10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

OR

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

For the transition period from                     to                    

Commission File Number 1-08940

Altria Group, Inc.

(Exact name of registrant as specified in its charter)

Virginia	13-3260245
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6601 West Broad Street, Richmond, Virginia	23230
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

At April 15, 2013, there were 2,008,662,018 shares outstanding of the registrant’s common stock, par value $0.33 1/3 per share.

ALTRIA GROUP, INC.

TABLE OF CONTENTS

		Page No.
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2013 and 2012	5
	Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2013 and 2012	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2012 and the Three Months Ended March 31, 2013	7
	Condensed Consolidated Statements of Cash Flows for the  Three Months Ended March 31, 2013 and 2012	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 4.	Controls and Procedures	89
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	90
Item 1A.	Risk Factors	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 6.	Exhibits	91
Signature	Signature	92

- 2-

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)

	March 31, 2013		December 31, 2012
Assets
Cash and cash equivalents	$	3,775	$	2,900
Receivables	112		193
Inventories:
Leaf tobacco	864		876
Other raw materials	174		173
Work in process	339		349
Finished product	439		348
	1,816		1,746
Deferred income taxes	1,216		1,216
Other current assets	197		260
Total current assets	7,116		6,315
Property, plant and equipment, at cost	4,763		4,750
Less accumulated depreciation	2,695		2,648
	2,068		2,102
Goodwill	5,174		5,174
Other intangible assets, net	12,073		12,078
Investment in SABMiller	6,749		6,637
Finance assets, net	2,385		2,581
Other assets	441		442
Total Assets	$	36,006	$	35,329

See notes to condensed consolidated financial statements.

Continued

- 3-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

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

(Unaudited)

	March 31, 2013			December 31, 2012
Liabilities
Current portion of long-term debt	$	1,984		$	1,459
Accounts payable	259			451
Accrued liabilities:
Marketing	468			568
Employment costs	126			184
Settlement charges	4,143			3,616
Other	1,032			1,093
Income taxes	600			—
Dividends payable	886			888
Total current liabilities	9,498			8,259
Long-term debt	11,894			12,419
Deferred income taxes	6,657			6,652
Accrued pension costs	1,323			1,735
Accrued postretirement health care costs	2,501			2,504
Other liabilities	528			556
Total liabilities	32,401			32,125
Contingencies (Note 10)
Redeemable noncontrolling interest	35			34
Stockholders’ Equity
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935			935
Additional paid-in capital	5,656			5,688
Earnings reinvested in the business	24,817			24,316
Accumulated other comprehensive losses	(2,068		)	(2,040		)
Cost of repurchased stock (797,292,199 shares in 2013 and 796,221,021 shares in 2012)	(25,771		)	(25,731		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,569			3,168
Noncontrolling interests	1			2
Total stockholders’ equity	3,570			3,170
Total Liabilities and Stockholders’ Equity	$	36,006		$	35,329

See notes to condensed consolidated financial statements.

- 4-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)

	For the Three Months Ended March 31,
	2013			2012
Net revenues	$	5,528		$	5,647
Cost of sales	1,299			1,792
Excise taxes on products	1,555			1,653
Gross profit	2,674			2,202
Marketing, administration and research costs	517			534
Asset impairment and exit costs	—			21
Amortization of intangibles	5			5
Operating income	2,152			1,642
Interest and other debt expense, net	261			293
Earnings from equity investment in SABMiller	(256		)	(520		)
Earnings before income taxes	2,147			1,869
Provision for income taxes	762			674
Net earnings	1,385			1,195
Net earnings attributable to noncontrolling interests	—			—
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,195
Per share data:
Basic and diluted earnings per share attributable to Altria Group, Inc.	$	0.69		$	0.59
Dividends declared	$	0.44		$	0.41

See notes to condensed consolidated financial statements.

- 5-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)

	For the Three Months Ended March 31,
	2013			2012
Net earnings	$	1,385		$	1,195
Other comprehensive (losses) earnings, net of deferred income taxes:
Benefit plans	66			22
SABMiller	(94		)	180
Other comprehensive (losses) earnings, net of deferred income taxes	(28		)	202
Comprehensive earnings	1,357			1,397
Comprehensive earnings attributable to noncontrolling interests	—			—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,357		$	1,397

See notes to condensed consolidated financial statements.

- 6-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the Year Ended December 31, 2012 and

the Three Months Ended March 31, 2013

(in millions of dollars, except per share data)

(Unaudited)

	Attributable to Altria Group, Inc.
	Common Stock		Additional Paid-in Capital			Earnings Reinvested in the Business			Accumulated Other Comprehensive Losses			Cost of Repurchased Stock			Non-controlling Interests			Total Stockholders’ Equity
Balances, December 31, 2011	$	935	$	5,674		$	23,583		$	(1,887	)	$	(24,625	)	$	3		$	3,683
Net earnings (1)	—		—			4,180			—			—			—			4,180
Other comprehensive losses, net of deferred income tax benefit	—		—			—			(153		)	—			—			(153		)
Stock award activity	—		14			—			—			10			—			24
Cash dividends declared ($1.70 per share)	—		—			(3,447		)	—			—			—			(3,447		)
Repurchases of common stock	—		—			—			—			(1,116		)	—			(1,116		)
Other	—		—			—			—			—			(1		)	(1		)
Balances, December 31, 2012	935		5,688			24,316			(2,040		)	(25,731		)	2			3,170
Net earnings (losses) (1)	—		—			1,385			—			—			(1		)	1,384
Other comprehensive losses, net of deferred income tax benefit	—		—			—			(28		)	—			—			(28		)
Stock award activity	—		(32		)	—			—			17			—			(15		)
Cash dividends declared ($0.44 per share)	—		—			(884		)	—			—			—			(884		)
Repurchases of common stock	—		—			—			—			(57		)	—			(57		)
Balances, March 31, 2013	$	935	$	5,656		$	24,817		$	(2,068	)	$	(25,771	)	$	1		$	3,570

⁽¹⁾  Net earnings/losses attributable to noncontrolling interests for the three months ended March 31, 2013 and for the year ended December 31, 2012 exclude net earnings of $1 million and $3 million, respectively, due to the redeemable noncontrolling interest related to Stag’s Leap Wine Cellars, which is reported in the mezzanine equity section in the condensed consolidated balance sheets at March 31, 2013 and December 31, 2012. See Note 10.

See notes to condensed consolidated financial statements.

- 7-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)

	For the Three Months Ended March 31,
	2013			2012
Cash Provided by (Used In) Operating Activities
Net earnings	$	1,385		$	1,195
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	54			56
Deferred income tax provision (benefit)	16			(97		)
Earnings from equity investment in SABMiller	(256		)	(520		)
Cash effects of changes:
Receivables, net	81			13
Inventories	(70		)	(51		)
Accounts payable	(89		)	(68		)
Income taxes	639			744
Accrued liabilities and other current assets	(193		)	6
Accrued settlement charges	527			1,025
Pension plan contributions	(358		)	(504		)
Pension provisions and postretirement, net	48			31
Other	9			7
Net cash provided by operating activities	1,793			1,837

See notes to condensed consolidated financial statements.

Continued

- 8-

Altria Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)

	For the Three Months Ended March 31,
	2013			2012
Cash Provided by (Used In) Investing Activities
Capital expenditures	$	(15	)	$	(16	)
Proceeds from finance assets	203			303
Net cash provided by investing activities	188			287
Cash Used In Financing Activities
Repurchases of common stock	(91		)	(266		)
Dividends paid on common stock	(886		)	(838		)
Other	(129		)	(134		)
Cash used in financing activities	(1,106		)	(1,238		)
Cash and cash equivalents:
Increase	875			886
Balance at beginning of period	2,900			3,270
Balance at end of period	$	3,775		$	4,156

See notes to condensed consolidated financial statements.

- 9-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation:

Background

At March 31, 2013, Altria Group, Inc.’s direct and indirect wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its direct and indirect wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless products and wine. Nu Mark LLC, an indirect wholly-owned subsidiary of Altria Group, Inc., is engaged in the manufacture and sale of innovative tobacco products for adult tobacco consumers. Philip Morris Capital Corporation (“PMCC”), a direct wholly-owned subsidiary of Altria Group, Inc., maintains a portfolio of leveraged and direct finance leases. In addition, Altria Group, Inc. held approximately 26.8% of the economic and voting interest of SABMiller plc (“SABMiller”) at March 31, 2013, which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc.’s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. In addition, Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. At March 31, 2013, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

Share Repurchases

In October 2011, Altria Group, Inc.’s Board of Directors authorized a $1.0 billion share repurchase program, which was expanded to $1.5 billion in October 2012 (as expanded, the “October 2011 share repurchase program”). During the three months ended March 31, 2013, Altria Group, Inc. repurchased 1.7 million shares (aggregate cost of approximately $57 million, and $34.05 average price per share), completing the October 2011 share repurchase program. Under this program, Altria Group, Inc. repurchased a total of 48.3 million shares of its common stock at an average price of $31.06 per share.

On April 24, 2013, Altria Group, Inc.’s Board of Directors authorized a new $300 million share repurchase program, which Altria Group, Inc. expects to complete by the end of 2013. The timing of share repurchases under this new program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of Altria Group, Inc.’s Board of Directors.

Basis of Presentation

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

These statements should be read in conjunction with the consolidated financial statements and related notes, which appear in Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012.

Effective January 1, 2013, Altria Group, Inc.’s reportable segments are smokeable products, smokeless products and wine. The financial services and the alternative products businesses have been combined in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial contribution of Altria Group, Inc.’s alternative products business to its consolidated results. In addition, due to the continued reduction of the lease portfolio of PMCC, Altria Group, Inc.’s balance sheet accounts are no longer segregated by consumer products and financial services, and all balance sheet accounts are classified as either current or non-current. Prior-period amounts have been reclassified to conform with the current-period presentation.

As previously disclosed in Altria Group, Inc.’s Quarterly Report filed on Form 10-Q (“Form 10-Q”) for the quarterly period ended June 30, 2012, during the second quarter of 2012, Altria Group, Inc. determined that it had not recorded in its financial statements for the three months ended March 31, 2012, its share of non-cash gains from its equity investment in SABMiller, relating to SABMiller’s strategic alliance transactions with Anadolu Efes and Castel that were completed during the first quarter

- 10-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

of 2012.  Because Altria Group, Inc. did not record these gains, it understated by $342 million, $222 million and $0.11 earnings from equity investment in SABMiller, net earnings/comprehensive earnings and diluted earnings per share attributable to Altria Group, Inc., respectively, for the three months ended March 31, 2012.  There was no impact on net cash flows from operating, investing or financing activities for the three months ended March 31, 2012.  Altria Group, Inc. revised its first quarter 2012 financial statements and reflected this revision in the financial statements for the three months ended March 31, 2012 included in this Form 10-Q. 

Effective January 1, 2013, Altria Group, Inc. adopted new authoritative guidance that requires an entity to provide additional information by component concerning the amounts reclassified out of accumulated other comprehensive earnings/losses. Altria Group, Inc. has included the additional disclosures in Note 6. Other Comprehensive Earnings/Losses.

Note 2. Asset Impairment, Exit and Implementation Costs:

For the three months endedMarch 31, 2013, there were no asset impairment and exit costs. Implementation costs of $1 million were recorded in marketing, administration and research costs in the smokeable products segment during the three months ended March 31, 2013.

Pre-tax asset impairment, exit and implementation costs for the three months ended March 31, 2012 consisted of the following:

	For the Three Months Ended  March 31, 2012
	Asset Impairment and Exit Costs		Implementation (Gain) Costs			Total
	(in millions)
Smokeable products	$	7	$	(21	)	$	(14	)
Smokeless products	14		5			19
General corporate	—		(1		)	(1		)
Total	$	21	$	(17	)	$	4

The asset impairment, exit and implementation (gain) costs for the three months ended March 31, 2012 were related to Altria Group, Inc.’s cost reduction program announced in October 2011 (the “2011 Cost Reduction Program”). Total pre-tax charges, net related to this program were substantially completed as of December 31, 2012.

For the three months ended March 31, 2012, pre-tax implementation (gain) costs of ($17) million shown in the table above were recorded on Altria Group, Inc.’s condensed consolidated statement of earnings as follows: a net gain of $25 million, which included a $26 million curtailment gain related to amendments made to an Altria Group, Inc. postretirement benefit plan, was included in marketing, administration and research costs; and other costs of $8 million were included in cost of sales.

The severance liability related to the 2011 Cost Reduction Program was $20 million and $37 million at March 31, 2013 and December 31, 2012, respectively, substantially all of which is expected to be paid out by June 30, 2013.

Note 3. Benefit Plans:

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

- 11-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	21		$	20
Interest cost	78			86
Expected return on plan assets	(123		)	(111		)
Amortization:
Net loss	69			56
Prior service cost	3			3
Net periodic pension cost	$	48		$	54

Employer Contributions

Altria Group, Inc. makes contributions to the extent that they are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service (“IRS”) regulations. On January 2, 2013, Altria Group, Inc. made a voluntary $350 million contribution to its pension plans. Additional employer contributions of $8 million were made to Altria Group, Inc.’s pension plans during the three months ended March 31, 2013. Currently, Altria Group, Inc. anticipates making additional employer contributions to its pension plans of approximately $20 million to $40 million during the remainder of 2013, based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	5		$	5
Interest cost	25			30
Amortization:
Net loss	14			12
Prior service credit	(11		)	(11		)
Curtailment gain	—			(26		)
Net postretirement health care costs	$	33		$	10

The curtailment gain shown in the table above is related to the 2011 Cost Reduction Program. For further information on this program, see Note 2. Asset Impairment, Exit and Implementation Costs.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 4. Earnings from Equity Investment in SABMiller:

Pre-tax earnings from Altria Group, Inc.’s equity investment in SABMiller consisted of the following:

	For the Three Months Ended March 31,
	2013		2012
	(in millions)
Equity earnings	$	199	$	508
Gains resulting from issuances of common stock by SABMiller	57		12
	$	256	$	520

Altria Group, Inc.’s equity earnings for the three months ended March 31, 2012 included its share of pre-tax non-cash gains of $342 million resulting from SABMiller’s strategic alliance transactions with Anadolu Efes and Castel. For further discussion, see Note 1. Background and Basis of Presentation.

Note 5. Earnings Per Share:

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

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,195
Less: Distributed and undistributed earnings attributable to unvested restricted and deferred shares	(4		)	(4		)
Earnings for basic and diluted EPS	$	1,381		$	1,191
Weighted-average shares for basic and diluted EPS	2,003			2,034

Since February 29, 2012, there were no stock options outstanding. For the three months ended March 31, 2012 computation, there were no antidilutive stock options.

- 13-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 6. Other Comprehensive Earnings/Losses:

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

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2012	$	2	$	(2,414	)	$	372		$	(2,040	)
Other comprehensive earnings (losses) before reclassifications	—		30			(143		)	(113		)
Deferred income taxes	—		(13		)	50			37
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	—		17			(93		)	(76		)
Amounts reclassified to net earnings	—		79			(2		)	77
Deferred income taxes	—		(30		)	1			(29		)
Amounts reclassified to net earnings, net of deferred income taxes	—		49			(1		)	48
Other comprehensive earnings (losses), net of deferred income taxes	—		66			(94		)	(28		)
Balances, March 31, 2013	$	2	$	(2,348	)	$	278		$	(2,068	)

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2011	$	2	$	(2,062	)	$	173		$	(1,887	)
Other comprehensive earnings before reclassifications	—		—			273			273
Deferred income taxes	—		—			(96		)	(96		)
Other comprehensive earnings before reclassifications, net of deferred income taxes	—		—			177			177
Amounts reclassified to net earnings	—		37			4			41
Deferred income taxes	—		(15		)	(1		)	(16		)
Amounts reclassified to net earnings, net of deferred income taxes	—		22			3			25
Other comprehensive earnings, net of deferred income taxes	—		22			180			202
Balances, March 31, 2012	$	2	$	(2,040	)	$	353		$	(1,685	)

The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings for the three months ended March 31, 2013 and 2012:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Benefit Plans: (a)
Net loss	$	87		$	71
Prior service cost/credit	(8		)	(34		)
	$	79		$	37
SABMiller (b)	$	(2	)	$	4
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	77		$	41

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

^(b) Amounts are included in earnings from equity investment in SABMiller. For further information on Altria Group, Inc.’s equity investment in SABMiller, see Note 4. Earnings from Equity Investment in SABMiller.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7. Segment Reporting:

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

As discussed in Note 1. Background and Basis of Presentation,beginning with the first quarter of 2013, Altria Group, Inc. revised its reportable segments. Prior-period segment data have been recast to conform with the current-period segment presentation.

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

Segment data were as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net revenues:
Smokeable products	$	4,968		$	5,100
Smokeless products	390			380
Wine	126			113
All other	44			54
Net revenues	$	5,528		$	5,647
Earnings before income taxes:
Operating companies income:
Smokeable products	$	1,920		$	1,439
Smokeless products	222			192
Wine	20			15
All other	50			52
Amortization of intangibles	(5		)	(5		)
General corporate expenses	(55		)	(51		)
Operating income	2,152			1,642
Interest and other debt expense, net	(261		)	(293		)
Earnings from equity investment in SABMiller	256			520
Earnings before income taxes	$	2,147		$	1,869

Items affecting the comparability of operating companies income for the segments were as follows:

Asset Impairment, Exit and Implementation Costs - SeeNote 2. Asset Impairment, Exit and Implementation Costs for a breakdown of these costs by segment.

Tobacco and Health Judgments - For the three months ended March 31, 2013, pre-tax charges of $5 million, excluding accrued interest of $1 million, related to certain tobacco and health judgments were recorded in operating companies income of the smokeable products segment. These charges were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. See Note 10. Contingencies for further discussion.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Non-Participating Manufacturer Adjustment -For the three months ended March 31, 2013, PM USA recorded a reduction to cost of sales of $483 million on its condensed consolidated statement of earnings, which increased operating companies income in the smokeable products segment. This reduction to cost of sales resulted from the settlement of disputes with certain states related to the non-participating manufacturer adjustment (“NPM Adjustment”) under the 1998 Master Settlement Agreement (the “MSA”) for the years 2003 - 2012 discussed in detail under Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10. Contingencies.

Note 8. Finance Assets, net:

At March 31, 2013, finance assets, net, of $2,385 million were comprised of investments in finance leases of $2,422 million and an other receivable of $42 million, reduced by the allowance for losses of $79 million. At December 31, 2012, finance assets, net, of $2,581 million were comprised of investments in finance leases of $2,680 million, reduced by the allowance for losses of $99 million.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. During the first quarter of 2013, PMCC determined that its allowance for losses exceeded the amount required based on management’s assessment of the credit quality and size of PMCC’s leasing portfolio. As a result, PMCC reduced its allowance for losses by $20 million, which was recorded as income during the three months ended March 31, 2013. PMCC believes that, as of March 31, 2013, the allowance for losses of $79 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may have to increase its allowance for losses if such conditions worsen.

The activity in the allowance for losses on finance assets for the three months ended March 31, 2013 and 2012 was as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Balance at beginning of the year	$	99		$	227
Decrease to allowance	(20		)	—
Amounts written-off	—			(23		)
Balance at March 31	$	79		$	204

During the first quarter of 2012, as a result of developments related to the 2011 American Airlines, Inc. (“American”) bankruptcy filing, PMCC wrote off $23 million of the related investment in finance lease balance against its allowance for losses. During the first quarter of 2013, PMCC sold its remaining interest in the American aircraft leases.

All PMCC lessees were current on their lease payment obligations as of March 31, 2013.

The credit quality of PMCC’s investments in finance assets as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at March 31, 2013 and December 31, 2012 was as follows:

	March 31, 2013		December 31, 2012
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	784	$	961
“BBB+/Baa1” to “BBB-/Baa3”	925		938
“BB+/Ba1” and Lower	755		781
Total	$	2,464	$	2,680

- 17-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 9. Debt:

At March 31, 2013 and December 31, 2012, Altria Group, Inc. had no short-term borrowings.

Altria Group, Inc.’s estimate of the fair value of its debt is based on observable market information derived from a third party pricing source and is classified in level 2 of the fair value hierarchy. The aggregate fair value of Altria Group, Inc.’s total long-term debt at March 31, 2013 and December 31, 2012, was $17.6 billion, as compared with its carrying value of $13.9 billion.

Note 10. Contingencies:

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

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

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 45 states and Puerto Rico now limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although we cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

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

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

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so.

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

Types and Number of Cases

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

The table below lists the number of certain tobacco-related cases pending in the United States against PM USA and, in some instances, Altria Group, Inc. as of April 22, 2013, April 23, 2012 and April 25, 2011.

Type of Case	Number of Cases Pending as of April 22, 2013	Number of Cases Pending as of April 23, 2012	Number of Cases Pending as of April 25, 2011
Individual Smoking and Health Cases (1)	71	79	89
Smoking and Health Class Actions and Aggregated Claims Litigation (2)	6	7	10
Health Care Cost Recovery Actions (3)	1	1	3
“Lights/Ultra Lights” Class Actions	15	17	30
Tobacco Price Cases	1	1	1

⁽¹⁾ Does not include 2,574 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action).

⁽²⁾ Includes as one case the 600 civil actions (of which 346 are actions against PM USA) that are to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution does not preclude a trial in two phases in this case. Under the current trial plan, issues related to defendants’ conduct and whether punitive damages are permissible will be tried in the first phase. The second phase would consist of individual trials to determine liability, if any, as well as compensatory and punitive damages, if any. Trial in the case began in October 2011, but ended in a mistrial in November 2011. The new trial began on April 15, 2013 and is currently underway.

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

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

International Tobacco-Related Cases

As of April 22, 2013, PM USA is a named defendant in Israel in one “Lights” class action. PM USA is a named defendant in nine health care cost recovery actions in Canada, seven of which also name Altria Group, Inc. as a defendant. PM USA and Altria Group, Inc. are also named defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.

Pending and Upcoming Tobacco-Related Trials

As of April 22, 2013, 24Engle progeny cases and five individual smoking and health cases against PM USA are set for trial in 2013. Cases against other companies in the tobacco industry are also scheduled for trial in 2013. Trial dates are subject to change.

Trial Results

Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 52 smoking and health, “Lights/Ultra Lights” and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 35 of the 52 cases. These 35 cases were tried in Alaska (1), California (5), Florida (9), Louisiana (1), Massachusetts (1), Mississippi (1), Missouri (3), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2), and West Virginia (1). A motion for a new trial was granted in one of the cases in Florida and in the case in Alaska.In the Alaska case (Hunter), on February 14, 2013, the trial court withdrew its order for a new trial upon PM USA’s motion for reconsideration. On February 25, 2013, plaintiff filed a motion for the trial court to reconsider its February 14, 2013 ruling and reinstate its prior order which the trial court denied. On March 26, 2013, plaintiff filed a petition for review with the Alaska Supreme Court of the denial of plaintiff's motion for a new trial.

Of the18 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 14 have reached final resolution. A verdict against defendants in one health care cost recovery case (Blue Cross/Blue Shield) was reversed and all claims were dismissed with prejudice. In addition, a verdict against defendants in a purported “Lights” class action in Illinois (Price) was reversed and the case was dismissed with prejudice in December 2006. The plaintiff in Price is seeking to reopen the judgment dismissing this case (see below for a discussion of developments in Price).

As of April 22, 2013, 37Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s Engle decision. Nineteen verdicts were returned in favor of plaintiffs and 18 verdicts were returned in favor of PM USA. See Smoking and Health Litigation - Engle Progeny Trial Results below for a discussion of these verdicts.

Judgments Paid and Provisions for Litigation

After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, PM USA has paid in the aggregate judgments (and related costs and fees) totaling approximately $245 million and interest totaling approximately $139 million as of April 22, 2013.

For the three months ended March 31, 2013, Altria Group, Inc. recorded pre-tax charges of $5 million related to certain tobacco and health judgments. These charges were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. In addition, for the three months ended March 31, 2013, Altria Group, Inc. recorded interest costs related to these judgments of $1 million. These costs were included in interest and other debt expense, net on Altria Group, Inc.’s condensed consolidated statement of earnings. Charges for the three months ended March 31, 2012 for tobacco and health judgments and related interest costs were approximately $500,000. During the first quarter of 2013 approximately $100,000 in payments were made related to tobacco and health judgments. During the first quarter of 2012, $121 million in payments were made for tobacco and health judgments and related interest costs. As of March 31, 2013, Altria Group, Inc. had provisions recorded on its condensed consolidated balance sheet in other accrued liabilities for tobacco and health judgments, including related interest costs, in the amount of $6 million. As of December 31, 2012, there were noprovisions for tobacco and health judgments or related interest costs on Altria Group, Inc.’s condensed consolidated balance sheet.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Security for Judgments

To obtain stays of judgments pending current appeals, as of March 31, 2013, PM USA has posted various forms of security totaling approximately $36 million, the majority of which has been collateralized with cash deposits that are included in other assets on the condensed consolidated balance sheet.

Smoking and Health Litigation

Overview

Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health actions 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 Trial Results

Summarized below are the non-Engle progeny smoking and health cases pending during 2012 and 2013 in which verdicts were returned in favor of plaintiffs and against PM USA. A chart listing the verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.

D. Boeken: In August 2011, a California jury returned a verdict in favor of plaintiff, awarding $12.8 million in compensatory damages against PM USA. PM USA’s motions for judgment notwithstanding the verdict and for a new trial were denied in October 2011. PM USA appealed and posted a bond in the amount of $12.8 million in November 2011.

Bullock: This litigation has concluded. In the fourth quarter of 2011, PM USA recorded a pre-tax provision of $14 million related to damages and costs and $3 million related to interest and in March 2012, paid an amount of approximately $19.1 million in satisfaction of the judgment and associated costs and interest.

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

Williams: This litigation has concluded. In the fourth quarter of 2011, PM USA recorded a provision of approximately $48 million related to damages and costs and $54 million related to interest and in January 2012 paid an amount of approximately $102 million in satisfaction of the judgment and associated costs and interest.

See Scott Class Action below for a discussion of the verdict and post-trial developments in the Scott class action and Federal Government Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America healthcare cost recovery case.

- 21-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Engle Class Action

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

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

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

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

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

- 22-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The deadline for filing Engle progeny cases, as required by the Florida Supreme Court’s decision, expired in January 2008. As of April 22, 2013, approximately 3,300 state court cases were pending against PM USA or Altria Group, Inc. asserting individual claims by or on behalf of approximately 4,400 state court plaintiffs.  Furthermore, as of April 22, 2013, approximately 1,500 federal court cases were pending against PM USA asserting individual claims by or on behalf of a similar number of federal court plaintiffs, which reflects the January 22, 2013 dismissal by the United States District Court for the Middle District of Florida (Jacksonville) of 521Engle progeny cases with prejudice. On February 21, 2013, plaintiffs appealed the dismissal to the U.S Court of Appeals for the Eleventh Circuit. Because of a number of factors including, but not limited, to docketing delays, duplicated filings, and overlapping dismissal orders, these numbers are estimates.

Federal Engle Progeny Cases

Three federal district courts (in the Merlob, B. Brown and Burr cases) ruled in 2008 that the findings in the first phase of the Engle proceedings cannot be used to satisfy elements of plaintiffs’ claims, and two of those rulings (B. Brown and Burr) were certified by the trial court for interlocutory review. The certification in both cases was granted by the U.S. Court of Appeals for the Eleventh Circuit and the appeals were consolidated. In February 2009, the appeal in Burr was dismissed for lack of prosecution and in September 2012, the district court dismissed the case on statute of limitations grounds. Plaintiff is appealing the dismissal. In July 2010, the Eleventh Circuit ruled in B. Brown that, as a matter of Florida law, plaintiffs do not have an unlimited right to use the findings from the original Engle trial to meet their burden of establishing the elements of their claims at trial. The Eleventh Circuit did not reach the issue of whether the use of the Engle findings violates defendants’ due process rights. Rather, plaintiffs may only use the findings to establish those specific facts, if any, that they demonstrate with a reasonable degree of certainty were actually decided by the original Engle jury. The Eleventh Circuit remanded the case to the district court to determine what specific factual findings the Engle jury actually made.

After the remand of B. Brown, the Eleventh Circuit’s ruling on Florida state law was superseded by state appellate rulings (discussed below and in Appeals of Engle Progeny Verdicts), which initially included Martin, an Engle progeny case against R.J. Reynolds Tobacco Company (“R.J. Reynolds”) in Escambia County, and J. Brown, an Engle progeny case against R.J. Reynolds in Broward County. More recently, the Eleventh Circuit’s ruling on Florida state law has been superseded by the Florida Supreme Court’s decision in Douglas, discussed below.

Following Martin and J. Brown, in the Waggoner case, the United States District Court for the Middle District of Florida (Jacksonville) ruled in December 2011 that application of the Engle findings to establish the wrongful conduct elements of plaintiffs’ claims consistent with Martin or J. Brown did not violate defendants’ due process rights.  The court ruled, however, that plaintiffs must establish legal causation to establish liability.  PM USA and the other defendants sought appellate review of the due process ruling. In February 2012, the district court denied the motion for interlocutory appeal, but did apply the ruling to all active pending federal Engle progeny cases. As a result, the ruling can be appealed after an adverse verdict or in a cross-appeal. The ruling has been appealed by R.J. Reynolds in the Walker and Duke cases pending before the Eleventh Circuit.

Most of the Engle progeny cases pending against PM USA in the federal district courts in the Middle District of Florida asserting individual claims by or on behalf of approximately 1,500 plaintiffs remain stayed. There are currently 20 active cases pending in federal court. On January 30, 2013, the Federal District Court ordered the parties to negotiate an aggregate settlement mediation of all pending cases. On February 13, 2013, defendants filed a motion for reconsideration by the Federal District Court of the January 30, 2013 order. On March 4, 2013, the Federal District Court issued a new order removing certain requirements of the January 30, 2013 order. On April 9, 2013, the mediators reported to the district court that the cases have not been resolved nor have the parties agreed to a mechanism for settlement.

Florida Bond Cap Statute

In June 2009, Florida amended its existing bond cap statute by adding a $200 million bond cap that applies to all state Engle progeny lawsuits in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. Plaintiffs in three Engle progeny cases against R.J.

- 23-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Reynolds in Alachua County, Florida (Alexander, Townsend and Hall) and one case in Escambia County (Clay) challenged the constitutionality of the bond cap statute. The Florida Attorney General intervened in these cases in defense of the constitutionality of the statute.

Trial court rulings were rendered in Clay, Alexander, Townsend and Hall rejecting the plaintiffs’ bond cap statute challenges in those cases. The plaintiffs unsuccessfully appealed these rulings. In Alexander, Clay and Hall, the District Court of Appeal for the First District of Florida affirmed the trial court decisions and certified the decision in Hall for appeal to the Florida Supreme Court, but declined to certify the question of the constitutionality of the bond cap statute in Clay and Alexander. The Florida Supreme Court granted review of the Hall decision, but, in September 2012, the court dismissed the appeal as moot. In October 2012, the Florida Supreme Court denied the plaintiffs’ rehearing petition.

No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engle progeny cases tried in federal court. However, on April 23, 2013, PM USA, R.J. Reynolds and Lorillard Tobacco Company (“Lorillard”) filed a motion in the U.S. District Court for the Middle District of Florida to have the court apply the Florida bond cap statute to all federal Engle progeny cases.

Engle Progeny Trial Results

As of April 22, 2013, 37 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Nineteen verdicts were returned in favor of plaintiffs. For a further discussion of these cases, see the verdict chart below.

Eighteen verdicts were returned in favor of PM USA (Gelep, Kalyvas, Gil de Rubio, Warrick, Willis, Russo (formerly Frazier), C. Campbell, Rohr, Espinosa, Oliva, Weingart, Junious, Szymanski, Gollihue, McCray, Denton, Hancock and Wilder). While the juries in the Weingart and Hancock cases returned verdicts against PM USA awarding no damages, the trial court in each case granted an additur. In the Russo case (formerly Frazier), the Florida Third District Court of Appeal reversed the judgment in defendants’ favor in April 2012 and remanded the case for a new trial. Defendants are seeking review of the case in the Florida Supreme Court. In addition, there have been a number of mistrials, only some of which have resulted in new trials as of April 22, 2013.

In Lukacs, a case that was tried to verdict before the Florida Supreme Court Engle decision, the Florida Third District Court of Appeal in March 2010 affirmed per curiam the trial court decision without issuing an opinion. Under Florida procedure, further review of a per curiam affirmance without opinion by the Florida Supreme Court is generally prohibited. Subsequently in 2010, after defendants’ petition for rehearing with the Court of Appeal was denied, defendants paid the judgment.

The chart below lists the verdicts and post-trial developments in the Engle progeny cases that were pending during 2012 or 2013 in which verdicts were returned in favor of plaintiffs (including Weingart and Hancock, where the verdicts originally were returned in favor of PM USA).

Date	Plaintiff	Verdict	Post-Trial Developments
April 2013	Searcy	On April 1, 2013, a jury in the Orlando Division of the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $6 million in compensatory damages and $10 million in punitive damages against each defendant.	On April 23, 2013, PM USA, R.J. Reynolds and Lorillard filed a motion in the U.S. District Court for the Middle District of Florida to have the court apply the Florida bond cap statute to all federal Engle progeny cases and to decide such motion before PM USA posts a bond in this case.

- 24-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
March 2013	Giddens	On March 20, 2013, a jury in the Fort Myers Division of the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA. The jury awarded approximately $80,000 in compensatory damages and allocated 7% of the fault to PM USA (an amount of $5,600).	On March 25, 2013, the U.S. District Court for the Middle District of Florida entered its final judgment against PM USA in the amount of $5,600, plus post-judgment interest. On April 5, 2013, the parties entered into an agreement not to pursue any appeal or cost claims and PM USA will not be required to satisfy the judgment. This litigation has concluded.
December 2012	Buchanan	In December 2012, a Leon County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group LLC (“Liggett Group”). The jury awarded $5.5 million in compensatory damages and allocated 37% of the fault to each of the defendants (an amount of approximately $2 million).	In December 2012, defendants filed several post-trial motions, including motions for a new trial and to set aside the verdict. Argument on these motions was heard on January 16, 2013. On March 23, 2013, the trial court entered final judgment against PM USA and Liggett Group refusing to reduce the compensatory damages award by plaintiff's comparative fault and holding PM USA and Liggett Group jointly and severally liable for $5.5 million. On April 1, 2013, defendants filed a notice of appeal to the Florida First District Court of Appeal. On April 5, 2013, PM USA posted a bond in the amount of $2.5 million.
October 2012	Lock	A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $1.15 million in compensatory damages and allocated 9% of the fault to each of the defendants (an amount of $103,500).	In November 2012, defendants filed several post-trial motions, including motions for a new trial, to set aside the verdict and to reduce the damages award by the amount of economic damages paid by third parties. On January 23, 2013, the trial court orally denied all post-trial motions. On February 28, 2013, the trial court entered final judgment. PM USA’s portion of the damages was $103,500. On March 21, 2013, defendants filed notice of appeal to the Florida Second District Court of Appeal. On March 22, 2013, PM USA posted bonds in the amount of $103,500.

- 25-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
August 2012	Hancock	A Broward County jury returned a verdict in the amount of zero damages and allocated 5% of the fault to each of the defendants (PM USA and R.J. Reynolds). The trial court granted an additur of $110,000, which is subject to the jury’s comparative fault finding.	In August 2012, defendants moved to set aside the verdict and to enter judgment in accordance with their motion for directed verdict. Defendants also moved to reduce damages, which motion the court granted. The trial court granted defendants’ motion to set off the damages award by the amount of economic damages paid by third parties, which will reduce further any final award. In October 2012, the trial court entered final judgment. PM USA’s portion of the damages was approximately $700. In November 2012, both sides filed notices of appeal to the Florida Fourth District Court of Appeal.
May 2012	Calloway	A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group. The jury awarded approximately $21 million in compensatory damages and allocated 25% of the fault against PM USA but the trial court ruled that it will not apply the comparative fault allocations because the jury found against each defendant on the intentional tort claims. The jury also awarded approximately $17 million in punitive damages against PM USA, approximately $17 million in punitive damages against R.J. Reynolds, approximately $13 million in punitive damages against Lorillard and approximately $8 million in punitive damages against Liggett Group.	In May and June, 2012, defendants filed motions to set aside the verdict and for a new trial. In August 2012, the trial court denied the remaining post-trial motions and entered final judgment, reducing the total compensatory damages award to $16.1 million but leaving undisturbed the separate punitive damages awards. In September 2012, PM USA posted a bond in an amount of $1.5 million and defendants filed a notice of appeal to the Florida Fourth District Court of Appeal.
January 2012	Hallgren	A Highland County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded approximately $2 million in compensatory damages and allocated 25% of the fault to PM USA (an amount of approximately $500,000). The jury also awarded $750,000 in punitive damages against each of the defendants.	The trial court entered final judgment in March 2012. In April 2012, PM USA posted a bond in an amount of approximately $1.25 million. In May 2012, defendants filed a notice of appeal to the Florida Second District Court of Appeal.

- 26-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
July 2011	Weingart	A Palm Beach County jury returned a verdict in the amount of zero damages and allocated 3% of the fault to each of the defendants (PM USA, R.J. Reynolds and Lorillard).	In September 2011, the trial court granted plaintiff’s motion for additur or a new trial, concluding that an additur of $150,000 is required for plaintiff’s pain and suffering. The trial court entered final judgment and, since PM USA was allocated 3% of the fault, its portion of the damages was $4,500. In October 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and, in November 2011, posted bonds in an aggregate amount of $48,000. On February13, 2013, the Florida Fourth District Court of Appeal affirmed per curiam the trial court's decision in favor of the plaintiff. On March 15, 2013, PM USA filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. On April 22, 2013, the Florida Supreme Court ordered PM USA to show cause as to why the Florida Supreme Court’s decision in Douglas is not controlling in this case. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $50,000 for the judgment plus interest and associated costs.
April 2011	Allen	A Duval County jury returned a verdict in favor of plaintiffs and against PM USA and R.J. Reynolds. The jury awarded a total of $6 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of $900,000). The jury also awarded $17 million in punitive damages against each of the defendants.	In May 2011, the trial court entered final judgment. In October 2011, the trial court granted defendants’ motion for remittitur, reducing the punitive damages award against PM USA to $2.7 million, and denied defendants’ remaining post-trial motions. PM USA filed a notice of appeal to the Florida First District Court of Appeal and posted a bond in the amount of $1.25 million in November 2011. Oral argument was heard on January 16, 2013.
April 2011	Tullo	A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA, Lorillard and Liggett Group. The jury awarded a total of $4.5 million in compensatory damages and allocated 45% of the fault to PM USA (an amount of $2,025,000).	In April 2011, the trial court entered final judgment. In July 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted a $2 million bond.

- 27-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
February 2011	Huish	An Alachua County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $750,000 in compensatory damages and allocated 25% of the fault to PM USA (an amount of $187,500). The jury also awarded $1.5 million in punitive damages against PM USA.	In March 2012, the Florida First District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In the second quarter of 2012, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.5 million. In July 2012, PM USA paid an amount of $2.5 million in satisfaction of the judgment and associated costs. This litigation has concluded.
February 2011	Hatziyannakis	A Broward County jury returned a verdict in favor of plaintiff and against PM USA.  The jury awarded approximately $270,000 in compensatory damages and allocated 32% of the fault to PM USA (an amount of approximately $86,000).	In April 2011, the trial court denied PM USA’s post-trial motions for a new trial and to set aside the verdict. In June 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted an $86,000 appeal bond. On January 16, 2013, the Fourth District affirmed per curiam the trial court’s decision without issuing an opinion. On January 31, 2013, PM USA filed a motion for a citation in order to facilitate further review of the case in the Florida Supreme Court, which was denied. On March 6, 2013, the Fourth District denied PM USA’s various motions for post-decision relief. On April 3, 2013, PM USA filed a motion seeking a 60-day extension on its petition for writ of certiorari to the United States Supreme Court, which was granted on April 9, 2013. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $174,000 for the judgment plus interest and associated costs.
August 2010	Piendle	A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $4 million in compensatory damages and allocated 27.5% of the fault to PM USA (an amount of approximately $1.1 million). The jury also awarded $90,000 in punitive damages against PM USA.	In June 2012, the Florida Fourth District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In the third quarter of 2012, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.7 million for the judgment plus interest and associated costs and paid such amount in November 2012. In the first quarter of 2013, PM USA paid related fees in the amount of approximately $100,000. This litigation has concluded.

- 28-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
July 2010	Kayton (formerly Tate)	A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $8 million in compensatory damages and allocated 64% of the fault to PM USA (an amount of approximately $5.1 million). The jury also awarded approximately $16.2 million in punitive damages against PM USA.	In August 2010, the trial court entered final judgment, and PM USA filed its notice of appeal and posted a $5 million appeal bond. In November 2012, the Florida Fourth District Court of Appeal reversed the punitive damages award and remanded the case for a new trial on plaintiff's conspiracy claim. Upon retrial, if the jury finds in plaintiff's favor on that claim, the original $16.2 million punitive damages award will be reinstated. PM USA filed a motion for rehearing, which was denied on January 18, 2013. On January 29, 2013, plaintiffs filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA also filed a notice on January 31, 2013 to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA filed a motion to stay the mandate, which was denied on March 6, 2013. The Fourth District issued its mandate on April 10, 2013.
April 2010	Putney	A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Liggett Group. The jury awarded approximately $15.1 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of approximately $2.3 million). The jury also awarded $2.5 million in punitive damages against PM USA.	In August 2010, the trial court entered final judgment. PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted a $1.6 million appeal bond. Argument on the merits of the appeal occurred in September 2012.

- 29-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
March 2010	R. Cohen	A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $10 million in compensatory damages and allocated 33 1/3% of the fault to PM USA (an amount of approximately $3.3 million). The jury also awarded a total of $20 million in punitive damages, assessing separate $10 million awards against each defendant.	In July 2010, the trial court entered final judgment and, in August 2010, PM USA filed its notice of appeal. In October 2010, PM USA posted a $2.5 million appeal bond. In September 2012, the Florida Fourth District Court of Appeal affirmed the compensatory damages award but reversed and remanded the punitive damages verdict. The Fourth District returned the case to the trial court for a new jury trial on plaintiff’s fraudulent concealment claim. If the jury finds in plaintiff’s favor on that claim, the $10 million punitive damages award against each defendant will be reinstated. In October 2012, both plaintiff and defendants filed petitions for rehearing, which the Fourth District denied in December 2012. On January 14, 2013, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. Plaintiff also filed notice to invoke the discretionary jurisdiction of the Florida Supreme Court on January 18, 2013. On February 8, 2013, the Fourth District granted defendants’ motion to stay the mandate. On March 12, 2013, plaintiff filed a motion for review of the stay order with the Florida Supreme Court, which was denied on April 12, 2013.

- 30-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
March 2010	Douglas	A Hillsborough County jury returned a verdict in favor of the plaintiff and against PM USA, R.J. Reynolds and Liggett Group. The jury awarded $5 million in compensatory damages. Punitive damages were dismissed prior to trial. The jury allocated 18% of the fault to PM USA, resulting in an award of $900,000.	In June 2010, PM USA filed its notice of appeal and posted a $900,000 appeal bond. In March 2012, the Florida Second District Court of Appeal issued a decision affirming the judgment and upholding the use of the Engle jury findings but certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. In April 2012, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In May 2012, the Florida Supreme Court accepted jurisdiction of the case. Argument occurred in September 2012. On March 14, 2013, the Florida Supreme Court affirmed the final judgment entered in favor of the plaintiff and issued its mandate on April 15, 2013. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.2 million for the judgment plus interest and associated costs.

- 31-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
November 2009	Naugle	A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded approximately $56.6 million in compensatory damages and $244 million in punitive damages. The jury allocated 90% of the fault to PM USA.	In March 2010, the trial court entered final judgment reflecting a reduced award of approximately $13 million in compensatory damages and $26 million in punitive damages. In April 2010, PM USA filed its notice of appeal and posted a $5 million appeal bond. In August 2010, upon the motion of PM USA, the trial court entered an amended final judgment of approximately $12.3 million in compensatory damages and approximately $24.5 million in punitive damages to correct a clerical error. In June 2012, the Fourth District Court of Appeal affirmed the amended final judgment. In July 2012, PM USA filed a motion for rehearing. In December 2012, the Fourth District withdrew its prior decision, reversed the verdict as to compensatory and punitive damages and returned the case to the trial court for a new trial on the question of damages. In December 2012, plaintiff filed a motion for rehearing en banc or for certification to the Florida Supreme Court, which was denied on January 25, 2013. On February 8, 2013, PM USA filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. Plaintiff also filed a notice on February 22, 2013 to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA filed a motion to stay the mandate, which was denied on February 26, 2013. The Fourth District issued its mandate on March 15, 2013.
August 2009	F. Campbell	An Escambia County jury returned a verdict in favor of plaintiff and against R.J. Reynolds, PM USA and Liggett Group. The jury awarded $7.8 million in compensatory damages. In September 2009, the trial court entered final judgment and awarded plaintiff $156,000 in damages against PM USA due to the jury allocating only 2% of the fault to PM USA.	In March 2011, the Florida First District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In May 2012, PM USA paid an amount of approximately $262,000 in satisfaction of the judgment and associated costs and interest. This litigation has concluded.

- 32-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Plaintiff	Verdict	Post-Trial Developments
August 2009	Barbanell	A Broward County jury returned a verdict in favor of plaintiff, awarding $5.3 million in compensatory damages. The judge had previously dismissed the punitive damages claim. In September 2009, the trial court entered final judgment and awarded plaintiff $1.95 million in actual damages. The judgment reduced the jury’s $5.3 million award of compensatory damages due to the jury allocating 36.5% of the fault to PM USA.	A notice of appeal was filed by PM USA in September 2009, and PM USA posted a $1.95 million appeal bond. In February 2012, the Florida Fourth District Court of Appeal reversed the judgment, holding that the statute of limitations barred plaintiff’s claims. In October 2012, on motion for rehearing, the Fourth District withdrew its prior decision and affirmed the trial court’s judgment. In November 2012, PM USA filed a notice to invoke the jurisdiction of the Florida Supreme Court. In December 2012, the Florida Supreme Court granted a partial stay pending its disposition of the J. Brown case against R.J. Reynolds and the Fourth District issued its mandate.
February 2009	Hess	A Broward County jury found in favor of plaintiffs and against PM USA. The jury awarded $3 million in compensatory damages and $5 million in punitive damages. In June 2009, the trial court entered final judgment and awarded plaintiffs $1.26 million in actual damages and $5 million in punitive damages. The judgment reduced the jury’s $3 million award of compensatory damages due to the jury allocating 42% of the fault to PM USA.	PM USA noticed an appeal to the Fourth District Court of Appeal in July 2009. In May 2012, the Fourth District reversed and vacated the punitive damages award and affirmed the judgment in all other respects, upholding the compensatory damages award of $1.26 million. In June 2012, both parties filed rehearing motions with the Fourth District, which were denied in September 2012. In October 2012, PM USA and plaintiffs filed notices to invoke the Florida Supreme Court’s discretionary jurisdiction. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $3.2 million for the judgment plus interest and associated costs.

Appeals of Engle Progeny Verdicts

Plaintiffs in various Engle progeny cases have appealed adverse rulings or verdicts, and in some cases, PM USA has cross-appealed. PM USA’s appeals of adverse verdicts are discussed in the chart above.

Since the remand of B. Brown (discussed above under the heading Federal Engle Progeny Cases), several state appellate rulings have superseded the Eleventh Circuit’s ruling on Florida state law. These cases include Martin, an Engle progeny case against R.J. Reynolds in Escambia County and J. Brown, an Engle progeny case against R.J. Reynolds in Broward County. In Martin, the Florida First District Court of Appeal rejected the B. Brown ruling as a matter of state law and upheld the use of the Engle findings to relax plaintiffs’ burden of proof. R.J. Reynolds had sought Florida Supreme Court review in that case but, in July 2011, the Florida Supreme Court declined to hear the appeal. In December 2011, petitions for certiorari were filed with the United States Supreme Court by R.J. Reynolds in Campbell, Martin, Gray and Hall and by PM USA and Liggett Group in Campbell. The United States Supreme Court denied defendants’ certiorari petitions in March 2012.

- 33-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In J. Brown, the Florida Fourth District Court of Appeal also rejected the B. Brown ruling as a matter of state law and upheld the use of the Engle findings to relax plaintiffs’ burden of proof. However, the Fourth District expressly disagreed with the First District’s Martin decision by ruling that Engle progeny plaintiffs must prove legal causation on their claims. In addition, the J. Brown court expressed concerns that using the Engle findings to reduce plaintiffs’ burden may violate defendants’ due process rights. In October 2011, the Fourth District denied R.J. Reynolds’ motion to certify J. Brown to the Florida Supreme Court for review. R.J. Reynolds is seeking review of the case by the Florida Supreme Court.

In Douglas, in March 2012, the Florida Second District Court of Appeal issued a decision affirming the judgment of the trial court in favor of the plaintiff and upholding the use of the Engle jury findings with respect to strict liability claims but certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. On March 14, 2013, the Florida Supreme Court affirmed the final judgment entered in favor of plaintiff, upholding the use of the Engle jury findings with respect to strict liability and negligence claims.

In Koballa, in October 2012, the Florida Fifth District Court of Appeal issued a decision affirming the judgment of the trial court in favor of the plaintiff and upholding the use of the Engle jury findings with respect to negligence, concealment and conspiracy claims but, like Douglas, certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. In November 2012, R.J. Reynolds filed an appeal to the Florida Supreme Court and the court entered a stay in the case pending resolution of the Douglas case.

As noted above in Federal Engle Progeny Cases, there has been no federal appellate review of the federal due process issues raised by the use of findings from the original Engle trial in Engle progeny cases, although several appeals brought by R.J. Reynolds are pending.

Because of the substantial period of time required for the federal and state appellate processes, it is possible that PM USA may have to pay additional outstanding judgments in the Engle progeny cases before the final adjudication of these issues by the Florida Supreme Court or the United States Supreme Court.

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 purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.

Class certification has been denied or reversed by courts in 59 smoking and health class actions involving PM USA in Arkansas (1), California (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), Pennsylvania (1), Puerto Rico (1), South Carolina (1), Texas (1) and Wisconsin (1).

As of April 22, 2013, PM USA and Altria Group, Inc. 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. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

Scott Class Action

Following a 2004 verdict that awarded plaintiffs approximately $590 million to fund a 10-year smoking cessation program and a series of appeals and other post-trial motions, PM USA recorded in the second quarter of 2011 a provision on its condensed consolidated balance sheet of approximately $36 million related to the judgment and approximately $5 million related to interest, which was in addition to a previously recorded provision of approximately $30 million. In August 2011, PM USA paid its share of the judgment and interest in an amount of approximately $70 million.

- 34-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In October 2011, plaintiffs’ counsel filed a motion for an award of attorneys’ fees and costs. In December 2012, the trial court awarded the plaintiffs’ counsel attorneys’ fees in an amount of approximately $103 million, all of which have now been paid from the court supervised fund. This litigation has concluded.

Other Medical Monitoring Class Actions

In addition to the Scott class action discussed above, two purported medical monitoring class actions are pending against PM USA. These two cases were brought in New York (Caronia, filed in January 2006 in the U.S. District Court for the Eastern District of New York) and Massachusetts (Donovan, filed in December 2006 in the U.S. District Court for the District of Massachusetts) on behalf of each state’s respective residents who: are age 50 or older; have smoked the Marlboro brand for 20 pack-years or more; and have neither been diagnosed with lung cancer nor are under investigation by a physician for suspected lung cancer. Plaintiffs in these cases seek to impose liability under various product-based causes of action and the creation of a court-supervised program providing members of the purported class Low Dose CT Scanning in order to identify and diagnose lung cancer. Plaintiffs in these cases do not seek punitive damages. A case brought in California (Xavier) was dismissed in July 2011, and a case brought in Florida (Gargano) was voluntarily dismissed with prejudice in August 2011.

In Caronia, in February 2010, the district court granted in part PM USA’s summary judgment motion, dismissing plaintiffs’ strict liability and negligence claims and certain other claims, granted plaintiffs leave to amend their complaint to allege a medical monitoring cause of action and requested further briefing on PM USA’s summary judgment motion as to plaintiffs’ implied warranty claim and, if plaintiffs amend their complaint, their medical monitoring claim. In March 2010, plaintiffs filed their amended complaint and PM USA moved to dismiss the implied warranty and medical monitoring claims. In January 2011, the district court granted PM USA’s motion, dismissed plaintiffs’ claims and declared plaintiffs’ motion for class certification moot in light of the dismissal of the case. The plaintiffs have appealed that decision to the U.S. Court of Appeals for the Second Circuit. Argument before the Second Circuit was heard in March 2012.

