of patent infringement based on the sale of NJOY ACE in the United States. Plaintiffs seek various remedies, including damages and an injunction on sales of NJOY ACE. The lawsuit is currently stayed.
Also in June 2023, the same plaintiffs filed a related action against the same defendants with the U.S. International Trade Commission (“ITC”). There, the plaintiffs also allege patent infringement, but the remedies sought include an exclusion order that would prohibit the importation of NJOY ACE into the United States. No damages are recoverable in the proceedings before the ITC. A hearing before the Administrative Law Judge (“ALJ”) was held in May 2024, and, in August 2024, the ALJ issued an initial determination supporting the plaintiffs’ allegations with respect to four patents and recommending an exclusion order. In September 2024, NJOY petitioned the ITC to review the ALJ’s initial determination. In October 2024, the ITC granted review of the ALJ’s initial determination with respect to aspects of two of the four patents. The ITC must issue its final determination, including with respect to the form of remedy, if any, to be ordered, by December 23, 2024, subject to its right to grant itself an extension. If the ITC issues an exclusion order, the ITC must send that order to the Office of the United States Trade Representative for review. The Trade Representative would then have 60 days to review the ITC’s determination. If the Trade Representative does not affirmatively reject the ITC’s determination, the determination automatically becomes final and takes effect after the 60 days have elapsed or earlier if the Trade Representative notifies the ITC of approval before the 60 days elapse. A final exclusion order can be appealed to the United States Court of Appeals for the Federal Circuit, but a final exclusion order prohibiting the importation of NJOY ACE would be unlikely to be stayed during the pendency of such an appeal.
In November and December 2023 and February 2024, Altria and our affiliates filed petitions with the U.S. Patent Office Patent Trial and Appeal Board (“PTAB”) challenging the validity of the patents underlying JUUL and VMR’s patent infringement claims. In May, June and August 2024, the PTAB denied Altria’s request to institute review as to four patents (including three of the patents that form the basis of the ALJ’s initial determination) and, in June 2024, granted Altria’s request to institute review as to one of the patents that forms the basis of the ALJ’s initial determination, which, as noted above, is being reviewed by the ITC. The PTAB will conduct proceedings and issue its validity decision as to the one JUUL patent by June 2025, after which appeals may be filed with the United States Court of Appeals for the Federal Circuit.
In August 2023, NJOY filed a complaint against JUUL in the United States District Court for the District of Delaware asserting claims of patent infringement based on the sale of certain JUUL e-vapor products, including the currently marketed JUUL device and JUULpods, in the United States. The lawsuit is currently stayed.
Also in August 2023, NJOY filed a related action against JUUL with the ITC alleging patent infringement and seeking a ban on the importation and sale of the same JUUL products in the United States. A hearing before the ALJ was held in June 2024, and the ALJ’s initial determination and recommendation is scheduled to be issued by December 6, 2024, subject to further extension by the ALJ. Once the ALJ issues its initial determination and recommendation, the ITC’s review of the ALJ’s initial determination and recommendation will proceed in the same manner as discussed above with respect to VMR and JUUL’s action against NJOY. The ITC must issue its final determination, including with respect to the form of remedy, if any, to be ordered, by April 7, 2025, subject to its right to grant itself an extension.
In November 2023, JUUL filed petitions with the PTAB challenging the validity of the patents underlying NJOY’s patent infringement claims. In May 2024, the PTAB agreed to review JUUL’s challenge to both of the NJOY patents asserted against JUUL. The PTAB will conduct proceedings and issue its validity decisions by May 2025, after which appeals may be filed with the United States Court of Appeals for the Federal Circuit.
We, JUUL and VMR have engaged with a mediator to attempt to negotiate a resolution of the proceedings pending before the ITC, United States District Courts and the PTAB. Based on the status of the negotiations and the proceedings before the ITC, United States District Courts and the PTAB, we have determined that a loss is not probable or reasonably estimable as of the date of this filing.
IQOS Litigation
In April 2020, RAI Strategic Holdings, Inc. and R.J. Reynolds Vapor Co., which are affiliates of R.J. Reynolds, filed a lawsuit against Altria, PM USA, ALCS, PMI and its affiliate, Philip Morris Products S.A., in the U.S. District Court for the Eastern District of Virginia asserting claims of patent infringement based on the sale of the IQOS System electronic device and Marlboro HeatSticks in the United States. Plaintiffs seek various remedies, including preliminary and permanent injunctive relief, treble damages and attorneys’ fees. Altria and PMI were previously dismissed from the lawsuit, and plaintiffs’ claims against the other defendants have been stayed.
