# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# x ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF

For	the	fiscal	year	ended	December	31,	2016

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

# Commission	File	Number	1-08940

# ALTRIA	GROUP,	INC.

# (Exact	name	of	registrant	as	specified	in	its	charter)

Virginia

(State	or	other	jurisdiction	of incorporation	or	organization)

6601	West	Broad	Street,	Richmond,	Virginia

(Address	of	principal	executive	offices)

(Zip	Code)

(Registrant's	telephone	number,	including	area	code)

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Name	of	each	exchange	on	which	registered

# New	York	Stock	Exchange

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	None

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.	þ	Yes	¨	No

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.	¨	Yes	þ	No

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	þ	Yes	¨			No Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Website,	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)	þ	Yes	¨	No

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§229.405	of	this	chapter)	is	not	contained	herein,	and	will	not	be	contained,	to	the best	of	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K	þ 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.

					Non-accelerated	filer	¨	(Do	not	check	if	smaller	reporting	company)	Smaller	operating	company	¨

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

As	of	June	30,	2016,	the	aggregate	market	value	of	the	registrant's	common	stock	held	by	non-affiliates	of	the	registrant	was	approximately	$135	billion	based	on	the closing	sale	price	of	the	common	stock	as	reported	on	the	New	York	Stock	Exchange.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	registrant's	definitive	proxy	statement	for	use	in	connection	with	its	annual	meeting	of	shareholders	to	be	held	on	May	18,	2017,	to	be	filed	with	the Securities	and	Exchange	Commission	on	or	about	April	6,	2017,	are	incorporated	by	reference	into	Part	III	hereof.

# TABLE	OF	CONTENTS

|  | TABLE	OF	CONTENTS | Page |
| :--- | :--- | :--- |
| PART\tI |  |  |
| Item\t1. | Business | 1 |
| Item\t1A. | Risk\tFactors | 4 |
| Item\t1B. | Unresolved\tStaff\tComments | 9 |
| Item\t2. | Properties | 10 |
| Item\t3. | Legal\tProceedings | 10 |
| Item\t4. | Mine\tSafety\tDisclosures | 10 |
| PART\tII |  |  |
| Item\t5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 11 |
| Item\t6. | Selected\tFinancial\tData | 13 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 14 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 37 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 38 |
| Item\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 114 |
| Item\t9A. | Controls\tand\tProcedures | 114 |
| Item\t9B. | Other\tInformation | 114 |
| PART\tIII |  |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 114 |
| Item\t11. | Executive\tCompensation | 115 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 115 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 115 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 115 |
| PART\tIV\nItem\t15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 116 |
|  | Form\t10-K\tSummary |  |
| Item\t16. |  | 120 |
| Signatures |  | 121 |

# Part	I

# Item	1.	Business.

# General	Development	of	Business

▪General:	Altria	Group,	Inc.	is	a	holding	company	incorporated	in	the Commonwealth	of	Virginia	in	1985.	At	December	31,	2016,	Altria	Group,	Inc.'s wholly-owned	subsidiaries	included	Philip	Morris	USA	Inc.	("PM	USA"),	which is	engaged	in	the	manufacture	and	sale	of	cigarettes	in	the	United	States;	John Middleton	Co.	("Middleton"),	which	is	engaged	in	the	manufacture	and	sale	of machine-made	large	cigars	and	pipe	tobacco	and	is	a	wholly-owned	subsidiary	of PM	USA;	and	UST	LLC	("UST"),	which	through	its	wholly-owned	subsidiaries, including	U.S.	Smokeless	Tobacco	Company	LLC	("USSTC")	and	Ste.	Michelle Wine	Estates	Ltd.	("Ste.	Michelle"),	is	engaged	in	the	manufacture	and	sale	of smokeless	tobacco	products	and	wine.	Altria	Group,	Inc.'s	other	operating companies	included	Nu	Mark	LLC	("Nu	Mark"),	a	wholly-owned	subsidiary	that is	engaged	in	the	manufacture	and	sale	of	innovative	tobacco	products,	and	Philip Morris	Capital	Corporation	("PMCC"),	a	wholly-owned	subsidiary	that	maintains a	portfolio	of	finance	assets,	substantially	all	of	which	are	leveraged	leases.	Other Altria	Group,	Inc.	wholly-owned	subsidiaries	included	Altria	Group	Distribution Company,	which	provides	sales,	distribution	and	consumer	engagement	services to	certain	Altria	Group,	Inc.	operating	subsidiaries,	and	Altria	Client	Services LLC,	which	provides	various	support	services	in	areas,	such	as	legal,	regulatory, finance,	human	resources	and	external	affairs,	to	Altria	Group,	Inc.	and	its subsidiaries.

At	September	30,	2016,	Altria	Group,	Inc.	had	an	approximate	27% ownership	of	SABMiller	plc	("SABMiller"),	which	Altria	Group,	Inc.	accounted for	under	the	equity	method	of	accounting.	On	October	10,	2016,	Anheuser-Busch InBev	SA/NV	("Legacy	AB	InBev")	completed	a	business	combination	with SABMiller	in	a	cash	and	stock	transaction	(the	"Transaction").	A	newly	formed Belgian	company,	which	retained	the	name	Anheuser-Busch	InBev	SA/NV	("AB InBev"),	became	the	holding	company	for	the	combined	SABMiller	and	Legacy AB	InBev	businesses.	Upon	completion	of	the	Transaction,	Altria	Group,	Inc.	had a	9.6%	ownership	of	AB	InBev	based	on	AB	InBev's	shares	outstanding	at October	10,	2016.	Following	completion	of	the	Transaction,	Altria	Group,	Inc. purchased	12,341,937	ordinary	shares	of	AB	InBev	for	a	total	cost	of approximately	$1.6	billion,	thereby	increasing	Altria	Group,	Inc.'s	ownership	to approximately	10.2%.	At	December	31,	2016,	Altria	Group,	Inc.	had	an approximate	10.2%	ownership	of	AB	InBev,	which	Altria	Group,	Inc.	accounts	for under	the	equity	method	of	accounting	using	a	one-quarter	lag.	As	a	result	of	the one-quarter	lag	and	the	timing	of	the	completion	of	the	Transaction,	no	earnings from	Altria	Group,	Inc.'s	equity	investment	in	AB	InBev	were	recorded	for	the year	ended	December	31,	2016.	For	further	discussion,	see	Note	7.	Investment	in AB	InBev/SABMiller	to	the	consolidated	financial	statements	in	Item	8.	Financial Statements	and	Supplementary	Data	of	this	Annual	Report	on	Form	10-K	("Item 8").

In	January	2017,	Altria	Group,	Inc.	acquired	the	privately-held	Sherman Group	Holdings,	LLC	and	its	subsidiaries	("Nat	Sherman").	Nat	Sherman	sells super-premium	cigarettes	and	premium	cigars	and	joins	PM	USA	and	Middleton as	part	of	Altria	Group,	Inc.'s	smokeable	products	segment.

▪Source	of	Funds:	Because	Altria	Group,	Inc.	is	a	holding	company,	its access	to	the	operating	cash	flows	of	its	wholly-owned	subsidiaries	consists	of cash	received	from	the	payment	of	dividends	and	distributions,	and	the	payment	of interest	on	intercompany	loans	by	its	subsidiaries.	At	December	31,	2016,	Altria Group,	Inc.'s	principal	wholly-owned	subsidiaries	were	not	limited	by	long-term debt	or	other	agreements	in	their	ability	to	pay	cash	dividends	or	make	other distributions	with	respect	to	their	equity	interests.	In	addition,	Altria	Group,	Inc. receives	cash	dividends	on	its	interest	in	AB	InBev	if	and	when	AB	InBev	pays such	dividends.

# Financial	Information	About	Segments

Altria	Group,	Inc.'s	reportable	segments	are	smokeable	products,	smokeless products	and	wine.	The	financial	services	and	the	innovative	tobacco	products businesses	are	included	in	an	all	other	category	due	to	the	continued	reduction	of the	lease	portfolio	of	PMCC	and	the	relative	financial	contribution	of	Altria Group,	Inc.'s	innovative	tobacco	products	businesses	to	Altria	Group,	Inc.'s consolidated	results.

Altria	Group,	Inc.'s	chief	operating	decision	maker	(the	"CODM")	reviews operating	companies	income	to	evaluate	the	performance	of,	and	allocate resources	to,	the	segments.	Operating	companies	income	for	the	segments	is defined	as	operating	income	before	general	corporate	expenses	and	amortization	of intangibles.	Interest	and	other	debt	expense,	net,	and	provision	for	income	taxes are	centrally	managed	at	the	corporate	level	and,	accordingly,	such	items	are	not presented	by	segment	since	they	are	excluded	from	the	measure	of	segment profitability	reviewed	by	the	CODM.	Net	revenues	and	operating	companies income	(together	with	a	reconciliation	to	earnings	before	income	taxes) attributable	to	each	such	segment	for	each	of	the	last	three	years	are	set	forth	in Note	16.	Segment	Reporting	to	the	consolidated	financial	statements	in	Item	8 ("Note	16").	Information	about	total	assets	by	segment	is	not	disclosed	because such	information	is	not	reported	to	or	used	by	the	CODM.	Segment	goodwill	and other	intangible	assets,	net,	are	disclosed	in	Note	4.	Goodwill	and	Other	Intangible Assets,	net	to	the	consolidated	financial	statements	in	Item	8	("Note	4").	The accounting	policies	of	the	segments	are	the	same	as	those	described	in	Note	2. Summary	of	Significant	Accounting	Policies	to	the	consolidated	financial statements	in	Item	8	("Note	2").

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts | 86.2\t% | 87.4\t% | 87.2\t% |
| Smokeless\tproducts | 13.1 | 12.8 | 13.4 |
| Wine | 1.8 | 1.8 | 1.7 |
| All\tother | (1.1) | (2.0) | (2.3) |
| Total | 100.0\t% | 100.0\t% | 100.0\t% |

For	items	affecting	the	comparability	of	the	relative	percentages	of	operating companies	income	(loss)	attributable	to	each	reportable	segment,	see	Note	16.

# Narrative	Description	of	Business

Portions	of	the	information	called	for	by	this	Item	are	included	in	Operating Results	by	Business	Segment	in	Item	7.	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations	of	this	Annual	Report	on	Form	10- K	("Item	7").

# Tobacco	Space

Altria	Group,	Inc.'s	tobacco	operating	companies	include	PM	USA,	USSTC	and other	subsidiaries	of	UST,	Middleton,	Nu	Mark	and	Nat	Sherman.	Altria	Group Distribution	Company	provides	sales,	distribution	and	consumer	engagement services	to	Altria	Group,	Inc.'s	tobacco	operating	companies.

The	products	of	Altria	Group,	Inc.'s	tobacco	subsidiaries	include	smokeable tobacco	products,	consisting	of	cigarettes	manufactured	and	sold	by	PM	USA	and Nat	Sherman,	machine-made	large	cigars	and	pipe	tobacco	manufactured	and	sold by	Middleton	and	premium	cigars	sold	by	Nat	Sherman;	smokeless	tobacco products	manufactured	and	sold	by	USSTC;	and	innovative	tobacco	products, including	e-vapor	products	manufactured	and	sold	by	Nu	Mark.

▪Cigarettes:	PM	USA	is	the	largest	cigarette	company	in	the	United	States, with	total	cigarette	shipment	volume	in	the	United	States	of	approximately	122.9 billion	units	in	2016,	a	decrease	of	2.5%	from	2015.	Marlboro,	the	principal cigarette	brand	of	PM	USA,	has	been	the	largest-selling	cigarette	brand	in	the United	States	for	over	40	years.	Nat	Sherman	sells	substantially	all	of	its	super- premium	cigarettes	in	the	United	States.

▪Cigars:	Middleton	is	engaged	in	the	manufacture	and	sale	of	machine-made large	cigars	and	pipe	tobacco	to	customers,	substantially	all	of	which	are	located	in the	United	States.	Middleton	sources	a	portion	of	its	cigars	from	an	importer through	a	third-party	contract	manufacturing	arrangement.	Total	shipment	volume for	cigars	was	approximately	1.4	billion	units	in	2016,	an	increase	of	5.9%	from 2015.	Black	&	Mild	is	the	principal	cigar	brand	of	Middleton.	Nat	Sherman sources	its	premium	cigars	from	importers	through	third-party	contract manufacturing	arrangements	and	sells	substantially	all	of	its	cigars	in	the	United States.

▪Smokeless	tobacco	products:	USSTC	is	the	leading	producer	and	marketer of	moist	smokeless	tobacco	("MST")	products.	The	smokeless	products	segment includes	the	premium	brands,	Copenhagen	and	Skoal,	and	value	brands,	Red	Seal and	Husky.	Substantially	all	of	the	smokeless	tobacco	products	are	manufactured and	sold	to	customers	in	the	United	States.	Total	smokeless	products	shipment volume	was	853.5	million	units	in	2016,	an	increase	of	4.9%	from	2015.

▪Innovative	tobacco	products:	Nu	Mark	participates	in	the	e-vapor	category and	has	developed	and	commercialized	other	innovative	tobacco	products.	In addition,	Nu	Mark	sources	the	production	of	its	e-vapor	products	through	overseas contract	manufacturing	arrangements.	In	2013,	Nu	Mark	introduced	MarkTen	e- vapor	products.	In	April	2014,	Nu	Mark	acquired	the	e-vapor	business	of	Green Smoke,	Inc.	and	its	affiliates	("Green	Smoke"),	which	began	selling	e-vapor products	in	2009.	For	a	further	discussion	of	the	acquisition	of	Green	Smoke,	see Note	3.	Acquisition	of	Green	Smoke	to	the	consolidated	financial	statements	in Item	8	("Note	3").

In	December	2013,	Altria	Group,	Inc.'s	subsidiaries	entered	into	a	series	of agreements	with	Philip	Morris	International	Inc.	("PMI")	pursuant	to	which	Altria Group,	Inc.'s	subsidiaries	provide	an	exclusive	license	to	PMI	to	sell	Nu	Mark's	e- vapor	products	outside	the	United	States,	and	PMI's	subsidiaries	provide	an exclusive	license	to	Altria	Group,	Inc.'s	subsidiaries	to	sell	two	of	PMI's	heated tobacco	product	platforms	in	the	United	States.	Further,	in	July	2015,	Altria Group,	Inc.	announced	the	expansion	of	its	strategic	framework	with	PMI	to include	a	joint	research,	development	and	technology-sharing	agreement.	Under this	agreement,	Altria	Group,	Inc.'s	subsidiaries	and	PMI	will	collaborate	to develop	e-vapor	products	for	commercialization	in	the	United	States	by	Altria Group,	Inc.'s	subsidiaries	and	in	markets	outside	the	United	States	by	PMI.	This agreement	also	provides	for	exclusive	technology	cross	licenses,	technical information	sharing	and	cooperation	on	scientific	assessment,	regulatory engagement	and	approval	related	to	e-vapor	products.

In	the	fourth	quarter	of	2016,	PMI	submitted	a	Modified	Risk	Tobacco Product	("MRTP")	application	for	an	electronically	heated	tobacco	product	with the	United	States	Food	and	Drug	Administration's	("FDA")	Center	for	Tobacco Products	and	announced	that	it	plans	to	file	its	corresponding	pre-market	tobacco product	application	during	the	first	quarter	of	2017.	The	FDA	must	determine whether	to	accept	the	applications	for	substantive	review.	Upon	regulatory authorization	by	the	FDA,	Altria	Group,	Inc.'s	subsidiaries	will	have	an	exclusive license	to	sell	this	heated	tobacco	product	in	the	United	States.

# ▪Distribution,	Competition	and	Raw	Materials:	Altria	Group,	Inc.'s

tobacco	subsidiaries	sell	their	tobacco	products	principally	to	wholesalers (including	distributors),	large	retail	organizations,	including	chain	stores,	and	the armed	services.

The	market	for	tobacco	products	is	highly	competitive,	characterized	by	brand recognition	and	loyalty,	with	product	quality,	taste,	price,	product	innovation, marketing,	packaging	and	distribution	constituting	the	significant	methods	of competition.	Promotional	activities	include,	in	certain	instances	and	where

permitted	by	law,	allowances,	the	distribution	of	incentive	items,	price promotions,	product	promotions,	coupons	and	other	discounts.

In	June	2009,	the	President	of	the	United	States	of	America	signed	into	law the	Family	Smoking	Prevention	and	Tobacco	Control	Act	("FSPTCA"),	which provides	the	FDA	with	broad	authority	to	regulate	the	design,	manufacture, packaging,	advertising,	promotion,	sale	and	distribution	of	tobacco	products;	the authority	to	require	disclosures	of	related	information;	and	the	authority	to	enforce the	FSPTCA	and	related	regulations.	The	FSPTCA	went	into	effect	in	2009	for cigarettes,	cigarette	tobacco	and	smokeless	tobacco	products	and	in	August	2016 for	all	other	tobacco	products,	including	cigars,	e-vapor	products,	pipe	tobacco and	oral	tobacco-derived	nicotine	products	("Other	Tobacco	Products").	The FSPTCA	imposes	restrictions	on	the	advertising,	promotion,	sale	and	distribution of	tobacco	products,	including	at	retail.	PM	USA	and	USSTC	are	subject	to quarterly	user	fees	as	a	result	of	the	FSPTCA.	Their	respective	FDA	user	fee amounts	are	determined	by	an	allocation	formula	administered	by	the	FDA	that	is based	on	the	respective	market	shares	of	manufacturers	and	importers	of	each	kind of	tobacco	product.	PM	USA,	USSTC	and	other	U.S.	tobacco	manufacturers	have agreed	to	other	marketing	restrictions	in	the	United	States	as	part	of	the settlements	of	state	health	care	cost	recovery	actions.

In	the	United	States,	under	a	contract	growing	program,	PM	USA	purchases burley	and	flue-cured	leaf	tobaccos	of	various	grades	and	styles	directly	from tobacco	growers.	Under	the	terms	of	this	program,	PM	USA	agrees	to	purchase	the amount	of	tobacco	specified	in	the	grower	contracts.	PM	USA	also	purchases	a portion	of	its	tobacco	requirements	through	leaf	merchants.	Nat	Sherman purchases	its	tobacco	requirements	through	leaf	merchants.

USSTC	purchases	burley,	dark	fire-cured	and	air-cured	tobaccos	of	various grades	and	styles	from	domestic	tobacco	growers	under	a	contract	growing program	as	well	as	from	leaf	merchants.

Middleton	purchases	burley,	dark	air-cured	and	flue-cured	tobaccos	of various	grades	and	styles	through	leaf	merchants.	Middleton	does	not	have	a contract	growing	program.

Altria	Group,	Inc.'s	tobacco	subsidiaries	believe	there	is	an	adequate	supply of	tobacco	in	the	world	markets	to	satisfy	their	current	and	anticipated	production requirements.	See	Item	1A.	Risk	Factors	of	this	Annual	Report	on	Form	10-K ("Item	1A")	and	Tobacco	Space	-	Business	Environment	-	Price,	Availability	and Quality	of	Agricultural	Products	in	Item	7	for	a	discussion	of	risks	associated	with tobacco	supply.

Ste.	Michelle	is	a	producer	and	supplier	of	premium	varietal	and	blended	table wines	and	of	sparkling	wines.	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	domestic	and	foreign wine	regions.	Ste.	Michelle's	total	2016	wine	shipment	volume	of	approximately 9.3	million	cases	increased	5.3%	from	2015.

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,	Patz	&	Hall	in	Sonoma	and	Erath	in	Oregon.	In addition,	Ste.	Michelle	imports	and	markets	Antinori,	Torres	and	Villa	Maria Estate	wines	and	Champagne	Nicolas	Feuillatte	in	the	United	States.

# ▪Distribution,	Competition	and	Raw	Materials:	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	in	the	United	States	through	state-licensed	distributors. Ste.	Michelle	also	sells	to	domestic	consumers	through	retail	and	e-commerce channels	and	exports	wines	to	international	distributors.

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

Ste.	Michelle	uses	grapes	harvested	from	its	own	vineyards	or	purchased from	independent	growers,	as	well	as	bulk	wine	purchased	from	other	sources. Grape	production	can	be	adversely	affected	by	weather	and	other	forces	that	may limit	production.	At	the	present	time,	Ste.	Michelle	believes	that	there	is	a sufficient	supply	of	grapes	and	bulk	wine	available	in	the	market	to	satisfy	its current	and	expected	production	requirements.	See	Item	1A	for	a	discussion	of risks	associated	with	competition,	unfavorable	changes	in	grape	supply	and governmental	regulations.

# Financial	Services	Business

In	2003,	PMCC	ceased	making	new	investments	and	began	focusing	exclusively on	managing	its	portfolio	of	finance	assets	in	order	to	maximize	its	operating results	and	cash	flows	from	its	existing	lease	portfolio	activities	and	asset	sales. For	further	information	on	PMCC's	finance	assets,	see	Note	8.	Finance	Assets,	net to	the	consolidated	financial	statements	in	Item	8	("Note	8").

# Other	Matters

▪Customers:	The	largest	customer	of	PM	USA,	USSTC	and	Middleton, McLane	Company,	Inc.,	accounted	for	approximately	25%,	26%	and	27%	of Altria	Group,	Inc.'s	consolidated	net	revenues	for	the	years	ended	December	31, 2016,	2015	and	2014,	respectively.	In	addition,	Core-Mark	Holding	Company, Inc.

accounted	for	approximately	14%	and	10%	of	Altria	Group,	Inc.'s	consolidated net	revenues	for	the	years	ended	December	31,	2016	and	2015,	respectively. Substantially	all	of	these	net	revenues	were	reported	in	the	smokeable	products and	smokeless	products	segments.

Sales	to	three	distributors	accounted	for	approximately	69%,	66%	and	67%	of net	revenues	for	the	wine	segment	for	the	years	ended	December	31,	2016,	2015 and	2014,	respectively.

▪Employees:	At	December	31,	2016,	Altria	Group,	Inc.	and	its	subsidiaries employed	approximately	8,300	people.

# ▪Executive	Officers	of	Altria	Group,	Inc.:	The	disclosure	regarding

executive	officers	is	included	in	Item	10.	Directors,	Executive	Officers	and Corporate	Governance	-	Executive	Officers	as	of	February	13,	2017	of	this	Annual Report	on	Form	10-K.

▪Research	and	Development:	Research	and	development	expense	for	the years	ended	December	31,	2016,	2015	and	2014	is	set	forth	in	Note	18.	Additional Information	to	the	consolidated	financial	statements	in	Item	8.

▪Intellectual	Property:	Trademarks	are	of	material	importance	to	Altria Group,	Inc.	and	its	operating	companies,	and	are	protected	by	registration	or otherwise.	In	addition,	as	of	December	31,	2016,	the	portfolio	of	over	700	United States	patents	owned	by	Altria	Group,	Inc.'s	businesses,	as	a	whole,	was	material to	Altria	Group,	Inc.	and	its	tobacco	businesses.	However,	no	one	patent	or	group of	related	patents	was	material	to	Altria	Group,	Inc.'s	business	or	its	tobacco businesses	as	of	December	31,	2016.	Altria	Group,	Inc.'s	businesses	also	have proprietary	secrets,	technology,	know-how,	processes	and	other	intellectual property	rights	that	are	protected	by	appropriate	confidentiality	measures.	Certain trade	secrets	are	material	to	Altria	Group,	Inc.	and	its	tobacco	and	wine businesses.

▪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.	As discussed	in	Note	2,	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	and	compliance	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.

# Financial	Information	About	Geographic	Areas

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

# Available	Information

Altria	Group,	Inc.	is	required	to	file	annual,	quarterly	and	current	reports,	proxy statements	and	other	information	with	the	Securities	and	Exchange	Commission ("SEC").	Investors	may	read	and	copy	any	document	that	Altria	Group,	Inc.	files, including	this	Annual	Report	on	Form	10-K,	at	the	SEC's	Public	Reference	Room at	100	F	Street,	NE,	Washington,	D.C.	20549.	Investors	may	obtain	information on	the	operation	of	the	Public	Reference	Room	by	calling	the	SEC	at	1-800-SEC- 0330.	In	addition,	the	SEC	maintains	an	Internet	site	at	http://www.sec.gov	that contains	reports,	proxy	and	information	statements,	and	other	information regarding	issuers	that	file	electronically	with	the	SEC,	from	which	investors	can electronically	access	Altria	Group,	Inc.'s	SEC	filings.

Altria	Group,	Inc.	makes	available	free	of	charge	on	or	through	its	website (www.altria.com)	its	Annual	Report	on	Form	10-K,	Quarterly	Reports	on Form	10-Q,	Current	Reports	on	Form	8-K	and	amendments	to	those	reports	filed or	furnished	pursuant	to	Section	13(a)	or	15(d)	of	the	Securities	Exchange	Act	of 1934,	as	amended	(the	"Exchange	Act"),	as	soon	as	reasonably	practicable	after Altria	Group,	Inc.	electronically	files	such	material	with,	or	furnishes	it	to,	the SEC.	Investors	can	access	Altria	Group,	Inc.'s	filings	with	the	SEC	by	visiting www.altria.com/secfilings.

The	information	on	the	respective	websites	of	Altria	Group,	Inc.	and	its subsidiaries	is	not,	and	shall	not	be	deemed	to	be,	a	part	of	this	report	or incorporated	into	any	other	filings	Altria	Group,	Inc.	makes	with	the	SEC.

# Item	1A.	Risk	Factors

The	following	risk	factors	should	be	read	carefully	in	connection	with	evaluating our	business	and	the	forward-looking	statements	contained	in	this	Annual	Report on	Form	10-K.	Any	of	the	following	risks	could	materially	adversely	affect	our business,	our	results	of	operations,	our	cash	flows,	our	financial	position	and	the actual	outcome	of	matters	as	to	which	forward-looking	statements	are	made	in	this Annual	Report	on	Form	10-K.

We	(1)	may	from	time	to	time	make	written	or	oral	forward-looking statements,	including	earnings	guidance	and	other	statements	contained	in	filings with	the	SEC,	reports	to	security	holders,	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.	You	should bear	this	in	mind	as	you	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	document,	particularly	in	the	"Business Environment"	sections	preceding	our	discussion	of	the	operating	results	of	our subsidiaries'	businesses	in	Item	7.	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.

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

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

Litigation	is	subject	to	uncertainty	and	it	is	possible	that	there

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.

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	attorneys'	fees.

Although	PM	USA	has	historically	been	able	to	obtain	required	bonds	or relief	from	bonding	requirements	in	order	to	prevent	plaintiffs	from	seeking	to collect	judgments	while	adverse	verdicts	have	been	appealed,	there	remains	a	risk that	such	relief	may	not	be	obtainable	in	all	cases.	This	risk	has	been	substantially reduced	given	that	47	states	and	Puerto	Rico	now	limit	the	dollar	amount	of	bonds or	require	no	bond	at	all.	As	discussed	in	Note	19.	Contingencies	to	the consolidated	financial	statements	in	Item	8	("Note	19"),	tobacco	litigation plaintiffs	have	challenged	the	constitutionality	of	Florida's	bond	cap	statute	in several	cases	and	plaintiffs	may	challenge	state	bond	cap	statutes	in	other jurisdictions	as	well.	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	the	businesses	of	one	or	more	of	its	subsidiaries, could	be	materially	adversely	affected	in	a	particular	fiscal	quarter	or	fiscal	year by	an	unfavorable	outcome	of	one	or	more	such	challenges.

In	certain	litigation,	Altria	Group,	Inc.	and	its	subsidiaries	may	face potentially	significant	non-monetary	remedies.	For	example,	in	the	lawsuit brought	by	the	United	States	Department	of	Justice,	discussed	in	Note	19,	the district	court	did	not	impose	monetary	penalties	but	ordered	significant	non- monetary	remedies,	including	the	issuance	of	"corrective	statements"	in	various media.

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	the	businesses	of	one	or	more	of	its subsidiaries,	could	be	materially	adversely	affected	in	a	particular	fiscal	quarter	or fiscal	year	by	an	unfavorable	outcome	or	settlement	of	certain	pending	litigation. Altria	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	Item	3.	Legal	Proceedings	of	this	Annual	Report	on Form	10-K	("Item	3"),	Note	19	and	Exhibits	99.1	and	99.2	to	this	Annual	Report on	Form	10-K	for	a	discussion	of	pending	tobacco-related	litigation.

# Significant	federal,	state	and	local	governmental	actions,	including	actions	by the	FDA,	and	various	private	sector	actions	may	continue	to	have	an	adverse impact	on	our	tobacco	subsidiaries'	businesses	and	sales	volumes.

As	described	in	Tobacco	Space	-	Business	Environment	in	Item	7,	our	cigarette subsidiaries	face	significant	governmental	and	private	sector	actions,	including efforts	aimed	at	reducing	the	incidence	of	tobacco	use	and	efforts	seeking	to	hold these	subsidiaries	responsible	for	the	adverse	health	effects	associated	with	both smoking	and	exposure	to	environmental	tobacco	smoke.	These	actions,	combined with	the	diminishing	social	acceptance	of	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	and	other	federal,	state	or	local	governments	or	agencies, including	those	specific	actions	described	in	Tobacco	Space	-	Business Environment	in	Item	7,	may	impact	the	adult	tobacco	consumer	acceptability	of	or access	to	tobacco	products	(for	example,	through	product	standards	including those	that	our	tobacco	companies	may	be	unable	to	achieve),	limit	adult	tobacco consumer	choices,	delay	or	prevent	the	launch	of	new	or	modified	tobacco products	or	products	with	claims	of	reduced	risk,	require	the	recall	or	other removal	of	tobacco	products	from	the	marketplace	(for	example	as	a	result	of product	contamination	or	a	determination	by	the	FDA	that	one	or	more	tobacco products	do	not	satisfy	the	statutory	requirements	for	substantial	equivalence), restrict	communications	to	adult	tobacco	consumers,	restrict	the	ability	to differentiate	tobacco	products,	create	a	competitive	advantage	or	disadvantage	for certain	tobacco	companies,	impose	additional	manufacturing,	labeling	or	packing requirements,	interrupt	manufacturing	or	otherwise	significantly	increase	the	cost of	doing	business,	or	restrict	or	prevent	the	use	of	specified	tobacco	products	in certain	locations	or	the	sale	of	tobacco	products	by	certain	retail	establishments. Any	one	or	more	of	these	actions	may	have	a	material	adverse	impact	on	the business,	consolidated	results	of	operations,	cash	flows	or	financial	position	of Altria	Group,	Inc.	and	its	tobacco	subsidiaries.	See	Tobacco	Space	-	Business Environment	in	Item	7	for	a	more	detailed	discussion.

# Tobacco	products	are	subject	to	substantial	taxation,	which	could	have	an adverse	impact	on	sales	of	the	tobacco	products	of	Altria	Group,	Inc.'s tobacco	subsidiaries.

Tobacco	products	are	subject	to	substantial	excise	taxes,	and	significant	increases in	tobacco	product-related	taxes	or	fees	have	been	proposed	or	enacted	and	are likely	to	continue	to	be	proposed	or	enacted	within	the	United	States	at	the	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	in	Item	7.

# Our	tobacco	businesses	face	significant	competition	and	their	failure	to compete	effectively	could	have	an	adverse	effect	on	the	consolidated	results	of operations	or	cash	flows	of	Altria	Group,	Inc.,	or	the	business	of	Altria Group,	Inc.'s	tobacco	subsidiaries.

Each	of	Altria	Group,	Inc.'s	tobacco	subsidiaries	operates	in	highly	competitive tobacco	categories.	Significant	methods	of	competition	include	product	quality, taste,	price,	product	innovation,	marketing,	packaging,	distribution	and promotional	activities.		A	highly	competitive	environment	could	negatively impact	the	profitability,	market	share	and	shipment	volume	of	our	tobacco subsidiaries,	which	could	have	an	adverse	effect	on	the	consolidated	results	of operations	or	cash	flows	of	Altria	Group,	Inc.

PM	USA	also	faces	competition	from	lowest	priced	brands	sold	by	certain United	States	and	foreign	manufacturers	that	have	cost	advantages	because	they are	not	parties	to	settlements	of	certain	tobacco	litigation	in	the	United	States. These	settlements,	among	other	factors,	have	resulted	in	substantial	cigarette	price increases.	These	manufacturers	may	fail	to	comply	with	related	state	escrow legislation	or	may	avoid	escrow	deposit	obligations	on	the	majority	of	their	sales by	concentrating	on	certain	states	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	imports of	foreign	lowest	priced	brands.	USSTC	faces	significant	competition	in	the smokeless	tobacco	category	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.

Altria	Group,	Inc.	and	its	subsidiaries	may	be	unsuccessful	in	anticipating changes	in	adult	consumer	preferences,	responding	to	changes	in	consumer purchase	behavior	or	managing	through	difficult	competitive	and	economic conditions.

Each	of	our	tobacco	and	wine	subsidiaries	is	subject	to	intense	competition	and changes	in	adult	consumer	preferences.	To	be	successful,	they	must	continue	to:

▪promote	brand	equity successfully;

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

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

# ▪improve	productivity;	and

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

See	Tobacco	Space	-	Business	Environment	-	Summary	in	Item	7	for	additional discussion	concerning	evolving	adult	tobacco	consumer	preferences,	including	e- vapor	products.	Growth	of	this	product	category	could	contribute	to	reductions	in cigarette	consumption	levels	and	cigarette	industry	sales	volume	and	could adversely	affect	the	growth	rates	of	other	tobacco	products.

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,	which	could have	a	material	adverse	effect	on	the	business,	consolidated	results	of	operations, cash	flows	or	financial	position	of	Altria	Group,	Inc.	and	its	subsidiaries.	Our tobacco	and	wine	subsidiaries	work	to	broaden	their	brand	portfolios	to	compete effectively	with	lower-priced	products.

Our	financial	services	business	(conducted	through	PMCC)	holds	investments in	finance	leases,	principally	in	transportation	(including	aircraft),	power generation,	real	estate	and	manufacturing	equipment.	Its	lessees	are	subject	to significant	competition	and	uncertain	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.

Altria	Group,	Inc.'s	tobacco	subsidiaries	may	be	unsuccessful	in	developing and	commercializing	adjacent	products	or	processes,	including	innovative tobacco	products	that	may	reduce	the	health	risks	associated	with	current tobacco	products	and	that	appeal	to	adult	tobacco	consumers,	which	may have	an	adverse	effect	on	their	ability	to	grow	new	revenue	streams.

Altria	Group,	Inc.	and	its	subsidiaries	have	growth	strategies	involving	moves	and potential	moves	into	adjacent	products	or	processes,	including	innovative	tobacco products.	Some	innovative	tobacco	products	may	reduce	the	health	risks associated	with	current	tobacco	products,	while	continuing	to	offer	adult	tobacco consumers	(within	and	outside	the	United	States)	products	that	meet	their	taste expectations	and	evolving	preferences.	Examples	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,	or	investments	in,	third	parties.	Our	tobacco subsidiaries	may	not	succeed	in	these	efforts,	which	would	have	an	adverse	effect on	the	ability	to	grow	new	revenue	streams.

Further,	we	cannot	predict	whether	regulators,	including	the	FDA,	will	permit the	marketing	or	sale	of	products	with	claims	of	reduced	risk	to	consumers,	the speed	with	which	they	may	make	such	determinations	or	whether	regulators	will impose	an	unduly	burdensome	regulatory	framework	on	such	products.	Nor	can we	predict	whether	adult	tobacco	consumers'	purchasing	decisions	would	be affected	by	such	claims	if	permitted.	Adverse	developments	on	any	of	these matters	could	negatively	impact	the	commercial	viability	of	such	products.

If	our	tobacco	subsidiaries	do	not	succeed	in	their	efforts	to	develop	and commercialize	innovative	tobacco	products	or	to	obtain	regulatory	approval	for the	marketing	or	sale	of	products	with	claims	of	reduced	risk,	but	one	or	more	of their	competitors	do	succeed,	our	tobacco	subsidiaries	may	be	at	a	competitive disadvantage.

# Significant	changes	in	tobacco	leaf	price,	availability	or	quality	could	have	an adverse	effect	on	the	profitability	and	business	of	Altria	Group,	Inc.'s	tobacco subsidiaries.

Any	significant	change	in	tobacco	leaf	prices,	quality	or	availability	could adversely	affect	our	tobacco	subsidiaries'	profitability	and	business.	For	further discussion,	see	Tobacco	Space	-	Business	Environment	-	Price,	Availability	and Quality	of	Agricultural	Products	in	Item	7.

# Because	Altria	Group,	Inc.'s	tobacco	subsidiaries	rely	on	a	few	significant facilities	and	a	small	number	of	significant	suppliers,	an	extended	disruption at	a	facility	or	in	service	by	a	supplier	could	have	a	material	adverse	effect	on the	business,	the	consolidated	results	of	operations,	cash	flows	or	financial position	of	Altria	Group,	Inc.	and	its	tobacco	subsidiaries.

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	operations	of	any of	Altria	Group,	Inc.'s	tobacco	subsidiaries	or	the	operations	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	of	Altria	Group,	Inc.'s	subsidiaries	or significant	suppliers	could	have	a	material	adverse	effect	on	the	business,	the consolidated	results	of	operations,	cash	flows	or	financial	position	of	Altria Group,	Inc.	and	its	tobacco	subsidiaries.

Altria	Group,	Inc.'s	subsidiaries	could	decide	or	be	required	to	recall products,	which	could	have	a	material	adverse	effect	on	the	business,	the consolidated	results	of	operations,	cash	flows	or	financial	position	of	Altria Group,	Inc.	and	its	subsidiaries.

In	addition	to	a	recall	required	by	the	FDA,	as	referenced	above,	our	subsidiaries could	decide,	or	laws	or	regulations	could	require	them,	to	recall	products	due	to the	failure	to	meet	quality	standards	or	specifications,	suspected	or	confirmed	and deliberate	or	unintentional	product	contamination,	or	other	adulteration,	product misbranding	or	product	tampering.	In	January	2017,	USSTC	announced	that	it was	voluntarily	recalling	certain	of	its	smokeless	tobacco	products	manufactured at	a	USSTC	facility	due	to	product	tampering.	USSTC	will	record	a	charge	during the	first	quarter	of	2017	related	to	this	recall.	While	this	charge	is	not	expected	to be	material	to	Altria	Group,	Inc.'s	financial	statements,	future	recalls	(if	any) could	have	a	material	adverse	effect	on	the	business,	consolidated	results	of operations,	cash	flows	or	financial	position	of	Altria	Group,	Inc.	and	its subsidiaries.

# Altria	Group,	Inc.	may	be	unable	to	attract	and	retain	the	best	talent	due	to the	impact	of	decreasing	social	acceptance	of	tobacco	usage	and	tobacco control	actions.

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.

# Acquisitions	or	other	events	may	adversely	affect	Altria	Group,	Inc.'s	credit rating,	and	Altria	Group,	Inc.	may	not	achieve	its	anticipated	strategic	or financial	objectives.

From	time	to	time,	Altria	Group,	Inc.	considers	acquisitions	and	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	the	occurrence	of	other	events	could	impact	our	credit	ratings or	the	outlook	for	those	ratings.	Any	such	change	in	ratings	or	outlook	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.

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	acquire	attractive	businesses	on	favorable	terms or	that	we	will	realize	any	of	the	anticipated	benefits	from	an	acquisition.

# Disruption	and	uncertainty	in	the	debt	capital	markets	could	adversely	affect Altria	Group,	Inc.'s	access	to	the	debt	capital	markets,	earnings	and	dividend rate.

Access	to	the	debt	capital	markets	is	important	for	us	to	satisfy	our	liquidity	and financing	needs.	Disruption	and	uncertainty	in	the	credit	and	debt	capital	markets and	any	resulting	adverse	impact	on	credit	availability,	pricing,	credit	terms	or credit	rating	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.

# Altria	Group,	Inc.	may	be	required	to	write	down	intangible	assets,	including goodwill,	due	to	impairment,	which	would	reduce	earnings.

We	periodically	calculate	the	fair	value	of	our	reporting	units	and	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.	Certain	events	can	also	trigger	an	immediate	review	of	intangible	assets.	If an	impairment	is	determined	to	exist	in	either	situation,	we	will	incur	impairment losses,	which	will	reduce	our	earnings.

# Competition,	unfavorable	changes	in	grape	supply	and	new	governmental regulations	or	revisions	to	existing	governmental	regulations	could	adversely affect	Ste.	Michelle's	wine	business.

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	in	Item	7.

The	failure	of	Altria	Group,	Inc.'s	information	systems	or	service	providers' information	systems	to	function	as	intended,	or	cyberattacks	or	security breaches,	could	result	in	loss	of	revenue,	assets,	personal	data,	intellectual property,	trade	secrets	or	other	sensitive	data,	violation	of	applicable	privacy and	data	security	laws,	reputational	harm	and	significant	costs.

Altria	Group,	Inc.	and	its	subsidiaries	rely	on	information	systems	to	help	manage business	processes,	collect	and	interpret	business	data,	comply	with	regulatory, financial	reporting	and	tax	requirements,	engage	in	marketing	and	e-commerce activities,	collect	and	store	sensitive	data	and	confidential	information,	and communicate	internally	and	externally	with	employees,	investors,	suppliers,	trade customers,	adult	consumers	and	others.	Many	of	these	information	systems	are managed	by	third-party	service	providers.	We	have	implemented	administrative, technical	and	physical	safeguards,	including	testing	and	auditing	protocols,

backup	systems	and	business	continuity	plans,	intended	to	protect	our	systems	and data.	However,	because	the	techniques	used	in	cyberattacks	and	security	breaches change	frequently	and	often	are	not	recognized	until	launched	against	a	target,	we may	be	unable	to	anticipate	these	techniques	or	to	implement	adequate preventative	measures.	To	date,	interruptions	of	our	information	systems	have been	infrequent	and	have	not	had	a	material	impact	on	our	operations.	Failure	of our	systems	or	service	providers'	systems	to	function	as	intended	or	cyberattacks or	security	breaches	by	parties	intent	on	extracting	or	corrupting	information	or otherwise	disrupting	business	processes	could	result	in	loss	of	revenue,	assets, personal	data,	intellectual	property,	trade	secrets	or	other	sensitive	and confidential	data,	violation	of	applicable	privacy	and	data	security	laws,	damage	to the	reputation	of	our	companies	and	their	brands,	legal	challenges	and	significant remediation	and	other	costs	to	Altria	Group,	Inc.	and	its	subsidiaries.

# Unfavorable	outcomes	of	any	governmental	investigations	could	materially affect	the	businesses	of	Altria	Group,	Inc.	and	its	subsidiaries.

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	business	could	be	materially	adversely	affected	by	an unfavorable	outcome	of	future	investigations.

# Expanding	international	business	operations	subjects	Altria	Group,	Inc.	and its	subsidiaries	to	various	United	States	and	foreign	laws	and	regulations,	and violations	of	such	laws	or	regulations	could	result	in	reputational	harm,	legal challenges	and/or	significant	costs.