In Donovan, the Supreme Judicial Court of Massachusetts, in answering questions certified to it by the district court, held in October 2009 that under certain circumstances state law recognizes a claim by individual smokers for medical monitoring despite the absence of an actual injury. The court also ruled that whether or not the case is barred by the applicable statute of limitations is a factual issue to be determined by the trial court. The case was remanded to federal court for further proceedings. In June 2010, the district court granted in part the plaintiffs’ motion for class certification, certifying the class as to plaintiffs’ claims for breach of implied warranty and violation of the Massachusetts Consumer Protection Act, but denying certification as to plaintiffs’ negligence claim. In July 2010, PM USA petitioned the U.S. Court of Appeals for the First Circuit for appellate review of the class certification decision. The petition was denied in September 2010. As a remedy, plaintiffs have proposed a 28-year medical monitoring program with an approximate cost of $190 million. In June 2011, plaintiffs filed various motions for summary judgment and to strike affirmative defenses, which the district court denied in March 2012 without prejudice. In October 2011, PM USA filed a motion for class decertification, which motion was denied in March 2012. On February 28, 2013, the district court amended the class definition to extend to individuals who satisfy the class membership criteria through February 26, 2013, and to exclude any individual who was not a Massachusetts resident as of February 26, 2013. A trial date has not been set.

Evolving medical standards and practices could have an impact on the defense of medical monitoring claims. For example, the first publication of the findings of the National Cancer Institute’s National Lung Screening Trial (NLST) in June 2011 reported a 20% reduction in lung cancer deaths among certain long-term smokers receiving Low Dose CT Scanning for lung cancer. Since then, various public health organizations have begun to develop new lung cancer screening guidelines. Also, a number of hospitals have advertised the availability of screening programs and some insurance companies now cover screening for some individuals. Other studies in this area are ongoing.

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 as well. Relief sought by some but not all plaintiffs includes punitive damages, multiple damages and other statutory damages and penalties,

- 35-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

The claims asserted include the claim that cigarette manufacturers were “unjustly enriched” by plaintiffs’ payment of health care costs allegedly attributable to smoking, as well as claims of indemnity, negligence, strict liability, breach of express and implied warranty, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under federal and state statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under federal and state anti-racketeering statutes.

Defenses raised include lack of proximate cause, remoteness of injury, failure to state a valid claim, lack of benefit, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), lack of antitrust standing and injury, federal preemption, lack of statutory authority to bring suit, and statutes of limitations. In addition, defendants argue that they should be entitled to “set off” any alleged damages to the extent the plaintiffs benefit economically from the sale of cigarettes through the receipt of excise taxes or otherwise. Defendants also argue that these cases are improper because plaintiffs must proceed under principles of subrogation and assignment. Under traditional theories of recovery, a payor of medical costs (such as an insurer) can seek recovery of health care costs from a third party solely by “standing in the shoes” of the injured party. Defendants argue that plaintiffs should be required to bring any actions as subrogees of individual health care recipients and should be subject to all defenses available against the injured party.

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 United States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five circuit courts of appeals. In 2011, in the health care cost recovery case brought against PM USA and other defendants by the City of St. Louis, Missouri and approximately 40 Missouri hospitals, a verdict was returned in favor of defendants.

Individuals and associations have also sued in purported class actions or as private attorneys general under the Medicare as Secondary Payer (“MSP”) provisions of the Social Security Act to recover from defendants Medicare expenditures allegedly incurred for the treatment of smoking-related diseases. Cases were brought in New York (2), Florida (2) and Massachusetts (1). All were dismissed by federal courts.

In addition to the cases brought in the United States, health care cost recovery actions have also been brought against tobacco industry participants, including PM USA and Altria Group, Inc., in Israel (dismissed), the Marshall Islands (dismissed), and Canada (9), and other entities have stated that they are considering filing such actions.

In September 2005, in the first of several health care cost recovery cases filed in Canada, the Canadian Supreme Court ruled that legislation passed in British Columbia permitting the lawsuit is constitutional, and, as a result, the case, which had previously been dismissed by the trial court, was permitted to proceed. PM USA’s and other defendants’ challenge to the British Columbia court’s exercise of jurisdiction was rejected by the Court of Appeals of British Columbia and, in April 2007, the Supreme Court of Canada denied review of that decision. In December 2009, the Court of Appeals of British Columbia ruled that certain defendants can proceed against the Federal Government of Canada as third parties on the theory that the Federal Government of Canada negligently misrepresented to defendants the efficacy of a low tar tobacco variety that the Federal Government of Canada developed and licensed to defendants. In May 2010, the Supreme Court of Canada granted leave to the Federal Government of Canada to appeal this decision and leave to defendants to cross-appeal the Court of Appeals’ decision to dismiss claims against the Federal Government of Canada based on other theories of liability. In July 2011, the Supreme Court of Canada dismissed the third-party claims against the Federal Government of Canada.

Since the beginning of 2008, the Canadian Provinces of New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Alberta, Manitoba, Saskatchewan and Prince Edward Island 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 Group, Inc. and PM USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan and Prince Edward Island cases. The Province of Nova Scotia and the territory of Nunavut have enacted similar legislation or are in the process of enacting similar legislation. See Guarantees and Other Similar Matters

- 36-

Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

below for a discussion of the Distribution Agreement between Altria Group, Inc. 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 United States tobacco product manufacturers entered into the the MSA with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously settled 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 make annual payments of approximately $9.4 billion, subject to adjustments for several factors, including inflation, market share and industry volume. In addition, the original participating manufacturers are required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. For the three months ended March 31, 2013 and 2012, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements and the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) was approximately $0.6 billion and $1.1 billion, respectively. The 2013 amount includes a credit of $483 million related to the NPM Adjustment discussed below.

The State Settlement Agreements also include provisions relating to advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to certain tobacco control and underage use laws, restrictions on lobbying activities and other provisions.

Possible Adjustments in MSA Payments for 2003 - 2012

Pursuant to the provisions of the MSA, domestic tobacco product manufacturers, including PM USA, who are original signatories to the MSA (the “Original Participating Manufacturers” or “OPMs”) are participating in proceedings with respect to claims for downward adjustments to the amounts paid by the OPMs and the other MSA-participating manufacturers to the states and territories that are parties to the MSA for each of the years 2003 - 2012. The proceedings relate to a NPM Adjustment based on the collective loss of market share for the relevant year by all participating manufacturers who are subject to the payment obligations and marketing restrictions of the MSA to non-participating manufacturers (“NPMs”) who are not subject to such obligations and restrictions.

As part of these proceedings, an independent economic consulting firm jointly selected by the MSA parties or otherwise selected pursuant to the MSA’s provisions is required to determine whether the disadvantages of the MSA were a “significant factor” contributing to the participating manufacturers’ collective loss of market share for the year in question. If the firm determines that the disadvantages of the MSA were such a “significant factor,” each state may avoid a downward adjustment to its share of the participating manufacturers’ annual payments for that year by establishing that it diligently enforced a qualifying escrow statute during the entirety of that year. Such a state’s share of the downward adjustment would then be reallocated to any states that are found not to have established such diligent enforcement. PM USA believes that the MSA’s arbitration clause requires a state to submit its claim to have diligently enforced a qualifying escrow statute to binding arbitration before a panel of three former federal judges in the manner provided for in the MSA. A number of states have taken the position that this claim should be decided in state court on a state-by-state basis.

An independent economic consulting firm, jointly selected by the MSA parties, determined that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for each of the years 2003 - 2005. A different independent economic consulting firm, jointly selected by the MSA parties, determined that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for the year 2006. Following the firm’s determination for 2006, the OPMs and the states agreed that the states would not contest that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for the years 2007, 2008 and 2009. Accordingly, the OPMs and the states have agreed that no “significant factor” determination by an independent economic consulting firm will be necessary with respect to the participating manufacturers’ collective loss of market share for the years 2007, 2008 and 2009 (the “significant factor agreement”). This agreement became effective for 2007, 2008 and 2009 on February 1, 2010, 2011 and 2012, respectively. The OPMs and the states have agreed to extend the significant factor agreement to apply to the participating manufacturers’ collective loss of market share for 2010, 2011 and 2012. This agreement became effective for 2010 on February 1, 2013 and will become effective for 2011 and 2012 on February 1, 2014 and 2015, respectively.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Following the “significant factor” determination with respect to 2003, 38 states filed declaratory judgment actions in state courts seeking a declaration that the state diligently enforced its escrow statute during 2003. The OPMs and other MSA-participating manufacturers responded to these actions by filing motions to compel arbitration in accordance with the terms of the MSA, including filing motions to compel arbitration in 11 MSA states and territories that did not file declaratory judgment actions. Courts in all but one of the 46 MSA states and the District of Columbia and Puerto Rico have ruled that the question of whether a state diligently enforced its escrow statute during 2003 is subject to arbitration. Several of these rulings may be subject to further review. The Montana state courts have ruled that the diligent enforcement claims of that state may be litigated in state court, rather than in arbitration. In June 2012, following the denial of the OPMs’ petition to the United States Supreme Court for writ of certiorari, the participating manufacturers and Montana entered into a consent decree pursuant to which Montana will not be subject to the 2003 NPM Adjustment.

PM USA, the other OPMs and approximately 25 other MSA-participating manufacturers have entered into an agreement regarding arbitration with 45 MSA states and territories concerning the 2003 NPM Adjustment, including the states’ claims of diligent enforcement for 2003. The agreement further provides for a partial liability reduction for the 2003 NPM Adjustment for states that entered into the agreement by January 30, 2009 and are determined in the arbitration not to have diligently enforced a qualifying escrow statute during 2003. Based on the number of states that entered into the agreement by January 30, 2009 (45), the partial liability reduction for those states is 20%. The partial liability reduction would reduce the amount of PM USA’s 2003 NPM Adjustment by up to a corresponding percentage. The selection of the arbitration panel for the 2003 NPM Adjustment was completed in July 2010, and the arbitration is currently ongoing. Following the completion of discovery, the participating manufacturers determined to continue to contest the 2003 diligent enforcement claims of 33 states, the District of Columbia and Puerto Rico and to no longer contest such claims by 12 states and four U.S. territories (the “non-contested states”). As a result, the non-contested states will not be subject to the 2003 NPM Adjustment. The non-contested states’ share of any such NPM Adjustment (other than those non-contested states that have joined the Term Sheet discussed below), along with the shares of any states found by the arbitration panel to have diligently enforced during 2003, will be reallocated in accordance with the MSA to those states, if any, found by the panel not to have diligently enforced during 2003. Proceedings to determine state diligent enforcement claims for the years 2004 through 2012 have not yet been scheduled.

Once a significant factor determination in favor of the participating manufacturers for a particular year has been made by an economic consulting firm, or the states’ agreement not to contest significant factor for a particular year has become effective, PM USA has the right under the MSA to pay the disputed amount of the NPM Adjustment for that year into a disputed payments account (“DPA”) or withhold it altogether. PM USA has made its full MSA payment due in each year from 2006 - 2010 to the states (subject to a right to recoup the NPM Adjustment amount in the form of a credit against future MSA payments), even though it had the right to deduct the disputed amounts of the 2003 - 2007 NPM Adjustments, as described above, from such MSA payments. PM USA paid its share of the amount of the disputed 2008, 2009 and 2010 NPM Adjustments shown below into the DPA in connection with its MSA payments due in 2011, 2012 and 2013, respectively. The approximate maximum principal amounts of PM USA’s share of the disputed NPM Adjustment for the years 2003 through 2012, as currently calculated by the MSA’s Independent Auditor, are as follows (the amounts shown below do not include the interest or earnings thereon to which PM USA believes it would be entitled in the manner provided in the MSA, do not reflect the partial liability reduction for the 2003 NPM Adjustment pursuant to the arbitration agreement described above and do not reflect any reduction in light of the Term Sheet described below):

Year for which NPM Adjustment calculated	2003	2004	2005	2006	2007	2008		2009		2010		2011		2012
Year in which deduction for NPM Adjustment may be taken	2006	2007	2008	2009	2010	2011		2012		2013		2014		2015
PM USA’s Approximate Share of Disputed NPM Adjustment (in millions)	$337	$388	$181	$154	$185	$	250	$	205	$	203	$	159	$199

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Effective December 17, 2012, PM USA, the other OPMs and certain other participating manufacturers entered into a term sheet (the “Term Sheet”) with 17 MSA states, the District of Columbia and Puerto Rico for settlement of the 2003 - 2012 NPM Adjustments with those states and territories (the “signatory states”). On March 12, 2013, the arbitration panel in the pending NPM Adjustment arbitration issued a stipulated partial settlement and award (the “Stipulated Award”) permitting the Term Sheet to proceed. As of April 22, 2013, eight of the states that have not joined the Term Sheet (“non-signatory states”) have filed motions in their state MSA courts to vacate and/or modify the Stipulated Award. Two of these states, Colorado and Ohio, also sought preliminary injunctive relief with respect to the Stipulated Award. The Colorado motion for a preliminary injunction was denied on April 11, 2013, and the Ohio motion for a preliminary injunction was denied on April 12, 2013. Additional non-signatory states may also take action in state court to vacate or modify the Stipulated Award. No assurance can be given that this litigation or any other such attempts by other non-signatory states will be resolved in a manner favorable to PM USA, nor can PM USA predict the remedy that might be ordered if any such litigation were to be resolved unfavorably to PM USA. PM USA continues to reserve all rights regarding the NPM Adjustments with respect to the non-signatory states. An additional MSA state joined the Term Sheet on April 12, 2013, and it is possible that more states will also join.

The Term Sheet provides for the OPMs to receive reductions to their MSA payments in an amount equal to 46% of the signatory states’ aggregate allocable share of the OPMs’ aggregate 2003 - 2012 NPM Adjustments. The OPMs have agreed that, subject to certain conditions, PM USA will receive approximately 28% of such reductions (which is the maximum percentage allocation of the total 2003 - 2012 NPM Adjustments to which PM USA was entitled under the MSA); R.J. Reynolds will receive approximately 60% of such reductions; and Lorillard will receive approximately 12% of such reductions. Based on the identity of the signatory states on April 15, 2013, the reduction in PM USA’s MSA payment obligation was approximately $483 million. PM USA recorded this amount as an increase in its reported pre-tax earnings in the first quarter of 2013.

PM USA received all of its reduction under the Term Sheet through a credit against its April 2013 MSA payment. R.J. Reynolds and Lorillard received part of their reductions through credits against their April 2013 MSA payments and are expected to receive the remainder through reductions in their MSA payments in April 2014 - April 2017.

As part of the settlement, each of the signatory states received its portion of over $4.7 billion from the DPA. In this context, PM USA authorized release to the signatory states of their allocable share of the $658 million that PM USA has paid into the DPA (plus the accumulated earnings thereon), which amounted to approximately $272 million. Furthermore, PM USA will deposit the signatory states’ allocable share of the 2011 - 2012 NPM Adjustments into the DPA in connection with its April 2014 - 2015 MSA payments and then, following such deposit, authorize the release of such share to the signatory states.

The Term Sheet also provides that the NPM Adjustment provision will be revised and streamlined as to the signatory states for years after 2012. In connection with the settlement, the formula for allocating among the OPMs the revised NPM Adjustments applicable in the future to the signatory states will be modified in a manner favorable to PM USA, although the extent to which it is favorable to PM USA will be dependent upon certain future events, including the future relative market shares of the OPMs.

PM USA intends to continue to pursue vigorously the disputed NPM Adjustments for 2003 - 2012 against the non-signatory states through the arbitration proceedings described above. The amounts of the NPM Adjustments for 2003 - 2012 set forth in the table above will be reduced in light of the Term Sheet to determine the maximum amount of such adjustments potentially available from the non-signatory states. As part of the Stipulated Award, the arbitration panel ruled that the 2003 NPM Adjustment claim is to be reduced pro rata by the aggregate allocable share of the signatory states to determine the maximum amount of the 2003 NPM Adjustment potentially available from the non-signatory states, although a non-signatory state may seek a more favorable reduction method as to it through review in its state court. (The amount of the 2003 NPM Adjustment allocated to any non-signatory state found not to be diligent for that year will also be reduced by the partial liability reduction under the agreement regarding arbitration described above.) The Stipulated Award did not specify the reduction method applicable to the 2004 - 2012 NPM Adjustment claims. Many of the state court actions to vacate and/or modify the Stipulated Award brought by the non-signatory states described above seek relief with respect to the pro rata reduction method.

The amounts in the table above may be recalculated by the MSA’s Independent Auditor if it receives information that is different from or in addition to the information on which it based these calculations, including, among other things, if it receives revised sales volumes from any participating manufacturer. Disputes among the manufacturers could also reduce the foregoing amounts. The availability and the precise amount of any NPM Adjustment for 2003 - 2012 obtained through such proceedings

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(as opposed to the Term Sheet) will not be finally determined until later in 2013 or thereafter. There is no certainty that the OPMs and other MSA-participating manufacturers would ultimately receive any adjustment from the non-signatory states as a result of these proceedings, and the amount of any adjustment received for a year could be less than the amount for that year listed above (even as reduced in light of the Term Sheet). If the OPMs do receive such an adjustment through these proceedings (apart from the Term Sheet), the adjustment would be allocated among the OPMs pursuant to the MSA’s provisions. It is expected that PM USA would receive its share of any adjustments for 2003 - 2007 in the form of a credit against future MSA payments and its share of any adjustment for 2008 - 2010 in the form of a withdrawal from the DPA.

Other Disputes Related to MSA Payments

In addition to the disputed NPM Adjustments described above, MSA states and participating manufacturers, including PM USA, conducted another arbitration to resolve certain other disputes related to the calculation of the participating manufacturers’ payments under the MSA. PM USA disputed the method by which ounces of “roll your own” tobacco had been converted to cigarettes for purposes of calculating the downward volume adjustments to its MSA payments. PM USA believed that, for the years 2004 − 2012, the use of an incorrect conversion method resulted in excess MSA payments by PM USA in those years of approximately $92 million in the aggregate. On February 14, 2013, the arbitration panel issued a ruling in favor of the MSA states. Consequently, PM USA will not receive any credit against its future MSA payments on account of this dispute. This same arbitration panel also issued a ruling in the dispute over whether the “adjusted gross” or the “net” number of cigarettes on which federal excise tax is paid is the correct methodology for calculating MSA payments due from certain subsequent participating manufacturers. It is unclear precisely which past and future MSA payments may be affected by this ruling. PM USA also does not currently have access to the data that would be necessary to determine the magnitude and the direction of such effects, if any.

Other MSA-Related Litigation

Since the MSA’s inception, NPMs and/or their distributors or customers have filed a number of challenges to the MSA and related legislation. They have named as defendants the states and their officials, in an effort to enjoin enforcement of important parts of the MSA and related legislation, and/or participating manufacturers, in an effort to obtain damages. To date, no such challenge has been successful, and the U.S. Court of Appeals for the Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth and Tenth Circuits have affirmed judgments in favor of defendants in 16 such cases.

Federal Government’s Lawsuit

In 1999, the United States 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 Group, Inc., asserting claims under three federal statutes, namely the Medical Care Recovery Act (“MCRA”), the MSP provisions of the Social Security Act and the civil provisions of RICO. Trial of the case ended in June 2005. The lawsuit sought to recover an unspecified amount of health care costs for tobacco-related illnesses allegedly caused by defendants’ fraudulent and tortious conduct and paid for by the government under various federal health care programs, including Medicare, military and veterans’ health benefits programs, and the Federal Employees Health Benefits Program. The complaint alleged that such costs total more than $20 billion annually. It also sought what it alleged to be equitable and declaratory relief, including disgorgement of profits that arose from defendants’ allegedly tortious conduct, an injunction prohibiting certain actions by defendants, and a declaration that defendants are liable for the federal government’s future costs of providing health care resulting from defendants’ alleged past tortious and wrongful conduct. In September 2000, the trial court dismissed the government’s MCRA and MSP claims, but permitted discovery to proceed on the government’s claims for relief under the civil provisions of RICO.

The government alleged that disgorgement by defendants of approximately $280 billion is an appropriate remedy. In May 2004, the trial court issued an order denying defendants’ motion for partial summary judgment limiting the disgorgement remedy. In February 2005, a panel of the U.S. Court of Appeals for the District of Columbia Circuit held that disgorgement is not a remedy available to the government under the civil provisions of RICO and entered summary judgment in favor of defendants with respect to the disgorgement claim. In July 2005, the government petitioned the United States Supreme Court for further review of the Court of Appeals’ ruling that disgorgement is not an available remedy, and in October 2005, the Supreme Court denied the petition.

In June 2005, the government filed with the trial court its proposed final judgment seeking remedies of approximately $14 billion, including $10 billion over a five-year period to fund a national smoking cessation program and $4 billion over a 10-

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

year period to fund a public education and counter-marketing campaign. Further, the government’s proposed remedy would have required defendants to pay additional monies to these programs if targeted reductions in the smoking rate of those under 21 were not achieved according to a prescribed timetable. The government’s proposed remedies also included a series of measures and restrictions applicable to cigarette business operations, including, but not limited to, restrictions on advertising and marketing, potential measures with respect to certain price promotional activities and research and development, disclosure requirements for certain confidential data and implementation of a monitoring system with potential broad powers over cigarette operations.

In August 2006, the federal trial court entered judgment in favor of the government. The court held that certain defendants, including Altria Group, Inc. and PM USA, violated RICO and engaged in seven of the eight “sub-schemes” to defraud that the government had alleged. Specifically, the court found that:

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

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

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

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

• defendants falsely denied that they intentionally marketed to youth;

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

• defendants suppressed scientific research.

The court did not impose monetary penalties on defendants, but ordered the following relief: (i) an injunction against “committing any act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States; (ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each; (iii) an injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes”; (iv) an injunction against conveying any express or implied health message through use of 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; (v) 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 environmental tobacco smoke; (vi) the disclosure on defendants’ public document websites and in the Minnesota document repository of all documents produced to the government in the lawsuit or produced in any future court or administrative action concerning smoking and health until 2021, with certain additional requirements as to documents withheld from production under a claim of privilege or confidentiality; (vii) the disclosure of disaggregated marketing data to the government in the same form and on the same schedule as defendants now follow in disclosing such data to the Federal Trade Commission (“FTC”) for a period of ten years; (viii) certain restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette businesses within the United States; and (ix) payment of the government’s costs in bringing the action.

Defendants appealed and, in May 2009, a three judge panel of the Court of Appeals for the District of Columbia Circuit issued a per curiam decision largely affirming the trial court’s judgment against defendants and in favor of the government. Although the panel largely affirmed the remedial order that was issued by the trial court, it vacated the following aspects of the order:

• its application to defendants’ subsidiaries;

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

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

• its point-of-sale display provisions; and

• its application to Brown & Williamson Holdings.

The Court of Appeals panel remanded the case for the trial court to reconsider these four aspects of the injunction and to reformulate its remedial order accordingly.

Furthermore, the Court of Appeals panel rejected all of the government’s and intervenors’ cross appeal arguments and refused to broaden the remedial order entered by the trial court. The Court of Appeals panel also left undisturbed its prior holding that the government cannot obtain disgorgement as a permissible remedy under RICO.

In July 2009, defendants filed petitions for a rehearing before the panel and for a rehearing by the entire Court of Appeals. Defendants also filed a motion to vacate portions of the trial court’s judgment on the grounds of mootness because of the passage of the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), granting the U.S. Food and Drug Administration (the “FDA”) broad authority over the regulation of tobacco products. In September 2009, the Court of Appeals entered three per curiam rulings. Two of them denied defendants’ petitions for panel rehearing or for rehearing en banc. In the third per curiam decision, the Court of Appeals denied defendants’ suggestion of mootness and motion for partial vacatur. In February 2010, PM USA and Altria Group, Inc. filed their certiorari petitions with the United States Supreme Court. In addition, the federal government and the intervenors filed their own certiorari petitions, asking the court to reverse an earlier Court of Appeals decision and hold that civil RICO allows the trial court to order disgorgement as well as other equitable relief, such as smoking cessation remedies, designed to redress continuing consequences of prior RICO violations. In June 2010, the United States Supreme Court denied all of the parties’ petitions. In July 2010, the Court of Appeals issued its mandate lifting the stay of the trial court’s judgment and remanding the case to the trial court. As a result of the mandate, except for those matters remanded to the trial court for further proceedings, defendants are now subject to the injunction discussed above and the other elements of the trial court’s judgment.

In February 2011, the government submitted its proposed corrective statements and the trial court referred issues relating to a document repository to a special master. Defendants filed a response to the government’s proposed corrective statements and filed a motion to vacate the trial court’s injunction in light of the FSPTCA, which motion was denied in June 2011. Defendants appealed the trial court’s ruling to the U.S. Court of Appeals for the District of Columbia Circuit. On July 27, 2012, the Court of Appeals affirmed the district court’s denial of defendants’ motion to vacate the district court’s injunction.

Remaining issues pending include: (i) the specifics relating to the court-ordered corrective statements and (ii) the requirements related to point-of-sale signage. On November 27, 2012, the district court issued its order specifying the content of the corrective statements described above. The district court’s order requires that the parties engage in negotiations with the special master regarding implementation of the corrective statements remedy, which negotiations are ongoing. Unresolved issues will be decided by the special master and the court. Defendants filed a notice of appeal from the order on the content of the corrective statements on January 25, 2013 and a motion to hold the appeal in abeyance on January 30, 2013. On February 15, 2013, the U.S. Court of Appeals granted defendants’ motion to hold their appeal in abeyance.

In December 2011, the parties to the lawsuit entered into an agreement as to the issues concerning the document repository. Pursuant to this agreement, PM USA agreed to deposit an amount of approximately $3.1 million into the district court in installments over a five-year period.

“Lights/Ultra Lights” Cases

Overview

Plaintiffs in certain pending matters seek certification of their cases as class actions and allege, 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 seek 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 Group, Inc. or its subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes, including Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lights and Superslims, Merit Lights and Cambridge Lights.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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. As of April 22, 2013, a total of 14 such cases were pending in the United States. Three of these cases were pending in U.S. federal courts as discussed below. The other cases were pending in various U.S. state courts. In addition, a purported “Lights” class action is pending against PM USA in Israel.

In the one “Lights” case pending in Israel (El-Roy), hearings on plaintiffs’ motion for class certification were held in November and December 2008, and an additional hearing on class certification was held in November 2011. On November 28, 2012, the trial court denied the plaintiffs’ motion for class certification and ordered the plaintiffs to pay defendants approximately $100,000 in attorney fees. Plaintiffs in that case have noticed an appeal. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

The Good Case

In May 2006, a federal trial court in Maine granted PM USA’s motion for summary judgment in Good, a purported “Lights” class action, on the grounds that plaintiffs’ claims are preempted by the Federal Cigarette Labeling and Advertising Act (“FCLAA”) and dismissed the case. In December 2008, the United States Supreme Court ruled that plaintiffs’ claims are not barred by federal preemption. Although the Court rejected the argument that the FTC’s actions were so extensive with respect to the descriptors that the state law claims were barred as a matter of federal law, the Court’s decision was limited: it did not address the ultimate merits of plaintiffs’ claim, the viability of the action as a class action, or other state law issues. The case was returned to the federal court in Maine and consolidated with other federal cases in the multidistrict litigation proceeding discussed below. In June 2011, the plaintiffs voluntarily dismissed the case without prejudice after the district court denied plaintiffs’ motion for class certification, concluding the litigation.

Federal Multidistrict Proceeding and Subsequent Developments

Since the December 2008 United States Supreme Court decision in Good, and through April 22, 2013, 26 purported “Lights” class actions were served upon PM USA and, in certain cases, Altria Group, Inc. These cases were filed in 15 states, the U.S. Virgin Islands and the District of Columbia. All of these cases either were filed in federal court or were removed to federal court by PM USA and were transferred and consolidated by the Judicial Panel on Multidistrict Litigation (“JPMDL”) before the U.S. District Court for the District of Maine for pretrial proceedings (“MDL proceeding”).

In November 2010, the district court in the MDL proceeding denied plaintiffs’ motion for class certification in four cases, covering the jurisdictions of California, the District of Columbia, Illinois and Maine. These jurisdictions were selected by the parties as sample cases, with two selected by plaintiffs and two selected by defendants. Plaintiffs sought appellate review of this decision but, in February 2011, the U.S. Court of Appeals for the First Circuit denied plaintiffs’ petition for leave to appeal. Later that year, plaintiffs in 13 cases voluntarily dismissed without prejudice their cases. In April 2012, the JPMDL remanded the remaining four cases (Phillips, Tang, Wyatt and Cabbat) back to the federal district courts in which the suits originated. In Tang, which was pending in the U.S. District Court for the Eastern District of New York, the plaintiffs voluntarily dismissed the case without prejudice in July 2012, concluding the litigation.

In Phillips, which is now pending in the U.S. District Court for the Northern District of Ohio, defendants filed in June 2012 a motion for partial judgment on the pleadings on plaintiffs’ class action consumer sales practices claims and a motion for judgment on the pleadings on plaintiffs’ state deceptive trade practices claims. On March 21, 2013, the court granted defendants’ motions, dismissing with prejudice the associated claims. Plaintiffs’ non-statutory claims of fraud, unjust enrichment, and express and implied warranty were not dismissed. A hearing on plaintiffs’ motion for class certification currently is set for August 30, 2013.

In Cabbat, which is pending in the U.S. District Court for the District of Hawaii, plaintiffs in July 2012 amended their complaint, adding a claim for unjust enrichment and dropping their claims for breach of express and implied warranty. Plaintiffs filed a motion for class certification on April 1, 2013. The trial court scheduled a hearing on plaintiffs’ motion on July 1, 2013 and set a February 11, 2014 trial date.

In Wyatt, which is pending in the U.S. District Court for the Eastern District of Wisconsin, plaintiffs filed a motion for class certification on January 11, 2013.

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

“Lights” Cases Dismissed, Not Certified or Ordered De-Certified

To date, in addition to the district court in the MDL proceeding, 16 courts in 17 “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.

Trial courts in Arizona, Illinois, Kansas, New Jersey, New Mexico, Oregon, Tennessee and Washington have refused to grant class certification or have dismissed plaintiffs’ class action allegations. Plaintiffs voluntarily dismissed a case in Michigan after a trial court dismissed the claims plaintiffs asserted under the Michigan Unfair Trade and Consumer Protection Act.

Several appellate courts have issued rulings that either affirmed rulings in favor of Altria Group, Inc. and/or PM USA or reversed rulings entered in favor of plaintiffs. In Florida, an intermediate appellate court overturned an order by a trial court that granted class certification in Hines. The Florida Supreme Court denied review in January 2008. The Supreme Court of Illinois has overturned a judgment that awarded damages to a certified class in the Price case. See The Price Case below for further discussion. In Louisiana, the U.S. Court of Appeals for the Fifth Circuit dismissed a purported “Lights” class action brought in Louisiana federal court (Sullivan) on the grounds that plaintiffs’ claims were preempted by the FCLAA. In New York, the U.S. Court of Appeals for the Second Circuit overturned a decision by a New York trial court in Schwab that granted plaintiffs’ motion for certification of a nationwide class of all U.S. residents that purchased cigarettes in the United States that were labeled “Light” or “Lights.” In July 2010, plaintiffs in Schwab voluntarily dismissed the case with prejudice. In Ohio, the Ohio Supreme Court overturned class certifications in the Marrone and Phillips cases. Plaintiffs voluntarily dismissed without prejudice both cases in August 2009, but refiled in federal court (discussed above). The Supreme Court of Washington denied a motion for interlocutory review filed by the plaintiffs in the Davies case that sought review of an order by the trial court that refused to certify a class. Plaintiffs subsequently voluntarily dismissed the Davies case with prejudice. In August 2011, the U.S. Court of Appeals for the Seventh Circuit affirmed the Illinois federal district court’s dismissal of “Lights” claims brought against PM USA in the Cleary case. In Curtis, a certified class action, in May 2012, the Minnesota Supreme Court affirmed the trial court’s entry of summary judgment in favor of PM USA, concluding this litigation.

In Lawrence, in August 2012, the New Hampshire Supreme Court reversed the trial court’s order to certify a class and subsequently denied plaintiffs’ rehearing petition. In October 2012, the case was dismissed after plaintiffs filed a motion to dismiss the case with prejudice, concluding this litigation.

In Oregon (Pearson), a state court denied plaintiffs’ motion for interlocutory review of the trial court’s refusal to certify a class. In February 2007, PM USA filed a motion for summary judgment based on federal preemption and the Oregon statutory exemption. In September 2007, the district court granted PM USA’s motion based on express preemption under the FCLAA, and plaintiffs appealed this dismissal and the class certification denial to the Oregon Court of Appeals. Argument was held in April 2010. On April 23, 2013, plaintiffs filed a motion in the Oregon Court of Appeals to certify the appeal to the Oregon Supreme Court.

Other Developments

In December 2009, the state trial court in the Carroll (formerly known as Holmes) case (pending in Delaware) denied PM USA’s motion for summary judgment based on an exemption provision in the Delaware Consumer Fraud Act. In January 2011, the trial court allowed the plaintiffs to file an amended complaint substituting class representatives and naming Altria Group, Inc. and PMI as additional defendants. In July 2011, the parties stipulated to the dismissal without prejudice of Altria Group, Inc. and PMI. On February 6, 2013, the trial court approved the parties’ stipulation to the dismissal without prejudice of Altria Group, Inc. and PMI. PM USA is now the sole defendant in the case.

In June 2007, the United States Supreme Court reversed the lower court rulings in the Miner (formerly known as Watson) case that denied plaintiffs’ motion to have the case heard in a state, as opposed to federal, trial court. The Supreme Court rejected defendants’ contention that the case must be tried in federal court under the “federal officer” statute. The case was removed to federal court in Arkansas and the case was transferred to the MDL proceeding discussed above. In November 2010, the district court in the MDL proceeding remanded the case to Arkansas state court. In December 2011, plaintiffs

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voluntarily dismissed their claims against Altria Group, Inc. without prejudice. A hearing on plaintiffs’ March 13, 2013 class certification motion is scheduled to begin on October 22, 2013.

The Price Case

Trial in the Price case commenced in state court in Illinois in January 2003, and in March 2003, the judge found in favor of the plaintiff class and awarded $7.1 billion in compensatory damages and $3 billion in punitive damages against PM USA. In December 2005, the Illinois Supreme Court reversed the trial court’s judgment in favor of the plaintiffs. In November 2006, the United States Supreme Court denied plaintiffs’ petition for writ of certiorari and, in December 2006, the Circuit Court of Madison County enforced the Illinois Supreme Court’s mandate and dismissed the case with prejudice.

In December 2008, plaintiffs filed with the trial court a petition for relief from the final judgment that was entered in favor of PM USA. Specifically, plaintiffs sought to vacate the judgment entered by the trial court on remand from the 2005 Illinois Supreme Court decision overturning the verdict on the ground that the United States Supreme Court’s December 2008 decision in Good demonstrated that the Illinois Supreme Court’s decision was “inaccurate.” PM USA filed a motion to dismiss plaintiffs’ petition and, in February 2009, the trial court granted PM USA’s motion on the basis that the petition was not timely filed. In March 2009, the Price plaintiffs filed a notice of appeal with the Fifth Judicial District of the Appellate Court of Illinois. In February 2011, the intermediate appellate court ruled that the petition was timely filed and reversed the trial court’s dismissal of the plaintiffs’ petition and, in September 2011, the Illinois Supreme Court declined PM USA’s petition for review. As a result, the case was returned to the trial court for proceedings on whether the court should grant the plaintiffs’ petition to reopen the prior judgment. In February 2012, plaintiffs filed an amended petition, which PM USA opposed. Subsequently, in responding to PM USA’s opposition to the amended petition, plaintiffs asked the trial court to reinstate the original judgment.  The trial court denied plaintiffs’ petition in December 2012. On January 8, 2013, plaintiffs filed a notice of appeal with the Fifth Judicial District. On January 16, 2013, PM USA filed a motion asking the Illinois Supreme Court to immediately exercise its jurisdiction over the appeal. On February 15, 2013, the Illinois Supreme Court denied PM USA’s motion.

In June 2009, the plaintiff in an individual smoker lawsuit (Kelly) brought on behalf of an alleged smoker of “Lights” cigarettes in Madison County, Illinois state court filed a motion seeking a declaration that his claims under the Illinois Consumer Fraud Act are not (i) barred by the exemption in that statute based on his assertion that the Illinois Supreme Court’s decision in Price is no longer good law in light of the decisions by the United States Supreme Court in Good and Watson, and (ii) preempted in light of the United States Supreme Court’s decision in Good. In September 2009, the court granted plaintiff’s motion as to federal preemption, but denied it with respect to the state statutory exemption.

State Trial Court Class Certifications

State trial courts have certified classes against PM USA in several jurisdictions. Over time, several such cases have been dismissed by the courts at the summary judgment stage. Certified class actions remain pending in California (Brown), Massachusetts (Aspinall) and Missouri (Larsen). Significant developments in these cases include:

• Aspinall: In August 2004, the Massachusetts Supreme Judicial Court affirmed the class certification order. In August 2006, the trial court denied PM USA’s motion for summary judgment and granted plaintiffs’ motion for summary judgment on the defenses of federal preemption and a state law exemption to Massachusetts’ consumer protection statute. On motion of the parties, the trial court subsequently reported its decision to deny summary judgment to the appeals court for review and stayed further proceedings pending completion of the appellate review. In December 2008, subsequent to the United States Supreme Court’s decision in Good, the Massachusetts Supreme Judicial Court issued an order requesting that the parties advise the court within 30 days whether the Good decision is dispositive of federal preemption issues pending on appeal. In January 2009, PM USA notified the Massachusetts Supreme Judicial Court that Good is dispositive of the federal preemption issues on appeal, but requested further briefing on the state law statutory exemption issue. In March 2009, the Massachusetts Supreme Judicial Court affirmed the order denying summary judgment to PM USA and granting the plaintiffs’ cross-motion. In January 2010, plaintiffs moved for partial summary judgment as to liability claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit described above). In March 2012, the trial court denied plaintiffs’ motion. On February 1, 2013, the trial court, upon agreement of the parties, dismissed without prejudice plaintiffs’ claims against Altria Group, Inc. PM USA is now the sole defendant in the case.

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• Brown: In June 1997, plaintiffs filed suit in California state court alleging that domestic cigarette manufacturers, including PM USA and others, violated California law regarding unfair, unlawful and fraudulent business practices.  In May 2009, the California Supreme Court reversed an earlier trial court decision that decertified the class and remanded the case to the trial court.  The class consists of individuals who, at the time they were residents of California, (i) smoked in California one or more cigarettes manufactured by PM USA that were labeled and/or advertised with the terms or phrases “light,” “medium,” “mild,” “low tar,” and/or “lowered tar and nicotine,” but not including any cigarettes labeled or advertised with the terms or phrases, “ultra light” or “ultra low tar,” and (ii) who were exposed to defendant’s marketing and advertising activities in California.  Plaintiffs are seeking restitution of a portion of the costs of “light” cigarettes purchased during the class period and injunctive relief ordering corrective communications. In September 2012, at the plaintiffs’ request, the trial court dismissed all defendants except PM USA from the lawsuit.  Trial began on April 22, 2013.

• Larsen: In August 2005, a Missouri Court of Appeals affirmed the class certification order. In December 2009, the trial court denied plaintiffs’ motion for reconsideration of the period during which potential class members can qualify to become part of the class. The class period remains 1995 through 2003. In June 2010, PM USA’s motion for partial summary judgment regarding plaintiffs’ request for punitive damages was denied. In April 2010, plaintiffs moved for partial summary judgment as to an element of liability in the case, claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Federal Government’s Lawsuit described above). The plaintiffs’ motion was denied in December 2010. In June 2011, PM USA filed various summary judgment motions challenging the plaintiffs’ claims. In August 2011, the trial court granted PM USA’s motion for partial summary judgment, ruling that plaintiffs could not present a damages claim based on allegations that Marlboro Lights are more dangerous than Marlboro Reds. The trial court denied PM USA’s remaining summary judgment motions. Trial in the case began in September 2011 and, in October 2011 the court declared a mistrial after the jury failed to reach a verdict. The court has continued the new trial through January 2014, with an exact date to be determined.

Certain Other Tobacco-Related Litigation

Tobacco Price Case:  One case remains pending in Kansas (Smith) in which plaintiffs allege that defendants, including PM USA and Altria Group, Inc., conspired to fix cigarette prices in violation of antitrust laws. Plaintiffs’ motion for class certification was granted. In March 2012, the trial court granted defendants’ motions for summary judgment. Plaintiffs sought the trial court’s reconsideration of its decision, but in June 2012, the trial court denied plaintiffs’ motion for reconsideration. Plaintiffs have appealed the decision, and defendants have cross-appealed the trial court’s class certification decision, to the Court of Appeals of Kansas.

Ignition Propensity Cases: PM USA is currently facing litigation alleging that a fire caused by cigarettes led to individuals’ deaths.  In a Kentucky case (Walker), the federal district court denied plaintiffs’ motion to remand the case to state court and dismissed plaintiffs’ claims in February 2009. Plaintiffs subsequently filed a notice of appeal. In October 2011, the U.S. Court of Appeals for the Sixth Circuit reversed the portion of the district court decision that denied remand of the case to Kentucky state court and remanded the case to Kentucky state court. The Sixth Circuit did not address the merits of the district court’s dismissal order. Defendants’ petition for rehearing with the Sixth Circuit was denied in December 2011. PM USA filed a renewed motion to dismiss in state court on March 25, 2013.

False Claims Act Case:PM USA is a defendant in a qui tam action filed in the U.S. District Court for the District of Columbia (United States ex rel. Anthony Oliver) alleging violation of the False Claims Act in connection with sales of cigarettes to the U.S. military. The relator contends that PM USA violated “most favored customer” provisions in government contracts and regulations by selling cigarettes to non-military customers in overseas markets at more favorable prices than it sold to the U.S. military exchange services for resale on overseas military bases in those same markets. The relator has dropped Altria Group, Inc. as a defendant and has dropped claims related to post-MSA price increases on cigarettes sold to the U.S. military. In July 2012, PM USA filed a motion to dismiss.

Argentine Grower Cases: PM USA and Altria Group, Inc. were named as defendants in four cases (Hupan, Chalanuk, Rodriguez Da Silva and Aranda) filed in Delaware state court against multiple defendants by the parents of minor Argentine children born with alleged birth defects. Plaintiffs in these cases allege that they grew tobacco in Argentina under contract with Tabacos Norte S.A., an alleged subsidiary of PMI, and that they and their infant children were exposed directly and in

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

utero to hazardous herbicides and pesticides used in the production and cultivation of tobacco. Plaintiffs seek compensatory and punitive damages against all defendants under U.S. and Argentine law. Altria Group, Inc. and PM USA are in discussions with PMI regarding indemnification for these cases pursuant to the Distribution Agreement between Altria Group, Inc. and PMI. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement. On December 11, 2012, Altria Group, Inc. and certain other defendants were dismissed from the Hupan, Chalanuk and Rodriguez Da Silva cases. The three remaining defendants in those actions are PM USA, Philip Morris Global Brands (a subsidiary of PMI) and Monsanto Company.

UST Litigation

Claims related to smokeless tobacco products generally fall within the following categories:

First, UST and/or its tobacco subsidiaries has been named in certain actions in West Virginia (See In re: Tobacco Litigation above) brought by or on behalf of individual plaintiffs against cigarette manufacturers, smokeless tobacco manufacturers, and other organizations seeking damages and other relief in connection with injuries allegedly sustained as a result of tobacco usage, including smokeless tobacco products. Included among the plaintiffs are five individuals alleging use of USSTC’s smokeless tobacco products and alleging the types of injuries claimed to be associated with the use of smokeless tobacco products. USSTC, along with other non-cigarette manufacturers, has remained severed from such proceedings since December 2001.

Second, UST and/or its tobacco subsidiaries has been named in a number of other individual tobacco and health suits over time. Plaintiffs’ allegations of liability in these cases are 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 seek various forms of relief, including compensatory and punitive damages, and certain equitable relief, including but not limited to disgorgement. Defenses raised in these cases include lack of causation, assumption of the risk, comparative fault and/or contributory negligence, and statutes of limitations. USSTC is currently named in one such action in Florida (Vassallo).

Certain Other Actions

Kraft Thrift Plan Cases: Four participants in the Kraft Foods Global, Inc. Thrift Plan (“Kraft Thrift Plan”), a defined contribution plan, filed a class action complaint (George II) on behalf of all participants and beneficiaries of the Kraft Thrift Plan in July 2008 in the U.S. District Court for the Northern District of Illinois alleging breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”). Named defendants in this action included Altria Corporate Services, Inc. (now Altria Client Services Inc.) and certain company committees that allegedly had a relationship to the Kraft Thrift Plan. Plaintiffs requested, among other remedies, that defendants restore to the Kraft Thrift Plan all losses improperly incurred.

In August 2011, Altria Client Services Inc. and a company committee that allegedly had a relationship to the Kraft Thrift Plan were added as defendants in another class action previously brought by the same plaintiffs in 2006 (George I), in which plaintiffs allege defendants breached their fiduciary duties under ERISA by offering company stock funds in a unitized format and by allegedly overpaying for recordkeeping services.

In June 2012, the district court approved a court-approved class-wide settlement for George I and George II that does not require any payment by the Altria Group, Inc. defendants, concluding this litigation.

Environmental Regulation

Altria Group, Inc. and its subsidiaries (and 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. Subsidiaries (and former subsidiaries) of Altria Group, Inc. are involved in several matters subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. Altria Group, Inc.’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Altria Group, Inc. provides 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 subsidiaries of Altria Group, Inc. may undertake in the future. In the opinion of 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, and is not expected to have, a material adverse effect on Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position or cash flows.

Guarantees and Other Similar Matters

In the ordinary course of business, certain subsidiaries of Altria Group, Inc. have agreed to indemnify a limited number of third parties in the event of future litigation. At March 31, 2013, subsidiaries of Altria Group, Inc. were also contingently liable for $31 million of guarantees related to their own performance, consisting primarily of surety bonds. In addition, from time to time, subsidiaries of Altria Group, Inc. issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’s liquidity.

Under the terms of a distribution agreement between Altria Group, Inc. and PMI (the “Distribution Agreement”), entered into as a result of Altria Group, Inc.’s 2008 spin-off of its former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria Group, Inc. 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. Altria Group, Inc. does not have a related liability recorded on its condensed consolidated balance sheet at March 31, 2013 as the fair value of this indemnification is insignificant.

As more fully discussed in Note 11. Condensed Consolidating Financial Information, PM USA has issued guarantees relating to Altria Group, Inc.’s obligations under its outstanding debt securities, borrowings under its senior unsecured 5-year revolving credit agreement and amounts outstanding under its commercial paper program.

Redeemable Noncontrolling Interest

In September 2007, Ste. Michelle completed the acquisition of Stag’s Leap Wine Cellars through one of its consolidated subsidiaries, Michelle-Antinori, LLC (“Michelle-Antinori”), in which Ste. Michelle holds an 85% ownership interest with a 15% noncontrolling interest held by Antinori California (“Antinori”). In connection with the acquisition of Stag’s Leap Wine Cellars, Ste. Michelle entered into a put arrangement with Antinori. The put arrangement, as later amended, provides Antinori with the right to require Ste. Michelle to purchase its 15% ownership interest in Michelle-Antinori at a price equal to Antinori’s initial investment of $27 million. The put arrangement became exercisable on September 11, 2010 and has no expiration date. As of March 31, 2013, the redemption value of the put arrangement did not exceed the noncontrolling interest balance. Therefore, no adjustment to the value of the redeemable noncontrolling interest was recognized on the condensed consolidated balance sheet for the put arrangement.

The noncontrolling interest put arrangement is accounted for as mandatorily redeemable securities because redemption is outside of the control of Ste. Michelle. As such, the redeemable noncontrolling interest is reported in the mezzanine equity section on the condensed consolidated balance sheets at March 31, 2013 and December 31, 2012.

Note 11. Condensed Consolidating Financial Information:

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

The Guarantees provide that PM USA guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations. The liability of PM USA under the Guarantees is absolute and unconditional irrespective of: any

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(Unaudited)

lack of validity, enforceability or genuineness of any provision of any agreement or instrument relating thereto; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from any agreement or instrument relating thereto; any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Obligations; or any other circumstance that might otherwise constitute a defense available to, or a discharge of, Altria Group, Inc. or PM USA.

The obligations of PM USA under the Guarantees are limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of PM USA that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Guarantees, result in PM USA’s obligations under the Guarantees not constituting a fraudulent transfer or conveyance. For this purpose, “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.

PM USA will be unconditionally released and discharged from the Obligations upon the earliest to occur of:

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

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

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

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

At March 31, 2013, the respective principal wholly-owned subsidiaries of Altria Group, Inc. and PM USA were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

The following sets forth the condensed consolidating balance sheets as of March 31, 2013 and December 31, 2012, condensed consolidating statements of earnings and comprehensive earnings for the three months ended March 31, 2013 and 2012, and condensed consolidating statements of cash flows for the three months ended March 31, 2013 and 2012 for Altria Group, Inc., PM USA and Altria Group, Inc.’s other subsidiaries that are not guarantors of Altria Group, Inc.’s debt instruments (the “Non-Guarantor Subsidiaries”). The financial information is based on Altria Group, Inc.’s understanding of the Securities and Exchange Commission (“SEC”) interpretation and application of Rule 3-10 of SEC Regulation S-X.

The financial information may not necessarily be indicative of results of operations or financial position had PM USA and the Non-Guarantor Subsidiaries operated as independent entities. Altria Group, Inc. and PM USA account for investments in their subsidiaries under the equity method of accounting.