PM USA, ALCS and Philip Morris Products S.A. filed counterclaims against plaintiffs in the Eastern District of Virginia lawsuit alleging patent infringement by R.J. Reynolds’ e-vapor products. In June 2022, PM USA and ALCS reached an agreement with R.J. Reynolds resulting in dismissal of their counterclaims. In addition, ALCS filed a separate lawsuit against R.J. Reynolds in the U.S. District Court for the Middle District of North Carolina also alleging patent infringement by R.J. Reynolds’ e-vapor products. In September 2022, a jury awarded ALCS $95 million in damages for past infringement, plus supplemental damages and interest. In January 2023, the court ordered R.J. Reynolds to pay ALCS a 5.25% royalty on future sales of its infringing product resulting in positive net income through the expiration of the relevant patents in 2035. R.J. Reynolds has filed a notice of appeal of the judgment, and the appeal remains pending. In July 2024, R.J. Reynolds moved the district court to vacate the judgment, including the damages awards and ongoing royalties, on the grounds that R.J. Reynolds obtained a sub-license to the asserted patents from JUUL in December 2023. We have opposed the motion. As gains related to this lawsuit have not yet been determined to be realized or realizable in accordance with GAAP, they have not been recognized in our financial statements.
In November 2020, Healthier Choices Management Corp. filed an additional unrelated patent infringement case in the U.S. District Court for the Northern District of Georgia against PM USA and Philip Morris Products S.A. seeking damages and equitable relief. In February 2021, defendants filed a motion to dismiss the lawsuit, which the court granted in July 2021. In December 2021, the U.S. District Court denied plaintiff’s motion to amend the complaint and plaintiff appealed this ruling to the U.S. Court of Appeals for the Federal Circuit, which reversed the district court’s decision and remanded for further proceedings. On remand, the U.S. District Court stayed the case pending the outcome of plaintiff’s appeal from a ruling by the U.S. Patent and Trademark Office, which issued a decision that the claims of the asserted patent are not valid. That appeal remains pending.
Antitrust Litigation
In March 2023, we entered into a stock transfer agreement with JUUL pursuant to which, among other things, we transferred to JUUL all of our beneficially owned JUUL equity securities. See Note 6. Investments in Equity Securities for a discussion of our disposition of our investment in JUUL.
As of October 28, 2024, 17 putative class action lawsuits have been filed against Altria and JUUL in the U.S. District Court for the Northern District of California. In November 2020, these lawsuits were consolidated into three complaints (one on behalf of direct purchasers, one on behalf of indirect purchasers and one on behalf of indirect resellers). The consolidated lawsuits, as amended, allege that Altria and JUUL violated Sections 1, 2 and/or 3 of the Sherman Antitrust Act of 1890 and Section 7 of the Clayton Antitrust Act and various state antitrust, consumer protection and unjust enrichment laws by restraining trade and/or substantially lessening competition in the U.S. closed-system electronic cigarette market. Plaintiffs seek various remedies, including treble damages, attorneys’ fees, a declaration that the agreements between Altria and JUUL are invalid and rescission of the transaction. In February 2024, the court ordered that certain of the direct-purchaser plaintiffs’ claims against JUUL be sent to arbitration pursuant to an arbitration provision in JUUL’s online purchase agreement and dismissed without prejudice the direct-purchaser plaintiffs’ claims for injunctive relief. The trial with respect to the consolidated lawsuits is set to commence in May 2026.
Federal and State Shareholder Derivative Lawsuits
In October 2022, we agreed to settle a series of federal and state derivative cases brought by Altria shareholders on behalf of themselves and Altria against Altria and certain of our current and former executives and directors and JUUL, its founders and certain of its current and former executives. The cases related to our former investment in JUUL and asserted claims of breach of fiduciary duty by the Altria defendants and aiding and abetting in that alleged breach of fiduciary duty by the remaining defendants.
Under the terms of the settlement, which became effective in May 2023, among other things, we agreed to provide $100 million in funding over a five-year period to underage tobacco prevention and cessation programs, which may include positive youth development programs, led by independent third-party organizations. We began providing funding in the third quarter of 2024. In 2022, we recorded pre-tax provisions totaling $27 million for costs associated with the independent monitoring of our funding commitments and attorneys’ fees. In the first quarter of 2023, we recorded pre-tax provisions totaling approximately $100 million related to the settlement, and in April 2023, paid $15 million to plaintiffs’ escrow account for attorneys’ fees.