While	Altria	Group,	Inc.	and	its	subsidiaries	are	primarily	engaged	in	business activities	in	the	United	States,	they	do	engage	(directly	or	indirectly)	in	certain international	business	activities	that	are	subject	to	various	United	States	and foreign	laws	and	regulations,	such	as	the	U.S.	Foreign	Corrupt	Practices	Act	and other	laws	prohibiting	bribery	and	corruption.		Although	we	have	a	Code	of Conduct	and	a	compliance	system	designed	to	prevent	and	detect	violations	of applicable	law,	no	system	can	provide	assurance	that	it	will	always	protect	against improper	actions	by	employees	or	third	parties.	Violations	of	these	laws,	or allegations	of	such	violations,	could	result	in	reputational	harm,	legal	challenges and/or	significant	costs.

Altria	Group,	Inc.'s	reported	earnings	from	and	carrying	value	of	its	equity investment	in	AB	InBev	and	the	dividends	paid	by	AB	InBev	on	shares	owned by	Altria	Group,	Inc.	may	be	adversely	affected	by	unfavorable	foreign currency	exchange	rates	and	other	factors.

For	purposes	of	financial	reporting,	the	earnings	from	and	carrying	value	of	our equity	investment	in	AB	InBev	are	translated	into	U.S.	dollars	from	various	local currencies.	In	addition,	AB	InBev	pays	dividends	in	euros,	which	we	convert	into U.S.	dollars.	During	times	of	a	strengthening	U.S.	dollar

against	these	currencies,	our	reported	earnings	from	and	carrying	value	of	our equity	investment	in	AB	InBev	will	be	reduced	because	these	currencies	will translate	into	fewer	U.S.	dollars	and	the	dividends	that	we	receive	from	AB	InBev will	convert	into	fewer	U.S.	dollars.	Dividends	and	earnings	from	and	carrying value	of	our	equity	investment	in	AB	InBev	are	also	subject	to	the	risks encountered	by	AB	InBev	in	its	business.

# AB	InBev	may	not	achieve	the	intended	benefits	of	the	Transaction,	which could	have	a	negative	effect	on	our	reported	earnings	from	and	carrying value	of	our	equity	investment	in	AB	InBev.

There	can	be	no	assurance	that	AB	InBev	will	be	able	to	successfully	integrate SABMiller's	business	or	otherwise	realize	the	expected	benefits	of	the Transaction.	Any	of	these	outcomes	could	result	in	increased	costs	to	AB	InBev, and	could	adversely	affect	AB	InBev's	financial	condition,	results	of	operations	or cash	flows	and	Altria	Group,	Inc.'s	reported	earnings	from	and	carrying	value	of our	equity	investment	in	AB	InBev.

We	received	a	substantial	portion	of	our	consideration	from	the	Transaction in	the	form	of	restricted	shares	subject	to	a	five-year	lock-up.	Furthermore, if	our	percentage	ownership	in	AB	InBev	were	to	be	decreased	below	certain levels,	we	may	be	subject	to	additional	tax	liabilities,	suffer	a	reduction	in	the number	of	directors	that	we	can	have	appointed	to	the	AB	InBev	Board	of Directors,	and	be	unable	to	account	for	our	investment	under	the	equity method	of	accounting.

Upon	completion	of	the	Transaction,	we	received	a	substantial	portion	of	our consideration	in	the	form	of	restricted	shares	that	cannot	be	sold	or	transferred	for a	period	of	five	years	following	the	Transaction,	subject	to	limited	exceptions. These	transfer	restrictions	will	require	us	to	bear	the	risks	associated	with	our investment	in	AB	InBev	for	a	five-year	period	that	expires	on	October	10,	2021. Further,	in	the	event	that	our	ownership	percentage	in	AB	InBev	were	to	be decreased	below	certain	levels,	we	may	be	subject	to	additional	tax	liabilities,	the number	of	directors	that	we	have	the	right	to	have	appointed	to	the	AB	InBev Board	of	Directors	could	be	reduced	from	two	to	one	or	zero,	and	our	use	of	the equity	method	of	accounting	for	investment	in	AB	InBev	could	be	challenged.

# Our	tax	treatment	of	the	Transaction	consideration	may	be	challenged	and the	tax	treatment	of	AB	InBev	dividends	is	not	expected	to	be	as	favorable	as prior	SABMiller	dividends.

While	we	expect	the	equity	consideration	that	we	received	from	the	Transaction	to qualify	for	tax-deferred	treatment,	we	cannot	provide	any	assurance	that	federal and	state	tax	authorities	will	not	challenge	the	expected	tax	treatment	and,	if	they do,	what	the	outcome	of	any	such	challenge	will	be.	We	also	anticipate	that	the	tax treatment	of	the	dividends	Altria	Group,	Inc.	expects	to	receive	from	AB	InBev will	not	be	as	favorable	as	that	associated	with	the	dividends	we	received	from SABMiller.

# Item	1B.	Unresolved	Staff	Comments.

None.

# Item	2.	Properties.

The	property	in	Richmond,	Virginia	that	serves	as	the	headquarters	facility	for Altria	Group,	Inc.,	PM	USA,	USSTC,	Middleton,	Nu	Mark	and	certain	other subsidiaries	is	under	lease.

At	December	31,	2016,	the	smokeable	products	segment	used	four manufacturing	and	processing	facilities.	PM	USA	owns	and	operates	two	tobacco manufacturing	and	processing	facilities	located	in	the	Richmond,	Virginia	area that	are	used	in	the	manufacturing	and	processing	of	cigarettes.	Middleton	owns and	operates	two	manufacturing	and	processing	facilities	-	one	in	King	of	Prussia, Pennsylvania	and	one	in	Limerick,	Pennsylvania	-	that	are	used	in	the manufacturing	and	processing	of	cigars	and	pipe	tobacco.	In	addition,	PM	USA owns	a	research	and	technology	center	in	Richmond,	Virginia	that	is	leased	to	an affiliate,	Altria	Client	Services	LLC.

At	December	31,	2016,	the	smokeless	products	segment	used	four	smokeless tobacco	manufacturing	and	processing	facilities	located	in	Franklin	Park,	Illinois; Nashville,	Tennessee;	and	two	facilities	in	Hopkinsville,	Kentucky,	all	of	which are	owned	and	operated	by	USSTC.

As	disclosed	in	Note	5.	Asset	Impairment,	Exit	and	Implementation	Costs	to the	consolidated	financial	statements	in	Item	8	("Note	5"),	in	October	2016,	Altria Group,	Inc.	announced	the	consolidation	of	certain	of	its	operating	companies' manufacturing	facilities	to	streamline	operations	and	achieve	greater	efficiencies. Middleton	will	transfer	its	Limerick,	Pennsylvania	operations	to	the Manufacturing	Center	site	in	Richmond,	Virginia	("Richmond	Manufacturing Center").	USSTC	will	transfer	its	Franklin	Park,	Illinois	operations	to	its Nashville,	Tennessee	facility	and	the	Richmond	Manufacturing	Center.	The consolidation	is	expected	to	be	completed	by	the	first	quarter	of	2018. At	December	31,	2016,	the	wine	segment	used	12	wine-making	facilities	- seven	in	Washington,	four	in	California	and	one	in	Oregon.	All	of	these	facilities are	owned	and	operated	by	Ste.	Michelle,	with	the	exception	of	a	facility	that	is leased	by	Ste.	Michelle	in	Washington.	In	addition,	in	order	to	support	the production	of	its	wines,	the	wine	segment	used	vineyards	in	Washington, California	and	Oregon	that	are	leased	or	owned	by	Ste.	Michelle.

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

# Item	3.	Legal	Proceedings.

The	information	required	by	this	Item	is	included	in	Note	19	and	Exhibits	99.1	and 99.2	to	this	Annual	Report	on	Form	10-K.	Altria	Group,	Inc.'s	consolidated financial	statements	and	accompanying	notes	for	the	year	ended	December	31, 2016	were	filed	on	Form	8-K	on	February	1,	2017	(such	consolidated	financial statements	and	accompanying	notes	are	also	included	in	Item	8).	The	following summarizes	certain	developments	in	Altria	Group,	Inc.'s	litigation	since	the	filing of	such	Form	8-K.

# Recent	Developments

# Smoking	and	Health	Litigation

# ▪Engle	Progeny	Trial	Results:

In	McKeever,	in	February	2017,	PM	USA	filed	a	notice	to	invoke	the discretionary	jurisdiction	of	the	Florida	Supreme	Court.

In	Pardue,	in	February	2017,	the	trial	court	granted	PM	USA's	and	R.J.	Reynolds Tobacco	Company's	("R.J.	Reynolds")	motion	for	a	remittitur,	reducing	the compensatory	damages	award	from	approximately	$5.9	million	to	approximately $5.2	million.

In	Varner,	in	February	2017,	PM	USA	paid	plaintiff	approximately	$600,000	to satisfy	the	judgment,	interest	and	related	costs.	PM	USA	will	record	a	pre-tax provision	of	approximately	$600,000	in	the	first	quarter	of	2017.

In	J.	Brown,	in	February	2017,	a	Pinellas	County	jury	returned	verdict	in	favor of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$5.4	million	in compensatory	damages	and	allocating	35%	of	the	fault	to	PM	USA.	The	jury	also awarded	plaintiff	$200,000	in	punitive	damages	against	PM	USA.	The	court	ruled that	it	will	not	apply	the	comparative	fault	reduction	to	the	compensatory	damages. In	Martin,	in	February	2017,	PM	USA	and	R.J.	Reynolds	filed	a	notice	of	appeal to	the	Florida	Fourth	District	Court	of	Appeal.

In	Allen,	in	February	2017,	the	Florida	First	District	Court	of	Appeal	affirmed the	trial	court's	verdict.

# Health	Care	Cost	Recovery	Litigation

NPM	Adjustment	Disputes:		As	discussed	in	Note	19,	in	1998,	PM	USA	and certain	other	U.S.	tobacco	product	manufacturers	entered	into	the	1998	Master Settlement	Agreement	(the	"MSA").	PM	USA	is	participating	in	proceedings regarding	potential	downward	adjustments	(the	"NPM	Adjustment")	to	MSA payments	made	by	manufacturers	that	are	signatories	to	the	MSA	(the "Participating	Manufacturers")	for	2003-2015.	In	February	2017,	the	Supreme Court	of	Missouri	denied	Missouri's	motion	to	order	the	Participating Manufacturers	to	arbitrate	the	question	of	its	diligent	enforcement	in	a	single-state arbitration	for	2004,	but	granted	Missouri's	motion	to	modify,	with	respect	to Missouri,	the	pro	rata	judgment	reduction	related	to	the	2003	NPM	Adjustment. As	a	result	of	the	judgment	reduction	decision,	PM	USA	will	be	required	to	return approximately	$12	million	of	the	2003	NPM	Adjustment	and	$7	million	of	the interest	it	received	(in	each	case	subject	to	confirmation	by	the	independent auditor),	plus	applicable	interest.		In	addition,	PM	USA	will	record	a corresponding	reduction	to	its	pre-tax	earnings	in	the	first	quarter	of	2017.

# Item	4.	Mine	Safety	Disclosures.

Not	applicable.

# Part	II

# Item	5.	Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

# Performance	Graph

The	graph	below	compares	the	cumulative	total	shareholder	return	of	Altria	Group,	Inc.'s	common	stock	for	the	last	five	years	with	the	cumulative	total	return	for	the same	period	of	the	S&P	500	Index	and	the	Altria	Group,	Inc.	Peer	Group	(1).	The	graph	assumes	the	investment	of	$100	in	common	stock	and	each	of	the	indices	as	of the	market	close	on	December	31,	2011	and	the	reinvestment	of	all	dividends	on	a	quarterly	basis.

| Date | Altria	Group,<br>Inc. | Altria	Group,	Inc.<br>Peer	Group | S&amp;P	500 |
| :--- | :--- | :--- | :--- |
| December\t2011 | $100.00 | $100.00 | $100.00 |
| December\t2012 | $111.77 | $108.78 | $115.99 |
| December\t2013 | $143.69 | $135.61 | $153.55 |
| December\t2014 | $193.28 | $151.74 | $174.55 |
| December\t2015 | $237.92 | $177.04 | $176.94 |
| December\t2016 | $286.61 | $192.56 | $198.09 |

Source:	Bloomberg	-	"Total	Return	Analysis"	calculated	on	a	daily	basis	and	assumes	reinvestment	of	dividends	as	of	the	ex-dividend	date.

(1) In	2016,	the	Altria	Group,	Inc.	Peer	Group	consisted	of	U.S.-headquartered	consumer	product	companies	that	are	competitors	to	Altria	Group,	Inc.'s	tobacco	operating	companies	subsidiaries	or	that have	been	selected	on	the	basis	of	revenue	or	market	capitalization:	Campbell	Soup	Company,	The	Coca-Cola	Company,	Colgate-Palmolive	Company,	Conagra	Brands,	Inc.,	General	Mills,	Inc., The	Hershey	Company,	Kellogg	Company,	Kimberly-Clark	Corporation,	The	Kraft	Heinz	Company,	Mondelēz	International,	Inc.,	PepsiCo,	Inc.	and	Reynolds	American	Inc.

Note	-	On	October	1,	2012,	Kraft	Foods	Inc.	(KFT)	spun	off	Kraft	Foods	Group,	Inc.	(KRFT)	to	its	shareholders	and	then	changed	its	name	from	Kraft	Foods	Inc.	to	Mondelēz	International,	Inc. (MDLZ).	On	July	2,	2015,	Kraft	Foods	Group,	Inc.	merged	with	and	into	a	wholly	owned	subsidiary	of	H.J.	Heinz	Holding	Corporation,	which	was	renamed	The	Kraft	Heinz	Company	(KHC).	On June	12,	2015,	Reynolds	American	Inc.	(RAI)	acquired	Lorillard,	Inc.	(LO).	On	November	9,	2016,	ConAgra	Foods,	Inc.	(CAG)	spun	off	Lamb	Weston	Holdings,	Inc.	(LW)	to	its	shareholders	and then	changed	its	name	from	ConAgra	Foods,	Inc.	to	Conagra	Brands,	Inc.	(CAG).

# Market	and	Dividend	Information

The	principal	stock	exchange	on	which	Altria	Group,	Inc.'s	common	stock	(par	value	$0.33	1/3	per	share)	is	listed	is	the	New	York	Stock	Exchange.	At	February	13, 2017,	there	were	approximately	68,000	holders	of	record	of	Altria	Group,	Inc.'s	common	stock.

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

|  | Price	Per	Share<br>High | Low | Cash	Dividends	Declared<br>Per	Share |
| :--- | :--- | :--- | :--- |
| 2016: |  |  |  |
| Fourth\tQuarter | $68.03 | $60.82 | $0.61 |
| Third\tQuarter | $70.15 | $62.46 | $0.61 |
| Second\tQuarter | $69.26 | $59.48 | $0.565 |
| First\tQuarter | $63.15 | $56.15 | $0.565 |
| 2015: |  |  |  |
| Fourth\tQuarter | $61.74 | $53.68 | $0.565 |
| Third\tQuarter | $56.39 | $47.41 | $0.565 |
| Second\tQuarter | $52.99 | $47.31 | $0.52 |
| First\tQuarter | $56.70 | $48.52 | $0.52 |

# Issuer	Purchases	of	Equity	Securities	During	the	Quarter	Ended	December	31,	2016

In	July	2015,	Altria	Group,	Inc.'s	Board	of	Directors	(the	"Board	of	Directors")	authorized	a	$1.0	billion	share	repurchase	program	that	it	expanded	to	$3.0	billion	in October	2016	(as	expanded,	the	"July	2015	share	repurchase	program").	Altria	Group,	Inc.	expects	to	complete	the	July	2015	share	repurchase	program	by	the	end	of	the second	quarter	of	2018.	The	timing	of	share	repurchases	under	the	July	2015	share	repurchase	program	depends	upon	marketplace	conditions	and	other	factors,	and	the program	remains	subject	to	the	discretion	of	the	Board	of	Directors.

Altria	Group,	Inc.'s	share	repurchase	activity	for	each	of	the	three	months	in	the	period	ended	December	31,	2016,	was	as	follows:

|  | Total	Number	of | Average	Price | Total	Number	of	Shares	Purchased	as | Approximate	Dollar	Value	of	Shares	that |
| :--- | :--- | :--- | :--- | :--- |
|  | Shares\tPurchased | Paid\tPer | Part\tof\tPublicly\tAnnounced\tPlans\tor | May\tYet\tbe\tPurchased\tUnder\tthe\tPlans\tor |
| Period | (1) | Share | Programs | Programs |
| October\t1-\tOctober\t31,\t2016 | 2,393,027 | $62.61 | 2,392,200 | $2,302,733,059 |
| November\t1-\tNovember\t30,\t2016 | 3,395,434 | $63.19 | 3,394,623 | $2,088,226,586 |
| December\t1-\tDecember\t31,\t2016 | 2,343,025 | $65.46 | 2,340,000 | $1,935,041,770 |
| For\tthe\tQuarter\tEnded\tDecember\t31,\t2016 | 8,131,486 | $63.67 | 8,126,823 |  |

(1)	The	total	number	of	shares	purchased	includes	(a)	shares	purchased	under	the	July	2015	share	repurchase	program	(which	totaled	2,392,200	shares	in	October,	3,394,623	shares	in November	and	2,340,000	shares	in	December)	and	(b)	shares	withheld	by	Altria	Group,	Inc.	in	an	amount	equal	to	the	statutory	withholding	taxes	for	holders	who	vested	in restricted	stock	units,	and	forfeitures	of	restricted	stock	for	which	consideration	was	paid	in	connection	with	termination	of	employment	of	certain	employees	(which	totaled	827 shares	in	October,	811	shares	in	November	and	3,025	shares	in	December).

# Item	6.	Selected	Financial	Data.

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

| 2016 | 2015 | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- |
| $25,744 | $25,434 | $24,522 | $24,466 | $24,618 |
| 7,746 | 7,740 | 7,785 | 7,206 | 7,937 |
| 6,407 | 6,580 | 6,577 | 6,803 | 7,118 |
| 8,762 | 8,361 | 7,620 | 8,084 | 7,253 |
| 747 | 817 | 808 | 1,049 | 1,126 |
| 795 | 757 | 1,006 | 991 | 1,224 |
| 13,865 | 5 | — | — | — |
| 21,852 | 8,078 | 7,774 | 6,942 | 6,477 |
| 84.9% | 31.8% | 31.7% | 28.4% | 26.3% |
| 7,608 | 2,835 | 2,704 | 2,407 | 2,294 |
| 14,244 | 5,243 | 5,070 | 4,535 | 4,183 |
| 14,239 | 5,241 | 5,070 | 4,535 | 4,180 |
| 7.28 | 2.67 | 2.56 | 2.26 | 2.06 |
| 2.35 | 2.17 | 2.00 | 1.84 | 1.70 |
| 1,952 | 1,961 | 1,978 | 1,999 | 2,024 |
| 189 | 229 | 163 | 131 | 124 |
| 183 | 204 | 188 | 192 | 205 |
| 1,958 | 1,982 | 1,983 | 2,028 | 2,102 |
| 2,051 | 2,031 | 2,040 | 1,879 | 1,746 |
| 45,932 | 31,459 | 33,440 | 33,858 | 34,252 |
| 13,881 | 12,843 | 13,610 | 13,907 | 12,346 |
| 13,881 | 12,847 | 14,610 | 14,432 | 13,805 |
| 12,773 | 2,873 | 3,010 | 4,118 | 3,170 |
| 32.3% | 81.3% | 78.1% | 81.4% | 82.5% |
| 6.57 | 1.47 | 1.53 | 2.07 | 1.58 |
| 70.15-56.15 | 61.74-47.31 | 51.67-33.80 | 38.58-31.85 | 36.29-28.00 |
| 67.62 | 58.21 | 49.27 | 38.39 | 31.44 |
| 9 | 22 | 19 | 17 | 15 |
| 1,943 | 1,960 | 1,971 | 1,993 | 2,010 |
| 8,300 | 8,800 | 9,000 | 9,000 | 9,100 |

(1)	Certain	2016	amounts	include	the	impact	of	the	Gain	on	AB	InBev/SABMiller	business	combination.	For	further	information,	see	Note	7	in	Item	8.

(2)	Certain	prior-years'	amounts	have	been	reclassified	to	conform	with	the	current-year's	presentation	due	to	the	adoptions	of	certain	accounting	standards	updates.	For	further	information,	see	Note 1	in	Item	8.

The	Selected	Financial	Data	should	be	read	in	conjunction	with	Item	7	and	Item	8.

# Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

The	following	discussion	should	be	read	in	conjunction	with	the	other	sections	of this	Annual	Report	on	Form	10-K,	including	the	consolidated	financial	statements and	related	notes	contained	in	Item	8,	and	the	discussion	of	cautionary	factors	that may	affect	future	results	in	Item	1A.

# Description	of	the	Company

At	December	31,	2016,	Altria	Group,	Inc.'s	wholly-owned	subsidiaries	included PM	USA,	which	is	engaged	in	the	manufacture	and	sale	of	cigarettes	in	the	United States;	Middleton,	which	is	engaged	in	the	manufacture	and	sale	of	machine-made large	cigars	and	pipe	tobacco	and	is	a	wholly-owned	subsidiary	of	PM	USA;	and UST,	which	through	its	wholly-owned	subsidiaries,	including	USSTC	and	Ste. Michelle,	is	engaged	in	the	manufacture	and	sale	of	smokeless	tobacco	products and	wine.	Altria	Group,	Inc.'s	other	operating	companies	included	Nu	Mark,	a wholly-owned	subsidiary	that	is	engaged	in	the	manufacture	and	sale	of	innovative tobacco	products,	and	PMCC,	a	wholly-owned	subsidiary	that	maintains	a portfolio	of	finance	assets,	substantially	all	of	which	are	leveraged	leases.	Other Altria	Group,	Inc.	wholly-owned	subsidiaries	included	Altria	Group	Distribution Company,	which	provides	sales,	distribution	and	consumer	engagement	services to	certain	Altria	Group,	Inc.	operating	subsidiaries,	and	Altria	Client	Services LLC,	which	provides	various	support	services	in	areas,	such	as	legal,	regulatory, finance,	human	resources	and	external	affairs,	to	Altria	Group,	Inc.	and	its subsidiaries.	In	addition,	Nu	Mark	and	Middleton	use	third-party	contract manufacturing	arrangements	in	the	manufacture	of	their	products.	Altria	Group, Inc.'s	access	to	the	operating	cash	flows	of	its	wholly-owned	subsidiaries	consists of	cash	received	from	the	payment	of	dividends	and	distributions,	and	the	payment of	interest	on	intercompany	loans	by	its	subsidiaries.	At	December	31,	2016, Altria	Group,	Inc.'s	principal	wholly-owned	subsidiaries	were	not	limited	by	long- term	debt	or	other	agreements	in	their	ability	to	pay	cash	dividends	or	make	other distributions	with	respect	to	their	equity	interests.

At	September	30,	2016,	Altria	Group,	Inc.	had	an	approximate	27% ownership	of	SABMiller,	which	Altria	Group,	Inc.	accounted	for	under	the	equity method	of	accounting.	On	October	10,	2016,	Legacy	AB	InBev	completed	the Transaction,	and	AB	InBev	became	the	holding	company	for	the	combined SABMiller	and	Legacy	AB	InBev	businesses.	Upon	completion	of	the Transaction,	Altria	Group,	Inc.	had	a	9.6%	ownership	of	AB	InBev	based	on	AB InBev's	shares	outstanding	at	October	10,	2016.	Following	completion	of	the Transaction,	Altria	Group,	Inc.	purchased	12,341,937	ordinary	shares	of	AB InBev	for	a	total	cost	of	approximately	$1.6	billion,	thereby	increasing	Altria Group,	Inc.'s	ownership	to	approximately	10.2%.	At	December	31,	2016.	Altria Group,	Inc.	had	an	approximate	10.2%	ownership	of	AB	InBev,	which

Altria	Group,	Inc.	accounts	for	under	the	equity	method	of	accounting	using	a	one- quarter	lag.	As	a	result	of	the	one-quarter	lag	and	the	timing	of	the	completion	of the	Transaction,	no	earnings	from	Altria	Group,	Inc.'s	equity	investment	in	AB InBev	were	recorded	for	the	year	ended	December	31,	2016.	Altria	Group,	Inc. receives	cash	dividends	on	its	interest	in	AB	InBev	if	and	when	AB	InBev	pays such	dividends.	For	further	discussion,	see	Note	7.	Investment	in	AB InBev/SABMiller	to	the	consolidated	financial	statements	in	Item	8	("Note	7"). Altria	Group,	Inc.'s	reportable	segments	are	smokeable	products,	smokeless products	and	wine.	The	financial	services	and	the	innovative	tobacco	products businesses	are	included	in	an	all	other	category	due	to	the	continued	reduction	of the	lease	portfolio	of	PMCC	and	the	relative	financial	contribution	of	Altria Group,	Inc.'s	innovative	tobacco	products	businesses	to	Altria	Group,	Inc.'s consolidated	results.

In	January	2017,	Altria	Group,	Inc.	acquired	Nat	Sherman,	which	sells	super- premium	cigarettes	and	premium	cigars	and	joins	PM	USA	and	Middleton	as	part of	Altria	Group,	Inc.'s	smokeable	products	segment.

# Executive	Summary

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

# Consolidated	Results	of	Operations

The	changes	in	Altria	Group,	Inc.'s	net	earnings	and	diluted	earnings	per	share ("EPS")	attributable	to	Altria	Group,	Inc.	for	the	year	ended	December	31,	2016, from	the	year	ended	December	31,	2015,	were	due	primarily	to	the	following:

| (in	millions,	except	per	share	data) | Net<br>Earnings | Diluted<br>EPS |
| :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31,\t2015 | $5,241 | $2.67 |
| 2015\tNPM\tAdjustment\tItems | (51) | (0.03) |
| 2015\tAsset\timpairment,\texit\tand\tintegration\tcosts | 9 | — |
| 2015\tTobacco\tand\thealth\tlitigation\titems | 94 | 0.05 |
| 2015\tSABMiller\tspecial\titems | 82 | 0.04 |
| 2015\tLoss\ton\tearly\textinguishment\tof\tdebt | 143 | 0.07 |
| 2015\tGain\ton\tAB\tInBev/SABMiller\tbusiness\ncombination | (3) | — |
| 2015\tTax\titems | (11) | — |
| Subtotal\t2015\tspecial\titems | 263 | 0.13 |
| 2016\tNPM\tAdjustment\tItems | (11) | (0.01) |
| 2016\tAsset\timpairment,\texit,\timplementation\tand\nacquisition-related\tcosts | (135) | (0.07) |
| 2016\tTobacco\tand\thealth\tlitigation\titems | (71) | (0.04) |
| 2016\tSABMiller\tspecial\titems | 57 | 0.03 |
| 2016\tLoss\ton\tearly\textinguishment\tof\tdebt | (541) | (0.28) |
| 2016\tPatent\tlitigation\tsettlement | (13) | (0.01) |
| 2016\tGain\ton\tAB\tInBev/SABMiller\tbusiness\ncombination | 9,001 | 4.61 |
| 2016\tTax\titems | 30 | 0.02 |
| Subtotal\t2016\tspecial\titems | 8,317 | 4.25 |
| Fewer\tshares\toutstanding | — | 0.02 |
| Change\tin\ttax\trate | 82 | 0.04 |
| Operations | 336 | 0.17 |
| For\tthe\tyear\tended\tDecember\t31,\t2016 | $14,239 | $7.28 |

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	2016 compared	with	2015	were	due	primarily	to	shares	repurchased	by	Altria Group,	Inc.	under	its	share	repurchase	programs.

▪Change	in	Tax	Rate:	The	change	in	tax	rate	was	driven	by	tax	benefits associated	with	the	higher	cumulative	dividends	received	from	SABMiller and	AB	InBev	in	2016.

▪Operations:	The	increase	of	$336	million	in	operations	shown	in	the	table above	was	due	primarily	to	the	following:

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

▪lower	investment	spending	in	the	innovative	tobacco	products businesses;

▪lower	interest	and	other	debt	expense,	net; and

▪higher	operating	results	from	the	financial	services business;

partially	offset	by:

▪lower	earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller (excluding	special	items).

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

# 2017	Forecasted	Results

In	February	2017,	Altria	Group,	Inc.	forecasted	that	its	2017	full-year	adjusted diluted	EPS	growth	rate	is	expected	to	be	in	the	range	of	7.5%	to	9.5%	over	2016 full-year	adjusted	diluted	EPS.	This	forecasted	growth	rate	excludes	the	income and	expense	items	in	the	table	below.	Altria	Group,	Inc.	expects	that	its	2017	full- year	effective	tax	rate	on	operations	will	be	approximately	36%.

Altria	Group,	Inc.'s	full-year	adjusted	diluted	EPS	guidance	and	full-year forecast	for	its	effective	tax	rate	on	operations	exclude	the	impact	of	certain income	and	expense	items	that	management	believes	are	not	part	of	underlying operations.	These	items	may	include,	for	example,	loss	on	early	extinguishment	of debt,	restructuring	charges,	gain	on	the	Transaction,	AB	InBev/SABMiller	special items,	certain	tax	items,	charges	associated	with	tobacco	and	health	litigation items,	and	settlements	of,	and	determinations	made	in	connection	with,	disputes with	certain	states	and	territories	related	to	the	Non-Participating	Manufacturer ("NPM")	adjustment	provision	under	the	1998	Master	Settlement	Agreement	(such settlements	and	determinations	are	referred	to	collectively	as	"NPM	Adjustment Items"	and	are	more	fully	described	in	Health	Care	Cost	Recovery	Litigation	- NPM	Adjustment	Disputes	in	Note	19).

Altria	Group,	Inc.'s	management	cannot	estimate	on	a	forward-looking	basis the	impact	of	certain	income	and	expense	items,	including	those	items	noted	in	the preceding	paragraph,	on	Altria	Group,	Inc.'s	reported	diluted	EPS	and	reported effective	tax	rate	because	these	items,	which	could	be	significant,	are	difficult	to predict	and	may	be	highly	variable.	As	a	result,	Altria	Group,	Inc.	does	not provide	a	corresponding	United	States	generally	accepted	accounting	principles ("U.S.	GAAP")	measure	for,	or	reconciliation	to,	its	adjusted	diluted	EPS guidance	or	its	effective	tax	rate	on	operations	forecast.

In	addition,	the	factors	described	in	Item	1A	represent	continuing	risks	to	this forecast.

# Expense	(Income),	Net	Excluded	from	Adjusted	Diluted	EPS

|  | 2017 |  | 2016 |
| :--- | :--- | :--- | :--- |
| NPM\tAdjustment\tItems | $— |  | $0.01 |
| Asset\timpairment,\texit\tand\timplementation |  |  |  |
| costs | 0.02 | (1) | 0.07 |
| Tobacco\tand\thealth\tlitigation\titems | — |  | 0.04 |
| SABMiller\tspecial\titems | — |  | (0.03) |
| Loss\ton\tearly\textinguishment\tof\tdebt | — |  | 0.28 |
| Patent\tlitigation\tsettlement | — |  | 0.01 |
| Gain\ton\tAB\tInBev/SABMiller\tbusiness\ncombination | — |  | (4.61) |
| Tax\titems | — |  | (0.02) |
|  | $0.02 |  | $(4.25) |

(1)	Represents	restructuring	charges	in	connection	with	the	facilities	consolidation announced	in	October	2016.	For	further	discussion,	see	Note	5.

Altria	Group,	Inc.	reports	its	financial	results	in	accordance	with	U.S.	GAAP. Altria	Group,	Inc.'s	management	reviews	certain	financial	results,	including diluted	EPS,	on	an	adjusted	basis,	which	excludes	certain	income	and	expense items,	including	those	items	noted	above.	Altria	Group,	Inc.'s	management	does not	view	any	of	these	special	items	to	be	part	of	Altria	Group,	Inc.'s	underlying results	as	they	may	be	highly	variable,	are	difficult	to	predict	and	can	distort underlying	business	trends	and	results.	Altria	Group,	Inc.'s	management	also reviews	income	tax	rates	on	an	adjusted	basis.	Altria	Group,	Inc.'s	effective	tax rate	on	operations	may	exclude	certain	tax	items	from	its	reported	effective	tax rate.	Altria	Group,	Inc.'s	management	believes	that	adjusted	financial	measures provide	useful	insight	into	underlying	business	trends	and	results	and	provide	a more	meaningful	comparison	of	year-over-year	results.	Adjusted	financial measures	are	used	by	management	and	regularly	provided	to	the	CODM	for planning,	forecasting	and	evaluating	business	and	financial	performance,	including allocating	resources	and	evaluating	results	relative	to	employee	compensation targets.	These	adjusted	financial	measures	are	not	consistent	with	U.S.	GAAP	and may	not	be	calculated	the	same	as	similarly	titled	measures	used	by	other companies.	These	adjusted	financial	measures	should	thus	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.

# Discussion	and	Analysis

# Critical	Accounting	Policies	and	Estimates

Note	2	includes	a	summary	of	the	significant	accounting	policies	and	methods used	in	the	preparation	of	Altria	Group,	Inc.'s	consolidated	financial	statements.	In most	instances,	Altria	Group,	Inc.	must	use	an	accounting	policy	or	method because	it	is	the	only	policy	or	method	permitted	under	U.S.	GAAP. The	preparation	of	financial	statements	includes	the	use	of	estimates	and assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities,	the disclosure	of	contingent	liabilities	at	the	dates	of	the	financial	statements	and	the reported	amounts	of	net	revenues	and	expenses	during	the	reporting	periods.	If

actual	amounts	are	ultimately	different	from	previous	estimates,	the	revisions	are included	in	Altria	Group,	Inc.'s	consolidated	results	of	operations	for	the	period	in which	the	actual	amounts	become	known.	Historically,	the	aggregate	differences, if	any,	between	Altria	Group,	Inc.'s	estimates	and	actual	amounts	in	any	year	have not	had	a	significant	impact	on	its	consolidated	financial	statements.

The	following	is	a	review	of	the	more	significant	assumptions	and	estimates, as	well	as	the	accounting	policies	and	methods,	used	in	the	preparation	of	Altria Group,	Inc.'s	consolidated	financial	statements:

▪Consolidation:	The	consolidated	financial	statements	include	Altria	Group, Inc.,	as	well	as	its	wholly-owned	and	majority-owned	subsidiaries.	Investments	in which	Altria	Group,	Inc.	has	the	ability	to	exercise	significant	influence	are accounted	for	under	the	equity	method	of	accounting.	All	intercompany transactions	and	balances	have	been	eliminated.

▪Revenue	Recognition:	Altria	Group,	Inc.'s	businesses	recognize	revenues, net	of	sales	incentives	and	sales	returns,	and	including	shipping	and	handling charges	billed	to	customers,	upon	shipment	of	goods	when	title	and	risk	of	loss pass	to	customers.	Payments	received	in	advance	of	revenue	recognition	are deferred	and	recorded	in	other	accrued	liabilities	until	revenue	is	recognized. Altria	Group,	Inc.'s	businesses	also	include	excise	taxes	billed	to	customers	in	net revenues.	Shipping	and	handling	costs	are	classified	as	part	of	cost	of	sales.

# ▪Depreciation,	Amortization,	Impairment	Testing	and	Asset	Valuation:

Altria	Group,	Inc.	depreciates	property,	plant	and	equipment	and	amortizes	its definite-lived	intangible	assets	using	the	straight-line	method	over	the	estimated useful	lives	of	the	assets.	Machinery	and	equipment	are	depreciated	over	periods up	to	25	years,	and	buildings	and	building	improvements	over	periods	up	to	50 years.	Definite-lived	intangible	assets	are	amortized	over	their	estimated	useful lives	up	to	25	years.

Altria	Group,	Inc.	reviews	long-lived	assets,	including	definite-lived intangible	assets,	for	impairment	whenever	events	or	changes	in	business circumstances	indicate	that	the	carrying	value	of	the	assets	may	not	be	fully recoverable.	Altria	Group,	Inc.	performs	undiscounted	operating	cash	flow analyses	to	determine	if	an	impairment	exists.	These	analyses	are	affected	by general	economic	conditions	and	projected	growth	rates.	For	purposes	of recognition	and	measurement	of	an	impairment	for	assets	held	for	use,	Altria Group,	Inc.	groups	assets	and	liabilities	at	the	lowest	level	for	which	cash	flows are	separately	identifiable.	If	an	impairment	is	determined	to	exist,	any	related impairment	loss	is	calculated	based	on	fair	value.	Impairment	losses	on	assets	to be	disposed	of,	if	any,	are	based	on	the	estimated	proceeds	to	be	received,	less costs	of	disposal.	Altria	Group,	Inc.	also	reviews	the	estimated	remaining	useful lives	of	long-lived	assets	whenever	events	or	changes	in	business	circumstances indicate	the	lives	may	have	changed.

Goodwill	and	indefinite-lived	intangible	assets	recorded	by	Altria	Group,	Inc. at	December	31,	2016	relate	primarily	to	the	acquisitions	of	Green	Smoke	in	2014, UST	in	2009	and	Middleton	in	2007.	Altria	Group,	Inc.	conducts	a	required	annual review	of	goodwill	and	indefinite-lived	intangible	assets	for	potential	impairment, and	more	frequently	if	an	event	occurs	or	circumstances	change	that	would	require Altria	Group,	Inc.	to	perform	an	interim	review.	If	the	carrying	value	of	goodwill exceeds	its	fair	value,	which	is	determined	using	discounted	cash	flows,	goodwill is	considered	impaired.	The	amount	of	impairment	loss	is	measured	as	the difference	between	the	carrying	value	and	the	implied	fair	value.	If	the	carrying value	of	an	indefinite-lived	intangible	asset	exceeds	its	fair	value,	which	is determined	using	discounted	cash	flows,	the	intangible	asset	is	considered impaired	and	is	reduced	to	fair	value.

Goodwill	and	indefinite-lived	intangible	assets,	by	reporting	unit	at	December 31,	2016	were	as	follows:

During	2016,	2015	and	2014,	Altria	Group,	Inc.	completed	its	quantitative annual	impairment	test	of	goodwill	and	indefinite-lived	intangible	assets,	and	no impairment	charges	resulted.	At	December	31,	2016,	the	estimated	fair	values	of all	reporting	units	and	indefinite-lived	intangible	assets	substantially	exceeded their	carrying	values.

In	2016,	Altria	Group,	Inc.	used	an	income	approach	to	estimate	the	fair values	of	substantially	all	of	its	reporting	units	and	indefinite-lived	intangible assets.	The	income	approach	reflects	the	discounting	of	expected	future	cash	flows to	their	present	value	at	a	rate	of	return	that	incorporates	the	risk-free	rate	for	the use	of	those	funds,	the	expected	rate	of	inflation	and	the	risks	associated	with realizing	expected	future	cash	flows.	The	discount	rate	used	in	performing substantially	all	of	the	valuations	was	8.5%.

In	performing	the	2016	discounted	cash	flow	analysis,	Altria	Group,	Inc. made	various	judgments,	estimates	and	assumptions,	the	most	significant	of	which were	volume,	income,	growth	rates	and	discount	rates.	The	analysis	incorporated assumptions	used	in	Altria	Group,	Inc.'s	long-term	financial	forecast,	which	is used	by	Altria	Group,	Inc.'s	management	to	evaluate	business	and	financial performance,	including	allocating	resources	and	evaluating	results	relative	to setting	employee	compensation	targets.	The	assumptions	incorporated	the	highest and	best	use	of	Altria	Group,	Inc.'s	indefinite-lived	intangible	assets	and	also included	perpetual	growth	rates	for	periods	beyond	the	long-term	financial forecast.	The	perpetual	growth	rate	used	in	performing	all	of	the	valuations	was 2%.	Fair	value	calculations	are	sensitive	to	changes	in	these	estimates	and assumptions,	some	of	which

relate	to	broader	macroeconomic	conditions	outside	of	Altria	Group,	Inc.'s control.

Although	Altria	Group,	Inc.'s	discounted	cash	flow	analysis	is	based	on assumptions	that	are	considered	reasonable	and	based	on	the	best	available information	at	the	time	that	the	discounted	cash	flow	analysis	is	developed,	there is	significant	judgment	used	in	determining	future	cash	flows.	The	following factors	have	the	most	potential	to	impact	expected	future	cash	flows	and,	therefore, Altria	Group,	Inc.'s	impairment	conclusions:	general	economic	conditions; federal,	state	and	local	regulatory	developments;	category	growth	rates;	consumer preferences;	success	of	planned	product	expansions;	competitive	activity;	and income	and	tobacco-related	taxes.	For	further	discussion	of	these	factors,	see Operating	Results	by	Business	Segment	-	Tobacco	Space	-	Business	Environment below.

While	Altria	Group,	Inc.'s	management	believes	that	the	estimated	fair	values of	each	reporting	unit	and	indefinite-lived	intangible	asset	are	reasonable,	actual performance	in	the	short-term	or	long-term	could	be	significantly	different	from forecasted	performance,	which	could	result	in	impairment	charges	in	future periods.

For	additional	information	on	goodwill	and	other	intangible	assets,	see	Note

▪Marketing	Costs:	Altria	Group,	Inc.'s	businesses	promote	their	products with	consumer	engagement	programs,	consumer	incentives	and	trade	promotions. Such	programs	include	discounts,	coupons,	rebates,	in-store	display	incentives, event	marketing	and	volume-based	incentives.	Consumer	engagement	programs are	expensed	as	incurred.	Consumer	incentive	and	trade	promotion	activities	are recorded	as	a	reduction	of	revenues,	a	portion	of	which	is	based	on	amounts estimated	as	being	due	to	wholesalers,	retailers	and	consumers	at	the	end	of	a period,	based	principally	on	historical	volume,	utilization	and	redemption	rates. For	interim	reporting	purposes,	consumer	engagement	programs	and	certain consumer	incentive	expenses	are	charged	to	operations	as	a	percentage	of	sales, based	on	estimated	sales	and	related	expenses	for	the	full	year.

▪Contingencies:	As	discussed	in	Note	19	and	Item	3,	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.	In	1998,	PM	USA	and	certain	other	U.S.	tobacco	product manufacturers	entered	into	the	MSA	with	46	states	and	various	other	governments and	jurisdictions	to	settle	asserted	and	unasserted	health	care	cost	recovery	and other	claims.	PM	USA	and	certain	other	U.S.	tobacco	product	manufacturers	had previously	entered	into	agreements	to	settle	similar	claims	brought	by	Mississippi, Florida,	Texas	and	Minnesota	(together	with	the	MSA,	the	"State	Settlement Agreements").	PM	USA's	portion	of	ongoing	adjusted	payments	and	legal	fees	is based	on	its	relative	share	of	the	settling	manufacturers'	domestic	cigarette shipments,	including	roll-your-own	cigarettes,	in	the

year	preceding	that	in	which	the	payment	is	due.	PM	USA,	USSTC	and	Middleton were	also	subject	to	payment	obligations	imposed	by	the	Fair	and	Equitable Tobacco	Reform	Act	of	2004	("FETRA").	The	FETRA	payment	obligations expired	after	the	third	quarter	of	2014.	In	addition,	in	June	2009,	PM	USA	and USSTC	became	subject	to	quarterly	user	fees	imposed	by	the	FDA	as	a	result	of the	FSPTCA.	Payments	under	the	State	Settlement	Agreements	and	the	FDA	user fees	are	based	on	variable	factors,	such	as	volume,	operating	income,	market	share and	inflation,	depending	on	the	subject	payment.	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.	For	the	years	ended	December	31,	2016,	2015 and	2014,	the	aggregate	amount	recorded	in	cost	of	sales	with	respect	to	the	State Settlement	Agreements,	FETRA	(which	expired	after	the	third	quarter	of	2014) and	FDA	user	fees	was	approximately	$4.9	billion,	$4.8	billion	and	$4.9	billion, respectively.