Beginning in the second quarter of 2012, Altria Group, Inc. revised the classification of cash dividends received from subsidiaries on its condensed consolidating statements of cash flows to present them as cash flows from operating activities. These amounts were previously classified as cash flows from financing activities.  The impact of this revision, which Altria Group, Inc. determined was not material to the related financial statements, was to increase cash inflows from operating activities (and decrease cash inflows from financing activities) by $923 million for Altria Group, Inc. and $59 million for PM USA for the three months ended March 31, 2012. This revision had no impact on Altria Group, Inc.’s consolidated statements of cash flows.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheets

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	3,745	$	—	$	30	$	—		$	3,775
Receivables	21		9		82		—			112
Inventories:
Leaf tobacco	—		489		375		—			864
Other raw materials	—		124		50		—			174
Work in process	—		7		332		—			339
Finished product	—		206		233		—			439
	—		826		990		—			1,816
Due from Altria Group, Inc. and subsidiaries	5,634		4,253		1,216		(11,103		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	240		81		109		(233		)	197
Total current assets	9,640		6,415		2,443		(11,382		)	7,116
Property, plant and equipment, at cost	2		3,256		1,505		—			4,763
Less accumulated depreciation	2		2,100		593		—			2,695
	—		1,156		912		—			2,068
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,071		—			12,073
Investment in SABMiller	6,749		—		—		—			6,749
Investment in consolidated subsidiaries	9,653		3,009		—		(12,662		)	—
Finance assets, net	—		—		2,385		—			2,385
Other assets	136		534		137		(366		)	441
Total Assets	$	26,178	$	11,116	$	23,122	$	(24,410	)	$	36,006

Continued

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheets (Continued)

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,984		$	—		$	—		$	—		$	1,984
Accounts payable	—			125			134			—			259
Accrued liabilities:
Marketing	—			444			24			—			468
Employment costs	74			7			45			—			126
Settlement charges	—			4,137			6			—			4,143
Other	353			467			258			(46		)	1,032
Income taxes	—			666			167			(233		)	600
Dividends payable	886			—			—			—			886
Due to Altria Group, Inc. and subsidiaries	5,227			180			5,696			(11,103		)	—
Total current liabilities	8,524			6,026			6,330			(11,382		)	9,498
Long-term debt	11,595			—			299			—			11,894
Deferred income taxes	2,075			—			4,948			(366		)	6,657
Accrued pension costs	231			—			1,092			—			1,323
Accrued postretirement health care costs	—			1,750			751			—			2,501
Other liabilities	184			185			159			—			528
Total liabilities	22,609			7,961			13,579			(11,748		)	32,401
Contingencies
Redeemable noncontrolling interest	—			—			35			—			35
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,656			3,321			10,272			(13,593		)	5,656
Earnings reinvested in the business	24,817			255			1,058			(1,313		)	24,817
Accumulated other comprehensive losses	(2,068		)	(421		)	(1,832		)	2,253			(2,068		)
Cost of repurchased stock	(25,771		)	—			—			—			(25,771		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,569			3,155			9,507			(12,662		)	3,569
Noncontrolling interests	—			—			1			—			1
Total stockholders’ equity	3,569			3,155			9,508			(12,662		)	3,570
Total Liabilities and Stockholders’ Equity	$	26,178		$	11,116		$	23,122		$	(24,410	)	$	36,006

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheets

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	2,862	$	—	$	38	$	—		$	2,900
Receivables	101		7		85		—			193
Inventories:
Leaf tobacco	—		512		364		—			876
Other raw materials	—		127		46		—			173
Work in process	—		3		346		—			349
Finished product	—		117		231		—			348
	—		759		987		—			1,746
Due from Altria Group, Inc. and subsidiaries	834		3,424		1,171		(5,429		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	—		193		175		(108		)	260
Total current assets	3,797		5,629		2,472		(5,583		)	6,315
Property, plant and equipment, at cost	2		3,253		1,495		—			4,750
Less accumulated depreciation	2		2,073		573		—			2,648
	—		1,180		922		—			2,102
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,076		—			12,078
Investment in SABMiller	6,637		—		—		—			6,637
Investment in consolidated subsidiaries	9,521		3,018		—		(12,539		)	—
Finance assets, net	—		—		2,581		—			2,581
Due from Altria Group, Inc. and subsidiaries	4,500		—		—		(4,500		)	—
Other assets	136		530		141		(365		)	442
Total Assets	$	24,591	$	10,359	$	23,366	$	(22,987	)	$	35,329

Continued

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Balance Sheets (Continued)

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,459		$	—		$	—		$	—		$	1,459
Accounts payable	4			155			292			—			451
Accrued liabilities:
Marketing	—			526			42			—			568
Employment costs	27			10			147			—			184
Settlement charges	—			3,610			6			—			3,616
Other	469			506			272			(154		)	1,093
Dividends payable	888			—			—			—			888
Due to Altria Group, Inc. and subsidiaries	3,965			409			1,055			(5,429		)	—
Total current liabilities	6,812			5,216			1,814			(5,583		)	8,259
Long-term debt	12,120			—			299			—			12,419
Deferred income taxes	2,034			—			4,983			(365		)	6,652
Accrued pension costs	235			—			1,500			—			1,735
Accrued postretirement health care costs	—			1,759			745			—			2,504
Due to Altria Group, Inc. and subsidiaries	—			—			4,500			(4,500		)	—
Other liabilities	222			178			156			—			556
Total liabilities	21,423			7,153			13,997			(10,448		)	32,125
Contingencies
Redeemable noncontrolling interest	—			—			34			—			34
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,688			3,321			10,272			(13,593		)	5,688
Earnings reinvested in the business	24,316			314			943			(1,257		)	24,316
Accumulated other comprehensive losses	(2,040		)	(429		)	(1,891		)	2,320			(2,040		)
Cost of repurchased stock	(25,731		)	—			—			—			(25,731		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,168			3,206			9,333			(12,539		)	3,168
Noncontrolling interests	—			—			2			—			2
Total stockholders’ equity	3,168			3,206			9,335			(12,539		)	3,170
Total Liabilities and Stockholders’ Equity	$	24,591		$	10,359		$	23,366		$	(22,987	)	$	35,329

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,822	$	711	$	(5	)	$	5,528
Cost of sales	—			1,099		205		(5		)	1,299
Excise taxes on products	—			1,495		60		—			1,555
Gross profit	—			2,228		446		—			2,674
Marketing, administration and research costs	46			419		52		—			517
Amortization of intangibles	—			—		5		—			5
Operating (expense) income	(46		)	1,809		389		—			2,152
Interest and other debt expense, net	161			—		100		—			261
Earnings from equity investment in SABMiller	(256		)	—		—		—			(256		)
Earnings before income taxes and equity earnings of subsidiaries	49			1,809		289		—			2,147
(Benefit) provision for income taxes	(9		)	667		104		—			762
Equity earnings of subsidiaries	1,327			44		—		(1,371		)	—
Net earnings	1,385			1,186		185		(1,371		)	1,385
Net earnings attributable to noncontrolling interests	—			—		—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Net earnings	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Other comprehensive (losses) earnings, net of deferred income taxes	(28		)	8		59		(67		)	(28		)
Comprehensive earnings	1,357			1,194		244		(1,438		)	1,357
Comprehensive earnings attributable to noncontrolling interests	—			—		—		—			—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,357		$	1,194	$	244	$	(1,438	)	$	1,357

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For The Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,922		$	731	$	(6	)	$	5,647
Cost of sales	—			1,599			199		(6		)	1,792
Excise taxes on products	—			1,577			76		—			1,653
Gross profit	—			1,746			456		—			2,202
Marketing, administration and research costs	34			431			69		—			534
Asset impairment and exit costs	—			20			1		—			21
Amortization of intangibles	—			—			5		—			5
Operating (expense) income	(34		)	1,295			381		—			1,642
Interest and other debt expense (income), net	185			(1		)	109		—			293
Earnings from equity investment in SABMiller	(520		)	—			—		—			(520		)
Earnings before income taxes and equity earnings of subsidiaries	301			1,296			272		—			1,869
Provision for income taxes	84			482			108		—			674
Equity earnings of subsidiaries	978			49			—		(1,027		)	—
Net earnings	1,195			863			164		(1,027		)	1,195
Net earnings attributable to noncontrolling interests	—			—			—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Net earnings	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Other comprehensive earnings (losses), net of deferred income taxes	202			(1		)	21		(20		)	202
Comprehensive earnings	1,397			862			185		(1,047		)	1,397
Comprehensive earnings attributable to noncontrolling interests	—			—			—		—			—
Comprehensive earnings attributable to     Altria Group, Inc.	$	1,397		$	862		$	185	$	(1,047	)	$	1,397

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	902		$	2,344		$	(139	)	$	(1,314	)	$	1,793
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(4		)	(11		)	—			(15		)
Proceeds from finance assets	—			—			203			—			203
Net cash (used in) provided by investing activities	—			(4		)	192			—			188
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(91		)	—			—			—			(91		)
Dividends paid on common stock	(886		)	—			—			—			(886		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	961			(1,052		)	91			—			—
Cash dividends paid to parent	—			(1,245		)	(69		)	1,314			—
Other	(3		)	(43		)	(83		)	—			(129		)
Net cash used in financing activities	(19		)	(2,340		)	(61		)	1,314			(1,106		)
Cash and cash equivalents:
Increase (decrease)	883			—			(8		)	—			875
Balance at beginning of period	2,862			—			38			—			2,900
Balance at end of period	$	3,745		$	—		$	30		$	—		$	3,775

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Altria Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	533		$	2,519		$	(233	)	$	(982	)	$	1,837
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(5		)	(11		)	—			(16		)
Proceeds from finance assets	—			—			303			—			303
Net cash (used in) provided by investing activities	—			(5		)	292			—			287
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(266		)	—			—			—			(266		)
Dividends paid on common stock	(838		)	—			—			—			(838		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	1,466			(1,549		)	83			—			—
Cash dividends paid to parent	—			(923		)	(59		)	982			—
Other	—			(42		)	(92		)	—			(134		)
Net cash provided by (used in) financing activities	362			(2,514		)	(68		)	982			(1,238		)
Cash and cash equivalents:
Increase (decrease)	895			—			(9		)	—			886
Balance at beginning of period	3,245			—			25			—			3,270
Balance at end of period	$	4,140		$	—		$	16		$	—		$	4,156

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operation

Description of the Company

At March 31, 2013, Altria Group, Inc.’s direct and indirect wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its direct and indirect wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless products and wine. Nu Mark LLC, an indirect wholly-owned subsidiary of Altria Group, Inc., is engaged in the manufacture and sale of innovative tobacco products for adult tobacco consumers. Philip Morris Capital Corporation (“PMCC”), a direct wholly-owned subsidiary of Altria Group, Inc., maintains a portfolio of leveraged and direct finance leases. In addition, Altria Group, Inc. held approximately 26.8% of the economic and voting interest of SABMiller plc (“SABMiller”) at March 31, 2013, which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc.’s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. In addition, Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. At March 31, 2013, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

Effective January 1, 2013, Altria Group, Inc.’s reportable segments are smokeable products, smokeless products and wine. The financial services and the alternative products businesses have been combined in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial contribution of Altria Group, Inc.’s alternative products business to its consolidated results. In addition, due to the continued reduction of the lease portfolio of PMCC, Altria Group, Inc.’s balance sheet accounts are no longer segregated by consumer products and financial services, and all balance sheet accounts are classified as either current or non-current. Prior-period amounts have been reclassified to conform with the current-period presentation.

First Quarter 2012 Financial Statement Revision

As previously disclosed in Altria Group, Inc.’s Quarterly Report filed on Form 10-Q (“Form 10-Q”) for the quarterly period ended June 30, 2012, during the second quarter of 2012, Altria Group, Inc. determined that it had not recorded in its financial statements for the three months ended March 31, 2012, its share of non-cash gains from its equity investment in SABMiller, relating to SABMiller’s strategic alliance transactions with Anadolu Efes and Castel that were completed during the first quarter of 2012.  Because Altria Group, Inc. did not record these gains, it understated by $342 million, $222 million and $0.11 earnings from equity investment in SABMiller, net earnings/comprehensive earnings and diluted earnings per share attributable to Altria Group, Inc., respectively, for the three months ended March 31, 2012.  There was no impact on net cash flows from operating, investing or financing activities for the three months ended March 31, 2012.  Altria Group, Inc. revised its first quarter 2012 financial statements and reflected this revision in the financial statements for the three months ended March 31, 2012 included in this Form 10-Q. 

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Executive Summary

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

Consolidated Results of Operations for the Three Months EndedMarch 31, 2013: The changes in Altria Group, Inc.’s net earnings and diluted earnings per share (“EPS”) attributable to Altria Group, Inc. for the three months endedMarch 31, 2013, from the three months endedMarch 31, 2012, were due primarily to the following:

	Net Earnings			Diluted EPS
	(in millions, except per share data)
For the three months ended March 31, 2012	$	1,195		$	0.59
2012 Asset impairment, exit and implementation costs	3			—
2012 SABMiller special items	(197		)	(0.10		)
Subtotal 2012 special items	(194		)	(0.10		)
2013 NPM Adjustment	311			0.15
2013 Implementation costs	(1		)	—
2013 SABMiller special items	(9		)	—
2013 Tobacco and health judgments	(4		)	—
Subtotal 2013 special items	297			0.15
Fewer shares outstanding	—			0.01
Operations	87			0.04
For the three months ended March 31, 2013	$	1,385		$	0.69

See the discussion of events affecting the comparability of statement of earnings amounts in the Consolidated Operating Results section of the following Discussion and Analysis.

Fewer Shares Outstanding:Fewer shares outstanding during the three months endedMarch 31, 2013 compared with the prior-year period were due primarily to shares repurchased by Altria Group, Inc. under its October 2011 share repurchase program.

Operations: The increase of $87 million in operations shown in the table above was due primarily to the following:

• higher earnings from Altria Group, Inc.’s equity investment in SABMiller (excluding special items);

• lower interest and other debt expense, net; and

• higher income from the smokeable products and smokeless products segments.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.

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2013 Forecasted Results: In April 2013, Altria Group, Inc. revised its 2013 full-year forecast for reported diluted EPS to a range of $2.49 to $2.55 from a range of $2.34 to $2.40 reflecting the settlement of disputes with certain states related to the non-participating manufacturer adjustment (“NPM Adjustment”) under the 1998 Master Settlement Agreement (the “MSA”) for the years 2003 - 2012 discussed further below and under Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10. Contingencies to the condensed consolidated financial statements in Item 1. Financial Statements in this Form 10-Q (“Item 1”). This forecast includes estimated net income of $0.14 per share as detailed in the table below, as compared with the 2012 full-year reported diluted EPS of $2.06, which included $0.15 per share of net expenses, as detailed in the table below. In addition, Altria Group, Inc. reaffirmed its 2013 full-year forecast for adjusted diluted EPS, which excludes the items in the table below representing a growth rate of 6% to 9% over 2012 full-year adjusted diluted EPS.

The factors described in the Cautionary Factors That May Affect Future Results section of the following Discussion and Analysis represent continuing risks to this forecast.

Expense (Income), Net Included in Reported Diluted EPS
	2013			2012
Loss on early extinguishment of debt	$	—		$	0.28
NPM Adjustment	(0.15		)	—
Asset impairment, exit and implementation costs	—			0.01
SABMiller special items	0.01			(0.08		)
PMCC leveraged lease benefit	—			(0.03		)
Tax items*	—			(0.03		)
	$	(0.14	)	$	0.15
* Excludes the tax impact of the PMCC leveraged lease benefit.

Adjusted diluted EPS is a financial measure that is not consistent with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Altria Group, Inc.’s management reviews diluted EPS on an adjusted basis, which excludes certain income and expense items that management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, SABMiller special items, certain PMCC leveraged lease items, certain tax items, tobacco and health judgments, and settlements of certain NPM Adjustment disputes. Altria Group, Inc.’s management does not view any of these special items to be part of its sustainable results as they may be highly variable and difficult to predict and can distort underlying business trends and results. Altria Group, Inc.’s management believes it is appropriate to disclose this non-GAAP financial measure to provide useful insight into underlying business trends and results, and to provide a more meaningful comparison of year-over-year results. Adjusted measures are used by management and regularly provided to Altria Group, Inc.’s chief operating decision maker for planning, forecasting and evaluating the performances of Altria Group, Inc.’s businesses, including allocating resources and evaluating results relative to employee compensation targets. This information should be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP.

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Discussion and Analysis

Consolidated Operating Results

See pages 85-88 for a discussion of Cautionary Factors That May Affect Future Results.

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net revenues:
Smokeable products	$	4,968		$	5,100
Smokeless products	390			380
Wine	126			113
All other	44			54
Net revenues	$	5,528		$	5,647
Excise taxes on products:
Smokeable products	$	1,524		$	1,622
Smokeless products	26			27
Wine	5			4
Excise taxes on products	$	1,555		$	1,653
Operating income:
Operating companies income:
Smokeable products	$	1,920		$	1,439
Smokeless products	222			192
Wine	20			15
All other	50			52
Amortization of intangibles	(5		)	(5		)
General corporate expenses	(55		)	(51		)
Operating income	$	2,152		$	1,642

As discussed further in Note 7. Segment Reporting to the condensed consolidated financial statements in Item 1, Altria Group, Inc.’s chief operating decision maker reviews operating companies income to evaluate the performance of, and allocate resources to, the segments. Operating companies income for the segments is defined as operating income before amortization of intangibles and general corporate expenses. Management believes it is appropriate to disclose this measure to help investors analyze the business performance and trends of the various business segments.

The following events that occurred during the three months endedMarch 31, 2013 and 2012 affected the comparability of statement of earnings amounts.

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• Asset Impairment, Exit and Implementation Costs: For the three months endedMarch 31, 2013, there were no asset impairment and exit costs. Implementation costs of $1 million were recorded in marketing, administration and research costs in the smokeable products segment during the three months ended March 31, 2013.

For the three months ended March 31, 2012, pre-tax asset impairment, exit and implementation costs consisted of the following:

		For the Three Months Ended March 31, 2012
		Asset Impairment and Exit Costs		Implementation (Gain) Costs			Total
	(in millions)
Smokeable products		$	7	$	(21	)	$	(14	)
Smokeless products		14		5			19
General corporate		—		(1		)	(1		)
Total		$	21	$	(17	)	$	4

In October 2011, Altria Group, Inc. announced a cost reduction program for its tobacco and service company subsidiaries (the “2011 Cost Reduction Program”), reflecting Altria Group, Inc.’s objective to reduce cigarette-related infrastructure ahead of PM USA’s cigarette volume declines. Total pre-tax charges, net, related to this program were substantially completed as of December 31, 2012. Altria Group, Inc. believes that the program remains on track to deliver $400 million in annualized savings versus previously planned spending by the end of 2013.

Altria Group, Inc. had a severance liability balance of $20 million at March 31, 2013 related to the 2011 Cost Reduction Program, substantially all of which is expected to be paid out by June 30, 2013.

• SABMiller Special Items: Altria Group, Inc.’s earnings from its equity investment in SABMiller for the three months endedMarch 31, 2013 included costs for SABMiller’s “business capability programme.” Altria Group, Inc.’s earnings from its equity investment in SABMiller for the three months ended March 31, 2012 included gains resulting from SABMiller’s strategic alliance transactions with Anadolu Efes and Castel, partially offset by costs related to SABMiller’s acquisition of Foster’s Group Limited and costs for SABMiller’s “business capability programme.”

• Tobacco and Health Judgments:For the three months endedMarch 31, 2013, Altria Group, Inc. recorded pre-tax charges of $5 million in the smokeable products segment related to certain tobacco and health judgments. These charges were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. In addition, for the three months ended March 31, 2013, Altria Group, Inc. recorded interest costs related to these judgments of $1 million. For further discussion, see Note 10. Contingencies to the condensed consolidated financial statements in Item 1 (“Note 10”).

• NPM Adjustment: For the three months ended March 31, 2013, PM USA recorded a reduction to cost of sales of $483 million on its condensed consolidated statement of earnings, which increased operating companies income in the smokeable products segment. This reduction to cost of sales resulted from the NPM Adjustment discussed further below and under Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10.

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Consolidated Results of Operations for the Three Months EndedMarch 31, 2013

The following discussion compares consolidated operating results for the three months endedMarch 31, 2013 with the three months endedMarch 31, 2012.

Net revenues, which include excise taxes billed to customers, decreased $119 million (2.1%), due primarily to lower net revenues from the smokeable products segment.

Excise taxes on products decreased $98 million (5.9%), due primarily to lower smokeable products shipment volume.

Cost of sales decreased $493 million (27.5%), due primarily to lower settlement charges as a result of the NPM Adjustment. The NPM Adjustment is discussed further below and under Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10.

Marketing, administration and research costs decreased $17 million (3.2%), due primarily to cost reduction initiatives and a decrease to the allowance for losses in the financial services business, partially offset by a postretirement benefit plan curtailment gain in 2012 related to the 2011 Cost Reduction Program.

Operating income increased $510 million (31.1%), due primarily to higher operating results from the smokeable products segment (which includes the NPM Adjustment) and higher operating results from the smokeless products segment.

Interest and other debt expense, net, decreased $32 million (10.9%), due primarily to lower interest costs on debt as a result of debt refinancing activities in 2012.

Earnings from Altria Group, Inc.’s equity investment in SABMiller decreased $264 million (50.8%), due primarily to a $342 million gain in 2012 resulting from SABMiller’s strategic alliance transactions with Anadolu Efes and Castel, partially offset by higher gains resulting from issuances of common stock by SABMiller in 2013.

Net earnings attributable to Altria Group, Inc. of $1,385 million increased $190 million (15.9%), due primarily to higher operating income and lower interest and other debt expense, net, partially offset by lower earnings from Altria Group, Inc.’s equity investment in SABMiller. Diluted and basic EPS attributable to Altria Group, Inc. of $0.69, each increased by 16.9% due to higher net earnings attributable to Altria Group, Inc. and fewer shares outstanding.

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Operating Results by Business Segment

Tobacco Space

Business Environment

Summary

The United States tobacco industry faces a number of business and legal challenges that have adversely affected and may adversely affect the business and sales volume of our tobacco subsidiaries and our consolidated results of operations, cash flows and financial position. These challenges, some of which are discussed in more detail below, in Note 10 and in Cautionary Factors That May Affect Future Results, include:

•pending and threatened litigation and bonding requirements as discussed in Note 10;

• the requirement to issue “corrective statements” in various media in connection with the Federal Government’s lawsuit described in detail in Note 10;

• restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) enacted in June 2009, and restrictions and requirements that have been, and in the future may be, imposed by the U.S. Food and Drug Administration (“FDA”) under this statute;

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

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

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

• increases in the minimum age to purchase tobacco products above the current federal minimum age of 18, restrictions on the sale of tobacco products by certain retail establishments, the sale of certain tobacco products with certain characterizing flavors and the sale of tobacco products in certain package sizes;

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

•other actual and proposed tobacco product legislation and regulation; and

•governmental investigations;

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

•price gaps and changes in price gaps between premium and lowest price brands;

•competitive disadvantages related to cigarette price increases attributable to the settlement of certain litigation;

• illicit trade practices, including the sale of counterfeit tobacco products by third parties; the sale of tobacco products by third parties over the Internet and by other means designed to avoid the collection of applicable taxes; diversion into one market of products intended for sale in another; the potential assertion of claims and other issues relating to contraband shipments of tobacco products; and the imposition of additional legislative or regulatory requirements related to illicit trade practices; and

•potential adverse changes in tobacco leaf price, availability and quality.

In addition to and in connection with the foregoing business and legal challenges, our tobacco subsidiaries are subject to evolving adult tobacco consumer preferences. Altria Group, Inc.’s tobacco subsidiaries believe that a significant number of adult tobacco consumers switch between tobacco categories or use multiple forms of tobacco products and that approximately 30% of adult smokers are interested in spit-free smokeless tobacco alternatives to cigarettes. Altria Group, Inc.’s tobacco subsidiaries further believe that consumer awareness and trial of electronic cigarettes have increased in the past year. Future success is dependent in part on the ability of Altria Group, Inc. and its tobacco subsidiaries to meet these evolving adult tobacco consumer preferences by developing over time new products and markets within and potentially outside the United States through technological innovation (including, where appropriate, arrangements with third parties) and pursuit of their adjacency growth strategies. See Cautionary Factors That May Affect Future Results for certain risks associated with the foregoing discussion.

We have provided additional detail on the following topics below:

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•FSPTCA and FDA Regulation;

•Excise Taxes;

•International Treaty on Tobacco Control;

•State Settlement Agreements;

•Other Federal, State and Local Regulation and Activity;

•Illicit Trade;

•Tobacco Price, Availability and Quality; and

•Timing of Sales.

FSPTCA and FDA Regulation

The Regulatory Framework

The FSPTCA expressly establishes certain restrictions and prohibitions on our cigarette and smokeless tobacco businesses and authorizes or requires further FDA action. Under the FSPTCA, the FDA has broad authority to regulate the design, manufacture, packaging, advertising, promotion, sale and distribution of cigarettes, cigarette tobacco and smokeless tobacco products; the authority to require disclosures of related information; and the authority to enforce the FSPTCA and related regulations. The law also grants the FDA authority to extend its application, by regulation, to other tobacco products, including cigars. The FDA has indicated that it intends to regulate cigars and other tobacco products, but it has not indicated a timeline for the issuance of final regulations.

Among other measures, the FSPTCA:

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

•prohibits cigarettes with characterizing flavors other than menthol and tobacco;

•bans descriptors such as “light,” “mild” or “low” or similar descriptors unless expressly authorized by the FDA;

•requires extensive ingredient disclosure to the FDA and may require more limited public ingredient disclosure;

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

• imposes reporting obligations relating to contraband activity and grants the FDA authority to impose other recordkeeping and reporting obligations to address counterfeit and contraband products;

• changes the language of the cigarette and smokeless tobacco product health warnings, enlarges their size and requires the development by the FDA of graphic warnings for cigarettes, and gives the FDA the authority to require new warnings;

• authorizes the FDA to adopt product regulations and related actions, including:

• to impose tobacco product standards that are appropriate for the protection of the public health through a regulatory process, including, among other possibilities, restrictions on ingredients, constituents or other properties, performance or design criteria, as well as to impose testing, measurement, reporting and disclosure requirements;

• to subject tobacco products that are modified or first introduced into the market after March 22, 2011 to application and premarket review and authorization requirements (the “New Product Application Process”) if the FDA does not find them to be “substantially equivalent” to products commercially marketed as of February 15, 2007, and to deny any such new product application thus preventing the distribution and sale of any product affected by such denial;

• to determine that certain existing tobacco products modified or introduced into the market for the first time between February 15, 2007 and March 22, 2011 are not "substantially equivalent" to products commercially marketed as of February 15, 2007, in which case the FDA could require the removal of such products or subject them to the New Product Application Process and, if any such applications are denied, prevent the continued distribution and sale of such products (see FDA Regulatory Actions below);

• to restrict or otherwise regulate menthol cigarettes, as well as other tobacco products with characterizing flavors;

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• to regulate nicotine yields and to reduce or eliminate harmful constituents or harmful ingredients or other components of tobacco products; and

• to impose manufacturing standards for tobacco products; and

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

Implementation Timing, Rulemaking and Guidance

The implementation of the FSPTCA began in 2009 and will continue over time. Some provisions took effect immediately, some provisions have taken effect since the enactment of the FSPTCA and other provisions will not take effect for some time. Those provisions that require the FDA to take action through rulemaking generally involve consideration of public comment and, for some issues, scientific review. Altria Group, Inc.’s tobacco subsidiaries are participating actively in processes established by the FDA to develop and implement its regulatory framework, including submission of comments to various FDA proposals and participation in public hearings and engagement sessions.

From time to time, the FDA also issues guidance for public comment, which may be issued in draft or final form. Such guidance, when finalized, is intended to represent the FDA’s current thinking on a particular topic and may be predictive of the FDA’s enforcement stance on that topic.  Such guidance, even when finalized, is not intended to bind the FDA or the public or establish legally enforceable responsibilities.  Examples of current draft guidance include: 

• Draft Guidance for Industry and FDA Staff: Demonstrating the Substantial Equivalence of a New Tobacco Product: Responses to Frequently Asked Questions

•Draft Guidance for Industry:  Modified Risk Tobacco Product Applications

•Draft Guidance for Industry:  Applications for Premarket Review of New Tobacco Products

A complete set of guidance documents issued by the FDA can be found on the FDA’s website at www.fda.gov/TobaccoProductsGuidanceComplianceRegulatoryInformation. The information on this website is not, and shall not be deemed to be, part of this report or incorporated into any other filings Altria Group, Inc. makes with the Securities and Exchange Commission (the “SEC”).

PM USA and USSTC submit comments to the FDA on draft or final guidance when appropriate.  In some cases, PM USA and USSTC may disagree with a particular interpretation by the FDA as expressed in draft or final guidance and may communicate their position in writing to the FDA.  For example, PM USA and USSTC communicated disagreement with FDA interpretations of the statute set forth in the “Draft Guidance for Industry and FDA Staff:  Demonstrating the Substantial Equivalence of a New Tobacco Product: Responses to Frequently Asked Questions” regarding when a manufacturer must submit substantial equivalence reports. While PM USA and USSTC believe that all of their current products meet the statutory requirements of the FSPTCA, they cannot predict whether, when or how the FDA ultimately will apply its guidance or seek to enforce the law and regulations consistent with its guidance. As discussed below in Investigations and Enforcement, FDA enforcement actions could have a material adverse effect on the business, financial position, cash flows and results of operations of Altria Group, Inc. and its tobacco subsidiaries.

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

Impact on Our Business; Compliance Costs

Regulations imposed by the FDA under the FSPTCA could have a material adverse impact on the business and sales volume of Altria Group, Inc.’s tobacco businesses in a number of different ways. For example, actions by the FDA could:

•impact the consumer acceptability of tobacco products;

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

•limit adult consumer choices;

•restrict communications to adult consumers;

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

•impose additional manufacturing, labeling or packaging requirements;

• impose restrictions at retail;

• result in increased illicit trade activities; or

• otherwise significantly increase the cost of doing business.

The failure to comply with FDA regulatory requirements, even inadvertently, and FDA enforcement actions could have a material adverse effect on the business, financial position, cash flows and results of operations of Altria Group, Inc. and its tobacco subsidiaries.

The law imposes fees on tobacco product manufacturers and importers to pay for the cost of regulation and other matters. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA regulation according to a process set out in the statute, and then among manufacturers and importers within each respective class based on their relative market shares. For a discussion of the impact of the State Settlement Agreements, the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) and FDA user fee payments on Altria Group, Inc., see Financial Review - Debt and Liquidity - Payments Under State Settlement and Other Tobacco Agreements, and FDA Regulation below. In addition, compliance with the law’s regulatory requirements has resulted and will continue to result in additional costs for our tobacco businesses. The amount of additional compliance and related costs has not been material in any given quarter to date but could become substantial, either individually or in the aggregate, and will depend on the nature of the requirements imposed by the FDA.

Investigation and Enforcement

The FDA has a number of investigatory and enforcement tools available to it, including document requests and other required information submissions, facility inspections, examinations and investigations, injunction proceedings, money penalties, product withdrawals and recalls, and product seizures. The use of any of these investigatory or enforcement tools by the FDA could result in significant costs to the tobacco businesses of Altria Group, Inc. or otherwise have a material adverse effect on the business, financial position, cash flows and results of operations of Altria Group, Inc. and its tobacco subsidiaries.

For example, in June 2010, the FDA issued a document request regarding changes to Marlboro Gold Pack cigarette packaging in connection with the FSPTCA’s ban of certain descriptors. PM USA submitted documents in response to the FDA’s request.

TPSAC

TheRole of the TPSAC

As required by the FSPTCA, the FDA has established a tobacco product scientific advisory committee (the “TPSAC”), which consists of both voting and non-voting members, to provide advice, reports, information and recommendations to the FDA on scientific and health issues relating to tobacco products. For example, the TPSAC advises the FDA about modified risk products (products marketed with reduced risk claims), good manufacturing practices, the effects of the alteration of nicotine yields from tobacco products and nicotine dependence thresholds. The TPSAC previously made reports and recommendations to the FDA on menthol cigarettes, including the impact of the use of menthol in cigarettes on the public health, and the nature and impact of dissolvable tobacco products on the public health. The FDA may seek advice from the TPSAC about other safety, dependence or health issues relating to tobacco products, including tobacco product standards and applications to market new tobacco products.

TPSAC Membership

Beginning in March 2010, PM USA and USSTC raised with the FDA their concerns that four of the voting members of the TPSAC have financial and other conflicts (including services as paid experts for plaintiffs in tobacco litigation) that could hamper the full and fair consideration of issues by the TPSAC and requested that their appointments be withdrawn. PM USA and USSTC raised similar concerns related to the engagement of two TPSAC subcommittee consultants. The FDA declined PM USA’s and USSTC’s requests, stating that the FDA had satisfied itself, after inquiry, that the individuals in question did not have disqualifying conflicts of interest. In February 2011, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company filed suit in the U.S. District Court for the District of Columbia against the United States Department of Health and Human Services and individual defendants (sued in their official capacities) asserting that the composition of the TPSAC and the composition of the Constituents Subcommittee of the TPSAC violates several federal laws, including the Federal Advisory Committee Act. In August 2012, the district court denied the government's motion to dismiss the plaintiffs’ complaint.

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TPSAC Action on Menthol

As mandated by the FSPTCA, in March 2011, the TPSAC submitted to the FDA a report on the impact of the use of menthol in cigarettes on the public health and related recommendations. The TPSAC report stated that “[m]enthol cigarettes have an adverse impact on public health in the United States.”  The TPSAC report recommended that the “[r]emoval of menthol cigarettes from the marketplace would benefit public health in the United States.”  The TPSAC report noted the potential that any ban on menthol cigarettes could lead to an increase in contraband cigarettes and other potential unintended consequences and suggested that the FDA consult with appropriate experts on this matter.  The TPSAC report also recommended that additional research could address gaps in understanding menthol cigarettes. 

In March 2011, PM USA submitted a report to the FDA outlining its position that neither science nor other evidence demonstrates that regulatory actions or restrictions related to the use of menthol cigarettes are warranted. The report noted PM USA’s belief that significant restrictions on the use of menthol cigarettes would have unintended consequences detrimental to public health and society.

In July 2011, the TPSAC revised and approved its March 2011 report. The revisions were editorial in nature and did not change the substantive conclusions and recommendations of the TPSAC.

The FSPTCA does not set a deadline or required timeline for the FDA to act on the TPSAC report. The FDA has stated that the TPSAC report is only a recommendation and that the FDA’s receipt of the TPSAC’s report will not have an immediate effect on the availability of menthol cigarettes. In January 2012, the FDA announced that it had evaluated scientific information on menthol and had drafted a report related to the impact of menthol in cigarettes on public health. The FDA indicated that it had sent its report to external scientists for peer review. It also indicated that it will make its final draft report and related information available for public comment, although it has not yet done so. Any future action taken by the FDA to regulate the manufacture, marketing or sale of menthol cigarettes (including a possible ban) will require formal rulemaking that includes public notice and the opportunity for public comment.

Final Tobacco Marketing Rule

As required by the FSPTCA, the FDA re-promulgated in March 2010 certain advertising and promotion restrictions in substantially the same form as regulations that were previously adopted in 1996 (but never imposed on tobacco manufacturers due to a United States Supreme Court ruling) (the “Final Tobacco Marketing Rule”). The Final Tobacco Marketing Rule:

•bans the use of color and graphics in tobacco product labeling and advertising;

•prohibits the sale of cigarettes and smokeless tobacco to underage persons;

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

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

• prohibits sampling of cigarettes and prohibits sampling of smokeless tobacco products except in qualified adult-only facilities;

•prohibits gifts or other items in exchange for buying cigarettes or smokeless tobacco products;

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

• prohibits brand name sponsorship of any athletic, musical, artistic, or other social or cultural event, or any entry or team in any event.

Subject to the limitations described below, the Final Tobacco Marketing Rule took effect in June 2010. At the time of the re-promulgation of the Final Tobacco Marketing Rule, the FDA also issued an advance notice of proposed rulemaking regarding the so-called “1000 foot rule,” which would establish restrictions on the placement of outdoor tobacco advertising in relation to schools and playgrounds. PM USA and USSTC submitted comments on this advance notice.

Since enactment, several lawsuits have been filed challenging various provisions of the FSPTCA and the Final Tobacco Marketing Rule, including their constitutionality and the scope of the FDA’s authority thereunder. Altria Group, Inc. and its tobacco subsidiaries are not parties to any of these lawsuits. In January 2010, in one such challenge (Commonwealth Brands),

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the U.S. District Court for the Western District of Kentucky struck down as unconstitutional, and enjoined enforcement of, the portion of the Final Tobacco Marketing Rule that bans the use of color and graphics in labeling and advertising and claims implying that a tobacco product is safer because of FDA regulation. The parties appealed and in March 2012, the U.S. Court of Appeals for the Sixth Circuit affirmed in part and reversed in part the district court’s decision. The Sixth Circuit affirmed the district court’s injunction against enforcement of the portion of the Final Tobacco Marketing Rule that bans the use of color and graphics in labeling and advertising. The Sixth Circuit reversed the injunction against enforcement of the prohibition on claims implying that a tobacco product is safer because of FDA regulation. The Sixth Circuit also held that the Final Tobacco Marketing Rule’s ban on consumer continuity programs violates the First Amendment and reversed the district court’s decision upholding the ban. The Sixth Circuit upheld the FSPTCA’s statutory requirements for enlarged textual and graphic warnings on cigarette packages and advertising, but did not rule upon the constitutionality of the nine graphic warnings actually selected by the FDA in its June 2011 final rule. In May 2012, the plaintiffs in Commonwealth Brands filed a petition for rehearing and rehearing en banc, which the Sixth Circuit denied. In October 2012, the plaintiffs filed a petition for writ of certiorari in the United States Supreme Court seeking further review of the Sixth Circuit’s decision upholding the FSPTCA’s new enlarged and expanded warning requirements that include graphic warnings, the FSPTCA’s restrictions on modified risk tobacco product claims and certain other provisions of the Final Tobacco Marketing Rule.  The FDA did not file a petition for writ ofcertiorari with the United States Supreme Court seeking further review of the Sixth Circuit’s decision. The FDA filed its opposition to the plaintiffs’ petition for writ of certiorari on March 22, 2013. On April 22, 2013, the United States Supreme Court denied plaintiffs’ petition for writ of certiorari. For a further discussion of this final rule and the status of graphic warnings for cigarette packages and advertising, see FDA Regulatory Actions-Graphics Warnings below. The FDA has indicated that it does not intend to enforce the ban on the use of color and graphics in labeling and advertising for the duration of the injunction.

In a separate challenge to the Final Tobacco Marketing Rule in the U.S. District Court for the Eastern District of Virginia, Renegade Tobacco Company, Inc. and others have challenged the constitutionality of an FDA regulation that restricts tobacco manufacturers from using the trade or brand name of a non-tobacco product on cigarettes or smokeless tobacco products. In May 2010, the Court issued a stay in the Renegade case pending the FDA’s consideration of amendments to the trade or brand name rule. In November 2011, the FDA proposed an amended rule, but continues to exercise its discretion to enforce the original trade or brand name provisions of the Final Tobacco Marketing Rule according to FDA guidance issued in May 2010. It is not possible to predict the outcome of any such litigation or its effect on the extent of the FDA’s authority to regulate tobacco products.

Contraband

The FSPTCA imposes on manufacturers reporting obligations relating to knowledge of suspected contraband activity involving their brands and also grants the FDA the authority to impose certain other recordkeeping and reporting obligations to address counterfeit and contraband tobacco products. The FSPTCA also empowers the FDA to assess whether additional tools should be employed to track and trace tobacco products through the distribution chain.

FDA Regulatory Actions

Graphic Warnings

In June 2011, as required by the FSPTCA, the FDA issued its final rule to modify the required warnings that appear on cigarette packages and in cigarette advertisements.  The FSPTCA requires the warnings to consist of nine new textual warning statements accompanied by color graphics depicting the negative health consequences of smoking.  The graphic health warnings will (i) be located beneath the cellophane, and comprise the top 50% of the front and rear panels of cigarette packages, and (ii) occupy 20% of a cigarette advertisement and be located at the top of the advertisement.

The rule requires that cigarette packaging manufactured after September 22, 2012 contain the new graphic warnings and all cigarette advertising contain the new warnings by that date. In August 2011, however, R.J. Reynolds Tobacco Company, Lorillard Tobacco Company and several other plaintiffs filed suit in the U.S. District Court for the District of Columbia against the FDA challenging its graphic warnings rule. In November 2011, the district court granted the plaintiffs’ motion for a preliminary injunction, thereby staying enforcement of the graphic warnings rule until 15 months after a final ruling from the district court. In February 2012, the district court entered final judgment on behalf of the plaintiffs, enjoining enforcement of the graphic warnings rule. The FDA appealed this decision to the U.S. Court of Appeals for the District of Columbia Circuit. In August 2012, the Court of Appeals affirmed the ruling of the district court. The FDA filed a petition for panel rehearing and rehearing en banc with the Court of Appeals, which was denied in December 2012. On March 19, 2013, the FDA decided not

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to seek further review of the Court of Appeals’ decision and announced its plans to propose a new graphic warnings rule in the future.

New Product Marketing Authorization Processes

In January 2011, the FDA issued guidance concerning reports that manufacturers must submit for certain FDA-regulated tobacco products that the manufacturer modified or introduced for the first time into the market after February 15, 2007. These reports must be reviewed by the agency to determine if such tobacco products are “substantially equivalent” to products commercially available as of February 15, 2007.  In general, in order to continue marketing these products sold before March 22, 2011, manufacturers of FDA-regulated tobacco products were required to send to the FDA a report demonstrating substantial equivalence by March 22, 2011. PM USA and USSTC submitted timely reports. PM USA and USSTC can continue marketing these products unless the FDA makes a determination that a specific product is not substantially equivalent. If the FDA ultimately makes such a determination, it could require the removal of such products or subject them to the New Product Application Process and, if any such applications are denied, prevent the continued distribution and sale of such products. PM USA and USSTC believe all of their current products meet the statute’s requirements, but cannot predict when or how the FDA will respond to their reports.

Manufacturers intending to introduce new products and certain modified products into the market after March 22, 2011 must submit a report to the FDA and obtain a “substantial equivalence order’ from the agency before introducing the products into the market. If the FDA declines to issue a so-called “substantial equivalence order” for a product or if the manufacturer itself determines that the product does not meet the substantial equivalence requirements, the product would need to undergo the New Product Application Process. At this time, it is not possible to predict how long agency reviews of either substantial equivalence reports or new product applications will take.

The FDA also published a final regulation in July 2011, establishing a process for requesting an exemption from the substantial equivalence requirements for certain minor modifications to tobacco additives. The final rule became effective in August 2011.

Good Manufacturing Practices

In March 2013, the FDA published a notice announcing that it had established a public docket to obtain input by May 20, 2013 on the proposed Good Manufacturing Practice Regulations recommended to the FDA in January 2012 by a group of tobacco companies, including PM USA and USSTC. The FSPTCA requires that the FDA promulgate good manufacturing practice regulations for tobacco product manufacturers, but does not specify a timeframe for such regulations.

Excise Taxes

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

Federal, state and local excise taxes have increased substantially over the past decade, far outpacing the rate of inflation. For example, in 2009, the federal excise tax (“FET”) on cigarettes increased from $0.39 per pack to approximately $1.01 per pack and on July 1, 2010, the New York state excise tax increased by $1.60 to $4.35 per pack. Between the end of 1998 and April 22, 2013, the weighted-average state and certain local cigarette excise taxes increased from $0.36 to $1.41 per pack. During 2012, two states (Illinois and Rhode Island) enacted legislation to increase their cigarette excise tax. As of April 22, 2013, no state has increased its cigarette excise tax in 2013. In addition, the President’s fiscal year 2014 Budget proposes significant increases in the FET for all tobacco products. The proposed budget would increase the FET on a pack of cigarettes by $0.94 per pack, raising the total FET to $1.95 per pack, and would also increase the tax on other tobacco products by a proportionate amount. It is not possible to predict whether this proposed FET increase will be enacted.

Tax increases are expected to continue to have an adverse impact on sales of the tobacco products of our tobacco subsidiaries through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments or to other low-priced or low-taxed tobacco products or to counterfeit and contraband products. Such shifts may have an impact on the reported share performance of tobacco products of Altria Group, Inc.’s tobacco subsidiaries.

A majority of states currently tax smokeless tobacco products using an ad valorem method, which is calculated as a percentage of the price of the product, typically the wholesale price. This ad valorem method results in more tax being paid on premium

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products than is paid on lower-priced products of equal weight. Altria Group, Inc.’s subsidiaries support legislation to convert ad valorem taxes on smokeless tobacco to a weight-based methodology because, unlike the ad valorem tax, a weight-based tax subjects cans of equal weight to the same tax. As of April 22, 2013, 22 states, Washington, D.C., Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for smokeless tobacco.

International Treaty on Tobacco Control

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. As of April 22, 2013, 176 countries, as well as the European Community, have become parties to the FCTC. While the United States is a signatory of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the United States Senate. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would, among other things: establish specific actions to prevent youth tobacco product use; restrict or eliminate all tobacco product advertising, marketing, promotion and sponsorship; initiate public education campaigns to inform the public about the health consequences of tobacco consumption and exposure to tobacco smoke and the benefits of quitting; implement regulations imposing product testing, disclosure and performance standards; impose health warning requirements on packaging; and adopt measures intended to combat tobacco product smuggling and counterfeit tobacco products, including tracking and tracing of tobacco products through the distribution chain and restrict smoking in public places.

There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial restrictions on the manufacture, marketing, distribution and sale of tobacco products. In addition, the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”) was approved by the Conference of Parties to the FCTC in November 2012. It includes provisions related to the tracking and tracing of tobacco products through the distribution chain and numerous other provisions regarding the regulation of the manufacture, distribution, and sale of tobacco products. The Protocol has not yet entered into force, but in any event will not apply to the United States until the Senate ratifies the FCTC and until the President signs, and the Senate ratifies, the Protocol. It is not possible to predict the outcome of these proposals or the impact of any FCTC actions on legislation or regulation in the United States, either directly as a result of the United States becoming a party to the FCTC, or whether or how these actions might indirectly influence FDA regulation and enforcement.

State Settlement Agreements

As discussed in Note 10, during 1997 and 1998, PM USA and other major domestic tobacco product manufacturers entered into agreements with states and various United States jurisdictions settling asserted and unasserted health care cost recovery and other claims (collectively, the “State Settlement Agreements”). These settlements require participating manufacturers to make substantial annual payments, which are adjusted for several factors, including inflation, market share and industry volume. For a discussion of the impact of the State Settlement Agreements, FETRA and FDA user fee payments on Altria Group, Inc., see Financial Review - Debt and Liquidity - Payments Under State Settlement and Other Tobacco Agreements, and FDA Regulation below. The settlements also place numerous requirements and restrictions on participating manufacturers’ business operations, including prohibitions and restrictions on the advertising and marketing of cigarettes and smokeless tobacco products. Among these are prohibitions of outdoor and transit brand advertising, payments for product placement and free sampling (except in adult-only facilities). Restrictions are also placed on the use of brand name sponsorships and brand name non-tobacco products. The State Settlement Agreements also place prohibitions on targeting youth and the use of cartoon characters. In addition, the State Settlement Agreements require companies to affirm corporate principles directed at reducing underage use of cigarettes; impose requirements regarding lobbying activities; mandate public disclosure of certain industry documents; limit the industry’s ability to challenge certain tobacco control and underage use laws; and provide for the dissolution of certain tobacco-related organizations and place restrictions on the establishment of any replacement organizations.

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

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Other Federal, State and Local Regulation and Activity

Federal, State and Local Laws

State and Local Laws Addressing Certain Characterizing Flavors

In a growing number of states and localities, legislation has been enacted or proposed that prohibits or would prohibit the sale of certain tobacco products with certain characterizing flavors. The legislation varies in terms of the type of tobacco products subject to prohibition, the conditions under which the sale of such products is or would be prohibited, and exceptions to the prohibitions. For example, a number of proposals would prohibit characterizing flavors in smokeless tobacco products, with no exception for mint- or wintergreen-flavored products.

To date, the following states have enacted legislation that prohibits certain tobacco products with certain characterizing flavors:

Maine enacted legislation that prohibits the sale of certain flavored cigar and cigarette products. As implemented, including the application of certain statutory exemptions, this prohibition did not ban any PM USA, USSTC or Middleton product. In 2010, Maine amended the characterizing flavor prohibition. The amendment allows the continued sale of cigars that obtained favorable exemption rulings under the previous statute but does not provide for the possibility of further exemptions, such as for future products with characterizing flavors.

New Jersey enacted legislation banning the sale and marketing of cigarettes with a characterizing flavor other than menthol, mint or clove. This legislation does not ban any PM USA, USSTC or Middleton product.

In addition, such legislation has been enacted or is being considered in a number of localities. For example:

New York City adopted an ordinance that prohibits the sale of certain flavored tobacco products other than cigarettes. This legislation affects certain USSTC and Middleton products. The ordinance and related final regulations took effect in August 2010. Certain subsidiaries of USSTC have filed a lawsuit in the U.S. District Court for the Southern District of New York challenging the New York City legislation on the grounds that it is preempted by the FSPTCA. In March 2010, the district court denied plaintiffs’ motion for preliminary injunction against enforcement of the ordinance and, in November 2011, the district court denied plaintiffs’ motion for summary judgment, and granted New York City’s cross-motion for summary judgment, on the preemption claim. Plaintiffs have appealed the denial to the U.S. Court of Appeals for the Second Circuit and, in the meantime, are complying with the ordinance pending resolution of the litigation. Argument was heard in November 2012. On February 26, 2013, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the district court upholding the New York City ordinance. Plaintiffs filed a petition for rehearing and for rehearing en banc on March 8, 2013.

Providence, Rhode Island adopted two ordinances in January 2012. One would prohibit the sale in most retail outlets of certain flavored tobacco products other than cigarettes. This legislation differs in a number of ways from the New York City ordinance, including by attempting to prohibit reference to concepts such as “spicy, arctic, ice, cool, warm, hot, mellow, fresh and breeze.” The second Providence ordinance prohibits licensed retailers in the city from accepting or redeeming coupons for cigarettes and other tobacco products or from selling such products to consumers through multi-pack discounts or other discounts provided in exchange for the purchase of another tobacco product. In February 2012, Altria Group, Inc.’s tobacco subsidiaries filed a legal challenge to these ordinances in the U.S. District Court for the District of Rhode Island challenging the legality of both ordinances on preemption and First Amendment grounds. Plaintiffs filed motions for preliminary injunction and summary judgment in March 2012. The City of Providence filed a cross-motion for summary judgment in June 2012. In December 2012, the district court struck the “concepts” language quoted above from the flavor ordinance, but otherwise granted summary judgment for the City of Providence as to both ordinances. The City of Providence commenced enforcement of the ordinances, as modified by the district court, on January 3, 2013. On January 8, 2013, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the First Circuit.

Whether other states or localities will enact legislation in this area, and the precise nature of such legislation if enacted, cannot be predicted. See FSPTCA and FDA Regulation above for a summary of the FSPTCA’s regulation of certain tobacco products with characterizing flavors.

State and Local Laws Imposing Certain Speech Requirements or Other Restrictions

In several jurisdictions, legislation or regulations have been enacted or proposed that would require the disclosure of health information separate from or in addition to federally-mandated health warnings or that would restrict commercial speech in certain respects or that would impose additional restrictions on the marketing or sale of tobacco products. For example, in

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2012, New York City attempted to require retailers selling tobacco products to display a sign depicting graphic images of the potential health consequences of smoking and urging smokers to quit. In litigation now concluded, a federal appeals court ruled that the ordinance was preempted by federal law.     

As another example, the Village Board of Haverstraw, New York enacted a tobacco product display ban in April 2012. It would have barred tobacco retailers fromdisplaying any tobacco product in a manner that an adult consumer could view the product prior to purchase and would have only allowed limited use of a “tobacco menu,” listing the types and prices of tobacco products available for sale. Following initiation of a lawsuit by an association of tobacco retailers and several tobacco manufacturers and distributors (including PM USA, USSTC and Middleton), the Village Board voted to approve a settlement of the lawsuit and to repeal the ordinance. Legislation similar to that enacted in Haverstraw has also been proposed in New York City. The proposal in New York City includes restrictions on the display of tobacco products and on price discounting.

Legislation was recently proposed in New York City to increase the City’s minimum age to purchase tobacco products from 18 to 21. The current federal minimum age requirement for the purchase of tobacco products is 18; four states have increased their state minimum age laws to 19 (Alabama, Alaska, New Jersey and Utah), and a number of localities have increased their minimum age laws above 18.

Federal Tobacco Quota Buy-Out

In October 2004, FETRA was signed into law. PM USA, Middleton and USSTC are subject to the requirements of FETRA. FETRA eliminated the federal tobacco quota and price support program through an industry-funded buy-out of tobacco growers and quota holders. The cost of the buy-out is approximately $9.5 billion and is being paid over 10 years ending in 2014 by manufacturers and importers of each kind of tobacco product subject to FET. The cost is being allocated based on the relative market shares of manufacturers and importers of each kind of such tobacco product.

In February 2011, PM USA filed a lawsuit in the U.S. District Court for the Eastern District of Virginia challenging the United States Department of Agriculture’s (the “USDA”) method for calculating the 2011 and future tobacco product class shares that are used to allocate liability for the industry payments that fund the FETRA buy-out described above. PM USA asserted in this litigation that the USDA violated FETRA, and imposed excessive FETRA assessments on PM USA, by failing to apply the most current FET rates enacted by Congress, which became effective in April 2009, in calculating the class share allocations. The Cigar Association of America has joined the litigation as a defendant intervenor. In October 2012, the district court denied PM USA’s motion for summary judgment, granted the defendants’ motion for summary judgment and dismissed the case. In December 2012, PM USA filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit.

For a discussion of the impact of the State Settlement Agreements, FETRA and FDA user fee payments on Altria Group, Inc., see Financial Review - Debt and Liquidity - Payments Under State Settlement and Other Tobacco Agreements, and FDA Regulation below. We do not anticipate that the quota buy-out will have a material adverse impact on our consolidated results in 2013 and 2014.

Health Effects of Tobacco Consumption and Exposure to Environmental Tobacco Smoke (“ETS”)

It is the policy of Altria Group, Inc. and its tobacco subsidiaries to defer to the judgment of public health authorities as to the content of warnings in advertisements and on product packaging regarding the health effects of tobacco consumption, addiction and exposure to ETS. Altria Group, Inc. and its tobacco subsidiaries believe that the public should be guided by the messages of the United States Surgeon General and public health authorities worldwide in making decisions concerning the use of tobacco products.