Certain Other Tobacco-Related Litigation
“Lights/Ultra Lights” Cases and Other Smoking and Health Class Actions: Plaintiffs have sought certification of their cases as class actions, alleging among other things, that the uses of the terms “Lights” and/or “Ultra Lights” constitute deceptive and unfair trade practices, common law or statutory fraud, unjust enrichment or breach of warranty, and have sought injunctive and equitable relief, including restitution and, in certain cases, punitive damages. These class actions have been brought against PM USA and, in certain instances, Altria or our other subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes. Defenses raised in these cases include lack of misrepresentation, lack of causation, injury and damages, the statute of limitations, non-liability under state statutory provisions exempting conduct that complies with federal regulatory directives, and the First Amendment. Twenty-one state courts in 23 “Lights” cases have refused to certify class actions, dismissed class action allegations, reversed prior class certification decisions or have entered judgment in favor of PM USA. As of October 28, 2024, two “Lights/Ultra Lights” class actions are pending in U.S. state courts. Neither case is active.
As of October 28, 2024, one smoking and health case alleging personal injury or seeking court-supervised programs or an ongoing medical monitoring program on behalf of individuals exposed to ETS and purporting to be brought on behalf of a class of individual plaintiffs, is pending in a U.S. state court. The case is currently inactive.
UST Litigation: UST and/or its tobacco subsidiaries have been named in a number of individual tobacco and health lawsuits over time. Plaintiffs’ allegations of liability in these cases have been based on various theories of recovery, such as negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of implied warranty, addiction and breach of consumer protection statutes. Plaintiffs have typically sought various forms of relief, including compensatory and punitive damages, and certain equitable relief, including disgorgement. Defenses raised in these cases have included lack of causation, assumption of the risk, comparative fault and/or contributory negligence, and statutes of limitations. As of October 28, 2024, there is no such case pending against UST and/or its tobacco subsidiaries.
Environmental Regulation
Altria and our former subsidiaries are subject to various federal, state and local laws and regulations concerning the discharge of materials into the environment, or otherwise related to environmental protection, including, in the United States: the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as “Superfund”), which can impose joint and several liability on each responsible party. Altria and our former subsidiaries are involved in several cost recovery/contribution cases subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. We expect to continue to make capital and other expenditures in connection with environmental laws and regulations.
We provide for expenses associated with environmental remediation obligations on an undiscounted basis when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change. Other than those amounts, it is not possible to reasonably estimate the cost of any environmental remediation and compliance efforts that we may undertake in the future. In the opinion of our management, however, compliance with environmental laws and regulations, including the payment of any remediation costs or damages and the making of related expenditures, has not had a material adverse effect on our condensed consolidated results of operations, capital expenditures, financial position or cash flows.
Guarantees and Other Similar Matters
In the ordinary course of business, we have agreed to indemnify a limited number of third parties in the event of future litigation. At September 30, 2024, we (i) had $45 million of unused letters of credit obtained in the ordinary course of business and (ii) were contingently liable for guarantees related to our own performance, including $19 million for surety bonds recorded on our condensed consolidated balance sheet. In addition, from time to time, we issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on our liquidity.
Under the terms of a distribution agreement between Altria and PMI (“Distribution Agreement”), entered into as a result of our 2008 spin-off of our former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria and PM USA for liabilities related to tobacco products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for liabilities related to tobacco products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. We do not have a related liability recorded on our condensed consolidated balance sheet at September 30, 2024 as the fair value of this indemnification is insignificant. PMI has agreed not to seek indemnification with respect to the IQOS System patent litigation discussed above under IQOS Litigation, excluding the patent infringement case filed with the U.S. District Court for the Northern District of Georgia.
As part of the supplier financing program, Altria guarantees the financial obligations of ALCS under the financing program agreement. For further discussion of the supplier financing program, see Note 4. Supplier Financing.
PM USA guarantees our obligations under our outstanding debt securities, any borrowings under our $3.0 billion Credit Agreement and any amounts outstanding under our commercial paper program.
Note 15. New Accounting Guidance Not Yet Adopted
The following table provides a description of issued accounting guidance applicable to, but not yet adopted by, us:
| | | | | | | | | | | |
| Standards | Description | Effective Date for Public Entity | Effect on Financial Statements |
ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | The guidance will require disclosure of incremental segment information on an annual and interim basis. | The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. | The guidance will result in expanded footnote disclosures beginning in our annual consolidated financial statements for the year ending December 31, 2024. |
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures | The guidance will require additional income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. | The guidance is effective for fiscal years beginning after December 15, 2024. | We are in the process of evaluating the impact of this guidance on our footnote disclosures. |
ASU 2024-01 Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards | The guidance seeks to reduce ambiguity in the treatment of profits interest awards and provides specific guidance on whether a profits interest award should be accounted for as a share-based payment arrangement, or in a manner similar to a cash bonus or profit-sharing arrangement. | The guidance is effective for fiscal years beginning after December 15, 2024, and interim periods within those annual periods. | We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures. |