Altria	Group,	Inc.	and	its	subsidiaries	record	provisions	in	the	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	in	Note	19	and	Item	3: (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	consolidated	financial	statements	for	unfavorable outcomes,	if	any.	Litigation	defense	costs	are	expensed	as	incurred	and	included	in marketing,	administration	and	research	costs	in	the	consolidated	statements	of earnings.

▪Employee	Benefit	Plans:	As	discussed	in	Note	17.	Benefit	Plans	to	the consolidated	financial	statements	in	Item	8	("Note	17"),	Altria	Group,	Inc. provides	a	range	of	benefits	to	its	employees	and	retired	employees,	including pension,	postretirement	health	care	and	postemployment	benefits.	Altria	Group, Inc.	records	annual	amounts	relating	to	these	plans	based	on	calculations	specified by	U.S.	GAAP,	which	include	various	actuarial	assumptions	as	to	discount	rates, assumed	rates	of	return	on	plan	assets,	mortality,	compensation	increases,	turnover rates	and	health	care	cost	trend	rates.	Altria	Group,	Inc.	reviews	its	actuarial assumptions	on	an	annual	basis	and	makes	modifications	to	the	assumptions	based on	current	rates	and	trends	when	it	is	deemed	appropriate	to	do	so.	Any	effect	of the	modifications	is	generally	amortized	over	future	periods.

Altria	Group,	Inc.	recognizes	the	funded	status	of	its	defined	benefit	pension and	other	postretirement	plans	on	the	consolidated	balance	sheet	and	records	as	a component	of	other	comprehensive	earnings	(losses),	net	of	deferred	income taxes,	the	gains	or	losses	and	prior	service	costs	or	credits	that	have	not	been recognized	as	components	of	net	periodic	benefit	cost.	The	gains	or	losses	and prior	service	costs	or	credits	recorded	as

components	of	other	comprehensive	earnings	(losses)	are	subsequently	amortized into	net	periodic	benefit	cost	in	future	years.

At	December	31,	2016,	Altria	Group,	Inc.'s	discount	rate	assumptions	for	its pension	and	postretirement	plans	obligations	decreased	to	4.1%	from	4.4%	at December	31,	2015.	Altria	Group,	Inc.	presently	anticipates	its	2017	pre-tax pension	and	postretirement	expense	will	be	essentially	unchanged	versus	2016, excluding	amounts	in	each	year	related	to	termination,	settlement	and	curtailment. Higher	expected	return	on	plan	assets	due	to	the	impact	of	voluntary	pension contributions	totaling	$500	million	in	September	2016	is	expected	to	be	offset	by the	impact	of	higher	amortization	of	unrecognized	losses,	which	includes	the impact	of	the	lower	discount	rate.	Assuming	no	change	to	the	shape	of	the	yield curve,	a	50	basis	point	decrease	in	Altria	Group,	Inc.'s	discount	rates	would increase	Altria	Group,	Inc.'s	pension	and	postretirement	expense	by approximately	$49	million,	and	a	50	basis	point	increase	in	Altria	Group,	Inc.'s discount	rates	would	decrease	Altria	Group,	Inc.'s	pension	and	postretirement expense	by	approximately	$45	million.	Similarly,	a	50	basis	point	decrease (increase)	in	the	expected	return	on	plan	assets	would	increase	(decrease)	Altria Group,	Inc.'s	pension	expense	by	approximately	$38	million.	See	Note	17	for	a sensitivity	discussion	of	the	assumed	health	care	cost	trend	rates.

▪Income	Taxes:	Significant	judgment	is	required	in	determining	income	tax provisions	and	in	evaluating	tax	positions.	Altria	Group,	Inc.'s	deferred	tax	assets and	liabilities	are	determined	based	on	the	difference	between	the	financial statement	and	tax	bases	of	assets	and	liabilities,	using	enacted	tax	rates	in	effect for	the	year	in	which	the	differences	are	expected	to	reverse.	Altria	Group,	Inc. records	a	valuation	allowance	when	it	is	more-likely-than-not	that	some	portion	or all	of	a	deferred	tax	asset	will	not	be	realized.	Altria	Group,	Inc.	may	be	required to	change	the	valuation	allowance	with	respect	to	foreign	tax	credit	carryforwards, based	upon	additional	information	to	be	received	from	AB	InBev	in	2017.

Altria	Group,	Inc.	recognizes	a	benefit	for	uncertain	tax	positions	when	a	tax position	taken	or	expected	to	be	taken	in	a	tax	return	is	more-likely-than-not	to	be sustained	upon	examination	by	taxing	authorities.	The	amount	recognized	is measured	as	the	largest	amount	of	benefit	that	is	greater	than	50%	likely	of	being realized	upon	ultimate	settlement.	Altria	Group,	Inc.	recognizes	accrued	interest and	penalties	associated	with	uncertain	tax	positions	as	part	of	the	provision	for income	taxes	in	its	consolidated	statements	of	earnings.

Altria	Group,	Inc.	recognized	income	tax	benefits	and	charges	in	the consolidated	statements	of	earnings	during	2016,	2015	and	2014	as	a	result	of various	tax	events.

For	additional	information	on	income	taxes,	see	Note	15.	Income	Taxes	to	the consolidated	financial	statements	in	Item	8	("Note	15").

▪Leasing:	Substantially	all	of	PMCC's	net	revenues	in	2016	related	to	income on	leveraged	leases	and	related	gains	on	asset	sales.	Income	attributable	to leveraged	leases	is	initially

recorded	as	unearned	income,	which	is	included	in	the	line	item	finance	assets,	net, on	Altria	Group,	Inc.'s	consolidated	balance	sheets	and	subsequently	recognized as	revenue	over	the	terms	of	the	respective	leases	at	constant	after-tax	rates	of return	on	the	positive	net	investment	balances.	PMCC	lessees	are	affected	by bankruptcy	filings,	credit	rating	changes	and	financial	market	conditions.

PMCC's	investment	in	leases	is	included	in	the	line	item	finance	assets,	net, on	the	consolidated	balance	sheets	as	of	December	31,	2016	and	2015.	At December	31,	2016,	PMCC's	net	finance	receivables	of	approximately	$1.1 billion,	which	are	included	in	finance	assets,	net,	on	Altria	Group,	Inc.'s consolidated	balance	sheet,	consisted	of	rents	receivable	($1.6	billion)	and	the residual	value	of	assets	under	lease	($0.5	billion),	reduced	by	third-party nonrecourse	debt	($0.8	billion)	and	unearned	income	($0.2	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	consolidated	balance	sheets.	Finance	assets,	net, of	$1.0	billion	at	December	31,	2016	also	included	an	allowance	for	losses.

Estimated	residual	values	represent	PMCC's	estimate	at	lease	inception	as	to the	fair	values	of	assets	under	lease	at	the	end	of	the	non-cancelable	lease	terms. The	estimated	residual	values	are	reviewed	at	least	annually	by	PMCC's management,	which	includes	analysis	of	a	number	of	factors,	including	activity	in the	relevant	industry.	If	necessary,	revisions	are	recorded	to	reduce	the	residual values.	In	2016,	2015	and	2014,	PMCC's	review	of	estimated	residual	values resulted	in	a	decrease	of	$28	million,	$65	million	and	$63	million,	respectively,	to unguaranteed	residual	values.	These	decreases	in	unguaranteed	residual	values resulted	in	a	reduction	to	PMCC's	net	revenues	of	$18	million,	$41	million	and $26	million	in	2016,	2015	and	2014,	respectively.

PMCC	considers	rents	receivable	past	due	when	they	are	beyond	the	grace period	of	their	contractual	due	date.	PMCC	stops	recording	income	("non-accrual status")	on	rents	receivable	when	contractual	payments	become	90	days	past	due or	earlier	if	management	believes	there	is	significant	uncertainty	of	collectability of	rent	payments,	and	resumes	recording	income	when	collectability	of	rent payments	is	reasonably	certain.	Payments	received	on	rents	receivable	that	are	on non-accrual	status	are	used	to	reduce	the	rents	receivable	balance.	Write-offs	to the	allowance	for	losses	are	recorded	when	amounts	are	deemed	to	be uncollectible.	There	were	no	rents	receivable	on	non-accrual	status	at	December 31,	2016.

To	the	extent	that	rents	receivable	due	to	PMCC	may	be	uncollectible,	PMCC records	an	allowance	for	losses	against	its	finance	assets.	Losses	on	such	leases	are recorded	when	probable	and	estimable.	PMCC	regularly	performs	a	systematic assessment	of	each	individual	lease	in	its	portfolio	to	determine	potential	credit	or collection	issues	that	might	indicate	impairment.	Impairment	takes	into consideration	both

the	probability	of	default	and	the	likelihood	of	recovery	if	default	were	to	occur. PMCC	considers	both	quantitative	and	qualitative	factors	of	each	investment	when performing	its	assessment	of	the	allowance	for	losses.	For	further	discussion,	see Note	8.

# Consolidated	Operating	Results

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\tRevenues: |  |  |  |
| Smokeable\tproducts | $22,851 | $22,792 | $21,939 |
| Smokeless\tproducts | 2,051 | 1,879 | 1,809 |
| Wine | 746 | 692 | 643 |
| All\tother | 96 | 71 | 131 |
| Net\trevenues | $25,744 | $25,434 | $24,522 |
| Excise\tTaxes\ton\tProducts: |  |  |  |
| Smokeable\tproducts | $6,247 | $6,423 | $6,416 |
| Smokeless\tproducts | 135 | 133 | 138 |
| Wine | 25 | 24 | 23 |
| Excise\ttaxes\ton\tproducts | $6,407 | $6,580 | $6,577 |
| Operating\tIncome: |  |  |  |
| Operating\tcompanies\tincome\t(loss): |  |  |  |
| Smokeable\tproducts | $7,768 | $7,569 | $6,873 |
| Smokeless\tproducts | 1,177 | 1,108 | 1,061 |
| Wine | 164 | 152 | 134 |
| All\tother | (99) | (169) | (185) |
| Amortization\tof\tintangibles | (21) | (21) | (20) |
| General\tcorporate\texpenses | (222) | (237) | (241) |
| Reductions\tof\tPMI\tand\tMondelēz\ttax-\nrelated\treceivables | — | (41) | (2) |
| Corporate\tasset\timpairment\tand\texit\ncosts | (5) | — | — |
| Operating\tincome | $8,762 | $8,361 | $7,620 |

As	discussed	further	in	Note	16,	the	CODM	reviews	operating	companies income	to	evaluate	the	performance	of,	and	allocate	resources	to,	the	segments. Operating	companies	income	for	the	segments	is	defined	as	operating	income before	general	corporate	expenses	and	amortization	of	intangibles.	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	2016,	2015	and	2014	affected	the comparability	of	statement	of	earnings	amounts.

# ▪Gain	on	AB	InBev/SABMiller	Business	Combination:	As	a	result	of	the

Transaction,	during	2016,	Altria	Group,	Inc.	recorded	a	pre-tax	gain	of approximately	$13.9	billion.	For	further	discussion,	see	Note	7.

▪NPM	Adjustment	Items:	For	the	years	ended	December	31,	2016,	2015 and	2014,	pre-tax	expense	(income)	for	NPM	Adjustment	Items	was	recorded	in Altria	Group,	Inc.'s	consolidated	statements	of	earnings	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $12 | $(97) | $(43) |
| Interest\tand\tother\tdebt\texpense,\tnet | 6 | 13 | (47) |
| Total | $18 | $(84) | $(90) |

The	amounts	shown	in	the	table	above	for	the	smokeable	products	segment were	recorded	by	PM	USA	as	increases	(reductions)	to	costs	of	sales,	which decreased	(increased)	operating	companies	income	in	the	smokeable	products segment.	For	further	discussion,	see	Health	Care	Cost	Recovery	Litigation	-	NPM Adjustment	Disputes	in	Note	19.

▪Tobacco	and	Health	Litigation	Items:	For	the	years	ended	December	31, 2016,	2015	and	2014,	pre-tax	charges	related	to	certain	tobacco	and	health litigations	items	were	recorded	in	Altria	Group,	Inc.'s	consolidated	statements	of earnings	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $88 | $127 | $27 |
| General\tcorporate | — | — | 15 |
| Interest\tand\tother\tdebt\texpense,\tnet | 17 | 23 | 2 |
| Total | $105 | $150 | $44 |

During	2016,	PM	USA	recorded	pre-tax	charges	of	$88	million	in	marketing, administration	and	research	costs,	primarily	related	to	settlements	in	the	Miner	and Aspinall	cases	totaling	approximately	$67	million	and	$16	million	related	to	a judgment	in	the	Merino	case.	In	addition,	during	2016,	PM	USA	recorded	$17 million	in	interest	costs	primarily	related	to	Aspinall.	For	further	discussion,	see Note	19.

During	2015,	PM	USA	recorded	pre-tax	charges	in	marketing,	administration and	research	costs	related	to	tobacco	and	health	judgments	in	seven	state	Engle progeny	lawsuits	and	Schwarz	of	$59	million	and	$25	million,	respectively,	as well	as	$14	million	and	$9	million,	respectively,	in	interest	costs	related	to	these cases.	Additionally	in	2015,	PM	USA	and	certain	other	cigarette	manufacturers reached	an	agreement	to	resolve	approximately	415	pending	federal	Engle	progeny cases.	As	a	result	of	the	agreement,	PM	USA	recorded	a	pre-tax	provision	of approximately	$43	million	in	marketing,	administration	and	research	costs.	For further	discussion,	see	Smoking	and	Health	Litigation	in	Note	19.

During	2014,	Altria	Group,	Inc.	and	PM	USA	recorded	an	aggregate	pre-tax charge	of	$31	million	in	marketing,	administration	and	research	costs	for	the estimated	costs	of	implementing	the	corrective	communications	remedy	in connection	with	the	federal	government's	lawsuit	against	Altria	Group,	Inc.	and PM	USA.	For	further	discussion,	see	Health	Care	Cost	Recovery	Litigation	- Federal	Government's	Lawsuit	in	Note	19.

# ▪Asset	Impairment,	Exit,	Implementation,	Integration	and	Acquisition-

Related	Costs:	Pre-tax	asset	impairment,	exit,	implementation,	integration	and acquisition-related	costs	for	the	years	ended	December	31,	2016,	2015	and	2014 were	$206	million,	$11	million	and	$21	million,	respectively.

In	October	2016,	Altria	Group,	Inc.	announced	the	consolidation	of	certain	of its	operating	companies'	manufacturing	facilities	to	streamline	operations	and achieve	greater	efficiencies.	The	consolidation	is	expected	to	be	completed	by	the first	quarter	of	2018	and	deliver	approximately	$50	million	in	annualized	cost savings	by	the	end	of	2018.

As	a	result	of	the	consolidation,	Altria	Group,	Inc.	expects	to	record	total	pre- tax	charges	of	approximately	$150	million,	or	$0.05	per	share.	Altria	Group,	Inc. incurred	$71	million	of	this	amount	during	2016	and	expects	to	record approximately	$70	million	in	2017	and	the	remainder	in	2018.

In	January	2016,	Altria	Group,	Inc.	announced	a	productivity	initiative designed	to	maintain	its	operating	companies'	leadership	and	cost competitiveness.	The	initiative,	which	reduces	spending	on	certain	selling,	general and	administrative	infrastructure	and	implements	a	leaner	organizational	structure, is	expected	to	deliver	approximately	$300	million	in	annualized	productivity savings	by	the	end	of	2017.	As	a	result	of	the	initiative,	during	2016,	Altria	Group, Inc.	incurred	total	pre-tax	restructuring	charges	of	$132	million.	Total	pre-tax charges	related	to	the	initiative	have	been	substantially	completed.

For	further	discussion	on	2016	asset	impairment,	exit	and	implementation costs,	including	a	breakdown	of	these	costs	by	segment,	see	Note	5.

For	2014,	these	costs	consisted	primarily	of	integration	and	acquisition- related	costs	of	$28	million	related	to	the	acquisition	of	Green	Smoke,	partially offset	by	a	pre-tax	gain	of	$10	million	from	the	sale	of	PM	USA's	Cabarrus, North	Carolina	manufacturing	facility	in	2014.	For	further	discussion	of	the	Green Smoke	acquisition,	see	Note	3.

# ▪Loss	on	Early	Extinguishment	of	Debt:	During	2016	and	2015,	Altria

Group,	Inc.	completed	debt	tender	offers	to	purchase	for	cash	certain	of	its	senior unsecured	notes	in	aggregate	principal	amounts	of	$0.9	billion	and	$0.8	billion, respectively.

During	2014,	UST	redeemed	in	full	its	$300	million	(aggregate	principal amount)	5.75%	senior	notes	due	2018.

As	a	result	of	the	Altria	Group,	Inc.	debt	tender	offers	and	the	UST	debt redemption,	pre-tax	losses	on	early	extinguishment	of	debt	were	recorded	as follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Premiums\tand\tfees | $809 | $226 | $44 |
| Write-off\tof\tunamortized\tdebt\tdiscounts\tand\ndebt\tissuance\tcosts | 14 | 2 | — |
| Total | $823 | $228 | $44 |

For	further	discussion,	see	Note	10.	Long-Term	Debt	to	the	consolidated financial	statements	in	Item	8	("Note	10").

▪SABMiller	Special	Items:	Altria	Group,	Inc.'s	earnings	from	its	equity investment	in	SABMiller	for	2016	included	net	pre-tax	income	of	$89	million,	due primarily	to	a	pre-tax	non-cash	gain	of	$309	million,	reflecting	Altria	Group, Inc.'s	share	of	SABMiller's	increase	to	shareholders'	equity,	resulting	from	the completion	of	the	SABMiller,	The	Coca-Cola	Company	and	Gutsche	Family Investments	transaction,	combining	bottling	operations	in	Africa,	partially	offset by	Altria	Group,	Inc.'s	share	of	SABMiller's	costs	related	to	the	Transaction	and asset	impairment	charges.	Altria	Group,	Inc.'s	earnings	from	its	equity	investment in	SABMiller	for	2015	included	net	pre-tax	charges	of	$126	million,	consisting primarily	of	Altria	Group,	Inc.'s	share	of	SABMiller's	asset	impairment	charges. ▪Tax	Items:	Tax	items	for	2016	primarily	included	the	reversal	of	tax accruals	no	longer	required.	Tax	items	for	2015	primarily	included	the	reversal	of tax	reserves	and	associated	interest	due	primarily	to	the	closure	in	August	2015	of the	Internal	Revenue	Service	audit	of	Altria	Group,	Inc.	and	its	consolidated subsidiaries'	2007-2009	tax	years,	partially	offset	by	a	reversal	of	foreign	tax credits	primarily	associated	with	SABMiller	dividends.	Tax	items	for	2014 included	the	reversal	of	tax	accruals	no	longer	required.	For	further	discussion,	see Note	15.

The	following	discussion	compares	consolidated	operating	results	for	the	year ended	December	31,	2016	with	the	year	ended	December	31,	2015.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$310 million	(1.2%),	due	primarily	to	higher	net	revenues	in	the	smokeless	products, smokeable	products	and	wine	segments.

Cost	of	sales	was	essentially	unchanged	as	higher	per	unit	settlement	charges and	NPM	Adjustment	Items	in	2015	were	offset	by	lower	shipment	volume	and lower	pension	and	benefit	costs	in	the	smokeable	products	segment.

Excise	taxes	on	products	decreased	$173	million	(2.6%),	due	primarily	to lower	smokeable	products	shipment	volume.

Marketing,	administration	and	research	costs	decreased	$58	million	(2.1%), due	primarily	to	lower	costs	in	the	smokeable	products	segment	(which	included lower	tobacco	and	health	litigation	items),	partially	offset	by	higher	costs	in	the smokeless	products	segment.

Operating	income	increased	$401	million	(4.8%),	due	primarily	to	higher operating	results	from	the	smokeable	products	and	smokeless	products	segments (which	included	asset	impairment,	exit	and	implementation	costs	in	connection with	the	facilities	consolidation	and	productivity	initiative	in	2016),	lower investment	spending	in	the	innovative	tobacco	products	businesses,	a	reduction	of a	PMI	tax-related	receivable	in	2015	and	higher	operating	results	from	the financial	services	business.

Interest	and	other	debt	expense,	net,	decreased	$70	million	(8.6%),	due primarily	to	lower	interest	costs	on	debt	as	a	result

Earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller,	which increased	$38	million	(5.0%),	were	positively	impacted	by	SABMiller	special items,	mostly	offset	by	three	fewer	months	of	SABMiller's	earnings	in	2016 versus	2015,	as	a	result	of	the	timing	of	the	completion	of	the	Transaction.

Net	earnings	attributable	to	Altria	Group,	Inc.	of	$14,239	million	increased $8,998	million	(171.7%),	due	primarily	to	the	gain	on	the	Transaction,	higher operating	income	and	lower	interest	and	other	debt	expense,	partially	offset	by	a higher	loss	on	early	extinguishment	of	debt.	Diluted	and	basic	EPS	attributable	to Altria	Group,	Inc.	of	$7.28,	each	increased	by	172.7%	due	to	higher	net	earnings attributable	to	Altria	Group,	Inc.	and	fewer	shares	outstanding.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$912 million	(3.7%),	due	primarily	to	higher	net	revenues	in	the	smokeable	products segment.

Cost	of	sales	decreased	$45	million	(0.6%),	due	primarily	to	lower	resolution expenses	(due	principally	to	the	end	of	the	federal	tobacco	quota	buy-out payments	after	the	third	quarter	of	2014)	and	higher	NPM	Adjustment	Items	in 2015,	partially	offset	by	higher	manufacturing	costs	in	the	smokeable	products	and smokeless	products	segments.

Marketing,	administration	and	research	costs	increased	$169	million	(6.7%), due	primarily	to	higher	costs	in	the	smokeable	products	segment	(which	included higher	tobacco	and	health	litigation	items).

Operating	income	increased	$741	million	(9.7%),	due	primarily	to	higher operating	results	from	the	smokeable	products	and	smokeless	products	segments. Interest	and	other	debt	expense,	net,	increased	$9	million	(1.1%),	due primarily	to	interest	income	recorded	during	2014	and	the	reversal	of	interest income	recorded	during	2015	as	a	result	of	the	NPM	Adjustment	Items,	and	higher interest	costs	related	to	tobacco	and	health	litigation	items,	mostly	offset	by	lower interest	costs	on	debt	as	a	result	of	debt	refinancing	activities	in	2015	and	2014. Earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller,	which decreased	$249	million	(24.8%),	were	negatively	affected	by	SABMiller	special items	and	unfavorable	currency	impacts	from	a	stronger	U.S.	dollar.

Net	earnings	attributable	to	Altria	Group,	Inc.	of	$5,241	million	increased $171	million	(3.4%),	due	primarily	to	higher	operating	income,	partially	offset	by lower	earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller	and higher	losses	on	early	extinguishment	of	debt.	Diluted	and	basic	EPS	attributable to	Altria	Group,	Inc.	of	$2.67,	each	increased	by	4.3%	due	to	higher	net	earnings attributable	to	Altria	Group,	Inc.	and	fewer	shares	outstanding.

# Operating	Results	by	Business	Segment

# 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	or	financial	position.	These	challenges,	some	of	which	are discussed	in	more	detail	below,	in	Note	19,	Item	1A	and	Item	3,	include:

▪pending	and	threatened	litigation	and	bonding requirements;

▪the	requirement	to	issue	"corrective	statements"	in	various	media	in connection	with	the	federal	government's	lawsuit;

▪restrictions	and	requirements	imposed	by	the	FSPTCA,	and	restrictions and	requirements	(and	related	enforcement	actions)	that	have	been,	and in	the	future	will	be,	imposed	by	the	FDA;

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

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

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

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

▪restrictions	on	the	sale	of	tobacco	products	by	certain	retail establishments,	the	sale	of	certain	tobacco	products	with	certain characterizing	flavors	and	the	sale	of	tobacco	products	in	certain package	sizes;

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

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

▪governmental	investigations;

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

▪changes	in	adult	tobacco	consumer	purchase	behavior,	which	is influenced	by	various	factors	such	as	economic	conditions,	excise	taxes and	price	gap	relationships,	may	result	in	adult	tobacco	consumers switching	to	discount	products	or	other	lower	priced	tobacco	products; ▪the	highly	competitive	nature	of	the	tobacco	categories	in	which	our tobacco	subsidiaries	operate,	including

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

▪illicit	trade	in	tobacco	products; and

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

In	addition	to	and	in	connection	with	the	foregoing,	evolving	adult	tobacco consumer	preferences	pose	challenges	for	Altria	Group,	Inc.'s	tobacco subsidiaries.	Our	tobacco	subsidiaries	believe	that	a	significant	number	of	adult tobacco	consumers	switch	between	tobacco	categories,	use	multiple	forms	of tobacco	products	and	try	innovative	tobacco	products,	such	as	e-vapor	products. While	the	e-vapor	category	grew	rapidly	from	2012	through	early	2015,	the category	has	slowed	since	that	time.	Nu	Mark	believes	the	category	will	continue to	be	dynamic	as	adult	tobacco	consumers	explore	a	variety	of	tobacco	product options.

Altria	Group,	Inc.	and	its	tobacco	subsidiaries	work	to	meet	these	evolving adult	tobacco	consumer	preferences	over	time	by	developing,	manufacturing, marketing	and	distributing	products	both	within	and	outside	the	United	States through	innovation	and	adjacency	growth	strategies	(including,	where	appropriate, arrangements	with,	or	investments	in,	third	parties).	For	example,	Nu	Mark entered	the	e-vapor	category	in	2013.	See	the	discussions	regarding	new	product technologies,	adjacency	growth	strategy	and	evolving	consumer	preferences	in Cautionary	Factors	That	May	Affect	Future	Results	below	for	certain	risks associated	with	the	foregoing	discussion.

We	have	provided	additional	detail	on	the	following	topics	below:

# ▪FSPTCA	and	FDA	Regulation;

▪Excise	Taxes;

▪International	Treaty	on	Tobacco Control;

▪State	Settlement

Agreements;

▪Other	Federal,	State	and	Local	Regulation	and	Activity;

▪Illicit	Trade	in	Tobacco

Products;

▪Price,	Availability	and	Quality	of	Agricultural	Products;	and

▪Timing	of	Sales.

▪The	Regulatory	Framework:	The	FSPTCA	expressly	establishes	certain restrictions	and	prohibitions	on	our	tobacco	businesses	and	authorizes	or	requires further	FDA	action.	Under	the	FSPTCA,	the	FDA	has	broad	authority	to	(1) regulate	the	design,	manufacture,	packaging,	advertising,	promotion,	sale	and distribution	of	tobacco	products;	(2)	require	disclosures	of	related	information; and	(3)	enforce	the	FSPTCA	and	related	regulations.	The	FSPTCA	went	into effect	in	2009	for	cigarettes,	cigarette	tobacco	and	smokeless	tobacco	products	and in	August	2016	for	Other	Tobacco	Products.	See	FDA	Regulatory	Actions	-

Deeming	Regulations	below.

Among	other	measures,	the	FSPTCA	or	its	implementing	regulations:

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

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

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

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

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

▪changes	the	language	of	the	cigarette	and	smokeless	tobacco	product	health warnings,	enlarges	their	size	and	requires	the	development	by	the	FDA	of graphic	warnings	for	cigarettes,	establishes	warning	requirements	for	Other Tobacco	Products,	and	gives	the	FDA	the	authority	to	require	new	warnings for	any	type	of	tobacco	products;

▪authorizes	the	FDA	to	adopt	product	regulations	and	related	actions,	including imposing	tobacco	product	standards	that	are	appropriate	for	the	protection	of the	public	health	(e.g.,	related	to	the	use	of	menthol	in	cigarettes,	nicotine yields	and	other	constituents	or	ingredients)	and	imposing	manufacturing standards	for	tobacco	products;

▪establishes	pre-market	review	pathways	for	new	and	modified	tobacco products	for	the	FDA	to	follow,	including:

▪subjecting	cigarettes,	cigarette	tobacco	and	smokeless	tobacco	products modified	or	first	introduced	into	the	market	after	March	22,	2011,	and Other	Tobacco	Products	modified	or	first	introduced	into	the	market	after August	8,	2016,	to	new	tobacco	product	application	and	pre-market review	and	authorization	requirements	unless	a	manufacturer	can demonstrate	they	are	"substantially	equivalent"	to	products	commercially marketed	as	of	February	15,	2007,	and	possibly	to	deny	any	such	new tobacco	product	application,	thereby	preventing	the	distribution	and	sale	of any	product	affected	by	such	denial;

▪determining	that	cigarettes,	cigarette	tobacco	and	smokeless	tobacco products	modified	or	introduced	into	the	market	for	the	first	time	between February	15,	2007	and	March	22,	2011	for	which	a	manufacturer submitted	a	substantial	equivalence	report	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	from the	marketplace	(see	FDA	Regulatory	Actions	-	Substantial	Equivalence and	Other	New	Product	Processes/Pathways	below);

▪determining	that	Other	Tobacco	Products	modified	or	introduced	into	the market	for	the	first	time	between	February	15,	2007	and	August	8,	2016 for	which	a	manufacturer	submits	a	substantial	equivalence	report	by

February	8,	2018	are	not	"substantially	equivalent"	to	products commercially	marketed	as	of	February	15,	2007,	or	to	reject	a	new tobacco	product	application	submitted	by	a	manufacturer	by	August	8, 2018,	both	of	which	could	require	the	removal	of	such	products	from	the

marketplace	(see	FDA	Regulatory	Actions	-	Substantial	Equivalence	and Other	New	Product	Processes/Pathways	below);	and

▪equips	the	FDA	with	a	variety	of	investigatory	and	enforcement	tools,

including	the	authority	to	inspect	tobacco	product	manufacturing	and	other facilities.

▪Implementation	Timing,	Rulemaking	and	Guidance:	The	implementation of	the	FSPTCA	began	in	2009	for	cigarettes,	cigarette	tobacco	and	smokeless tobacco	products	and	in	August	2016	for	Other	Tobacco	Products	and	will continue	over	time.	The	provisions	of	the	FSPTCA	that	require	the	FDA	to	take action	through	rulemaking	generally	involve	consideration	of	public	comment and,	for	some	issues,	scientific	review.	From	time	to	time,	the	FDA	issues guidance	that	also	generally	involves	public	comment,	which	may	be	issued	in draft	or	final	form.

Altria	Group,	Inc.'s	tobacco	subsidiaries	participate	actively	in	processes established	by	the	FDA	to	develop	and	implement	the	FSPTCA's	regulatory framework,	including	submission	of	comments	to	various	FDA	proposals	and participation	in	public	hearings	and	engagement	sessions.

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	and	User	Fees:	Regulations imposed	and	other	regulatory	actions	taken	by	the	FDA	under	the	FSPTCA	could have	a	material	adverse	effect	on	the	business,	consolidated	results	of	operations, cash	flows	or	financial	position	of	Altria	Group,	Inc.	and	its	tobacco	subsidiaries in	a	number	of	different	ways.	For	example,	actions	by	the	FDA	could:

▪impact	the	consumer	acceptability	of	tobacco products;

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

▪limit	adult	tobacco	consumer

choices;

▪impose	restrictions	on	communications	with	adult	tobacco consumers;

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

▪impose	additional	manufacturing,	labeling	or	packaging requirements;

▪impose	additional	restrictions	at

retail;

▪result	in	increased	illicit	trade	in	tobacco	products;

▪otherwise	significantly	increase	the	cost	of	doing business.

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

The	FSPTCA	imposes	user	fees	on	cigarette,	cigarette	tobacco,	smokeless tobacco,	cigar	and	pipe	tobacco	manufacturers	and	importers	to	pay	for	the	cost	of regulation	and	other	matters.	The	FSPTCA	does	not	impose	user	fees	on	e-vapor product	manufacturers.	The	cost	of	the	FDA	user	fee	is	allocated	first	among tobacco	product	categories	subject	to	FDA	regulation	and	then	among manufacturers	and	importers	within	each	respective	category	based	on	their relative	market	shares,	all	as	prescribed	by	the	statute	and	FDA	regulations. Payments	for	user	fees	are	adjusted	for	several	factors,	including	inflation,	market share	and	industry	volume.	For	a	discussion	of	the	impact	of	the	FDA	user	fee payments	on	Altria	Group,	Inc.,	see	Financial	Review	-	Off-Balance	Sheet Arrangements	and	Aggregate	Contractual	Obligations	-	Payments	Under	State Settlement	Agreements,	FETRA	and	FDA	Regulation	below.	In	addition, compliance	with	the	FSPTCA'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 or	year	to	date	period	but	could	become	material,	either	individually	or	in	the aggregate,	to	one	or	more	of	our	tobacco	subsidiaries.

▪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,	monetary	penalties,	product	withdrawal and	recall	orders,	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,	consolidated	results	of	operations,	cash	flows	or	financial	position	of Altria	Group,	Inc.	and	its	tobacco	subsidiaries.

# ▪TPSAC

▪The	Role	of	the	TPSAC:	As	required	by	the	FSPTCA,	the	FDA	has	established a	tobacco	product	scientific	advisory	committee	(the	"TPSAC"),	which consists	of	voting	and	non-voting	members,	to	provide	advice,	reports, information	and	recommendations	to	the	FDA	on	scientific	and	health issues	relating	to	tobacco	products.

▪Challenge	to	TPSAC	Membership:	In	February	2011,	Lorillard	Tobacco Company	("Lorillard")	and	R.J.	Reynolds	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,	because	four	of	the	voting members	of	the	TPSAC	have	financial	and	other	conflicts	(including	service as	paid	experts	for	plaintiffs	in	tobacco	litigation).	In	July	2014,	the	district court	granted	plaintiffs'	summary	judgment	motion,	in	part,	and	denied defendants'	summary	judgment	motion,	ordering	the	FDA	to	reconstitute	the TPSAC	and	barring	defendants	from	relying	on	the	TPSAC	report	on menthol,	discussed	below.	The	FDA	appealed	to	the	U.S.	Court	of	Appeals	for the	District	of	Columbia	Circuit	in	September	2014.	In	January	2016,	the	U.S. Court	of	Appeals	for	the	District	of	Columbia	Circuit	vacated	the	trial	court's ruling	on	procedural	grounds,	finding	that	plaintiffs	lacked	standing	to	bring suit.	In	February	2016,	plaintiffs	filed	a	petition	for	rehearing,	which	was denied	in	May	2016.

▪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	recommended,	among	other	things,	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.

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.	The FDA	has	stated	that	the	TPSAC	report	is	only	a	recommendation,	and,	in	July 2013,	the	FDA	released	its	preliminary	scientific	evaluation	on	menthol,	which states	"that	menthol	cigarettes	pose	a	public	health	risk	above	that	seen	with	non- menthol	cigarettes."	At	the	same	time,	the	FDA	also	issued	an	advance	notice	of proposed	rulemaking	requesting	comments	on	the	FDA's	preliminary	scientific evaluation	and	information	that	may	inform	potential	regulatory	actions	regarding menthol	in	cigarettes	or	other	tobacco	products.	In	November	2013,	PM	USA submitted	comments	to	the	FDA	raising	a	number	of	concerns	with	the preliminary	scientific	evidence	and	about	unintended	consequences	detrimental	to public	health	and	society.	No	future	action	can	be	taken	by	the	FDA	to	regulate	the manufacture,	marketing	or	sale	of	menthol	cigarettes	(including	a	possible	ban) until	the	completion	of	the	rulemaking	process.

▪Final	Tobacco	Marketing	Rule:	As	required	by	the	FSPTCA,	the	FDA	re- promulgated	in	March	2010	a	wide	range	of	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	May	2016	amendments to	the	Final	Tobacco	Marketing	Rule

(instituted	as	part	of	the	FDA's	deeming	regulations)	apply	certain	provisions	to certain	"covered	tobacco	products,"	which	include	cigars,	e-vapor	products containing	nicotine	or	other	tobacco	derivatives,	pipe	tobacco	and	oral	tobacco- derived	nicotine	products,	but	do	not	include	any	component	or	part	that	is	not made	or	derived	from	tobacco.	The	Final	Tobacco	Marketing	Rule	as	so	amended:

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

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

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

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

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

▪prohibits	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 cigarette	or	smokeless	tobacco	brands	or	logos;	and

▪prohibits	cigarettes	and	smokeless	tobacco	brand	name	sponsorship	of any	athletic,	musical,	artistic	or	other	social	or	cultural	event,	or	any entry	or	team	in	any	event.

Subject	to	the	limitations	described	below,	the	Final	Tobacco	Marketing	Rule took	effect	in	June	2010	for	cigarettes	and	smokeless	tobacco	products	and	in August	2016	for	covered	tobacco	products.	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	in	2009,	several	lawsuits	have	been	filed	challenging	various provisions	of	the	FSPTCA,	the	Final	Tobacco	Marketing	Rule	and	the	deeming regulations,	including	their	constitutionality	and	the	scope	of	the	FDA's	authority thereunder.	As	a	result	of	one	such	challenge	(Commonwealth	Brands),	the portion	of	the	Final	Tobacco	Marketing	Rule	that	bans	the	use	of	color	and graphics	in	labeling	and	advertising	is	unenforceable	by	the	FDA.	For	a	further discussion	of	the	Final	Tobacco	Marketing	Rule	and	the	status	of	graphic	warnings for	cigarette	packages	and	advertising,	see	FDA	Regulatory	Actions	-	Graphic Warnings	below.

In	a	separate	lawsuit	that	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,	the	case was	dismissed	without	prejudice	pursuant	to	a	stipulation	by	which	the	FDA agreed	not	to	enforce	the	current	or	any	amended	trade	name	rule	against	plaintiffs until	at	least	180	days	after	rulemaking	on	the	amended

rule	concludes.	This	relief	only	applies	to	plaintiffs	in	the	case.	However,	in	May 2010,	the	FDA	issued	guidance	on	the	use	of	non-tobacco	trade	and	brand	names applicable	to	all	cigarette	and	smokeless	tobacco	product	manufacturers.	This guidance	indicated	the	FDA's	intention	not	to	commence	enforcement	actions under	the	regulation	while	it	considers	how	to	address	the	concerns	raised	by various	manufacturers.	In	November	2011,	the	FDA	proposed	an	amended	rule, but	has	not	yet	issued	a	final	rule.	PM	USA	and	USSTC	submitted	comments	on the	proposed	amended	rule.

# ▪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.	After	a	legal	challenge	to	the	rule	initiated	by	R.J.	Reynolds, Lorillard	and	several	other	plaintiffs,	in	which	plaintiffs	prevailed	both	at	the federal	trial	and	appellate	levels,	the	FDA	decided	not	to	seek	further	review of	the	U.S.	Court	of	Appeals'	decision	and	announced	its	plans	to	propose	a new	graphic	warnings	rule	in	the	future.

# ▪Substantial	Equivalence	and	Other	New	Product	Processes/Pathways:	In

January	2011,	the	FDA	issued	guidance	concerning	reports	that manufacturers	must	submit	for	certain	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	FDA	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 cigarette,	cigarette	tobacco	and	smokeless	tobacco	products	commercially available	before	March	22,	2011,	manufacturers	of	such	products	were required	to	send	to	the	FDA	a	report	demonstrating	substantial	equivalence	by March	22,	2011.	These	products	are	referred	to	as	"provisional	products."	All cigarette	and	smokeless	tobacco	products	currently	marketed	by	PM	USA	and USSTC	are	provisional	products,	as	are	some	of	the	products	currently marketed	by	Nat	Sherman.	Our	subsidiaries	submitted	timely	reports	for	these products	and	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	from	the	marketplace.	While	our	cigarette	and	smokeless tobacco	subsidiaries	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	to	their	various

respective	substantial	equivalence	reports	or	seek	to	enforce	the	law	and regulations	consistent	with	its	guidance.

The	FDA	began	announcing	its	decisions	on	substantial	equivalence reports	for	provisional	cigarette,	cigarette	tobacco	and	smokeless	tobacco products	in	2013.	There	are	a	significant	number	of	substantial	equivalence reports	for	such	products	for	which	the	FDA	has	not	announced	decisions, including	reports	submitted	by	our	cigarette	and	smokeless	tobacco subsidiaries.	At	the	request	of	the	FDA,	our	cigarette	and	smokeless	tobacco subsidiaries	have	provided	additional	information	with	respect	to	certain substantial	equivalence	reports.	At	this	time,	it	is	not	possible	to	predict	how long	reviews	by	the	FDA	of	substantial	equivalence	reports	or	new	tobacco product	applications	for	any	tobacco	product	will	take.	A	"not	substantially equivalent"	determination	or	denial	of	a	new	tobacco	product	application	on one	or	more	products	could	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.

In	order	to	continue	marketing	Other	Tobacco	Products	modified	or introduced	into	the	market	for	the	first	time	between	February	15,	2007	and August	8,	2016,	manufacturers	are	required	to	send	to	the	FDA	a	report demonstrating	substantial	equivalence	by	February	8,	2018	or	a	new	tobacco product	application	by	August	8,	2018.	If	a	manufacturer	does	not	obtain	a "substantial	equivalence	order"	from	the	FDA	by	February	8,	2019	or	a	"new tobacco	product	marketing	order"	from	the	FDA	by	August	8,	2019,	the	FDA could	require	the	manufacturer	to	remove	such	product	from	the	marketplace. Because	of	the	limited	number	of	e-vapor	products	on	the	market	as of	February	14,	2007,	Nu	Mark	may	not	be	able	to	file	substantial equivalence	reports	with	the	FDA	on	its	e-vapor	products	in	the	market	as	of August	8,	2016.	In	such	case,	Nu	Mark	would	have	to	file	new	tobacco product	applications	which,	among	other	things,	demonstrate	that	the marketing	of	the	e-vapor	products	would	be	appropriate	for	the	protection	of the	public	health.	It	is	uncertain	how	the	FDA	will	interpret	the	requirements for	obtaining	a	"new	tobacco	product	marketing	order."

Manufacturers	intending	to	first	introduce	new	and	certain	modified cigarette,	cigarette	tobacco	and	smokeless	tobacco	products	into	the	market after	March	22,	2011	or	intending	to	first	introduce	new	and	certain	modified Other	Tobacco	Products	into	the	market	after	August	8,	2016,	must	submit	a substantial	equivalence	report	to	the	FDA	and	obtain	a	"substantial equivalence	order"	from	the	FDA	or	submit	a	new	tobacco	product application	to	the	FDA	and	obtain	a	"new	tobacco	product	marketing	order" from	the	FDA	before	introducing	the	products	into	the	market.