Reports with respect to the health effects of smoking have been publicized for many years, including in a June 2006 United States Surgeon General report on ETS entitled “The Health Consequences of Involuntary Exposure to Tobacco Smoke.” Many jurisdictions within the United States have restricted smoking in public places. The pace and scope of public smoking bans have increased significantly. Some public health groups have called for, and various jurisdictions have adopted or proposed, bans on smoking in outdoor places, in private apartments and in cars transporting minors. It is not possible to predict the results of ongoing scientific research or the types of future scientific research into the health risks of tobacco exposure and the impact of such research on regulation.

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Other Legislation or Governmental Initiatives

In addition to the actions discussed above, other regulatory initiatives affecting the tobacco industry have been adopted or are being considered at the federal level and in a number of state and local jurisdictions. For example, in recent years, legislation has been introduced or enacted at the state or local level to subject tobacco products to various reporting requirements and performance standards (such as reduced cigarette ignition propensity standards); establish educational campaigns relating to tobacco consumption or tobacco control programs, or provide additional funding for governmental tobacco control activities; restrict the sale of tobacco products in certain retail establishments and the sale of tobacco products in certain packing sizes; require tax stamping of moist smokeless tobacco products; require the use of state tax stamps using data encryption technology; and further restrict the sale, marketing and advertising of cigarettes and other tobacco products. Such legislation may be subject to constitutional or other challenges on various grounds, which may or may not be successful.

It is not possible to predict what, if any, additional legislation, regulation or other governmental action will be enacted or implemented (and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or the tobacco industry generally. It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that might materially adversely affect the business and volume of our tobacco subsidiaries and our consolidated results of operations and cash flows.

Governmental Investigations

From time to time, Altria Group, Inc. and its subsidiaries are subject to governmental investigations on a range of matters. Altria Group, Inc. and its subsidiaries cannot predict whether new investigations may be commenced.

Illicit Trade

Altria Group, Inc. and its tobacco subsidiaries support appropriate regulations and enforcement measures to prevent illicit trade in tobacco products. For example, Altria Group, Inc.’s tobacco subsidiaries are engaged in a number of initiatives to help prevent trade in contraband tobacco products, including: enforcement of wholesale and retail trade programs and policies on trade in contraband tobacco products; engagement with and support of law enforcement and regulatory agencies; litigation to protect their trademarks; and support for a variety of federal and state legislative initiatives. Legislative initiatives to address trade in contraband tobacco products are designed to protect the legitimate channels of distribution, impose more stringent penalties for the violation of illegal trade laws and provide additional tools for law enforcement. Regulatory measures and related governmental actions to prevent the illicit manufacture and trade of tobacco products continue to evolve as the nature of illicit tobacco products evolves. For example, in March 2010, the President signed into law the Prevent All Cigarette Trafficking (“PACT”) Act, which addresses illegal Internet sales by, among other things, imposing a series of restrictions and requirements on the delivery-sale of cigarettes and smokeless tobacco products and makes such products non-mailable to consumers through the United States Postal Service, subject to limited exceptions. Certain Internet cigarette sellers filed lawsuits challenging the constitutionality of various aspects of this statute and sought injunctive relief in the U.S. District Courts for the District of Columbia, the Western District of New York and the Eastern District of Pennsylvania. In the Western District of New York, the district court enjoined only certain elements of the PACT Act, including a requirement that delivery-sellers obey the laws of the jurisdiction to which they ship cigarettes. In the District of Columbia, the district court issued a preliminary injunction substantially similar to the injunctive relief issued in the Western District of New York. The United States Department of Justice is challenging the District of Columbia injunction on appeal and is pursuing a final judgment on the merits in the Western District of New York proceedings.

Tobacco Price, Availability and Quality

Shifts in crops driven by economic conditions and adverse weather patterns, government mandated prices and production control programs may increase or decrease the cost or reduce the quality of tobacco and other agricultural products used to manufacture our products. As with other agriculture commodities, the price of tobacco leaf can be influenced by economic conditions and imbalances in supply and demand and crop quality and availability can be influenced by variations in weather patterns, including those caused by climate change. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products and the cost of tobacco production could cause tobacco leaf prices to increase and could result in farmers growing less tobacco. Any significant change in tobacco leaf prices, quality or availability could affect our tobacco subsidiaries' profitability and business.

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Timing of Sales

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

Operating Results

The following discussion compares operating results for the smokeable and smokeless products segments for the three months endedMarch 31, 2013, with the three months endedMarch 31, 2012.

	For the Three Months Ended March 31,
	Net Revenues				Operating Companies Income
	2013		2012		2013		2012
	(in millions)
Smokeable products	$	4,968	$	5,100	$	1,920	$	1,439
Smokeless products	390		380		222		192
Total smokeable and smokeless products	$	5,358	$	5,480	$	2,142	$	1,631

New Tracking Services

Effective in the first quarter of 2013, retail share results for cigarettes are based on a new tracking service, IRI/Management Science Associate Inc. (“MSAi”), and retail share results for cigars and smokeless products are based on a new tracking service, IRI InfoScan. These cost-effective new services measure retail share in stores representing trade classes selling a significant majority of the volume of the product being measured. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers reported through the Store Tracking Analytical Reporting System (“STARS”). Retail market share results reported using the new services cannot be meaningfully compared to retail market shares previously reported by Altria Group, Inc.’s tobacco companies under the previous services. Retail share results for 2012 have been restated to reflect these new services.

Smokeable products segment

The smokeable products segment’s operating companies income and margin increased during the three months endedMarch 31, 2013 due primarily to the NPM Adjustment recorded during the first quarter of 2013 and higher pricing, partially offset by lower shipment volume. PM USA grew its total retail share of cigarettes and Marlboro’s retail share.

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The following table summarizes smokeable products segment shipment volume performance:

	Shipment Volume
		For the Three Months Ended March 31,
		2013	2012	Change
	(sticks in millions)
Cigarettes:
Marlboro		25,435	26,913	(5.5	)%
Other premium		1,782	2,036	(12.5	)%
Discount		2,284	2,159	5.8	%
Total cigarettes		29,501	31,108	(5.2	)%
Cigars:
Black & Mild		269	323	(16.7	)%
Other		4	5	(20.0	)%
Total cigars		273	328	(16.8	)%
Total smokeable products		29,774	31,436	(5.3	)%

Cigarettes shipment volume includes Marlboro; Other premium brands, such as Virginia Slims, Parliament and Benson & Hedges; and Discount brands, which include Basic and L&M. Cigarettes volume includes units sold as well as promotional units, but excludes units sold in Puerto Rico and U.S. Territories, to Overseas Military and by Philip Morris Duty Free Inc., none of which, individually or in the aggregate, is material to the smokeable products segment.

The following table summarizes the smokeable products segment retail share performance:

	Retail Share
		For the Three Months Ended March 31,
Cigarettes:		2013		2012		Percentage Point Change
Marlboro		43.6	%	43.4	%	0.2
Other premium		3.1		3.3		(0.2	)
Discount		3.8		3.3		0.5
Total cigarettes		50.5	%	50.0	%	0.5
Cigars:
Black & Mild		28.4	%	31.5	%	(3.1	)
Other		0.2		0.3		(0.1	)
Total cigars		28.6	%	31.8	%	(3.2	)

As previously discussed, effective in the first quarter of 2013, retail share results for cigarettes are based on data from IRI/MSAi, a tracking service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends. Retail share results for cigars are based on data from IRI InfoScan, a tracking service that uses a sample of stores to project market share and depict share trends. Both services track sales in the Food, Drug and Mass Merchandisers (including Wal-Mart), Convenience, Military, Dollar Store and Club trade classes. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers (STARS). These services are not designed to capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets. Retail share results for cigars are based on data for machine-made large cigars. Middleton defines machine-made large cigars as cigars made by machine that weigh greater than three pounds per thousand, except cigars sold at retail in packages of 20 cigars. Because the cigars service represents retail share performance only in key trade channels, it should not be considered a precise measurement of actual retail share. It is IRI's standard practice to periodically refresh its services, which could restate retail share results that were previously released in these services.

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As a result of the transition to these new tracking services, PM USA and Middleton have restated previously released 2012 retail share results for cigarettes and cigars, which are summarized below.

	Restated Retail Share
	For the Three Months Ended
		12/31/12		09/30/12		06/30/12		03/31/12
Cigarettes:
Marlboro		43.5	%	43.7	%	43.7	%	43.4	%
Other premium		3.2		3.2		3.3		3.3
Discount		3.7		3.6		3.4		3.3
Total cigarettes		50.4	%	50.5	%	50.4	%	50.0	%
Cigars:
Black & Mild		29.7	%	30.6	%	30.3	%	31.5	%
Other		0.3		0.2		0.2		0.3
Total cigars		30.0	%	30.8	%	30.5	%	31.8	%

	Restated Retail Share
	For the Year-ended 12/31/12		For the Nine Months Ended 09/30/12		For the Six Months Ended 06/30/12
Cigarettes:
Marlboro	43.6	%	43.6	%	43.5	%
Other premium	3.2		3.3		3.3
Discount	3.5		3.4		3.4
Total cigarettes	50.3	%	50.3	%	50.2	%
Cigars:
Black & Mild	30.5	%	30.8	%	30.9	%
Other	0.3		0.2		0.2
Total cigars	30.8	%	31.0	%	31.1	%

PM USA and Middleton executed the following pricing and promotional allowance actions during 2012:

• Effective December 3, 2012, PM USA increased the list price on all of its cigarette brands by $0.06 per pack.

• Effective June 18, 2012, PM USA increased the list price on all of its cigarette brands by $0.06 per pack.

• Effective March 14, 2012, Middleton reduced the list price on all of its untipped cigarillo brands by $0.39 per five-pack.

Net revenues, which include excise taxes billed to customers, for the three months endedMarch 31, 2013, decreased $132 million (2.6%), due primarily to lower shipment volume, partially offset by higher pricing.Operating companies income for the three months endedMarch 31, 2013 increased $481 million (33.4%), due primarily to the NPM Adjustment recorded during the first quarter of 2013 ($483 million), higher pricing ($172 million) and cost reduction initiatives, partially offset by lower shipment volume ($158 million), higher per unit settlement charges and a postretirement benefit plan curtailment gain in 2012.

Total smokeable products shipment volume for the three months endedMarch 31, 2013 decreased 5.3% versus the prior-year period.

PM USA’s reported domestic cigarettes shipment volume decreased 5.2% for the three months endedMarch 31, 2013, due primarily to the industry’s rate of decline and one less shipping day, partially offset by retail share gains and changes in trade

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inventories. PM USA believes that the trade depleted less inventory during the first quarter of 2013 compared to the first quarter of 2012. After adjusting for one less shipping day and changes in trade inventories, PM USA’s 2013 first-quarter domestic cigarettes shipment volume was estimated to be down approximately 4%. After adjusting for one less shipping day and changes in trade inventories, PM USA estimates total cigarette category volume for the first quarter of 2013 to be down approximately 4.5%.

PM USA’s shipments of premium cigarettes accounted for 92.3% of its reported domestic cigarettes shipment volume for the three months endedMarch 31, 2013, versus 93.1% for the three months endedMarch 31, 2012.

Middleton’s reported cigars shipment volume for the three months endedMarch 31, 2013 decreased 16.8% due primarily to retail share losses and changes in wholesale inventories.

In the cigarette category,Marlboro’sretail share performance for the three months endedMarch 31, 2013 continued to benefitfrom the brand-building initiatives supporting Marlboro’s new architecture. Marlboro’s retail share for the three months endedMarch 31, 2013 increased 0.2 share points versus the prior-year period to 43.6%. During the first quarter of 2013, PM USA expanded distribution of Marlboro Southern Cut nationally.

PM USA’s retail share for the three months ended March 31, 2013 increased 0.5 share points versus the prior-year period, due to retail share gains by Marlboro and by L&M in Discount. These gains were partially offset by share losses on other portfolio brands.

In the machine-made large cigars category,Black & Mild’s retail share for the three months endedMarch 31, 2013 decreased 3.1 share points, driven primarily by heightened competitive activity, including high levels of low-priced, imported machine-made large cigars.

Smokeless products segment

The smokeless products segment’s operating companies income and margin grew during the three months endedMarch 31, 2013. USSTC grew Copenhagen and Skoal’s combined volume and retail share during the first quarter of 2013.

The following table summarizes smokeless products segment shipment volume performance:

	Shipment Volume
	For the Three Months Ended March 31,
	2013	2012	Change
	(cans and packs in millions)
Copenhagen	93.5	85.9	8.8	%
Skoal	64.4	64.6	(0.3	)%
Copenhagen and Skoal	157.9	150.5	4.9	%
Other	17.8	19.4	(8.2	)%
Total smokeless products	175.7	169.9	3.4	%

Smokeless products shipment volume includes cans and packs sold, as well as promotional units, but excludes international volume, which is not material to the smokeless products segment. Other includes certain USSTC and PM USA smokeless products. New types of smokeless products, as well as new packaging configurations of existing smokeless products, may or may not be equivalent to existing moist smokeless tobacco (“MST”) products on a can for can basis. To calculate volumes of cans and packs shipped, USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST.

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

	Retail Share
		For the Three Months Ended March 31,
		2013		2012		Percentage Point Change
Copenhagen		28.7	%	27.4	%	1.3
Skoal		21.9		22.7		(0.8	)
Copenhagen and Skoal		50.6		50.1		0.5
Other		4.4		5.3		(0.9	)
Total smokeless products		55.0	%	55.4	%	(0.4	)

As previously discussed, effective in the first quarter of 2013, retail share results for smokeless products are based on data from IRI InfoScan, a tracking service that uses a sample of stores to project market share and depict share trends.  The service tracks sales in the Food, Drug and Mass Merchandisers (including Wal-Mart), Convenience, Military, Dollar Store and Club trade classes on the number of cans and packs sold.  Smokeless products is defined by IRI as moist smokeless and spit-free tobacco products.  Other includes certain USSTC and PM USA smokeless products. New types of smokeless products, as well as new packaging configurations of existing smokeless products, may or may not be equivalent to existing MST products on a can for can basis. USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST. All other products are considered to be equivalent on a can for can basis. Because this service represents retail share performance only in key trade channels, it should not be considered a precise measurement of actual retail share.  It is IRI’s standard practice to periodically refresh its InfoScan services, which could restate retail share results that were previously released in this service.

As a result of the transition to this new tracking service, PM USA and USSTC have restated previously released 2012 retail share results for smokeless products, which are summarized below.

	Restated Retail Share
	For the Three Months Ended
	12/31/12		09/30/12		06/30/12		03/31/12
Copenhagen	28.5	%	28.3	%	27.4	%	27.4	%
Skoal	22.2		22.4		22.7		22.7
Copenhagen and Skoal	50.7		50.7		50.1		50.1
Other	4.6		4.7		4.9		5.3
Total smokeless products	55.3	%	55.4	%	55.0	%	55.4	%

	Restated Retail Share
	For the Year-ended 12/31/12		For the Nine Months Ended 09/30/12		For the Six Months Ended 06/30/12
Copenhagen	27.9	%	27.7	%	27.4	%
Skoal	22.5		22.6		22.7
Copenhagen and Skoal	50.4		50.3		50.1
Other	4.8		4.9		5.1
Total smokeless products	55.2	%	55.2	%	55.2	%

USSTC and PM USA executed the following pricing actions during 2012:

• Effective December 9, 2012, USSTC increased the list price on all of its brands by $0.05 per can or pouch.

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• Effective December 3, 2012, PM USA increased the list price on Marlboro Snus tins and flip-top box (“FTB”) by $0.05 per tin or FTB.

• Effective June 18, 2012, PM USA increased the list price on Marlboro Snus tins and FTB by $0.05 per tin or FTB.

• Effective May 25, 2012, USSTC increased the list price on all of its brands by $0.05 per can.

Net revenues, which include excise taxes billed to customers, for the three months endedMarch 31, 2013, increased $10 million (2.6%), due primarily to higher volume ($10 million) and higher net pricing, which includes higher promotional investments, partially offset by unfavorable mix due to growth in products introduced in recent years at a lower, popular price. Operating companies income for the three months endedMarch 31, 2013 increased $30 million (15.6%), due primarily to restructuring charges in the first quarter of 2012 related to the 2011 Cost Reduction Program ($19 million), higher volume ($9 million) and higher net pricing, which includes higher promotional investments, partially offset by growth in products introduced in recent years at a lower, popular price.

For the three months endedMarch 31, 2013, USSTC and PM USA’s combined reported domestic smokeless products shipment volume increased 3.4% due primarily to volume growth for Copenhagen, partially offset by volume declines for Other portfolio brands. Copenhagen and Skoal’s combined shipment volume increased 4.9% versus the prior-year period. Copenhagen’s 2013 first-quarter volume grew 8.8%, as the brand continued to benefit from products introduced in recent years. Skoal’s volume was essentially unchanged for the first quarter of 2013.

USSTC and PM USA believe that the smokeless products category’s volume grew at an estimated rate of approximately 5% over the 12 months ended March 31, 2013. Adjusted smokeless products volume is difficult to estimate on a quarterly basis. However, after adjusting for changes in trade inventories and year-over-year calendar differences, USSTC and PM USA estimate that their combined 2013 first-quarter adjusted smokeless products shipment volume grew at a rate slightly below the 12 month category growth rate.

USSTC and PM USA’s combined retail share for the three months endedMarch 31, 2013 decreased 0.4 share points as retail share losses for Other portfolio brands and Skoal were partially offset by gains by Copenhagen.

Copenhagen and Skoal’s combined retail share for the three months endedMarch 31, 2013 increased 0.5 share points. Copenhagen’s2013 first-quarter retail share grew 1.3 share points, as the brand continued to benefit from products introduced over the past several years. USSTC also expanded Copenhagen Southern Blend into additional states during the first quarter of 2013. Skoal’s 2013 first-quarter retail share declined 0.8 share points due primarily to competitive activity and Copenhagen’s strong performance, partially offset by share gains on its Skoal X-TRA products. During the first quarter of 2013, Skoal began to refresh its packaging to better reflect the brand’s contemporary premium qualities and differentiate its product offerings.

Wine segment

Business Environment

Ste. Michelle is a leading producer of Washington state wines, primarily Chateau Ste. Michelle, Columbia Crest and 14 Hands, and owns wineries in or distributes wines from several other wine regions. As discussed in Note 10, Ste. Michelle holds an 85% ownership interest in Michelle-Antinori, LLC, which owns Stag’s Leap Wine Cellars in Napa Valley. Ste. Michelle also owns Conn Creek in Napa Valley and Erath in Oregon. In addition, Ste. Michelle distributes Antinori and Villa Maria Estate wines and Champagne Nicolas Feuillatte in the United States. Key elements of Ste. Michelle’s strategy are expanded domestic distribution of its wines, especially in certain account categories such as restaurants, wholesale clubs, supermarkets, wine shops and mass merchandisers, and a focus on improving product mix to higher-priced, premium products.

Ste. Michelle’s business is subject to significant competition, including competition from many larger, well-established domestic and international companies, as well as from many smaller wine producers. Wine segment competition is primarily based on quality, price, consumer and trade wine tastings, competitive wine judging, third-party acclaim and advertising. Substantially all of Ste. Michelle’s sales occur through state-licensed distributors.

Federal, state and local governmental agencies regulate the alcohol beverage industry through various means, including licensing requirements, pricing, labeling and advertising restrictions, and distribution and production policies. Further

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regulatory restrictions or additional excise or other taxes on the manufacture and sale of alcoholic beverages may have an adverse effect on Ste. Michelle’s wine business.

Operating Results

Ste. Michelle delivered higher operating companies income and margin for the three months endedMarch 31, 2013 through higher shipment volume and higher pricing.

The following discussion compares wine segment results for the three months endedMarch 31, 2013, with the three months endedMarch 31, 2012.

		For the Three Months Ended March 31,
		2013		2012
	(in millions)
Net revenues		$	126	$	113
Operating companies income		$	20	$	15

The following table summarizes wine segment case shipment volume performance:

	Shipment Volume
		For the Three Months Ended March 31,
		2013	2012	Change*
	(cases in thousands)
Chateau Ste. Michelle		530	528	0.3	%
Columbia Crest		385	341	12.9	%
14 Hands		317	216	46.8	%
Other		453	453	—	%
Total wine		1,685	1,538	9.5	%
*Percent volume change calculation is based on units to the nearest hundred.

For the three months ended March 31, 2013, net revenues, which include excise taxes billed to customers, increased $13 million (11.5%) and operating companies income increased $5 million (33.3%). These increases were due primarily to higher shipment volume and higher pricing.

For the three months endedMarch 31, 2013, Ste. Michelle’s reported wine shipment volume increased 9.5% due primarily to increased distribution and the timing of the Easter holiday.

Financial Review

Net Cash Provided by Operating Activities

During the first three months of 2013, net cash provided by operating activities was $1,793 million compared with $1,837 million during the first three months of 2012. This decrease was due primarily to the timing of payments related to accrued liabilities, partially offset by a lower voluntary contribution to Altria Group, Inc.’s pension plans.

Altria Group, Inc. had a working capital deficit at March 31, 2013 and December 31, 2012. Altria Group, Inc.’s management believes that it has the ability to fund these working capital deficits with cash provided by operating activities and/or short-term borrowings under its commercial paper program as discussed in the Debt and Liquidity section below.

Net Cash Provided by Investing Activities

During the first three months of 2013, net cash provided by investing activities was $188 million compared with $287 million during the first three months of 2012. This decrease was due primarily to lower proceeds from asset sales in the financial services business during the first three months of 2013.

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Cash Used in Financing Activities

During the first three months of 2013, cash used in financing activities was $1.1 billion compared with $1.2 billion during the first three months of 2012. This decrease was due primarily to lower share repurchases during the first three months of 2013, partially offset by higher dividends paid.

Debt and Liquidity

Credit Ratings - Altria Group, Inc.’s cost and terms of financing and its access to commercial paper markets may be impacted by applicable credit ratings.  Under the terms of certain of Altria Group, Inc.’s existing debt instruments, a change in a credit rating could result in an increase or a decrease of the cost of borrowings. For instance, the interest rate payable on certain of Altria Group, Inc.’s outstanding notes is subject to adjustment from time to time if the rating assigned to the notes of such series by Moody’s Investors Service, Inc. (“Moody’s”) or Standard & Poor’s Ratings Services (“Standard & Poor’s”) is downgraded (or subsequently upgraded) as and to the extent set forth in the notes. The impact of credit ratings on the cost of borrowings under Altria Group, Inc.’s credit agreement is discussed below. 

At March 31, 2013, the credit ratings and outlook for Altria Group, Inc.’s indebtedness by major credit rating agencies were:

	Short-term Debt	Long-term Debt	Outlook
Moody’s	P-2	Baa1	Stable
Standard & Poor’s	A-2	BBB	Stable
Fitch	F2	BBB+	Stable

Credit Lines - From time to time, Altria Group, Inc. has short-term borrowing needs to meet its working capital requirements and generally uses its commercial paper program to meet those needs. As of and during the three months ended March 31, 2013 and 2012, Altria Group, Inc., had no short-term borrowings.

At March 31, 2013, Altria Group, Inc. had in place a senior unsecured 5-year revolving credit agreement (the “Credit Agreement”). The Credit Agreement provides for borrowings up to an aggregate principal amount of $3.0 billion and expires on June 30, 2016. Pricing for interest and fees under the Credit Agreement may be modified in the event of a change in the rating of Altria Group, Inc.’s long-term senior unsecured debt. Interest rates on borrowings under the Credit Agreement are expected to be based on the London Interbank Offered Rate (“LIBOR”) plus a percentage equal to Altria Group, Inc.’s credit default swap spread subject to certain minimum rates and maximum rates based on the higher of the rating of Altria Group, Inc.’s long-term senior unsecured debt from Standard & Poor’s and Moody’s. The applicable minimum and maximum rates based on Altria Group, Inc.’s long-term senior unsecured debt ratings at March 31, 2013 for borrowings under the Credit Agreement were 0.75% and 1.75%, respectively. The Credit Agreement does not include any other rating triggers, nor does it contain any provisions that could require the posting of collateral. At March 31, 2013, the credit line available to Altria Group, Inc. was $3.0 billion.

The Credit Agreement is used for general corporate purposes and to support Altria Group, Inc.’s commercial paper issuances. The Credit Agreement requires that Altria Group, Inc. maintain (i) a ratio of debt to consolidated EBITDA of not more than 3.0 to 1.0 and (ii) a ratio of consolidated EBITDA to consolidated interest expense of not less than 4.0 to 1.0, each calculated as of the end of the applicable quarter on a rolling four quarters basis. At March 31, 2013, the ratios of debt to consolidated EBITDA and consolidated EBITDA to consolidated interest expense, calculated in accordance with the Credit Agreement, were 1.7 to 1.0 and 7.7 to 1.0, respectively. Altria Group, Inc. expects to continue to meet its covenants associated with the Credit Agreement. The terms “consolidated EBITDA,” “debt” and “consolidated interest expense,” as defined in the Credit Agreement, include certain adjustments. Exhibit 99.3 to Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 sets forth the definitions of these terms as they appear in the Credit Agreement and is incorporated herein by reference.

Any commercial paper issued by Altria Group, Inc. and borrowings under the Credit Agreement are guaranteed by PM USA as further discussed in Note 11. Condensed Consolidating Financial Information to the condensed consolidated financial statements in Item 1 (“Note 11”).

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Financial Market Environment - Altria Group, Inc. believes it has adequate liquidity and access to financial resources to meet its anticipated obligations and ongoing business needs in the foreseeable future. Altria Group, Inc. continues to monitor the credit quality of its bank group and is not aware of any potential non-performing credit provider in that group. Altria Group, Inc. believes the lenders in its bank group will be willing and able to advance funds in accordance with their legal obligations.

Debt - At March 31, 2013 and December 31, 2012, Altria Group, Inc.’s total debt was $13.9 billion.

Guarantees and Other Similar Matters - As discussed in Note 10, Altria Group, Inc. had guarantees (including third-party guarantees) and a redeemable noncontrolling interest outstanding at March 31, 2013. From time to time, subsidiaries of Altria Group, Inc. also issue lines of credit to affiliated entities. In addition, as discussed in Note 11, PM USA has issued guarantees related to Altria Group, Inc.’s indebtedness. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’s liquidity.

Payments Under State Settlement and Other Tobacco Agreements, and FDA Regulation - As discussed previously and in Note 10, PM USA has entered into State Settlement Agreements with the states and territories of the United States. PM USA also entered into a trust agreement to provide certain aid to U.S. tobacco growers and quota holders, but PM USA’s obligations under this trust expired on December 15, 2010 (these obligations had been offset by the obligations imposed on PM USA by FETRA, which expires in the third quarter of 2014). USSTC and Middleton are also subject to obligations imposed by FETRA. In addition, in June 2009, PM USA and a subsidiary of USSTC became subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. The State Settlement Agreements, FETRA and the FDA user fees call for payments that are based on variable factors, such as volume, market share and inflation, depending on the subject payment. Altria Group, Inc.’s subsidiaries account for the cost of the State Settlement Agreements, FETRA and FDA user fees as a component of cost of sales. As a result of the State Settlement Agreements, FETRA and FDA user fees, Altria Group, Inc.’s subsidiaries recorded approximately $0.7 billion and $1.2 billion of charges to cost of sales for the three months endedMarch 31, 2013 and 2012, respectively. The 2013 amount includes a pre-tax credit of $483 million related to the NPM Adjustment discussed below and indetail in Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10.

Effective December 17, 2012, PM USA and the other tobacco product manufacturers that are original signatories (the “OPMs”) to the MSA, as well as certain other participating manufacturers, entered into a term sheet with 17 states, the District of Columbia and Puerto Rico for settlement of the 2003 - 2012 NPM Adjustments with those states and territories (the “signatory states”). On March 12, 2013, the arbitration panel in the pending NPM Adjustment arbitration issued a stipulated partial settlement and award (the “Stipulated Award”) permitting the term sheet to proceed. An additional MSA state joined the term sheet on April 12, 2013, and it is possible that more states will also join. Based on the identity of the signatory states on April 15, 2013, the reduction in PM USA’s MSA payment obligation was approximately $483 million, all of which PM USA received as a credit against its April 2013 MSA payment. As a result of the settlement, PM USA recorded a $483 million reduction to cost of sales on its condensed consolidated statement of earnings for the three months ended March 31, 2013.

As discussed in detail in Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10, several non-signatory states have taken action, and additional non-signatory states may also take action, in state court to vacate or modify the Stipulated Award. No assurance can be given that this litigation or any other such attempts by other non-signatory states will be resolved in a manner favorable to PM USA, nor can PM USA predict the remedy that might be ordered if any such litigation were to be resolved unfavorably to PM USA. The term sheet also provides that the NPM Adjustment provision will be revised and streamlined as to the signatory states for years after 2012. In connection with the settlement, the formula for allocating among the OPMs the revised NPM Adjustments applicable in the future to the signatory states will be modified in a manner favorable to PM USA, although the extent to which it is favorable to PM USA will be dependent upon certain future events, including the future relative market shares of the OPMs.

Based on current agreements, 2012 market share and historical annual industry volume decline rates, the estimated amounts that Altria Group, Inc.’s subsidiaries may charge to cost of sales for these payments approximate $4.5 billion in 2013 and $5 billion for each year thereafter. These amounts include the $483 million credit recorded during the first quarter of 2013, but exclude the potential impact of the revised and streamlined NPM Adjustment provision applicable to signatory states for years after 2012 discussed above.

The estimated amounts due under the State Settlement Agreements and FETRA charged to cost of sales in each year would generally be paid in the following year. The amounts charged to cost of sales for the FDA user fees are generally paid in the quarter in which the fees are incurred. As previously stated, the payments due under the terms of the State Settlement

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Agreements, FETRA and FDA user fees are subject to adjustment for several factors, including volume, inflation and certain contingent events and, in general, are allocated based on each manufacturer’s market share. Future payment amounts are estimates, and actual payment amounts will differ to the extent underlying assumptions differ from actual future results.

Litigation Escrow Deposits - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of March 31, 2013, PM USA had posted various forms of security totaling approximately $36 million, the majority of which have been collateralized with cash deposits. These cash deposits are included in other assets on the condensed consolidated balance sheet.

Although litigation is subject to uncertainty and could result in material adverse consequences for the financial position, cash flows or results of operations of PM USA, UST or Altria Group, Inc. in a particular fiscal quarter or fiscal year as more fully disclosed in Note 10 and in Cautionary Factors That May Affect Future Results, management expects cash flow from operations, together with Altria Group, Inc.’s access to capital markets, to provide sufficient liquidity to meet ongoing business needs.

Leases - PMCC’s investment in leases is included in the line item finance assets, net, on Altria Group, Inc.’s condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012. At March 31, 2013, PMCC’s net finance receivables of approximately $2.2 billion in leveraged leases, which are included in finance assets, net, on Altria Group, Inc.’s condensed consolidated balance sheet, consisted of rents receivable ($5.3 billion) and the residual value of assets under lease ($1.1 billion), reduced by third-party nonrecourse debt ($3.4 billion) and unearned income ($0.8 billion). The repayment of the nonrecourse debt is collateralized by lease payments receivable and the leased property, and is nonrecourse to the general assets of PMCC. As required by U.S. GAAP, the third-party nonrecourse debt has been offset against the related rents receivable and has been presented on a net basis within finance assets, net, on Altria Group, Inc.’s condensed consolidated balance sheets. Finance assets, net, at March 31, 2013, also included net finance receivables for direct finance leases ($0.2 billion), an other receivable ($0.1 billion) and an allowance for losses ($0.1 billion).

Equity and Dividends

On January 29, 2013, Altria Group, Inc. granted an aggregate of 1.4 million shares of restricted and deferred stock to eligible employees. Restrictions on these shares lapse in the first quarter of 2016. The market value per share was $33.74 on the date of grant.

During the three months endedMarch 31, 2013, 2.1 million shares of restricted and deferred stock vested. The total fair value of restricted and deferred stock that vested during the three months endedMarch 31, 2013 was $73 million. The weighted-average grant date fair value per share of these awards was $19.92.

Dividends paid during the first three months of 2013 and 2012 were $886 million and $838 million, respectively, an increase of 5.7%, primarily reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares repurchased by Altria Group, Inc. under its share repurchase program discussed below. Altria Group, Inc. expects to continue to maintain a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. The current annualized dividend rate is $1.76 per Altria Group, Inc. common share. Future dividend payments remain subject to the discretion of Altria Group, Inc.’s Board of Directors.

In October 2011, Altria Group, Inc.’s Board of Directors authorized a $1.0 billion share repurchase program, which was expanded to $1.5 billion in October 2012 (as expanded, the “October 2011 share repurchase program”). During the three months ended March 31, 2013, Altria Group, Inc. repurchased 1.7 million shares (aggregate cost of approximately $57 million, and $34.05 average price per share), completing the October 2011 share repurchase program. Under this program, Altria Group, Inc. repurchased a total of 48.3 million shares of its common stock at an average price of $31.06 per share.

On April 24, 2013, Altria Group, Inc.’s Board of Directors authorized a new $300 million share repurchase program, which Altria Group, Inc. expects to complete by the end of 2013. The timing of share repurchases under this new program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of Altria Group, Inc.’s Board of Directors.

Contingencies

See Note 10 for a discussion of contingencies.

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Cautionary Factors That May Affect Future Results

Forward-Looking and Cautionary Statements

We ⁽¹⁾ may from time to time make written or oral forward-looking statements, including earnings guidance and other statements contained in filings with the SEC, in reports to security holders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “forecasts,” “intends,” “projects,” “goals,” “objectives,” “guidance,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions that may prove to be inaccurate. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in Altria Group, Inc.’s securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this Form 10-Q, particularly in the “Business Environment” sections preceding our discussion of operating results of our subsidiaries’ businesses above. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.

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

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

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 45 states and Puerto Rico now limit the dollar amount of bonds or require no bond at all. As discussed in Note 10, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although we cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

In certain litigation, PM USA faces potentially significant non-monetary remedies. For example, in the lawsuit brought by the United States Department of Justice, discussed in Note 10, the district court did not impose monetary penalties but ordered significant non-monetary remedies, including the issuance of “corrective statements” in various media. ___________________________________________________

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

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Altria Group, Inc. and its subsidiaries have achieved substantial success in managing litigation. Nevertheless, litigation is subject to uncertainty and significant challenges remain. It is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Altria Group, Inc. and each of its subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. Each of the companies has defended, and will continue to defend, vigorously against litigation challenges. However, Altria Group, Inc. and its subsidiaries may enter into settlement discussions in particular cases if they believe it is in the best interests of Altria Group, Inc. to do so. See Note 10 and Exhibits 99.1 and 99.2 to this Form 10-Q for a discussion of pending tobacco-related litigation.

Tobacco Regulation and Control Action in the Public and Private Sectors. Our tobacco subsidiaries face significant governmental action, including efforts aimed at reducing the incidence of tobacco use, restricting marketing and advertising, imposing regulations on packaging, requiring warnings and disclosure of flavors or other ingredients, prohibiting the sale of tobacco products with certain characterizing flavors or other characteristics, requiring premarket authorization of certain tobacco products, limiting or prohibiting the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packing sizes, and seeking to hold them responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.

PM USA, USSTC and other Altria Group, Inc. subsidiaries are subject to regulation, and may become subject to additional regulation, by the FDA, as discussed in detail in Tobacco Space - Business Environment - FSPTCA and FDA Regulation above. We cannot predict how the FDA will implement and enforce its statutory authority, including by promulgating additional regulations and pursuing possible investigatory or enforcement actions.

Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced cigarette industry volume, and we expect that these factors will continue to reduce cigarette consumption levels. Actions by the FDA or other federal, state or local governments or agencies may impact the consumer acceptability of tobacco products, limit adult consumer choices, delay or prevent the launch of new or modified tobacco products, restrict communications to adult consumers, restrict the ability to differentiate tobacco products, create a competitive advantage or disadvantage for certain tobacco companies, impose additional manufacturing, labeling or packing requirements, require the recall or removal of tobacco products from the marketplace or otherwise significantly increase the cost of doing business, all or any of which may have a material adverse impact on the business, consolidated results of operations, cash flows or financial position of Altria Group, Inc. and its tobacco subsidiaries.

Excise Taxes. Tobacco products are subject to substantial excise taxes, and significant increases in tobacco product-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted within the United States at the state, federal and local levels. Tax increases are expected to continue to have an adverse impact on sales of the tobacco products of our tobacco subsidiaries through lower consumption levels and the potential shift in adult consumer purchases from the premium to the non-premium or discount segments or to other low-priced or low-taxed tobacco products or to counterfeit and contraband products. Such shifts may have an adverse impact on the reported share performance of tobacco products of Altria Group, Inc.’s tobacco subsidiaries. For further discussion, see Tobacco Space - Business Environment - Excise Taxes above.

Increased Competition in the United States Tobacco Categories. Each of Altria Group, Inc.’s tobacco subsidiaries operates in highly competitive tobacco categories. Settlements of certain tobacco litigation in the United States, among other factors, have resulted in substantial cigarette price increases. PM USA faces competition from lowest priced brands sold by certain United States and foreign manufacturers that have cost advantages because they are not parties to these settlements. These manufacturers may fail to comply with related state escrow legislation or may avoid escrow deposit obligations on the majority of their sales by concentrating on certain states where escrow deposits are not required or are required on fewer than all such manufacturers’ cigarettes sold in such states. Additional competition has resulted from diversion into the United States market of cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes, and increased imports of foreign lowest priced brands. USSTC faces significant competition in the smokeless tobacco category, both from existing competitors and new entrants, and has experienced consumer down-trading to lower-priced brands. In the cigar category, additional competition has resulted from increased imports of machine-made large cigars manufactured offshore.

New Product Technologies. Altria Group, Inc.’s subsidiaries continue to seek ways to develop and to commercialize new product technologies that may reduce the health risks associated with current tobacco products, while continuing to offer adult tobacco consumers (within and potentially outside the United States) products that meet their taste expectations and evolving preferences. Potential solutions being researched include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette smoke and/or constituents identified by public health authorities as harmful. These efforts may include arrangements with third parties. Moreover, these efforts may not succeed. If our subsidiaries do not succeed in their

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efforts, but one or more of their competitors does, our subsidiaries may be at a competitive disadvantage. Further, we cannot predict whether regulators, including the FDA, will permit the marketing or sale of such products with claims of reduced risk to consumers (or otherwise impose an unduly burdensome regulatory framework on such products) or whether consumers’ purchase decisions would be affected by such claims, which could adversely affect the commercial viability of any such products that might be developed.

Adjacency Growth Strategy. Altria Group, Inc. and its subsidiaries have adjacency growth strategies involving moves and potential moves into complementary products or processes. We cannot guarantee that these strategies, or any products introduced in connection with these strategies, will be successful. For a related discussion, see New Product Technologies above.

Tobacco Price, Availability and Quality. Any significant change in tobacco leaf prices, quality or availability could adversely affect our tobacco subsidiaries’ profitability and business. For a discussion of factors that influence leaf prices, availability and quality, see Tobacco Space - Business Environment - Tobacco Price, Availability and Quality above.

Tobacco Key Facilities; Supply Security. Altria Group, Inc.’s tobacco subsidiaries face risks inherent in reliance on a few significant facilities and a small number of significant suppliers. A natural or man-made disaster or other disruption that affects the manufacturing facilities of any of Altria Group, Inc.’s tobacco subsidiaries or the facilities of any significant suppliers of any of Altria Group, Inc.’s tobacco subsidiaries could adversely impact the operations of the affected subsidiaries.  An extended disruption in operations experienced by one or more Altria Group, Inc. subsidiaries or significant suppliers could have a material adverse effect on the business, the consolidated results of operations, cash flows and financial position of Altria Group, Inc.

Attracting and Retaining Talent. Our ability to implement our strategy of attracting and retaining the best talent may be impaired by the impact of decreasing social acceptance of tobacco usage and tobacco regulation and control actions. The tobacco industry competes for talent with the consumer products industry and other companies that enjoy greater societal acceptance.  As a result, we may be unable to attract and retain the best talent.

Competition, Evolving Adult Consumer Preferences and Economic Downturns. Each of our tobacco and wine subsidiaries is subject to intense competition, changes in adult consumer preferences and changes in economic conditions. To be successful, they must continue to:

•promote brand equity successfully;

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

• develop new products and markets within and potentially outside of the United States and broaden brand portfolios in order to compete effectively with lower-priced products;

•improve productivity; and

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

See Tobacco Space - Business Environment - Summary for additional discussion concerning evolving adult tobacco consumer preferences.

The willingness of adult consumers to purchase premium consumer product brands depends in part on economic conditions. In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products. The results of our tobacco and wine subsidiaries could suffer accordingly.

Our financial services business (conducted through PMCC) holds investments in finance leases, principally in transportation (including aircraft), power generation and manufacturing equipment and facilities. Its lessees are also subject to intense competition and economic conditions. If parties to PMCC’s leases fail to manage through difficult economic and competitive conditions, PMCC may have to increase its allowance for losses, which would adversely affect our earnings.

Acquisitions. Altria Group, Inc. from time to time considers acquisitions. From time to time, we may engage in confidential acquisition negotiations that are not publicly announced unless and until those negotiations result in a definitive agreement. Although we seek to maintain or improve our credit ratings over time, it is possible that completing a given acquisition or other event could impact our credit ratings or the outlook for those ratings. Furthermore, acquisition opportunities are limited, and acquisitions present risks of failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There can be no assurance that we will be able to continue to acquire attractive businesses on favorable terms, that we will realize any of the anticipated benefits from an acquisition or that acquisitions will be quickly accretive to earnings.

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Capital Markets. Access to the capital markets is important for us to satisfy our liquidity and financing needs. Disruption and uncertainty in the capital markets and any resulting tightening of credit availability, pricing and/or credit terms may negatively affect the amount of credit available to us and may also increase our costs and adversely affect our earnings or our dividend rate.

Exchange Rates. For purposes of financial reporting, the earnings of SABMiller are translated into U.S. dollars from various local currencies based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar against these currencies, our reported equity earnings in SABMiller will be reduced because the local currencies will translate into fewer U.S. dollars.

Asset Impairment. We periodically calculate the fair value of our goodwill and other intangible assets to test for impairment. This calculation may be affected by several factors, including general economic conditions, regulatory developments, changes in category growth rates as a result of changing adult consumer preferences, success of planned new product introductions, competitive activity and tobacco-related taxes. If an impairment is determined to exist, we will incur impairment losses, which will reduce our earnings.

Wine - Competition; Grape Supply; Regulation and Excise Taxes. Ste. Michelle’s business is subject to significant competition, including from many large, well-established domestic and international companies.  The adequacy of Ste. Michelle’s grape supply is influenced by consumer demand for wine in relation to industry-wide production levels as well as by weather and crop conditions, particularly in eastern Washington. Supply shortages related to any one or more of these factors could increase production costs and wine prices, which ultimately may have a negative impact on Ste. Michelle’s sales. In addition, federal, state and local governmental agencies regulate the alcohol beverage industry through various means, including licensing requirements, pricing, labeling and advertising restrictions, and distribution and production policies. New regulations or revisions to existing regulations, resulting in further restrictions or taxes on the manufacture and sale of alcoholic beverages, may have an adverse effect on Ste. Michelle’s wine business. For further discussion, see Wine Segment - Business Environment above.

Information Systems. Altria Group, Inc. and its subsidiaries use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, investors, suppliers, customers and others. Many of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place and we take care to protect our systems and data from unauthorized access. Nevertheless, failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could result in loss of revenue, assets or personal or other sensitive data, cause damage to the reputation of our companies and their brands and result in legal challenges and significant remediation and other costs to Altria Group, Inc. and its subsidiaries.

Governmental Investigations. From time to time, Altria Group, Inc. and its subsidiaries are subject to governmental investigations on a range of matters. We cannot predict whether new investigations may be commenced or the outcome of such investigations, and it is possible that our subsidiaries’ businesses could be materially affected by an unfavorable outcome of future investigations.

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Item 4. Controls and Procedures.

Altria Group, Inc. carried out an evaluation, with the participation of Altria Group, Inc.’s management, including Altria Group, Inc.’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Altria Group, Inc.’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, Altria Group, Inc.’s Chief Executive Officer and Chief Financial Officer concluded that Altria Group, Inc.’s disclosure controls and procedures are effective.

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

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 10. Contingencies to the condensed consolidated financial statements included in Part I, Item 1. Financial Information of this Quarterly Report on Form 10-Q (“Form 10-Q”) for a discussion of legal proceedings pending against Altria Group, Inc. and its subsidiaries. See also Exhibits 99.1 and 99.2 to this Form 10-Q.

Item 1A. Risk Factors.

Information regarding Risk Factors appears under Cautionary Factors That May Affect Future Results in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2012 (“Form 10-K”). Other than as set forth in Part I, Item 2 of this Form 10-Q, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

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

In October 2011, Altria Group, Inc.’s Board of Directors authorized a $1.0 billion share repurchase program, which was expanded to $1.5 billion in October 2012 (as expanded, the “October 2011 share repurchase program”). The October 2011 share repurchase program was completed as of March 31, 2013.

On April 24, 2013, Altria Group, Inc.’s Board of Directors authorized a new $300 million share repurchase program, which Altria Group, Inc. expects to complete by the end of 2013. The timing of share repurchases under this new program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of Altria Group, Inc.’s Board of Directors.

Altria Group, Inc.’s share repurchase activity for each of the three months in the period ended March 31, 2013 was as follows:

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1-31, 2013	1,377	$	31.19	46,620,000	$	57,021,354
February 1-28, 2013	1,316,203	$	34.39	47,120,000	$	39,806,349
March 1-31, 2013	1,175,041	$	33.88	48,294,813	$	—
For the Quarter Ended March 31, 2013	2,492,621	$	34.15

⁽¹⁾  The total number of shares purchased include (a) shares purchased under the October 2011 share repurchase program (which totaled 500,000 shares in February and 1,174,813 shares in March) and (b) shares withheld by Altria Group, Inc. in an amount equal to statutory withholding for employees who vested in restricted and deferred stock and used shares to pay all or a portion of the related taxes (which totaled 1,377 shares in January, 816,203 shares in February and 228 shares in March).

⁽²⁾  Aggregate number of shares repurchased under the October 2011 share repurchase program as of the end of the period presented.

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Item 6. Exhibits.

10.1 Form of Restricted Stock Agreement, dated as of January 29, 2013 (incorporated by reference to Exhibit 10.1 to Altria Group, Inc.’s Current Report on Form 8-K filed on January 31, 2013).

10.2 Form of Deferred Stock Agreement, dated as of January 29, 2013.

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

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

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

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

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

99.1 Certain Litigation Matters.

99.2 Trial Schedule for Certain Cases.

99.3 Definitions of Terms Related to Financial Covenants included in Altria Group, Inc.’s 5-year Revolving Credit Agreement, dated as of June 30, 2011 (incorporated by reference to Exhibit 99.3 to Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011).

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema.

101.CAL XBRL Taxonomy Extension Calculation Linkbase.

101.DEF XBRL Taxonomy Extension Definition Linkbase.

101.LAB XBRL Taxonomy Extension Label Linkbase.

101.PRE XBRL Taxonomy Extension Presentation Linkbase.

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALTRIA GROUP, INC.

/s/ HOWARD A. WILLARD III

Howard A. Willard III

Executive Vice President and

Chief Financial Officer

April 25, 2013

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EX-10.2

Exhibit 10.2

THE ALTRIA GROUP, INC.

2010 PERFORMANCE INCENTIVE PLAN

DEFERRED STOCK AGREEMENT

FOR ALTRIA GROUP, INC. COMMON STOCK

(January 29, 2013)

ALTRIA GROUP, INC. (the “Company”), a Virginia corporation, hereby grants to the employee identified in the 2013 Deferred Stock Award section of the Award Statement (the “Employee”) under the Altria Group, Inc. 2010 Performance Incentive Plan (the “Plan”) a Deferred Stock Award (the “Award”) dated January 29, 2013 (the “Award Date”), with respect to the number of shares of the Common Stock of the Company (the “Common Stock”) set forth in the 2013 Deferred Stock Award section of the Award Statement (the “Deferred Shares”), all in accordance with and subject to the following terms and conditions of this Deferred Stock Agreement (the “Agreement”):

1.     Condition to Award. As applicable and in the sole discretion of the Company or its delegate, this Award may be contingent on, and in consideration of, the execution of a Confidentiality and Non-Competition Agreement by the Employee. In the event the Employee is required to execute a Confidentiality and Non-Competition Agreement, the Company or its delegate will so notify the Employee prior to issuance of the Award. If the Employee does not execute the Confidentiality and Non-Competition Agreement within a reasonable time frame established by the Company or its delegate, but no later than 90 days after the Award Date, this Agreement will be null and void with respect to the Employee and the Employee will forfeit any and all rights to the Award.

2.     Restrictions. Subject to Section 1 above and Section 3 below, the restrictions on the Deferred Shares shall lapse and the Deferred Shares shall vest on the vesting date set forth in the 2013 Deferred Stock Award section of the Award Statement (the “Vesting Date”), provided that the Employee remains an employee of the Company (or a subsidiary or affiliate) during the entire period commencing on the Award Date and ending on the Vesting Date.

3.     Termination of Employment Before Vesting Date. In the event of the termination of the Employee’s employment with the Company (and with all subsidiaries and affiliates of the Company) prior to the Vesting Date due to death, Disability or Normal Retirement, the restrictions on the Deferred Shares shall lapse and the Deferred Shares shall become fully vested on the date of such termination of employment.

If the Employee’s employment with the Company (and with all subsidiaries and affiliates of the Company) is terminated for any reason other than death, Disability, or Normal Retirement prior to the Vesting Date, the Employee shall forfeit all rights to the Deferred Shares immediately after termination of employment. Notwithstanding the foregoing, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) may, in its sole discretion, waive the restrictions on, and the vesting requirements for, the Deferred Shares.

4.     Voting and Dividend Rights. The Employee does not have the right to vote the Deferred Shares or receive dividends prior to the date, if any, such Deferred Shares are paid to the Employee in the form of Common Stock pursuant to the terms hereof. However, unless otherwise determined by the Compensation Committee, the Employee shall receive cash payments (less applicable withholding taxes) in lieu of dividends otherwise payable with respect to shares of Common Stock equal in number to the Deferred Shares that have not been forfeited, as such dividends are paid.

5.     Transfer Restrictions. This Award and the Deferred Shares are non-transferable and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the Deferred Shares shall be forfeited. These restrictions shall not apply, however, to any payments received pursuant to Section 8 below. If the Employee is a resident of Canada, the Employee acknowledges that the shares of Common Stock that the

Employee receives on the Vesting Date are subject to a restriction on the first trade under Canadian securities laws. As a result, the Employee acknowledges that any first trade of such shares of Common Stock must be made (i) through an exchange, or a market, outside of Canada, (ii) to a person or company outside of Canada or (iii) otherwise in compliance with applicable Canadian securities laws.

6.Withholding Taxes. The Company is authorized to satisfy the actual minimum statutory withholding taxes arising from the granting, vesting, or payment of this Award, as the case may be, by deducting the number of Deferred Shares having an aggregate value equal to the amount of withholding taxes due from the total number of Deferred Shares awarded, vested, paid, or otherwise becoming subject to current taxation. The Company is also authorized to satisfy the actual withholding taxes arising from the granting or vesting of this Award, or hypothetical withholding tax amounts if the Employee is covered under a Company tax equalization policy, as the case may be, by the remittance of the required amounts from any proceeds realized upon the open-market sale of the Common Stock received in payment of vested Deferred Shares by the Employee. Deferred Shares deducted from this Award in satisfaction of actual minimum statutory withholding tax requirements shall be valued at the Fair Market Value of the Common Stock received in payment of vested Deferred Shares on the date as of which the amount giving rise to the withholding requirement first became includible in the gross income of the Employee under applicable tax laws.

7.Death of Employee. If any of the Deferred Shares shall vest upon the death of the Employee, any Common Stock received in payment of the vested Deferred Shares shall be registered in the name of the estate of the Employee except that, to the extent permitted by the Compensation Committee, if the Company shall have received in writing a beneficiary designation, the Common Stock shall be registered in the name of the designated beneficiary.