In	March	2015,	the	FDA	issued	a	document	entitled	"Guidance	for Industry:	Demonstrating	the	Substantial	Equivalence	of	a	New	Tobacco Product:	Responses	to	Frequently	Asked	Questions"	("Substantial Equivalence	Guidance").	In	that	document,	the	FDA	announced	that	(i)

certain	label	changes	and	(ii)	changes	to	the	quantity	of	tobacco	product(s)	in a	package	would	each	require	submission	of	newly	required	substantial equivalence	reports	and	authorization	from	the	FDA	prior	to	marketing tobacco	products	with	such	changes,	even	when	the	tobacco	product	itself	is not	changed.	Our	cigarette	and	smokeless	tobacco	subsidiaries	market	various products	that	fall	within	the	scope	of	the	Substantial	Equivalence	Guidance. In	April	2015,	PM	USA,	USSTC	and	other	tobacco	product manufacturers	filed	a	lawsuit	in	the	U.S.	District	Court	for	the	District	of Columbia	against	the	FDA,	the	United	States	Department	of	Health	and Human	Services,	and	the	heads	of	both	agencies	seeking	to	declare	these	new requirements	invalid	and	to	enjoin	defendants	from	enforcing	them.	In	May 2015,	the	FDA	announced	that	it	was	continuing	to	consider	the	Substantial Equivalence	Guidance	in	light	of	comments	received	and	that	it	would	not enforce	the	requirements	under	such	guidance	until	further	notice.		In	light	of the	FDA's	announcement,	the	plaintiffs	dismissed	the	pending	lawsuit without	prejudice	in	June	2015.

In	September	2015,	the	FDA	issued	a	second	edition	of	the Substantial	Equivalence	Guidance	(the	"Revised	SE	Guidance"),	which continued	to	require	FDA	pre-authorization	for	certain	label	changes	and	for product	quantity	changes.	PM	USA,	USSTC	and	other	tobacco	product manufacturers	filed	a	new	lawsuit	in	the	U.S.	District	Court	for	the	District	of Columbia	against	the	same	defendants	named	in	the	prior	suit	seeking	to declare	the	requirements	of	the	Revised	SE	Guidance	invalid	and	to	enjoin defendants	from	enforcing	them.	In	October	2015,	plaintiffs	filed	a	motion	for summary	judgment.	Defendants	opposed	the	motion	for	summary	judgment and	moved	to	dismiss	the	complaint	in	December	2015.	In	August	2016,	the court	held	that	a	modification	to	an	existing	product's	label	does	not	result	in a	"new	tobacco	product"	and	therefore	such	a	label	change	does	not	give	rise to	the	substantial	equivalence	review	process.	Accordingly,	the	court	vacated the	Revised	SE	Guidance	insofar	as	it	pertains	to	label	changes,	but	upheld	the guidance	in	all	other	respects,	including	its	treatment	of	product	quantity changes	as	modifications	that	give	rise	to	a	new	tobacco	product	requiring substantial	equivalence	review.	The	parties	did	not	appeal	this	decision, concluding	the	litigation.

▪Deeming	Regulations:	As	discussed	above	under	FSPTCA	and	FDA Regulation	-	The	Regulatory	Framework,	in	May	2016,	the	FDA	issued final	regulations	for	all	Other	Tobacco	Products,	imposing	the	FSPTCA regulatory	framework	on	the	tobacco	products	manufactured,	marketed and	sold	by	Middleton	and	Nu	Mark.	At	the	same	time	the	FDA	issued its	final	deeming	regulations,	it	also	amended	the	Final	Tobacco Marketing	Rule	as	described	above	in	FSPTCA	and	FDA	Regulation	- Final	Tobacco	Marketing	Rule.	Under	the	new	regulations,	for	Other Tobacco	Products	modified	or	introduced	into	the	market	for	the	first time	between	February	15,	2007	and	August	8,	2016,	manufacturers must

demonstrate	substantial	equivalence	to	a	product	on	the	market	as	of	February 15,	2007	or	obtain	a	"new	tobacco	marketing	order"	by	certain	specified	dates to	continue	marketing	those	products.	For	further	details,	see	FSPTCA	and FDA	Regulation	-	FDA	Regulatory	Actions	-	Substantial	Equivalence	and Other	New	Product	Processes/Pathways	above.

Among	the	FSPTCA	requirements	that	apply	to	Other	Tobacco Products	is	a	ban	on	descriptors,	including	"mild,"	when	used	as	descriptors of	modified	risk	unless	expressly	authorized	by	the	FDA.	In	May	2016, Middleton	filed	a	lawsuit	in	the	U.S.	District	Court	for	the	District	of Columbia	against	the	FDA	challenging	the	application	of	the	descriptor	ban on	the	use	of	the	word	"mild"	as	it	relates	to	the	"Black	&	Mild"	trademark.	In July	2016,	the	Department	of	Justice,	on	behalf	of	the	FDA,	informed Middleton	that	at	present	the	FDA	does	not	intend	to	bring	an	enforcement action	against	Middleton	for	the	use	of	the	term	"mild"	in	the	trademark "Black	&	Mild."	Consequently,	Middleton	dismissed	its	lawsuit	without prejudice.	If	the	FDA	were	to	change	its	mind	at	some	later	date,	Middleton would	have	the	opportunity	to	make	a	submission	to	the	FDA	and	ultimately, if	necessary,	to	bring	another	lawsuit.

▪Smokeless	Tobacco	Product	Standard:		In	January	2017,	the	FDA	proposed	a product	standard	for	N-nitrosonornicotine	(NNN)	levels	in	finished	smokeless tobacco	products.		USSTC	believes	that	the	FDA	has	not	adequately considered	whether	the	proposed	standard	is	technically	achievable	and further	believes	it	would	have	a	significant	negative	impact	on	farmers	and manufacturers.		USSTC	is	advocating	for	withdrawal	of	the	proposed	rule.	If the	FDA	does	not	withdraw	the	rule,	USSTC	plans	to	submit	comments.		If the	proposed	rule	as	presently	formulated	were	to	become	final	and	upheld	in the	courts,	it	could	have	a	material	adverse	effect	on	the	business, consolidated	results	of	operations,	cash	flows	or	financial	position	of	Altria Group,	Inc.	and	USSTC.

▪Good	Manufacturing	Practices:	The	FSPTCA	requires	that	the	FDA promulgate	good	manufacturing	practice	regulations	(referred	to	by	the	FDA as	"Requirements	for	Tobacco	Product	Manufacturing	Practice")	for	tobacco product	manufacturers,	but	does	not	specify	a	timeframe	for	such	regulations.

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	(including	with	respect	to	e-vapor	products)	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.	By	way	of	example,	in	2009,	the	federal excise	tax	on	cigarettes	increased	from	$0.39	per	pack	to	approximately	$1.01

per	pack,	in	2010,	the	New	York	state	excise	tax	increased	by	$1.60	to	$4.35	per pack	and	in	October	2014,	Philadelphia,	Pennsylvania	enacted	a	$2.00	per	pack local	cigarette	excise	tax.	Between	the	end	of	1998	and	February	23,	2017,	the weighted-average	state	and	certain	local	cigarette	excise	taxes	increased	from $0.36	to	$1.61	per	pack.	During	2016,	Pennsylvania,	Louisiana	and	West	Virginia enacted	legislation	to	increase	their	cigarette	excise	taxes	and	California	passed	a ballot	measure	to	increase	its	cigarette	excise	tax	by	$2.00	per	pack	and	impose corresponding	increases	on	other	tobacco	products	and	e-vapor	products.	As	of February	23,	2017,	no	state	has	increased	its	cigarette	excise	tax	in	2017.

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	sales	volume	and	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	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 February	23,	2017,	the	federal	government,	23	states,	Puerto	Rico,	Philadelphia, Pennsylvania	and	Cook	County,	Illinois	have	adopted	a	weight-based	tax methodology	for	smokeless	tobacco.

The	World	Health	Organization's	Framework	Convention	on	Tobacco	Control	(the "FCTC")	entered	into	force	in	February	2005.	As	of	February	23,	2017,	179 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;	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 indirectly	or	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	19,	during	1997	and	1998,	PM	USA	and	other	major domestic	tobacco	product	manufacturers	entered	into	the	State	Settlement Agreements.	These	settlements	require	participating	manufacturers	to	make substantial	annual	payments,	which	are	adjusted	for	several	factors,	including inflation,	operating	income,	market	share	and	industry	volume.	For	a	discussion	of the	impact	of	the	State	Settlement	Agreements	on	Altria	Group,	Inc.,	see Financial	Review	-	Off-Balance	Sheet	Arrangements	and	Aggregate	Contractual Obligations	-	Payments	Under	State	Settlement	Agreements,	FETRA	and	FDA Regulation	below	and	Note	19.	The	State	Settlement	Agreements	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.

# ▪Federal,	State	and	Local	Regulation:	A	number	of	states	and	localities

have	enacted	or	proposed	legislation	that	imposes	restrictions	on	tobacco	products (including	innovative	tobacco	products,	such	as	e-vapor	products),	such	as legislation	that	(1)	prohibits	the	sale	of	certain	tobacco	products	with	certain characterizing	flavors,	(2)	requires	the	disclosure	of	health	information	separate from	or	in	addition	to	federally-mandated	health	warnings	and	(3)	restricts commercial	speech	or	imposes	additional	restrictions	on	the	marketing	or	sale	of tobacco	products	(including	proposals	to	ban	all	tobacco	product	sales).	The legislation	varies	in	terms	of	the	type	of	tobacco	products,	the	conditions	under which	such	products	are	or	would	be	restricted	or	prohibited,	and	exceptions	to	the restrictions	or	prohibitions.	For	example,	a	number	of	proposals	involving characterizing	flavors	would	prohibit	smokeless	tobacco	products	with characterizing	flavors	without	providing	an	exception	for	mint-	or	wintergreen- flavored	products.

Whether	other	states	or	localities	will	enact	legislation	in	these	areas,	and	the precise	nature	of	such	legislation	if	enacted,	cannot	be	predicted.	Altria	Group, Inc.'s	tobacco	subsidiaries	have	challenged	and	will	continue	to	challenge	certain state	and	local	legislation,	including	through	litigation.

# ▪State	and	Local	Legislation	to	Increase	the	Legal	Age	to	Purchase

Tobacco	Products:	An	increasing	number	of	states	and	localities	have	proposed legislation	to	increase	the	minimum	age	to	purchase	tobacco	products	above	the current	Federal	minimum	age	of	18.	The	following	states	have	enacted	such legislation:	California	(21),	Hawaii	(21),	Alabama	(19),	Alaska	(19),	New	Jersey (19)	and	Utah	(19).		Various	localities	(such	as	New	York	City	(21)	and	Chicago (21))	have	taken	similar	actions.

# ▪Health	Effects	of	Tobacco	Consumption	and	Exposure	to	Environmental

Tobacco	Smoke	("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	January	2014	United	States	Surgeon	General	report titled	"The	Health	Consequences	of	Smoking	-	50	Years	of	Progress"	and	in	a June	2006	United	States	Surgeon	General	report	on	ETS	titled	"The	Health Consequences	of	Involuntary	Exposure	to	Tobacco	Smoke."

Most	jurisdictions	within	the	United	States	have	restricted	smoking	in	public places.	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.

▪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 package	sizes;	require	tax	stamping	of	MST	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	could	have	a	material	adverse	impact	on	the	business and	volume	of	our	tobacco	subsidiaries	and	the	consolidated	results	of	operations, cash	flows	or	financial	position	of	Altria	Group,	Inc.	and	its	tobacco	subsidiaries. ▪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	in	Tobacco	Products

Illicit	trade	in	tobacco	products	can	have	an	adverse	impact	on	the	businesses	of Altria	Group,	Inc.	and	its	tobacco	subsidiaries.	Illicit	trade	can	take	many	forms, including	the	sale	of	counterfeit	tobacco	products;	the	sale	of	tobacco	products	in the	United	States	that	are	intended	for	sale	outside	the	country;	the	sale	of	tobacco products	over	the	Internet	and	by	other	means	designed	to	avoid	the	collection	of applicable	taxes;	and	diversion	into	one	taxing	jurisdiction	of	tobacco	products intended	for	sale	in	another.	Counterfeit	tobacco	products,	for	example,	are manufactured	by	unknown	third	parties	in	unregulated	environments.	Counterfeit versions	of	our	tobacco	subsidiaries'	products	can	negatively	affect	adult	tobacco consumer	experiences	with	and	opinions	of	those	brands.	Illicit	trade	in	tobacco products	also	harms	law-abiding	wholesalers	and	retailers	by	depriving	them	of lawful	sales	and	undermines	the	significant	investment	Altria	Group,	Inc.'s tobacco	subsidiaries	have	made	in	legitimate	distribution	channels.	Moreover, illicit	trade	in	tobacco	products	results	in	federal,	state	and	local	governments losing	tax	revenues.	Losses	in	tax	revenues	can	cause	such	governments	to

take	various	actions,	including	increasing	excise	taxes;	imposing	legislative	or regulatory	requirements	that	may	adversely	impact	Altria	Group,	Inc.'s consolidated	results	of	operations	and	cash	flows	and	the	businesses	of	its	tobacco subsidiaries;	or	asserting	claims	against	manufacturers	of	tobacco	products	or members	of	the	trade	channels	through	which	such	tobacco	products	are distributed	and	sold.

Altria	Group,	Inc.	and	its	tobacco	subsidiaries	devote	significant	resources	to help	prevent	illicit	trade	in	tobacco	products	and	to	protect	legitimate	trade channels.	For	example,	Altria	Group,	Inc.'s	tobacco	subsidiaries	are	engaged	in	a number	of	initiatives	to	help	prevent	illicit	trade	in	tobacco	products,	including communication	with	wholesale	and	retail	trade	members	regarding	illicit	trade	in tobacco	products	and	how	they	can	help	prevent	such	activities;	enforcement	of wholesale	and	retail	trade	programs	and	policies	that	address	illicit	trade	in 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	illicit	trade	in 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.

# Price,	Availability	and	Quality	of	Agricultural	Products

Shifts	in	crops	(such	as	those	driven	by	economic	conditions	and	adverse	weather patterns),	government	mandated	prices,	economic	trade	sanctions,	geopolitical instability	and	production	control	programs	may	increase	or	decrease	the	cost	or reduce	the	supply	or	quality	of	tobacco	and	other	agricultural	products	used	to manufacture	our	companies'	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.	Certain types	of	tobacco	are	also	only	available	in	limited	geographies.	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	impact	tobacco	leaf	prices	and	tobacco	supply.	Certain	types	of	tobacco	are available	in	limited	geographies	and	loss	of	their	availability	could	impact	adult tobacco	consumer	product	acceptability.	Any	significant	change	in	the	price, quality	or	availability	of	tobacco	leaf	or	other	agricultural	products	used	to manufacture	our	products	could	impact	adult	consumer	product	acceptability	and adversely	affect	our	subsidiaries'	profitability	and	businesses.

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	table	summarizes	operating	results	for	the	smokeable	and smokeless	products	segments:

|  |  | Net	Revenues |  | Operating	Companies	Income | Operating	Companies	Income | Operating	Companies	Income |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 |
| Smokeable\nproducts | $22,851 | $22,792 | $21,939 | $7,768 | $7,569 | $6,873 |
| Smokeless\nproducts | 2,051 | 1,879 | 1,809 | 1,177 | 1,108 | 1,061 |
| Total |  |  |  |  |  |  |
| smokeable |  |  |  |  |  |  |
| and |  |  |  |  |  |  |
| smokeless |  |  |  |  |  |  |
| products | $24,902 | $24,671 | $23,748 | $8,945 | $8,677 | $7,934 |

# Smokeable	Products	Segment

The	smokeable	products	segment's	operating	companies	income	and	operating companies	income	margin	increased	during	2016	due	primarily	to	higher	pricing. PM	USA	grew	total	cigarettes	retail	share	by	0.1	percentage	point	for	2016. The	following	table	summarizes	the	smokeable	products	segment	shipment volume	performance:

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |
| :--- | :--- | :--- | :--- |
| (sticks\tin\tmillions) | 2016 | 2015 | 2014 |
| Cigarettes: |  |  |  |
| \t\t\t\t\tMarlboro | 105,297 | 108,113 | 108,023 |
| \t\t\t\t\tOther\tpremium | 6,382 | 6,753 | 7,047 |
| \t\t\t\t\tDiscount | 11,251 | 11,152 | 10,320 |
| Total\tcigarettes | 122,930 | 126,018 | 125,390 |
| Cigars: |  |  |  |
| \t\t\t\t\tBlack\t&amp;\tMild | 1,379 | 1,295 | 1,246 |
| \t\t\t\t\tOther | 24 | 30 | 25 |
| Total\tcigars | 1,403 | 1,325 | 1,271 |
| Total\tsmokeable\tproducts | 124,333 | 127,343 | 126,661 |

Cigarettes	shipment	volume	includes	Marlboro;	Other	premium	brands,	such as	Virginia	Slims,	Parliament	and	Benson	&	Hedges;	and	Discount	brands,	which include	L&M	and	Basic.	Cigarettes	volume	includes	units	sold	as	well	as promotional	units,	but	excludes	units	sold	for	distribution	to	and	in	Puerto	Rico, and	units	sold	in	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\tthe\tYears\tEnded\tDecember\t31, | For\tthe\tYears\tEnded\tDecember\t31, |  |
|  | 2016 | 2015 | 2014 |
| Cigarettes: |  |  |  |
| \t\t\t\t\tMarlboro | 44.0% | 44.0% | 43.8% |
| \t\t\t\t\tOther\tpremium | 2.7 | 2.8 | 2.9 |
| \t\t\t\t\tDiscount | 4.7 | 4.5 | 4.2 |
| Total\tcigarettes | 51.4% | 51.3% | 50.9% |
| Cigars: |  |  |  |
| \t\t\t\t\tBlack\t&amp;\tMild | 26.3% | 27.3% | 28.3% |
| \t\t\t\t\tOther | 0.4 | 0.3 | 0.4 |
| Total\tcigars | 26.7% | 27.6% | 28.7% |

Retail	share	results	for	cigarettes	are	based	on	data	from	IRI/Management Science	Associate	Inc.,	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 through	the	Store	Tracking	Analytical	Reporting	System	("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.

PM	USA	executed	the	following	pricing	and	promotional	allowance	actions during	2016,	2015	and	2014:

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

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

▪Effective	November	15,	2015,	PM	USA	increased	the	list	price	on	all	of its	cigarette	brands	by	$0.07	per	pack.

▪Effective	November	16,	2014,	PM	USA	reduced	its	wholesale promotional	allowance	on	L&M	by	$0.07	per	pack.	In	addition,	PM	USA increased	the	list	price	on	all	of	its	other	cigarette	brands	by	$0.07	per	pack.

▪Effective	May	11,	2014,	PM	USA	reduced	its	wholesale	promotional allowance	on	Marlboro	and	L&M	by	$0.06	per	pack.	In	addition,	PM	USA increased	the	list	price	on	all	of	its	other	cigarette	brands	by	$0.06	per	pack, except	for	Parliament,	which	PM	USA	increased	by	$0.11	per	pack.

The	following	discussion	compares	operating	results	for	the	smokeable products	segment	for	the	year	ended	December	31,	2016	with	the	year	ended December	31,	2015.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$59 million	(0.3%),	due	primarily	to	higher	pricing,	which	includes	higher	promotional investments,	partially	offset	by	lower	shipment	volume	($577	million). Operating	companies	income	increased	$199	million	(2.6%),	due	primarily	to higher	pricing,	which	includes	higher	promotional	investments,	lower	costs	(due primarily	to	lower	pension	and	benefit	costs)	and	lower	tobacco	and	health litigation	items	($39	million).	These	factors	were	partially	offset	by	lower shipment	volume	($298	million),	higher	per	unit	settlement	charges,	costs	in connection	with	the	productivity	initiative	and	facilities	consolidation	($134 million)	and	NPM	Adjustment	Items	in	2015	($97	million). Marketing,	administration	and	research	costs	for	the	smokeable	products segment	include	PM	USA's	cost	of	administering	and	litigating	product	liability claims.	Litigation	defense	costs	are	influenced	by	a	number	of	factors,	including the	number	and	types	of	cases	filed,	the	number	of	cases	tried	annually,	the	results of	trials	and	appeals,	the	development	of	the	law	controlling	relevant	legal	issues, and	litigation	strategy	and	tactics.	For	further	discussion	on	these	matters,	see Note	19	and	Item	3.	For	the	years	ended	December	31,	2016,	2015	and	2014, product	liability	defense	costs	for	PM	USA	were	$234	million,	$228	million	and $230	million,	respectively.	The	factors	that	have	influenced	past	product	liability defense	costs	are	expected	to	continue	to	influence	future	costs.	PM	USA	does	not expect	future	product	liability	defense	costs	to	be	significantly	different	from product	liability	defense	costs	incurred	in	the	last	few	years.

Total	smokeable	products	reported	shipment	volume	decreased	2.4%.	PM USA's	reported	and	adjusted	domestic	cigarettes	shipment	volume	decreased approximately	2.5%	driven	primarily	by	the	industry's	rate	of	decline.	PM	USA estimates	that	full-year	total	industry	cigarette	volumes	also	declined	by approximately	2.5%.

PM	USA's	shipments	of	premium	cigarettes	accounted	for	90.8%	of	its reported	domestic	cigarettes	shipment	volume	for	2016,	versus	91.2%	for	2015.

Middleton's	reported	cigars	shipment	volume	increased	5.9%,	driven primarily	by	Black	&	Mild	in	the	tipped	cigars	segment.

Marlboro's	retail	share	was	unchanged	in	2016.	PM	USA	grew	its	total	retail share	0.1	share	point.

In	the	machine-made	large	cigars	category,	Black	&	Mild's	retail	share declined	1.0	share	point.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$853 million	(3.9%),	due	primarily	to	higher	pricing,	which	includes	higher	promotional investments,	and	higher	shipment	volume	($133	million).

Operating	companies	income	increased	$696	million	(10.1%),	due	primarily to	higher	pricing,	which	includes	higher	promotional	investments,	lower	resolution expenses	(due	principally	to	the	end	of	the	federal	tobacco	quota	buy-out payments	after	the	third	quarter	of	2014),	higher	shipment	volume	($68	million) and	higher	NPM	Adjustment	Items	in	2015	($54	million).	These	factors	were partially	offset	by	higher	costs	(due	primarily	to	higher	pension	and	benefit	costs, and	marketing,	administration	and	research	costs)	and	higher	tobacco	and	health litigation	items	($100	million).

Total	smokeable	products	reported	shipment	volume	increased	0.5%.	PM USA's	reported	domestic	cigarettes	shipment	volume	increased	0.5%,	due	to	a moderation	in	the	industry's	decline	rate	and	retail	share	gains.	When	adjusted	for trade	inventory	movements	and	other	factors,	PM	USA	estimates	that	its	domestic cigarettes	shipment	volume	increased	approximately	0.5%,	and	that	total	industry cigarette	volumes	declined	approximately	0.5%.

PM	USA's	shipments	of	premium	cigarettes	accounted	for	91.2%	of	its reported	domestic	cigarettes	shipment	volume	for	2015,	versus	91.8%	for	2014. Middleton's	reported	cigars	shipment	volume	increased	4.2%,	driven primarily	by	Black	&	Mild	in	the	tipped	cigars	segment.

Marlboro's	retail	share	increased	0.2	share	points.

PM	USA	grew	its	total	retail	share	by	0.4	share	points,	due	to	gains	by Marlboro	and	L&M	in	Discount,	partially	offset	by	share	losses	on	other	portfolio brands.

In	the	machine-made	large	cigars	category,	while	Black	&	Mild's	retail	share declined	1.0	share	point,	Black	&	Mild	gained	retail	share	in	the	more	profitable tipped	cigars	segment.

# Smokeless	Products	Segment

During	2016,	the	smokeless	products	segment	grew	net	revenues	and	operating companies	income,	primarily	through	higher	shipment	volume	and	higher	pricing. USSTC	increased	Copenhagen	and	Skoal's	combined	retail	share	versus	2015.

The	 following table summarizes smokeless products segment shipment volume	performance:

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.	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.	To	calculate	volumes of	cans	and	packs	shipped,	one	pack	of	snus,	irrespective	of	the	number	of pouches	in	the	pack,	is	assumed	to	be	equivalent	to	one	can	of	MST.

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

|  | For	the	Years	Ended	December	31, | Retail	Share |  |
| :--- | :--- | :--- | :--- |
|  | 2016 | 2015 | 2014 |
| Copenhagen | 33.8% | 31.6% | 30.7% |
| Skoal | 18.4 | 19.7 | 20.3 |
| Copenhagen\tand\tSkoal | 52.2 | 51.3 | 51.0 |
| Other | 3.4 | 3.6 | 4.0 |
| Total\tsmokeless\tproducts | 55.6% | 54.9% | 55.0% |

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.	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.	For example,	one	pack	of	snus,	irrespective	of	the	number	of	pouches	in	the	pack,	is assumed	to	be	equivalent	to	one	can	of	MST.	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.

USSTC	executed	the	following	pricing	actions	during	2016,	2015	and	2014:

▪Effective	December	6,	2016,	USSTC	increased	the	list	price	on Copenhagen	and	Skoal	popular	price	products	by

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

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

▪Effective	December	8,	2015,	USSTC	increased	the	list	price	on Copenhagen	and	Skoal	popular	price	products	by	$0.12	per	can.	In	addition, USSTC	increased	the	list	price	on	all	its	brands,	except	for	Copenhagen	and Skoal	popular	price	products,	by	$0.07	per	can.

▪Effective	May	5,	2015,	USSTC	increased	the	list	price	on	all	its	brands	by $0.07	per	can.

▪Effective	November	25,	2014,	USSTC	increased	the	list	price	on	all	its brands	by	$0.07	per	can.

▪Effective	May	11,	2014,	USSTC	increased	the	list	price	on	all	of	its brands	by	$0.06	per	can.

The	following	discussion	compares	operating	results	for	the	smokeless products	segment	for	the	year	ended	December	31,	2016	with	the	year	ended December	31,	2015.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$172 million	(9.2%),	due	primarily	to	higher	shipment	volume	($111	million)	and higher	pricing,	which	includes	higher	promotional	investments,	partially	offset	by mix	due	to	growth	in	popular	price	products.

Operating	companies	income	increased	$69	million	(6.2%),	due	primarily	to higher	shipment	volume	($98	million)	and	higher	pricing,	which	includes	higher promotional	investments,	partially	offset	by	costs	in	connection	with	the productivity	initiative	and	facilities	consolidation	($57	million),	product	mix, higher	marketing,	administration	and	research	costs	and	higher	manufacturing costs.

The	smokeless	products	segment's	reported	domestic	shipment	volume increased	4.9%,	driven	by	Copenhagen,	partially	offset	by	declines	in	Skoal	and Other	portfolio	brands.	Copenhagen	and	Skoal's	combined	reported	domestic shipment	volume	increased	5.8%.

After	adjusting	for	trade	inventory	movements	and	other	factors,	USSTC estimates	that	its	domestic	smokeless	products	shipment	volume	grew approximately	5%	for	2016.	USSTC	estimates	that	the	smokeless	products category	volume	grew	approximately	2.5%	over	the	six	months	ended	December 31,	2016.

Copenhagen	and	Skoal's	combined	retail	share	increased	0.9	share	points	to 52.2%.	Copenhagen's	retail	share	increased	2.2	share	points	and	Skoal's	retail share	declined	1.3	share	points.

Total	smokeless	products	retail	share	increased	0.7	share	points	to	55.6%. The	following	discussion	compares	operating	results	for	the	smokeless products	segment	for	the	year	ended	December	31,	2015	with	the	year	ended December	31,	2014.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$70 million	(3.9%),	due	primarily	to	higher	pricing,	which	includes	higher	promotional investments.

Operating	companies	income	increased	$47	million	(4.4%),	due	primarily	to higher	pricing,	which	includes	higher	promotional	investments,	partially	offset	by higher	costs.

The	smokeless	products	segment's	reported	domestic	shipment	volume increased	2.5%	as	volume	growth	in	Copenhagen	was	partially	offset	by	declines in	Skoal	and	Other	portfolio	brands.	Copenhagen	and	Skoal's	combined	reported domestic	shipment	volume	increased	3.4%.

After	adjusting	for	trade	inventory	movements	and	other	factors,	USSTC estimates	that	its	domestic	smokeless	products	shipment	volume	grew approximately	2.5%	for	2015.	USSTC	estimates	that	the	smokeless	products category	volume	grew	approximately	2.5%	over	the	six	months	ended	December 31,	2015	as	compared	with	approximately	2.0%	for	the	six	months	ended December	31,	2014.

Copenhagen	and	Skoal's	combined	retail	share	increased	0.3	share	points	to 51.3%.	Copenhagen's	retail	share	increased	0.9	share	points	and	Skoal's	retail share	declined	0.6	share	points.

Total	smokeless	products	retail	share	declined	0.1	share	point	to	54.9%.

# Wine	Segment

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	domestic	and	foreign	wine	regions.	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, Patz	&	Hall	in	Sonoma	and	Erath	in	Oregon.	In	addition,	Ste.	Michelle	imports and	markets	Antinori,	Torres	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	net	revenues	and	operating	companies	income	increased	in	2016, due	primarily	to	higher	shipment	volume.	The	following	table	summarizes operating	results	for	the	wine	segment:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\trevenues | $746 | $692 | $643 |
| Operating\tcompanies\tincome | $164 | $152 | $134 |

The	following	discussion	compares	operating	results	for	the	wine	segment	for the	year	ended	December	31,	2016	with	the	year	ended	December	31,	2015.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$54 million	(7.8%),	due	primarily	to	higher	shipment	volume.	Operating	companies income	increased	$12	million	(7.9%),	due	primarily	to	higher	shipment	volume and	improved	premium	mix,	partially	offset	by	higher	costs.

For	2016,	Ste.	Michelle's	reported	wine	shipment	volume	of	9,333	thousand cases	grew	5.3%,	driven	primarily	by	growth	among	its	core	premium	brands. The	following	discussion	compares	operating	results	for	the	wine	segment	for the	year	ended	December	31,	2015	with	the	year	ended	December	31,	2014. Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$49 million	(7.6%),	due	primarily	to	higher	shipment	volume	and	improved	premium mix.	Operating	companies	income	increased	$18	million	(13.4%),	due	primarily	to higher	shipment	volume	and	improved	premium	mix,	partially	offset	by	higher costs.

For	2015,	Ste.	Michelle's	reported	wine	shipment	volume	of	8,866	thousand cases	increased	6.2%.

# Financial	Review

# Net	Cash	Provided	by	Operating	Activities

During	2016,	net	cash	provided	by	operating	activities	was	$3.8	billion	compared with	$5.8	billion	during	2015.	This	decrease	was	due	primarily	to	the	following:

▪income	taxes	paid	on	both	the	cash	proceeds	from	the	Transaction	and gains	from	exercising	derivative	financial	instruments	associated	with	the Transaction	in	2016;	and

▪voluntary	contributions	totaling	$500	million	to	Altria	Group,	Inc.'s pension	plans	during	2016;

▪higher	cumulative	dividends	received	from	AB	InBev	and	SABMiller	in 2016.

During	2015,	net	cash	provided	by	operating	activities	was	$5.8	billion compared	with	$4.7	billion	during	2014.	This	increase	was	due	primarily	to	the following:

▪higher	net	revenues	in	the	smokeable	products	segment	in	2015; and

▪the	end	of	the	federal	tobacco	quota	buy-out	payments	after	the	third quarter	of	2014;

▪higher	settlement	payments	during	2015,	driven	by	the	impact	of	NPM Adjustment	Items	in	2014.

Altria	Group,	Inc.	had	a	working	capital	deficit	at	December	31,	2016	and 2015.	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/Used	in	Investing	Activities

During	2016,	net	cash	provided	by	investing	activities	was	$3.7	billion	compared with	net	cash	used	in	investing	activities	of	$15	million	during	2015.	This	change was	due	primarily	to	the	following:

▪proceeds	of	$4.8	billion	from	the	Transaction	during	2016; and

▪proceeds	of	$0.5	billion	from	exercising	derivative	financial	instruments associated	with	the	Transaction	during	2016;

▪payment	of	approximately	$1.6	billion	for	the	purchase	of	ordinary	shares of	AB	InBev	during	2016.

During	2015,	net	cash	used	in	investing	activities	was	$15	million	compared with	net	cash	provided	by	investing	activities	of	$177	million	during	2014.	This change	was	due	primarily	to	the	following:

▪$132	million	payment	for	a	derivative	financial	instrument	during 2015;

▪the	sale	of	PM	USA's	Cabarrus,	North	Carolina	manufacturing	facility during	2014;	and

▪higher	capital	expenditures	during	2015,	due	primarily	to	a	new	USSTC manufacturing	facility	in	Hopkinsville,	Kentucky	that	was	completed	in 2016;

▪Nu	Mark's	acquisition	of	the	e-vapor	business	of	Green	Smoke	during 2014.

Capital	expenditures	for	2016	decreased	17.5%	to	$189	million,	due	primarily to	higher	capital	expenditures	during	2015	for	the	new	USSTC	manufacturing facility	noted	above.	Capital	expenditures	for	2017	are	expected	to	be	in	the	range of	$180	million	to	$220	million,	and	are	expected	to	be	funded	from	operating cash	flows.	The	increase	in	expected	capital	expenditures	in	2017	compared	with 2016	is	due	primarily	to	spending	related	to	the	facilities	consolidation.

# Net	Cash	Used	in	Financing	Activities

During	2016,	net	cash	used	in	financing	activities	was	$5.3	billion	compared	with $6.7	billion	during	2015.	This	decrease	was	due	primarily	to	the	following:

▪debt	issuance	of	$2.0	billion	of	senior	unsecured	notes	used	in	part	to repurchase	senior	unsecured	notes	in	connection	with	the	2016	debt tender	offer,	as	more	fully	described	in	Note	10;	and

▪$1.0	billion	repayment	of	Altria	Group,	Inc.	senior	unsecured	notes	at scheduled	maturity	in	2015;

▪higher	premiums,	fees	and	repayments	of	debt	in	connection	with	debt tender	offers	during	2016;

▪higher	share	repurchases	during	2016; and

▪higher	dividends	paid	during 2016.

During	2015,	net	cash	used	in	financing	activities	was	$6.7	billion	compared with	$4.7	billion	during	2014.	This	increase	was	due	primarily	to	the	following:

▪debt	tender	offer	completed	during	2015,	which	resulted	in	the repurchase	of	$793	million	of	senior	unsecured	notes	and	a	$226	million payment	of	premiums	and	fees,	as	more	fully	described	in	Note	10;

▪$525	million	repayment	of	Altria	Group,	Inc.	senior	unsecured	notes	at scheduled	maturity	in	2014;

▪lower	share	repurchases	during	2015;

▪full	redemption	of	UST	senior	notes	of	$300	million	in 2014.

# 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.	As	a result	of	credit	rating	upgrades	by	both	Moody's	Investors	Service,	Inc. ("Moody's")	and	Standard	&	Poor's	Ratings	Services	("Standard	&	Poor's")	in	the first	quarter	of	2016,	the	provision	in	certain	of	Altria	Group,	Inc.'s	senior unsecured	notes	issued	in	2008	and	2009	that	required	an	adjustment	to	the	cost	of borrowings	upon	a	change	in	credit	rating	terminated	in	accordance	with	its	terms. The	impact	of	credit	ratings	on	the	cost	of	borrowings	under	Altria	Group,	Inc.'s credit	agreement	is	discussed	below.	See	the	discussion	in	Item	1A	regarding	the potential	adverse	impact	of	certain	events	on	Altria	Group,	Inc.'s	credit	ratings.

At	December	31,	2016,	the	credit	ratings	and	outlook	for	Altria	Group,	Inc.'s indebtedness	by	major	credit	rating	agencies	were:

1 On	 March	 9,	 2016,	Moody's	raised the long-term	debt	credit	rating	for	Altria Group,	Inc.	to	A3	from	Baa1. 2	On	March	30,	2016,	Standard	&	Poor's	raised	the	long-term	debt	credit	rating	for Altria	Group,	Inc.	to	A-	from	BBB+	and	the	short-term	debt	credit	rating	for Altria	Group,	Inc.	to	A-1	from	A-2.

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.	At	December	31,	2016,	2015	and	2014,	Altria Group,	Inc.	had	no	short-term	borrowings.

At	December	31,	2016,	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	August	19,	2020.

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	senior	unsecured	long- term	debt.	Interest	rates	on	borrowings	under	the	Credit	Agreement	are	expected	to be	based	on	the	London	Interbank	Offered	Rate	("LIBOR")	plus	a	percentage based	on	the	higher	of	the	ratings	of	Altria	Group,	Inc.'s	long-term	senior unsecured	debt	from	Moody's	and	Standard	&	Poor's.	The	applicable	percentage based	on	Altria	Group,	Inc.'s	long-term	senior	unsecured	debt	ratings	at	December 31,	2016	for	borrowings	under	the	Credit	Agreement	was	1.125%.	The	Credit Agreement	does	not	include	any	other	rating	triggers,	nor	does	it	contain	any provisions	that	could	require	the	posting	of	collateral.	At	December	31,	2016, credit	available	to	Altria	Group,	Inc.	under	the	Credit	Agreement	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	earnings	before interest,	taxes,	depreciation	and	amortization	("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	December	31,	2016,	the	ratios	of	debt	to	consolidated	EBITDA	and consolidated	EBITDA	to	consolidated	interest	expense,	calculated	in	accordance with	the	Credit	Agreement,	were	1.4	to	1.0	and	13.5	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	Quarterly	Report	on	Form	10-Q	for	the	period	ended September	30,	2013	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	20.

# Condensed	Consolidating	Financial	Information	to	the	consolidated	financial

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.	See	Item	1A	for	certain	risk	factors	associated	with	the foregoing	discussion.

During	2016,	Altria	Group,	Inc.	issued	$0.5	billion	aggregate	principal amount	of	2.625%	senior	unsecured	notes	due	2026	and	$1.5	billion	aggregate principal	amount	of	3.875%	senior	unsecured	notes	due	2046.	In	addition,	during 2016,	Altria	Group,	Inc.	completed	a	debt	tender	offer	to	purchase	for	cash	certain of	its	senior	unsecured	notes	in	the	aggregate	principal	amount	of	$933	million.

All	of	Altria	Group,	Inc.'s	debt	was	fixed-rate	debt	at	December	31,	2016	and 2015.	The	weighted-average	coupon

For	further	details	on	long-term	debt,	see	Note	10.

In	October	2014,	Altria	Group,	Inc.	filed	a	registration	statement	on	Form	S-3 with	the	SEC,	under	which	Altria	Group,	Inc.	may	offer	debt	securities	or warrants	to	purchase	debt	securities	from	time	to	time	over	a	three-year	period from	the	date	of	filing.

# Off-Balance	Sheet	Arrangements	and	Aggregate	Contractual	Obligations

Altria	Group,	Inc.	has	no	off-balance	sheet	arrangements,	including	special	purpose	entities,	other	than	guarantees	and	contractual	obligations	that	are	discussed	below. Guarantees	and	Other	Similar	Matters	-	As	discussed	in	Note	19,	Altria	Group,	Inc.	and	certain	of	its	subsidiaries	had	unused	letters	of	credit	obtained	in	the ordinary	course	of	business,	guarantees	(including	third-party	guarantees)	and	a	redeemable	noncontrolling	interest	outstanding	at	December	31,	2016.	From	time	to time,	subsidiaries	of	Altria	Group,	Inc.	also	issue	lines	of	credit	to	affiliated	entities.	In	addition,	as	discussed	in	Note	20,	PM	USA	has	issued	guarantees	relating	to Altria	Group,	Inc.'s	obligations	under	its	outstanding	debt	securities,	borrowings	under	the	Credit	Agreement	and	amounts	outstanding	under	its	commercial	paper program.	These	items	have	not	had,	and	are	not	expected	to	have,	a	significant	impact	on	Altria	Group,	Inc.'s	liquidity.

Aggregate	Contractual	Obligations	-	The	following	table	summarizes	Altria	Group,	Inc.'s	contractual	obligations	at	December	31,	2016:

| (in	millions) | Total | 2017 | 2018	-	2019 | 2020	-	2021 | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt\t(1) | $14,017 | $— | $2,008 | $2,500 | $9,509 |
| Interest\ton\tborrowings\t(2) | 9,096 | 693 | 1,303 | 933 | 6,167 |
| Operating\tleases\t(3) | 259 | 52 | 81 | 54 | 72 |
| Purchase\tobligations:\t(4) |  |  |  |  |  |
| Inventory\tand\tproduction\tcosts | 3,118 | 968 | 1,211 | 499 | 440 |
| Other | 807 | 588 | 186 | 33 | — |
|  | 3,925 | 1,556 | 1,397 | 532 | 440 |
| Other\tlong-term\tliabilities\t(5) | 2,366 | 147 | 294 | 286 | 1,639 |
|  | $29,663 | $2,448 | $5,083 | $4,305 | $17,827 |

(1)	Amounts	represent	the	expected	cash	payments	of	Altria	Group,	Inc.'s	long-term	debt.

(2)	Amounts	represent	the	expected	cash	payments	of	Altria	Group,	Inc.'s	interest	expense	on	its	long-term	debt.	Interest	on	Altria	Group,	Inc.'s	debt,	which	was	all	fixed-rate	debt at	December	31,	2016,	is	presented	using	the	stated	coupon	interest	rate.	Amounts	exclude	the	amortization	of	debt	discounts	and	debt	issuance	costs,	the	amortization	of	loan	fees and	fees	for	lines	of	credit	that	would	be	included	in	interest	and	other	debt	expense,	net	in	the	consolidated	statements	of	earnings.

(3)	Amounts	represent	the	minimum	rental	commitments	under	non-cancelable	operating	leases.

(4)	Purchase	obligations	for	inventory	and	production	costs	(such	as	raw	materials,	indirect	materials	and	services,	contract	manufacturing,	packaging,	storage	and	distribution)	are commitments	for	projected	needs	to	be	used	in	the	normal	course	of	business.	Other	purchase	obligations	include	commitments	for	marketing,	capital	expenditures,	information technology	and	professional	services.	Arrangements	are	considered	purchase	obligations	if	a	contract	specifies	all	significant	terms,	including	fixed	or	minimum	quantities	to	be purchased,	a	pricing	structure	and	approximate	timing	of	the	transaction.	Most	arrangements	are	cancelable	without	a	significant	penalty,	and	with	short	notice	(usually	30	days). Any	amounts	reflected	on	the	consolidated	balance	sheet	as	accounts	payable	and	accrued	liabilities	are	excluded	from	the	table	above.

(5)	Other	long-term	liabilities	consist	of	accrued	postretirement	health	care	costs	and	certain	accrued	pension	costs.	The	amounts	included	in	the	table	above	for	accrued	pension	costs consist	of	the	actuarially	determined	anticipated	minimum	funding	requirements	for	each	year	from	2017	through	2021.	Contributions	beyond	2021	cannot	be	reasonably	estimated and,	therefore,	are	not	included	in	the	table	above.	In	addition,	the	following	long-term	liabilities	included	on	the	consolidated	balance	sheet	are	excluded	from	the	table	above: accrued	postemployment	costs,	income	taxes	and	tax	contingencies,	and	other	accruals.	Altria	Group,	Inc.	is	unable	to	estimate	the	timing	of	payments	for	these	items.