8.Payment of Deferred Shares. Each Deferred Share granted pursuant to this Award represents an unfunded and unsecured promise of the Company to issue to the Employee, on or as soon as practicable after the date the Deferred Share becomes fully vested pursuant to Section 2 or 3 and otherwise subject to the terms of this Agreement, the value of one share of the Common Stock. Except as otherwise expressly provided in the 2013 Deferred Stock Award section of the Award Statement and subject to the terms of this Agreement, such issuance shall be made to the Employee (or, in the event of his or her death to the Employee’s estate or beneficiary as provided above) in the form of Common Stock as soon as practicable following the full vesting of the Deferred Share pursuant to Section 2 or 3.

9.Special Payment Provisions. Notwithstanding anything in this Agreement to the contrary, if the Employee will become eligible for Normal Retirement (a) for Deferred Shares with a Vesting Date between January 1 and March 15, before the calendar year preceding the Vesting Date and (b) for Deferred Shares with a Vesting Date after March 15, before the calendar year in which such Vesting Date occurs, then the Deferred Shares will be subject to the following provisions. If the Employee is a “specified employee” within the meaning of section 409A of the Internal Revenue Code and the regulations thereunder (“Code section 409 A”), any payment of Deferred Shares under Section 8 that is on account of his separation from service shall be delayed until six months following such separation from service. In the event of a “Change in Control” under section 6(b) of the Plan that is not also a “change in control event” with the meaning of Treas. Reg. §1.409A-3(i)(5)(i), the Deferred Shares shall become fully vested pursuant to section 6(a) of the Plan, but shall not be paid upon such Change in Control as provided by section 6(a) of the Plan, and shall instead be paid at the time the Deferred Shares would otherwise be paid pursuant to this Agreement. References to termination of employment and separation from service in this Agreement shall be interpreted as references to a separation from service, within the meaning of Code section 409A, with the Company and all of its subsidiaries and affiliates treated as a single employer under Code section 409A. This Agreement shall be construed in a manner consistent with Code section 409A.

10.Board Authorization in the Event of Restatement. Notwithstanding anything in this Agreement to the contrary, if the Board of Directors of the Company or an appropriate Committee of the Board determines that, as a result of a restatement of the Company’s financial statements, an Employee has received greater compensation in connection with the Award than would been received absent the

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incorrect financial statements, the Board or Committee, in its discretion, may take such action with respect to this Award as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, causing the full or partial cancellation of this Award and, with respect to Deferred Shares that have vested, requiring the Employee to repay to the Company the full or partial Fair Market Value of the Award determined at the time of vesting, and the Employee agrees by accepting this Award that the Board or Committee may make such a cancellation, impose such a repayment obligation, or take other necessary or appropriate actions in such circumstances.

11.     Other Terms and Definitions. The terms and provisions of the Plan (a copy of which will be furnished to the Employee upon written request to the Office of the Corporate Secretary, Altria Group, Inc., 6601 West Broad Street, Richmond, Virginia 23230) are incorporated herein by reference. To the extent any provision of this Award is inconsistent or in conflict with any term or provision of the Plan, the Plan shall govern. Capitalized terms not otherwise defined herein have the meaning set forth in the Plan. Subject to the provisions of section 6(a) of the Plan, in the event of any merger, share exchange, reorganization, consolidation, recapitalization, reclassification, distribution, stock dividend, stock split, reverse stock split, split~up, spin~off. issuance of rights or warrants or other similar transaction or event affecting the Common Stock after the date of this Award, the Board of Directors of the Company is authorized, to the extent it deems appropriate, to make adjustments to the number and kind of shares of stock subject to this Award, including the substitution of equity interests in other entities involved in such transactions, to provide for cash payments in lieu of Deferred Shares, and to determine whether continued employment with any entity resulting from such a transaction will or will not be treated as continued employment with the Company or any subsidiary or affiliate, in each case subject to any Board or Compensation Committee action specifically addressing any such adjustments, cash payments, or continued employment treatment.

For purposes of this Agreement, (a) the term “Disability” means a disability that entitles the Employee to benefits under the applicable long-term disability insurance program of the Company or any subsidiary or affiliate of the Company, and (b) the term “Normal Retirement” means retirement from active employment under a pension plan of the Company or any subsidiary or affiliate of the Company or under an employment contract with the Company or any subsidiary or affiliate of the Company on or after the date specified as the normal retirement age in the pension plan or employment contract, if any, under which the Employee is at that time accruing pension benefits for his or her current service (or, in the absence of a specified normal retirement age, the age at which pension benefits under such plan or contract become payable without reduction for early commencement and without any requirement of a particular period of prior service). In any case in which (i) the meaning of “Normal Retirement” is uncertain under the definition contained in the prior sentence or (ii) a termination of employment at or after age 65 would not otherwise constitute “Normal Retirement,” an Employee’s termination of employment shall be treated as a “Normal Retirement” under such circumstances as the Compensation Committee, in its sole discretion, deems equivalent to retirement. Generally, for purposes of this Agreement, (x) a “subsidiary” includes only any company in which the Company, directly or indirectly, has a beneficial ownership interest of greater than 50 percent and (y) an “affiliate” includes only any company that (A) has a beneficial ownership interest, directly or indirectly, in the Company of greater than 50 percent or (B) is under common control with the Company through a parent company that, directly or indirectly, has a beneficial ownership interest of greater than 50 percent in both the Company and the affiliate.

IN WITNESS WHEREOF, this Deferred Stock Agreement has been duly executed as of January 29, 2013.

ALTRIA GROUP, INC.
By:	W. Hildebrandt Surgner, Jr.
	Corporate Secretary

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EX-12

	Exhibit 12
Altria Group, Inc. and Subsidiaries
Computation of Ratios of Earnings to Fixed Charges
(in millions of dollars)
	Three Months Ended March 31, 2013
Earnings before income taxes	$	2,147
Add (deduct):
Equity in net earnings of less than 50% owned affiliates	(256		)
Fixed charges	264
Interest capitalized, net of amortization	5
Earnings available for fixed charges	$	2,160
Fixed charges:
Interest incurred (a)	$	260
Portion of rent expense deemed to represent interest factor	4
Fixed charges	$	264
Ratio of earnings to fixed charges	8.2
(a) Altria Group, Inc. includes interest relating to uncertain tax positions in its provision for income taxes, therefore such amounts are not included in fixed charges in the computation.

													Exhibit 12
Altria Group, Inc. and Subsidiaries
Computation of Ratios of Earnings to Fixed Charges
(in millions of dollars)
	For the Years Ended December 31,
	2012			2011			2010			2009				2008
Earnings from continuing operations before income taxes	$	6,477		$	5,582		$	5,723		$	4,877			$	4,789
Add (deduct):
Equity in net earnings of less than 50% owned affiliates	(1,229		)	(741		)	(631		)	(601		)		(471		)
Dividends from less than 50% owned affiliates	404			374			303			254				249
Fixed charges	1,165			1,254			1,152			1,249				529
Interest capitalized, net of amortization	(4		)	(2		)	26			5				(9		)
Earnings available for fixed charges	$	6,813		$	6,467		$	6,573		$	5,784			$	5,087
Fixed charges:
Interest incurred (a)	$	1,148		$	1,233		$	1,133		$	1,230			$	489
Portion of rent expense deemed to represent interest factor	17			21			19			19				40
Fixed charges	$	1,165		$	1,254		$	1,152		$	1,249			$	529
Ratio of earnings to fixed charges	5.8			5.2			5.7			4.6				9.6			(b)
(a) Altria Group, Inc. includes interest relating to uncertain tax positions in its provision for income taxes, therefore such amounts are not included in fixed charges in the computation.
(b) Computation includes interest incurred and the portion of rent expense deemed to represent the interest factor from the discontinued operations of Philip Morris International Inc. in fixed charges. Excluding these amounts from fixed charges, the ratio of earnings to fixed charges from continuing operations would have been 12.5 for the year ended December 31, 2008.

EX-31.1

Exhibit 31.1

Certifications

I, Martin J. Barrington, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Altria Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 25, 2013

/s/ MARTIN J. BARRINGTON

Martin J. Barrington

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certifications

I, Howard A. Willard III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Altria Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 25, 2013

/s/ HOWARD A. WILLARD III

Howard A. Willard III

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Altria Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Martin J. Barrington, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MARTIN J. BARRINGTON

Martin J. Barrington

Chairman and Chief Executive Officer

April 25, 2013

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Altria Group, Inc. and will be retained by Altria Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Altria Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard A. Willard III, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ HOWARD A. WILLARD III

Howard A. Willard III

Executive Vice President and

Chief Financial Officer

April 25, 2013

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Altria Group, Inc. and will be retained by Altria Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.2

TRIAL SCHEDULE FOR CERTAIN CASES

Below is a schedule, as of April 22, 2013, setting forth by month the number of individual smoking and health cases against Philip Morris USA Inc. that are scheduled for trial through the end of 2013.

2013

Engle progeny

May (4)	August (5)	November (2)
June (1)	September (4)	December (0)
July (3)	October (5)

As of April 22, 2013, three Engle progeny cases were in trial.

Other Individual Smoking & Health

May (0)	August (0)	November (0)
June (1)	September (0)	December (1)
July (1)	October (2)

As of April 22, 2013, no non-Engle progeny cases were in trial.

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EX-99.2

Exhibit 99.1

CERTAIN LITIGATION MATTERS

As described in Note 10. Contingencies to Altria Group, Inc.’s condensed consolidated financial statements in Part 1, Item 1 of the Quarterly Report on Form 10-Q to which this Exhibit 99.1 is attached (“Note 10”), there are legal proceedings covering a wide range of matters pending or threatened in various United States and foreign jurisdictions against Altria Group, Inc., its subsidiaries, including Philip Morris USA Inc. (“PM USA”), and their respective indemnitees. Various types of claims may be raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution and claims of competitors and distributors. Pending claims related to tobacco products generally fall within the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs, (ii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring and purporting to be brought on behalf of a class of individual plaintiffs, including cases in which the aggregated claims of a number of individual plaintiffs are to be tried in a single proceeding, (iii) health care cost recovery cases brought by governmental (both domestic and foreign) plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits, (iv) class action suits alleging that the uses of the terms “Lights” and “Ultra Lights” constitute deceptive and unfair trade practices, common law fraud or statutory fraud, unjust enrichment, breach of warranty, or violations of the Racketeer Influenced and Corrupt Organizations Act, (v) international cases, and (vi) other tobacco-related litigation.

The following lists certain of the pending claims against Altria Group, Inc., PM USA, UST LLC (“UST”) and/or UST’s subsidiaries included in these categories.

SMOKING AND HEALTH LITIGATION

The following lists the consolidated individual smoking and health cases as well as smoking and health class actions pending against PM USA and, in some cases, Altria Group, Inc. and/or its other subsidiaries and affiliates, as of April 22, 2013. See International Cases below for a list of smoking and health class actions pending in Canada.

Consolidated Individual Smoking and Health Case

In re: Tobacco Litigation (Individual Personal Injury cases), Circuit Court, Ohio County, West Virginia, consolidated January 11, 2000. SeeNote 10 for a discussion of this litigation.

Flight Attendant Litigation

The settlement agreement entered into in 1997 in the case of Broin, et al. v. Philip Morris Companies Inc., et al., which was brought by flight attendants seeking damages for personal injuries allegedly caused by environmental tobacco smoke, allows members of the Broin class to file individual lawsuits seeking compensatory damages, but prohibits them from seeking punitive damages. See Note 10 for a discussion of this litigation.

Domestic Class Actions

Engle, et al. v. R.J. Reynolds Tobacco Co., et al., Circuit Court, Eleventh Judicial Circuit, Dade County, Florida, filed May 5, 1994. SeeNote 10 for a discussion of this case (which has concluded) and the Engle progeny litigation.

Scott, et al. v. The American Tobacco Company, et al., Civil District Court, Orleans Parish, Louisiana, filed May 24, 1996. See Note 10 for a discussion of this case.

Young, et al. v. The American Tobacco Company, et al., Civil District Court, Orleans Parish, Louisiana, filed November 12, 1997.

Parsons, et al. v. A C & S, Inc., et al., Circuit Court, Kanawha County, West Virginia, filed February 27, 1998.

Cypret, et al. v. The American Tobacco Company, et al., Circuit Court, Jackson County, Missouri, filed December 22, 1998.

Caronia, et al. v. Philip Morris USA Inc., United States District Court, Eastern District, New York, filed January 13, 2006. See Note 10 for a discussion of this case.

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Donovan, et al. v. Philip Morris, United States District Court, District of Massachusetts, filed March 2, 2007. See Note 10 for a discussion of this case.

HEALTH CARE COST RECOVERY LITIGATION

The following lists the health care cost recovery actions pending against PM USA and, in some cases, Altria Group, Inc. and/or its other subsidiaries and affiliates as of April 22, 2013. See International Cases below for a list of international health care cost recovery actions.

Possible Adjustments in MSA Payments for 2003 to 2011 and Other Disputes Related to MSA Payments

See Note 10 for a discussion of these matters.

Department of Justice Case

The United States of America v. Philip Morris Incorporated, et al., United States District Court, District of Columbia, filed September 22, 1999. See Note 10 for a discussion of this case.

“LIGHTS/ULTRA LIGHTS” CASES

The following lists the “Lights/Ultra Lights” cases pending against Altria Group, Inc. and/or its various subsidiaries and others as of April 22, 2013. See International Cases below for a reference to one “Lights” action pending in Israel.

Brown, et al. v. The American Tobacco Company, Inc., et al., Superior Court, San Diego County, California, filed June 10, 1997. See Note 10 for a discussion of this case.

Aspinall, et al. v. Philip Morris Companies Inc. and Philip Morris Incorporated, Superior Court, Suffolk County, Massachusetts, filed November 24,1998. See Note 10 for a discussion of this case.

Price, et al. v. Philip Morris Inc., Circuit Court, Third Judicial Circuit, Madison County, Illinois, filed February 10, 2000. See Note 10 for a discussion of this case.

Larsen, et al. v. Philip Morris Inc. (formerly Craft, et al. v. Philip Morris Companies Inc., et al.), Circuit Court, City of St. Louis, Missouri, filed February 14, 2000. See Note 10 for a discussion of this case.

Hines, et al. v. Philip Morris Companies Inc., et al., Circuit Court, Fifteenth Judicial Circuit, Palm Beach County, Florida, filed February 23, 2001. See Note 10 for a discussion of this case.

Moore, et al. v. Philip Morris Incorporated, et al., Circuit Court, Marshall County, West Virginia, filed September 17, 2001.

Pearson v. Philip Morris Incorporated, et al., Circuit Court, Multnomah County, Oregon, filed November 20, 2002 . See Note 10 for a discussion of this case.

Virden v. Altria Group, Inc., et al., Circuit Court, Hancock County, West Virginia, filed March 28, 2003.

Stern, et al. v. Philip Morris USA Inc., et al., Superior Court, Middlesex County, New Jersey, filed April 4, 2003.

Arnold, et al. v. Philip Morris USA Inc., Circuit Court, Madison County, Illinois, filed May 5, 2003.

Miner, et al. v. Philip Morris USA Inc., et al. (formerly Watson, et al. v. Altria Group, Inc., et al), Circuit Court, Pulaski County, Arkansas, filed May 29, 2003. See Note 10 for a discussion of this case.

Carroll (formerly Holmes), et al. v. Philip Morris USA Inc., et al., Superior Court, New Castle County, Delaware, filed August 18, 2003. SeeNote 10 for a discussion of this case.

Kelly v. Martin & Bayley, Inc., et al., Circuit Court, Madison County, Illinois, filed February 4, 2005. This case is an individual “Lights” case, not a class action. See Note 10 for a discussion of this case.

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Wyatt, et al. v. Philip Morris USA Inc., et al. (formerly Nikolic, et al. v. Philip Morris USA Inc., et al.), United States District Court, Eastern District,Wisconsin, filed June 16, 2009. See Note 10 for a discussion of this case.

Cabbat v. Philip Morris USA, Inc., United States District Court, Hawaii, filed March 19, 2010. See Note 10 for a discussion of this case.

Phillips, et al. v. Altria Group, Inc., et al., United States District Court, Northern District, Ohio, filed August 9, 2010. See Note 10 for a discussion of this case.

INTERNATIONAL CASES

The following lists cases pending against Altria Group, Inc. and/or its subsidiaries in foreign jurisdictions as of April 22, 2013.

Canada

Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001. Health care cost recovery action. See Note 10 for a discussion of this case.

Her Majesty the Queen in Right of the Province of New Brunswick v. Rothmans, Inc., et al., Court of Queen’s Bench of New Brunswick Judicial District of Fredericton, Canada, filed March 13, 2008. Health care cost recovery action. See Note 10 for a discussion of this case.

Dorion v. Canadian Tobacco Manufacturers’ Council, et al., Court of Queen’s Bench of Alberta, Judicial District of Calgary, Canada, filed on or about June 17, 2009. Smoking and health class action. See Note 10 for a discussion of this case.

Semple v. Canadian Tobacco Manufacturers’ Council, et al., Supreme Court of Nova Scotia, Canada, filed on or about June 18, 2009. Smoking and health class action. See Note 10 for a discussion of this case.

Kunta v. Canadian Tobacco Manufacturers’ Council, et al., Court of Queen’s Bench of Manitoba, Winnipeg Judicial Centre, Canada, filed on an unknown date in June 2009. Smoking and health class action. See Note 10 for a discussion of this case.

Adams v. Canadian Tobacco Manufacturers’ Council, et al., Court of Queen’s Bench for Saskatchewan, Judicial Centre of Regina, Canada, filed on or about July 10, 2009. Smoking and health class action. See Note 10 for a discussion of this case.

Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Superior Court of Justice of Ontario, Canada, filed on or about September 30,2009. Health care cost recovery action. See Note 10 for a discussion of this case.

Bourassa v. Imperial Tobacco Canada Limited, et al., Supreme Court of British Columbia, Victoria Registry, Canada, filed on or about June 25, 2010. Smoking and health class action. See Note 10 for a discussion of this case.

McDermid v. Imperial Tobacco Canada Limited, et al., Supreme Court of British Columbia, Victoria Registry, Canada, filed on or about June 25, 2010. Smoking and health class action. See Note 10 for a discussion of this case.

Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al., Supreme Court of Newfoundland and Labrador, Trial Division, Canada, filed February 8, 2011. Health care cost recovery action. See Note 10 for a discussion of this case.

Attorney General of Quebec v. Imperial Tobacco Canada Limited, et al., Superior Court of Quebec, Montreal District, Canada, filed June 8, 2012 . Health care cost recovery action. See Note 10 for a discussion of this case.

Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Court of Queen’s Bench of Alberta, Judicial District of Calgary, Canada, filed June 8, 2012. Health care cost recovery action. See Note 10 for a discussion of this case.

Her Majesty the Queen in the Right of Manitoba v. Rothmans, Benson & Hedges Inc., et al., Court of Queen’s Bench of Manitoba, Winnipeg Judicial Centre, Canada, filed May 31, 2012. Health care cost recovery action. See Note 10 for a discussion of this case.

3

Her Majesty the Queen in Right of Saskatchewan Rothmans, Benson & Hedges Inc., et al., Court of Queen’s Bench of Saskatchewan, Judicial Centre of Saskatoon, Canada, filed on June 8, 2012. Health care cost recovery action. See Note 10 for a discussion of this case.

Her Majesty in the Right of the Province of Prince Edward Island v. Rothmans, Benson & Hedges, Inc., et al., Supreme Court of Prince Edward Island, filed on September 10, 2012. Health care cost recovery action. See Note 10 for a discussion of this case.

Jacklin v. Canadian Tobacco Manufacturers’ Council et al., Ontario Superior Court of Justice, Case No. 5379412, Ontario, Canada, filed on or about June 27, 2012. Smoking and health class action. See Note 10 for a discussion of this case.

Israel

El-Roy, et al. v. Philip Morris Incorporated, et al., District Court of Tel-Aviv/Jaffa, Israel, filed January 18, 2004. “Lights” case. See Note 10 for a discussion of this case.

See Note 10 for a discussion of the Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc., which provides for indemnities for certain liabilities concerning tobacco products.

CERTAIN OTHER TOBACCO-RELATED ACTIONS

The following lists certain other tobacco-related litigation pending against Altria Group, Inc. and/or its various subsidiaries as of April 22, 2013. See Note 10 for a discussion of these cases.

Tobacco Price Case

Smith, et al. v. Philip Morris Companies Inc., et al., District Court, Seward County, Kansas, filed February 9, 2000.

Ignition Propensity Case

Walker, et al. v. Philip Morris USA, Inc., et al., Circuit Court, Nelson County, Kentucky, filed February 1, 2008.

False Claims Act Case

United States ex. rel. Anthony Oliver v. Philip Morris USA, Inc., United States District Court, District of Columbia, filed under seal September 12, 2008 and unsealed by the district court on September 13, 2011.

Argentine Grower Cases

Hupan, et al. v. Alliance One International, Inc., et al., Superior Court, New Castle County, Delaware, filed on February 14, 2012.

Chalanuk, et al. v. Alliance One International, Inc., et al., Superior Court, New Castle County, Delaware, filed on April 14, 2012.

Clarisa Rodriguez Da Silva, et al. v. Alliance One International, Inc., et al., Superior Court, New Castle County, Delaware, filed on October 25, 2012.

UST LITIGATION

The following action is pending against UST and/or its subsidiaries as of April 22, 2013. See Note 10 for a discussion of this case.

Vassallo v. United States Tobacco Co., et al., Circuit Court of the Judicial District, Miami-Dade County, Florida, filed November 12, 2002.

4

XML

Earnings Per Share (Earnings Per Share) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share [Abstract]
Net earnings attributable to Altria Group, Inc.	$ 1,385	$ 1,195
Less: Distributed and undistributed earnings attributable to unvested restricted and deferred shares	(4)	(4)
Earnings for basic and diluted EPS	$ 1,381	$ 1,191
Weighted-average shares for basic and diluted EPS	2,003	2,034

XML

Contingencies (Non-Engle Progeny Cases Trial Results Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
California/Bullock [Member]
Loss Contingencies [Line Items]
Loss Contingency Damages Recorded Date	fourth quarter of 2011
Loss contingency, damages recorded	$ 14,000,000
Loss contingency, interest accrued	3,000,000
Judgment costs and interest paid	19,100,000
Loss Contingency, Damages Paid Date	March 2012
Individual Smoking And Health Cases [Member] | California/Boeken [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	August 2011
Compensatory damages jury award allocation amount	12,800,000
Appeal bond posted by PM USA	12,800,000
Loss contingency, appeal bond date	November 2011
Individual Smoking And Health Cases [Member] | Oregon Schwarz [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	March 2002
Compensatory damages jury award total excluding interest	168,500
Loss contingency, court reduction date	May 2002
Punitive damages reduced award total	100,000,000
Date of Court Award of Costs to Defendant	December 2010
Court ordered costs returned to defendant	500,000
Punitive damages jury award allocation amount	150,000,000
Punitive damages judgment award total	25,000,000
Individual Smoking And Health Cases [Member] | Oregon Williams [Member]
Loss Contingencies [Line Items]
Loss Contingency Damages Recorded Date	fourth quarter of 2011
Loss contingency, damages recorded	48,000,000
Loss contingency, interest accrued	54,000,000
Judgment costs and interest paid	$ 102,000,000
Loss Contingency, Damages Paid Date	January 2012

XML

Contingencies (Schedule Of Pending Cases) (Details)	Apr. 22, 2013		Apr. 23, 2012		Apr. 25, 2011
Individual Smoking And Health Cases [Member]
Loss Contingencies [Line Items]
Number of Cases Pending	71	[1]	79	[1]	89	[1]
Smoking And Health Class Actions And Aggregated Claims Litigation [Member]
Loss Contingencies [Line Items]
Number of Cases Pending	6	[2]	7	[2]	10	[2]
Health Care Cost Recovery Actions [Member]
Loss Contingencies [Line Items]
Number of Cases Pending	1		1		3
"Lights/Ultra Lights" Class Actions [Member]
Loss Contingencies [Line Items]
Number of Cases Pending	15		17		30
Tobacco Price Cases [Member]
Loss Contingencies [Line Items]
Number of Cases Pending	1		1		1

[1] (1) Does not include 2,574 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action).

[2] (2) Includes as one case the 600 civil actions (of which 346 are actions against PM USA) that are to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution does not preclude a trial in two phases in this case. Under the current trial plan, issues related to defendants’ conduct and whether punitive damages are permissible will be tried in the first phase. The second phase would consist of individual trials to determine liability, if any, as well as compensatory and punitive damages, if any. Trial in the case began in October 2011, but ended in a mistrial in November 2011.

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Condensed Consolidating Financial Information Condensed Consolidating Statement of Cash Flows (Narrative) (Details) (USD $) In Millions, unless otherwise specified	39 Months Ended	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2012 Altria Group, Inc. [Member]	Mar. 31, 2012 PM USA [Member]
Reclassification impact to consolidated cash flows	$ 0
Cash Dividends Received From Subsidiaries		$ 923	$ 59

XML

Contingencies (Engle Class Action And Engle Progeny Trial Results Narrative) (Details) (USD $)	0 Months Ended	1 Months Ended	3 Months Ended	12 Months Ended			3 Months Ended
	Jan. 22, 2013 Federal Court [Member]	Feb. 29, 2008 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Florida/Engle [Member]	Mar. 31, 2013 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Florida/Engle [Member]	Dec. 31, 2001 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Florida/Engle [Member]	Jul. 31, 2006 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Florida/Engle [Member]	Apr. 22, 2013 Engle Progeny Cases [Member]	Mar. 31, 2013 Engle Progeny Cases [Member] Federal Court [Member]	Apr. 22, 2013 Engle Progeny Cases [Member] Federal Court [Member]	Apr. 22, 2013 Engle Progeny Cases [Member] State Court [Member]
Loss Contingencies [Line Items]
Number of plaintiffs								2,000	4,400
Loss Contingency Verdicts Returned Since Court Decision Defendents						18
Loss contingency, period of occurrence			July 2000
Punitive damages jury award total all defendants			$ 145,000,000,000
Punitive damages jury award allocation amount PM USA			74,000,000,000
Amounts placed in escrow				500,000,000
Reinstated compensatory damages, award total					6,900,000
Loss contingency, damages paid		3,000,000
Loss Contingency, Damages Paid Date		February 1, 2008
Loss contingency, pending claims								1,500	3,300
Federal Engle Progeny Cases Dismissed	521
Engle progeny plaintiffs with cases stayed pending Eleventh Circuit Court Review							1,500
Active cases pending in federal court							20
Florida bond cap			$ 200,000,000
Loss Contingency Verdicts Returned Since Court Decision Plaintiffs						19

XML

Finance Assets, Net (Schedule Of Credit Quality Of Investments In Finance Assets) (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total	$ 2,464	$ 2,680
"AAA/Aaa" To "A-/A3" [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total	784	961
"BBB+/Baa1" To "BBB-/Baa3" [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total	925	938
"BB+/Ba1" And Lower [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Total	$ 755	$ 781

XML

Benefit Plans (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended			0 Months Ended
	Mar. 31, 2013	Mar. 31, 2013 Minimum [Member]	Mar. 31, 2013 Maximum [Member]	Jan. 02, 2013 Pension Plans, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Employer contributions	$ 8			$ 350
Defined Benefit Plan, Estimated Future Employer Contributions in Current Fiscal Year, Description		20	40

XML

Contingencies (Smoking And Health Class Actions Narrative) (Details) (Smoking And Health Class Actions And Aggregated Claims Litigation [Member])	Mar. 31, 2013
Smoking And Health Class Actions And Aggregated Claims Litigation [Member]
Loss Contingencies [Line Items]
Smoking and health class certifications denied or reversed	59

XML

Other Comprehensive Earnings/Losses (Tables)

3 Months Ended

Mar. 31, 2013

Mar. 31, 2012

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Changes In Each Component Of Accumulated Other Comprehensive Losses

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

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2012	$	2	$	(2,414	)	$	372		$	(2,040	)
Other comprehensive earnings (losses) before reclassifications	—		30			(143		)	(113		)
Deferred income taxes	—		(13		)	50			37
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	—		17			(93		)	(76		)
Amounts reclassified to net earnings	—		79			(2		)	77
Deferred income taxes	—		(30		)	1			(29		)
Amounts reclassified to net earnings, net of deferred income taxes	—		49			(1		)	48
Other comprehensive earnings (losses), net of deferred income taxes	—		66			(94		)	(28		)
Balances, March 31, 2013	$	2	$	(2,348	)	$	278		$	(2,068	)

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2011	$	2	$	(2,062	)	$	173		$	(1,887	)
Other comprehensive earnings before reclassifications	—		—			273			273
Deferred income taxes	—		—			(96		)	(96		)
Other comprehensive earnings before reclassifications, net of deferred income taxes	—		—			177			177
Amounts reclassified to net earnings	—		37			4			41
Deferred income taxes	—		(15		)	(1		)	(16		)
Amounts reclassified to net earnings, net of deferred income taxes	—		22			3			25
Other comprehensive earnings, net of deferred income taxes	—		22			180			202
Balances, March 31, 2012	$	2	$	(2,040	)	$	353		$	(1,685	)

Other Comprehensive Earnings Losses Amounts Reclassified To Earnings, Before Tax

The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings for the three months ended March 31, 2013 and 2012:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Benefit Plans: (a)
Net loss	$	87		$	71
Prior service cost/credit	(8		)	(34		)
	$	79		$	37
SABMiller (b)	$	(2	)	$	4
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	77		$	41

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

^(b) Amounts are included in earnings from equity investment in SABMiller. For further information on Altria Group, Inc.’s equity investment in SABMiller, see Note 4. Earnings from Equity Investment in SABMiller.

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Contingencies (International Tobacco-Related Cases Narrative) (Details)	Apr. 22, 2013
Canada | Smoking And Health Class Actions And Aggregated Claims Litigation [Member] | PM USA And Altria Group, Inc. [Member]
Loss Contingencies [Line Items]
Number of international cases	7
Canada | Health Care Cost Recovery Actions [Member] | PM USA [Member]
Loss Contingencies [Line Items]
Number of international cases	9
Canada | Health Care Cost Recovery Actions [Member] | PM USA And Altria Group, Inc. [Member]
Loss Contingencies [Line Items]
Number of international cases	7
Israel | "Lights/Ultra Lights" Class Actions [Member] | PM USA [Member]
Loss Contingencies [Line Items]
Number of international cases	1

XML

Segment Reporting (Segment Data Schedule) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Segment Reporting Information [Line Items]
Net Revenue	$ 5,528	$ 5,647
Amortization of Intangibles	(5)	(5)
General corporate expenses	(55)	(51)
Corporate asset impairment and exit costs	0	21
Operating Income (Loss)	2,152	1,642
Interest and other debt expense, net	(261)	(293)
Earnings from equity investment in SABMiller	256	520
Earnings before income taxes	2,147	1,869
Smokeable Products [Member]
Segment Reporting Information [Line Items]
Net Revenue	4,968	5,100
Operating Companies Income (Loss)	1,920	1,439
Smokeless Products [Member]
Segment Reporting Information [Line Items]
Net Revenue	390	380
Operating Companies Income (Loss)	222	192
Wine [Member]
Segment Reporting Information [Line Items]
Net Revenue	126	113
Operating Companies Income (Loss)	20	15
All Other [Member]
Segment Reporting Information [Line Items]
Net Revenue	44	54
Operating Companies Income (Loss)	$ 50	$ 52

XML

Earnings From Equity Investment In SABMiller Earnings From Equity Investment In SABMiller (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
Understatement of Earnings From Equity Method Investment	$ 342

XML

Contingencies (Trial Results Narrative) (Details) (USD $)	3 Months Ended					171 Months Ended		171 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Apr. 22, 2013 Engle Progeny Cases [Member]	Apr. 22, 2013 Individual Smoking And Health Cases [Member]	Mar. 31, 2013 Since January 1999 [Member] Engle and Non-Engle Cases [Member]	Mar. 31, 2013 Since January 1999 [Member] Non Engle Progency Cases [Member]	Mar. 31, 2013 Health Care Cost Recovery [Member]
Loss Contingencies [Line Items]
Pending and upcoming tobacco-related trials				24	5
Number of verdicts returned				37			52
Verdicts returned in favor of defendants							35
Verdicts returned in favor of plaintiffs							18
Cases reaching final resolution							14
Verdicts Reversed								1
Judgments paid	$ 100,000	$ 121,000,000				$ 245,000,000
Judgment interest paid aggregate						139,000,000
Loss Contingency Accrual, at Carrying Value	6,000,000		0
Loss Contingency Verdicts Returned Since Court Decision Plaintiffs				19
Loss Contingency Verdicts Returned Since Court Decision Defendents				18
Pretax Tobacco and Health charges	5,000,000
commitments and contingencies accrued interest	1,000,000
Commitments and Contingencies Accrued Charges Including Interest		$ 500,000

XML

Condensed Consolidating Financial Information (Condensed Consolidating Balance Sheets) (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Assets [Abstract]
Cash and cash equivalents	$ 3,775	$ 2,900	$ 4,156	$ 3,270
Receivables	112	193
Inventories:
Leaf tobacco	864	876
Other raw materials	174	173
Work in process	339	349
Finished product	439	348
Inventory, net	1,816	1,746
Due from Altria Group, Inc. and subsidiaries	0	0
Deferred income taxes	1,216	1,216
Other current assets	197	260
Total current assets	7,116	6,315
Property, plant and equipment, at cost	4,763	4,750
Less accumulated depreciation	2,695	2,648
Property, plant and equipment, net	2,068	2,102
Goodwill	5,174	5,174
Other intangible assets, net	12,073	12,078
Investment in SABMiller	6,749	6,637
Investment in consolidated subsidiaries	0	0
Finance assets, net	2,385	2,581
Due from Altria Group, Inc. and subsidiaries		0
Other assets	441	442
TOTAL ASSETS	36,006	35,329
Liabilities [Abstract]
Current portion of long-term debt	1,984	1,459
Accounts payable	259	451
Accrued liabilities:
Marketing	468	568
Employment costs	126	184
Settlement charges	4,143	3,616
Other	1,032	1,093
Income taxes	600	0
Dividends payable	886	888
Due to Altria Group, Inc. and subsidiaries	0	0
Total current liabilities	9,498	8,259
Long-term debt	11,894	12,419
Deferred income taxes	6,657	6,652
Accrued pension costs	1,323	1,735
Accrued postretirement health care costs	2,501	2,504
Due to Altria Group, Inc. and subsidiaries		0
Other liabilities	528	556
Total liabilities	32,401	32,125
Contingencies
Redeemable noncontrolling interest	35	34
Stockholders' Equity
Common stock	935	935
Additional paid-in capital	5,656	5,688
Earnings reinvested in the business	24,817	24,316
Accumulated other comprehensive losses	(2,068)	(2,040)	(1,685)	(1,887)
Cost of repurchased stock	(25,771)	(25,731)
Total stockholders' equity attributable to Altria Group, Inc.	3,569	3,168
Noncontrolling interests	1	2
Total stockholders' equity	3,570	3,170		3,683
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	36,006	35,329
Altria Group, Inc. [Member]
Assets [Abstract]
Cash and cash equivalents	3,745	2,862	4,140	3,245
Receivables	21	101
Inventories:
Leaf tobacco	0	0
Other raw materials	0	0
Work in process	0	0
Finished product	0	0
Inventory, net	0	0
Due from Altria Group, Inc. and subsidiaries	5,634	834
Deferred income taxes	0	0
Other current assets	240	0
Total current assets	9,640	3,797
Property, plant and equipment, at cost	2	2
Less accumulated depreciation	2	2
Property, plant and equipment, net	0	0
Goodwill	0	0
Other intangible assets, net	0	0
Investment in SABMiller	6,749	6,637
Investment in consolidated subsidiaries	9,653	9,521
Finance assets, net	0	0
Due from Altria Group, Inc. and subsidiaries		4,500
Other assets	136	136
TOTAL ASSETS	26,178	24,591
Liabilities [Abstract]
Current portion of long-term debt	1,984	1,459
Accounts payable	0	4
Accrued liabilities:
Marketing	0	0
Employment costs	74	27
Settlement charges	0	0
Other	353	469
Income taxes	0
Dividends payable	886	888
Due to Altria Group, Inc. and subsidiaries	5,227	3,965
Total current liabilities	8,524	6,812
Long-term debt	11,595	12,120
Deferred income taxes	2,075	2,034
Accrued pension costs	231	235
Accrued postretirement health care costs	0	0
Due to Altria Group, Inc. and subsidiaries		0
Other liabilities	184	222
Total liabilities	22,609	21,423
Redeemable noncontrolling interest	0	0
Stockholders' Equity
Common stock	935	935
Additional paid-in capital	5,656	5,688
Earnings reinvested in the business	24,817	24,316
Accumulated other comprehensive losses	(2,068)	(2,040)
Cost of repurchased stock	(25,771)	(25,731)
Total stockholders' equity attributable to Altria Group, Inc.	3,569	3,168
Noncontrolling interests	0	0
Total stockholders' equity	3,569	3,168
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	26,178	24,591
PM USA [Member]
Assets [Abstract]
Cash and cash equivalents	0	0	0	0
Receivables	9	7
Inventories:
Leaf tobacco	489	512
Other raw materials	124	127
Work in process	7	3
Finished product	206	117
Inventory, net	826	759
Due from Altria Group, Inc. and subsidiaries	4,253	3,424
Deferred income taxes	1,246	1,246
Other current assets	81	193
Total current assets	6,415	5,629
Property, plant and equipment, at cost	3,256	3,253
Less accumulated depreciation	2,100	2,073
Property, plant and equipment, net	1,156	1,180
Goodwill	0	0
Other intangible assets, net	2	2
Investment in SABMiller	0	0
Investment in consolidated subsidiaries	3,009	3,018
Finance assets, net	0	0
Due from Altria Group, Inc. and subsidiaries		0
Other assets	534	530
TOTAL ASSETS	11,116	10,359
Liabilities [Abstract]
Current portion of long-term debt	0	0
Accounts payable	125	155
Accrued liabilities:
Marketing	444	526
Employment costs	7	10
Settlement charges	4,137	3,610
Other	467	506
Income taxes	666
Dividends payable	0	0
Due to Altria Group, Inc. and subsidiaries	180	409
Total current liabilities	6,026	5,216
Long-term debt	0	0
Deferred income taxes	0	0
Accrued pension costs	0	0
Accrued postretirement health care costs	1,750	1,759
Due to Altria Group, Inc. and subsidiaries		0
Other liabilities	185	178
Total liabilities	7,961	7,153
Redeemable noncontrolling interest	0	0
Stockholders' Equity
Common stock	0	0
Additional paid-in capital	3,321	3,321
Earnings reinvested in the business	255	314
Accumulated other comprehensive losses	(421)	(429)
Cost of repurchased stock	0	0
Total stockholders' equity attributable to Altria Group, Inc.	3,155	3,206
Noncontrolling interests	0	0
Total stockholders' equity	3,155	3,206
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	11,116	10,359
Non-Guarantor Subsidiaries [Member]
Assets [Abstract]
Cash and cash equivalents	30	38	16	25
Receivables	82	85
Inventories:
Leaf tobacco	375	364
Other raw materials	50	46
Work in process	332	346
Finished product	233	231
Inventory, net	990	987
Due from Altria Group, Inc. and subsidiaries	1,216	1,171
Deferred income taxes	16	16
Other current assets	109	175
Total current assets	2,443	2,472
Property, plant and equipment, at cost	1,505	1,495
Less accumulated depreciation	593	573
Property, plant and equipment, net	912	922
Goodwill	5,174	5,174
Other intangible assets, net	12,071	12,076
Investment in SABMiller	0	0
Investment in consolidated subsidiaries	0	0
Finance assets, net	2,385	2,581
Due from Altria Group, Inc. and subsidiaries		0
Other assets	137	141
TOTAL ASSETS	23,122	23,366
Liabilities [Abstract]
Current portion of long-term debt	0	0
Accounts payable	134	292
Accrued liabilities:
Marketing	24	42
Employment costs	45	147
Settlement charges	6	6
Other	258	272
Income taxes	167
Dividends payable	0	0
Due to Altria Group, Inc. and subsidiaries	5,696	1,055
Total current liabilities	6,330	1,814
Long-term debt	299	299
Deferred income taxes	4,948	4,983
Accrued pension costs	1,092	1,500
Accrued postretirement health care costs	751	745
Due to Altria Group, Inc. and subsidiaries		4,500
Other liabilities	159	156
Total liabilities	13,579	13,997
Redeemable noncontrolling interest	35	34
Stockholders' Equity
Common stock	9	9
Additional paid-in capital	10,272	10,272
Earnings reinvested in the business	1,058	943
Accumulated other comprehensive losses	(1,832)	(1,891)
Cost of repurchased stock	0	0
Total stockholders' equity attributable to Altria Group, Inc.	9,507	9,333
Noncontrolling interests	1	2
Total stockholders' equity	9,508	9,335
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	23,122	23,366
Total Consolidating Adjustments [Member]
Assets [Abstract]
Cash and cash equivalents	0	0	0	0
Receivables	0	0
Inventories:
Leaf tobacco	0	0
Other raw materials	0	0
Work in process	0	0
Finished product	0	0
Inventory, net	0	0
Due from Altria Group, Inc. and subsidiaries	(11,103)	(5,429)
Deferred income taxes	(46)	(46)
Other current assets	(233)	(108)
Total current assets	(11,382)	(5,583)
Property, plant and equipment, at cost	0	0
Less accumulated depreciation	0	0
Property, plant and equipment, net	0	0
Goodwill	0	0
Other intangible assets, net	0	0
Investment in SABMiller	0	0
Investment in consolidated subsidiaries	(12,662)	(12,539)
Finance assets, net	0	0
Due from Altria Group, Inc. and subsidiaries		(4,500)
Other assets	(366)	(365)
TOTAL ASSETS	(24,410)	(22,987)
Liabilities [Abstract]
Current portion of long-term debt	0	0
Accounts payable	0	0
Accrued liabilities:
Marketing	0	0
Employment costs	0	0
Settlement charges	0	0
Other	(46)	(154)
Income taxes	(233)
Dividends payable	0	0
Due to Altria Group, Inc. and subsidiaries	(11,103)	(5,429)
Total current liabilities	(11,382)	(5,583)
Long-term debt	0	0
Deferred income taxes	(366)	(365)
Accrued pension costs	0	0
Accrued postretirement health care costs	0	0
Due to Altria Group, Inc. and subsidiaries		(4,500)
Other liabilities	0	0
Total liabilities	(11,748)	(10,448)
Redeemable noncontrolling interest	0	0
Stockholders' Equity
Common stock	(9)	(9)
Additional paid-in capital	(13,593)	(13,593)
Earnings reinvested in the business	(1,313)	(1,257)
Accumulated other comprehensive losses	2,253	2,320
Cost of repurchased stock	0	0
Total stockholders' equity attributable to Altria Group, Inc.	(12,662)	(12,539)
Noncontrolling interests	0	0
Total stockholders' equity	(12,662)	(12,539)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ (24,410)	$ (22,987)

XML

Contingencies (NPM Adjustment Calculation Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Loss Contingencies [Line Items]
Challanges To MSA Found In Favor Of Defendants	16
Year NPM Adjustment Calculated 2003 [Member] | Year NPM Adjustment May Be Deducted 2006 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	$ 337
Year NPM Adjustment Calculated 2004 [Member] | Year NPM Adjustment May Be Deducted 2007 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	388
Year NPM Adjustment Calculated 2005 [Member] | Year Npm Adjustment Deducted2008 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	181
Year NPM Adjustment Calculated 2006 [Member] | Year NPM Adjustment May Be Deducted 2009 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	154
Year NPM Adjustment Calculated 2007 [Member] | Year NPM Adjustment May Be Deducted 2010 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	185
Year NPM Adjustment Calculated 2008 [Member] | Year NPM Adjustment May Be Deducted 2011 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	250
Year NPM Adjustment Calculated 2009 [Member] | Year Npm Adjustment Deducted 2012 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	205
Year NPM Adjustment Calculated 2010 [Member] | Year NPM Adjustment May Be Deducted 2013 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	203
Year NPM Adjustment Calculated 2011 [Member] | Year NPM Adjustment May Be Deducted 2014 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	159
Year NPM Adjustment Calculated 2004 - 2012 [Member]
Loss Contingencies [Line Items]
Affiliates possible excess MSA payments	92
Year NPM Adjustment Calculated 2012 [Member] | Year NPM Adjustment May Be Deducted 2015 [Member]
Loss Contingencies [Line Items]
PM USA's approximate share of disputed NPM Adjustment	199
Health Care Cost Recovery Actions [Member] | MSA NPM Arbitration Agreement [Member]
Loss Contingencies [Line Items]
Partial liability reduction percentage for 2003 NPM adjustment for states that are party to agreement re: arbitration	20.00%
NPM Adjustment to Cost Of Sales [Member] | Smokeable Products [Member]
Loss Contingencies [Line Items]
Decrease in Cost of Sales	$ 483

XML

Debt (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Short-term borrowings	$ 0	$ 0
Aggregate fair value of Altria's total long-term debt	17,600,000,000	17,600,000,000
Carrying value of Altria's total long-term debt	$ 13,900,000,000	$ 13,900,000,000

XML

Background And Basis Of Presentation

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background And Basis Of Presentation

Background and Basis of Presentation:

Background

At March 31, 2013, Altria Group, Inc.’s direct and indirect wholly-owned subsidiaries included Philip Morris USA Inc. (“PM USA”), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (“Middleton”), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and is a wholly-owned subsidiary of PM USA; and UST LLC (“UST”), which through its direct and indirect wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (“USSTC”) and Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”), is engaged in the manufacture and sale of smokeless products and wine. Nu Mark LLC, an indirect wholly-owned subsidiary of Altria Group, Inc., is engaged in the manufacture and sale of innovative tobacco products for adult tobacco consumers. Philip Morris Capital Corporation (“PMCC”), a direct wholly-owned subsidiary of Altria Group, Inc., maintains a portfolio of leveraged and direct finance leases. In addition, Altria Group, Inc. held approximately 26.8% of the economic and voting interest of SABMiller plc (“SABMiller”) at March 31, 2013, which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc.’s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. In addition, Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. At March 31, 2013, Altria Group, Inc.’s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

Share Repurchases

In October 2011, Altria Group, Inc.’s Board of Directors authorized a $1.0 billion share repurchase program, which was expanded to $1.5 billion in October 2012 (as expanded, the “October 2011 share repurchase program”). During the three months ended March 31, 2013, Altria Group, Inc. repurchased 1.7 million shares (aggregate cost of approximately $57 million, and $34.05 average price per share), completing the October 2011 share repurchase program. Under this program, Altria Group, Inc. repurchased a total of 48.3 million shares of its common stock at an average price of $31.06 per share.

On April 24, 2013, Altria Group, Inc.’s Board of Directors authorized a new $300 million share repurchase program, which Altria Group, Inc. expects to complete by the end of 2013. The timing of share repurchases under this new program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of Altria Group, Inc.’s Board of Directors.

Basis of Presentation

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

These statements should be read in conjunction with the consolidated financial statements and related notes, which appear in Altria Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012.

Effective January 1, 2013, Altria Group, Inc.’s reportable segments are smokeable products, smokeless products and wine. The financial services and the alternative products businesses have been combined in an all other category due to the continued reduction of the lease portfolio of PMCC and the relative financial contribution of Altria Group, Inc.’s alternative products business to its consolidated results. In addition, due to the continued reduction of the lease portfolio of PMCC, Altria Group, Inc.’s balance sheet accounts are no longer segregated by consumer products and financial services, and all balance sheet accounts are classified as either current or non-current. Prior-period amounts have been reclassified to conform with the current-period presentation.

As previously disclosed in Altria Group, Inc.’s Quarterly Report filed on Form 10-Q (“Form 10-Q”) for the quarterly period ended June 30, 2012, during the second quarter of 2012, Altria Group, Inc. determined that it had not recorded in its financial statements for the three months ended March 31, 2012, its share of non-cash gains from its equity investment in SABMiller, relating to SABMiller’s strategic alliance transactions with Anadolu Efes and Castel that were completed during the first quarter of 2012.  Because Altria Group, Inc. did not record these gains, it understated by $342 million, $222 million and $0.11 earnings from equity investment in SABMiller, net earnings/comprehensive earnings and diluted earnings per share attributable to Altria Group, Inc., respectively, for the three months ended March 31, 2012.  There was no impact on net cash flows from operating, investing or financing activities for the three months ended March 31, 2012.  Altria Group, Inc. revised its first quarter 2012 financial statements and reflected this revision in the financial statements for the three months ended March 31, 2012 included in this Form 10-Q. 

Effective January 1, 2013, Altria Group, Inc. adopted new authoritative guidance that requires an entity to provide additional information by component concerning the amounts reclassified out of accumulated other comprehensive earnings/losses. Altria Group, Inc. has included the additional disclosures in Note 6. Other Comprehensive Earnings/Losses.