The	State	Settlement	Agreements	and	related	legal	fee	payments,	and payments	for	FDA	user	fees,	as	discussed	below	and	in	Note	19	and	Item	3,	are excluded	from	the	table	above,	as	the	payments	are	subject	to	adjustment	for several	factors,	including	inflation,	operating	income,	market	share	and	industry volume.	Litigation	escrow	deposits,	as	discussed	below	and	in	Note	19,	are	also excluded	from	the	table	above	since	these	deposits	will	be	returned	to	PM	USA should	it	prevail	on	appeal.

Payments	Under	State	Settlement	Agreements,	FETRA	and	FDA	Regulation	- As	discussed	previously	and	in	Note	19	and	Item	3,	PM	USA	has	entered	into	State Settlement	Agreements	with	the	states	and	territories	of	the	United	States	that	call for	certain	payments.	PM	USA,	Middleton	and	USSTC	were	also

subject	to	payment	obligations	imposed	by	FETRA.	The	FETRA	payment obligations	expired	after	the	third	quarter	of	2014.	In	addition,	in	June	2009,	PM USA	and	USSTC	became	subject	to	quarterly	user	fees	imposed	by	the	FDA	as	a result	of	the	FSPTCA.	Payments	under	the	State	Settlement	Agreements	and	the FDA	user	fees	are	based	on	variable	factors,	such	as	volume,	operating	income, market	share	and	inflation,	depending	on	the	subject	payment.	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.	For	the	years	ended	December	31, 2016,	2015	and	2014,	the	aggregate	amount	recorded	in	cost	of	sales	with	respect to	the	State	Settlement	Agreements,	FETRA	(which	expired	after	the	third	quarter of

2014)	and	FDA	user	fees	was	approximately	$4.9	billion,	$4.8	billion	and	$4.9 billion,	respectively.	For	a	detailed	discussion	of	settlements	of,	and determinations	made	in	connection	with,	disputes	with	certain	states	and	territories related	to	the	NPM	Adjustment	provision	under	the	MSA	for	the	years	2003-2012, see	Health	Care	Cost	Recovery	Litigation	-	NPM	Adjustment	Disputes	in	Note	19.

Based	on	current	agreements,	2016	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	payments	related	to	State	Settlement Agreements	and	FDA	user	fees	approximate	$4.9	billion	in	2017	and	each	year thereafter.	These	amounts	exclude	the	potential	impact	of	the	NPM	Adjustment provision	applicable	under	the	MSA	and	the	revised	NPM	Adjustment	provisions applicable	under	the	settlements	of	the	NPM	Adjustment	disputes	with	the	24 signatory	states	and	with	New	York,	respectively,	for	years	after	2014	discussed above.

The	estimated	amounts	due	under	the	State	Settlement	Agreements	charged	to cost	of	sales	in	each	year	would	generally	be	paid	in	the	following	year.	The amounts	charged	to	cost	of	sales	for	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	Agreements	and	FDA	user	fees	are	subject to	adjustment	for	several	factors,	including	volume,	operating	income,	inflation and	certain	contingent	events	and,	in	general,	are	allocated	based	on	each manufacturer's	market	share.	The	future	payment	amounts	discussed	above	are estimates,	and	actual	payment	amounts	will	differ	to	the	extent	underlying assumptions	differ	from	actual	future	results.

Litigation-Related	Deposits	and	Payments	-	With	respect	to	certain	adverse verdicts	currently	on	appeal,	to	obtain	stays	of	judgments	pending	appeals,	as	of December	31,	2016,	PM	USA	had	posted	various	forms	of	security	totaling approximately	$82	million,	the	majority	of	which	have	been	collateralized	with cash	deposits.	These	cash	deposits	are	included	in	other	assets	on	the	consolidated balance	sheet.

Although	litigation	is	subject	to	uncertainty	and	an	adverse	outcome	or settlement	of	litigation	could	have	a	material	adverse	effect	on	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	19, Item	3	and	Item	1A,	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.

# Equity	and	Dividends

As	discussed	in	Note	12.	Stock	Plans	to	the	consolidated	financial	statements	in Item	8,	during	2016	Altria	Group,	Inc.	granted	an	aggregate	of	0.9	million	shares of	restricted	stock	units	to	eligible	employees.

At	December	31,	2016,	the	number	of	shares	to	be	issued	upon	vesting	of restricted	stock	units	was	not	significant.

Dividends	paid	in	2016	and	2015	were	approximately	$4.5	billion	and	$4.2 billion,	respectively,	an	increase	of	8.0%,	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	programs.

During	the	third	quarter	of	2016,	the	Board	of	Directors	approved	an	8.0% increase	in	the	quarterly	dividend	rate	to	$0.61	per	share	of	Altria	Group,	Inc. common	stock	versus	the	previous	rate	of	$0.565	per	share.	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	$2.44	per share.	Future	dividend	payments	remain	subject	to	the	discretion	of	the	Board	of Directors.

During	2016,	2015	and	2014	the	Board	of	Directors	authorized	Altria	Group, Inc.	to	repurchase	shares	of	its	outstanding	common	stock	under	several	share repurchase	programs.

At	December	31,	2016,	Altria	Group,	Inc.	had	approximately	$1,935	million remaining	in	the	July	2015	share	repurchase	program,	which	it	expects	to complete	by	the	end	of	the	second	quarter	of	2018.	For	further	discussion	of	Altria Group,	Inc.'s	share	repurchase	programs,	see	Note	11.	Capital	Stock	to	the consolidated	financial	statements	in	Item	8	and	Part	II,	Item	5.	Market	for Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases of	Equity	Securities	of	this	Annual	Report	on	Form	10-K.

# Recent	Accounting	Guidance	Not	Yet	Adopted

See	Note	2	for	a	discussion	of	recent	accounting	guidance	issued	but	not	yet adopted.

# Contingencies

See	Note	19	and	Item	3	for	a	discussion	of	contingencies.

# Item	7A.	Quantitative	and	Qualitative	Disclosures	About	Market Risk.

At	December	31,	2016	and	2015,	the	fair	value	of	Altria	Group,	Inc.'s	total	debt was	$15.1	billion	and	$14.5	billion,	respectively.	The	fair	value	of	Altria	Group, Inc.'s	debt	is	subject	to	fluctuations	resulting	from	changes	in	market	interest rates.	A	1%	increase	in	market	interest	rates	at	December	31,	2016	and	2015 would	decrease	the	fair	value	of	Altria	Group,	Inc.'s	total	debt	by	approximately $1.2	billion	and	$1.1	billion,	respectively.	A	1%	decrease	in	market	interest	rates at	December	31,	2016	and	2015	would	increase	the	fair	value	of	Altria	Group, Inc.'s	total	debt	by	approximately	$1.4	billion	and	$1.3	billion,	respectively. Interest	rates	on	borrowings	under	the	Credit	Agreement	are	expected	to	be based	on	LIBOR	plus	a	percentage	based	on	the	higher	of	the	ratings	of	Altria Group,	Inc.'s	long-term	senior	unsecured	debt	from	Moody's	and	Standard	& Poor's.	The	applicable	percentage	based	on	Altria	Group,	Inc.'s	long-term	senior unsecured	debt	ratings	at	December	31,	2016	for	borrowings	under	the	Credit Agreement	was	1.125%.	At	December	31,	2016,	Altria	Group,	Inc.	had	no borrowings	under	the	Credit	Agreement.

# Item	8.	Financial	Statements	and	Supplementary	Data.

# Altria	Group,	Inc.	and	Subsidiaries

# Consolidated	Balance	Sheets

(in	millions	of	dollars)

| at	December	31, | 2016 | 2015 |
| :--- | :--- | :--- |
| Assets |  |  |
| Cash\tand\tcash\tequivalents | $4,569 | $2,369 |
| Receivables | 151 | 124 |
| Inventories: |  |  |
| Leaf\ttobacco | 892 | 957 |
| Other\traw\tmaterials | 164 | 181 |
| Work\tin\tprocess | 512 | 444 |
| Finished\tproduct | 483 | 449 |
|  | 2,051 | 2,031 |
| Other\tcurrent\tassets | 489 | 387 |
| Total\tcurrent\tassets | 7,260 | 4,911 |
| Property,\tplant\tand\tequipment,\tat\tcost: |  |  |
| Land\tand\tland\timprovements | 316 | 295 |
| Buildings\tand\tbuilding\tequipment | 1,481 | 1,406 |
| Machinery\tand\tequipment | 2,917 | 2,969 |
| Construction\tin\tprogress | 121 | 207 |
|  | 4,835 | 4,877 |
| Less\taccumulated\tdepreciation | 2,877 | 2,895 |
|  | 1,958 | 1,982 |
| Goodwill | 5,285 | 5,285 |
| Other\tintangible\tassets,\tnet | 12,036 | 12,028 |
| Investment\tin\tAB\tInBev/SABMiller | 17,852 | 5,483 |
| Finance\tassets,\tnet | 1,028 | 1,239 |
| Other\tassets | 513 | 531 |
| Total\tAssets | $45,932 | $31,459 |

See	notes	to	consolidated	financial	statements.

# Consolidated	Balance	Sheets	(Continued)

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

| at	December	31, | 2016 | 2015 |
| :--- | :--- | :--- |
| Liabilities |  |  |
| Current\tportion\tof\tlong-term\tdebt | $— | $4 |
| Accounts\tpayable | 425 | 400 |
| Accrued\tliabilities: |  |  |
| Marketing | 747 | 695 |
| Employment\tcosts | 289 | 198 |
| Settlement\tcharges | 3,701 | 3,590 |
| Other | 1,025 | 1,073 |
| Dividends\tpayable | 1,188 | 1,110 |
| Total\tcurrent\tliabilities | 7,375 | 7,070 |
| Long-term\tdebt | 13,881 | 12,843 |
| Deferred\tincome\ttaxes | 8,416 | 4,667 |
| Accrued\tpension\tcosts | 805 | 1,277 |
| Accrued\tpostretirement\thealth\tcare\tcosts | 2,217 | 2,245 |
| Other\tliabilities | 427 | 447 |
| Total\tliabilities | 33,121 | 28,549 |
| Contingencies\t(Note\t19) |  |  |
| Redeemable\tnoncontrolling\tinterest | 38 | 37 |
| Stockholders'\tEquity |  |  |
| Common\tstock,\tpar\tvalue\t$0.33\t1/3\tper\tshare\n(2,805,961,317\tshares\tissued) | 935 | 935 |
| Additional\tpaid-in\tcapital | 5,893 | 5,813 |
| Earnings\treinvested\tin\tthe\tbusiness | 36,906 | 27,257 |
| Accumulated\tother\tcomprehensive\tlosses | (2,052) | (3,280) |
| Cost\tof\trepurchased\tstock |  |  |
| (862,689,093\tshares\tat\tDecember\t31,\t2016\tand |  |  |
| 845,901,836\tshares\tat\tDecember\t31,\t2015) | (28,912) | (27,845) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 12,770 | 2,880 |
| Noncontrolling\tinterests | 3 | (7) |
| Total\tstockholders'\tequity | 12,773 | 2,873 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $45,932 | $31,459 |

# Consolidated	Statements	of	Earnings

(in	millions	of	dollars,	except	per	share	data)

| for	the	years	ended	December	31, | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\trevenues | $25,744 | $25,434 | $24,522 |
| Cost\tof\tsales | 7,746 | 7,740 | 7,785 |
| Excise\ttaxes\ton\tproducts | 6,407 | 6,580 | 6,577 |
| Gross\tprofit | 11,591 | 11,114 | 10,160 |
| Marketing,\tadministration\tand\tresearch\tcosts | 2,650 | 2,708 | 2,539 |
| Reductions\tof\tPMI\tand\tMondelēz\ttax-related\treceivables | — | 41 | 2 |
| Asset\timpairment\tand\texit\tcosts | 179 | 4 | (1) |
| Operating\tincome | 8,762 | 8,361 | 7,620 |
| Interest\tand\tother\tdebt\texpense,\tnet | 747 | 817 | 808 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 823 | 228 | 44 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (795) | (757) | (1,006) |
| Gain\ton\tAB\tInBev/SABMiller\tbusiness\tcombination | (13,865) | (5) | — |
| Earnings\tbefore\tincome\ttaxes | 21,852 | 8,078 | 7,774 |
| Provision\tfor\tincome\ttaxes | 7,608 | 2,835 | 2,704 |
| Net\tearnings | 14,244 | 5,243 | 5,070 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | (5) | (2) | — |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $14,239 | $5,241 | $5,070 |
| Per\tshare\tdata: |  |  |  |
|  | $7.28 | $2.67 | $2.56 |

# Consolidated	Statements	of	Comprehensive	Earnings

| for	the	years	ended	December	31, | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\tearnings | $14,244 | $5,243 | $5,070 |
| Other\tcomprehensive\tearnings\t(losses),\tnet\tof\tdeferred\tincome\ttaxes: |  |  |  |
| Currency\ttranslation\tadjustments | 1 | (3) | (2) |
| Benefit\tplans | (38) | 30 | (767) |
| SABMiller | 1,265 | (625) | (535) |
| Other\tcomprehensive\tearnings\t(losses),\tnet\tof\tdeferred\tincome\ttaxes | 1,228 | (598) | (1,304) |
| Comprehensive\tearnings | 15,472 | 4,645 | 3,766 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | (5) | (2) | — |
| Comprehensive\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $15,467 | $4,643 | $3,766 |

# Consolidated	Statements	of	Cash	Flows

| for	the	years	ended	December	31, | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\t(Used\tin)\tOperating\tActivities |  |  |  |
| Net\tearnings | $14,244 | $5,243 | $5,070 |
| Adjustments\tto\treconcile\tnet\tearnings\tto\toperating\tcash\tflows: |  |  |  |
| Depreciation\tand\tamortization | 204 | 225 | 208 |
| Deferred\tincome\ttax\tprovision\t(benefit) | 3,119 | (132) | (129) |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (795) | (757) | (1,006) |
| Gain\ton\tAB\tInBev/SABMiller\tbusiness\tcombination | (13,865) | (5) | — |
| Dividends\tfrom\tAB\tInBev/SABMiller | 739 | 495 | 456 |
| Asset\timpairment\tand\texit\tcosts,\tnet\tof\tcash\tpaid | 106 | 1 | (9) |
| Loss\ton\tearly\textinguishment\tof\tdebt | 823 | 228 | 44 |
| Cash\teffects\tof\tchanges,\tnet\tof\tthe\teffects\tfrom\tacquisition\tof\tGreen\tSmoke: |  |  |  |
| Receivables | (27) | 3 | (8) |
| Inventories | (34) | (33) | (184) |
| Accounts\tpayable | (6) | (7) | (5) |
| Income\ttaxes | (231) | (12) | 1 |
| Accrued\tliabilities\tand\tother\tcurrent\tassets | (113) | 184 | (107) |
| Accrued\tsettlement\tcharges | 111 | 90 | 109 |
| Pension\tplan\tcontributions | (531) | (28) | (15) |
| Pension\tprovisions\tand\tpostretirement,\tnet | (73) | 114 | 21 |
| Other | 120 | 201 | 217 |
| Net\tcash\tprovided\tby\toperating\tactivities | 3,791 | 5,810 | 4,663 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |
| Capital\texpenditures | (189) | (229) | (163) |
| Acquisition\tof\tGreen\tSmoke,\tnet\tof\tacquired\tcash | — | — | (102) |
| Proceeds\tfrom\tfinance\tassets | 231 | 354 | 369 |
| Proceeds\tfrom\tAB\tInBev/SABMiller\tbusiness\tcombination | 4,773 | — | — |
| Purchase\tof\tAB\tInBev\tordinary\tshares | (1,578) | — | — |
| Payment\tfor\tderivative\tfinancial\tinstruments | (3) | (132) | — |
| Proceeds\tfrom\tderivative\tfinancial\tinstruments | 510 | — | — |
| Other | (36) | (8) | 73 |
| Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | 3,708 | (15) | 177 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |
| Long-term\tdebt\tissued | 1,976 | — | 999 |
| Long-term\tdebt\trepaid | (933) | (1,793) | (825) |
| Repurchases\tof\tcommon\tstock | (1,030) | (554) | (939) |
| Dividends\tpaid\ton\tcommon\tstock | (4,512) | (4,179) | (3,892) |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (809) | (226) | (44) |
| Other | 9 | 5 | 7 |
| Net\tcash\tused\tin\tfinancing\tactivities | (5,299) | (6,747) | (4,694) |
| Cash\tand\tcash\tequivalents: |  |  |  |
| Increase\t(decrease) | 2,200 | (952) | 146 |
| Balance\tat\tbeginning\tof\tyear | 2,369 | 3,321 | 3,175 |
| Balance\tat\tend\tof\tyear | $4,569 | $2,369 | $3,321 |
| Cash\tpaid:\t\t\t\tInterest | $775 | $776 | $820 |
| \t\tIncome\ttaxes | $4,664 | $3,029 | $2,765 |

# Consolidated	Statements	of	Stockholders'	Equity

# Attributable	to	Altria	Group,	Inc.

|  | Common<br>Stock | Additional<br>Paid-in<br>Capital | Earnings<br>Reinvested	in<br>the	Business | Other<br>Comprehensive<br>Losses | Cost	of<br>Repurchased<br>Stock | Non-<br>controlling<br>Interests | Total<br>Stockholders'<br>Equity |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balances,\tDecember\t31,\t2013 | $935 | $5,714 | $25,168 | $(1,378) | $(26,320) | $(1) | $4,118 |
| Net\tearnings\t(losses)\t(1) | — | — | 5,070 | — | — | (3) | 5,067 |
| Other\tcomprehensive\tlosses,\tnet\nof\tdeferred\tincome\ttaxes | — | — | — | (1,304) | — | — | (1,304) |
| Stock\taward\tactivity | — | 21 | — | — | 8 | — | 29 |
| Cash\tdividends\tdeclared\t($2.00\tper\tshare) | — | — | (3,961) | — | — | — | (3,961) |
| Repurchases\tof\tcommon\tstock | — | — | — | — | (939) | — | (939) |
| Balances,\tDecember\t31,\t2014 | 935 | 5,735 | 26,277 | (2,682) | (27,251) | (4) | 3,010 |
| Net\tearnings\t(losses)\t(1) | — | — | 5,241 | — | — | (3) | 5,238 |
| Other\tcomprehensive\tlosses,\tnet\nof\tdeferred\tincome\ttaxes | — | — | — | (598) | — | — | (598) |
| Stock\taward\tactivity | — | 78 | — | — | (40) | — | 38 |
| Cash\tdividends\tdeclared\t($2.17\tper\tshare) | — | — | (4,261) | — | — | — | (4,261) |
| Repurchases\tof\tcommon\tstock | — | — | — | — | (554) | — | (554) |
| Balances,\tDecember\t31,\t2015 | 935 | 5,813 | 27,257 | (3,280) | (27,845) | (7) | 2,873 |
| Net\tearnings\t(1) | — | — | 14,239 | — | — | — | 14,239 |
| Other\tcomprehensive\tearnings,\tnet\nof\tdeferred\tincome\ttaxes | — | — | — | 1,228 | — | — | 1,228 |
| Stock\taward\tactivity | — | 90 | — | — | (37) | — | 53 |
| Cash\tdividends\tdeclared\t($2.35\tper\tshare) | — | — | (4,590) | — | — | — | (4,590) |
| Repurchases\tof\tcommon\tstock | — | — | — | — | (1,030) | — | (1,030) |
| Other | — | (10) | — | — | — | 10 | — |
| Balances,\tDecember\t31,\t2016 | $935 | $5,893 | $36,906 | $(2,052) | $(28,912) | $3 | $12,773 |

(1)	Amounts	attributable	to	noncontrolling	interests	for	the	years	ended	 December	31,	2016,	2015	and	2014	exclude	net	earnings	of	$5	million,	$5	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	on	the	consolidated	balance	sheets	at	December	31,	2016,	2015	and	2014, respectively.	See	Note	19.

# Notes	to	Consolidated	Financial	Statements

# Note	1.					Background	and	Basis	of	Presentation

▪Background:	At	December	31,	2016,	Altria	Group,	Inc.'s	wholly-owned subsidiaries	included	Philip	Morris	USA	Inc.	("PM	USA"),	which	is	engaged	in the	manufacture	and	sale	of	cigarettes	in	the	United	States;	John	Middleton	Co. ("Middleton"),	which	is	engaged	in	the	manufacture	and	sale	of	machine-made large	cigars	and	pipe	tobacco	and	is	a	wholly-owned	subsidiary	of	PM	USA;	and UST	LLC	("UST"),	which	through	its	wholly-owned	subsidiaries,	including	U.S. Smokeless	Tobacco	Company	LLC	("USSTC")	and	Ste.	Michelle	Wine	Estates Ltd.	("Ste.	Michelle"),	is	engaged	in	the	manufacture	and	sale	of	smokeless tobacco	products	and	wine.	Altria	Group,	Inc.'s	other	operating	companies included	Nu	Mark	LLC	("Nu	Mark"),	a	wholly-owned	subsidiary	that	is	engaged in	the	manufacture	and	sale	of	innovative	tobacco	products,	and	Philip	Morris Capital	Corporation	("PMCC"),	a	wholly-owned	subsidiary	that	maintains	a portfolio	of	finance	assets,	substantially	all	of	which	are	leveraged	leases.	Other Altria	Group,	Inc.	wholly-owned	subsidiaries	included	Altria	Group	Distribution Company,	which	provides	sales,	distribution	and	consumer	engagement	services to	certain	Altria	Group,	Inc.	operating	subsidiaries,	and	Altria	Client	Services LLC,	which	provides	various	support	services	in	areas,	such	as	legal,	regulatory, finance,	human	resources	and	external	affairs,	to	Altria	Group,	Inc.	and	its subsidiaries.	Altria	Group,	Inc.'s	access	to	the	operating	cash	flows	of	its	wholly- owned	subsidiaries	consists	of	cash	received	from	the	payment	of	dividends	and distributions,	and	the	payment	of	interest	on	intercompany	loans	by	its subsidiaries.	At	December	31,	2016,	Altria	Group,	Inc.'s	principal	wholly-owned subsidiaries	were	not	limited	by	long-term	debt	or	other	agreements	in	their	ability to	pay	cash	dividends	or	make	other	distributions	with	respect	to	their	equity interests.

At	September	30,	2016,	Altria	Group,	Inc.	had	an	approximate	27% ownership	of	SABMiller	plc	("SABMiller"),	which	Altria	Group,	Inc.	accounted for	under	the	equity	method	of	accounting.	On	October	10,	2016,	Anheuser-Busch InBev	SA/NV	("Legacy	AB	InBev")	completed	a	business	combination	with SABMiller	in	a	cash	and	stock	transaction	(the	"Transaction").	A	newly	formed Belgian	company,	which	retained	the	name	Anheuser-Busch	InBev	SA/NV	("AB InBev"),	became	the	holding	company	for	the	combined	SABMiller	and	Legacy AB	InBev	businesses.	Upon	completion	of	the	Transaction,	Altria	Group,	Inc.	had a	9.6%	ownership	of	AB	InBev	based	on	AB	InBev's	shares	outstanding	at October	10,	2016.	Following	completion	of	the	Transaction,	Altria	Group,	Inc. purchased	12,341,937	ordinary	shares	of	AB	InBev	for	a	total	cost	of approximately	$1.6	billion,	thereby	increasing	Altria	Group,	Inc.'s	ownership	to approximately	10.2%.	At	December	31,	2016,	Altria	Group,	Inc.	had	an approximate	10.2%	ownership	of	AB	InBev,	which	Altria	Group,	Inc.	accounts	for under	the	equity	method	of	accounting	using	a	one-quarter	lag.	As	a	result	of	the one-quarter	lag	and	the	timing	of	the	completion	of	the	Transaction,	no	earnings from	Altria	Group,	Inc.'s	equity	investment	in	AB	InBev	were	recorded	for	the year	ended

December	31,	2016.	Altria	Group,	Inc.	receives	cash	dividends	on	its	interest	in AB	InBev	if	and	when	AB	InBev	pays	such	dividends.	For	further	discussion,	see Note	7.	Investment	in	AB	InBev/SABMiller.

▪Basis	of	Presentation:	The	consolidated	financial	statements	include	Altria Group,	Inc.,	as	well	as	its	wholly-owned	and	majority-owned	subsidiaries. Investments	in	which	Altria	Group,	Inc.	has	the	ability	to	exercise	significant influence	are	accounted	for	under	the	equity	method	of	accounting.	All intercompany	transactions	and	balances	have	been	eliminated.

The	preparation	of	financial	statements	in	conformity	with	accounting principles	generally	accepted	in	the	United	States	of	America	("U.S.	GAAP") requires	management	to	make	estimates	and	assumptions	that	affect	the	reported amounts	of	assets	and	liabilities,	the	disclosure	of	contingent	liabilities	at	the	dates of	the	financial	statements	and	the	reported	amounts	of	net	revenues	and	expenses during	the	reporting	periods.	Significant	estimates	and	assumptions	include, among	other	things,	pension	and	benefit	plan	assumptions,	lives	and	valuation assumptions	for	goodwill	and	other	intangible	assets,	marketing	programs,	income taxes,	and	the	allowance	for	losses	and	estimated	residual	values	of	finance	leases. Actual	results	could	differ	from	those	estimates.

Certain	prior	year	amounts	have	been	reclassified	to	conform	with	the	current year's	presentation	due	primarily	to	Altria	Group,	Inc.'s	2016	adoptions	of Accounting	Standards	Update	("ASU")	No.	2015-17,	Income	Taxes	(Topic	740): Balance	Sheet	Classification	of	Deferred	Taxes	("ASU	No.	2015-17")	and	ASU No.	2015-03,	Interest	-	Imputation	of	Interest	(Subtopic	835-30):	Simplifying	the Presentation	of	Debt	Issuance	Costs	("ASU	No.	2015-03").	For	further	discussion, see	Note	15.	Income	Taxes	and	Note	10.	Long-Term	Debt.

# Note	2.	Summary	of	Significant	Accounting	Policies

▪Cash	and	Cash	Equivalents:	Cash	equivalents	include	demand	deposits with	banks	and	all	highly	liquid	investments	with	original	maturities	of	three months	or	less.	Cash	equivalents	are	stated	at	cost	plus	accrued	interest,	which approximates	fair	value.

Property,	plant	and	equipment	are	stated	at	historical	costs	and	depreciated	by	the straight-line	method	over	the	estimated	useful	lives	of	the	assets.	Machinery	and equipment	are	depreciated	over	periods	up	to	25	years,	and	buildings	and	building improvements	over	periods	up	to	50	years.	Definite-lived	intangible	assets	are amortized	over	their	estimated	useful	lives	up	to	25	years.

Altria	Group,	Inc.	reviews	long-lived	assets,	including	definite-lived intangible	assets,	for	impairment	whenever	events	or	changes	in	business circumstances	indicate	that	the	carrying	value	of	the	assets	may	not	be	fully recoverable.	Altria	Group,	Inc.	performs	undiscounted	operating	cash	flow analyses	to	determine	if	an	impairment	exists.	For	purposes	of	recognition	and measurement	of	an	impairment	for	assets	held	for	use,	Altria	Group,	Inc.	groups assets	and	liabilities	at	the	lowest	level	for

which	cash	flows	are	separately	identifiable.	If	an	impairment	is	determined	to exist,	any	related	impairment	loss	is	calculated	based	on	fair	value.	Impairment losses	on	assets	to	be	disposed	of,	if	any,	are	based	on	the	estimated	proceeds	to	be received,	less	costs	of	disposal.	Altria	Group,	Inc.	also	reviews	the	estimated remaining	useful	lives	of	long-lived	assets	whenever	events	or	changes	in	business circumstances	indicate	the	lives	may	have	changed.

Altria	Group,	Inc.	conducts	a	required	annual	review	of	goodwill	and indefinite-lived	intangible	assets	for	potential	impairment,	and	more	frequently	if an	event	occurs	or	circumstances	change	that	would	require	Altria	Group,	Inc.	to perform	an	interim	review.	If	the	carrying	value	of	goodwill	exceeds	its	fair	value, which	is	determined	using	discounted	cash	flows,	goodwill	is	considered impaired.	The	amount	of	impairment	loss	is	measured	as	the	difference	between the	carrying	value	and	the	implied	fair	value.	If	the	carrying	value	of	an	indefinite- lived	intangible	asset	exceeds	its	fair	value,	which	is	determined	using	discounted cash	flows,	the	intangible	asset	is	considered	impaired	and	is	reduced	to	fair	value. ▪Derivative	Financial	Instruments:	Derivative	financial	instruments	are recorded	at	fair	value	on	the	consolidated	balance	sheets	as	either	assets	or liabilities.	Changes	in	the	fair	value	of	derivatives	are	recorded	each	period	either in	accumulated	other	comprehensive	earnings	(losses)	or	in	earnings,	depending on	the	type	of	derivative	and	whether	the	derivative	qualifies	for	hedge	accounting treatment.	Gains	and	losses	on	derivative	instruments	reported	in	accumulated other	comprehensive	earnings	(losses)	are	reclassified	to	the	consolidated statements	of	earnings	in	the	periods	in	which	operating	results	are	affected	by	the respective	hedged	item.	Cash	flows	from	hedging	instruments	are	classified	in	the same	manner	as	the	respective	hedged	item	in	the	consolidated	statements	of	cash flows.	Altria	Group,	Inc.	does	not	enter	into	or	hold	derivative	financial instruments	for	trading	or	speculative	purposes.

▪Employee	Benefit	Plans:	Altria	Group,	Inc.	provides	a	range	of	benefits	to its	employees	and	retired	employees,	including	pension,	postretirement	health	care and	postemployment	benefits.	Altria	Group,	Inc.	records	annual	amounts	relating to	these	plans	based	on	calculations	specified	by	U.S.	GAAP,	which	include various	actuarial	assumptions	as	to	discount	rates,	assumed	rates	of	return	on	plan assets,	mortality,	compensation	increases,	turnover	rates	and	health	care	cost	trend rates.

Altria	Group,	Inc.	recognizes	the	funded	status	of	its	defined	benefit	pension and	other	postretirement	plans	on	the	consolidated	balance	sheet	and	records	as	a component	of	other	comprehensive	earnings	(losses),	net	of	deferred	income taxes,	the	gains	or	losses	and	prior	service	costs	or	credits	that	have	not	been recognized	as	components	of	net	periodic	benefit	cost.	The	gains	or	losses	and prior	service	costs	or	credits	recorded	as	components	of	other	comprehensive earnings	(losses)	are	subsequently	amortized	into	net	periodic	benefit	cost	in	future years.

▪Environmental	Costs:	Altria	Group,	Inc.	is	subject	to	laws	and	regulations relating	to	the	protection	of	the	environment.

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.

Compliance	with	environmental	laws	and	regulations,	including	the	payment of	any	remediation	and	compliance	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	(see	Note	19.	Contingencies	-	Environmental Regulation).

▪Fair	Value	Measurements:	Altria	Group,	Inc.	measures	certain	assets	and liabilities	at	fair	value.	Fair	value	is	defined	as	the	exchange	price	that	would	be received	to	sell	an	asset	or	paid	to	transfer	a	liability	(an	exit	price)	in	the	principal or	most	advantageous	market	for	the	asset	or	liability	in	an	orderly	transaction between	market	participants	on	the	measurement	date.	Altria	Group,	Inc.	uses	a fair	value	hierarchy,	which	gives	the	highest	priority	to	unadjusted	quoted	prices in	active	markets	for	identical	assets	and	liabilities	(Level	1	measurements)	and the	lowest	priority	to	unobservable	inputs	(Level	3	measurements).	The	three levels	of	inputs	used	to	measure	fair	value	are:

Level	1 Unadjusted	quoted	prices	in	active	markets	for	identical	assets	or liabilities.

Level	2 Observable	inputs	other	than	Level	1	prices,	such	as	quoted	prices	for similar	assets	or	liabilities;	quoted	prices	in	markets	that	are	not	active; or	other	inputs	that	are	observable	or	can	be	corroborated	by observable	market	data	for	substantially	the	full	term	of	the	assets	or liabilities.

Level	3 Unobservable	inputs	that	are	supported	by	little	or	no	market	activity and	that	are	significant	to	the	fair	value	of	the	assets	or	liabilities.

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

Finance	leases	include	unguaranteed	residual	values	that	represent	PMCC's estimates	at	lease	inception	as	to	the	fair	values	of	assets	under	lease	at	the	end	of the	non-cancelable	lease	terms.	The	estimated	residual	values	are	reviewed	at	least annually	by	PMCC's	management.	This	review	includes	analysis	of	a	number	of factors,	including	activity	in	the	relevant	industry.	If	necessary,	revisions	are recorded	to	reduce	the	residual	values.

PMCC	considers	rents	receivable	past	due	when	they	are	beyond	the	grace period	of	their	contractual	due	date.	PMCC	stops	recording	income	("non-accrual status")	on	rents	receivable	when	contractual	payments	become	90	days	past	due or	earlier	if	management	believes	there	is	significant	uncertainty	of	collectability of	rent	payments,	and	resumes	recording	income	when	collectability	of	rent payments	is	reasonably	certain.

Payments	received	on	rents	receivable	that	are	on	non-accrual	status	are	used	to reduce	the	rents	receivable	balance.	Write-offs	to	the	allowance	for	losses	are recorded	when	amounts	are	deemed	to	be	uncollectible.

▪Guarantees:	Altria	Group,	Inc.	recognizes	a	liability	for	the	fair	value	of	the obligation	of	qualifying	guarantee	activities.	See	Note	19.	Contingencies	for	a further	discussion	of	guarantees.

▪Income	Taxes:	Significant	judgment	is	required	in	determining	income	tax provisions	and	in	evaluating	tax	positions.

Deferred	tax	assets	and	liabilities	are	determined	based	on	the	difference between	the	financial	statement	and	tax	bases	of	assets	and	liabilities,	using enacted	tax	rates	in	effect	for	the	year	in	which	the	differences	are	expected	to reverse.	Altria	Group,	Inc.	records	a	valuation	allowance	when	it	is	more-likely- than-not	that	some	portion	or	all	of	a	deferred	tax	asset	will	not	be	realized. Altria	Group,	Inc.	recognizes	a	benefit	for	uncertain	tax	positions	when	a	tax position	taken	or	expected	to	be	taken	in	a	tax	return	is	more-likely-than-not	to	be sustained	upon	examination	by	taxing	authorities.	The	amount	recognized	is measured	as	the	largest	amount	of	benefit	that	is	greater	than	50%	likely	of	being realized	upon	ultimate	settlement.	Altria	Group,	Inc.	recognizes	accrued	interest and	penalties	associated	with	uncertain	tax	positions	as	part	of	the	provision	for income	taxes	in	its	consolidated	statements	of	earnings.

▪Inventories:	Inventories	are	stated	at	the	lower	of	cost	or	market.	The	last- in,	first-out	("LIFO")	method	is	used	to	determine	the	cost	of	substantially	all tobacco	inventories.	The	cost	of	the	remaining	inventories	is	determined	using	the first-in,	first-out	and	average	cost	methods.	It	is	a	generally	recognized	industry practice	to	classify	leaf	tobacco	and	wine	inventories	as	current	assets	although part	of	such	inventory,	because	of	the	duration	of	the	curing	and	aging	process, ordinarily	would	not	be	used	within	one	year.

▪Litigation	Contingencies	and	Costs:	Altria	Group,	Inc.	and	its	subsidiaries record	provisions	in	the	consolidated	financial

statements	for	pending	litigation	when	it	is	determined	that	an	unfavorable outcome	is	probable	and	the	amount	of	the	loss	can	be	reasonably	estimated. Litigation	defense	costs	are	expensed	as	incurred	and	included	in	marketing, administration	and	research	costs	in	the	consolidated	statements	of	earnings.

▪Stock-Based	Compensation:	Altria	Group,	Inc.	measures	compensation cost	for	all	stock-based	awards	at	fair	value	on	date	of	grant	and	recognizes compensation	expense	over	the	service	periods	for	awards	expected	to	vest.	The fair	value	of	restricted	stock	and	restricted	stock	units	is	determined	based	on	the number	of	shares	granted	and	the	market	value	at	date	of	grant.

▪New	Accounting	Standards:	The	following	table	provides	a	description	of	the	recently	issued	accounting	guidance	that	Altria	Group,	Inc.	has	not	yet	adopted:

Standards Description Effective	Date	for	Public	Entity Effect	on	Financial	Statements ASU	Nos.	2014-09;	2015- 14;	2016-08;	2016-10; 2016-12;	2016-20 Revenue	from	Contracts with	Customers	(Topic	606) The	guidance	establishes	principles	for reporting	information	about	the	nature, amount,	timing,	and	uncertainty	of	revenue and	cash	flows	arising	from	an	entity's contracts	with	customers. The	guidance	is	effective	for	annual reporting	periods	beginning	after	December material	impact	on	the	amount	or	timing	of	revenue 15,	2017,	including	interim	periods	within that	reporting	period.	Early	adoption	is permitted	only	as	of	annual	reporting	periods in	expanded	footnote	disclosures.	Altria	Group,	Inc.	plans	to beginning	after	December	15,	2016, including	interim	periods	within	that reporting	period. The	adoption	of	this	guidance	is	not	expected	to	have	a recognized	on	Altria	Group,	Inc.'s	financial	statements	based on	current	contracts	with	customers.	The	guidance	will	result retrospectively	adopt	this	guidance	by	the	first	quarter	of 2018.

# Standards

ASU	No.	2016-01 Recognition	and Measurement	of	Financial Assets	and	Financial Liabilities	(Subtopic	825- 10)

# Description

The	guidance	addresses	certain	aspects	of recognition,	measurement,	presentation	and disclosure	of	financial	instruments.

# Effective	Date	for	Public	Entity

The	guidance	is	effective	for	annual reporting	periods	beginning	after	December 15,	2017,	including	interim	periods	within that	reporting	period.	Early	adoption	of	the guidance	is	not	permitted,	except	for	a certain	provision	of	the	guidance.

# Effect	on	Financial	Statements

The	adoption	of	this	guidance	is	not	expected	to	have	a material	impact	on	Altria	Group,	Inc.'s	consolidated financial	statements.

ASU	No.	2016-02 Leases	(Topic	842) The	guidance	increases	transparency	and comparability	among	organizations	by requiring	entities	to	recognize	lease	assets and	lease	liabilities	on	the	balance	sheet	and disclose	key	information	about	leasing arrangements. The	guidance	is	effective	for	annual reporting	periods	beginning	after	December 15,	2018,	including	interim	periods	within that	reporting	period.	Early	adoption	is permitted. Altria	Group,	Inc.	is	in	the	process	of	evaluating	the	impact of	this	guidance	on	its	consolidated	financial	statements	and related	disclosures,	including	identifying	and	analyzing	all contracts	that	contain	a	lease.	As	a	lessor,	PMCC	maintains	a portfolio	of	finance	assets,	substantially	all	of	which	are leveraged	leases,	the	accounting	of	which	will	be	unchanged under	the	new	guidance	and	is	not	expected	to	change	unless there	is	a	contract	modification	to	an	existing	lease.	As	a lessee,	Altria	Group,	Inc.'s	various	leases	under	existing guidance	are	classified	as	operating	leases	that	are	not recorded	on	the	balance	sheet	but	are	recorded	in	the statement	of	earnings	as	expense	is	incurred.	Upon	adoption of	the	new	guidance,	Altria	Group,	Inc.	will	be	required	to record	substantially	all	leases	on	the	balance	sheet	as	a	right- of-use	asset	and	a	lease	liability.	The	timing	of	expense recognition	and	classification	in	the	statement	of	earnings could	change	based	on	the	classification	of	leases	as	either operating	or	financing. The	adoption	of	this	guidance	is	not	expected	to	have	a

# Note	3.	Acquisition	of	Green	Smoke

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

Green	Smoke's	financial	position	and	results	of	operations	have	been consolidated	with	Altria	Group,	Inc.	as	of	April	1,	2014.	The	purchase	price allocation	was	completed	in	2015.

for	Green	Smoke	subsequent	to	the	acquisition,	have	not	been	presented	because the	acquisition	of	Green	Smoke	is	not	material	to	Altria	Group,	Inc.'s	consolidated results	of	operations.

Costs	incurred	to	effect	the	acquisition,	as	well	as	integration	costs,	were recognized	as	expenses	in	the	periods	in	which	the	costs	were	incurred.	For	the years	ended	December	31,	2015	and	2014,	Altria	Group,	Inc.	incurred	$7	million and	$28	million,	respectively,	of	pre-tax	integration	and	acquisition-related	costs, consisting	primarily	of	contract	termination	costs,	transaction	costs	and	inventory adjustments,	which	were	included	in	Altria	Group,	Inc.'s	consolidated	statements of	earnings.

Pro	forma	results,	as	well	as	net	revenues	and	net	earnings

# Note	4.	Goodwill	and	Other	Intangible	Assets,	net

Goodwill	and	other	intangible	assets,	net,	by	segment	were	as	follows:

| (in	millions) | December	31,	2016 | December	31,	2015 | December	31,	2016 | December	31,	2015 |
| :--- | :--- | :--- | :--- | :--- |
| Smokeable\tproducts | $77 | $77 | $2,901 | $2,919 |
| Smokeless\tproducts | 5,023 | 5,023 | 8,829 | 8,831 |
| Wine | 74 | 74 | 295 | 267 |
| Other | 111 | 111 | 11 | 11 |
| Total | $5,285 | $5,285 | $12,036 | $12,028 |

Goodwill	relates	to	the	2014	acquisition	of	Green	Smoke,	2009	acquisition	of	UST	and	2007	acquisition	of	Middleton.

Other	intangible	assets	consisted	of	the	following:

|  | December	31,	2016 | December	31,	2016 | December	31,	2015 | December	31,	2015 |
| :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Gross\tCarrying\nAmount | Accumulated\nAmortization | Gross\tCarrying\nAmount | Accumulated\nAmortization |
| Indefinite-lived\tintangible\tassets | $11,740 | $— | $11,711 | $— |
| Definite-lived\tintangible\tassets | 465 | 169 | 465 | 148 |
| Total\tother\tintangible\tassets | $12,205 | $169 | $12,176 | $148 |

Indefinite-lived	intangible	assets	consist	substantially	of	trademarks	from Altria	Group,	Inc.'s	2009	acquisition	of	UST	($9.1	billion)	and	2007	acquisition	of Middleton	($2.6	billion).	Definite-lived	intangible	assets,	which	consist	primarily of	customer	relationships	and	certain	cigarette	trademarks,	are	amortized	over periods	up	to	25	years.	Pre-tax	amortization	expense	for	definite-lived	intangible assets	during	the	years	ended	December	31,	2016,	2015	and	2014,	was	$21 million,	$21	million	and	$20	million,	respectively.	Annual	amortization	expense for	each	of	the	next	five	years	is	estimated	to	be	approximately	$20	million, assuming	no	additional	transactions	occur	that	require	the	amortization	of intangible	assets.