XML

Contingencies (Federal Government's Lawsuit Narrative) (Details) (Federal Government's Lawsuit [Member], Health Care Cost Recovery Litigation [Member], USD $)	3 Months Ended
	Mar. 31, 2013
Federal Government's Lawsuit [Member] | Health Care Cost Recovery Litigation [Member]
Loss Contingencies [Line Items]
Federal Government Original Complaint Date	1999
Loss contingency, period of occurrence	August 2006
Amount of alleged annual costs health care programs, minimum	$ 20,000,000,000
Amount of disgorgement of profits requested in Federal Government lawsuit	280,000,000,000
Government Proposed Final Judgement Date	June 2005
Proposed final judgment	14,000,000,000
Fund for five-year national smoking cessation program	10,000,000,000
Fund for ten-year public education and counter-marketing campaign	4,000,000,000
Document Repository Agreement date	December 2011
Loss contingency, amount of district court deposit	$ 3,100,000
Loss contingency installment period, years	5

XML

Segment Reporting Segment Reporting (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Segment Reporting Information [Line Items]
Pretax Tobacco and Health charges	$ 5
commitments and contingencies accrued interest	1
NPM Adjustment to Cost Of Sales [Member] | Smokeable Products [Member]
Segment Reporting Information [Line Items]
Decrease in Cost of Sales	$ 483

XML

Condensed Consolidating Financial Information (Tables)

3 Months Ended

Mar. 31, 2013

Condensed Consolidating Financial Information [Abstract]

Condensed Consolidating Balance Sheets

Condensed Consolidating Balance Sheets

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	3,745	$	—	$	30	$	—		$	3,775
Receivables	21		9		82		—			112
Inventories:
Leaf tobacco	—		489		375		—			864
Other raw materials	—		124		50		—			174
Work in process	—		7		332		—			339
Finished product	—		206		233		—			439
	—		826		990		—			1,816
Due from Altria Group, Inc. and subsidiaries	5,634		4,253		1,216		(11,103		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	240		81		109		(233		)	197
Total current assets	9,640		6,415		2,443		(11,382		)	7,116
Property, plant and equipment, at cost	2		3,256		1,505		—			4,763
Less accumulated depreciation	2		2,100		593		—			2,695
	—		1,156		912		—			2,068
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,071		—			12,073
Investment in SABMiller	6,749		—		—		—			6,749
Investment in consolidated subsidiaries	9,653		3,009		—		(12,662		)	—
Finance assets, net	—		—		2,385		—			2,385
Other assets	136		534		137		(366		)	441
Total Assets	$	26,178	$	11,116	$	23,122	$	(24,410	)	$	36,006

Continued

Condensed Consolidating Balance Sheets (Continued)

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,984		$	—		$	—		$	—		$	1,984
Accounts payable	—			125			134			—			259
Accrued liabilities:
Marketing	—			444			24			—			468
Employment costs	74			7			45			—			126
Settlement charges	—			4,137			6			—			4,143
Other	353			467			258			(46		)	1,032
Income taxes	—			666			167			(233		)	600
Dividends payable	886			—			—			—			886
Due to Altria Group, Inc. and subsidiaries	5,227			180			5,696			(11,103		)	—
Total current liabilities	8,524			6,026			6,330			(11,382		)	9,498
Long-term debt	11,595			—			299			—			11,894
Deferred income taxes	2,075			—			4,948			(366		)	6,657
Accrued pension costs	231			—			1,092			—			1,323
Accrued postretirement health care costs	—			1,750			751			—			2,501
Other liabilities	184			185			159			—			528
Total liabilities	22,609			7,961			13,579			(11,748		)	32,401
Contingencies
Redeemable noncontrolling interest	—			—			35			—			35
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,656			3,321			10,272			(13,593		)	5,656
Earnings reinvested in the business	24,817			255			1,058			(1,313		)	24,817
Accumulated other comprehensive losses	(2,068		)	(421		)	(1,832		)	2,253			(2,068		)
Cost of repurchased stock	(25,771		)	—			—			—			(25,771		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,569			3,155			9,507			(12,662		)	3,569
Noncontrolling interests	—			—			1			—			1
Total stockholders’ equity	3,569			3,155			9,508			(12,662		)	3,570
Total Liabilities and Stockholders’ Equity	$	26,178		$	11,116		$	23,122		$	(24,410	)	$	36,006

Condensed Consolidating Balance Sheets

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	2,862	$	—	$	38	$	—		$	2,900
Receivables	101		7		85		—			193
Inventories:
Leaf tobacco	—		512		364		—			876
Other raw materials	—		127		46		—			173
Work in process	—		3		346		—			349
Finished product	—		117		231		—			348
	—		759		987		—			1,746
Due from Altria Group, Inc. and subsidiaries	834		3,424		1,171		(5,429		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	—		193		175		(108		)	260
Total current assets	3,797		5,629		2,472		(5,583		)	6,315
Property, plant and equipment, at cost	2		3,253		1,495		—			4,750
Less accumulated depreciation	2		2,073		573		—			2,648
	—		1,180		922		—			2,102
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,076		—			12,078
Investment in SABMiller	6,637		—		—		—			6,637
Investment in consolidated subsidiaries	9,521		3,018		—		(12,539		)	—
Finance assets, net	—		—		2,581		—			2,581
Due from Altria Group, Inc. and subsidiaries	4,500		—		—		(4,500		)	—
Other assets	136		530		141		(365		)	442
Total Assets	$	24,591	$	10,359	$	23,366	$	(22,987	)	$	35,329

Continued

Condensed Consolidating Balance Sheets (Continued)

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,459		$	—		$	—		$	—		$	1,459
Accounts payable	4			155			292			—			451
Accrued liabilities:
Marketing	—			526			42			—			568
Employment costs	27			10			147			—			184
Settlement charges	—			3,610			6			—			3,616
Other	469			506			272			(154		)	1,093
Dividends payable	888			—			—			—			888
Due to Altria Group, Inc. and subsidiaries	3,965			409			1,055			(5,429		)	—
Total current liabilities	6,812			5,216			1,814			(5,583		)	8,259
Long-term debt	12,120			—			299			—			12,419
Deferred income taxes	2,034			—			4,983			(365		)	6,652
Accrued pension costs	235			—			1,500			—			1,735
Accrued postretirement health care costs	—			1,759			745			—			2,504
Due to Altria Group, Inc. and subsidiaries	—			—			4,500			(4,500		)	—
Other liabilities	222			178			156			—			556
Total liabilities	21,423			7,153			13,997			(10,448		)	32,125
Contingencies
Redeemable noncontrolling interest	—			—			34			—			34
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,688			3,321			10,272			(13,593		)	5,688
Earnings reinvested in the business	24,316			314			943			(1,257		)	24,316
Accumulated other comprehensive losses	(2,040		)	(429		)	(1,891		)	2,320			(2,040		)
Cost of repurchased stock	(25,731		)	—			—			—			(25,731		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,168			3,206			9,333			(12,539		)	3,168
Noncontrolling interests	—			—			2			—			2
Total stockholders’ equity	3,168			3,206			9,335			(12,539		)	3,170
Total Liabilities and Stockholders’ Equity	$	24,591		$	10,359		$	23,366		$	(22,987	)	$	35,329

Condensed Consolidating Statements Of Earnings And Comprehensive Earnings

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,822	$	711	$	(5	)	$	5,528
Cost of sales	—			1,099		205		(5		)	1,299
Excise taxes on products	—			1,495		60		—			1,555
Gross profit	—			2,228		446		—			2,674
Marketing, administration and research costs	46			419		52		—			517
Amortization of intangibles	—			—		5		—			5
Operating (expense) income	(46		)	1,809		389		—			2,152
Interest and other debt expense, net	161			—		100		—			261
Earnings from equity investment in SABMiller	(256		)	—		—		—			(256		)
Earnings before income taxes and equity earnings of subsidiaries	49			1,809		289		—			2,147
(Benefit) provision for income taxes	(9		)	667		104		—			762
Equity earnings of subsidiaries	1,327			44		—		(1,371		)	—
Net earnings	1,385			1,186		185		(1,371		)	1,385
Net earnings attributable to noncontrolling interests	—			—		—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Net earnings	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Other comprehensive (losses) earnings, net of deferred income taxes	(28		)	8		59		(67		)	(28		)
Comprehensive earnings	1,357			1,194		244		(1,438		)	1,357
Comprehensive earnings attributable to noncontrolling interests	—			—		—		—			—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,357		$	1,194	$	244	$	(1,438	)	$	1,357

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For The Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,922		$	731	$	(6	)	$	5,647
Cost of sales	—			1,599			199		(6		)	1,792
Excise taxes on products	—			1,577			76		—			1,653
Gross profit	—			1,746			456		—			2,202
Marketing, administration and research costs	34			431			69		—			534
Asset impairment and exit costs	—			20			1		—			21
Amortization of intangibles	—			—			5		—			5
Operating (expense) income	(34		)	1,295			381		—			1,642
Interest and other debt expense (income), net	185			(1		)	109		—			293
Earnings from equity investment in SABMiller	(520		)	—			—		—			(520		)
Earnings before income taxes and equity earnings of subsidiaries	301			1,296			272		—			1,869
Provision for income taxes	84			482			108		—			674
Equity earnings of subsidiaries	978			49			—		(1,027		)	—
Net earnings	1,195			863			164		(1,027		)	1,195
Net earnings attributable to noncontrolling interests	—			—			—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Net earnings	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Other comprehensive earnings (losses), net of deferred income taxes	202			(1		)	21		(20		)	202
Comprehensive earnings	1,397			862			185		(1,047		)	1,397
Comprehensive earnings attributable to noncontrolling interests	—			—			—		—			—
Comprehensive earnings attributable to     Altria Group, Inc.	$	1,397		$	862		$	185	$	(1,047	)	$	1,397

Condensed Consolidating Statements Of Cash Flows

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	902		$	2,344		$	(139	)	$	(1,314	)	$	1,793
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(4		)	(11		)	—			(15		)
Proceeds from finance assets	—			—			203			—			203
Net cash (used in) provided by investing activities	—			(4		)	192			—			188
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(91		)	—			—			—			(91		)
Dividends paid on common stock	(886		)	—			—			—			(886		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	961			(1,052		)	91			—			—
Cash dividends paid to parent	—			(1,245		)	(69		)	1,314			—
Other	(3		)	(43		)	(83		)	—			(129		)
Net cash used in financing activities	(19		)	(2,340		)	(61		)	1,314			(1,106		)
Cash and cash equivalents:
Increase (decrease)	883			—			(8		)	—			875
Balance at beginning of period	2,862			—			38			—			2,900
Balance at end of period	$	3,745		$	—		$	30		$	—		$	3,775

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	533		$	2,519		$	(233	)	$	(982	)	$	1,837
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(5		)	(11		)	—			(16		)
Proceeds from finance assets	—			—			303			—			303
Net cash (used in) provided by investing activities	—			(5		)	292			—			287
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(266		)	—			—			—			(266		)
Dividends paid on common stock	(838		)	—			—			—			(838		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	1,466			(1,549		)	83			—			—
Cash dividends paid to parent	—			(923		)	(59		)	982			—
Other	—			(42		)	(92		)	—			(134		)
Net cash provided by (used in) financing activities	362			(2,514		)	(68		)	982			(1,238		)
Cash and cash equivalents:
Increase (decrease)	895			—			(9		)	—			886
Balance at beginning of period	3,245			—			25			—			3,270
Balance at end of period	$	4,140		$	—		$	16		$	—		$	4,156

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Contingencies (Tables)

3 Months Ended

Mar. 31, 2013

Loss Contingency [Abstract]

Schedule Of Pending Cases

Type of Case	Number of Cases Pending as of April 22, 2013	Number of Cases Pending as of April 23, 2012	Number of Cases Pending as of April 25, 2011
Individual Smoking and Health Cases (1)	71	79	89
Smoking and Health Class Actions and Aggregated Claims Litigation (2)	6	7	10
Health Care Cost Recovery Actions (3)	1	1	3
“Lights/Ultra Lights” Class Actions	15	17	30
Tobacco Price Cases	1	1	1

Approximate Maximum Principal Amounts Of PM USA's Share Of The Disputed NPM Adjustment For The Years 2003 Through 2011, As Currently Calculated By The MSA's Independent Auditor

Year for which NPM Adjustment calculated	2003	2004	2005	2006	2007	2008		2009		2010		2011		2012
Year in which deduction for NPM Adjustment may be taken	2006	2007	2008	2009	2010	2011		2012		2013		2014		2015
PM USA’s Approximate Share of Disputed NPM Adjustment (in millions)	$337	$388	$181	$154	$185	$	250	$	205	$	203	$	159	$199

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Contingencies (Engle Progeny Cases Trial Results Narrative) (Details) (Engle Progeny Cases [Member], USD $)	3 Months Ended
	Mar. 31, 2013
Florida/Searcy [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	April 2013
Compensatory damages jury award total excluding interest	$ 6,000,000
Punitive damages jury award total against each defendant	10,000,000
Florida / Giddens [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	March 2013
Compensatory damages jury award total excluding interest	80,000
Compensatory damages jury award allocation percentage allocated to PM USA	7.00%
Compensatory damages jury award allocation amount	5,600
Florida Buchanan [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	December 2012
Compensatory damages jury award total excluding interest	5,500,000
Compensatory damages jury award allocation percentage allocated to PM USA	37.00%
Compensatory damages jury award allocation amount	2,000,000
Appeal bond posted by PM USA	2,500,000
Loss contingency, appeal bond date	April 5, 2013
Florida Lock [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	October 2012
Compensatory damages jury award total excluding interest	1,150,000
Compensatory damages jury award allocation percentage allocated to PM USA	9.00%
Compensatory damages jury award allocation amount	103,500
Appeal bond posted by PM USA	103,500
Loss contingency, appeal bond date	March 22, 2013
Florida Hancock [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	August 2012
Compensatory damages jury award total excluding interest	0
Additur damages imposed by trial court	110,000
Compensatory damages jury award allocation percentage allocated to PM USA	5.00%
Loss contingency, damages allocated	700
Loss Contingency, Damages Paid Date	October 2002
Loss Contingency, Damages Paid	700
Florida Calloway [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	May 2012
Compensatory damages jury award total excluding interest	21,000,000
Compensatory damages reduced award total	16,100,000
Compensatory damages jury award allocation percentage allocated to PM USA	25.00%
Punitive damages jury award allocation amount	17,000,000
Appeal bond posted by PM USA	1,500,000
Loss contingency, appeal bond date	September 2012
Loss Contingency Final Court Judgement Date	August 2012
Florida/Hallgren [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	January 2012
Compensatory damages jury award total excluding interest	2,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	25.00%
Compensatory damages jury award allocation amount	500,000
Punitive damages jury award total against each defendant	750,000
Appeal bond posted by PM USA	1,250,000
Loss contingency, appeal bond date	April 2012
Florida/Allen [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	April 2011
Compensatory damages jury award total excluding interest	6,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	15.00%
Compensatory damages jury award allocation amount	900,000
Punitive damages reduced award total	2,700,000
Punitive damages jury award total against each defendant	17,000,000
Appeal bond posted by PM USA	1,250,000
Loss contingency, appeal bond date	November 2011
Loss contingency, court reduction date	October 2011
Florida/Tullo [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	April 2011
Compensatory damages jury award total excluding interest	4,500,000
Compensatory damages jury award allocation percentage allocated to PM USA	45.00%
Compensatory damages jury award allocation amount	2,025,000
Appeal bond posted by PM USA	2,000,000
Loss contingency, appeal bond date	July 2011
Florida/Huish [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	February 2011
Compensatory damages jury award total excluding interest	750,000
Compensatory damages jury award allocation percentage allocated to PM USA	25.00%
Compensatory damages jury award allocation amount	187,500
Punitive damages jury award allocation amount	1,500,000
Loss contingency damages recorded costs and interest	2,500,000
Loss Contingency Damages Recorded Date	Second Quarter of 2012
Loss Contingency, Damages Paid Date	July 2012
Loss Contingency, Damages Paid	2,500,000
Florida/Hatziyannakis [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	February 2011
Compensatory damages jury award total excluding interest	270,000
Compensatory damages jury award allocation percentage allocated to PM USA	32.00%
Compensatory damages jury award allocation amount	86,000
Appeal bond posted by PM USA	86,000
Loss contingency, appeal bond date	June 2011
Loss contingency damages recorded costs and interest	174,000
Loss Contingency Damages Recorded Date	First Quarter of 2013
Florida/Piendle [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	August 2010
Compensatory damages jury award total excluding interest	4,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	27.50%
Compensatory damages jury award allocation amount	1,100,000
Punitive damages jury award allocation amount	90,000
Loss contingency damages recorded costs and interest	2,700,000
Loss Contingency Damages Recorded Date	Third Quarter of 2012
Loss Contingency Fees Paid	100,000
Loss Contingency, Damages Paid Date	November 2012
Loss Contingency, Damages Paid	2,700,000
Florida/Kayton (Formerly Tate) [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	July 2010
Compensatory damages jury award total excluding interest	8,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	64.00%
Compensatory damages jury award allocation amount	5,100,000
Punitive damages jury award allocation amount	16,200,000
Appeal bond posted by PM USA	5,000,000
Loss contingency, appeal bond date	August 2010
Florida/Putney [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	April 2010
Compensatory damages jury award total excluding interest	15,100,000
Compensatory damages jury award allocation percentage allocated to PM USA	15.00%
Compensatory damages jury award allocation amount	2,300,000
Punitive damages jury award allocation amount	2,500,000
Appeal bond posted by PM USA	1,600,000
Loss contingency, appeal bond date	August 2010
Florida/R. Cohen [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	March 2010
Compensatory damages jury award total excluding interest	10,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	33.33%
Compensatory damages jury award allocation amount	3,300,000
Punitive damages jury award total all defendants	20,000,000
Punitive damages jury award total against each defendant	10,000,000
Appeal bond posted by PM USA	2,500,000
Loss contingency, appeal bond date	October 2010
Florida/Douglas [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	March 2010
Compensatory damages jury award total excluding interest	5,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	18.00%
Compensatory damages jury award allocation amount	900,000
Appeal bond posted by PM USA	900,000
Loss contingency, appeal bond date	June 2010
Loss contingency damages recorded costs and interest	2,200,000
Loss Contingency Damages Recorded Date	First Quarter of 2013
Florida/Naugle [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	November 2009
Compensatory damages jury award total excluding interest	56,600,000
Compensatory damages reduced award total	13,000,000
Compensatory damages reduced amended award total	12,300,000
Compensatory damages jury award allocation percentage allocated to PM USA	90.00%
Punitive damages jury award total all defendants	244,000,000
Punitive damages reduced award total	26,000,000
Punitive damages reduced amended award total	24,500,000
Appeal bond posted by PM USA	5,000,000
Loss contingency, appeal bond date	April 2010
Florida/F. Campbell [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	August 2009
Compensatory damages jury award total excluding interest	7,800,000
Compensatory damages jury award allocation percentage allocated to PM USA	2.00%
Compensatory damages jury award allocation amount	156,000
Loss Contingency, Damages Paid Date	May 2012
Loss Contingency, Damages Paid	262,000
Florida/Barbanell [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	August 2009
Compensatory damages jury award total excluding interest	5,300,000
Compensatory damages jury award allocation percentage allocated to PM USA	36.50%
Compensatory damages jury award allocation amount	1,950,000
Appeal bond posted by PM USA	1,950,000
Loss contingency, appeal bond date	September 2009
Florida/Hess [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	February 2009
Compensatory damages jury award total excluding interest	3,000,000
Compensatory damages jury award allocation percentage allocated to PM USA	42.00%
Compensatory damages jury award allocation amount	1,260,000
Punitive damages jury award allocation amount	5,000,000
Loss Contingency Final Court Judgement Date	June 2009
Loss contingency damages recorded costs and interest	3,200,000
Loss Contingency Damages Recorded Date	First Quarter of 2013
Florida/Weingart [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	July 2011
Compensatory damages jury award total excluding interest	0
Additur damages imposed by trial court	150,000
Compensatory damages jury award allocation percentage allocated to PM USA	3.00%
Appeal bond posted by PM USA	48,000
Loss contingency, damages allocated	4,500
Loss contingency, appeal bond date	November 2011
Loss Contingency Final Court Judgement Date	September 2011
Loss contingency damages recorded costs and interest	$ 50,000
Loss Contingency Damages Recorded Date	First Quarter of 2013

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Finance Assets, Net (Narrative) (Details) (USD $) In Millions, unless otherwise specified						3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2013 Finance Leases [Member]	Mar. 31, 2013 Management Assessment [Member]	Mar. 31, 2012 Management Assessment [Member]	Mar. 31, 2013 Amounts Written-Off [Member]	Mar. 31, 2012 Amounts Written-Off [Member]	Mar. 31, 2012 Amounts Written-Off [Member] American Airlines, Inc. [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Financial Services Assets Lease Receivables	$ 2,385	$ 2,581
Finance assets, net	2,385	2,581
Gross investments in finance leases	2,464	2,680			2,422
Other receivable	42
Investments in financial leases, allowance for losses	79	99	204	227
Decrease to Allowance						$ (20)	$ 0	$ 0	$ (23)	$ (23)

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Background And Basis Of Presentation (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	3 Months Ended		12 Months Ended	1 Months Ended	3 Months Ended	18 Months Ended		0 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Oct. 31, 2011 Altria Group Inc October Two Thousand And Eleven [Member]	Mar. 31, 2013 Altria Group Inc October Two Thousand And Eleven [Member]	Mar. 31, 2013 Altria Group Inc October Two Thousand And Eleven [Member]	Oct. 23, 2012 Altria Group Inc October Two Thousand And Eleven [Member]	Apr. 24, 2013 Subsequent Event [Member] Altria Group Inc October Two Thousans and Thirteen [Member]
Entity Information [Line Items]
Equity method investment, ownership percentage	26.80%
Planned share repurchase program				$ 1,000,000,000				$ 300,000,000
Repurchase Program Expected Completion Date								Dec. 31, 2013
Common Stock Repurchase Expanded Amount Authorized							1,500,000,000
Shares repurchased during period					1.7	48.3
Shares repurchased during period, value	57,000,000		1,116,000,000		57,000,000
Average price of repurchased shares, per share					$ 34.05	$ 31.06
Understatement of Earnings From Equity Method Investment		342,000,000
Understatement of Net Earnings and Total Comprehensive earnings		$ 222,000,000
Understatement of Diluted Earnings Per Share		$ 0.11

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Asset Impairment, Exit And Implementation Costs (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended				3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012 2011 Cost Reduction Program [Member]	Mar. 31, 2013 Employee Severance [Member]	Dec. 31, 2012 Employee Severance [Member]	Mar. 31, 2012 Other Costs [Member] 2011 Cost Reduction Program [Member]	Mar. 31, 2012 Net Gain [Member] Recorded in Marketing Administrative and research Costs [Member]
Restructuring Cost and Reserve [Line Items]
Pre-Tax Implementation (Gain) Costs	$ 1	$ (17)			$ 8	$ (25)
Asset Impairment And Restructuring Exit Costs	0
Curtailment (gain) included in marketing, administration and research costs		(26)
Restructuring Reserve			$ 20	$ 37

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Condensed Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings	$ 1,385	$ 1,195
Depreciation and amortization	54	56
Deferred income tax provision (benefit)	16	(97)
Earnings from equity investment in SABMiller	(256)	(520)
Cash effects of changes:
Receivables, net	81	13
Inventories	(70)	(51)
Accounts payable	(89)	(68)
Income taxes	639	744
Accrued liabilities and other current assets	(193)	6
Accrued settlement charges	527	1,025
Pension plan contributions	(358)	(504)
Pension provisions and postretirement, net	48	31
Other	9	7
Net cash provided by operating activities	1,793	1,837
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures	(15)	(16)
Proceeds from finance assets	203	303
Net cash provided by investing activities	188	287
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Repurchases of common stock	(91)	(266)
Dividends paid on common stock	(886)	(838)
Other	(129)	(134)
Net cash used in financing activities	(1,106)	(1,238)
Cash and cash equivalents:
Increase	875	886
Balance at beginning of period	2,900	3,270
Balance at end of period	$ 3,775	$ 4,156

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Asset Impairment, Exit And Implementation Costs (Pre-Tax Asset Impairment, Exit And Implementation Costs) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012 Smokeable Products [Member]	Mar. 31, 2012 Smokeless Products [Member]	Mar. 31, 2012 General Corporate [Member]	Mar. 31, 2012 Total Products By Line [Member]
Restructuring Cost and Reserve [Line Items]
Asset Impairment And Restructuring Exit Costs	$ 0	$ 7	$ 14	$ 0	$ 21
Pre-Tax Implementation (Gain) Costs	1	(21)	5	(1)	(17)
Total asset impairment, implementation and restructuring costs		$ (14)	$ 19	$ (1)	$ 4

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Other Comprehensive Earnings/Losses (Changes In Each Component Of Accumulated Other Comprehensive Losses) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Other Comprehensive Earnings Losses By Component [Line Items]
Balances at beginning of period	$ (2,040)	$ (1,887)	$ (1,887)
Other Comprehensive Income Loss Before reclassifications Before tax	(113)	273
Deferred Income Taxes	37	(96)
Other Comprehensive Income (Loss) Before Reclassifications, Net of Tax	(76)	177
Amounts reclassified to earnings	77	41
Deferred income taxes	(29)	(16)
Amounts reclassified to net earnings, net of deferred income taxes	48	25
Other comprehensive earnings, net of deferred income taxes	(28)	202	(153)
Balances at end of Period	(2,068)	(1,685)	(2,040)
Accumulated Translation Adjustment [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
Balances at beginning of period	2	2	2
Other Comprehensive Income Loss Before reclassifications Before tax	0	0
Deferred Income Taxes	0	0
Other Comprehensive Income (Loss) Before Reclassifications, Net of Tax	0	0
Amounts reclassified to earnings	0	0
Deferred income taxes	0	0
Amounts reclassified to net earnings, net of deferred income taxes	0	0
Other comprehensive earnings, net of deferred income taxes	0	0
Balances at end of Period	2	2
Accumulated Defined Benefit Plans Adjustment [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
Balances at beginning of period	(2,414)	(2,062)	(2,062)
Other Comprehensive Income Loss Before reclassifications Before tax	30	0
Deferred Income Taxes	(13)	0
Other Comprehensive Income (Loss) Before Reclassifications, Net of Tax	17	0
Amounts reclassified to earnings	79	37
Deferred income taxes	(30)	(15)
Amounts reclassified to net earnings, net of deferred income taxes	49	22
Other comprehensive earnings, net of deferred income taxes	66	22
Balances at end of Period	(2,348)	(2,040)
SABMiller [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
Balances at beginning of period	372	173	173
Other Comprehensive Income Loss Before reclassifications Before tax	(143)	273
Deferred Income Taxes	50	(96)
Other Comprehensive Income (Loss) Before Reclassifications, Net of Tax	(93)	177
Amounts reclassified to earnings	(2)	4
Deferred income taxes	1	(1)
Amounts reclassified to net earnings, net of deferred income taxes	(1)	3
Other comprehensive earnings, net of deferred income taxes	(94)	180
Balances at end of Period	$ 278	$ 353

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Contingencies (Security For Judgments Narrative) (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013
Loss Contingency [Abstract]
Security posted for appeal of judgments	$ 36

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Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 3,775	$ 2,900	$ 4,156	$ 3,270
Receivables	112	193
Inventories:
Leaf tobacco	864	876
Other raw materials	174	173
Work in process	339	349
Finished product	439	348
Inventory, net	1,816	1,746
Deferred income taxes	1,216	1,216
Other current assets	197	260
Total current assets	7,116	6,315
Property, plant and equipment, at cost	4,763	4,750
Less accumulated depreciation	2,695	2,648
Property, plant and equipment, net	2,068	2,102
Goodwill	5,174	5,174
Other intangible assets, net	12,073	12,078
Investment in SABMiller	6,749	6,637
Finance assets, net	2,385	2,581
Other assets	441	442
TOTAL ASSETS	36,006	35,329
LIABILITIES
Current portion of long-term debt	1,984	1,459
Accounts payable	259	451
Accrued liabilities:
Marketing	468	568
Employment costs	126	184
Settlement charges	4,143	3,616
Other	1,032	1,093
Income taxes	600	0
Dividends payable	886	888
Total current liabilities	9,498	8,259
Long-term debt	11,894	12,419
Deferred income taxes	6,657	6,652
Accrued pension costs	1,323	1,735
Accrued postretirement health care costs	2,501	2,504
Other liabilities	528	556
Total liabilities	32,401	32,125
Contingencies (Note 10)
Redeemable noncontrolling interest	35	34
STOCKHOLDERS' EQUITY
Common stock, par value $0.33 1/3 per share (2,805,961,317 shares issued)	935	935
Additional paid-in capital	5,656	5,688
Earnings reinvested in the business	24,817	24,316
Accumulated other comprehensive losses	(2,068)	(2,040)	(1,685)	(1,887)
Cost of repurchased stock (797,292,199 shares in 2013 and 796,221,021 shares in 2012)	(25,771)	(25,731)
Total stockholders' equity attributable to Altria Group, Inc.	3,569	3,168
Noncontrolling interests	1	2
Total stockholders' equity	3,570	3,170		3,683
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 36,006	$ 35,329

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Finance Assets, Net (Schedule Of Allowance For Losses On Finance Assets) (Details) (USD $) In Millions, unless otherwise specified					3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2013 Amounts Written-Off [Member]	Mar. 31, 2012 Amounts Written-Off [Member]	Mar. 31, 2013 Management Assessment [Member]	Mar. 31, 2012 Management Assessment [Member]
Schedule of Investments [Line Items]
Balance at beginning of year	$ 79	$ 99	$ 204	$ 227
Decrease to Allowance					0	(23)	(20)	0
Balance at March 31	$ 79	$ 99	$ 204	$ 227

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Condensed Consolidated Statements Of Stockholders' Equity (USD $) In Millions	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]
Balances, at Dec. 31, 2011	$ 3,683	$ 935	$ 5,674	$ 23,583	$ (1,887)	$ (24,625)	$ 3
Net Earnings	4,180	0	0	4,180	0	0	0
Other comprehensive earnings (losses), net of deferred income taxes (benefit)	(153)	0	0	0	(153)	0	0
Stock Award Activity	24	0	14	0	0	10	0
Cash dividends declared	(3,447)	0	0	(3,447)	0	0	0
Repurchases of common stock	(1,116)	0	0	0	0	(1,116)	0
Other	(1)	0	0	0	0	0	(1)
Balances, at Dec. 31, 2012	3,170	935	5,688	24,316	(2,040)	(25,731)	2
Net Earnings	1,384	0	0	1,385	0	0	(1)
Other comprehensive earnings (losses), net of deferred income taxes (benefit)	(28)	0	0	0	(28)	0	0
Stock Award Activity	(15)	0	(32)	0	0	17	0
Cash dividends declared	(884)	0	0	(884)	0	0	0
Repurchases of common stock	(57)	0	0	0	0	(57)	0
Balances, at Mar. 31, 2013	$ 3,570	$ 935	$ 5,656	$ 24,817	$ (2,068)	$ (25,771)	$ 1

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Contingencies (Medical Monitoring Class Actions Narrative) (Details) (Medical Monitoring Class Actions [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Loss Contingencies [Line Items]
Purported medical monitoring class action cases pending	2
Donovan [Member]
Loss Contingencies [Line Items]
Proposed 28-year medical monitoring program cost	190

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Benefit Plans (Postretirement Health Care Costs) (Details) (Postretirement [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Postretirement [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 5	$ 5
Interest cost	25	30
Net loss	14	12
Prior service credit	(11)	(11)
Curtailment gain	0	(26)
Net postretirement health care costs	$ 33	$ 10

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Contingencies (Certain Other Actions Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Loss Contingencies [Line Items]
Argentine Growers Cases	4
Contingent liability related to performance surety bonds	$ 31
Michelle-Antinori [Member]
Loss Contingencies [Line Items]
Ste. Michelle ownership interest percent in Stag's Leap Wine Cellars	85.00%
Noncontrolling interest percent held by Antinori California	15.00%
Put arrangement value Antinori California	$ 27

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Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2013

General Discussion of Pension and Other Postretirement Benefits [Abstract]

Schedule Of Components Of Net Periodic Pension Cost

Net periodic pension cost consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	21		$	20
Interest cost	78			86
Expected return on plan assets	(123		)	(111		)
Amortization:
Net loss	69			56
Prior service cost	3			3
Net periodic pension cost	$	48		$	54

Postretirement Health Care Costs

Net postretirement health care costs consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	5		$	5
Interest cost	25			30
Amortization:
Net loss	14			12
Prior service credit	(11		)	(11		)
Curtailment gain	—			(26		)
Net postretirement health care costs	$	33		$	10

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Earnings From Equity Investment In SABMiller (Equity Method Investments) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Schedule of Equity Method Investments [Line Items]
Equity earnings	$ 199	$ 508
Gains resulting from issuances of common stock by SABMiller	57	12
Earnings from equity investment in SABMiller	$ 256	$ 520

XML

Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share

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

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,195
Less: Distributed and undistributed earnings attributable to unvested restricted and deferred shares	(4		)	(4		)
Earnings for basic and diluted EPS	$	1,381		$	1,191
Weighted-average shares for basic and diluted EPS	2,003			2,034

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Condensed Consolidating Financial Information (Condensed Consolidating Statements Of Earnings And Comprehensive Earnings) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Condensed Financial Statements, Captions [Line Items]
Net revenues	$ 5,528	$ 5,647
Cost of sales	1,299	1,792
Excise taxes on products	1,555	1,653
Gross profit	2,674	2,202
Marketing, administration and research costs	517	534
Asset impairment and exit costs	0	21
Amortization of intangibles	5	5
Operating income (expense)	2,152	1,642
Interest and other debt expense (income), net	261	293
Earnings from equity investment in SABMiller	(256)	(520)
(Loss) earnings before income taxes and equity earnings of subsidiaries	2,147	1,869
(Benefit) provision for income taxes	762	674
Equity earnings of subsidiaries	0	0
Net earnings attributable to Altria Group, Inc.	1,385	1,195
Net earnings	1,385	1,195
Net Income (Loss) Attributable to Noncontrolling Interest	0	0
Other comprehensive earnings, net of deferred income taxes	(28)	202	(153)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	1,357	1,397
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	1,357	1,397
Altria Group, Inc. [Member]
Condensed Financial Statements, Captions [Line Items]
Net revenues	0	0
Cost of sales	0	0
Excise taxes on products	0	0
Gross profit	0	0
Marketing, administration and research costs	46	34
Asset impairment and exit costs		0
Amortization of intangibles	0	0
Operating income (expense)	(46)	(34)
Interest and other debt expense (income), net	161	185
Earnings from equity investment in SABMiller	(256)	(520)
(Loss) earnings before income taxes and equity earnings of subsidiaries	49	301
(Benefit) provision for income taxes	(9)	84
Equity earnings of subsidiaries	1,327	978
Net earnings attributable to Altria Group, Inc.	1,385	1,195
Net earnings	1,385	1,195
Net Income (Loss) Attributable to Noncontrolling Interest	0	0
Other comprehensive earnings, net of deferred income taxes	(28)	202
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	1,357	1,397
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	1,357	1,397
PM USA [Member]
Condensed Financial Statements, Captions [Line Items]
Net revenues	4,822	4,922
Cost of sales	1,099	1,599
Excise taxes on products	1,495	1,577
Gross profit	2,228	1,746
Marketing, administration and research costs	419	431
Asset impairment and exit costs		20
Amortization of intangibles	0	0
Operating income (expense)	1,809	1,295
Interest and other debt expense (income), net	0	(1)
Earnings from equity investment in SABMiller	0	0
(Loss) earnings before income taxes and equity earnings of subsidiaries	1,809	1,296
(Benefit) provision for income taxes	667	482
Equity earnings of subsidiaries	44	49
Net earnings attributable to Altria Group, Inc.	1,186	863
Net earnings	1,186	863
Net Income (Loss) Attributable to Noncontrolling Interest	0	0
Other comprehensive earnings, net of deferred income taxes	8	(1)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	1,194	862
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	1,194	862
Non-Guarantor Subsidiaries [Member]
Condensed Financial Statements, Captions [Line Items]
Net revenues	711	731
Cost of sales	205	199
Excise taxes on products	60	76
Gross profit	446	456
Marketing, administration and research costs	52	69
Asset impairment and exit costs		1
Amortization of intangibles	5	5
Operating income (expense)	389	381
Interest and other debt expense (income), net	100	109
Earnings from equity investment in SABMiller	0	0
(Loss) earnings before income taxes and equity earnings of subsidiaries	289	272
(Benefit) provision for income taxes	104	108
Equity earnings of subsidiaries	0	0
Net earnings attributable to Altria Group, Inc.	185	164
Net earnings	185	164
Net Income (Loss) Attributable to Noncontrolling Interest	0	0
Other comprehensive earnings, net of deferred income taxes	59	21
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	244	185
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	244	185
Total Consolidating Adjustments [Member]
Condensed Financial Statements, Captions [Line Items]
Net revenues	(5)	(6)
Cost of sales	(5)	(6)
Excise taxes on products	0	0
Gross profit	0	0
Marketing, administration and research costs	0	0
Asset impairment and exit costs		0
Amortization of intangibles	0	0
Operating income (expense)	0	0
Interest and other debt expense (income), net	0	0
Earnings from equity investment in SABMiller	0	0
(Loss) earnings before income taxes and equity earnings of subsidiaries	0	0
(Benefit) provision for income taxes	0	0
Equity earnings of subsidiaries	(1,371)	(1,027)
Net earnings attributable to Altria Group, Inc.	(1,371)	(1,027)
Net earnings	(1,371)	(1,027)
Net Income (Loss) Attributable to Noncontrolling Interest	0	0
Other comprehensive earnings, net of deferred income taxes	(67)	(20)
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	(1,438)	(1,047)
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	$ (1,438)	$ (1,047)

XML

Condensed Consolidated Statements Of Stockholders' Equity (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Redeemable Noncontrolling Interests Related To Affiliate	$ 1	$ 3
Common Stock, Dividends, Per Share, Declared	$ 0.44	$ 1.70

XML

Condensed Consolidated Balance Sheets Consolidated Balance Sheet (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Common Stock, Par or Stated Value Per Share	$ 0.3333	$ 0.3333
Common Stock, Shares, Issued	2,805,961,317	2,805,961,317
Treasury Stock, Shares	797,292,199	796,221,021

XML

Debt

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Debt

Debt:

At March 31, 2013 and December 31, 2012, Altria Group, Inc. had no short-term borrowings.

Altria Group, Inc.’s estimate of the fair value of its debt is based on observable market information derived from a third party pricing source and is classified in level 2 of the fair value hierarchy. The aggregate fair value of Altria Group, Inc.’s total long-term debt at March 31, 2013 and December 31, 2012, was $17.6 billion, as compared with its carrying value of $13.9 billion.

XML

Document and Entity Information Document	3 Months Ended
	Mar. 31, 2013	Apr. 15, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Trading Symbol	mo
Entity Registrant Name	ALTRIA GROUP, INC.
Entity Central Index Key	0000764180
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		2,008,662,018

XML

Contingencies

3 Months Ended

Mar. 31, 2013

Loss Contingency [Abstract]

Contingencies

Contingencies:

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

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

Although PM USA has historically been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 45 states and Puerto Rico now limit the dollar amount of bonds or require no bond at all. As discussed below, however, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although we cannot predict the outcome of such challenges, it is possible that the consolidated results of operations, cash flows or financial position of Altria Group, Inc., or one or more of its subsidiaries, could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

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

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

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

Types and Number of Cases

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

The table below lists the number of certain tobacco-related cases pending in the United States against PM USA and, in some instances, Altria Group, Inc. as of April 22, 2013, April 23, 2012 and April 25, 2011.

Type of Case	Number of Cases Pending as of April 22, 2013	Number of Cases Pending as of April 23, 2012	Number of Cases Pending as of April 25, 2011
Individual Smoking and Health Cases (1)	71	79	89
Smoking and Health Class Actions and Aggregated Claims Litigation (2)	6	7	10
Health Care Cost Recovery Actions (3)	1	1	3
“Lights/Ultra Lights” Class Actions	15	17	30
Tobacco Price Cases	1	1	1

⁽¹⁾ Does not include 2,574 cases brought by flight attendants seeking compensatory damages for personal injuries allegedly caused by exposure to environmental tobacco smoke (“ETS”). The flight attendants allege that they are members of an ETS smoking and health class action in Florida, which was settled in 1997 (Broin). The terms of the court-approved settlement in that case allow class members to file individual lawsuits seeking compensatory damages, but prohibit them from seeking punitive damages. Also, does not include individual smoking and health cases brought by or on behalf of plaintiffs in Florida state and federal courts following the decertification of the Engle case (discussed below in Smoking and Health Litigation - Engle Class Action).

⁽²⁾ Includes as one case the 600 civil actions (of which 346 are actions against PM USA) that are to be tried in a single proceeding in West Virginia (In re: Tobacco Litigation). The West Virginia Supreme Court of Appeals has ruled that the United States Constitution does not preclude a trial in two phases in this case. Under the current trial plan, issues related to defendants’ conduct and whether punitive damages are permissible will be tried in the first phase. The second phase would consist of individual trials to determine liability, if any, as well as compensatory and punitive damages, if any. Trial in the case began in October 2011, but ended in a mistrial in November 2011. The new trial began on April 15, 2013 and is currently underway.

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

International Tobacco-Related Cases

As of April 22, 2013, PM USA is a named defendant in Israel in one “Lights” class action. PM USA is a named defendant in nine health care cost recovery actions in Canada, seven of which also name Altria Group, Inc. as a defendant. PM USA and Altria Group, Inc. are also named defendants in seven smoking and health class actions filed in various Canadian provinces. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc. (“PMI”) that provides for indemnities for certain liabilities concerning tobacco products.

Pending and Upcoming Tobacco-Related Trials

As of April 22, 2013, 24Engle progeny cases and five individual smoking and health cases against PM USA are set for trial in 2013. Cases against other companies in the tobacco industry are also scheduled for trial in 2013. Trial dates are subject to change.

Trial Results

Since January 1999, excluding the Engle progeny cases (separately discussed below), verdicts have been returned in 52 smoking and health, “Lights/Ultra Lights” and health care cost recovery cases in which PM USA was a defendant. Verdicts in favor of PM USA and other defendants were returned in 35 of the 52 cases. These 35 cases were tried in Alaska (1), California (5), Florida (9), Louisiana (1), Massachusetts (1), Mississippi (1), Missouri (3), New Hampshire (1), New Jersey (1), New York (5), Ohio (2), Pennsylvania (1), Rhode Island (1), Tennessee (2), and West Virginia (1). A motion for a new trial was granted in one of the cases in Florida and in the case in Alaska.In the Alaska case (Hunter), on February 14, 2013, the trial court withdrew its order for a new trial upon PM USA’s motion for reconsideration. On February 25, 2013, plaintiff filed a motion for the trial court to reconsider its February 14, 2013 ruling and reinstate its prior order which the trial court denied. On March 26, 2013, plaintiff filed a petition for review with the Alaska Supreme Court of the denial of plaintiff's motion for a new trial.

Of the18 non-Engle progeny cases in which verdicts were returned in favor of plaintiffs, 14 have reached final resolution. A verdict against defendants in one health care cost recovery case (Blue Cross/Blue Shield) was reversed and all claims were dismissed with prejudice. In addition, a verdict against defendants in a purported “Lights” class action in Illinois (Price) was reversed and the case was dismissed with prejudice in December 2006. The plaintiff in Price is seeking to reopen the judgment dismissing this case (see below for a discussion of developments in Price).

As of April 22, 2013, 37Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court’s Engle decision. Nineteen verdicts were returned in favor of plaintiffs and 18 verdicts were returned in favor of PM USA. See Smoking and Health Litigation - Engle Progeny Trial Results below for a discussion of these verdicts.

Judgments Paid and Provisions for Litigation

After exhausting all appeals in those cases resulting in adverse verdicts associated with tobacco-related litigation, PM USA has paid in the aggregate judgments (and related costs and fees) totaling approximately $245 million and interest totaling approximately $139 million as of April 22, 2013.

For the three months ended March 31, 2013, Altria Group, Inc. recorded pre-tax charges of $5 million related to certain tobacco and health judgments. These charges were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. In addition, for the three months ended March 31, 2013, Altria Group, Inc. recorded interest costs related to these judgments of $1 million. These costs were included in interest and other debt expense, net on Altria Group, Inc.’s condensed consolidated statement of earnings. Charges for the three months ended March 31, 2012 for tobacco and health judgments and related interest costs were approximately $500,000. During the first quarter of 2013 approximately $100,000 in payments were made related to tobacco and health judgments. During the first quarter of 2012, $121 million in payments were made for tobacco and health judgments and related interest costs. As of March 31, 2013, Altria Group, Inc. had provisions recorded on its condensed consolidated balance sheet in other accrued liabilities for tobacco and health judgments, including related interest costs, in the amount of $6 million. As of December 31, 2012, there were noprovisions for tobacco and health judgments or related interest costs on Altria Group, Inc.’s condensed consolidated balance sheet.

Security for Judgments

To obtain stays of judgments pending current appeals, as of March 31, 2013, PM USA has posted various forms of security totaling approximately $36 million, the majority of which has been collateralized with cash deposits that are included in other assets on the condensed consolidated balance sheet.

Smoking and Health Litigation

Overview

Plaintiffs’ allegations of liability in smoking and health cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violations of deceptive trade practice laws and consumer protection statutes, and claims under the federal and state anti-racketeering statutes. Plaintiffs in the smoking and health actions 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 Trial Results

Summarized below are the non-Engle progeny smoking and health cases pending during 2012 and 2013 in which verdicts were returned in favor of plaintiffs and against PM USA. A chart listing the verdicts for plaintiffs in the Engle progeny cases can be found in Smoking and Health Litigation - Engle Progeny Trial Results below.

D. Boeken: In August 2011, a California jury returned a verdict in favor of plaintiff, awarding $12.8 million in compensatory damages against PM USA. PM USA’s motions for judgment notwithstanding the verdict and for a new trial were denied in October 2011. PM USA appealed and posted a bond in the amount of $12.8 million in November 2011.

Bullock: This litigation has concluded. In the fourth quarter of 2011, PM USA recorded a pre-tax provision of $14 million related to damages and costs and $3 million related to interest and in March 2012, paid an amount of approximately $19.1 million in satisfaction of the judgment and associated costs and interest.

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

Williams: This litigation has concluded. In the fourth quarter of 2011, PM USA recorded a provision of approximately $48 million related to damages and costs and $54 million related to interest and in January 2012 paid an amount of approximately $102 million in satisfaction of the judgment and associated costs and interest.

See Scott Class Action below for a discussion of the verdict and post-trial developments in the Scott class action and Federal Government Lawsuit below for a discussion of the verdict and post-trial developments in the United States of America healthcare cost recovery case.

Engle Class Action

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

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

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

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

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

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

The deadline for filing Engle progeny cases, as required by the Florida Supreme Court’s decision, expired in January 2008. As of April 22, 2013, approximately 3,300 state court cases were pending against PM USA or Altria Group, Inc. asserting individual claims by or on behalf of approximately 4,400 state court plaintiffs.  Furthermore, as of April 22, 2013, approximately 1,500 federal court cases were pending against PM USA asserting individual claims by or on behalf of a similar number of federal court plaintiffs, which reflects the January 22, 2013 dismissal by the United States District Court for the Middle District of Florida (Jacksonville) of 521Engle progeny cases with prejudice. On February 21, 2013, plaintiffs appealed the dismissal to the U.S Court of Appeals for the Eleventh Circuit. Because of a number of factors including, but not limited, to docketing delays, duplicated filings, and overlapping dismissal orders, these numbers are estimates.

Federal Engle Progeny Cases

Three federal district courts (in the Merlob, B. Brown and Burr cases) ruled in 2008 that the findings in the first phase of the Engle proceedings cannot be used to satisfy elements of plaintiffs’ claims, and two of those rulings (B. Brown and Burr) were certified by the trial court for interlocutory review. The certification in both cases was granted by the U.S. Court of Appeals for the Eleventh Circuit and the appeals were consolidated. In February 2009, the appeal in Burr was dismissed for lack of prosecution and in September 2012, the district court dismissed the case on statute of limitations grounds. Plaintiff is appealing the dismissal. In July 2010, the Eleventh Circuit ruled in B. Brown that, as a matter of Florida law, plaintiffs do not have an unlimited right to use the findings from the original Engle trial to meet their burden of establishing the elements of their claims at trial. The Eleventh Circuit did not reach the issue of whether the use of the Engle findings violates defendants’ due process rights. Rather, plaintiffs may only use the findings to establish those specific facts, if any, that they demonstrate with a reasonable degree of certainty were actually decided by the original Engle jury. The Eleventh Circuit remanded the case to the district court to determine what specific factual findings the Engle jury actually made.

After the remand of B. Brown, the Eleventh Circuit’s ruling on Florida state law was superseded by state appellate rulings (discussed below and in Appeals of Engle Progeny Verdicts), which initially included Martin, an Engle progeny case against R.J. Reynolds Tobacco Company (“R.J. Reynolds”) in Escambia County, and J. Brown, an Engle progeny case against R.J. Reynolds in Broward County. More recently, the Eleventh Circuit’s ruling on Florida state law has been superseded by the Florida Supreme Court’s decision in Douglas, discussed below.

Following Martin and J. Brown, in the Waggoner case, the United States District Court for the Middle District of Florida (Jacksonville) ruled in December 2011 that application of the Engle findings to establish the wrongful conduct elements of plaintiffs’ claims consistent with Martin or J. Brown did not violate defendants’ due process rights.  The court ruled, however, that plaintiffs must establish legal causation to establish liability.  PM USA and the other defendants sought appellate review of the due process ruling. In February 2012, the district court denied the motion for interlocutory appeal, but did apply the ruling to all active pending federal Engle progeny cases. As a result, the ruling can be appealed after an adverse verdict or in a cross-appeal. The ruling has been appealed by R.J. Reynolds in the Walker and Duke cases pending before the Eleventh Circuit.

Most of the Engle progeny cases pending against PM USA in the federal district courts in the Middle District of Florida asserting individual claims by or on behalf of approximately 1,500 plaintiffs remain stayed. There are currently 20 active cases pending in federal court. On January 30, 2013, the Federal District Court ordered the parties to negotiate an aggregate settlement mediation of all pending cases. On February 13, 2013, defendants filed a motion for reconsideration by the Federal District Court of the January 30, 2013 order. On March 4, 2013, the Federal District Court issued a new order removing certain requirements of the January 30, 2013 order. On April 9, 2013, the mediators reported to the district court that the cases have not been resolved nor have the parties agreed to a mechanism for settlement.

Florida Bond Cap Statute

In June 2009, Florida amended its existing bond cap statute by adding a $200 million bond cap that applies to all state Engle progeny lawsuits in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. Plaintiffs in three Engle progeny cases against R.J. Reynolds in Alachua County, Florida (Alexander, Townsend and Hall) and one case in Escambia County (Clay) challenged the constitutionality of the bond cap statute. The Florida Attorney General intervened in these cases in defense of the constitutionality of the statute.

Trial court rulings were rendered in Clay, Alexander, Townsend and Hall rejecting the plaintiffs’ bond cap statute challenges in those cases. The plaintiffs unsuccessfully appealed these rulings. In Alexander, Clay and Hall, the District Court of Appeal for the First District of Florida affirmed the trial court decisions and certified the decision in Hall for appeal to the Florida Supreme Court, but declined to certify the question of the constitutionality of the bond cap statute in Clay and Alexander. The Florida Supreme Court granted review of the Hall decision, but, in September 2012, the court dismissed the appeal as moot. In October 2012, the Florida Supreme Court denied the plaintiffs’ rehearing petition.

No federal court has yet addressed the constitutionality of the bond cap statute or the applicability of the bond cap to Engle progeny cases tried in federal court. However, on April 23, 2013, PM USA, R.J. Reynolds and Lorillard Tobacco Company (“Lorillard”) filed a motion in the U.S. District Court for the Middle District of Florida to have the court apply the Florida bond cap statute to all federal Engle progeny cases.

Engle Progeny Trial Results

As of April 22, 2013, 37 federal and state Engle progeny cases involving PM USA have resulted in verdicts since the Florida Supreme Court Engle decision. Nineteen verdicts were returned in favor of plaintiffs. For a further discussion of these cases, see the verdict chart below.

Eighteen verdicts were returned in favor of PM USA (Gelep, Kalyvas, Gil de Rubio, Warrick, Willis, Russo (formerly Frazier), C. Campbell, Rohr, Espinosa, Oliva, Weingart, Junious, Szymanski, Gollihue, McCray, Denton, Hancock and Wilder). While the juries in the Weingart and Hancock cases returned verdicts against PM USA awarding no damages, the trial court in each case granted an additur. In the Russo case (formerly Frazier), the Florida Third District Court of Appeal reversed the judgment in defendants’ favor in April 2012 and remanded the case for a new trial. Defendants are seeking review of the case in the Florida Supreme Court. In addition, there have been a number of mistrials, only some of which have resulted in new trials as of April 22, 2013.

In Lukacs, a case that was tried to verdict before the Florida Supreme Court Engle decision, the Florida Third District Court of Appeal in March 2010 affirmed per curiam the trial court decision without issuing an opinion. Under Florida procedure, further review of a per curiam affirmance without opinion by the Florida Supreme Court is generally prohibited. Subsequently in 2010, after defendants’ petition for rehearing with the Court of Appeal was denied, defendants paid the judgment.

The chart below lists the verdicts and post-trial developments in the Engle progeny cases that were pending during 2012 or 2013 in which verdicts were returned in favor of plaintiffs (including Weingart and Hancock, where the verdicts originally were returned in favor of PM USA).

Date	Plaintiff	Verdict	Post-Trial Developments
April 2013	Searcy	On April 1, 2013, a jury in the Orlando Division of the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $6 million in compensatory damages and $10 million in punitive damages against each defendant.	On April 23, 2013, PM USA, R.J. Reynolds and Lorillard filed a motion in the U.S. District Court for the Middle District of Florida to have the court apply the Florida bond cap statute to all federal Engle progeny cases and to decide such motion before PM USA posts a bond in this case.

Date	Plaintiff	Verdict	Post-Trial Developments
March 2013	Giddens	On March 20, 2013, a jury in the Fort Myers Division of the U.S. District Court for the Middle District of Florida returned a verdict in favor of plaintiff and against PM USA. The jury awarded approximately $80,000 in compensatory damages and allocated 7% of the fault to PM USA (an amount of $5,600).	On March 25, 2013, the U.S. District Court for the Middle District of Florida entered its final judgment against PM USA in the amount of $5,600, plus post-judgment interest. On April 5, 2013, the parties entered into an agreement not to pursue any appeal or cost claims and PM USA will not be required to satisfy the judgment. This litigation has concluded.
December 2012	Buchanan	In December 2012, a Leon County jury returned a verdict in favor of plaintiff and against PM USA and Liggett Group LLC (“Liggett Group”). The jury awarded $5.5 million in compensatory damages and allocated 37% of the fault to each of the defendants (an amount of approximately $2 million).	In December 2012, defendants filed several post-trial motions, including motions for a new trial and to set aside the verdict. Argument on these motions was heard on January 16, 2013. On March 23, 2013, the trial court entered final judgment against PM USA and Liggett Group refusing to reduce the compensatory damages award by plaintiff's comparative fault and holding PM USA and Liggett Group jointly and severally liable for $5.5 million. On April 1, 2013, defendants filed a notice of appeal to the Florida First District Court of Appeal. On April 5, 2013, PM USA posted a bond in the amount of $2.5 million.
October 2012	Lock	A Pinellas County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $1.15 million in compensatory damages and allocated 9% of the fault to each of the defendants (an amount of $103,500).	In November 2012, defendants filed several post-trial motions, including motions for a new trial, to set aside the verdict and to reduce the damages award by the amount of economic damages paid by third parties. On January 23, 2013, the trial court orally denied all post-trial motions. On February 28, 2013, the trial court entered final judgment. PM USA’s portion of the damages was $103,500. On March 21, 2013, defendants filed notice of appeal to the Florida Second District Court of Appeal. On March 22, 2013, PM USA posted bonds in the amount of $103,500.