During	2016,	2015	and	2014,	Altria	Group,	Inc.	completed	its	quantitative annual	impairment	test	of	goodwill	and	indefinite-lived	intangible	assets,	and	no impairment	charges	resulted.

For	the	years	ended	December	31,	2016,	2015	and	2014,	there	have	been	no changes	in	goodwill	and	the	gross	carrying	amount	of	other	intangible	assets except	for	Ste.	Michelle's	2016	purchase	of	substantially	all	of	the	assets	of	Patz	& Hall	Wine	Company,	Inc.	and	the	2014	acquisition	of	Green	Smoke.	In	addition, there	were	no	accumulated	impairment	losses	related	to	goodwill	and	other intangible	assets,	net	at	December	31,	2016	and	2015.

# Note	5.	Asset	Impairment,	Exit	and	Implementation	Costs

Pre-tax	asset	impairment,	exit	and	implementation	costs	for	the	year	ended December	31,	2016	consisted	of	the	following:

| (in	millions) | Asset	Impairment<br>and	Exit	Costs	(1) | Implementation<br>Costs | Total |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts | $125 | $9 | $134 |
| Smokeless\tproducts | 42 | 15 | 57 |
| All\tother | 7 | — | 7 |
| General\tcorporate | 5 | — | 5 |
| Total | $179 | $24 | $203 |

(1)	Includes	termination,	settlement	and	curtailment	costs	of	$27	million.	See	Note 17.	Benefit	Plans.

The	movement	in	the	restructuring	liabilities	(excluding	termination, settlement	and	curtailment	costs),	substantially	all	of	which	are	severance liabilities,	was	as	follows:

The	pre-tax	asset	impairment,	exit	and	implementation	costs	for	2016	shown above	are	related	to	the	facilities	consolidation	and	productivity	initiative discussed	below.

▪Facilities	Consolidation:	In	October	2016,	Altria	Group,	Inc.	announced the	consolidation	of	certain	of	its	operating	companies'	manufacturing	facilities	to streamline	operations	and	achieve	greater	efficiencies.	Middleton	will	transfer	its Limerick,	Pennsylvania	operations	to	the	Manufacturing	Center	site	in	Richmond, Virginia	("Richmond	Manufacturing	Center").	USSTC	will	transfer	its	Franklin Park,	Illinois	operations	to	its	Nashville,	Tennessee	facility	and	the	Richmond Manufacturing	Center.	Separation	benefits	will	be	paid	to	non-relocating employees.	The	consolidation	is	expected	to	be	completed	by	the	first	quarter	of 2018.

As	a	result	of	the	consolidation,	Altria	Group,	Inc.	expects	to	record	total	pre- tax	charges	of	approximately	$150	million,	or	$0.05	per	share.	Of	this	amount, during	2016,	Altria	Group,	Inc.	incurred	pre-tax	charges	of	$71	million,	or approximately	$0.03	per	share,	and	expects	to	record	approximately	$70	million	in 2017	and	the	remainder	in	2018.	The	total	estimated	charges	relate	primarily	to accelerated	depreciation	($55	million),	employee	separation	costs	($45	million) and	other	exit	and	implementation	costs	($50	million).	Approximately	$90	million of	the	total	pre-tax	charges	are	expected	to	result	in	cash	expenditures. For	the	year	ended	December	31,	2016,	total	pre-tax	asset	impairment	and exit	costs	for	the	consolidation	of	$54	million

were	recorded	in	the	smokeable	products	segment	($25	million)	and	smokeless products	segment	($29	million).	In	addition,	for	the	year	ended	December	31, 2016,	pre-tax	implementation	costs	of	$17	million	were	recorded	in	the	smokeable products	segment	($3	million)	and	smokeless	products	segment	($14	million). The	pre-tax	implementation	costs	were	included	in	cost	of	sales	in	Altria	Group, Inc.'s	consolidated	statement	of	earnings.

Cash	payments	related	to	the	consolidation	of	$4	million	were	made	during the	year	ended	December	31,	2016.

▪Productivity	Initiative:	In	January	2016,	Altria	Group,	Inc.	announced	a productivity	initiative	designed	to	maintain	its	operating	companies'	leadership and	cost	competitiveness.	The	initiative	reduces	spending	on	certain	selling, general	and	administrative	infrastructure	and	implements	a	leaner	organizational structure.	As	a	result	of	the	initiative,	during	2016,	Altria	Group,	Inc.	incurred total	pre-tax	restructuring	charges	of	$132	million,	or	$0.04	per	share,

substantially	all	of	which	result	in	cash	expenditures.	The	charges	consist	of employee	separation	costs	of	$117	million	and	other	associated	costs	of	$15 million.	Total	pre-tax	charges	related	to	the	initiative	have	been	substantially completed.

For	the	year	ended	December	31,	2016,	total	pre-tax	asset	impairment	and exit	costs	for	the	initiative	of	$125	million	were	recorded	in	the	smokeable products	segment	($100	million),	smokeless	products	segment	($13	million),	all other	($7	million)	and	general	corporate	($5	million).	In	addition,	for	the	year ended	December	31,	2016,	pre-tax	implementation	costs	of	$7	million	were recorded	in	the	smokeable	products	segment	($6	million)	and	smokeless	products segment	($1	million).	The	pre-tax	implementation	costs	were	included	in marketing,	administration	and	research	costs	in	Altria	Group,	Inc.'s	consolidated statement	of	earnings.

Cash	payments	related	to	the	initiative	of	$69	million	were	made	during	the year	ended	December	31,	2016.

▪Other	Programs:	During	2014,	PM	USA	sold	its	Cabarrus,	North	Carolina manufacturing	facility	for	approximately	$66	million	in	connection	with	the previously	completed	manufacturing	optimization	program	associated	with	PM USA's	closure	of	the	manufacturing	facility	in	2009.	As	a	result,	during	2014,	PM USA	recorded	a	pre-tax	gain	of	$10	million.

# Note	6.	Inventories

The	cost	of	approximately	62%	and	65%	of	inventories	at	December	31,	2016	and 2015,	respectively,	was	determined	using	the	LIFO	method.	The	stated	LIFO amounts	of	inventories	were	approximately	$0.7	billion	lower	than	the	current	cost of	inventories	at	December	31,	2016	and	2015.

# Note	7.	Investment	in	AB	InBev/SABMiller

Prior	to	the	completion	of	the	Transaction	on	October	10,	2016,	Altria	Group,	Inc. held	an	approximate	27%	ownership	of	SABMiller	that	was	accounted	for	under the	equity	method	of	accounting.

Pre-tax	earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller were	$795	million,	$757	million	and	$1,006	million	for	the	years	ended	December 31,	2016,	2015	and	2014,	respectively.	Altria	Group,	Inc.'s	earnings	from	its equity	investment	in	SABMiller	for	the	year	ended	December	31,	2016	included	a pre-tax	non-cash	gain	of	$309	million,	reflecting	Altria	Group,	Inc.'s	share	of SABMiller's	increase	to	shareholders'	equity,	resulting	from	the	completion	of	the SABMiller,	The	Coca-Cola	Company	and	Gutsche	Family	Investments transaction,	combining	bottling	operations	in	Africa.	As	a	result	of	the	timing	of the	completion	of	the	Transaction,	Altria	Group,	Inc.'s	pre-tax	earnings	from	its equity	investment	in	SABMiller	for	the	year	ended	December	31,	2016	included its	share	of	approximately	nine	months	of	SABMiller's	earnings. 				Summary	financial	data	of	SABMiller	is	as	follows:

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016\t(1) | 2015 | 2014 |
| Net\trevenues | $14,543 | $20,188 | $22,380 |
| Operating\tprofit | $2,099 | $3,690 | $4,478 |
| Net\tearnings | $1,803 | $2,838 | $3,532 |

| (in	millions) | At	December	31,	2015 |
| :--- | :--- |
| Current\tassets | $4,266 |
| Long-term\tassets | $38,425 |
| Current\tliabilities | $6,282 |
| Long-term\tliabilities | $13,960 |
| Noncontrolling\tinterests | $1,235 |

(1)	As	a	result	of	the	timing	of	the	completion	of	the	Transaction,	summary	financial data	of	SABMiller	for	the	year	ended	December	31,	2016	included	approximately	nine months	of	SABMiller's	results.

The	fair	value	of	Altria	Group,	Inc.'s	equity	investment	in	SABMiller	at December	31,	2015	was	based	on	unadjusted	quoted	prices	in	active	markets	and was	classified	in	Level	1	of	the	fair	value	hierarchy.	The	fair	value	of	Altria Group,	Inc.'s	equity	investment	in	SABMiller	at	December	31,	2015	was	$25.8 billion	as	compared	with	its	carrying	value	of	$5.5	billion.

# ▪AB	InBev	and	SABMiller	Business	Combination:	On	October	10,	2016,

Legacy	AB	InBev	completed	the	Transaction,	and	AB	InBev	became	the	holding company	for	the	combined	SABMiller	and	Legacy	AB	InBev	businesses.	Under the	terms	of	the	Transaction,	SABMiller	shareholders	received	45	British	pounds ("GBP")	in	cash	for	each	SABMiller	share	held,	with	a	partial	share	alternative ("PSA"),	which	was	subject	to	proration,	available	for	approximately	41%	of	the SABMiller	shares.

Pursuant	to	the	terms	and	conditions	of	an	Irrevocable	Undertaking, previously	delivered	by	Altria	Group,	Inc.	in	November	2015,	Altria	Group,	Inc. elected	the	PSA.

Upon	completion	of	the	Transaction	and	taking	into	account proration,	Altria	Group,	Inc.	received,	in	respect	of	its	430,000,000 SABMiller	shares,	(i)	an	interest	that	was	converted	into	185,115,417 restricted	shares	of	AB	InBev	(the	"Restricted	Shares"),	representing	a	9.6% ownership	of	AB	InBev	based	on	AB	InBev's	shares	outstanding	at	October 10,	2016,	and	(ii)	approximately	$4.8	billion	in	pre-tax	cash	as	the	cash component

of	the	PSA.	Additionally,	Altria	Group,	Inc.	received	pre-tax	cash	proceeds	of approximately	$0.5	billion	from	exercising	the	derivative	financial instruments	discussed	below,	which,	together	with	the	pre-tax	cash	from	the Transaction,	totaled	approximately	$5.3	billion	in	pre-tax	cash.	Following completion	of	the	Transaction,	Altria	Group,	Inc.	purchased	12,341,937 ordinary	shares	of	AB	InBev	for	a	total	cost	of	approximately	$1.6	billion, thereby	increasing	Altria	Group,	Inc.'s	ownership	of	AB	InBev	to approximately	10.2%.	At	December	31,	2016,	Altria	Group,	Inc.	had	an approximate	10.2%	ownership	of	AB	InBev.

The	Restricted	Shares:

▪are	unlisted	and	not	admitted	to	trading	on	any	stock exchange;

▪are	subject	to	a	five-year	lock-up	(subject	to	limited	exceptions)	ending October	10,	2021;

▪are	convertible	into	ordinary	shares	of	AB	InBev	on	a	one-for-one	basis after	the	end	of	this	five-year	lock-up	period;

▪rank	equally	with	ordinary	shares	of	AB	InBev	with	regards	to	dividends and	voting	rights;	and

▪have	director	nomination	rights	with	respect	to	AB InBev.

As	a	result	of	the	Transaction,	for	the	year	ended	December	31,	2016,	Altria Group,	Inc.	recorded	a	pre-tax	gain	of	approximately	$13.9	billion,	or	$9.0	billion after-tax,	which	was	based	on	the	following:

▪the	Legacy	AB	InBev	share	price	as	of	October	10, 2016;

▪the	book	value	of	Altria	Group,	Inc.'s	investment	in	SABMiller, including	Altria	Group,	Inc.'s	accumulated	other	comprehensive	losses directly	attributable	to	SABMiller,	at	October	10,	2016;

▪the	gains	on	the	derivative	financial	instruments	discussed	below; and

▪the	impact	of	AB	InBev's	divestitures	of	certain	SABMiller	assets	and businesses	in	connection	with	Legacy	AB	InBev	obtaining	necessary regulatory	clearances	for	the	Transaction	("AB	InBev	divestitures")	that occurred	by	December	31,	2016.

Altria	Group,	Inc.	expects	to	record	additional	pre-tax	gains	of	approximately	$445 million	related	to	the	remaining	AB	InBev	divestitures	when	those	divestitures occur.

Altria	Group,	Inc.'s	gain	on	the	Transaction	is	deferred	for	United	States corporate	income	tax	purposes,	except	to	the	extent	of	the	cash	consideration received.

Altria	Group,	Inc.	accounts	for	its	investment	in	AB	InBev	under	the	equity method	of	accounting	because	Altria	Group,	Inc.	has	the	ability	to	exercise significant	influence	over	the	operating	and	financial	policies	of	AB	InBev, including	having	active	representation	on	AB	InBev's	Board	of	Directors	("AB InBev	Board")	and	certain	AB	InBev	Board	Committees.	Through	this representation,	Altria	Group,	Inc.	participates	in	AB	InBev	policy	making processes.	Altria	Group,	Inc.	reports	its	share	of	AB	InBev's	results	using	a	one- quarter	lag	because	AB	InBev's	results	are	not	available	in	time	for	Altria	Group, Inc.	to	record	them	in	the	concurrent	period.	As	a	result	of	the	one-quarter	lag

and	the	timing	of	the	completion	of	the	Transaction,	no	earnings	from	Altria Group,	Inc.'s	equity	investment	in	AB	InBev	were	recorded	for	the	year	ended December	31,	2016.

Summary	financial	data	of	AB	InBev	at	October	10,	2016	representing preliminary	purchase	price	accounting	for	the	Transaction	is	as	follows:

At	December	31,	2016,	Altria	Group,	Inc.'s	carrying	amount	of	its	equity investment	in	AB	InBev	exceeded	its	share	of	AB	InBev's	net	assets	attributable to	equity	holders	of	AB	InBev	by	approximately	$10.7	billion.	Substantially	all	of this	difference	is	comprised	of	goodwill	and	other	indefinite-lived	intangible	assets (consisting	primarily	of	trademarks).

The	fair	value	of	Altria	Group,	Inc.'s	equity	investment	in	AB	InBev	is	based on:	(i)	unadjusted	quoted	prices	in	active	markets	for	AB	InBev's	ordinary	shares and	was	classified	in	Level	1	of	the	fair	value	hierarchy	and	(ii)	observable	inputs other	than	Level	1	prices,	such	as	quoted	prices	for	similar	assets	for	the Restricted	Shares,	and	was	classified	in	Level	2	of	the	fair	value	hierarchy.	Altria Group,	Inc.	may,	in	certain	instances,	pledge	or	otherwise	grant	a	security	interest in	all	or	part	of	its	Restricted	Shares.	In	the	event	the	pledgee	or	security	interest holder	forecloses	on	the	Restricted	Shares,	the	relevant	Restricted	Shares	will	be automatically	converted,	one-for-one,	into	ordinary	shares.	Therefore,	the	fair value	of	each	Restricted	Share	is	based	on	the	value	of	an	ordinary	share.	The	fair value	of	Altria	Group,	Inc.'s	equity	investment	in	AB	InBev	at	December	31, 2016	was	$20.9	billion,	compared	with	its	carrying	value	of	$17.9	billion.

# ▪Derivative	Financial	Instruments:	In	November	2015

and	August	2016,	Altria	Group,	Inc.	entered	into	a	derivative	financial	instrument, each	in	the	form	of	a	put	option	(together	the	"options")	to	hedge	Altria	Group, Inc.'s	exposure	to	foreign	currency	exchange	rate	movements	in	the	GBP	to	the United	States	dollar,	in	relation	to	the	pre-tax	cash	consideration	that	Altria	Group, Inc.	expected	to	receive	under	the	PSA	pursuant	to	the	revised	and	final	offer announced	by	Legacy	AB	InBev	on	July	26,	2016.	The	notional	amounts	of	the November	2015	and	August	2016	options	were	$2,467	million	(1,625	million GBP)	and	$480	million	(378	million	GBP),	respectively.	The	options	did	not qualify	for	hedge	accounting;	therefore,	changes	in	the	fair	values	of	the	options were	recorded	as	gains	or	losses	in	Altria	Group,	Inc.'s	consolidated	statements	of earnings	in	the	periods	in	which	the	changes	occurred.	For	the	year	ended December	31,	2016,	Altria	Group,	Inc.	recorded	pre-tax	gains	associated	with	the November	2015	and	August	2016	options	of	$330	million	and	$19	million, respectively,	for	the	changes	in	the	fair	values	of	the	options	in	Gain	on	AB InBev/SABMiller	business	combination	in	Altria	Group,

Inc.'s	consolidated	statement	of	earnings.	For	the	year	ended	December	31,	2015, Altria	Group,	Inc.	recorded	a	pre-tax	gain	of	$20	million	for	the	change	in	the	fair value	of	the	November	2015	option.	Exercising	the	options	in	October	2016 resulted	in	approximately	$0.5	billion	in	pre-tax	cash	proceeds.

The	fair	values	of	the	options	were	determined	using	binomial	option	pricing models,	which	reflect	the	contractual	terms	of	the	options	and	other	observable market-based	inputs,	and	were	classified	in	Level	2	of	the	fair	value	hierarchy.	At December	31,	2015,	the	fair	value	of	the	November	2015	option	of	$152	million was	recorded	in	other	current	assets	on	Altria	Group,	Inc.'s	consolidated	balance sheet.

# Note	8.	Finance	Assets,	net

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

					At	December	31,	2016,	finance	assets,	net,	of	$1,028	million	were	comprised	of investments	in	finance	leases	of	$1,060	million,	reduced	by	the	allowance	for losses	of	$32	million.	At	December	31,	2015,	finance	assets,	net,	of	$1,239	million were	comprised	of	investments	in	finance	leases	of	$1,281	million,	reduced	by	the allowance	for	losses	of	$42	million.

A	summary	of	the	net	investments	in	finance	leases,	substantially	all	of	which were	leveraged	leases,	at	December	31,	2016	and	2015,	before	allowance	for losses	was	as	follows:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Rents\treceivable,\tnet | $805 | $923 |
| Unguaranteed\tresidual\tvalues | 495 | 674 |
| Unearned\tincome | (240) | (316) |
| Investments\tin\tfinance\tleases | 1,060 | 1,281 |
| Deferred\tincome\ttaxes | (717) | (928) |
| Net\tinvestments\tin\tfinance\tleases | $343 | $353 |

Rents	receivable,	net,	represent	unpaid	rents,	net	of	principal	and	interest payments	on	third-party	nonrecourse	debt.	PMCC's	rights	to	rents	receivable	are subordinate	to	the	third-party	nonrecourse	debtholders	and	the	leased	equipment	is pledged	as	collateral	to	the	debtholders.	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	of	$0.8	billion	and	$1.2	billion	at	December	31,	2016	and 2015,	respectively,	has	been	offset	against	the	related	rents	receivable.	There	were no	leases	with	contingent	rentals	in	2016	and	2015.

In	2016,	2015	and	2014	PMCC's	review	of	estimated	residual	values	resulted in	a	decrease	of	$28	million,	$65	million	and	$63	million,	respectively,	to unguaranteed	residual	values.	These	decreases	in	unguaranteed	residual	values resulted	in	a

At	December	31,	2016,	PMCC's	investments	in	finance	leases	were principally	comprised	of	the	following	investment	categories:	aircraft	(43%), electric	power	(28%),	railcar	(12%),	real	estate	(9%)	and	manufacturing	(8%). There	were	no	investments	located	outside	the	United	States	at	December	31,	2016 and	2015.

Rents	receivable	in	excess	of	debt	service	requirements	on	third-party nonrecourse	debt	at	December	31,	2016	were	as	follows:

| (in	millions) |  |
| :--- | :--- |
| 2017 | $33 |
| 2018 | 129 |
| 2019 | 186 |
| 2020 | 128 |
| 2021 | 100 |
| Thereafter | 229 |
| Total | $805 |

Included	in	net	revenues	for	the	years	ended	December	31,	2016,	2015	and 2014	were	leveraged	lease	revenues	of	$48	million,	$46	million	and	$80	million, respectively.	Income	tax	expense	on	leveraged	lease	revenues	for	the	years	ended December	31,	2016,	2015	and	2014	was	$16	million,	$17	million	and	$30	million, respectively.

PMCC	maintains	an	allowance	for	losses	that	provides	for	estimated	credit losses	on	its	investments	in	finance	leases.	PMCC's	portfolio	consists	substantially of	leveraged	leases	to	a	diverse	base	of	lessees	participating	in	a	variety	of industries.	Losses	on	such	leases	are	recorded	when	probable	and	estimable. PMCC	regularly	performs	a	systematic	assessment	of	each	individual	lease	in	its portfolio	to	determine	potential	credit	or	collection	issues	that	might	indicate impairment.	Impairment	takes	into	consideration	both	the	probability	of	default and	the	likelihood	of	recovery	if	default	were	to	occur.	PMCC	considers	both quantitative	and	qualitative	factors	of	each	investment	when	performing	its assessment	of	the	allowance	for	losses.

Quantitative	factors	that	indicate	potential	default	are	tied	most	directly	to public	debt	ratings.	PMCC	monitors	publicly	available	information	on	its	obligors, including	financial	statements	and	credit	rating	agency	reports.	Qualitative	factors that	indicate	the	likelihood	of	recovery	if	default	were	to	occur	include	underlying collateral	value,	other	forms	of	credit	support,	and	legal/structural	considerations impacting	each	lease.	Using	available	information,	PMCC	calculates	potential losses	for	each	lease	in	its	portfolio	based	on	its	default	and	recovery	rating assumptions	for	each	lease.	The	aggregate	of	these	potential	losses	forms	a	range of	potential	losses	which	is	used	as	a	guideline	to	determine	the	adequacy	of PMCC's	allowance	for	losses.

PMCC	assesses	the	adequacy	of	its	allowance	for	losses	relative	to	the	credit risk	of	its	leasing	portfolio	on	an	ongoing	basis.	During	2016	and	2014,	PMCC determined	that	its

allowance	for	losses	exceeded	the	amount	required	based	on	management's assessment	of	the	credit	quality	and	size	of	PMCC's	leasing	portfolio.	As	a	result, PMCC	reduced	its	allowance	for	losses	by	$10	million	for	each	of	the	years	ended December	31,	2016	and	2014,	respectively.	There	was	no	such	adjustment	for	the year	ended	December	31,	2015.	These	decreases	to	the	allowance	for	losses	were recorded	as	a	reduction	to	marketing,	administration	and	research	costs	in	Altria Group,	Inc.'s	consolidated	statements	of	earnings.	PMCC	believes	that,	as	of December	31,	2016,	the	allowance	for	losses	of	$32	million	was	adequate.	PMCC continues	to	monitor	economic	and	credit	conditions,	and	the	individual	situations of	its	lessees	and	their	respective	industries,	and	may	increase	or	decrease	its allowance	for	losses	if	such	conditions	change	in	the	future.

The	activity	in	the	allowance	for	losses	on	finance	assets	for	the	years	ended December	31,	2016,	2015	and	2014	was	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $42 | $42 | $52 |
| Decrease\tto\tallowance | (10) | — | (10) |
| Balance\tat\tend\tof\tyear | $32 | $42 | $42 |

All	PMCC	lessees	were	current	on	their	lease	payment	obligations	as	of December	31,	2016.

The	credit	quality	of	PMCC's	investments	in	finance	leases	as	assigned	by Standard	&	Poor's	Ratings	Services	("Standard	&	Poor's")	and	Moody's	Investors Service,	Inc.	("Moody's")	at	December	31,	2016	and	2015	was	as	follows:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Credit\tRating\tby\tStandard\t&amp;\tPoor's/Moody's: |  |  |
| "AAA/Aaa"\tto\t"A-/A3" | $218 | $212 |
| "BBB+/Baa1"\tto\t"BBB-/Baa3" | 559 | 702 |
| "BB+/Ba1"\tand\tLower | 283 | 367 |
| Total | $1,060 | $1,281 |

# Note	9.	Short-Term	Borrowings	and	Borrowing	Arrangements

At	December	31,	2016	and	December	31,	2015,	Altria	Group,	Inc.	had	no	short- term	borrowings.	The	credit	line	available	to	Altria	Group,	Inc.	at	December	31, 2016	under	the	Credit	Agreement	(as	defined	below)	was	$3.0	billion.

At	December	31,	2016,	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	August	19,	2020.	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	based	on	the	higher	of	the	ratings	of	Altria	Group, Inc.'s	long-term	senior	unsecured	debt	from	Moody's	and	Standard	&	Poor's.	The applicable	percentage	based	on	Altria	Group,	Inc.'s	long-term	senior	unsecured debt	ratings	at

December	31,	2016	for	borrowings	under	the	Credit	Agreement	was	1.125%.	The Credit	Agreement	does	not	include	any	other	rating	triggers,	nor	does	it	contain any	provisions	that	could	require	the	posting	of	collateral.

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	earnings	before interest,	taxes,	depreciation	and	amortization	("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	December	31,	2016,	the	ratios	of	debt	to consolidated	EBITDA	and	consolidated	EBITDA	to	consolidated	interest	expense, calculated	in	accordance	with	the	Credit	Agreement,	were	1.4	to	1.0	and	13.5	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.

# Condensed	Consolidating	Financial	Information.

# Note	10.	Long-Term	Debt

At	December	31,	2016	and	2015,	Altria	Group,	Inc.'s	long-term	debt	consisted	of the	following:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Notes,\t2.625%\tto\t10.20%,\tinterest\tpayable\tsemi-\nannually,\tdue\tthrough\t2046\t(1) | $13,839 | $12,789 |
| Debenture,\t7.75%,\tinterest\tpayable\tsemi-annually,\tdue\n2027 | 42 | 42 |
| Other | — | 16 |
|  | 13,881 | 12,847 |
| Less\tcurrent\tportion\tof\tlong-term\tdebt | — | 4 |
|  | $13,881 | $12,843 |

At	December	31,	2016,	aggregate	maturities	of	Altria	Group,	Inc.'s	long-term debt	were	as	follows:

# (in	millions)

2015-03,	which	requires	that	debt	issuance	costs	related	to	a	recognized	debt liability	be	presented	on	the	balance	sheet	as	a	direct	deduction	from	the	carrying amount	of	that	debt	liability,	consistent	with	debt	discounts,	rather	than	as	a deferred	charge	(an	asset).	As	a	result	of	the	adoption,	$77	million	of	debt	issuance costs	have	been	presented	on	Altria	Group,	Inc.'s	consolidated	balance	sheet	at December	31,	2016	as	a	deduction	from	the	carrying	amount	of	long-term	debt.	In addition,	$72	million	of	debt	issuance	costs	were	reclassified	from	other	assets	to long-term	debt	on	Altria	Group,	Inc.'s	consolidated	balance	sheet	at	December	31, 2015.

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	December	31,	2016	and	2015,	was	$15.1 billion	and	$14.5	billion,	respectively,	as	compared	with	its	carrying	value	of	$13.9 billion	and	$12.8	billion,	respectively.

▪Altria	Group,	Inc.	Senior	Notes:	In	September	2016,	Altria	Group,	Inc. issued	$0.5	billion	aggregate	principal	amount	of	2.625%	senior	unsecured	long- term	notes	due	2026	and	$1.5	billion	aggregate	principal	amount	of	3.875%	senior unsecured	long-term	notes	due	2046.	Interest	on	these	notes	is	payable	semi- annually.	The	net	proceeds	from	the	issuance	of	these	senior	unsecured	notes	were added	to	Altria	Group,	Inc.'s	general	funds	and	were	used	to	repurchase	certain	of its	senior	unsecured	notes	in	connection	with	the	2016	debt	tender	offer	described below	and	for	other	general	corporate	purposes,	including	voluntary	contributions to	Altria	Group,	Inc.'s	pension	plans.

The	notes	of	Altria	Group,	Inc.	are	senior	unsecured	obligations	and	rank equally	in	right	of	payment	with	all	of	Altria	Group,	Inc.'s	existing	and	future senior	unsecured	indebtedness.	Upon	the	occurrence	of	both	(i)	a	change	of control	of	Altria	Group,	Inc.	and	(ii)	the	notes	ceasing	to	be	rated	investment	grade by	each	of	Moody's,	Standard	&	Poor's	and	Fitch	Ratings	Ltd.	within	a	specified time	period,	Altria	Group,	Inc.	will	be	required	to	make	an	offer	to	purchase	the notes	at	a	price	equal	to	101%	of	the	aggregate	principal	amount	of	such	notes, plus	accrued	and	unpaid	interest	to	the	date	of	repurchase	as	and	to	the	extent	set forth	in	the	terms	of	the	notes.

With	respect	to	$2.5	billion	aggregate	principal	amount	of	Altria	Group,	Inc.'s senior	unsecured	long-term	notes	issued	in	2008	and	2009,	the	interest	rate payable	on	each	series	of	notes	was	subject	to	adjustment	from	time	to	time	if	the rating	assigned	to	the	notes	of	such	series	by	Moody's	or	Standard	&	Poor's	was downgraded	(or	subsequently	upgraded)	as	and	to	the	extent	set	forth	in	the	terms of	the	notes.	As	a	result	of	credit	rating	upgrades	by	both	Moody's	and	Standard	& Poor's	in	the	first	quarter	of	2016,	this	interest	rate	adjustment	provision terminated	in	accordance	with	its	terms.

The	obligations	of	Altria	Group,	Inc.	under	the	notes	are	guaranteed	by	PM USA	as	further	discussed	in	Note	20.	Condensed	Consolidating	Financial Information.

▪Debt	Tender	Offers	and	Redemption:	During	2016	and	2015,	Altria Group,	Inc.	completed	debt	tender	offers	to	purchase

for	cash	certain	of	its	senior	unsecured	notes	in	aggregate	principal	amounts	of $0.9	billion	and	$0.8	billion,	respectively.

Details	of	these	debt	tender	offers	were	as	follows:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Notes\tPurchased |  |  |
| 9.95%\tNotes\tdue\t2038 | $441 | $— |
| 10.20%\tNotes\tdue\t2039 | 492 | — |
| 9.70%\tNotes\tdue\t2018 | — | 793 |
| Total | $933 | $793 |

# Note	11.	Capital	Stock

At	December	31,	2016,	Altria	Group,	Inc.	had	12	billion	shares	of	authorized common	stock;	issued,	repurchased	and	outstanding	shares	of	common	stock	were as	follows:

|  | Shares	Issued | Shares<br>Repurchased | Shares<br>Outstanding |
| :--- | :--- | :--- | :--- |
| Balances,\tDecember\t31,\n2013 | 2,805,961,317 | (812,482,035) | 1,993,479,282 |
| Stock\taward\tactivity | — | 447,840 | 447,840 |
| Repurchases\tof\ncommon\tstock | — | (22,452,599) | (22,452,599) |
| Balances,\tDecember\t31,\n2014 | 2,805,961,317 | (834,486,794) | 1,971,474,523 |
| Stock\taward\tactivity | — | (732,623) | (732,623) |
| Repurchases\tof\ncommon\tstock | — | (10,682,419) | (10,682,419) |
| Balances,\tDecember\t31,\n2015 | 2,805,961,317 | (845,901,836) | 1,960,059,481 |
| Stock\taward\tactivity | — | (566,256) | (566,256) |
| Repurchases\tof\ncommon\tstock | — | (16,221,001) | (16,221,001) |
| Balances,\tDecember\t31,\n2016 | 2,805,961,317 | (862,689,093) | 1,943,272,224 |

At	December	31,	2016,	41,952,545	shares	of	common	stock	were	reserved	for stock-based	awards	under	Altria	Group,	Inc.'s	stock	plans,	and	10	million	shares of	serial	preferred	stock,	$1.00

par	value,	were	authorized.	No	shares	of	serial	preferred	stock	have	been	issued.

▪Dividends:	During	the	third	quarter	of	2016,	Altria	Group,	Inc.'s	Board	of Directors	(the	"Board	of	Directors")	approved	an	8.0%	increase	in	the	quarterly dividend	rate	to	$0.61	per	share	of	Altria	Group,	Inc.	common	stock	versus	the previous	rate	of	$0.565	per	share.	The	current	annualized	dividend	rate	is	$2.44 per	share.	Future	dividend	payments	remain	subject	to	the	discretion	of	the	Board of	Directors.

▪Share	Repurchases:					In	April	2013,	the	Board	of	Directors	authorized	a $300	million	share	repurchase	program	and	expanded	it	to	$1.0	billion	in	August 2013	(as	expanded,	the	"April	2013	share	repurchase	program").	During	the	third quarter	of	2014,	Altria	Group,	Inc.	completed	the	April	2013	share	repurchase program,	under	which	Altria	Group,	Inc.	repurchased	a	total	of	27.1	million	shares of	its	common	stock	at	an	average	price	of	$36.97	per	share.

In	July	2014,	the	Board	of	Directors	authorized	a	$1.0	billion	share repurchase	program	(the	"July	2014	share	repurchase	program").	During	the	third quarter	of	2015,	Altria	Group,	Inc.	completed	the	July	2014	share	repurchase program,	under	which	Altria	Group,	Inc.	repurchased	a	total	of	20.4	million	shares of	its	common	stock	at	an	average	price	of	$48.90	per	share.

In	July	2015,	the	Board	of	Directors	authorized	a	$1.0	billion	share repurchase	program	that	it	expanded	to	$3.0	billion	in	October	2016	(as	expanded, the	"July	2015	share	repurchase	program").	During	2016	and	2015,	Altria	Group, Inc.	repurchased	16.2	million	shares	and	0.6	million	shares,	respectively,	of	its common	stock	(at	an	aggregate	cost	of	approximately	$1,030	million	and	$35 million,	respectively,	and	at	an	average	price	of	$63.48	per	share	and	$57.66	per share,	respectively)	under	the	July	2015	share	repurchase	program.	At	December 31,	2016,	Altria	Group,	Inc.	had	approximately	$1,935	million	remaining	in	the July	2015	share	repurchase	program.	The	timing	of	share	repurchases	under	this program	depends	upon	marketplace	conditions	and	other	factors,	and	the	program remains	subject	to	the	discretion	of	the	Board	of	Directors.

For	the	years	ended	December	31,	2016,	2015	and	2014,	Altria	Group,	Inc.'s total	share	repurchase	activity	was	as	follows:

| repurchased | 16.2 | 10.7 | 22.5 |
| :--- | :--- | :--- | :--- |
| Aggregate\tcost\tof\tshares\nrepurchased | $1,030 | $554 | $939 |
| Average\tprice\tper\tshare\tof\tshares\nrepurchased | $63.48 | $51.83 | $41.79 |

# Note	12.	Stock	Plans

Under	the	Altria	Group,	Inc.	2015	Performance	Incentive	Plan	(the	"2015	Plan"), Altria	Group,	Inc.	may	grant	stock	options,	stock	appreciation	rights,	restricted stock,	restricted	and	deferred

stock	units,	and	other	stock-based	awards,	as	well	as	cash-based	annual	and	long- term	incentive	awards	to	employees	of	Altria	Group,	Inc.	or	any	of	its	subsidiaries or	affiliates.	Up	to	40	million	shares	of	common	stock	may	be	issued	under	the 2015	Plan.	In	addition,	under	the	2015	Stock	Compensation	Plan	for	Non- Employee	Directors	(the	"Directors	Plan"),	Altria	Group,	Inc.	may	grant	up	to	one million	shares	of	common	stock	to	members	of	the	Board	of	Directors	who	are	not employees	of	Altria	Group,	Inc.

▪Restricted	Stock	and	Restricted	Stock	Units:	Altria	Group,	Inc.	may	grant shares	of	restricted	stock	and	restricted	stock	units	to	employees	of	Altria	Group, Inc.	or	any	of	its	subsidiaries	or	affiliates.	During	the	vesting	period,	these	shares include	nonforfeitable	rights	to	dividends	or	dividend	equivalents	and	may	not	be sold,	assigned,	pledged	or	otherwise	encumbered.	Such	shares	are	subject	to forfeiture	if	certain	employment	conditions	are	not	met.	Shares	of	restricted	stock and	restricted	stock	units	generally	vest	three	years	after	the	grant	date.

The	fair	value	of	the	shares	of	restricted	stock	and	restricted	stock	units	at	the date	of	grant	is	amortized	to	expense	ratably	over	the	restriction	period,	which	is generally	three	years.	Altria	Group,	Inc.	recorded	pre-tax	compensation	expense related	to	restricted	stock	and	restricted	stock	units	granted	to	employees	for	the years	ended	December	31,	2016,	2015	and	2014	of	$44	million,	$51	million	and $46	million,	respectively.	The	deferred	tax	benefit	recorded	related	to	this compensation	expense	was	$17	million,	$20	million	and	$18	million	for	the	years ended	December	31,	2016,	2015	and	2014,	respectively.	The	unamortized compensation	expense	related	to	Altria	Group,	Inc.	restricted	stock	and	restricted stock	units	was	$64	million	at	December	31,	2016	and	is	expected	to	be recognized	over	a	weighted-average	period	of	approximately	two	years.

Altria	Group,	Inc.'s	restricted	stock	and	restricted	stock	units	activity	was	as follows	for	the	year	ended	December	31,	2016:

|  | Number	of<br>Shares | Weighted-Average<br>Grant	Date	Fair<br>Value	Per	Share |
| :--- | :--- | :--- |
| Balance\tat\tDecember\t31,\t2015 | 3,937,685 | $40.86 |
| Granted | 947,725 | 59.38 |
| Vested | (1,305,351) | 33.90 |
| Forfeited | (334,525) | 46.83 |
| Balance\tat\tDecember\t31,\t2016 | 3,245,534 | 48.45 |

The	weighted-average	grant	date	fair	value	of	Altria	Group,	Inc.	restricted stock	and	restricted	stock	units	granted	during	the	years	ended	December	31, 2016,	2015	and	2014	was	$56	million,	$65	million	and	$53	million,	respectively, or	$59.38,	$54.54	and	$36.75	per	restricted	share	or	restricted	stock	unit, respectively.	The	total	fair	value	of	Altria	Group,	Inc.	restricted	stock	and restricted	stock	units	that	vested	during	the	years	ended	December	31,	2016,	2015 and	2014	was	$78	million,	$85	million	and	$86	million,	respectively.

# Note	13.	Earnings	per	Share

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

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 |
| Net\tearnings\tattributable\tto\tAltria\nGroup,\tInc. | $14,239 | $5,241 | $5,070 |
| Less:\tDistributed\tand\tundistributed |  |  |  |
| earnings\tattributable\tto\tunvested |  |  |  |
| restricted\tshares\tand\trestricted |  |  |  |
| stock\tunits | (24) | (10) | (12) |
| Earnings\tfor\tbasic\tand\tdiluted\tEPS | $14,215 | $5,231 | $5,058 |
| Weighted-average\tshares\tfor\tbasic\nand\tdiluted\tEPS | 1,952 | 1,961 | 1,978 |

# Note	14.	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,

| (in	millions) | Currency<br>Translation<br>Adjustments | Benefit	Plans | SABMiller |  | Accumulated<br>Other<br>Comprehensive<br>Losses |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Balances,\tDecember\t31,\t2013 | $— | $(1,273) | $(105) |  | $(1,378) |
| Other\tcomprehensive\tlosses\tbefore\treclassifications | (2) | (1,411) | (881) |  | (2,294) |
| Deferred\tincome\ttaxes | — | 550 | 308 |  | 858 |
| Other\tcomprehensive\tlosses\tbefore\treclassifications,\tnet\tof\tdeferred\tincome\ntaxes | (2) | (861) | (573) |  | (1,436) |
| Amounts\treclassified\tto\tnet\tearnings | — | 154 | 59 |  | 213 |
| Deferred\tincome\ttaxes | — | (60) | (21) |  | (81) |
| Amounts\treclassified\tto\tnet\tearnings,\tnet\tof\ndeferred\tincome\ttaxes | — | 94 | 38 |  | 132 |
| Other\tcomprehensive\tlosses,\tnet\tof\tdeferred\tincome\ttaxes | (2) | (767) | (535) | (1) | (1,304) |
| Balances,\tDecember\t31,\t2014 | (2) | (2,040) | (640) |  | (2,682) |
| Other\tcomprehensive\tlosses\tbefore\treclassifications | (4) | (223) | (983) |  | (1,210) |
| Deferred\tincome\ttaxes | 1 | 86 | 344 |  | 431 |
| Other\tcomprehensive\tlosses\tbefore\treclassifications,\tnet\tof\tdeferred\tincome\ntaxes | (3) | (137) | (639) |  | (779) |
| Amounts\treclassified\tto\tnet\tearnings | — | 272 | 21 |  | 293 |
| Deferred\tincome\ttaxes | — | (105) | (7) |  | (112) |
| Amounts\treclassified\tto\tnet\tearnings,\tnet\tof\ndeferred\tincome\ttaxes | — | 167 | 14 |  | 181 |
| Other\tcomprehensive\t(losses)\tearnings,\tnet\tof\tdeferred\tincome\ttaxes | (3) | 30 | (625) | (1) | (598) |
| Balances,\tDecember\t31,\t2015 | (5) | (2,010) | (1,265) |  | (3,280) |
| Other\tcomprehensive\tearnings\t(losses)\tbefore\treclassifications | 1 | (247) | 787 |  | 541 |
| Deferred\tincome\ttaxes | — | 96 | (276) |  | (180) |
| Other\tcomprehensive\tearnings\t(losses)\tbefore\treclassifications,\tnet\tof\ndeferred\tincome\ttaxes | 1 | (151) | 511 | (2) | 361 |
|  | — | 178 | 1,160 |  | 1,338 |
| Amounts\treclassified\tto\tnet\tearnings |  |  |  |  |  |
| Deferred\tincome\ttaxes | — | (65) | (406) |  | (471) |
| Amounts\treclassified\tto\tnet\tearnings,\tnet\tof\ndeferred\tincome\ttaxes | — | 113 | 754 | (3) | 867 |
| Other\tcomprehensive\tearnings\t(losses),\tnet\tof\tdeferred\tincome\ttaxes | 1 | (38) | 1,265 |  | 1,228 |
| Balances,\tDecember\t31,\t2016 | $(4) | $(2,048) | $— |  | $(2,052) |

(1)	For	the	years	ended	December	31,	2015	and	2014,	Altria	Group,	Inc.'s	proportionate	share	of	SABMiller's	other	comprehensive	earnings/losses	consisted	primarily	of	currency translation	adjustments.

(2)	As	a	result	of	the	Transaction,	Altria	Group,	Inc.	reversed	to	Investment	in	AB	InBev/SABMiller	$414	million	of	its	accumulated	other	comprehensive	losses	directly	attributable	to SABMiller;	the	remaining	$97	million	consisted	primarily	of	currency	translation	adjustments.

(3)	As	a	result	of	the	Transaction,	Altria	Group,	Inc.	recognized	$737	million	of	its	accumulated	other	comprehensive	losses	directly	attributable	to	SABMiller.

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

|  |  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 |
| Benefit\tPlans:\t(1) |  |  |  |
| Net\tloss | $223 | $304 | $187 |
| Prior\tservice\tcost/credit | (45) | (32) | (33) |
|  | 178 | 272 | 154 |
| SABMiller\t(2) | 1,160 | 21 | 59 |
| Pre-tax\tamounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\tlosses\tto\tnet\tearnings | $1,338 | $293 | $213 |

(1)	Amounts	are	included	in	net	defined	benefit	plan	costs.	For	further	details,	see	Note	17.	Benefit	Plans.

(2)	Substantially	all	of	the	amount	for	the	year	ended	December	31,	2016	is	included	in	Gain	on	AB	InBev/SABMiller	business	combination.	For	the	years	ended December	31,	2015	and	2014,	amounts	are	included	in	earnings	from	equity	investment	in	SABMiller.	For	further	information,	see	Note	7.	Investment	in	AB InBev/SABMiller.

# Note	15.	Income	Taxes

Earnings	before	income	taxes	and	provision	for	income	taxes	consisted	of	the following	for	the	years	ended	December	31,	2016,	2015	and	2014:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Earnings\tbefore\tincome\ttaxes: |  |  |  |
| United\tStates | $21,867 | $8,078 | $7,763 |
| Outside\tUnited\tStates | (15) | — | 11 |
| Total | $21,852 | $8,078 | $7,774 |
| Provision\tfor\tincome\ttaxes: |  |  |  |
| Current: |  |  |  |
| Federal | $4,093 | $2,516 | $2,350 |
| State\tand\tlocal | 390 | 451 | 480 |
| Outside\tUnited\tStates | 6 | — | 3 |
|  | 4,489 | 2,967 | 2,833 |
| Deferred: |  |  |  |
| Federal | 3,102 | (140) | (124) |
| State\tand\tlocal | 20 | 8 | (5) |
| Outside\tUnited\tStates | (3) | — | — |
|  | 3,119 | (132) | (129) |
| Total\tprovision\tfor\tincome\ttaxes | $7,608 | $2,835 | $2,704 |

Altria	Group,	Inc.'s	U.S.	subsidiaries	join	in	the	filing	of	a	U.S.	federal consolidated	income	tax	return.	The	U.S.	federal	statute	of	limitations	remains open	for	the	year	2010	and	forward,	with	years	2010	to	2013	currently	under examination	by	the	Internal	Revenue	Service	("IRS")	as	part	of	an	audit	conducted in	the	ordinary	course	of	business.	With	the	exception	of	corresponding	federal audit	adjustments,	state	statutes	of	limitations	generally	remain	open	for	the	year 2012	and	forward.	Certain	of	Altria	Group,	Inc.'s	state	tax	returns	are	currently under	examination	by	various	states	as	part	of	routine	audits	conducted	in	the ordinary	course	of	business.

A	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	tax benefits	for	the	years	ended	December	31,	2016,	2015	and	2014	was	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $158 | $258 | $227 |
| Additions\tbased\ton\ttax\tpositions\nrelated\tto\tthe\tcurrent\tyear | 15 | 15 | 15 |
| Additions\tfor\ttax\tpositions\tof\nprior\tyears | 29 | 57 | 29 |
| Reductions\tfor\ttax\tpositions\tdue\tto\nlapse\tof\tstatutes\tof\tlimitations | (4) | (4) | (2) |
| Reductions\tfor\ttax\tpositions\tof\nprior\tyears | (28) | (86) | — |
| Settlements | (1) | (82) | (11) |
| Balance\tat\tend\tof\tyear | $169 | $158 | $258 |

					Unrecognized	tax	benefits	and	Altria	Group,	Inc.'s	consolidated	liability	for	tax contingencies	at	December	31,	2016	and	2015	were	as	follows:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits | $169 | $158 |
| Accrued\tinterest\tand\tpenalties | 23 | 14 |
| Tax\tcredits\tand\tother\tindirect\tbenefits | (6) | (3) |
| Liability\tfor\ttax\tcontingencies | $186 | $169 |

The	amount	of	unrecognized	tax	benefits	that,	if	recognized,	would	impact	the effective	tax	rate	at	December	31,	2016	was	$67	million,	along	with	$102	million affecting	deferred	taxes.	The	amount	of	unrecognized	tax	benefits	that,	if recognized,	would	impact	the	effective	tax	rate	at	December	31,	2015	was	$76 million,	along	with	$82	million	affecting	deferred	taxes.

Altria	Group,	Inc.	recognizes	accrued	interest	and	penalties	associated	with uncertain	tax	positions	as	part	of	the	tax	provision.

For	the	years	ended	December	31,	2016,	2015	and	2014,	Altria	Group,	Inc. recognized	in	its	consolidated	statements	of	earnings	$9	million,	$(36)	million	and $14	million,	respectively,	of	gross	interest	expense	(income)	associated	with uncertain	tax	positions.

Altria	Group,	Inc.	is	subject	to	income	taxation	in	many	jurisdictions. Uncertain	tax	positions	reflect	the	difference	between	tax	positions	taken	or expected	to	be	taken	on	income	tax	returns	and	the	amounts	recognized	in	the financial	statements.	Resolution	of	the	related	tax	positions	with	the	relevant	tax authorities	may	take	many	years	to	complete,	and	such	timing	is	not	entirely within	the	control	of	Altria	Group,	Inc.	It	is	reasonably	possible	that	within	the next	12	months	certain	examinations	will	be	resolved,	which	could	result	in	a decrease	in	unrecognized	tax	benefits	of	approximately	$116	million.

The	effective	income	tax	rate	on	pre-tax	earnings	differed	from	the	U.S. federal	statutory	rate	for	the	following	reasons	for	the	years	ended	December	31, 2016,	2015	and	2014:

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| U.S.\tfederal\tstatutory\trate | 35.0\t% | 35.0\t% | 35.0\t% |
| Increase\t(decrease)\tresulting\tfrom: |  |  |  |
| State\tand\tlocal\tincome\ttaxes,\tnet\nof\tfederal\ttax\tbenefit | 1.2 | 3.7 | 4.0 |
| Uncertain\ttax\tpositions | — | (0.8) | 0.5 |
| AB\tInBev/SABMiller\tdividend\nbenefit | (0.6) | (0.5) | (2.3) |
| Domestic\tmanufacturing\tdeduction | (0.8) | (2.0) | (2.4) |
| Other | — | (0.3) | — |
| Effective\ttax\trate | 34.8\t% | 35.1\t% | 34.8\t% |

The	tax	provision	in	2016	included	increased	tax	benefits	associated	with	the cumulative	SABMiller	and	AB	InBev	dividends	and	tax	expense	of	$4.9	billion (approximately	35%)	for	the	gain	on	the	Transaction.

The	tax	provision	in	2015	included	net	tax	benefits	of	(i)	$59	million	from	the reversal	of	tax	reserves	and	associated	interest	due	primarily	to	the	closure	in	the third	quarter	of	2015	of	the	IRS	audit	of	Altria	Group,	Inc.	and	its	consolidated subsidiaries'	2007-2009	tax	years	("IRS	2007-2009	Audit");	and	(ii)	$41	million for	Philip	Morris	International	Inc.	("PMI")	tax	matters	discussed	below,	partially offset	by	the	reversal	of	foreign	tax	credits	primarily	associated	with	SABMiller dividends	that	were	recorded	during	the	third	quarter	of	2015	($41	million)	and the	fourth	quarter	of	2015	($24	million).	The	tax	provision	in	2015	also	included decreased	recognition	of	foreign	tax	credits	associated	with	SABMiller	dividends.

The	tax	provision	in	2014	included	net	tax	benefits	of	(i)	$14	million	from	the reversal	of	tax	accruals	no	longer	required	that	was	recorded	during	the	third quarter	of	2014	($19	million),	partially	offset	by	additional	tax	provisions recorded	during	the	fourth	quarter	of	2014	($5	million);	and	(ii)	$2	million	for Mondelēz	International,	Inc.	("Mondelēz")	tax	matters	discussed	below.

Under	tax	sharing	agreements	between	Altria	Group,	Inc.	and	its	former subsidiaries	Kraft	Foods	Inc.	(now	known	as	Mondelēz)	and	PMI,	entered	into	in connection	with	the	2007	and	2008	spin-offs,	respectively,	Mondelēz	and	PMI	are responsible	for	their	respective	pre-spin-off	tax	obligations.	Altria	Group,	Inc., however,	remained	severally	liable	for	Mondelēz's	and	PMI's	pre-spin-off	federal tax	obligations	pursuant	to	regulations	governing	federal	consolidated	income	tax returns,	and	continued	to	include	the	pre-spin-off	federal	income	tax	reserves	of Mondelēz	and	PMI	in	its	liability	for	uncertain	tax	positions.	As	of	December	31, 2015,	there	were	no	remaining	pre-spin-off	tax	reserves	for	Mondelēz	and	PMI.

During	2015	and	2014,	Altria	Group,	Inc.	recorded	net	tax	benefits	of	$41 million	and	$2	million,	respectively,	for	PMI	and	Mondelēz	tax	matters,	primarily relating	to	the	IRS	2007-2009	Audit.	These	net	tax	benefits	were	offset	by reductions	of	PMI	and	Mondelēz	tax-related	receivables,	which	were	recorded	as decreases	to	operating	income	in	Altria	Group,	Inc.'s	consolidated	statements	of earnings.	Due	to	the	respective	offsets,	the	PMI	and	Mondelēz	tax	matters	had	no impact	on	Altria	Group,	Inc.'s	net	earnings	for	the	years	ended	December	31,	2015 and	2014.

The	tax	effects	of	temporary	differences	that	gave	rise	to	deferred	income	tax assets	and	liabilities	consisted	of	the	following	at	December	31,	2016	and	2015:

| (in	millions) | 2016 | 2015 |
| :--- | :--- | :--- |
| Deferred\tincome\ttax\tassets: |  |  |
| Accrued\tpostretirement\tand\tpostemployment\nbenefits | $952 | $953 |
| Settlement\tcharges | 1,446 | 1,393 |
| Accrued\tpension\tcosts | 330 | 512 |
| Net\toperating\tlosses\tand\ttax\tcredit\tcarryforwards | 288 | 335 |
| Total\tdeferred\tincome\ttax\tassets | 3,016 | 3,193 |
| Deferred\tincome\ttax\tliabilities: |  |  |
| Property,\tplant\tand\tequipment | (429) | (441) |
| Intangible\tassets | (4,032) | (3,968) |
| Investment\tin\tAB\tInBev/SABMiller | (5,546) | (1,794) |
| Finance\tassets,\tnet | (708) | (909) |
| Other | (125) | (116) |
| Total\tdeferred\tincome\ttax\tliabilities | (10,840) | (7,228) |
| Valuation\tallowances | (240) | (260) |
| Net\tdeferred\tincome\ttax\tliabilities | $(8,064) | $(4,295) |

At	December	31,	2016,	Altria	Group,	Inc.	had	estimated	gross	state	tax	net operating	losses	of	$532	million	that,	if	unused,	will	expire	in	2017	through	2036, state	tax	credit	carryforwards	of	$14	million	that,	if	unused,	will	expire	in	2017, and	foreign	tax	credit	carryforwards	of	$296	million	that,	if	unused,	will	expire	in 2020	through	2025.	Realization	of	these	benefits	is	dependent	upon	various	factors such	as	generating	sufficient	taxable	income	in	the	applicable	states	and	receiving sufficient	amounts	of	lower-taxed	foreign	dividends	from	AB	InBev.	A	valuation allowance	of	$240	million	has	been	established	for	those	benefits	that	more-likely- than-not	will	not	be	realized.	Altria	Group,	Inc.	may	be

required	to	change	the	valuation	allowance	with	respect	to	foreign	tax	credit carryforwards,	based	upon	additional	information	to	be	received	from	AB	InBev in	2017.

In	the	fourth	quarter	of	2016,	Altria	Group,	Inc.	retroactively	adopted	ASU No.	2015-17,	which	requires	that	deferred	tax	assets	and	liabilities	be	classified	as noncurrent	on	a	classified	statement	of	financial	position.	As	a	result	of	the adoption,	at	December	31,	2015,	current	deferred	income	tax	assets	of approximately	$1.2	billion	were	reclassified	to	noncurrent	deferred	income	tax liabilities	($1.0	billion)	and	noncurrent	deferred	income	tax	assets	($0.2	billion) on	Altria	Group,	Inc.'s	consolidated	balance	sheet.

# Note	16.	Segment	Reporting

At	December	31,	2016,	the	products	of	Altria	Group,	Inc.'s	subsidiaries	include smokeable	tobacco	products,	consisting	of	cigarettes	manufactured	and	sold	by PM	USA	and	machine-made	large	cigars	and	pipe	tobacco	manufactured	and	sold by	Middleton;	smokeless	tobacco	products,	which	are	manufactured	and	sold	by USSTC;	and	wine	produced	and/or	distributed	by	Ste.	Michelle.	The	products	and services	of	these	subsidiaries	constitute	Altria	Group,	Inc.'s	reportable	segments of	smokeable	products,	smokeless	products	and	wine.	The	financial	services	and the	innovative	tobacco	products	businesses	are	included	in	all	other.

Altria	Group,	Inc.'s	chief	operating	decision	maker	(the	"CODM")	reviews operating	companies	income	to	evaluate	the	performance	of,	and	allocate resources	to,	the	segments.	Operating	companies	income	for	the	segments	is defined	as	operating	income	before	general	corporate	expenses	and	amortization	of intangibles.	Interest	and	other	debt	expense,	net,	and	provision	for	income	taxes are	centrally	managed	at	the	corporate	level	and,	accordingly,	such	items	are	not presented	by	segment	since	they	are	excluded	from	the	measure	of	segment profitability	reviewed	by	the	CODM.	Information	about	total	assets	by	segment	is not	disclosed	because	such	information	is	not	reported	to	or	used	by	the	CODM. Segment	goodwill	and	other	intangible	assets,	net,	are	disclosed	in	Note	4. Goodwill	and	Other	Intangible	Assets,	net.	The	accounting	policies	of	the segments	are	the	same	as	those	described	in	Note	2.	Summary	of	Significant Accounting	Policies.

Segment	data	were	as	follows:

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 |
| Net\trevenues: |  |  |  |
| Smokeable\tproducts | $22,851 | $22,792 | $21,939 |
| Smokeless\tproducts | 2,051 | 1,879 | 1,809 |
| Wine | 746 | 692 | 643 |
| All\tother | 96 | 71 | 131 |
| Net\trevenues | $25,744 | $25,434 | $24,522 |
| Earnings\tbefore\tincome\ttaxes: |  |  |  |
| Operating\tcompanies |  |  |  |
| income\t(loss): |  |  |  |
| Smokeable\tproducts | $7,768 | $7,569 | $6,873 |
| Smokeless\tproducts | 1,177 | 1,108 | 1,061 |
| Wine | 164 | 152 | 134 |
| All\tother | (99) | (169) | (185) |
| Amortization\tof\tintangibles | (21) | (21) | (20) |
| General\tcorporate\texpenses | (222) | (237) | (241) |
| Reductions\tof\tPMI\tand\tMondelēz\ntax-related\treceivables | — | (41) | (2) |
| Corporate\tasset\timpairment\tand\nexit\tcosts | (5) | — | — |
| Operating\tincome | 8,762 | 8,361 | 7,620 |
| Interest\tand\tother\tdebt\texpense,\tnet | (747) | (817) | (808) |
| Loss\ton\tearly\textinguishment\tof\ndebt | (823) | (228) | (44) |
| Earnings\tfrom\tequity\tinvestment\tin\nSABMiller | 795 | 757 | 1,006 |
| Gain\ton\tAB\tInBev/SABMiller\nbusiness\tcombination | 13,865 | 5 | — |
| Earnings\tbefore\tincome\ttaxes | $21,852 | $8,078 | $7,774 |

PM	USA,	USSTC	and	Middleton's	largest	customer,	McLane	Company,	Inc., accounted	for	approximately	25%,	26%	and	27%	of	Altria	Group,	Inc.'s consolidated	net	revenues	for	the	years	ended	December	31,	2016,	2015	and	2014, respectively.	In	addition,	Core-Mark	Holding	Company,	Inc.	accounted	for approximately	14%	and	10%	of	Altria	Group,	Inc.'s	consolidated	net	revenues	for the	years	ended	December	31,	2016	and	2015,	respectively.	Substantially	all	of these	net	revenues	were	reported	in	the	smokeable	products	and	smokeless products	segments.	Sales	to	three	distributors	accounted	for	approximately	69%, 66%	and	67%	of	net	revenues	for	the	wine	segment	for	the	years	ended	December 31,	2016,	2015	and	2014,	respectively.

Details	of	Altria	Group,	Inc.'s	depreciation	expense	and	capital	expenditures were	as	follows:

# For	the	Years	Ended	December	31,

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 |
| Depreciation\texpense: |  |  |  |
| Smokeable\tproducts | $93 | $117 | $112 |
| Smokeless\tproducts | 26 | 27 | 22 |
| Wine | 36 | 32 | 30 |
| General\tcorporate\tand\tother | 28 | 28 | 24 |
| Total\tdepreciation\texpense | $183 | $204 | $188 |
| Capital\texpenditures: |  |  |  |
| Smokeable\tproducts | $55 | $56 | $49 |
| Smokeless\tproducts | 52 | 113 | 40 |
| Wine | 59 | 42 | 46 |
| General\tcorporate\tand\tother | 23 | 18 | 28 |
| Total\tcapital\texpenditures | $189 | $229 | $163 |

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

# ▪Non-Participating	Manufacturer	("NPM")	Adjustment	Items:	For	the

years	ended	December	31,	2016,	2015	and	2014,	pre-tax	expense	(income)	for NPM	adjustment	items	was	recorded	in	Altria	Group,	Inc.'s	consolidated statements	of	earnings	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $12 | $(97) | $(43) |
| Interest\tand\tother\tdebt\texpense,\tnet | 6 | 13 | (47) |
| Total | $18 | $(84) | $(90) |

NPM	adjustment	items	result	from	the	settlement	of,	and	determinations	made in	connection	with,	disputes	with	certain	states	and	territories	related	to	the	NPM adjustment	provision	under	the	1998	Master	Settlement	Agreement	(such settlements	and	determinations	are	referred	to	collectively	as	"NPM	Adjustment Items"	and	are	more	fully	described	in	Health	Care	Cost	Recovery	Litigation	- NPM	Adjustment	Disputes	in	Note	19.	Contingencies).	The	amounts	shown	in	the table	above	for	the	smokeable	products	segment	were	recorded	by	PM	USA	as increases	(reductions)	to	cost	of	sales,	which	decreased	(increased)	operating companies	income	in	the	smokeable	products	segment.

▪Tobacco	and	Health	Litigation	Items:	For	the	years	ended	December	31, 2016,	2015	and	2014,	pre-tax	charges	related	to	certain	tobacco	and	health litigation	items	were	recorded	in	Altria	Group,	Inc.'s	consolidated	statements	of earnings	as	follows:

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $88 | $127 | $27 |
| General\tcorporate | — | — | 15 |
| Interest\tand\tother\tdebt\texpense,\tnet | 17 | 23 | 2 |
| Total | $105 | $150 | $44 |

During	2016,	PM	USA	recorded	pre-tax	charges	of	$88	million	in	marketing, administration	and	research	costs,	primarily	related	to	settlements	in	the	Miner	and Aspinall	cases	totaling	approximately	$67	million,	and	$16	million	related	to	a judgment	in	the	Merino	case.	In	addition,	during	2016,	PM	USA	recorded	$17 million	in	interest	costs	primarily	related	to	Aspinall.	For	further	discussion,	see Note	19.	Contingencies.

During	2015,	PM	USA	recorded	pre-tax	charges	in	marketing,	administration and	research	costs	related	to	tobacco	and	health	judgments	in	seven	state	Engle progeny	lawsuits	and	Schwarz	of	$59	million	and	$25	million,	respectively,	as well	as	$14	million	and	$9	million,	respectively,	in	interest	costs	related	to	these cases.	Additionally	in	2015,	PM	USA	and	certain	other	cigarette	manufacturers reached	an	agreement	to	resolve	approximately	415	pending	federal	Engle	progeny cases.	As	a	result	of	the	agreement,	PM	USA	recorded	a	pre-tax	provision	of approximately	$43	million	in	marketing,	administration	and	research	costs.	For further	discussion,	see	Smoking	and	Health	Litigation	in	Note	19.	Contingencies.

During	2014,	Altria	Group,	Inc.	and	PM	USA	recorded	an	aggregate	pre-tax charge	of	$31	million	in	marketing,	administration	and	research	costs	for	the estimated	costs	of	implementing	the	corrective	communications	remedy	in connection	with	the	federal	government's	lawsuit	against	Altria	Group,	Inc.	and PM	USA.	For	further	discussion,	see	Health	Care	Cost	Recovery	Litigation	- Federal	Government's	Lawsuit	in	Note	19.	Contingencies.

# ▪Asset	Impairment	and	Exit	Costs:	See	Note	5.	Asset	Impairment,	Exit	and

Implementation	Costs	for	a	breakdown	of	these	costs	by	segment.

# Note	17.	Benefit	Plans

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

became	eligible	to	participate	in	a	defined	contribution	plan	with	enhanced benefits.	Altria	Group,	Inc.	and	its	subsidiaries	also	provide	postretirement	health care	and	other	benefits	to	the	majority	of	retired	employees.

The	plan	assets	and	benefit	obligations	of	Altria	Group,	Inc.'s	pension	plans and	the	benefit	obligations	of	Altria	Group,	Inc.'s	postretirement	plans	are measured	at	December	31	of	each	year.	Altria	Group,	Inc.'s	postretirement	plans are	not	funded.

The	discount	rates	for	Altria	Group,	Inc.'s	plans	were	based	on	a	yield	curve developed	from	a	model	portfolio	of	high-quality	corporate	bonds	with	durations that	match	the	expected	future	cash	flows	of	the	pension	and	postretirement	benefit obligations.

▪Obligations	and	Funded	Status:	The	benefit	obligations,	plan	assets	and	funded	status	of	Altria	Group,	Inc.'s	pension	and	postretirement	plans	at	December	31, 2016	and	2015	were	as	follows:

|  | Pension |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2016 | 2015 |
| Change\tin\tbenefit\tobligation: |  |  |  |  |
| \t\t\t\tBenefit\tobligation\tat\tbeginning\tof\tyear | $8,011 | $8,330 | $2,392 | $2,613 |
| \t\t\tService\tcost | 76 | 86 | 17 | 18 |
| \t\t\tInterest\tcost | 281 | 337 | 77 | 100 |
| \t\t\tBenefits\tpaid | (440) | (431) | (135) | (141) |
| \t\t\tActuarial\tlosses\t(gains) | 367 | (317) | 24 | (192) |
| \t\t\t\t\t\t\tTermination\tand\tcurtailment | 13 | — | 5 | — |
| \t\t\t\t\t\t\tOther | 4 | 6 | (16) | (6) |
| \t\t\t\tBenefit\tobligation\tat\tend\tof\tyear | 8,312 | 8,011 | 2,364 | 2,392 |
| Change\tin\tplan\tassets: |  |  |  |  |
| \t\t\t\tFair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | 6,706 | 7,297 | — | — |
| \t\t\tActual\treturn\ton\tplan\tassets | 678 | (188) | — | — |
| \t\t\tEmployer\tcontributions | 531 | 28 | — | — |
| \t\t\tBenefits\tpaid | (440) | (431) | — | — |
| \t\t\t\tFair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | 7,475 | 6,706 | — | — |
| \t\t\t\tFunded\tstatus\tat\tDecember\t31 | $(837) | $(1,305) | $(2,364) | $(2,392) |
| \t\t\t\tOther\taccrued\tliabilities | $(32) | $(28) | $(147) | $(147) |
| \t\t\t\tAccrued\tpension\tcosts | (805) | (1,277) | — | — |
| \t\t\t\tAccrued\tpostretirement\thealth\tcare\tcosts | — | — | (2,217) | (2,245) |
|  | $(837) | $(1,305) | $(2,364) | $(2,392) |

The	table	above	presents	the	projected	benefit	obligation	for	Altria	Group, Inc.'s	pension	plans.	The	accumulated	benefit	obligation,	which	represents benefits	earned	to	date,	for	the	pension	plans	was	$8.0	billion	and	$7.7	billion	at December	31,	2016	and	2015,	respectively.

At	December	31,	2016	and	2015,	the	accumulated	benefit	obligations	were	in excess	of	plan	assets	for	all	pension	plans.

The	Patient	Protection	and	Affordable	Care	Act	("PPACA"),	as	amended	by the	Health	Care	and	Education	Reconciliation	Act	of	2010,	mandates	health	care reforms	with	staggered	effective	dates	from	2010	to	2020,	including	the imposition	of	an	excise	tax	on	high	cost	health	care	plans	effective	in	2020.	The additional	accumulated	postretirement	liability	resulting	from	the	PPACA,	which is	not	material	to	Altria	Group,	Inc.,	has	been

included	in	Altria	Group,	Inc.'s	accumulated	postretirement	benefit	obligation	at December	31,	2016	and	2015.	Given	the	complexity	of	the	PPACA	and	the extended	time	period	during	which	implementation	is	expected	to	occur,	future adjustments	to	Altria	Group,	Inc.'s	accumulated	postretirement	benefit	obligation may	be	necessary.

The	following	assumptions	were	used	to	determine	Altria	Group,	Inc.'s pension	benefit	obligations	at	December	31:

The	following	assumptions	were	used	to	determine	Altria	Group,	Inc.'s	postretirement	benefit	obligations	at	December	31:

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Discount\trate | 4.1% | 4.4% |
| Health\tcare\tcost\ttrend\trate\tassumed\tfor\tnext\tyear | 7.0 | 6.5 |
| \t\t\t\tUltimate\ttrend\trate | 5.0 | 5.0 |
| \tYear\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | 2022 | 2019 |

▪Components	of	Net	Periodic	Benefit	Cost:	Net	periodic	benefit	cost	consisted	of	the	following	for	the	years	ended	December	31,	2016,	2015	and 2014:

|  |  | Pension |  |  | Postretirement |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 |
| Service\tcost | $76 | $86 | $68 | $17 | $18 | $15 |
| Interest\tcost | 281 | 337 | 345 | 77 | 100 | 107 |
| Expected\treturn\ton\tplan\tassets | (553) | (539) | (518) | — | — | — |
| Amortization: |  |  |  |  |  |  |
| Net\tloss | 171 | 234 | 147 | 25 | 43 | 22 |
| Prior\tservice\tcost\t(credit) | 5 | 7 | 10 | (39) | (39) | (43) |
| Termination,\tsettlement\tand\tcurtailment | 34 | 8 | — | (2) | — | — |
| Net\tperiodic\tbenefit\tcost | $14 | $133 | $52 | $78 | $122 | $101 |

Termination,	settlement	and	curtailment	shown	in	the	table	above	primarily relate	to	the	productivity	initiative	and	facilities	consolidation	discussed	in	Note	5.

# Asset	Impairment,	Exit	and	Implementation	Costs.

The	amounts	included	in	termination,	settlement	and	curtailment	in	the	table above	were	comprised	of	the	following	changes:

|  | Pension |  | Postretirement |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2016 |
| Benefit\tobligation | $23 | $— | $11 |
| Other\tcomprehensive\nearnings/losses: |  |  |  |
| Net\tloss\t(earnings) | 9 | 8 | — |
| Prior\tservice\tcost\n(credit) | 2 | — | (13) |
|  | $34 | $8 | $(2) |

Beginning	in	2016,	Altria	Group,	Inc.	began	using	a	spot	rate	approach	to estimate	the	service	and	interest	cost	components	of	net	periodic	benefit	costs	by applying	the	specific	spot	rates	along	the	yield	curve	to	the	relevant	projected	cash flows,	as	Altria	Group,	Inc.	believes	that	this	approach	is	a	more	precise	estimate of	service	and	interest	cost.	This	change	resulted	in	a	decrease	of	approximately $70	million	and	$20	million	to	its	2016	pre-tax

pension	and	postretirement	net	periodic	benefit	cost,	respectively.	Prior	to	2016, Altria	Group,	Inc.	estimated	the	service	and	interest	cost	components	of	net periodic	benefit	cost	using	a	single	weighted-average	discount	rate	derived	from the	yield	curve	used	to	measure	the	pension	and	postretirement	plans	benefit obligations.

At	December	31,	2014,	Altria	Group,	Inc.	updated	its	mortality	assumptions to	reflect	longer	life	expectancy	for	its	pension	plan	and	postretirement	plan participants,	resulting	in	an	increase	of	approximately	$60	million	and	$10	million to	its	2015	pre-tax	pension	and	postretirement	net	periodic	benefit	cost, respectively.

The	estimated	net	loss	and	prior	service	cost	(credit)	that	are	expected	to	be amortized	from	accumulated	other	comprehensive	losses	into	net	periodic	benefit cost	during	2017	is	as	follows:

The	following	assumptions	were	used	to	determine	Altria	Group,	Inc.'s	net	periodic	benefit	cost	for	the	years	ended	December	31:

|  | 2016 | Pension<br>2015 | 2014 | 2016 | Postretirement<br>2015 | 2014 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Discount\trates: |  |  |  |  |  |  |
| \t\t\t\t\tService\tcost | 4.7% | 4.1% | 4.9% | 4.5% | 4.0% | 4.8% |
| \t\t\t\t\tInterest\tcost | 3.6 | 4.1 | 4.9 | 3.4 | 4.0 | 4.8 |
| Expected\trate\tof\treturn\ton\tplan\tassets | 8.0 | 8.0 | 8.0 | — | — | — |
| Rate\tof\tcompensation\tincrease | 4.0 | 4.0 | 4.0 | — | — | — |
| Health\tcare\tcost\ttrend\trate | — | — | — | 6.5 | 7.0 | 7.0 |

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	amounts reported	for	the	postretirement	health	care	plans.	A	one-percentage-point	change	in assumed	health	care	cost	trend rates	would	have	had	the	following	effects	as	of	December	31,	2016:

▪Defined	Contribution	Plans:	Altria	Group,	Inc.	sponsors	deferred	profit- sharing	plans	covering	certain	salaried,	non-union	and	union	employees. Contributions	and	costs	are	determined	generally	as	a	percentage	of	earnings,	as defined	by	the	plans.	Amounts	charged	to	expense	for	these	defined	contribution plans	totaled	$93	million,	$85	million	and	$82	million	in	2016,	2015	and	2014, respectively.

▪Pension	Plan	Assets:	Altria	Group,	Inc.'s	pension	plans	investment	strategy is	based	on	an	expectation	that	equity	securities	will	outperform	debt	securities over	the	long	term.	Altria	Group,	Inc.	believes	that	it	implements	the	investment strategy	in	a	prudent	and	risk-controlled	manner,	consistent	with	the	fiduciary requirements	of	the	Employee	Retirement	Income	Security	Act	of	1974,	by investing	retirement	plan	assets	in	a	well-diversified	mix	of	equities,	fixed	income and	other	securities	that	reflects	the	impact	of	the	demographic	mix	of	plan participants	on	the	benefit	obligation	using	a	target	asset	allocation	between	equity securities	and	fixed	income	investments	of	55%/45%.	The	composition	of	Altria Group,	Inc.'s	plan	assets	at	December	31,	2016	was	broadly	characterized	as	an allocation	between	equity	securities	(57%),	corporate	bonds	(32%),	U.S.	Treasury and	foreign	government	securities	(8%)	and	all	other	types	of	investments	(3%). Virtually	all	pension	assets	can	be	used	to	make	monthly	benefit	payments. Altria	Group,	Inc.'s	pension	plans	investment	objective	is	accomplished	by investing	in	U.S.	and	international	equity	index	strategies	that	are	intended	to mirror	indices	such	as	the	Standard

&	Poor's	500	Index,	Russell	Small	Cap	Completeness	Index,	Research	Affiliates Fundamental	Index	("RAFI")	Low	Volatility	U.S.	Index,	and	Morgan	Stanley Capital	International	("MSCI")	Europe,	Australasia,	and	the	Far	East	("EAFE") Index.	Altria	Group,	Inc.'s	pension	plans	also	invest	in	actively	managed international	equity	securities	of	large,	mid	and	small	cap	companies	located	in developed	and	emerging	markets,	as	well	as	long	duration	fixed	income	securities that	primarily	include	corporate	bonds	of	companies	from	diversified	industries. The	allocation	to	below	investment	grade	securities	represented	18%	of	the	fixed income	holdings	or	8%	of	total	plan	assets	at	December	31,	2016.	The	allocation	to emerging	markets	represented	3%	of	the	equity	holdings	or	2%	of	total	plan	assets at	December	31,	2016.

Altria	Group,	Inc.'s	pension	plans	risk	management	practices	include	ongoing monitoring	of	asset	allocation,	investment	performance	and	investment	managers' compliance	with	their	investment	guidelines,	periodic	rebalancing	between	equity and	debt	asset	classes	and	annual	actuarial	re-measurement	of	plan	liabilities. Altria	Group,	Inc.'s	expected	rate	of	return	on	pension	plan	assets	is determined	by	the	plan	assets'	historical	long-term	investment	performance, current	asset	allocation	and	estimates	of	future	long-term	returns	by	asset	class. The	forward-looking	estimates	are	consistent	with	the	overall	long-term	averages exhibited	by	returns	on	equity	and	fixed	income	securities.

On	January	1,	2016,	Altria	Group,	Inc.	retrospectively	adopted	ASU	No. 2015-07,	Fair	Value	Measurement	(Topic	820):	Disclosures	for	Investments	in Certain	Entities	That	Calculate	Net	Asset	Value	per	Share	(or	Its	Equivalent), which	removes	the	requirement	to	categorize	within	the	fair	value	hierarchy	all investments	for	which	fair	value	is	measured	using	the	net	asset	value	("NAV") per	share	as	a	practical	expedient.	As	a	result	of	the	adoption,	certain	investments have	not	been	classified	by	level	in	the	fair	value	table	but	are	disclosed	to	permit reconciliation	to	the	fair	value	of	plan	assets.	Certain	investments	in	the	fair	value table	at	December	31,	2015	have	been	reclassified	to	conform	with	the	current year's	presentation.

The	fair	values	of	Altria	Group,	Inc.'s	pension	plan	assets	by	asset	category	at	December	31,	2016	and	2015	were	as	follows:

|  |  |  | 2016 |  |  |  | 2015 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Level\t1 | Level\t2 | Level\t3 | Total | Level\t1 | Level\t2 | Level\t3 | Total |
| U.S.\tand\tforeign\tgovernment\tsecurities\tor\ntheir\tagencies: |  |  |  |  |  |  |  |  |
| U.S.\tgovernment\tand\tagencies | $— | $444 | $— | $444 | $— | $331 | $— | $331 |
| U.S.\tmunicipal\tbonds | — | 102 | — | 102 | — | 102 | — | 102 |
| Foreign\tgovernment\tand\tagencies | — | 185 | — | 185 | — | 252 | — | 252 |
| Corporate\tdebt\tinstruments: |  |  |  |  |  |  |  |  |
| Above\tinvestment\tgrade | — | 1,735 | — | 1,735 | — | 1,660 | — | 1,660 |
| Below\tinvestment\tgrade\tand\tno\trating | — | 602 | — | 602 | — | 502 | — | 502 |
| Common\tstock: |  |  |  |  |  |  |  |  |
| International\tequities | 1,076 | — | — | 1,076 | 907 | — | 2 | 909 |
| U.S.\tequities | 760 | — | — | 760 | 605 | — | — | 605 |
| Registered\tinvestment\tcompanies | 51 | — | — | 51 | 58 | — | — | 58 |
| Other,\tnet | 91 | 33 | 13 | 137 | 16 | 58 | 13 | 87 |
|  | $1,978 | $3,101 | $13 | $5,092 | $1,586 | $2,905 | $15 | $4,506 |
| Investments\tmeasured\tat\tNAV\tas\ta\tpractical\texpedient\tfor\nfair\tvalue: |  |  |  |  |  |  |  |  |
| Common/collective\ttrusts: |  |  |  |  |  |  |  |  |
| U.S.\tlarge\tcap |  |  |  | 1,940 |  |  |  | 1,762 |
| U.S.\tsmall\tcap |  |  |  | 363 |  |  |  | 360 |
| International\tdeveloped\tmarkets |  |  |  | 80 |  |  |  | 78 |
| Fair\tvalue\tof\tplan\tassets,\tnet |  |  |  | $7,475 |  |  |  | $6,706 |

Level	3	holdings	and	transactions	were	immaterial	to	total	plan	assets	at	December	31,	2016	and	2015.

For	a	description	of	the	fair	value	hierarchy	and	the	three	levels	of	inputs	used to	measure	fair	value,	see	Note	2.	Summary	of	Significant	Accounting	Policies.

Following	is	a	description	of	the	valuation	methodologies	used	for investments	measured	at	fair	value.

▪U.S.	and	Foreign	Government	Securities:	U.S.	and	foreign	government securities	consist	of	investments	in	Treasury	Nominal	Bonds	and	Inflation Protected	Securities	and	municipal	securities.	Government	securities	are valued	at	a	price	that	is	based	on	a	compilation	of	primarily	observable market	information,	such	as	broker	quotes.	Matrix	pricing,	yield	curves	and indices	are	used	when	broker	quotes	are	not	available.

▪Corporate	Debt	Instruments:	Corporate	debt	instruments	are	valued	at	a	price that	is	based	on	a	compilation	of	primarily	observable	market	information, such	as	broker	quotes.	Matrix	pricing,	yield	curves	and	indices	are	used	when broker	quotes	are	not	available.

▪Common	Stock:	Common	stocks	are	valued	based	on	the	price	of	the	security as	listed	on	an	open	active	exchange	on	last	trade	date.

▪Registered	Investment	Companies:	Investments	in	registered	investment companies	are	valued	at	the	closing	NAV	publicly	reported	on	the	last business	day	of	the	year.

▪Common/Collective	Trusts:	Common/collective	trusts	consist	of	funds	that	are intended	to	mirror	indices	such	as	Standard	&	Poor's	500	Index,	Russell Small	Cap	Completeness	Index	and	MSCI	EAFE	Index.	They	are	valued	on the	basis	of	the	relative	interest	of	each	participating	investor	in	the	fair	value of	the	underlying	assets	of	each	of	the	respective	common/collective	trusts. The	underlying	assets	are	valued	based	on	the	NAV,	which	is	provided	by	the investment	account	manager	as	a	practical	expedient	to	estimate	fair	value.	In accordance	with	ASU	No.	2015-07,	these	investments	have	not	been classified	by	level	but	are	disclosed	to	permit	reconciliation	to	the	fair	value of	plan	assets.

▪Cash	Flows:	Altria	Group,	Inc.	makes	contributions	to	the	pension	plans	to the	extent	that	the	contributions	are	tax	deductible	and	pays	benefits	that	relate	to plans	for	salaried	employees	that	cannot	be	funded	under	IRS	regulations.	In September	2016,	Altria	Group,	Inc.	made	voluntary	contributions	totaling	$500 million	to	its	pension	plans.	Currently,	Altria	Group,	Inc.	anticipates	making employer	contributions	to	its	pension	plans	of	approximately	$30	million	to	$50 million	in	2017	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.

Estimated	future	benefit	payments	at	December	31,	2016	were	as	follows:

| (in	millions) | Pension | Postretirement |
| :--- | :--- | :--- |
| 2017 | $456 | $147 |
| 2018 | 461 | 149 |
| 2019 | 449 | 145 |
| 2020 | 456 | 143 |
| 2021 | 459 | 141 |
| 2022-2026 | 2,395 | 655 |

# Comprehensive	Earnings/Losses

The	amounts	recorded	in	accumulated	other	comprehensive	losses	at	December	31,	2016	consisted	of	the	following:

| (in	millions) | Pension | Post-<br>retirement | Post-<br>employment | Total |
| :--- | :--- | :--- | :--- | :--- |
| Net\tloss | $(2,857) | $(581) | $(99) | $(3,537) |
| Prior\tservice\t(cost)\tcredit | (19) | 195 | — | 176 |
| Deferred\tincome\ttaxes | 1,124 | 153 | 36 | 1,313 |
| Amounts\trecorded\tin\taccumulated\tother\tcomprehensive\tlosses | $(1,752) | $(233) | $(63) | $(2,048) |

    The	movements	in	other	comprehensive	earnings/losses	during	the	year	ended	December	31,	2016	were	as	follows:

# Note	18.	Additional	Information

|  |  | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2016 | 2015 | 2014 |
| Research\tand\tdevelopment\texpense | $203 | $186 | $167 |
| Advertising\texpense | $27 | $25 | $30 |
| Interest\tand\tother\tdebt\texpense,\tnet: |  |  |  |
| Interest\texpense | $754 | $808 | $857 |
| Interest\tincome | (13) | (4) | (2) |
| \t\t\tInterest\trelated\tto\tNPM\tAdjustment\tItems | 6 | 13 | (47) |
|  | $747 | $817 | $808 |
| Rent\texpense | $53 | $48 | $52 |

					Minimum	rental	commitments	and	sublease	income	under	non-cancelable	operating	leases	in	effect	at	December	31,	2016	were	as	follows:

| (in	millions) | Rental	Commitments | Sublease	Income |
| :--- | :--- | :--- |
| 2017 | $52 | $5 |
| 2018 | 46 | 5 |
| 2019 | 35 | 5 |
| 2020 | 30 | 6 |
| 2021 | 24 | 6 |
| Thereafter | 72 | 15 |
|  | $259 | $42 |

The	activity	in	the	allowance	for	discounts	and	allowance	for	returned	goods	for	the	years	ended	December	31,	2016,	2015	and	2014	was	as	follows:

| (in	millions) |  | 2016 | 2015 |  |  | 2014 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Discounts | Returned\nGoods | Discounts | Returned\nGoods | Discounts | Returned\nGoods |
| Balance\tat\tbeginning\tof\tyear | $— | $68 | $— | $46 | $— | $41 |
| Charged\tto\tcosts\tand\texpenses | 628 | 133 | 618 | 217 | 599 | 179 |
| Deductions\t(1) | (628) | (152) | (618) | (195) | (599) | (174) |
| Balance\tat\tend\tof\tyear | $— | $49 | $— | $68 | $— | $46 |

(1)	Represents	the	recording	of	discounts	and	returns	for	which	allowances	were	created.

# Note	19.	Contingencies

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

Litigation	is	subject	to	uncertainty	and	it	is	possible	that	there	could	be adverse	developments	in	pending	or	future	cases.	An	unfavorable	outcome	or settlement	of	pending	tobacco-related	or	other	litigation	could	encourage	the commencement	of	additional	litigation.	Damages	claimed	in	some	tobacco-related and	other	litigation	are	or	can	be	significant	and,	in	certain	cases,	range	in	the billions	of	dollars.	The	variability	in	pleadings	in	multiple

jurisdictions,	together	with	the	actual	experience	of	management	in	litigating claims,	demonstrate	that	the	monetary	relief	that	may	be	specified	in	a	lawsuit bears	little	relevance	to	the	ultimate	outcome.	In	certain	cases,	plaintiffs	claim	that defendants'	liability	is	joint	and	several.	In	such	cases,	Altria	Group,	Inc.	or	its subsidiaries	may	face	the	risk	that	one	or	more	co-defendants	decline	or	otherwise fail	to	participate	in	the	bonding	required	for	an	appeal	or	to	pay	their proportionate	or	jury-allocated	share	of	a	judgment.		As	a	result,	Altria	Group, Inc.	or	its	subsidiaries	under	certain	circumstances	may	have	to	pay	more	than their	proportionate	share	of	any	bonding-	or	judgment-related	amounts. Furthermore,	in	those	cases	where	plaintiffs	are	successful,	Altria	Group,	Inc.	or its	subsidiaries	may	also	be	required	to	pay	interest	and	attorneys'	fees.