Date	Plaintiff	Verdict	Post-Trial Developments
August 2012	Hancock	A Broward County jury returned a verdict in the amount of zero damages and allocated 5% of the fault to each of the defendants (PM USA and R.J. Reynolds). The trial court granted an additur of $110,000, which is subject to the jury’s comparative fault finding.	In August 2012, defendants moved to set aside the verdict and to enter judgment in accordance with their motion for directed verdict. Defendants also moved to reduce damages, which motion the court granted. The trial court granted defendants’ motion to set off the damages award by the amount of economic damages paid by third parties, which will reduce further any final award. In October 2012, the trial court entered final judgment. PM USA’s portion of the damages was approximately $700. In November 2012, both sides filed notices of appeal to the Florida Fourth District Court of Appeal.
May 2012	Calloway	A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds, Lorillard and Liggett Group. The jury awarded approximately $21 million in compensatory damages and allocated 25% of the fault against PM USA but the trial court ruled that it will not apply the comparative fault allocations because the jury found against each defendant on the intentional tort claims. The jury also awarded approximately $17 million in punitive damages against PM USA, approximately $17 million in punitive damages against R.J. Reynolds, approximately $13 million in punitive damages against Lorillard and approximately $8 million in punitive damages against Liggett Group.	In May and June, 2012, defendants filed motions to set aside the verdict and for a new trial. In August 2012, the trial court denied the remaining post-trial motions and entered final judgment, reducing the total compensatory damages award to $16.1 million but leaving undisturbed the separate punitive damages awards. In September 2012, PM USA posted a bond in an amount of $1.5 million and defendants filed a notice of appeal to the Florida Fourth District Court of Appeal.
January 2012	Hallgren	A Highland County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded approximately $2 million in compensatory damages and allocated 25% of the fault to PM USA (an amount of approximately $500,000). The jury also awarded $750,000 in punitive damages against each of the defendants.	The trial court entered final judgment in March 2012. In April 2012, PM USA posted a bond in an amount of approximately $1.25 million. In May 2012, defendants filed a notice of appeal to the Florida Second District Court of Appeal.

Date	Plaintiff	Verdict	Post-Trial Developments
July 2011	Weingart	A Palm Beach County jury returned a verdict in the amount of zero damages and allocated 3% of the fault to each of the defendants (PM USA, R.J. Reynolds and Lorillard).	In September 2011, the trial court granted plaintiff’s motion for additur or a new trial, concluding that an additur of $150,000 is required for plaintiff’s pain and suffering. The trial court entered final judgment and, since PM USA was allocated 3% of the fault, its portion of the damages was $4,500. In October 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and, in November 2011, posted bonds in an aggregate amount of $48,000. On February13, 2013, the Florida Fourth District Court of Appeal affirmed per curiam the trial court's decision in favor of the plaintiff. On March 15, 2013, PM USA filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. On April 22, 2013, the Florida Supreme Court ordered PM USA to show cause as to why the Florida Supreme Court’s decision in Douglas is not controlling in this case. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $50,000 for the judgment plus interest and associated costs.
April 2011	Allen	A Duval County jury returned a verdict in favor of plaintiffs and against PM USA and R.J. Reynolds. The jury awarded a total of $6 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of $900,000). The jury also awarded $17 million in punitive damages against each of the defendants.	In May 2011, the trial court entered final judgment. In October 2011, the trial court granted defendants’ motion for remittitur, reducing the punitive damages award against PM USA to $2.7 million, and denied defendants’ remaining post-trial motions. PM USA filed a notice of appeal to the Florida First District Court of Appeal and posted a bond in the amount of $1.25 million in November 2011. Oral argument was heard on January 16, 2013.
April 2011	Tullo	A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA, Lorillard and Liggett Group. The jury awarded a total of $4.5 million in compensatory damages and allocated 45% of the fault to PM USA (an amount of $2,025,000).	In April 2011, the trial court entered final judgment. In July 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted a $2 million bond.

Date	Plaintiff	Verdict	Post-Trial Developments
February 2011	Huish	An Alachua County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $750,000 in compensatory damages and allocated 25% of the fault to PM USA (an amount of $187,500). The jury also awarded $1.5 million in punitive damages against PM USA.	In March 2012, the Florida First District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In the second quarter of 2012, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.5 million. In July 2012, PM USA paid an amount of $2.5 million in satisfaction of the judgment and associated costs. This litigation has concluded.
February 2011	Hatziyannakis	A Broward County jury returned a verdict in favor of plaintiff and against PM USA.  The jury awarded approximately $270,000 in compensatory damages and allocated 32% of the fault to PM USA (an amount of approximately $86,000).	In April 2011, the trial court denied PM USA’s post-trial motions for a new trial and to set aside the verdict. In June 2011, PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted an $86,000 appeal bond. On January 16, 2013, the Fourth District affirmed per curiam the trial court’s decision without issuing an opinion. On January 31, 2013, PM USA filed a motion for a citation in order to facilitate further review of the case in the Florida Supreme Court, which was denied. On March 6, 2013, the Fourth District denied PM USA’s various motions for post-decision relief. On April 3, 2013, PM USA filed a motion seeking a 60-day extension on its petition for writ of certiorari to the United States Supreme Court, which was granted on April 9, 2013. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $174,000 for the judgment plus interest and associated costs.
August 2010	Piendle	A Palm Beach County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $4 million in compensatory damages and allocated 27.5% of the fault to PM USA (an amount of approximately $1.1 million). The jury also awarded $90,000 in punitive damages against PM USA.	In June 2012, the Florida Fourth District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In the third quarter of 2012, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.7 million for the judgment plus interest and associated costs and paid such amount in November 2012. In the first quarter of 2013, PM USA paid related fees in the amount of approximately $100,000. This litigation has concluded.

Date	Plaintiff	Verdict	Post-Trial Developments
July 2010	Kayton (formerly Tate)	A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded $8 million in compensatory damages and allocated 64% of the fault to PM USA (an amount of approximately $5.1 million). The jury also awarded approximately $16.2 million in punitive damages against PM USA.	In August 2010, the trial court entered final judgment, and PM USA filed its notice of appeal and posted a $5 million appeal bond. In November 2012, the Florida Fourth District Court of Appeal reversed the punitive damages award and remanded the case for a new trial on plaintiff's conspiracy claim. Upon retrial, if the jury finds in plaintiff's favor on that claim, the original $16.2 million punitive damages award will be reinstated. PM USA filed a motion for rehearing, which was denied on January 18, 2013. On January 29, 2013, plaintiffs filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA also filed a notice on January 31, 2013 to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA filed a motion to stay the mandate, which was denied on March 6, 2013. The Fourth District issued its mandate on April 10, 2013.
April 2010	Putney	A Broward County jury returned a verdict in favor of plaintiff and against PM USA, R.J. Reynolds and Liggett Group. The jury awarded approximately $15.1 million in compensatory damages and allocated 15% of the fault to PM USA (an amount of approximately $2.3 million). The jury also awarded $2.5 million in punitive damages against PM USA.	In August 2010, the trial court entered final judgment. PM USA filed its notice of appeal to the Florida Fourth District Court of Appeal and posted a $1.6 million appeal bond. Argument on the merits of the appeal occurred in September 2012.

Date	Plaintiff	Verdict	Post-Trial Developments
March 2010	R. Cohen	A Broward County jury returned a verdict in favor of plaintiff and against PM USA and R.J. Reynolds. The jury awarded $10 million in compensatory damages and allocated 33 1/3% of the fault to PM USA (an amount of approximately $3.3 million). The jury also awarded a total of $20 million in punitive damages, assessing separate $10 million awards against each defendant.	In July 2010, the trial court entered final judgment and, in August 2010, PM USA filed its notice of appeal. In October 2010, PM USA posted a $2.5 million appeal bond. In September 2012, the Florida Fourth District Court of Appeal affirmed the compensatory damages award but reversed and remanded the punitive damages verdict. The Fourth District returned the case to the trial court for a new jury trial on plaintiff’s fraudulent concealment claim. If the jury finds in plaintiff’s favor on that claim, the $10 million punitive damages award against each defendant will be reinstated. In October 2012, both plaintiff and defendants filed petitions for rehearing, which the Fourth District denied in December 2012. On January 14, 2013, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. Plaintiff also filed notice to invoke the discretionary jurisdiction of the Florida Supreme Court on January 18, 2013. On February 8, 2013, the Fourth District granted defendants’ motion to stay the mandate. On March 12, 2013, plaintiff filed a motion for review of the stay order with the Florida Supreme Court, which was denied on April 12, 2013.

Date	Plaintiff	Verdict	Post-Trial Developments
March 2010	Douglas	A Hillsborough County jury returned a verdict in favor of the plaintiff and against PM USA, R.J. Reynolds and Liggett Group. The jury awarded $5 million in compensatory damages. Punitive damages were dismissed prior to trial. The jury allocated 18% of the fault to PM USA, resulting in an award of $900,000.	In June 2010, PM USA filed its notice of appeal and posted a $900,000 appeal bond. In March 2012, the Florida Second District Court of Appeal issued a decision affirming the judgment and upholding the use of the Engle jury findings but certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. In April 2012, defendants filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. In May 2012, the Florida Supreme Court accepted jurisdiction of the case. Argument occurred in September 2012. On March 14, 2013, the Florida Supreme Court affirmed the final judgment entered in favor of the plaintiff and issued its mandate on April 15, 2013. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $2.2 million for the judgment plus interest and associated costs.

Date	Plaintiff	Verdict	Post-Trial Developments
November 2009	Naugle	A Broward County jury returned a verdict in favor of plaintiff and against PM USA. The jury awarded approximately $56.6 million in compensatory damages and $244 million in punitive damages. The jury allocated 90% of the fault to PM USA.	In March 2010, the trial court entered final judgment reflecting a reduced award of approximately $13 million in compensatory damages and $26 million in punitive damages. In April 2010, PM USA filed its notice of appeal and posted a $5 million appeal bond. In August 2010, upon the motion of PM USA, the trial court entered an amended final judgment of approximately $12.3 million in compensatory damages and approximately $24.5 million in punitive damages to correct a clerical error. In June 2012, the Fourth District Court of Appeal affirmed the amended final judgment. In July 2012, PM USA filed a motion for rehearing. In December 2012, the Fourth District withdrew its prior decision, reversed the verdict as to compensatory and punitive damages and returned the case to the trial court for a new trial on the question of damages. In December 2012, plaintiff filed a motion for rehearing en banc or for certification to the Florida Supreme Court, which was denied on January 25, 2013. On February 8, 2013, PM USA filed a notice to invoke the discretionary jurisdiction of the Florida Supreme Court. Plaintiff also filed a notice on February 22, 2013 to invoke the discretionary jurisdiction of the Florida Supreme Court. PM USA filed a motion to stay the mandate, which was denied on February 26, 2013. The Fourth District issued its mandate on March 15, 2013.
August 2009	F. Campbell	An Escambia County jury returned a verdict in favor of plaintiff and against R.J. Reynolds, PM USA and Liggett Group. The jury awarded $7.8 million in compensatory damages. In September 2009, the trial court entered final judgment and awarded plaintiff $156,000 in damages against PM USA due to the jury allocating only 2% of the fault to PM USA.	In March 2011, the Florida First District Court of Appeal affirmed per curiam the trial court’s decision without issuing an opinion. In May 2012, PM USA paid an amount of approximately $262,000 in satisfaction of the judgment and associated costs and interest. This litigation has concluded.

Date	Plaintiff	Verdict	Post-Trial Developments
August 2009	Barbanell	A Broward County jury returned a verdict in favor of plaintiff, awarding $5.3 million in compensatory damages. The judge had previously dismissed the punitive damages claim. In September 2009, the trial court entered final judgment and awarded plaintiff $1.95 million in actual damages. The judgment reduced the jury’s $5.3 million award of compensatory damages due to the jury allocating 36.5% of the fault to PM USA.	A notice of appeal was filed by PM USA in September 2009, and PM USA posted a $1.95 million appeal bond. In February 2012, the Florida Fourth District Court of Appeal reversed the judgment, holding that the statute of limitations barred plaintiff’s claims. In October 2012, on motion for rehearing, the Fourth District withdrew its prior decision and affirmed the trial court’s judgment. In November 2012, PM USA filed a notice to invoke the jurisdiction of the Florida Supreme Court. In December 2012, the Florida Supreme Court granted a partial stay pending its disposition of the J. Brown case against R.J. Reynolds and the Fourth District issued its mandate.
February 2009	Hess	A Broward County jury found in favor of plaintiffs and against PM USA. The jury awarded $3 million in compensatory damages and $5 million in punitive damages. In June 2009, the trial court entered final judgment and awarded plaintiffs $1.26 million in actual damages and $5 million in punitive damages. The judgment reduced the jury’s $3 million award of compensatory damages due to the jury allocating 42% of the fault to PM USA.	PM USA noticed an appeal to the Fourth District Court of Appeal in July 2009. In May 2012, the Fourth District reversed and vacated the punitive damages award and affirmed the judgment in all other respects, upholding the compensatory damages award of $1.26 million. In June 2012, both parties filed rehearing motions with the Fourth District, which were denied in September 2012. In October 2012, PM USA and plaintiffs filed notices to invoke the Florida Supreme Court’s discretionary jurisdiction. In the first quarter of 2013, PM USA recorded a provision on its condensed consolidated balance sheet of approximately $3.2 million for the judgment plus interest and associated costs.

Appeals of Engle Progeny Verdicts

Plaintiffs in various Engle progeny cases have appealed adverse rulings or verdicts, and in some cases, PM USA has cross-appealed. PM USA’s appeals of adverse verdicts are discussed in the chart above.

Since the remand of B. Brown (discussed above under the heading Federal Engle Progeny Cases), several state appellate rulings have superseded the Eleventh Circuit’s ruling on Florida state law. These cases include Martin, an Engle progeny case against R.J. Reynolds in Escambia County and J. Brown, an Engle progeny case against R.J. Reynolds in Broward County. In Martin, the Florida First District Court of Appeal rejected the B. Brown ruling as a matter of state law and upheld the use of the Engle findings to relax plaintiffs’ burden of proof. R.J. Reynolds had sought Florida Supreme Court review in that case but, in July 2011, the Florida Supreme Court declined to hear the appeal. In December 2011, petitions for certiorari were filed with the United States Supreme Court by R.J. Reynolds in Campbell, Martin, Gray and Hall and by PM USA and Liggett Group in Campbell. The United States Supreme Court denied defendants’ certiorari petitions in March 2012.

In J. Brown, the Florida Fourth District Court of Appeal also rejected the B. Brown ruling as a matter of state law and upheld the use of the Engle findings to relax plaintiffs’ burden of proof. However, the Fourth District expressly disagreed with the First District’s Martin decision by ruling that Engle progeny plaintiffs must prove legal causation on their claims. In addition, the J. Brown court expressed concerns that using the Engle findings to reduce plaintiffs’ burden may violate defendants’ due process rights. In October 2011, the Fourth District denied R.J. Reynolds’ motion to certify J. Brown to the Florida Supreme Court for review. R.J. Reynolds is seeking review of the case by the Florida Supreme Court.

In Douglas, in March 2012, the Florida Second District Court of Appeal issued a decision affirming the judgment of the trial court in favor of the plaintiff and upholding the use of the Engle jury findings with respect to strict liability claims but certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. On March 14, 2013, the Florida Supreme Court affirmed the final judgment entered in favor of plaintiff, upholding the use of the Engle jury findings with respect to strict liability and negligence claims.

In Koballa, in October 2012, the Florida Fifth District Court of Appeal issued a decision affirming the judgment of the trial court in favor of the plaintiff and upholding the use of the Engle jury findings with respect to negligence, concealment and conspiracy claims but, like Douglas, certified to the Florida Supreme Court the question of whether granting res judicata effect to the Engle jury findings violates defendants’ federal due process rights. In November 2012, R.J. Reynolds filed an appeal to the Florida Supreme Court and the court entered a stay in the case pending resolution of the Douglas case.

As noted above in Federal Engle Progeny Cases, there has been no federal appellate review of the federal due process issues raised by the use of findings from the original Engle trial in Engle progeny cases, although several appeals brought by R.J. Reynolds are pending.

Because of the substantial period of time required for the federal and state appellate processes, it is possible that PM USA may have to pay additional outstanding judgments in the Engle progeny cases before the final adjudication of these issues by the Florida Supreme Court or the United States Supreme Court.

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 purport to be brought on behalf of residents of a particular state or states (although a few cases purport to be nationwide in scope) and raise addiction claims and, in many cases, claims of physical injury as well.

Class certification has been denied or reversed by courts in 59 smoking and health class actions involving PM USA in Arkansas (1), California (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), Pennsylvania (1), Puerto Rico (1), South Carolina (1), Texas (1) and Wisconsin (1).

As of April 22, 2013, PM USA and Altria Group, Inc. 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. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

Scott Class Action

Following a 2004 verdict that awarded plaintiffs approximately $590 million to fund a 10-year smoking cessation program and a series of appeals and other post-trial motions, PM USA recorded in the second quarter of 2011 a provision on its condensed consolidated balance sheet of approximately $36 million related to the judgment and approximately $5 million related to interest, which was in addition to a previously recorded provision of approximately $30 million. In August 2011, PM USA paid its share of the judgment and interest in an amount of approximately $70 million.

In October 2011, plaintiffs’ counsel filed a motion for an award of attorneys’ fees and costs. In December 2012, the trial court awarded the plaintiffs’ counsel attorneys’ fees in an amount of approximately $103 million, all of which have now been paid from the court supervised fund. This litigation has concluded.

Other Medical Monitoring Class Actions

In addition to the Scott class action discussed above, two purported medical monitoring class actions are pending against PM USA. These two cases were brought in New York (Caronia, filed in January 2006 in the U.S. District Court for the Eastern District of New York) and Massachusetts (Donovan, filed in December 2006 in the U.S. District Court for the District of Massachusetts) on behalf of each state’s respective residents who: are age 50 or older; have smoked the Marlboro brand for 20 pack-years or more; and have neither been diagnosed with lung cancer nor are under investigation by a physician for suspected lung cancer. Plaintiffs in these cases seek to impose liability under various product-based causes of action and the creation of a court-supervised program providing members of the purported class Low Dose CT Scanning in order to identify and diagnose lung cancer. Plaintiffs in these cases do not seek punitive damages. A case brought in California (Xavier) was dismissed in July 2011, and a case brought in Florida (Gargano) was voluntarily dismissed with prejudice in August 2011.

In Caronia, in February 2010, the district court granted in part PM USA’s summary judgment motion, dismissing plaintiffs’ strict liability and negligence claims and certain other claims, granted plaintiffs leave to amend their complaint to allege a medical monitoring cause of action and requested further briefing on PM USA’s summary judgment motion as to plaintiffs’ implied warranty claim and, if plaintiffs amend their complaint, their medical monitoring claim. In March 2010, plaintiffs filed their amended complaint and PM USA moved to dismiss the implied warranty and medical monitoring claims. In January 2011, the district court granted PM USA’s motion, dismissed plaintiffs’ claims and declared plaintiffs’ motion for class certification moot in light of the dismissal of the case. The plaintiffs have appealed that decision to the U.S. Court of Appeals for the Second Circuit. Argument before the Second Circuit was heard in March 2012.

In Donovan, the Supreme Judicial Court of Massachusetts, in answering questions certified to it by the district court, held in October 2009 that under certain circumstances state law recognizes a claim by individual smokers for medical monitoring despite the absence of an actual injury. The court also ruled that whether or not the case is barred by the applicable statute of limitations is a factual issue to be determined by the trial court. The case was remanded to federal court for further proceedings. In June 2010, the district court granted in part the plaintiffs’ motion for class certification, certifying the class as to plaintiffs’ claims for breach of implied warranty and violation of the Massachusetts Consumer Protection Act, but denying certification as to plaintiffs’ negligence claim. In July 2010, PM USA petitioned the U.S. Court of Appeals for the First Circuit for appellate review of the class certification decision. The petition was denied in September 2010. As a remedy, plaintiffs have proposed a 28-year medical monitoring program with an approximate cost of $190 million. In June 2011, plaintiffs filed various motions for summary judgment and to strike affirmative defenses, which the district court denied in March 2012 without prejudice. In October 2011, PM USA filed a motion for class decertification, which motion was denied in March 2012. On February 28, 2013, the district court amended the class definition to extend to individuals who satisfy the class membership criteria through February 26, 2013, and to exclude any individual who was not a Massachusetts resident as of February 26, 2013. A trial date has not been set.

Evolving medical standards and practices could have an impact on the defense of medical monitoring claims. For example, the first publication of the findings of the National Cancer Institute’s National Lung Screening Trial (NLST) in June 2011 reported a 20% reduction in lung cancer deaths among certain long-term smokers receiving Low Dose CT Scanning for lung cancer. Since then, various public health organizations have begun to develop new lung cancer screening guidelines. Also, a number of hospitals have advertised the availability of screening programs and some insurance companies now cover screening for some individuals. Other studies in this area are ongoing.

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 as well. 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.

The claims asserted include the claim that cigarette manufacturers were “unjustly enriched” by plaintiffs’ payment of health care costs allegedly attributable to smoking, as well as claims of indemnity, negligence, strict liability, breach of express and implied warranty, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under federal and state statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under federal and state anti-racketeering statutes.

Defenses raised include lack of proximate cause, remoteness of injury, failure to state a valid claim, lack of benefit, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), lack of antitrust standing and injury, federal preemption, lack of statutory authority to bring suit, and statutes of limitations. In addition, defendants argue that they should be entitled to “set off” any alleged damages to the extent the plaintiffs benefit economically from the sale of cigarettes through the receipt of excise taxes or otherwise. Defendants also argue that these cases are improper because plaintiffs must proceed under principles of subrogation and assignment. Under traditional theories of recovery, a payor of medical costs (such as an insurer) can seek recovery of health care costs from a third party solely by “standing in the shoes” of the injured party. Defendants argue that plaintiffs should be required to bring any actions as subrogees of individual health care recipients and should be subject to all defenses available against the injured party.

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 United States Supreme Court has refused to consider plaintiffs’ appeals from the cases decided by five circuit courts of appeals. In 2011, in the health care cost recovery case brought against PM USA and other defendants by the City of St. Louis, Missouri and approximately 40 Missouri hospitals, a verdict was returned in favor of defendants.

Individuals and associations have also sued in purported class actions or as private attorneys general under the Medicare as Secondary Payer (“MSP”) provisions of the Social Security Act to recover from defendants Medicare expenditures allegedly incurred for the treatment of smoking-related diseases. Cases were brought in New York (2), Florida (2) and Massachusetts (1). All were dismissed by federal courts.

In addition to the cases brought in the United States, health care cost recovery actions have also been brought against tobacco industry participants, including PM USA and Altria Group, Inc., in Israel (dismissed), the Marshall Islands (dismissed), and Canada (9), and other entities have stated that they are considering filing such actions.

In September 2005, in the first of several health care cost recovery cases filed in Canada, the Canadian Supreme Court ruled that legislation passed in British Columbia permitting the lawsuit is constitutional, and, as a result, the case, which had previously been dismissed by the trial court, was permitted to proceed. PM USA’s and other defendants’ challenge to the British Columbia court’s exercise of jurisdiction was rejected by the Court of Appeals of British Columbia and, in April 2007, the Supreme Court of Canada denied review of that decision. In December 2009, the Court of Appeals of British Columbia ruled that certain defendants can proceed against the Federal Government of Canada as third parties on the theory that the Federal Government of Canada negligently misrepresented to defendants the efficacy of a low tar tobacco variety that the Federal Government of Canada developed and licensed to defendants. In May 2010, the Supreme Court of Canada granted leave to the Federal Government of Canada to appeal this decision and leave to defendants to cross-appeal the Court of Appeals’ decision to dismiss claims against the Federal Government of Canada based on other theories of liability. In July 2011, the Supreme Court of Canada dismissed the third-party claims against the Federal Government of Canada.

Since the beginning of 2008, the Canadian Provinces of New Brunswick, Ontario, Newfoundland and Labrador, Quebec, Alberta, Manitoba, Saskatchewan and Prince Edward Island 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 Group, Inc. and PM USA are named as defendants in the New Brunswick, Ontario, Newfoundland and Labrador, Alberta, Manitoba, Saskatchewan and Prince Edward Island cases. The Province of Nova Scotia and the territory of Nunavut have enacted similar legislation or are in the process of enacting similar legislation. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

Settlements of Health Care Cost Recovery Litigation

In November 1998, PM USA and certain other United States tobacco product manufacturers entered into the the MSA with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. PM USA and certain other United States tobacco product manufacturers had previously settled 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 make annual payments of approximately $9.4 billion, subject to adjustments for several factors, including inflation, market share and industry volume. In addition, the original participating manufacturers are required to pay settling plaintiffs’ attorneys’ fees, subject to an annual cap of $500 million. For the three months ended March 31, 2013 and 2012, the aggregate amount recorded in cost of sales with respect to the State Settlement Agreements and the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) was approximately $0.6 billion and $1.1 billion, respectively. The 2013 amount includes a credit of $483 million related to the NPM Adjustment discussed below.

The State Settlement Agreements also include provisions relating to advertising and marketing restrictions, public disclosure of certain industry documents, limitations on challenges to certain tobacco control and underage use laws, restrictions on lobbying activities and other provisions.

Possible Adjustments in MSA Payments for 2003 - 2012

Pursuant to the provisions of the MSA, domestic tobacco product manufacturers, including PM USA, who are original signatories to the MSA (the “Original Participating Manufacturers” or “OPMs”) are participating in proceedings with respect to claims for downward adjustments to the amounts paid by the OPMs and the other MSA-participating manufacturers to the states and territories that are parties to the MSA for each of the years 2003 - 2012. The proceedings relate to a NPM Adjustment based on the collective loss of market share for the relevant year by all participating manufacturers who are subject to the payment obligations and marketing restrictions of the MSA to non-participating manufacturers (“NPMs”) who are not subject to such obligations and restrictions.

As part of these proceedings, an independent economic consulting firm jointly selected by the MSA parties or otherwise selected pursuant to the MSA’s provisions is required to determine whether the disadvantages of the MSA were a “significant factor” contributing to the participating manufacturers’ collective loss of market share for the year in question. If the firm determines that the disadvantages of the MSA were such a “significant factor,” each state may avoid a downward adjustment to its share of the participating manufacturers’ annual payments for that year by establishing that it diligently enforced a qualifying escrow statute during the entirety of that year. Such a state’s share of the downward adjustment would then be reallocated to any states that are found not to have established such diligent enforcement. PM USA believes that the MSA’s arbitration clause requires a state to submit its claim to have diligently enforced a qualifying escrow statute to binding arbitration before a panel of three former federal judges in the manner provided for in the MSA. A number of states have taken the position that this claim should be decided in state court on a state-by-state basis.

An independent economic consulting firm, jointly selected by the MSA parties, determined that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for each of the years 2003 - 2005. A different independent economic consulting firm, jointly selected by the MSA parties, determined that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for the year 2006. Following the firm’s determination for 2006, the OPMs and the states agreed that the states would not contest that the disadvantages of the MSA were a significant factor contributing to the participating manufacturers’ collective loss of market share for the years 2007, 2008 and 2009. Accordingly, the OPMs and the states have agreed that no “significant factor” determination by an independent economic consulting firm will be necessary with respect to the participating manufacturers’ collective loss of market share for the years 2007, 2008 and 2009 (the “significant factor agreement”). This agreement became effective for 2007, 2008 and 2009 on February 1, 2010, 2011 and 2012, respectively. The OPMs and the states have agreed to extend the significant factor agreement to apply to the participating manufacturers’ collective loss of market share for 2010, 2011 and 2012. This agreement became effective for 2010 on February 1, 2013 and will become effective for 2011 and 2012 on February 1, 2014 and 2015, respectively.

Following the “significant factor” determination with respect to 2003, 38 states filed declaratory judgment actions in state courts seeking a declaration that the state diligently enforced its escrow statute during 2003. The OPMs and other MSA-participating manufacturers responded to these actions by filing motions to compel arbitration in accordance with the terms of the MSA, including filing motions to compel arbitration in 11 MSA states and territories that did not file declaratory judgment actions. Courts in all but one of the 46 MSA states and the District of Columbia and Puerto Rico have ruled that the question of whether a state diligently enforced its escrow statute during 2003 is subject to arbitration. Several of these rulings may be subject to further review. The Montana state courts have ruled that the diligent enforcement claims of that state may be litigated in state court, rather than in arbitration. In June 2012, following the denial of the OPMs’ petition to the United States Supreme Court for writ of certiorari, the participating manufacturers and Montana entered into a consent decree pursuant to which Montana will not be subject to the 2003 NPM Adjustment.

PM USA, the other OPMs and approximately 25 other MSA-participating manufacturers have entered into an agreement regarding arbitration with 45 MSA states and territories concerning the 2003 NPM Adjustment, including the states’ claims of diligent enforcement for 2003. The agreement further provides for a partial liability reduction for the 2003 NPM Adjustment for states that entered into the agreement by January 30, 2009 and are determined in the arbitration not to have diligently enforced a qualifying escrow statute during 2003. Based on the number of states that entered into the agreement by January 30, 2009 (45), the partial liability reduction for those states is 20%. The partial liability reduction would reduce the amount of PM USA’s 2003 NPM Adjustment by up to a corresponding percentage. The selection of the arbitration panel for the 2003 NPM Adjustment was completed in July 2010, and the arbitration is currently ongoing. Following the completion of discovery, the participating manufacturers determined to continue to contest the 2003 diligent enforcement claims of 33 states, the District of Columbia and Puerto Rico and to no longer contest such claims by 12 states and four U.S. territories (the “non-contested states”). As a result, the non-contested states will not be subject to the 2003 NPM Adjustment. The non-contested states’ share of any such NPM Adjustment (other than those non-contested states that have joined the Term Sheet discussed below), along with the shares of any states found by the arbitration panel to have diligently enforced during 2003, will be reallocated in accordance with the MSA to those states, if any, found by the panel not to have diligently enforced during 2003. Proceedings to determine state diligent enforcement claims for the years 2004 through 2012 have not yet been scheduled.

Once a significant factor determination in favor of the participating manufacturers for a particular year has been made by an economic consulting firm, or the states’ agreement not to contest significant factor for a particular year has become effective, PM USA has the right under the MSA to pay the disputed amount of the NPM Adjustment for that year into a disputed payments account (“DPA”) or withhold it altogether. PM USA has made its full MSA payment due in each year from 2006 - 2010 to the states (subject to a right to recoup the NPM Adjustment amount in the form of a credit against future MSA payments), even though it had the right to deduct the disputed amounts of the 2003 - 2007 NPM Adjustments, as described above, from such MSA payments. PM USA paid its share of the amount of the disputed 2008, 2009 and 2010 NPM Adjustments shown below into the DPA in connection with its MSA payments due in 2011, 2012 and 2013, respectively. The approximate maximum principal amounts of PM USA’s share of the disputed NPM Adjustment for the years 2003 through 2012, as currently calculated by the MSA’s Independent Auditor, are as follows (the amounts shown below do not include the interest or earnings thereon to which PM USA believes it would be entitled in the manner provided in the MSA, do not reflect the partial liability reduction for the 2003 NPM Adjustment pursuant to the arbitration agreement described above and do not reflect any reduction in light of the Term Sheet described below):

Year for which NPM Adjustment calculated	2003	2004	2005	2006	2007	2008		2009		2010		2011		2012
Year in which deduction for NPM Adjustment may be taken	2006	2007	2008	2009	2010	2011		2012		2013		2014		2015
PM USA’s Approximate Share of Disputed NPM Adjustment (in millions)	$337	$388	$181	$154	$185	$	250	$	205	$	203	$	159	$199

Effective December 17, 2012, PM USA, the other OPMs and certain other participating manufacturers entered into a term sheet (the “Term Sheet”) with 17 MSA states, the District of Columbia and Puerto Rico for settlement of the 2003 - 2012 NPM Adjustments with those states and territories (the “signatory states”). On March 12, 2013, the arbitration panel in the pending NPM Adjustment arbitration issued a stipulated partial settlement and award (the “Stipulated Award”) permitting the Term Sheet to proceed. As of April 22, 2013, eight of the states that have not joined the Term Sheet (“non-signatory states”) have filed motions in their state MSA courts to vacate and/or modify the Stipulated Award. Two of these states, Colorado and Ohio, also sought preliminary injunctive relief with respect to the Stipulated Award. The Colorado motion for a preliminary injunction was denied on April 11, 2013, and the Ohio motion for a preliminary injunction was denied on April 12, 2013. Additional non-signatory states may also take action in state court to vacate or modify the Stipulated Award. No assurance can be given that this litigation or any other such attempts by other non-signatory states will be resolved in a manner favorable to PM USA, nor can PM USA predict the remedy that might be ordered if any such litigation were to be resolved unfavorably to PM USA. PM USA continues to reserve all rights regarding the NPM Adjustments with respect to the non-signatory states. An additional MSA state joined the Term Sheet on April 12, 2013, and it is possible that more states will also join.

The Term Sheet provides for the OPMs to receive reductions to their MSA payments in an amount equal to 46% of the signatory states’ aggregate allocable share of the OPMs’ aggregate 2003 - 2012 NPM Adjustments. The OPMs have agreed that, subject to certain conditions, PM USA will receive approximately 28% of such reductions (which is the maximum percentage allocation of the total 2003 - 2012 NPM Adjustments to which PM USA was entitled under the MSA); R.J. Reynolds will receive approximately 60% of such reductions; and Lorillard will receive approximately 12% of such reductions. Based on the identity of the signatory states on April 15, 2013, the reduction in PM USA’s MSA payment obligation was approximately $483 million. PM USA recorded this amount as an increase in its reported pre-tax earnings in the first quarter of 2013.

PM USA received all of its reduction under the Term Sheet through a credit against its April 2013 MSA payment. R.J. Reynolds and Lorillard received part of their reductions through credits against their April 2013 MSA payments and are expected to receive the remainder through reductions in their MSA payments in April 2014 - April 2017.

As part of the settlement, each of the signatory states received its portion of over $4.7 billion from the DPA. In this context, PM USA authorized release to the signatory states of their allocable share of the $658 million that PM USA has paid into the DPA (plus the accumulated earnings thereon), which amounted to approximately $272 million. Furthermore, PM USA will deposit the signatory states’ allocable share of the 2011 - 2012 NPM Adjustments into the DPA in connection with its April 2014 - 2015 MSA payments and then, following such deposit, authorize the release of such share to the signatory states.

The Term Sheet also provides that the NPM Adjustment provision will be revised and streamlined as to the signatory states for years after 2012. In connection with the settlement, the formula for allocating among the OPMs the revised NPM Adjustments applicable in the future to the signatory states will be modified in a manner favorable to PM USA, although the extent to which it is favorable to PM USA will be dependent upon certain future events, including the future relative market shares of the OPMs.

PM USA intends to continue to pursue vigorously the disputed NPM Adjustments for 2003 - 2012 against the non-signatory states through the arbitration proceedings described above. The amounts of the NPM Adjustments for 2003 - 2012 set forth in the table above will be reduced in light of the Term Sheet to determine the maximum amount of such adjustments potentially available from the non-signatory states. As part of the Stipulated Award, the arbitration panel ruled that the 2003 NPM Adjustment claim is to be reduced pro rata by the aggregate allocable share of the signatory states to determine the maximum amount of the 2003 NPM Adjustment potentially available from the non-signatory states, although a non-signatory state may seek a more favorable reduction method as to it through review in its state court. (The amount of the 2003 NPM Adjustment allocated to any non-signatory state found not to be diligent for that year will also be reduced by the partial liability reduction under the agreement regarding arbitration described above.) The Stipulated Award did not specify the reduction method applicable to the 2004 - 2012 NPM Adjustment claims. Many of the state court actions to vacate and/or modify the Stipulated Award brought by the non-signatory states described above seek relief with respect to the pro rata reduction method.

The amounts in the table above may be recalculated by the MSA’s Independent Auditor if it receives information that is different from or in addition to the information on which it based these calculations, including, among other things, if it receives revised sales volumes from any participating manufacturer. Disputes among the manufacturers could also reduce the foregoing amounts. The availability and the precise amount of any NPM Adjustment for 2003 - 2012 obtained through such proceedings (as opposed to the Term Sheet) will not be finally determined until later in 2013 or thereafter. There is no certainty that the OPMs and other MSA-participating manufacturers would ultimately receive any adjustment from the non-signatory states as a result of these proceedings, and the amount of any adjustment received for a year could be less than the amount for that year listed above (even as reduced in light of the Term Sheet). If the OPMs do receive such an adjustment through these proceedings (apart from the Term Sheet), the adjustment would be allocated among the OPMs pursuant to the MSA’s provisions. It is expected that PM USA would receive its share of any adjustments for 2003 - 2007 in the form of a credit against future MSA payments and its share of any adjustment for 2008 - 2010 in the form of a withdrawal from the DPA.

Other Disputes Related to MSA Payments

In addition to the disputed NPM Adjustments described above, MSA states and participating manufacturers, including PM USA, conducted another arbitration to resolve certain other disputes related to the calculation of the participating manufacturers’ payments under the MSA. PM USA disputed the method by which ounces of “roll your own” tobacco had been converted to cigarettes for purposes of calculating the downward volume adjustments to its MSA payments. PM USA believed that, for the years 2004 − 2012, the use of an incorrect conversion method resulted in excess MSA payments by PM USA in those years of approximately $92 million in the aggregate. On February 14, 2013, the arbitration panel issued a ruling in favor of the MSA states. Consequently, PM USA will not receive any credit against its future MSA payments on account of this dispute. This same arbitration panel also issued a ruling in the dispute over whether the “adjusted gross” or the “net” number of cigarettes on which federal excise tax is paid is the correct methodology for calculating MSA payments due from certain subsequent participating manufacturers. It is unclear precisely which past and future MSA payments may be affected by this ruling. PM USA also does not currently have access to the data that would be necessary to determine the magnitude and the direction of such effects, if any.

Other MSA-Related Litigation

Since the MSA’s inception, NPMs and/or their distributors or customers have filed a number of challenges to the MSA and related legislation. They have named as defendants the states and their officials, in an effort to enjoin enforcement of important parts of the MSA and related legislation, and/or participating manufacturers, in an effort to obtain damages. To date, no such challenge has been successful, and the U.S. Court of Appeals for the Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth and Tenth Circuits have affirmed judgments in favor of defendants in 16 such cases.

Federal Government’s Lawsuit

In 1999, the United States 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 Group, Inc., asserting claims under three federal statutes, namely the Medical Care Recovery Act (“MCRA”), the MSP provisions of the Social Security Act and the civil provisions of RICO. Trial of the case ended in June 2005. The lawsuit sought to recover an unspecified amount of health care costs for tobacco-related illnesses allegedly caused by defendants’ fraudulent and tortious conduct and paid for by the government under various federal health care programs, including Medicare, military and veterans’ health benefits programs, and the Federal Employees Health Benefits Program. The complaint alleged that such costs total more than $20 billion annually. It also sought what it alleged to be equitable and declaratory relief, including disgorgement of profits that arose from defendants’ allegedly tortious conduct, an injunction prohibiting certain actions by defendants, and a declaration that defendants are liable for the federal government’s future costs of providing health care resulting from defendants’ alleged past tortious and wrongful conduct. In September 2000, the trial court dismissed the government’s MCRA and MSP claims, but permitted discovery to proceed on the government’s claims for relief under the civil provisions of RICO.

The government alleged that disgorgement by defendants of approximately $280 billion is an appropriate remedy. In May 2004, the trial court issued an order denying defendants’ motion for partial summary judgment limiting the disgorgement remedy. In February 2005, a panel of the U.S. Court of Appeals for the District of Columbia Circuit held that disgorgement is not a remedy available to the government under the civil provisions of RICO and entered summary judgment in favor of defendants with respect to the disgorgement claim. In July 2005, the government petitioned the United States Supreme Court for further review of the Court of Appeals’ ruling that disgorgement is not an available remedy, and in October 2005, the Supreme Court denied the petition.

In June 2005, the government filed with the trial court its proposed final judgment seeking remedies of approximately $14 billion, including $10 billion over a five-year period to fund a national smoking cessation program and $4 billion over a 10-year period to fund a public education and counter-marketing campaign. Further, the government’s proposed remedy would have required defendants to pay additional monies to these programs if targeted reductions in the smoking rate of those under 21 were not achieved according to a prescribed timetable. The government’s proposed remedies also included a series of measures and restrictions applicable to cigarette business operations, including, but not limited to, restrictions on advertising and marketing, potential measures with respect to certain price promotional activities and research and development, disclosure requirements for certain confidential data and implementation of a monitoring system with potential broad powers over cigarette operations.

In August 2006, the federal trial court entered judgment in favor of the government. The court held that certain defendants, including Altria Group, Inc. and PM USA, violated RICO and engaged in seven of the eight “sub-schemes” to defraud that the government had alleged. Specifically, the court found that:

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

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

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

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

• defendants falsely denied that they intentionally marketed to youth;

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

• defendants suppressed scientific research.

The court did not impose monetary penalties on defendants, but ordered the following relief: (i) an injunction against “committing any act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States; (ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each; (iii) an injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes”; (iv) an injunction against conveying any express or implied health message through use of 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; (v) 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 environmental tobacco smoke; (vi) the disclosure on defendants’ public document websites and in the Minnesota document repository of all documents produced to the government in the lawsuit or produced in any future court or administrative action concerning smoking and health until 2021, with certain additional requirements as to documents withheld from production under a claim of privilege or confidentiality; (vii) the disclosure of disaggregated marketing data to the government in the same form and on the same schedule as defendants now follow in disclosing such data to the Federal Trade Commission (“FTC”) for a period of ten years; (viii) certain restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette businesses within the United States; and (ix) payment of the government’s costs in bringing the action.

Defendants appealed and, in May 2009, a three judge panel of the Court of Appeals for the District of Columbia Circuit issued a per curiam decision largely affirming the trial court’s judgment against defendants and in favor of the government. Although the panel largely affirmed the remedial order that was issued by the trial court, it vacated the following aspects of the order:

• its application to defendants’ subsidiaries;

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

• its point-of-sale display provisions; and

• its application to Brown & Williamson Holdings.

The Court of Appeals panel remanded the case for the trial court to reconsider these four aspects of the injunction and to reformulate its remedial order accordingly.

Furthermore, the Court of Appeals panel rejected all of the government’s and intervenors’ cross appeal arguments and refused to broaden the remedial order entered by the trial court. The Court of Appeals panel also left undisturbed its prior holding that the government cannot obtain disgorgement as a permissible remedy under RICO.

In July 2009, defendants filed petitions for a rehearing before the panel and for a rehearing by the entire Court of Appeals. Defendants also filed a motion to vacate portions of the trial court’s judgment on the grounds of mootness because of the passage of the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), granting the U.S. Food and Drug Administration (the “FDA”) broad authority over the regulation of tobacco products. In September 2009, the Court of Appeals entered three per curiam rulings. Two of them denied defendants’ petitions for panel rehearing or for rehearing en banc. In the third per curiam decision, the Court of Appeals denied defendants’ suggestion of mootness and motion for partial vacatur. In February 2010, PM USA and Altria Group, Inc. filed their certiorari petitions with the United States Supreme Court. In addition, the federal government and the intervenors filed their own certiorari petitions, asking the court to reverse an earlier Court of Appeals decision and hold that civil RICO allows the trial court to order disgorgement as well as other equitable relief, such as smoking cessation remedies, designed to redress continuing consequences of prior RICO violations. In June 2010, the United States Supreme Court denied all of the parties’ petitions. In July 2010, the Court of Appeals issued its mandate lifting the stay of the trial court’s judgment and remanding the case to the trial court. As a result of the mandate, except for those matters remanded to the trial court for further proceedings, defendants are now subject to the injunction discussed above and the other elements of the trial court’s judgment.

In February 2011, the government submitted its proposed corrective statements and the trial court referred issues relating to a document repository to a special master. Defendants filed a response to the government’s proposed corrective statements and filed a motion to vacate the trial court’s injunction in light of the FSPTCA, which motion was denied in June 2011. Defendants appealed the trial court’s ruling to the U.S. Court of Appeals for the District of Columbia Circuit. On July 27, 2012, the Court of Appeals affirmed the district court’s denial of defendants’ motion to vacate the district court’s injunction.

Remaining issues pending include: (i) the specifics relating to the court-ordered corrective statements and (ii) the requirements related to point-of-sale signage. On November 27, 2012, the district court issued its order specifying the content of the corrective statements described above. The district court’s order requires that the parties engage in negotiations with the special master regarding implementation of the corrective statements remedy, which negotiations are ongoing. Unresolved issues will be decided by the special master and the court. Defendants filed a notice of appeal from the order on the content of the corrective statements on January 25, 2013 and a motion to hold the appeal in abeyance on January 30, 2013. On February 15, 2013, the U.S. Court of Appeals granted defendants’ motion to hold their appeal in abeyance.

In December 2011, the parties to the lawsuit entered into an agreement as to the issues concerning the document repository. Pursuant to this agreement, PM USA agreed to deposit an amount of approximately $3.1 million into the district court in installments over a five-year period.

“Lights/Ultra Lights” Cases

Overview

Plaintiffs in certain pending matters seek certification of their cases as class actions and allege, 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 seek 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 Group, Inc. or its subsidiaries, on behalf of individuals who purchased and consumed various brands of cigarettes, including Marlboro Lights, Marlboro Ultra Lights, Virginia Slims Lights and Superslims, Merit Lights and Cambridge Lights. 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. As of April 22, 2013, a total of 14 such cases were pending in the United States. Three of these cases were pending in U.S. federal courts as discussed below. The other cases were pending in various U.S. state courts. In addition, a purported “Lights” class action is pending against PM USA in Israel.

In the one “Lights” case pending in Israel (El-Roy), hearings on plaintiffs’ motion for class certification were held in November and December 2008, and an additional hearing on class certification was held in November 2011. On November 28, 2012, the trial court denied the plaintiffs’ motion for class certification and ordered the plaintiffs to pay defendants approximately $100,000 in attorney fees. Plaintiffs in that case have noticed an appeal. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement between Altria Group, Inc. and PMI that provides for indemnities for certain liabilities concerning tobacco products.

The Good Case

In May 2006, a federal trial court in Maine granted PM USA’s motion for summary judgment in Good, a purported “Lights” class action, on the grounds that plaintiffs’ claims are preempted by the Federal Cigarette Labeling and Advertising Act (“FCLAA”) and dismissed the case. In December 2008, the United States Supreme Court ruled that plaintiffs’ claims are not barred by federal preemption. Although the Court rejected the argument that the FTC’s actions were so extensive with respect to the descriptors that the state law claims were barred as a matter of federal law, the Court’s decision was limited: it did not address the ultimate merits of plaintiffs’ claim, the viability of the action as a class action, or other state law issues. The case was returned to the federal court in Maine and consolidated with other federal cases in the multidistrict litigation proceeding discussed below. In June 2011, the plaintiffs voluntarily dismissed the case without prejudice after the district court denied plaintiffs’ motion for class certification, concluding the litigation.

Federal Multidistrict Proceeding and Subsequent Developments

Since the December 2008 United States Supreme Court decision in Good, and through April 22, 2013, 26 purported “Lights” class actions were served upon PM USA and, in certain cases, Altria Group, Inc. These cases were filed in 15 states, the U.S. Virgin Islands and the District of Columbia. All of these cases either were filed in federal court or were removed to federal court by PM USA and were transferred and consolidated by the Judicial Panel on Multidistrict Litigation (“JPMDL”) before the U.S. District Court for the District of Maine for pretrial proceedings (“MDL proceeding”).

In November 2010, the district court in the MDL proceeding denied plaintiffs’ motion for class certification in four cases, covering the jurisdictions of California, the District of Columbia, Illinois and Maine. These jurisdictions were selected by the parties as sample cases, with two selected by plaintiffs and two selected by defendants. Plaintiffs sought appellate review of this decision but, in February 2011, the U.S. Court of Appeals for the First Circuit denied plaintiffs’ petition for leave to appeal. Later that year, plaintiffs in 13 cases voluntarily dismissed without prejudice their cases. In April 2012, the JPMDL remanded the remaining four cases (Phillips, Tang, Wyatt and Cabbat) back to the federal district courts in which the suits originated. In Tang, which was pending in the U.S. District Court for the Eastern District of New York, the plaintiffs voluntarily dismissed the case without prejudice in July 2012, concluding the litigation.

In Phillips, which is now pending in the U.S. District Court for the Northern District of Ohio, defendants filed in June 2012 a motion for partial judgment on the pleadings on plaintiffs’ class action consumer sales practices claims and a motion for judgment on the pleadings on plaintiffs’ state deceptive trade practices claims. On March 21, 2013, the court granted defendants’ motions, dismissing with prejudice the associated claims. Plaintiffs’ non-statutory claims of fraud, unjust enrichment, and express and implied warranty were not dismissed. A hearing on plaintiffs’ motion for class certification currently is set for August 30, 2013.

In Cabbat, which is pending in the U.S. District Court for the District of Hawaii, plaintiffs in July 2012 amended their complaint, adding a claim for unjust enrichment and dropping their claims for breach of express and implied warranty. Plaintiffs filed a motion for class certification on April 1, 2013. The trial court scheduled a hearing on plaintiffs’ motion on July 1, 2013 and set a February 11, 2014 trial date.

In Wyatt, which is pending in the U.S. District Court for the Eastern District of Wisconsin, plaintiffs filed a motion for class certification on January 11, 2013.

“Lights” Cases Dismissed, Not Certified or Ordered De-Certified

To date, in addition to the district court in the MDL proceeding, 16 courts in 17 “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.

Trial courts in Arizona, Illinois, Kansas, New Jersey, New Mexico, Oregon, Tennessee and Washington have refused to grant class certification or have dismissed plaintiffs’ class action allegations. Plaintiffs voluntarily dismissed a case in Michigan after a trial court dismissed the claims plaintiffs asserted under the Michigan Unfair Trade and Consumer Protection Act.

Several appellate courts have issued rulings that either affirmed rulings in favor of Altria Group, Inc. and/or PM USA or reversed rulings entered in favor of plaintiffs. In Florida, an intermediate appellate court overturned an order by a trial court that granted class certification in Hines. The Florida Supreme Court denied review in January 2008. The Supreme Court of Illinois has overturned a judgment that awarded damages to a certified class in the Price case. See The Price Case below for further discussion. In Louisiana, the U.S. Court of Appeals for the Fifth Circuit dismissed a purported “Lights” class action brought in Louisiana federal court (Sullivan) on the grounds that plaintiffs’ claims were preempted by the FCLAA. In New York, the U.S. Court of Appeals for the Second Circuit overturned a decision by a New York trial court in Schwab that granted plaintiffs’ motion for certification of a nationwide class of all U.S. residents that purchased cigarettes in the United States that were labeled “Light” or “Lights.” In July 2010, plaintiffs in Schwab voluntarily dismissed the case with prejudice. In Ohio, the Ohio Supreme Court overturned class certifications in the Marrone and Phillips cases. Plaintiffs voluntarily dismissed without prejudice both cases in August 2009, but refiled in federal court (discussed above). The Supreme Court of Washington denied a motion for interlocutory review filed by the plaintiffs in the Davies case that sought review of an order by the trial court that refused to certify a class. Plaintiffs subsequently voluntarily dismissed the Davies case with prejudice. In August 2011, the U.S. Court of Appeals for the Seventh Circuit affirmed the Illinois federal district court’s dismissal of “Lights” claims brought against PM USA in the Cleary case. In Curtis, a certified class action, in May 2012, the Minnesota Supreme Court affirmed the trial court’s entry of summary judgment in favor of PM USA, concluding this litigation.

In Lawrence, in August 2012, the New Hampshire Supreme Court reversed the trial court’s order to certify a class and subsequently denied plaintiffs’ rehearing petition. In October 2012, the case was dismissed after plaintiffs filed a motion to dismiss the case with prejudice, concluding this litigation.

In Oregon (Pearson), a state court denied plaintiffs’ motion for interlocutory review of the trial court’s refusal to certify a class. In February 2007, PM USA filed a motion for summary judgment based on federal preemption and the Oregon statutory exemption. In September 2007, the district court granted PM USA’s motion based on express preemption under the FCLAA, and plaintiffs appealed this dismissal and the class certification denial to the Oregon Court of Appeals. Argument was held in April 2010. On April 23, 2013, plaintiffs filed a motion in the Oregon Court of Appeals to certify the appeal to the Oregon Supreme Court.

Other Developments

In December 2009, the state trial court in the Carroll (formerly known as Holmes) case (pending in Delaware) denied PM USA’s motion for summary judgment based on an exemption provision in the Delaware Consumer Fraud Act. In January 2011, the trial court allowed the plaintiffs to file an amended complaint substituting class representatives and naming Altria Group, Inc. and PMI as additional defendants. In July 2011, the parties stipulated to the dismissal without prejudice of Altria Group, Inc. and PMI. On February 6, 2013, the trial court approved the parties’ stipulation to the dismissal without prejudice of Altria Group, Inc. and PMI. PM USA is now the sole defendant in the case.

In June 2007, the United States Supreme Court reversed the lower court rulings in the Miner (formerly known as Watson) case that denied plaintiffs’ motion to have the case heard in a state, as opposed to federal, trial court. The Supreme Court rejected defendants’ contention that the case must be tried in federal court under the “federal officer” statute. The case was removed to federal court in Arkansas and the case was transferred to the MDL proceeding discussed above. In November 2010, the district court in the MDL proceeding remanded the case to Arkansas state court. In December 2011, plaintiffs voluntarily dismissed their claims against Altria Group, Inc. without prejudice. A hearing on plaintiffs’ March 13, 2013 class certification motion is scheduled to begin on October 22, 2013.

The Price Case

Trial in the Price case commenced in state court in Illinois in January 2003, and in March 2003, the judge found in favor of the plaintiff class and awarded $7.1 billion in compensatory damages and $3 billion in punitive damages against PM USA. In December 2005, the Illinois Supreme Court reversed the trial court’s judgment in favor of the plaintiffs. In November 2006, the United States Supreme Court denied plaintiffs’ petition for writ of certiorari and, in December 2006, the Circuit Court of Madison County enforced the Illinois Supreme Court’s mandate and dismissed the case with prejudice.

In December 2008, plaintiffs filed with the trial court a petition for relief from the final judgment that was entered in favor of PM USA. Specifically, plaintiffs sought to vacate the judgment entered by the trial court on remand from the 2005 Illinois Supreme Court decision overturning the verdict on the ground that the United States Supreme Court’s December 2008 decision in Good demonstrated that the Illinois Supreme Court’s decision was “inaccurate.” PM USA filed a motion to dismiss plaintiffs’ petition and, in February 2009, the trial court granted PM USA’s motion on the basis that the petition was not timely filed. In March 2009, the Price plaintiffs filed a notice of appeal with the Fifth Judicial District of the Appellate Court of Illinois. In February 2011, the intermediate appellate court ruled that the petition was timely filed and reversed the trial court’s dismissal of the plaintiffs’ petition and, in September 2011, the Illinois Supreme Court declined PM USA’s petition for review. As a result, the case was returned to the trial court for proceedings on whether the court should grant the plaintiffs’ petition to reopen the prior judgment. In February 2012, plaintiffs filed an amended petition, which PM USA opposed. Subsequently, in responding to PM USA’s opposition to the amended petition, plaintiffs asked the trial court to reinstate the original judgment.  The trial court denied plaintiffs’ petition in December 2012. On January 8, 2013, plaintiffs filed a notice of appeal with the Fifth Judicial District. On January 16, 2013, PM USA filed a motion asking the Illinois Supreme Court to immediately exercise its jurisdiction over the appeal. On February 15, 2013, the Illinois Supreme Court denied PM USA’s motion.

In June 2009, the plaintiff in an individual smoker lawsuit (Kelly) brought on behalf of an alleged smoker of “Lights” cigarettes in Madison County, Illinois state court filed a motion seeking a declaration that his claims under the Illinois Consumer Fraud Act are not (i) barred by the exemption in that statute based on his assertion that the Illinois Supreme Court’s decision in Price is no longer good law in light of the decisions by the United States Supreme Court in Good and Watson, and (ii) preempted in light of the United States Supreme Court’s decision in Good. In September 2009, the court granted plaintiff’s motion as to federal preemption, but denied it with respect to the state statutory exemption.

State Trial Court Class Certifications

State trial courts have certified classes against PM USA in several jurisdictions. Over time, several such cases have been dismissed by the courts at the summary judgment stage. Certified class actions remain pending in California (Brown), Massachusetts (Aspinall) and Missouri (Larsen). Significant developments in these cases include:

• Aspinall: In August 2004, the Massachusetts Supreme Judicial Court affirmed the class certification order. In August 2006, the trial court denied PM USA’s motion for summary judgment and granted plaintiffs’ motion for summary judgment on the defenses of federal preemption and a state law exemption to Massachusetts’ consumer protection statute. On motion of the parties, the trial court subsequently reported its decision to deny summary judgment to the appeals court for review and stayed further proceedings pending completion of the appellate review. In December 2008, subsequent to the United States Supreme Court’s decision in Good, the Massachusetts Supreme Judicial Court issued an order requesting that the parties advise the court within 30 days whether the Good decision is dispositive of federal preemption issues pending on appeal. In January 2009, PM USA notified the Massachusetts Supreme Judicial Court that Good is dispositive of the federal preemption issues on appeal, but requested further briefing on the state law statutory exemption issue. In March 2009, the Massachusetts Supreme Judicial Court affirmed the order denying summary judgment to PM USA and granting the plaintiffs’ cross-motion. In January 2010, plaintiffs moved for partial summary judgment as to liability claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Health Care Cost Recovery Litigation - Federal Government’s Lawsuit described above). In March 2012, the trial court denied plaintiffs’ motion. On February 1, 2013, the trial court, upon agreement of the parties, dismissed without prejudice plaintiffs’ claims against Altria Group, Inc. PM USA is now the sole defendant in the case.

• Brown: In June 1997, plaintiffs filed suit in California state court alleging that domestic cigarette manufacturers, including PM USA and others, violated California law regarding unfair, unlawful and fraudulent business practices.  In May 2009, the California Supreme Court reversed an earlier trial court decision that decertified the class and remanded the case to the trial court.  The class consists of individuals who, at the time they were residents of California, (i) smoked in California one or more cigarettes manufactured by PM USA that were labeled and/or advertised with the terms or phrases “light,” “medium,” “mild,” “low tar,” and/or “lowered tar and nicotine,” but not including any cigarettes labeled or advertised with the terms or phrases, “ultra light” or “ultra low tar,” and (ii) who were exposed to defendant’s marketing and advertising activities in California.  Plaintiffs are seeking restitution of a portion of the costs of “light” cigarettes purchased during the class period and injunctive relief ordering corrective communications. In September 2012, at the plaintiffs’ request, the trial court dismissed all defendants except PM USA from the lawsuit.  Trial began on April 22, 2013.

• Larsen: In August 2005, a Missouri Court of Appeals affirmed the class certification order. In December 2009, the trial court denied plaintiffs’ motion for reconsideration of the period during which potential class members can qualify to become part of the class. The class period remains 1995 through 2003. In June 2010, PM USA’s motion for partial summary judgment regarding plaintiffs’ request for punitive damages was denied. In April 2010, plaintiffs moved for partial summary judgment as to an element of liability in the case, claiming collateral estoppel from the findings in the case brought by the Department of Justice (see Federal Government’s Lawsuit described above). The plaintiffs’ motion was denied in December 2010. In June 2011, PM USA filed various summary judgment motions challenging the plaintiffs’ claims. In August 2011, the trial court granted PM USA’s motion for partial summary judgment, ruling that plaintiffs could not present a damages claim based on allegations that Marlboro Lights are more dangerous than Marlboro Reds. The trial court denied PM USA’s remaining summary judgment motions. Trial in the case began in September 2011 and, in October 2011 the court declared a mistrial after the jury failed to reach a verdict. The court has continued the new trial through January 2014, with an exact date to be determined.

Certain Other Tobacco-Related Litigation

Tobacco Price Case:  One case remains pending in Kansas (Smith) in which plaintiffs allege that defendants, including PM USA and Altria Group, Inc., conspired to fix cigarette prices in violation of antitrust laws. Plaintiffs’ motion for class certification was granted. In March 2012, the trial court granted defendants’ motions for summary judgment. Plaintiffs sought the trial court’s reconsideration of its decision, but in June 2012, the trial court denied plaintiffs’ motion for reconsideration. Plaintiffs have appealed the decision, and defendants have cross-appealed the trial court’s class certification decision, to the Court of Appeals of Kansas.

Ignition Propensity Cases: PM USA is currently facing litigation alleging that a fire caused by cigarettes led to individuals’ deaths.  In a Kentucky case (Walker), the federal district court denied plaintiffs’ motion to remand the case to state court and dismissed plaintiffs’ claims in February 2009. Plaintiffs subsequently filed a notice of appeal. In October 2011, the U.S. Court of Appeals for the Sixth Circuit reversed the portion of the district court decision that denied remand of the case to Kentucky state court and remanded the case to Kentucky state court. The Sixth Circuit did not address the merits of the district court’s dismissal order. Defendants’ petition for rehearing with the Sixth Circuit was denied in December 2011. PM USA filed a renewed motion to dismiss in state court on March 25, 2013.

False Claims Act Case:PM USA is a defendant in a qui tam action filed in the U.S. District Court for the District of Columbia (United States ex rel. Anthony Oliver) alleging violation of the False Claims Act in connection with sales of cigarettes to the U.S. military. The relator contends that PM USA violated “most favored customer” provisions in government contracts and regulations by selling cigarettes to non-military customers in overseas markets at more favorable prices than it sold to the U.S. military exchange services for resale on overseas military bases in those same markets. The relator has dropped Altria Group, Inc. as a defendant and has dropped claims related to post-MSA price increases on cigarettes sold to the U.S. military. In July 2012, PM USA filed a motion to dismiss.

Argentine Grower Cases: PM USA and Altria Group, Inc. were named as defendants in four cases (Hupan, Chalanuk, Rodriguez Da Silva and Aranda) filed in Delaware state court against multiple defendants by the parents of minor Argentine children born with alleged birth defects. Plaintiffs in these cases allege that they grew tobacco in Argentina under contract with Tabacos Norte S.A., an alleged subsidiary of PMI, and that they and their infant children were exposed directly and in utero to hazardous herbicides and pesticides used in the production and cultivation of tobacco. Plaintiffs seek compensatory and punitive damages against all defendants under U.S. and Argentine law. Altria Group, Inc. and PM USA are in discussions with PMI regarding indemnification for these cases pursuant to the Distribution Agreement between Altria Group, Inc. and PMI. See Guarantees and Other Similar Matters below for a discussion of the Distribution Agreement. On December 11, 2012, Altria Group, Inc. and certain other defendants were dismissed from the Hupan, Chalanuk and Rodriguez Da Silva cases. The three remaining defendants in those actions are PM USA, Philip Morris Global Brands (a subsidiary of PMI) and Monsanto Company.

UST Litigation

Claims related to smokeless tobacco products generally fall within the following categories:

First, UST and/or its tobacco subsidiaries has been named in certain actions in West Virginia (See In re: Tobacco Litigation above) brought by or on behalf of individual plaintiffs against cigarette manufacturers, smokeless tobacco manufacturers, and other organizations seeking damages and other relief in connection with injuries allegedly sustained as a result of tobacco usage, including smokeless tobacco products. Included among the plaintiffs are five individuals alleging use of USSTC’s smokeless tobacco products and alleging the types of injuries claimed to be associated with the use of smokeless tobacco products. USSTC, along with other non-cigarette manufacturers, has remained severed from such proceedings since December 2001.

Second, UST and/or its tobacco subsidiaries has been named in a number of other individual tobacco and health suits over time. Plaintiffs’ allegations of liability in these cases are 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 seek various forms of relief, including compensatory and punitive damages, and certain equitable relief, including but not limited to disgorgement. Defenses raised in these cases include lack of causation, assumption of the risk, comparative fault and/or contributory negligence, and statutes of limitations. USSTC is currently named in one such action in Florida (Vassallo).

Certain Other Actions

Kraft Thrift Plan Cases: Four participants in the Kraft Foods Global, Inc. Thrift Plan (“Kraft Thrift Plan”), a defined contribution plan, filed a class action complaint (George II) on behalf of all participants and beneficiaries of the Kraft Thrift Plan in July 2008 in the U.S. District Court for the Northern District of Illinois alleging breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”). Named defendants in this action included Altria Corporate Services, Inc. (now Altria Client Services Inc.) and certain company committees that allegedly had a relationship to the Kraft Thrift Plan. Plaintiffs requested, among other remedies, that defendants restore to the Kraft Thrift Plan all losses improperly incurred.

In August 2011, Altria Client Services Inc. and a company committee that allegedly had a relationship to the Kraft Thrift Plan were added as defendants in another class action previously brought by the same plaintiffs in 2006 (George I), in which plaintiffs allege defendants breached their fiduciary duties under ERISA by offering company stock funds in a unitized format and by allegedly overpaying for recordkeeping services.

In June 2012, the district court approved a court-approved class-wide settlement for George I and George II that does not require any payment by the Altria Group, Inc. defendants, concluding this litigation.

Environmental Regulation

Altria Group, Inc. and its subsidiaries (and 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. Subsidiaries (and former subsidiaries) of Altria Group, Inc. are involved in several matters subjecting them to potential costs of remediation and natural resource damages under Superfund or other laws and regulations. Altria Group, Inc.’s subsidiaries expect to continue to make capital and other expenditures in connection with environmental laws and regulations.

Altria Group, Inc. provides 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 subsidiaries of Altria Group, Inc. may undertake in the future. In the opinion of 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, and is not expected to have, a material adverse effect on Altria Group, Inc.’s consolidated results of operations, capital expenditures, financial position or cash flows.

Guarantees and Other Similar Matters

In the ordinary course of business, certain subsidiaries of Altria Group, Inc. have agreed to indemnify a limited number of third parties in the event of future litigation. At March 31, 2013, subsidiaries of Altria Group, Inc. were also contingently liable for $31 million of guarantees related to their own performance, consisting primarily of surety bonds. In addition, from time to time, subsidiaries of Altria Group, Inc. issue lines of credit to affiliated entities. These items have not had, and are not expected to have, a significant impact on Altria Group, Inc.’s liquidity.

Under the terms of a distribution agreement between Altria Group, Inc. and PMI (the “Distribution Agreement”), entered into as a result of Altria Group, Inc.’s 2008 spin-off of its former subsidiary PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria Group, Inc. 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. Altria Group, Inc. does not have a related liability recorded on its condensed consolidated balance sheet at March 31, 2013 as the fair value of this indemnification is insignificant.

As more fully discussed in Note 11. Condensed Consolidating Financial Information, PM USA has issued guarantees relating to Altria Group, Inc.’s obligations under its outstanding debt securities, borrowings under its senior unsecured 5-year revolving credit agreement and amounts outstanding under its commercial paper program.

Redeemable Noncontrolling Interest

In September 2007, Ste. Michelle completed the acquisition of Stag’s Leap Wine Cellars through one of its consolidated subsidiaries, Michelle-Antinori, LLC (“Michelle-Antinori”), in which Ste. Michelle holds an 85% ownership interest with a 15% noncontrolling interest held by Antinori California (“Antinori”). In connection with the acquisition of Stag’s Leap Wine Cellars, Ste. Michelle entered into a put arrangement with Antinori. The put arrangement, as later amended, provides Antinori with the right to require Ste. Michelle to purchase its 15% ownership interest in Michelle-Antinori at a price equal to Antinori’s initial investment of $27 million. The put arrangement became exercisable on September 11, 2010 and has no expiration date. As of March 31, 2013, the redemption value of the put arrangement did not exceed the noncontrolling interest balance. Therefore, no adjustment to the value of the redeemable noncontrolling interest was recognized on the condensed consolidated balance sheet for the put arrangement.

The noncontrolling interest put arrangement is accounted for as mandatorily redeemable securities because redemption is outside of the control of Ste. Michelle. As such, the redeemable noncontrolling interest is reported in the mezzanine equity section on the condensed consolidated balance sheets at March 31, 2013 and December 31, 2012.

XML

Condensed Consolidated Statements Of Earnings (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
Net revenues	$ 5,528	$ 5,647
Cost of sales	1,299	1,792
Excise taxes on products	1,555	1,653
Gross profit	2,674	2,202
Marketing, administration and research costs	517	534
Asset impairment and exit costs	0	21
Amortization of intangibles	5	5
Operating income (expense)	2,152	1,642
Interest and other debt expense, net	261	293
Earnings from equity investment in SABMiller	(256)	(520)
Earnings before income taxes	2,147	1,869
Provision for income taxes	762	674
Net earnings	1,385	1,195
Net earnings attributable to noncontrolling interests	0	0
Net earnings	$ 1,385	$ 1,195
Per share data:
Earnings Per Share, Basic and Diluted	$ 0.69	$ 0.59
Dividends declared	$ 0.44	$ 0.41

XML

Earnings From Equity Investment In SABMiller

3 Months Ended

Mar. 31, 2013

Earnings (Losses) of Noncontrolling Interest and Equity Method Investments [Abstract]

Earnings From Equity Investment In SABMiller

Earnings from Equity Investment in SABMiller:

Pre-tax earnings from Altria Group, Inc.’s equity investment in SABMiller consisted of the following:

	For the Three Months Ended March 31,
	2013		2012
	(in millions)
Equity earnings	$	199	$	508
Gains resulting from issuances of common stock by SABMiller	57		12
	$	256	$	520

Altria Group, Inc.’s equity earnings for the three months ended March 31, 2012 included its share of pre-tax non-cash gains of $342 million resulting from SABMiller’s strategic alliance transactions with Anadolu Efes and Castel. For further discussion, see Note 1. Background and Basis of Presentation.

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Benefit Plans

3 Months Ended

Mar. 31, 2013

General Discussion of Pension and Other Postretirement Benefits [Abstract]

Benefit Plans

Benefit Plans:

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

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	21		$	20
Interest cost	78			86
Expected return on plan assets	(123		)	(111		)
Amortization:
Net loss	69			56
Prior service cost	3			3
Net periodic pension cost	$	48		$	54

Employer Contributions

Altria Group, Inc. makes contributions to the extent that they are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under Internal Revenue Service (“IRS”) regulations. On January 2, 2013, Altria Group, Inc. made a voluntary $350 million contribution to its pension plans. Additional employer contributions of $8 million were made to Altria Group, Inc.’s pension plans during the three months ended March 31, 2013. Currently, Altria Group, Inc. anticipates making additional employer contributions to its pension plans of approximately $20 million to $40 million during the remainder of 2013, based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

Postretirement Benefit Plans

Net postretirement health care costs consisted of the following:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Service cost	$	5		$	5
Interest cost	25			30
Amortization:
Net loss	14			12
Prior service credit	(11		)	(11		)
Curtailment gain	—			(26		)
Net postretirement health care costs	$	33		$	10

The curtailment gain shown in the table above is related to the 2011 Cost Reduction Program. For further information on this program, see Note 2. Asset Impairment, Exit and Implementation Costs.

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Earnings From Equity Investment In SABMiller (Tables)

3 Months Ended

Mar. 31, 2013

Earnings (Losses) of Noncontrolling Interest and Equity Method Investments [Abstract]

Equity Method Investments

Pre-tax earnings from Altria Group, Inc.’s equity investment in SABMiller consisted of the following:

	For the Three Months Ended March 31,
	2013		2012
	(in millions)
Equity earnings	$	199	$	508
Gains resulting from issuances of common stock by SABMiller	57		12
	$	256	$	520

XML

Condensed Consolidating Financial Information

3 Months Ended

Mar. 31, 2013

Condensed Consolidating Financial Information [Abstract]

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information:

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

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

The obligations of PM USA under the Guarantees are limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of PM USA that are relevant under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Guarantees, result in PM USA’s obligations under the Guarantees not constituting a fraudulent transfer or conveyance. For this purpose, “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.

PM USA will be unconditionally released and discharged from the Obligations upon the earliest to occur of:

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

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

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

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

At March 31, 2013, the respective principal wholly-owned subsidiaries of Altria Group, Inc. and PM USA were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.

The following sets forth the condensed consolidating balance sheets as of March 31, 2013 and December 31, 2012, condensed consolidating statements of earnings and comprehensive earnings for the three months ended March 31, 2013 and 2012, and condensed consolidating statements of cash flows for the three months ended March 31, 2013 and 2012 for Altria Group, Inc., PM USA and Altria Group, Inc.’s other subsidiaries that are not guarantors of Altria Group, Inc.’s debt instruments (the “Non-Guarantor Subsidiaries”). The financial information is based on Altria Group, Inc.’s understanding of the Securities and Exchange Commission (“SEC”) interpretation and application of Rule 3-10 of SEC Regulation S-X.

The financial information may not necessarily be indicative of results of operations or financial position had PM USA and the Non-Guarantor Subsidiaries operated as independent entities. Altria Group, Inc. and PM USA account for investments in their subsidiaries under the equity method of accounting.

Beginning in the second quarter of 2012, Altria Group, Inc. revised the classification of cash dividends received from subsidiaries on its condensed consolidating statements of cash flows to present them as cash flows from operating activities. These amounts were previously classified as cash flows from financing activities.  The impact of this revision, which Altria Group, Inc. determined was not material to the related financial statements, was to increase cash inflows from operating activities (and decrease cash inflows from financing activities) by $923 million for Altria Group, Inc. and $59 million for PM USA for the three months ended March 31, 2012. This revision had no impact on Altria Group, Inc.’s consolidated statements of cash flows.

Condensed Consolidating Balance Sheets

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	3,745	$	—	$	30	$	—		$	3,775
Receivables	21		9		82		—			112
Inventories:
Leaf tobacco	—		489		375		—			864
Other raw materials	—		124		50		—			174
Work in process	—		7		332		—			339
Finished product	—		206		233		—			439
	—		826		990		—			1,816
Due from Altria Group, Inc. and subsidiaries	5,634		4,253		1,216		(11,103		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	240		81		109		(233		)	197
Total current assets	9,640		6,415		2,443		(11,382		)	7,116
Property, plant and equipment, at cost	2		3,256		1,505		—			4,763
Less accumulated depreciation	2		2,100		593		—			2,695
	—		1,156		912		—			2,068
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,071		—			12,073
Investment in SABMiller	6,749		—		—		—			6,749
Investment in consolidated subsidiaries	9,653		3,009		—		(12,662		)	—
Finance assets, net	—		—		2,385		—			2,385
Other assets	136		534		137		(366		)	441
Total Assets	$	26,178	$	11,116	$	23,122	$	(24,410	)	$	36,006

Continued

Condensed Consolidating Balance Sheets (Continued)

March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,984		$	—		$	—		$	—		$	1,984
Accounts payable	—			125			134			—			259
Accrued liabilities:
Marketing	—			444			24			—			468
Employment costs	74			7			45			—			126
Settlement charges	—			4,137			6			—			4,143
Other	353			467			258			(46		)	1,032
Income taxes	—			666			167			(233		)	600
Dividends payable	886			—			—			—			886
Due to Altria Group, Inc. and subsidiaries	5,227			180			5,696			(11,103		)	—
Total current liabilities	8,524			6,026			6,330			(11,382		)	9,498
Long-term debt	11,595			—			299			—			11,894
Deferred income taxes	2,075			—			4,948			(366		)	6,657
Accrued pension costs	231			—			1,092			—			1,323
Accrued postretirement health care costs	—			1,750			751			—			2,501
Other liabilities	184			185			159			—			528
Total liabilities	22,609			7,961			13,579			(11,748		)	32,401
Contingencies
Redeemable noncontrolling interest	—			—			35			—			35
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,656			3,321			10,272			(13,593		)	5,656
Earnings reinvested in the business	24,817			255			1,058			(1,313		)	24,817
Accumulated other comprehensive losses	(2,068		)	(421		)	(1,832		)	2,253			(2,068		)
Cost of repurchased stock	(25,771		)	—			—			—			(25,771		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,569			3,155			9,507			(12,662		)	3,569
Noncontrolling interests	—			—			1			—			1
Total stockholders’ equity	3,569			3,155			9,508			(12,662		)	3,570
Total Liabilities and Stockholders’ Equity	$	26,178		$	11,116		$	23,122		$	(24,410	)	$	36,006

Condensed Consolidating Balance Sheets

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.		PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents	$	2,862	$	—	$	38	$	—		$	2,900
Receivables	101		7		85		—			193
Inventories:
Leaf tobacco	—		512		364		—			876
Other raw materials	—		127		46		—			173
Work in process	—		3		346		—			349
Finished product	—		117		231		—			348
	—		759		987		—			1,746
Due from Altria Group, Inc. and subsidiaries	834		3,424		1,171		(5,429		)	—
Deferred income taxes	—		1,246		16		(46		)	1,216
Other current assets	—		193		175		(108		)	260
Total current assets	3,797		5,629		2,472		(5,583		)	6,315
Property, plant and equipment, at cost	2		3,253		1,495		—			4,750
Less accumulated depreciation	2		2,073		573		—			2,648
	—		1,180		922		—			2,102
Goodwill	—		—		5,174		—			5,174
Other intangible assets, net	—		2		12,076		—			12,078
Investment in SABMiller	6,637		—		—		—			6,637
Investment in consolidated subsidiaries	9,521		3,018		—		(12,539		)	—
Finance assets, net	—		—		2,581		—			2,581
Due from Altria Group, Inc. and subsidiaries	4,500		—		—		(4,500		)	—
Other assets	136		530		141		(365		)	442
Total Assets	$	24,591	$	10,359	$	23,366	$	(22,987	)	$	35,329

Continued

Condensed Consolidating Balance Sheets (Continued)

December 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Liabilities
Current portion of long-term debt	$	1,459		$	—		$	—		$	—		$	1,459
Accounts payable	4			155			292			—			451
Accrued liabilities:
Marketing	—			526			42			—			568
Employment costs	27			10			147			—			184
Settlement charges	—			3,610			6			—			3,616
Other	469			506			272			(154		)	1,093
Dividends payable	888			—			—			—			888
Due to Altria Group, Inc. and subsidiaries	3,965			409			1,055			(5,429		)	—
Total current liabilities	6,812			5,216			1,814			(5,583		)	8,259
Long-term debt	12,120			—			299			—			12,419
Deferred income taxes	2,034			—			4,983			(365		)	6,652
Accrued pension costs	235			—			1,500			—			1,735
Accrued postretirement health care costs	—			1,759			745			—			2,504
Due to Altria Group, Inc. and subsidiaries	—			—			4,500			(4,500		)	—
Other liabilities	222			178			156			—			556
Total liabilities	21,423			7,153			13,997			(10,448		)	32,125
Contingencies
Redeemable noncontrolling interest	—			—			34			—			34
Stockholders’ Equity
Common stock	935			—			9			(9		)	935
Additional paid-in capital	5,688			3,321			10,272			(13,593		)	5,688
Earnings reinvested in the business	24,316			314			943			(1,257		)	24,316
Accumulated other comprehensive losses	(2,040		)	(429		)	(1,891		)	2,320			(2,040		)
Cost of repurchased stock	(25,731		)	—			—			—			(25,731		)
Total stockholders’ equity attributable to Altria Group, Inc.	3,168			3,206			9,333			(12,539		)	3,168
Noncontrolling interests	—			—			2			—			2
Total stockholders’ equity	3,168			3,206			9,335			(12,539		)	3,170
Total Liabilities and Stockholders’ Equity	$	24,591		$	10,359		$	23,366		$	(22,987	)	$	35,329

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA		Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,822	$	711	$	(5	)	$	5,528
Cost of sales	—			1,099		205		(5		)	1,299
Excise taxes on products	—			1,495		60		—			1,555
Gross profit	—			2,228		446		—			2,674
Marketing, administration and research costs	46			419		52		—			517
Amortization of intangibles	—			—		5		—			5
Operating (expense) income	(46		)	1,809		389		—			2,152
Interest and other debt expense, net	161			—		100		—			261
Earnings from equity investment in SABMiller	(256		)	—		—		—			(256		)
Earnings before income taxes and equity earnings of subsidiaries	49			1,809		289		—			2,147
(Benefit) provision for income taxes	(9		)	667		104		—			762
Equity earnings of subsidiaries	1,327			44		—		(1,371		)	—
Net earnings	1,385			1,186		185		(1,371		)	1,385
Net earnings attributable to noncontrolling interests	—			—		—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Net earnings	$	1,385		$	1,186	$	185	$	(1,371	)	$	1,385
Other comprehensive (losses) earnings, net of deferred income taxes	(28		)	8		59		(67		)	(28		)
Comprehensive earnings	1,357			1,194		244		(1,438		)	1,357
Comprehensive earnings attributable to noncontrolling interests	—			—		—		—			—
Comprehensive earnings attributable to Altria Group, Inc.	$	1,357		$	1,194	$	244	$	(1,438	)	$	1,357

Condensed Consolidating Statements of Earnings and Comprehensive Earnings

For The Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries		Total Consolidating Adjustments			Consolidated
Net revenues	$	—		$	4,922		$	731	$	(6	)	$	5,647
Cost of sales	—			1,599			199		(6		)	1,792
Excise taxes on products	—			1,577			76		—			1,653
Gross profit	—			1,746			456		—			2,202
Marketing, administration and research costs	34			431			69		—			534
Asset impairment and exit costs	—			20			1		—			21
Amortization of intangibles	—			—			5		—			5
Operating (expense) income	(34		)	1,295			381		—			1,642
Interest and other debt expense (income), net	185			(1		)	109		—			293
Earnings from equity investment in SABMiller	(520		)	—			—		—			(520		)
Earnings before income taxes and equity earnings of subsidiaries	301			1,296			272		—			1,869
Provision for income taxes	84			482			108		—			674
Equity earnings of subsidiaries	978			49			—		(1,027		)	—
Net earnings	1,195			863			164		(1,027		)	1,195
Net earnings attributable to noncontrolling interests	—			—			—		—			—
Net earnings attributable to Altria Group, Inc.	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Net earnings	$	1,195		$	863		$	164	$	(1,027	)	$	1,195
Other comprehensive earnings (losses), net of deferred income taxes	202			(1		)	21		(20		)	202
Comprehensive earnings	1,397			862			185		(1,047		)	1,397
Comprehensive earnings attributable to noncontrolling interests	—			—			—		—			—
Comprehensive earnings attributable to     Altria Group, Inc.	$	1,397		$	862		$	185	$	(1,047	)	$	1,397

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2013

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	902		$	2,344		$	(139	)	$	(1,314	)	$	1,793
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(4		)	(11		)	—			(15		)
Proceeds from finance assets	—			—			203			—			203
Net cash (used in) provided by investing activities	—			(4		)	192			—			188
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(91		)	—			—			—			(91		)
Dividends paid on common stock	(886		)	—			—			—			(886		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	961			(1,052		)	91			—			—
Cash dividends paid to parent	—			(1,245		)	(69		)	1,314			—
Other	(3		)	(43		)	(83		)	—			(129		)
Net cash used in financing activities	(19		)	(2,340		)	(61		)	1,314			(1,106		)
Cash and cash equivalents:
Increase (decrease)	883			—			(8		)	—			875
Balance at beginning of period	2,862			—			38			—			2,900
Balance at end of period	$	3,745		$	—		$	30		$	—		$	3,775

Condensed Consolidating Statements of Cash Flows

For the Three Months Ended March 31, 2012

(in millions of dollars)

	Altria Group, Inc.			PM USA			Non- Guarantor Subsidiaries			Total Consolidating Adjustments			Consolidated
Cash Provided by (Used In) Operating Activities
Net cash provided by (used in) operating activities	$	533		$	2,519		$	(233	)	$	(982	)	$	1,837
Cash Provided by (Used In) Investing Activities
Capital expenditures	—			(5		)	(11		)	—			(16		)
Proceeds from finance assets	—			—			303			—			303
Net cash (used in) provided by investing activities	—			(5		)	292			—			287
Cash Provided by (Used In) Financing Activities
Repurchases of common stock	(266		)	—			—			—			(266		)
Dividends paid on common stock	(838		)	—			—			—			(838		)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	1,466			(1,549		)	83			—			—
Cash dividends paid to parent	—			(923		)	(59		)	982			—
Other	—			(42		)	(92		)	—			(134		)
Net cash provided by (used in) financing activities	362			(2,514		)	(68		)	982			(1,238		)
Cash and cash equivalents:
Increase (decrease)	895			—			(9		)	—			886
Balance at beginning of period	3,245			—			25			—			3,270
Balance at end of period	$	4,140		$	—		$	16		$	—		$	4,156

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Segment Reporting

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Segment Reporting:

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

As discussed in Note 1. Background and Basis of Presentation,beginning with the first quarter of 2013, Altria Group, Inc. revised its reportable segments. Prior-period segment data have been recast to conform with the current-period segment presentation.

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

Segment data were as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net revenues:
Smokeable products	$	4,968		$	5,100
Smokeless products	390			380
Wine	126			113
All other	44			54
Net revenues	$	5,528		$	5,647
Earnings before income taxes:
Operating companies income:
Smokeable products	$	1,920		$	1,439
Smokeless products	222			192
Wine	20			15
All other	50			52
Amortization of intangibles	(5		)	(5		)
General corporate expenses	(55		)	(51		)
Operating income	2,152			1,642
Interest and other debt expense, net	(261		)	(293		)
Earnings from equity investment in SABMiller	256			520
Earnings before income taxes	$	2,147		$	1,869

Items affecting the comparability of operating companies income for the segments were as follows:

Asset Impairment, Exit and Implementation Costs - SeeNote 2. Asset Impairment, Exit and Implementation Costs for a breakdown of these costs by segment.

Tobacco and Health Judgments - For the three months ended March 31, 2013, pre-tax charges of $5 million, excluding accrued interest of $1 million, related to certain tobacco and health judgments were recorded in operating companies income of the smokeable products segment. These charges were included in marketing, administration and research costs on Altria Group, Inc.’s condensed consolidated statement of earnings. See Note 10. Contingencies for further discussion.

Non-Participating Manufacturer Adjustment -For the three months ended March 31, 2013, PM USA recorded a reduction to cost of sales of $483 million on its condensed consolidated statement of earnings, which increased operating companies income in the smokeable products segment. This reduction to cost of sales resulted from the settlement of disputes with certain states related to the non-participating manufacturer adjustment (“NPM Adjustment”) under the 1998 Master Settlement Agreement (the “MSA”) for the years 2003 - 2012 discussed in detail under Possible Adjustments in MSA Payments for 2003 - 2012 in Note 10. Contingencies.

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Contingencies (Health Care Cost Recovery Litigation Narrative) (Details) (State Settlements Agreements [Member], Health Care Cost Recovery Actions [Member], USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	November 1998
State Settlement Agreements annual payments	$ 9,400,000,000
State Settlement Agreements attorney fees annual cap	500,000,000
Fair And Equitable Tobacco Reform Act Of2004 [Member]
Loss Contingencies [Line Items]
Aggregate Amount Recorded In Cost Of Sales Related To State Settlement Agreements And Federal Equitable Tobacco Reform Act	$ 600,000,000	$ 1,100,000,000

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Earnings Per Share

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share:

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

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net earnings attributable to Altria Group, Inc.	$	1,385		$	1,195
Less: Distributed and undistributed earnings attributable to unvested restricted and deferred shares	(4		)	(4		)
Earnings for basic and diluted EPS	$	1,381		$	1,191
Weighted-average shares for basic and diluted EPS	2,003			2,034

Since February 29, 2012, there were no stock options outstanding. For the three months ended March 31, 2012 computation, there were no antidilutive stock options.

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Other Comprehensive Earnings/Losses

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Other Comprehensive Earnings/Losses

Other Comprehensive Earnings/Losses:

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

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2012	$	2	$	(2,414	)	$	372		$	(2,040	)
Other comprehensive earnings (losses) before reclassifications	—		30			(143		)	(113		)
Deferred income taxes	—		(13		)	50			37
Other comprehensive earnings (losses) before reclassifications, net of deferred income taxes	—		17			(93		)	(76		)
Amounts reclassified to net earnings	—		79			(2		)	77
Deferred income taxes	—		(30		)	1			(29		)
Amounts reclassified to net earnings, net of deferred income taxes	—		49			(1		)	48
Other comprehensive earnings (losses), net of deferred income taxes	—		66			(94		)	(28		)
Balances, March 31, 2013	$	2	$	(2,348	)	$	278		$	(2,068	)

	Currency Translation Adjustments		Benefit Plans			SABMiller			Accumulated Other Comprehensive Losses
	(in millions)
Balances, December 31, 2011	$	2	$	(2,062	)	$	173		$	(1,887	)
Other comprehensive earnings before reclassifications	—		—			273			273
Deferred income taxes	—		—			(96		)	(96		)
Other comprehensive earnings before reclassifications, net of deferred income taxes	—		—			177			177
Amounts reclassified to net earnings	—		37			4			41
Deferred income taxes	—		(15		)	(1		)	(16		)
Amounts reclassified to net earnings, net of deferred income taxes	—		22			3			25
Other comprehensive earnings, net of deferred income taxes	—		22			180			202
Balances, March 31, 2012	$	2	$	(2,040	)	$	353		$	(1,685	)

The following table sets forth pre-tax amounts by component, reclassified from accumulated other comprehensive losses to net earnings for the three months ended March 31, 2013 and 2012:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Benefit Plans: (a)
Net loss	$	87		$	71
Prior service cost/credit	(8		)	(34		)
	$	79		$	37
SABMiller (b)	$	(2	)	$	4
Pre-tax amounts reclassified from accumulated other comprehensive losses to net earnings	$	77		$	41

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

^(b) Amounts are included in earnings from equity investment in SABMiller. For further information on Altria Group, Inc.’s equity investment in SABMiller, see Note 4. Earnings from Equity Investment in SABMiller.

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Finance Assets, Net

3 Months Ended

Mar. 31, 2013

Finance Assets, Net [Abstract]

Finance Assets, Net

Finance Assets, net:

At March 31, 2013, finance assets, net, of $2,385 million were comprised of investments in finance leases of $2,422 million and an other receivable of $42 million, reduced by the allowance for losses of $79 million. At December 31, 2012, finance assets, net, of $2,581 million were comprised of investments in finance leases of $2,680 million, reduced by the allowance for losses of $99 million.

PMCC assesses the adequacy of its allowance for losses relative to the credit risk of its leasing portfolio on an ongoing basis. During the first quarter of 2013, PMCC determined that its allowance for losses exceeded the amount required based on management’s assessment of the credit quality and size of PMCC’s leasing portfolio. As a result, PMCC reduced its allowance for losses by $20 million, which was recorded as income during the three months ended March 31, 2013. PMCC believes that, as of March 31, 2013, the allowance for losses of $79 million was adequate. PMCC continues to monitor economic and credit conditions, and the individual situations of its lessees and their respective industries, and may have to increase its allowance for losses if such conditions worsen.

The activity in the allowance for losses on finance assets for the three months ended March 31, 2013 and 2012 was as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Balance at beginning of the year	$	99		$	227
Decrease to allowance	(20		)	—
Amounts written-off	—			(23		)
Balance at March 31	$	79		$	204

During the first quarter of 2012, as a result of developments related to the 2011 American Airlines, Inc. (“American”) bankruptcy filing, PMCC wrote off $23 million of the related investment in finance lease balance against its allowance for losses. During the first quarter of 2013, PMCC sold its remaining interest in the American aircraft leases.

All PMCC lessees were current on their lease payment obligations as of March 31, 2013.

The credit quality of PMCC’s investments in finance assets as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at March 31, 2013 and December 31, 2012 was as follows:

	March 31, 2013		December 31, 2012
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	784	$	961
“BBB+/Baa1” to “BBB-/Baa3”	925		938
“BB+/Ba1” and Lower	755		781
Total	$	2,464	$	2,680

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Contingencies (Other Litigation Matters Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Loss Contingencies [Line Items]
Lights Ultra Lights Class Certification Cases Pending in United States	14
"Lights/Ultra Lights" Class Actions [Member] | Illinois Price [Member]
Loss Contingencies [Line Items]
Loss contingency, period of occurrence	March 2003
Compensatory damages jury award total	$ 7,100,000,000
Punitive damages jury award total all defendants	$ 3,000,000,000
Loss contingency, reversal of judgment date	December 2005
Loss Contingency, Date of Dismissal	Dec. 31, 2006

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Contingencies MSA Term Sheet Agreement (Narrative) (Details) (USD $)	0 Months Ended	12 Months Ended	3 Months Ended
	Dec. 17, 2012	Dec. 31, 2012	Mar. 31, 2013 NPM Adjustment to Cost Of Sales [Member] Smokeable Products [Member]
Loss Contingencies [Line Items]
Number of States Joining Term Sheet	17
Percentage of Signatory States Allocable Share of OPM Aggregate 2003-2012 NPM Adjustments Reduction of Future MSA Payments		46.00%
Affiliate Share of Future MSA Payment Reductions		28.00%
Affiliate Approximate Amount of Future MSA Payment Reductions			$ 483,000,000
Disputed Payment Account (DPA) Balance		4,700,000,000
Affiliate Payments to DPA Account		658,000,000
Amount of Affiliate Funds Released from DPA to Signatory States		$ 272,000,000

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Contingencies (Other Matters Narrative) (Details)	3 Months Ended
	Mar. 31, 2013
Loss Contingencies [Line Items]
Lights Ultra Lights Class Certification Cases Pending in United States	14
Lights Ultra Lights Cases Pending in Federal Courts	3
Lights/Multi District Litigation [Member]
Loss Contingencies [Line Items]
Number of class action certification denied or reversed	4
Lights [Member]
Loss Contingencies [Line Items]
Purported number of class action lawsuits served	26
Cases Voluntarily Dismissed	13
Additional class action certifications denied, reversed, dismissed or resolved	17

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Benefit Plans (Schedule Of Components Of Net Periodic Pension Cost) (Details) (Pension Plans, Defined Benefit [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Pension Plans, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service Cost	$ 21	$ 20
Interest cost	78	86
Expected return on plan assets	(123)	(111)
Net loss	69	56
Prior service cost	3	3
Net periodic pension cost	$ 48	$ 54

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Contingencies (Pending And Upcoming Tobacco-Related Trials Narrative) (Details)	Apr. 22, 2013
Engle Progeny Cases [Member]
Loss Contingencies [Line Items]
Pending and upcoming tobacco-related trials	24
Individual Smoking And Health Cases [Member]
Loss Contingencies [Line Items]
Pending and upcoming tobacco-related trials	5

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Asset Impairment, Exit And Implementation Costs (Tables)

3 Months Ended

Mar. 31, 2013

Asset Impairment, Exit And Implementation Costs [Abstract]

Pre-Tax Asset Impairment, Exit And Implementation Costs

Pre-tax asset impairment, exit and implementation costs for the three months ended March 31, 2012 consisted of the following:

	For the Three Months Ended  March 31, 2012
	Asset Impairment and Exit Costs		Implementation (Gain) Costs			Total
	(in millions)
Smokeable products	$	7	$	(21	)	$	(14	)
Smokeless products	14		5			19
General corporate	—		(1		)	(1		)
Total	$	21	$	(17	)	$	4

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Segment data were as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Net revenues:
Smokeable products	$	4,968		$	5,100
Smokeless products	390			380
Wine	126			113
All other	44			54
Net revenues	$	5,528		$	5,647
Earnings before income taxes:
Operating companies income:
Smokeable products	$	1,920		$	1,439
Smokeless products	222			192
Wine	20			15
All other	50			52
Amortization of intangibles	(5		)	(5		)
General corporate expenses	(55		)	(51		)
Operating income	2,152			1,642
Interest and other debt expense, net	(261		)	(293		)
Earnings from equity investment in SABMiller	256			520
Earnings before income taxes	$	2,147		$	1,869

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Contingencies (Schedule Of Pending Cases) (Parenthetical) (Details)	Apr. 22, 2013
Flight Attendants [Member]
Loss Contingencies [Line Items]
Loss contingency pending claims, number not included	2,574
PM USA [Member]
Loss Contingencies [Line Items]
Loss contingency pending claims, number included	346
West Virginia Consolidated Proceeding [Member]
Loss Contingencies [Line Items]
Loss contingency pending claims, number included as one case	600

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Other Comprehensive Earnings/Losses (Reclassifications) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Other Comprehensive Earnings Losses By Component [Line Items]
(Loss) earnings before income taxes and equity earnings of subsidiaries	$ 2,147		$ 1,869
Reclassification out of Accumulated Other Comprehensive Income [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
(Loss) earnings before income taxes and equity earnings of subsidiaries	77		41
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
Net Loss	87	[1]	71	[1]
Prior service cost/credit	(8)	[1]	(34)	[1]
(Loss) earnings before income taxes and equity earnings of subsidiaries	79	[1]	37	[1]
SABMiller [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Other Comprehensive Earnings Losses By Component [Line Items]
(Loss) earnings before income taxes and equity earnings of subsidiaries	$ (2)	[2]	$ 4	[2]

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

[2] (b) Amounts are included in earnings from equity investment in SABMiller. For further information on Altria Group, Inc.’s equity investment in SABMiller, see Note 4. Earnings from Equity Investment in SABMiller.

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Condensed Consolidated Statements Of Comprehensive Earnings (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net earnings	$ 1,385	$ 1,195
Other comprehensive earnings, net of deferred income taxes:
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax	66	22
Other Comprehensive Income (Loss) From Equity Method Investment, Adjustment, Net Of Tax	(94)	180
Other comprehensive earnings, net of deferred income taxes	(28)	202
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest	1,357	1,397
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest	0	0
Comprehensive earnings attributable to Altria Group, Inc.	$ 1,357	$ 1,397

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Asset Impairment, Exit And Implementation Costs

3 Months Ended

Mar. 31, 2013

Asset Impairment, Exit And Implementation Costs [Abstract]

Asset Impairment, Exit And Implementation Costs

Asset Impairment, Exit and Implementation Costs:

For the three months endedMarch 31, 2013, there were no asset impairment and exit costs. Implementation costs of $1 million were recorded in marketing, administration and research costs in the smokeable products segment during the three months ended March 31, 2013.

Pre-tax asset impairment, exit and implementation costs for the three months ended March 31, 2012 consisted of the following:

	For the Three Months Ended  March 31, 2012
	Asset Impairment and Exit Costs		Implementation (Gain) Costs			Total
	(in millions)
Smokeable products	$	7	$	(21	)	$	(14	)
Smokeless products	14		5			19
General corporate	—		(1		)	(1		)
Total	$	21	$	(17	)	$	4

The asset impairment, exit and implementation (gain) costs for the three months ended March 31, 2012 were related to Altria Group, Inc.’s cost reduction program announced in October 2011 (the “2011 Cost Reduction Program”). Total pre-tax charges, net related to this program were substantially completed as of December 31, 2012.

For the three months ended March 31, 2012, pre-tax implementation (gain) costs of ($17) million shown in the table above were recorded on Altria Group, Inc.’s condensed consolidated statement of earnings as follows: a net gain of $25 million, which included a $26 million curtailment gain related to amendments made to an Altria Group, Inc. postretirement benefit plan, was included in marketing, administration and research costs; and other costs of $8 million were included in cost of sales.

The severance liability related to the 2011 Cost Reduction Program was $20 million and $37 million at March 31, 2013 and December 31, 2012, respectively, substantially all of which is expected to be paid out by June 30, 2013.

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Contingencies (Scott Class Action Narrative) (Details) (USD $)	1 Months Ended		3 Months Ended		3 Months Ended
	Dec. 31, 2012 Louisiana/Scott [Member]	Aug. 31, 2011 Smoking And Health Class Actions And Aggregated Claims Litigation [Member]	Jun. 30, 2011 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Louisiana/Scott [Member]	Mar. 31, 2013 Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Louisiana/Scott [Member]	Jun. 30, 2011 Previously Recorded [Member] Smoking And Health Class Actions And Aggregated Claims Litigation [Member] Louisiana/Scott [Member]
Loss Contingencies [Line Items]
Compensatory damages jury award total excluding interest				$ 590,000,000
Share of judgment paid		70,000,000
Loss contingency, damages recorded			36,000,000		30,000,000
Loss contingency, interest accrued			5,000,000
Loss Contingency, Attorney Fees Paid from Court Supervised Fund	$ 103,000,000

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Condensed Consolidating Financial Information (Condensed Consolidating Statements Of Cash Flows) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities	$ 1,793	$ 1,837
Cash Provided by (Used in) Investing Activities
Capital expenditures	(15)	(16)
Proceeds from finance assets	203	303
Net cash (used in) provided by investing activities	188	287
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	(91)	(266)
Dividends paid on common stock	(886)	(838)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	0	0
Cash dividends paid to parent	0	0
Other	(129)	(134)
Net cash provided by (used in) financing activities	(1,106)	(1,238)
Increase (decrease)	875	886
Balance at beginning of period	2,900	3,270
Balance at end of period	3,775	4,156
Altria Group, Inc. [Member]
Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities	902	533
Cash Provided by (Used in) Investing Activities
Capital expenditures	0	0
Proceeds from finance assets	0	0
Net cash (used in) provided by investing activities	0	0
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	(91)	(266)
Dividends paid on common stock	(886)	(838)
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	961	1,466
Cash dividends paid to parent	0	0
Other	(3)	0
Net cash provided by (used in) financing activities	(19)	362
Increase (decrease)	883	895
Balance at beginning of period	2,862	3,245
Balance at end of period	3,745	4,140
PM USA [Member]
Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities	2,344	2,519
Cash Provided by (Used in) Investing Activities
Capital expenditures	(4)	(5)
Proceeds from finance assets	0	0
Net cash (used in) provided by investing activities	(4)	(5)
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	0	0
Dividends paid on common stock	0	0
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	(1,052)	(1,549)
Cash dividends paid to parent	(1,245)	(923)
Other	(43)	(42)
Net cash provided by (used in) financing activities	(2,340)	(2,514)
Increase (decrease)	0	0
Balance at beginning of period	0	0
Balance at end of period	0	0
Non-Guarantor Subsidiaries [Member]
Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities	(139)	(233)
Cash Provided by (Used in) Investing Activities
Capital expenditures	(11)	(11)
Proceeds from finance assets	203	303
Net cash (used in) provided by investing activities	192	292
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	0	0
Dividends paid on common stock	0	0
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	91	83
Cash dividends paid to parent	(69)	(59)
Other	(83)	(92)
Net cash provided by (used in) financing activities	(61)	(68)
Increase (decrease)	(8)	(9)
Balance at beginning of period	38	25
Balance at end of period	30	16
Total Consolidating Adjustments [Member]
Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities	(1,314)	(982)
Cash Provided by (Used in) Investing Activities
Capital expenditures	0	0
Proceeds from finance assets	0	0
Net cash (used in) provided by investing activities	0	0
Cash Provided by (Used in) Financing Activities
Repurchases of common stock	0	0
Dividends paid on common stock	0	0
Changes in amounts due to/from Altria Group, Inc. and subsidiaries	0	0
Cash dividends paid to parent	1,314	982
Other	0	0
Net cash provided by (used in) financing activities	1,314	982
Increase (decrease)	0	0
Balance at beginning of period	0	0
Balance at end of period	$ 0	$ 0

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Finance Assets, Net (Tables)

3 Months Ended

Mar. 31, 2013

Finance Assets, Net [Abstract]

Schedule Of Allowance For Losses On Finance Assets

The activity in the allowance for losses on finance assets for the three months ended March 31, 2013 and 2012 was as follows:

	For the Three Months Ended March 31,
	2013			2012
	(in millions)
Balance at beginning of the year	$	99		$	227
Decrease to allowance	(20		)	—
Amounts written-off	—			(23		)
Balance at March 31	$	79		$	204

Schedule Of Credit Quality Of Investments In Finance Assets

The credit quality of PMCC’s investments in finance assets as assigned by Standard & Poor’s Ratings Services (“Standard & Poor’s”) and Moody’s Investors Service, Inc. (“Moody’s”) at March 31, 2013 and December 31, 2012 was as follows:

	March 31, 2013		December 31, 2012
	(in millions)
Credit Rating by Standard & Poor’s/Moody’s:
“AAA/Aaa” to “A-/A3”	$	784	$	961
“BBB+/Baa1” to “BBB-/Baa3”	925		938
“BB+/Ba1” and Lower	755		781
Total	$	2,464	$	2,680

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Earnings Per Share (Narrative) (Details) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Feb. 29, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options remaining			0
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0

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Contingencies (Policy)

3 Months Ended

Mar. 31, 2013

Loss Contingency [Abstract]

Contingencies

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