Although	PM	USA	has	historically	been	able	to	obtain	required	bonds	or relief	from	bonding	requirements	in	order	to	prevent	plaintiffs	from	seeking	to collect	judgments	while	adverse	verdicts	have	been	appealed,	there	remains	a	risk that	such	relief

may	not	be	obtainable	in	all	cases.	This	risk	has	been	substantially	reduced	given that	47	states	and	Puerto	Rico	limit	the	dollar	amount	of	bonds	or	require	no	bond at	all.	As	discussed	below,	however,	tobacco	litigation	plaintiffs	have	challenged the	constitutionality	of	Florida's	bond	cap	statute	in	several	cases	and	plaintiffs may	challenge	state	bond	cap	statutes	in	other	jurisdictions	as	well.	Such challenges	may	include	the	applicability	of	state	bond	caps	in	federal	court.	States, including	Florida,	may	also	seek	to	repeal	or	alter	bond	cap	statutes	through legislation.	Although	Altria	Group,	Inc.	cannot	predict	the	outcome	of	such challenges,	it	is	possible	that	the	consolidated	results	of	operations,	cash	flows	or financial	position	of	Altria	Group,	Inc.,	or	one	or	more	of	its	subsidiaries,	could	be materially	affected	in	a	particular	fiscal	quarter	or	fiscal	year	by	an	unfavorable outcome	of	one	or	more	such	challenges.

Altria	Group,	Inc.	and	its	subsidiaries	record	provisions	in	the	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 19.	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	consolidated financial	statements	for	unfavorable	outcomes,	if	any.	Litigation	defense	costs	are expensed	as	incurred.

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

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

Types	and	Number	of	Cases:	Claims	related	to	tobacco	products	generally	fall within	the	following	categories:	(i)	smoking	and	health	cases	alleging	personal injury	brought	on	behalf	of	individual	plaintiffs;	(ii)	smoking	and	health	cases primarily	alleging	personal	injury	or	seeking	court-supervised	programs	for ongoing	medical	monitoring	and	purporting	to	be	brought	on	behalf	of	a	class	of individual	plaintiffs,	including

cases	in	which	the	aggregated	claims	of	a	number	of	individual	plaintiffs	are	to	be tried	in	a	single	proceeding;	(iii)	health	care	cost	recovery	cases	brought	by governmental	(both	domestic	and	foreign)	plaintiffs	seeking	reimbursement	for health	care	expenditures	allegedly	caused	by	cigarette	smoking	and/or disgorgement	of	profits;	(iv)	class	action	suits	alleging	that	the	uses	of	the	terms "Lights"	and	"Ultra	Lights"	constitute	deceptive	and	unfair	trade	practices, common	law	or	statutory	fraud,	unjust	enrichment,	breach	of	warranty	or violations	of	the	Racketeer	Influenced	and	Corrupt	Organizations	Act	("RICO"); and	(v)	other	tobacco-related	litigation	described	below.	Plaintiffs'	theories	of recovery	and	the	defenses	raised	in	pending	smoking	and	health,	health	care	cost recovery	and	"Lights/Ultra	Lights"	cases	are	discussed	below.

The	table	below	lists	the	number	of	certain	tobacco-related	cases	pending	in the	United	States	against	PM	USA(1)	and,	in	some	instances,	Altria	Group,	Inc.	as of	December	31,	2016,	2015	and	2014:

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Individual\tSmoking\tand\tHealth\tCases\t(2) | 70 | 65 | 67 |
| Smoking\tand\tHealth\tClass\tActions\tand\tAggregated\nClaims\tLitigation\t(3) | 5 | 5 | 5 |
| Health\tCare\tCost\tRecovery\tActions\t(4) | 1 | 1 | 1 |
| "Lights/Ultra\tLights"\tClass\tActions | 8 | 11 | 12 |

(1)	Does	not	include	25	cases	filed	on	the	asbestos	docket	in	the	Circuit	Court	for	Baltimore	City, Maryland,	which	seek	to	join	PM	USA	and	other	cigarette-manufacturing	defendants	in complaints	previously	filed	against	asbestos	companies.

(2)	Does	not	include	2,485	cases	brought	by	flight	attendants	seeking	compensatory	damages	for personal	injuries	allegedly	caused	by	exposure	to	environmental	tobacco	smoke	("ETS").	The flight	attendants	allege	that	they	are	members	of	an	ETS	smoking	and	health	class	action	in Florida,	which	was	settled	in	1997	(Broin).	The	terms	of	the	court-approved	settlement	in	that case	allowed	class	members	to	file	individual	lawsuits	seeking	compensatory	damages,	but prohibited	them	from	seeking	punitive	damages.	Also,	does	not	include	individual	smoking	and health	cases	brought	by	or	on	behalf	of	plaintiffs	in	Florida	state	and	federal	courts	following	the decertification	of	the	Engle	case	(discussed	below	in	Smoking	and	Health	Litigation	-	Engle Class	Action).

(3)	Includes	as	one	case	the	600	civil	actions	(of	which	344	were	actions	against	PM	USA)	that were	to	be	tried	in	a	single	proceeding	in	West	Virginia	(In	re:	Tobacco	Litigation).	The	West Virginia	Supreme	Court	of	Appeals	ruled	that	the	United	States	Constitution	did	not	preclude	a trial	in	two	phases	in	this	case.	Issues	related	to	defendants'	conduct	and	whether	punitive damages	are	permissible	were	tried	in	the	first	phase.	Trial	in	the	first	phase	of	this	case	began	in April	2013.	In	May	2013,	the	jury	returned	a	verdict	in	favor	of	defendants	on	the	claims	for design	defect,	negligence,	failure	to	warn,	breach	of	warranty,	and	concealment	and	declined	to find	that	the	defendants'	conduct	warranted	punitive	damages.	Plaintiffs	prevailed	on	their	claim that	ventilated	filter	cigarettes	should	have	included	use	instructions	for	the	period	1964	-	1969. The	second	phase	will	consist	of	trials	to	determine	liability	and	compensatory	damages.	In November	2014,	the	West	Virginia	Supreme	Court	of	Appeals	affirmed	the	final	judgment.	In July	2015,	the	trial	court	entered	an	order	that	will	result	in	the	entry	of	final	judgment	in	favor	of defendants	and	against	all	but	30	plaintiffs	who	potentially	have	a	claim	against	one	or	more defendants	that	may	be	pursued	in	a	second	phase	of	trial.	The	court	intends	to	try	the	claims	of these	30	plaintiffs	in	six	consolidated	trials,	each	with	a	group	of	 five	plaintiffs.	The	first	trial	is currently	scheduled	to	begin	May	1,	2018.	Dates	for	the	five	remaining	consolidated	trials	have not	been	scheduled.

(4)	See	Health	Care	Cost	Recovery	Litigation	-	Federal	Government's	Lawsuit 	below.

# ▪International	Tobacco-Related	Cases:	As	of	January	27,	2017,	PM	USA	is

a	named	defendant	in	10	health	care	cost	recovery	actions	in	Canada,	eight	of which	also	name	Altria	Group,	Inc.	as	a	defendant.	PM	USA	and	Altria	Group, Inc.	are	also	named	defendants	in	seven	smoking	and	health	class	actions	filed	in various	Canadian	provinces.	See	Guarantees	and	Other	Similar	Matters	below	for a	discussion	of	the	Distribution	Agreement	between	Altria	Group,	Inc.	and	PMI that	provides	for	indemnities	for	certain	liabilities	concerning	tobacco	products.

▪Tobacco-Related	Cases	Set	for	Trial:	As	of	January	27,	2017,	nine	Engle progeny	cases	are	set	for	trial	through	March	31,	2017.	There	are	no	individual smoking	and	health	cases	and	no	"Lights/Ultra	Lights"	class	actions	or	medical monitoring	cases	against	PM	USA	set	for	trial	during	this	period.	Cases	against other	companies	in	the	tobacco	industry	are	scheduled	for	trial	during	this	period. Trial	dates	are	subject	to	change.

▪Trial	Results:	Since	January	1999,	excluding	the	Engle	progeny	cases (separately	discussed	below),	verdicts	have	been	returned	in	61	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	41	of	the	61	cases.	These	41	cases	were	tried	in	Alaska	(1),	California (7),	Florida	(10),	Louisiana	(1),	Massachusetts	(2),	Mississippi	(1),	Missouri	(4), New	Hampshire	(1),	New	Jersey	(1),	New	York	(5),	Ohio	(2),	Pennsylvania	(1), Rhode	Island	(1),	Tennessee	(2)	and	West	Virginia	(2).	A	motion	for	a	new	trial was	granted	in	one	of	the	cases	in	Florida	and	in	the	case	in	Alaska.	In	the	Alaska case	(Hunter),	the	trial	court	withdrew	its	order	for	a	new	trial	upon	PM	USA's motion	for	reconsideration.	In	December	2015,	the	Alaska	Supreme	Court reversed	the	trial	court	decision	and	remanded	the	case	with	directions	for	the	trial court	to	reassess	whether	to	grant	a	new	trial.	In	March	2016,	the	trial	court granted	a	new	trial	and	PM	USA	filed	a	petition	for	review	of	that	order	with	the Alaska	Supreme	Court,	which	the	court	denied	in	July	2016.	The	retrial	began	in October	2016.	In	November	2016,	the	court	declared	a	mistrial	after	the	jury	failed to	reach	a	verdict.	The	plaintiff	subsequently	moved	for	a	new	trial,	which	is scheduled	to	begin	October	16,	2017.	See	Types	and	Number	of	Cases	above	for	a discussion	of	the	trial	results	in	In	re:	Tobacco	Litigation	(West	Virginia consolidated	cases).

Of	the	20	non-Engle	progeny	cases	in	which	verdicts	were	returned	in	favor of	plaintiffs,	18	have	reached	final	resolution.	A	verdict	against	PM	USA	in	a purported	"Lights"	class	action	in	Illinois	(Price)	was	reversed	and	ultimately resolved	in	PM	USA's	favor.	See	"Lights/Ultra	Lights"	Cases	-	State	Trial	Court Class	Certifications	Concluded	in	2016	below	for	further	discussion.

As	of	January	27,	2017,	105	state	and	federal	Engle	progeny	cases	involving PM	USA	have	resulted	in	verdicts	since	the	Florida	Supreme	Court's	Engle decision	as	follows:	58	verdicts	were	returned	in	favor	of	plaintiffs;	44	verdicts were	returned	in	favor	of	PM	USA.	Three	verdicts	in	favor	of	plaintiffs	were partially	or	entirely	reversed	on	appeal.	See	Smoking	and	Health	Litigation	- Engle	Progeny	Trial	Court	Results	below	for	a	discussion	of	these	verdicts.

▪Judgments	Paid	and	Provisions	for	Tobacco	and	Health	Litigation	Items (Including	Engle	Progeny	Litigation):	After	exhausting	all	appeals	in	those cases	resulting	in	adverse	verdicts	associated	with	tobacco-related	litigation,	since October	2004,	PM	USA	has	paid	in	the	aggregate	judgments	and	settlements (including	related	costs	and	fees)	totaling	approximately	$473	million	and	interest totaling	approximately	$183	million	as	of	December	31,	2016.	These	amounts include	payments	for	Engle	progeny	judgments	(and	related	costs	and	fees) totaling	approximately	$82	million,	interest	totaling	approximately	$21	million and	payment	of	approximately	$43	million	in	connection	with	the	Federal	Engle Agreement,	discussed	below.

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

| (in	millions) | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Accrued\tliability\tfor\ttobacco\tand\thealth\nlitigation\titems\tat\tbeginning\tof\tyear | $132 | $39 | $3 |
| Pre-tax\tcharges\tfor: |  |  |  |
| Tobacco\tand\thealth\tjudgments | 21 | 84 | 11 |
| Related\tinterest\tcosts | 7 | 23 | 2 |
| Agreement\tto\tresolve\tfederal\tEngle\nprogeny\tcases | — | 43 | — |
| Agreement\tto\tresolve\tAspinall\nincluding\trelated\tinterest\tcosts | 32 | — | — |
| Agreement\tto\tresolve\tMiner | 45 | — | — |
| Implementation\tof\tcorrective |  |  |  |
| communications\tremedy\tpursuant |  |  |  |
| to\tthe\tfederal\tgovernment's |  |  |  |
| lawsuit | — | — | 31 |
| Payments | (190) | (57) | (8) |
| Accrued\tliability\tfor\ttobacco\tand\thealth\nlitigation\titems\tat\tend\tof\tyear | $47 | $132 | $39 |

The	accrued	liability	for	tobacco	and	health	litigation	items,	including	related interest	costs,	was	included	in	liabilities	on	Altria	Group,	Inc.'s	consolidated balance	sheets.	Pre-tax	charges	for	tobacco	and	health	judgments,	the	agreement	to resolve	federal	Engle	progeny	cases,	the	agreement	to	resolve	the	Aspinall	case (excluding	related	interest	costs	of	approximately	$10	million),	the	agreement	to resolve	the	Miner	case	and	the	implementation	of	the	corrective	communications remedy	pursuant	to	the	federal	government's	lawsuit	were	included	in	marketing, administration	and	research	costs	on	Altria	Group,	Inc.'s	consolidated	statements of	earnings.	Pre-tax	charges	for	related	interest	costs	were	included	in	interest	and other	debt	expense,	net	on	Altria	Group,	Inc.'s	consolidated	statements	of earnings.

▪Security	for	Judgments:	To	obtain	stays	of	judgments	pending	current appeals,	as	of	December	31,	2016,	PM	USA	has	posted	various	forms	of	security totaling	approximately	$82	million,	the	majority	of	which	has	been	collateralized with	cash

# deposits	that	are	included	in	other	assets	on	the	consolidated	balance	sheet.

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

▪Non-Engle	Progeny	Litigation:	Summarized	below	are	the	non-Engle progeny	smoking	and	health	cases	pending	during	2016	in	which	verdicts	were returned	in	favor	of	plaintiffs	and	against	PM	USA.	Charts	listing	the	verdicts	for plaintiffs	in	the	Engle	progeny	cases	can	be	found	in	Smoking	and	Health Litigation	-	Engle	Progeny	Trial	Results	below.

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

Schwarz:	In	March	2002,	an	Oregon	jury	awarded	$168,500	in	compensatory damages	and	$150	million	in	punitive	damages	against	PM	USA.	In	May	2002,	the trial	court	reduced	the	punitive	damages	award	to	$100	million.	In	May	2006,	the Oregon	Court	of	Appeals	affirmed	the	compensatory	damages	verdict,	reversed the	award	of	punitive	damages	and	remanded	the	case	to	the	trial	court	for	a second	trial	to	determine	the	amount	of	punitive	damages,	if	any.	In	June	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. Upon	retrial,	in	February	2012,	the	jury	awarded	plaintiff	$25	million	in	punitive damages,	which	was	ultimately	upheld	on	appeal.	In	the	fourth	quarter	of	2015, PM	USA	recorded	a	provision	on	its	consolidated	balance	sheet	of	approximately $34	million	for	the	judgment	plus	interest	and	associated	costs.	In	June	2016,	PM USA	paid	the	final	judgment	plus	interest	and	associated	costs	of	approximately $34	million,	concluding	this	litigation.

Federal	Government's	Lawsuit:	See	Health	Care	Cost	Recovery	Litigation	-

Federal	Government's	Lawsuit	below	for	a	discussion

of	the	verdict	and	post-trial	developments	in	the	United	States	of	America	health care	cost	recovery	case.

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

In	February	2008,	the	trial	court	decertified	the	class,	except	for	purposes	of the	May	2001	bond	stipulation,	and	formally	vacated	the	punitive	damages	award pursuant	to	the	Florida	Supreme	Court's	mandate.	In	April	2008,	the	trial	court ruled	that	certain	defendants,	including	PM	USA,	lacked	standing	with	respect	to allocation	of	the	funds	escrowed	under	the	May	2001	bond	stipulation	and	would receive	no	credit	at	that	time	from	the	$500	million	paid	by	PM	USA	against	any future	punitive	damages	awards	in	cases	brought	by	former	Engle	class	members. In	May	2008,	the	trial	court,	among	other	things,	decertified	the	limited	class maintained	for	purposes	of	the	May	2001	bond	stipulation	and,	in	July	2008, severed	the	remaining	plaintiffs'	claims	except	for	those	of	Howard	Engle.	The only	remaining	plaintiff	in	the	Engle	case,	Howard	Engle,	voluntarily	dismissed his	claims	with	prejudice.

▪Engle	Progeny	Cases:	The	deadline	for	filing	Engle	progeny	cases,	as required	by	the	Florida	Supreme	Court's	Engle	decision,	expired	in	January	2008. As	of	January	27,	2017,	approximately	2,600	state	court	cases	were	pending against	PM	USA	or	Altria	Group,	Inc.	asserting	individual	claims	by	or	on	behalf of	approximately	3,500	state	court	plaintiffs.		Because	of	a	number	of	factors, including,	but	not	limited	to,	docketing	delays,	duplicated	filings	and	overlapping dismissal	orders,	these	numbers	are	estimates.	While	the	Federal	Engle	Agreement

(discussed	below)	resolved	nearly	all	Engle	progeny	cases	pending	in	federal court,	as	of	January	27,	2017,	approximately	14	cases	were	pending	against	PM USA	in	federal	court	representing	the	cases	excluded	from	that	agreement.

# ▪Agreement	to	Resolve	Federal	Engle	Progeny	Cases:	In	2015,	PM	USA,

R.J.	Reynolds	Tobacco	Company	("R.J.	Reynolds")	and	Lorillard	Tobacco Company	("Lorillard")	resolved	approximately	415	pending	federal	Engle progeny	cases	(the	"Federal	Engle	Agreement").	Under	the	terms	of	the	Federal Engle	Agreement,	PM	USA	paid	approximately	$43	million.	Federal	cases	that were	in	trial	and	those	that	previously	reached	final	verdict	were	not	included	in the	Federal	Engle	Agreement.

▪Engle	Progeny	Trial	Results:	As	of	January	27,	2017,	105	federal	and	state Engle	progeny	cases	involving	PM	USA	have	resulted	in	verdicts	since	the	Florida Supreme	Court	Engle	decision.	Fifty-eight	verdicts	were	returned	in	favor	of plaintiffs	and	three	verdicts	(Graham,	Skolnick	and	Calloway)	that	were	initially returned	in	favor	of	plaintiffs	were	reversed	on	appeal	and	remain	pending. Graham	is	now	subject	to	en	banc	appellate	review;	Skolnick	was	remanded	for	a new	trial;	Calloway	was	reversed	on	an	appellate	finding	that	improper	arguments by	plaintiff's	counsel	deprived	defendants	of	a	fair	trial.

Forty-four	verdicts	were	returned	in	favor	of	PM	USA,	of	which	35	were	state cases	(Gelep,	Kalyvas,	Gil	de	Rubio,	Warrick,	Willis,	Russo	(formerly	Frazier),	C. Campbell,	Rohr,	Espinosa,	Oliva,	Weingart,	Junious,	Szymanski,	Hancock,	D. Cohen,	LaMotte,	J.	Campbell,	Dombey,	Haldeman,	Blasco,	Gonzalez,	Banks, Surico,	Baum,	Bishop,	Vila,	McMannis,	Collar,	Suarez,	Shulman,	Ewing,	E.	Smith, Mooney,	Chacon	and	Dubinsky)	and	9	were	federal	cases	(Gollihue,	McCray, Denton,	Wilder,	Jacobson,	Reider,	Davis,	Starbuck	and	Sowers).	In	addition,	there have	been	a	number	of	mistrials,	only	some	of	which	have	resulted	in	new	trials	as of	January	27,	2017.	The	judgment	in	D.	Cohen	was	subsequently	reversed	for	a new	trial.	The	juries	in	the	Reider	and	Banks	cases	returned	zero	damages	verdicts in	favor	of	PM	USA.	The	juries	in	the	Weingart	and	Hancock	cases	returned verdicts	against	PM	USA	awarding	no	damages,	but	the	trial	court	in	each	case granted	an	additur.

The	charts	below	list	the	verdicts	and	post-trial	developments	in	certain	Engle progeny	cases	in	which	verdicts	were	returned	in	favor	of	plaintiffs	(including Hancock,	where	the	verdict	originally	was	returned	in	favor	of	PM	USA).	The	first chart	lists	such	cases	that	are	pending	as	of	January	27,	2017;	the	second	chart	lists such	cases	that	were	pending	within	the	previous	12	months,	but	that	are	now concluded.

# Currently-Pending	Engle	Cases

# Plaintiff:	Pardue

# Verdict:

An	Alachua	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	compensatory	damages	of	approximately	$5.9	million and	allocating	25%	of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$6.75	million	in	punitive	damages	against	PM	USA.

# Post-Trial	Developments:

In	December	2016,	the	trial	court	entered	final	judgment	in	favor	of	plaintiff	without	a	deduction	for	plaintiff's	comparative	fault.	In	January	2017,	PM	USA	and	R.J.

Reynolds	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial	or,	in	the	alternative,	for	remittitur	of	the	jury's	damages	awards.

# Plaintiff:	Martin

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	compensatory	damages	of	approximately	$5.4	million and	allocating	46%	of	the	fault	to	PM	USA	(an	amount	of	approximately	$2.48	million).	The	jury	also	awarded	plaintiff	$450,000	in	punitive	damages	against	PM	USA.

In	December	2016,	the	trial	court	entered	final	judgment	in	favor	of	plaintiff	with	a	deduction	for	plaintiff's	comparative	fault	and	PM	USA	and	R.J.	Reynolds	filed various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	January	2017,	the	trial	court	denied	all	post-trial	motions.

# Plaintiff:	Howles

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	compensatory	damages	of	$4	million	and	allocating 50%	of	the	fault	to	PM	USA	(an	amount	of	$2	million).	The	jury	also	awarded	plaintiff	$3	million	in	punitive	damages	against	PM	USA.

In	November	2016,	PM	USA	and	R.J.	Reynolds	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	which	the	court	denied	in December	2016.	Also	in	December	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.

# Plaintiff:	Oshinsky-Blacker

In	October	2016,	PM	USA	and	R.J.	Reynolds	filed	motions	to	set	aside	the	verdict	and	for	a	directed	verdict.

# Plaintiff:	Varner

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	awarding	compensatory	damages	of	$1.5	million	and

In	July	2016,	the	trial	court	entered	final	judgment	in	favor	of	plaintiff	with	a	deduction	for	plaintiff's	comparative	fault.	In	August	2016,	PM	USA	filed	motions	to	set aside	the	verdict	and	for	a	directed	verdict,	and	plaintiff	filed	a	motion	for	a	new	trial.	In	January	2017,	the	trial	court	denied	all	post-trial	motions.

# Plaintiff:	Sermons

A	Duval	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	compensatory	damages	of	$65,000	and	allocating	15%	of the	fault	to	PM	USA	(an	amount	of	$9,750).	The	jury	also	awarded	plaintiff	$51,225	in	punitive	damages	against	PM	USA.

In	July	2016,	plaintiff	filed	a	motion	for	a	new	trial	or,	in	the	alternative,	for	an	additur.

# Plaintiff:	Purdo

A	Palm	Beach	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	compensatory	damages	of	$21	million	and	allocating 12%	of	the	fault	to	PM	USA	(an	amount	of	$2.52	million).	The	jury	also	awarded	plaintiff	$6.25	million	in	punitive	damages	against	each	defendant.

In	May	2016,	PM	USA	and	R.J.	Reynolds	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	all	of	which	the	court	denied	and entered	final	judgment	in	favor	of	plaintiff	with	a	deduction	for	plaintiff's	comparative	fault.	In	June	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth District	Court	of	Appeal	and	PM	USA	posted	a	bond	in	the	amount	of	approximately	$1.5	million.

# Plaintiff:	McCall

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	awarding	compensatory	damages	of	$350,000	and	allocating	25%	of	the	fault	to	PM USA	(an	amount	of	$87,500).

In	March	2016,	PM	USA	filed	a	motion	to	set	aside	the	verdict	and	to	enter	judgment	in	its	favor,	which	the	court	denied	in	May	2016.	Also	in	March	2016,	plaintiff filed	a	motion	for	a	new	trial	on	punitive	damages,	citing	the	Soffer	decision	(allowing	Engle	progeny	plaintiffs	to	seek	punitive	damages	on	their	negligence	and	strict liability	claims)	discussed	below	under	Engle	Progeny	Appellate	Issues,	which	the	court	granted	in	May	2016.	In	June	2016,	PM	USA	filed	a	notice	of	appeal	to	the Florida	Fourth	District	Court	of	Appeal	and	plaintiff	cross-appealed.

# Plaintiff:	Ahrens

A	Pinellas	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$9	million	in	compensatory	damages	and	allocating	24% of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$2.5	million	in	punitive	damages	against	each	defendant.

In	February	2016,	the	trial	court	entered	final	judgment	against	PM	USA	and	R.J.	Reynolds	without	any	deduction	for	plaintiff's

comparative	fault	and	defendants	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	March	2016,	the	trial	court	denied defendants'	post-trial	motions.	In	April	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Second	District	Court	of	Appeal	and	PM	USA	posted	a	bond	in	the amount	of	$2.5	million.

# Plaintiff:	Ledoux

A	Miami-Dade	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$10	million	in	compensatory	damages	and allocating	47%	of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$12.5	million	in	punitive	damages	against	each	defendant.

In	January	2016,	PM	USA	and	R.J.	Reynolds	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	and	the	trial	court	entered final	judgment	against	PM	USA	and	R.J.	Reynolds	without	any	deduction	for	plaintiff's	comparative	fault.	In	February	2016,	the	trial	court	denied	defendants'	post-trial motions.	In	March	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Third	District	Court	of	Appeal	and	PM	USA	posted	a	bond	in	the	amount	of	$2.5	million.

# Plaintiff:	Barbose

A	Pasco	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$10	million	in	compensatory	damages	and	allocating 42.5%	of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$500,000	in	punitive	damages	against	each	defendant.

In	November	2015,	the	court	entered	final	judgment	in	favor	of	plaintiff	without	any	deduction	for	plaintiff's	comparative	fault	and	in	December	2015,	PM	USA	and R.J.	Reynolds	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	which	the	court	denied	in	January	2016.	In	February	2016,

PM	USA	posted	a	bond	in	the	amount	of	$2.5	million	and	filed	a	notice	of	appeal	to	the	Florida	Second	District	Court	of	Appeal.

# Plaintiff:	Tognoli

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	awarding	$1.05	million	in	compensatory	damages	and	allocating	15%	of	the	fault	to PM	USA	(an	amount	of	$157,500).

In	December	2015,	PM	USA	filed	a	motion	to	set	aside	the	verdict	and	for	judgment	in	accordance	with	its	motion	for	directed	verdict.	In	January	2016,	the	trial	court entered	final	judgment	against	PM	USA	with	a	deduction	for	plaintiff's	comparative	fault	and	plaintiff	filed	an	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.

Additionally,	the	trial	court	denied	PM	USA's	post-trial	motions	and	PM	USA	cross-appealed.

# Plaintiff:	Danielson

An	Escambia	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	awarding	$325,000	in	compensatory	damages	and	allocating	49%	of	the	fault	to PM	USA.	The	jury	also	awarded	plaintiff	$325,000	in	punitive	damages.

In	November	2015,	plaintiff	filed	a	motion	to	enforce	the	parties'	pretrial	stipulation	of	$2.3	million	in	economic	damages,	which	the	trial	court	granted.	The	plaintiff also	filed	a	motion	for	an	additur	or,	in	the	alternative,	for	a	new	trial	and	PM	USA	filed	post-trial	motions,	including	a	motion	concerning	the	proper	form	of	judgment and	for	a	new	trial.	In	December	2015,	the	trial	court	granted

plaintiff's	motion	for	a	new	trial	on	damages	and	denied	PM	USA's	post-trial	motions.	In	January	2016,	PM	USA	filed	a	notice	of	appeal	to	the	Florida	First	District Court	of	Appeal.

# Plaintiff:	Marchese

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$1	million	in	compensatory	damages	and	allocating 22.5%	of	the	fault	to	PM	USA	(an	amount	of	$225,000).	The	jury	also	awarded	plaintiff	$250,000	in	punitive	damages	against	each	defendant.

In	October	2015,	defendants	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	November	2015,	the	court	entered	final judgment	in	favor	of	plaintiff.	In	May	2016,	the	court	denied	defendants'	post-trial	motions	and	amended	the	final	judgment	to	apply	the	comparative	fault	deduction.	In June	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal	and	plaintiff	cross-appealed.	Also	in	June	2016,	PM	USA	posted	a	bond	in the	amount	of	approximately	$475,000.

# Plaintiff:	Duignan

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

In	September	2015,	the	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault,	and	PM	USA	filed	various	post-trial	motions,	including motions	to	set	aside	the	verdict	and	for	a	new	trial,	which	the	court	denied	in	October	2015.	In	November	2015,	PM	USA	and	R.J.	Reynolds	filed	a	notice	of	appeal	to the	Florida	Second	District	Court	of	Appeal	and	PM	USA	posted	a	bond	in	the	amount	of	approximately	$2.7	million.

# Plaintiff:	Cooper

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

In	September	2015,	defendants	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	directed	verdict.	In	January	2016,	the	trial	court denied	PM	USA's	post-trial	motions.	In	February	2016,	the	trial	court	entered	final	judgment	in	favor	of	plaintiff,	reducing	the	compensatory	damages	award	against	PM USA	to	approximately	$300,000.	In	March	2016,	PM	USA	and	R.J.	Reynolds	filed	a	notice	of	appeal	in	the	Florida	Fourth	District	Court	of	Appeal	and	plaintiff	cross- appealed.	Also	in	March	2016,	PM	USA	posted	a	bond	in	the	amount	of	approximately	$300,000.

# Plaintiff:	Jordan

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

In	August	2015,	the	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault,	but	reduced	the	compensatory	damages	to	approximately $6.4	million.	PM	USA	filed	various	post-trial	motions,	including	motions	to	set	aside	the

verdict	and	for	a	new	trial,	which	the	court	denied	in	December	2015.	PM	USA	subsequently	filed	a	notice	of	appeal	to	the	Florida	First	District	Court	of	Appeal	and plaintiff	cross-appealed.

# Plaintiff:	Merino

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

In	August	2015,	the	trial	court	denied	all	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	and	entered	final	judgment	without	any deduction	for	plaintiff's	comparative	fault.	In	September	2015,	PM	USA	filed	a	notice	of	appeal	to	the	Florida	Third	District	Court	of	Appeal	and	posted	a	bond	in	the amount	of	$5	million.	In	November	2016,	the	Florida	Third	District	Court	of	Appeal	issued	a	per	curiam	decision	affirming	the	trial	court's	judgment	against	PM	USA. PM	USA	subsequently	filed	a	motion	seeking	a	written	opinion,	which	the	court	denied	in	December	2016.	In	the	fourth	quarter	of	2016,	PM	USA	recorded	a	provision on	its	consolidated	balance	sheet	of	$16.9	million	for	the	judgment	plus	interest	and	associated	costs	and	increased	the	bond	to	$14.5	million.

# Plaintiff:	McCoy

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA,	R.J.	Reynolds	and	Lorillard	awarding	$1.5	million	in	compensatory	damages	and allocating	20%	of	the	fault	to	PM	USA	(an	amount	of	$300,000).	The	jury	also	awarded	$3	million	in	punitive	damages	against	each	defendant.

In	July	2015,	defendants	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	August	2015,	the	trial	court	entered	final judgment	without	any	deduction	for	plaintiff's	comparative	fault.	In	January	2016,	the	trial	court	denied	defendants'	post-trial	motions	and	amended	the	final	judgment to	apply	the	comparative	fault	deduction.	Subsequently,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal,	PM	USA	posted	a	bond	in	the amount	of	approximately	$1.65	million	and	plaintiff	filed	a	notice	of	cross-appeal.

# Plaintiff:	M.	Brown

In	May	2015,	a	Duval	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	in	a	partial	retrial.	In	2013,	a	jury	returned	a	partial	verdict	against	PM USA,	but	was	deadlocked	as	to	(i)	the	amount	of	compensatory	damages,	(ii)	whether	punitive	damages	should	be	awarded	and,	if	so,	(iii)	the	amount	of	punitive damages.	In	the	partial	retrial,	the	jury	was	asked	to	address	these	issues.	In	May	2015,	the	jury	awarded	$6.375	million	in	compensatory	damages,	but	did	not	award	any punitive	damages.

In	May	2015,	the	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault,	and	PM	USA	posted	a	bond	in	the	amount	of	$5	million.

Additionally,	PM	USA	filed	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	as	well	as	filed	a	notice	of	appeal	to	the	Florida	First	District Court	of	Appeal.	In	August	2015,	the	trial	court	denied	the	last	of	PM	USA's	post-trial	motions	and	plaintiff	cross-appealed.

# Plaintiff:	Gore

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

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

# Plaintiff:	Pollari

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds	awarding	$10	million	in	compensatory	damages	and	allocating 42.5%	of	the	fault	to	PM	USA	(an	amount	of	$4.25	million).	The	jury	also	awarded	$1.5	million	in	punitive	damages	against	each	defendant.

In	April	2015,	defendants	filed	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial,	and	the	trial	court	entered	final	judgment	without	any deduction	for	plaintiff's	comparative	fault.	In	January	2016,	the	trial	court	denied	defendants'	post-trial	motions	and	amended	the	final	judgment	to	apply	the comparative	fault	deduction.	Also	in	January	2016,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal	and	PM	USA	posted	a	bond	in	the amount	of	$2.5	million.	In	February	2016,	plaintiff	cross-appealed.

# Plaintiff:	Zamboni

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

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

# Plaintiff:	Caprio

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

In	March	2015,	PM	USA	filed	post-trial	motions,	including	motions	to	set	aside	the	partial	verdict	and	for	a	new	trial.	In	May	2015,	the	court	denied	all	of	PM	USA's post-trial	motions	and	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.	In	January	2017,	the	defendants	agreed	to	voluntarily	dismiss their	appeal	in	exchange	for	a	full	retrial	and	the	court	dismissed	the	case.

# Plaintiff:	McKeever

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

In	March	2015,	PM	USA	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	motions	for	a	new	trial.	In	April	2015,	the	trial	court	entered	final judgment	without	any	deduction	for	plaintiff's	comparative	fault.	In	June	2015,	the	trial	court	denied	PM	USA's	post-trial	motions,	and	PM	USA	posted	a	bond	in	the amount	of	$5	million.	PM	USA	also	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal	in	June	2015.	In	January	2017,	the	Florida	Fourth	District Court	of	Appeal	issued	a	decision	largely	affirming	the	trial	court's	judgment	against	PM	USA,	but	remanded	the	case	to	the	trial	court	to	amend	the	final	judgment	to apply	the	comparative	fault	deduction	to	the	compensatory	damages	award.

# Plaintiff:	D.	Brown

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

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

# Plaintiff:	Allen

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

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

# Plaintiff:	Perrotto

A	Palm	Beach	County	jury	returned	a	verdict	against	PM	USA,	R.J.	Reynolds,	Lorillard	and	Liggett	Group	awarding	plaintiff	approximately	$4.1	million	in compensatory	damages	and	allocating	25%	of	the	fault	to	PM	USA	(an	amount	of	approximately	$1.02	million).

In	December	2014,	the	trial	court	entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault,	and	plaintiff	filed	a	motion	for	a	new	trial.	In	May	2016,	the court	granted	plaintiff's	motion	for	a	new	trial	on	punitive	damages,	citing	the	Soffer	decision,	discussed	below	under	Engle	Progeny	Appellate	Issues.	In	September 2016,	the	court	denied	defendants'	post-trial	motions.

# Plaintiff:	Boatright

A	Polk	County	jury	returned	a	verdict	against	PM	USA	and	Liggett	Group	awarding	plaintiff	$15	million	in	compensatory	damages	and

allocating	85%	of	the	fault	to	PM	USA	(an	amount	of	approximately	$12.75	million).	In	addition,	in	November	2014,	the	jury	awarded	plaintiff	approximately	$19.7 million	in	punitive	damages	against	PM	USA	and	$300,000	in	punitive	damages	against	Liggett	Group.

In	November	2014,	PM	USA	filed	various	post-trial	motions	and,	in	January	2015,	the	trial	court	denied	PM	USA's	motions	for	a	new	trial	and	for	remittitur,	but entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	In	February	2015,	defendants	filed	a	notice	of	appeal	to	the	Florida	Second	District	Court	of Appeal,	and	PM	USA	posted	a	bond	in	the	amount	of	$3.98	million.

# Plaintiff:	Kerrivan

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	against	PM	USA	and	R.J.	Reynolds	awarding	plaintiff	$15.8	million	in compensatory	damages	and	allocating	50%	of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$25.3	million	in	punitive	damages	and	allocated	$15.7	million	to	PM USA.

The	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault.	In	December	2014,	defendants	filed	various	post-trial	motions,	including	a renewed	motion	for	judgment	or	for	a	new	trial.	Plaintiff	agreed	to	waive	the	bond	for	the	appeal.	In	May	2015,	the	trial	court	deferred	further	briefing	on	the	post-trial motions	pending	the	Eleventh	Circuit's	final	disposition	in	the	Graham	and	Searcy	cases,	discussed	below	under	Engle	Progeny	Appellate	Issues.

# Plaintiff:	Lourie

A	Hillsborough	County	jury	returned	a	verdict	against	PM	USA,	R.J.	Reynolds	and	Lorillard	awarding	plaintiff	approximately	$1.37	million	in	compensatory	damages and	allocating	27%	of	the	fault	to	PM	USA	(an	amount	of	approximately	$370,000).

In	October	2014,	defendants	filed	a	motion	for	judgment	and	a	motion	for	a	new	trial.	In	November	2014,	the	trial	court	denied	defendants'	post-trial	motions	and entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	Later	in	November	2014,	defendants	filed	a	notice	of	appeal	to	the	Florida	Second	District Court	of	Appeal,	and	PM	USA	posted	a	bond	in	the	amount	of	$370,318.	In	August	2016,	the	Florida	Second	District	Court	of	Appeal	affirmed	the	judgment	entered	in favor	of	the	plaintiff.	In	September	2016,	defendants	filed	a	petition	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court	and	the	Florida	Supreme	Court stayed	the	proceedings	pending	final	disposition	in	the	Marotta	case,	discussed	below	under	Engle	Progeny	Appellate	Issues.

# Plaintiff:	Berger

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	against	PM	USA	awarding	plaintiff	$6.25	million	in	compensatory	damages	and allocating	60%	of	the	fault	to	PM	USA.	The	jury	also	awarded	$20.76	million	in	punitive	damages.

The	trial	court	entered	final	judgment	in	September	2014	without	any	deduction	for	plaintiff's	comparative	fault.	In	October	2014,	plaintiff	agreed	to	waive	the	bond	for the	appeal.	Also	in	October	2014,	PM	USA	filed	a	motion	for	a	new	trial	or,	in	the	alternative,	remittitur	of	the	jury's	damages	awards.	In	April	2015,	the	trial	court granted	PM	USA's	post-verdict	motion	in	part	and	vacated	the	punitive	damages	award.	In	November	2015,	the	court	entered	final	judgment	with	a	deduction	for plaintiff's	comparative	fault.	In	April	2016,	plaintiff	filed	a	motion	to	reinstate	the	jury's	punitive	damages	award	or,	alternatively,	for	a	new	trial	on	punitive	damages, citing	the	Soffer	decision,	discussed	below	under	Engle	Progeny	Appellate	Issues.	Also	in	April	2016,	PM	USA	filed	a	motion	to	stay	post-trial	proceedings	pending	the Eleventh	Circuit's	final	disposition	in	the	Graham	case,	discussed	below	under	Engle	Progeny	Appellate	Issues.	In	May	2016,	(i)	the	trial	court	denied	PM	USA's remaining	post-trial	motions	and	(ii)	PM	USA	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit	and	a	motion	to	stay	the	appeal	pending Graham,	which	the	court	granted	in	June	2016.	In	August	2016,	the	trial	court	denied	plaintiff's	motion	to	reinstate	the	jury's	punitive	damages	or	to	order	a	new	trial and,	in	September	2016,

# plaintiff	cross-appealed.

# Plaintiff:	Harris

The	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA,	R.J.	Reynolds	and	Lorillard	awarding approximately	$1.73	million	in	compensatory	damages	and	allocating	15%	of	the	fault	to	PM	USA.

Defendants	filed	motions	for	a	defense	verdict	because	the	jury's	findings	indicated	that	plaintiff	was	not	a	member	of	the	Engle	class.	In	December	2014,	the	trial	court entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault	and,	in	January	2015,	defendants	filed	a	renewed	motion	for	judgment	as	a	matter	of	law or,	in	the	alternative,	a	motion	for	a	new	trial.	Defendants	also	filed	a	motion	to	alter	or	amend	the	final	judgment.	In	April	2015,	the	trial	court	stayed	the	post-trial proceedings	pending	the	Eleventh	Circuit's	final	disposition	in	the	Graham	case,	discussed	below	under	Engle	Progeny	Appellate	Issues.

# Plaintiff:	Griffin

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	awarding	approximately	$1.27	million	in compensatory	damages	and	allocating	50%	of	the	fault	to	PM	USA	(an	amount	of	approximately	$630,000).

The	trial	court	entered	final	judgment	against	PM	USA	in	July	2014	with	a	deduction	for	plaintiff's	comparative	fault.	In	August	2014,	PM	USA	filed	a	motion	to	amend the	judgment	to	reduce	plaintiff's	damages	by	the	amount	paid	by	collateral	sources,	which	the	court	denied	in	September	2014.	In	October	2014,	PM	USA	posted	a bond	in	the	amount	of	$640,543	and	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit.	In	May	2015,	the	Eleventh	Circuit	stayed	the	appeal pending	final	disposition	in	the	Graham	case,	discussed	below	under	Engle	Progeny	Appellate	Issues.

# Plaintiff:	Burkhart

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA,	R.J.	Reynolds	and	Lorillard	awarding	$5 million	in	compensatory	damages	and	allocating	15%	of	the	fault	to	PM	USA.	The	jury	also	awarded	plaintiff	$2.5	million	in	punitive	damages,	allocating	$750,000	to PM	USA.

In	July	2014,	defendants	filed	post-trial	motions,	including	a	renewed	motion	for	judgment	or,	alternatively,	for	a	new	trial	or	remittitur	of	the	damages	awards,	which the	court	denied	in	September	2014.	The	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault.	In	October	2014,	defendants	filed	a notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit.

# Plaintiff:	Skolnick

A	Palm	Beach	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	plaintiff	$2.555	million	in	compensatory damages	and	allocated	30%	of	the	fault	to	each	defendant	(an	amount	of	$766,500).

In	June	2013,	defendants	and	plaintiff	filed	post-trial	motions.	The	trial	court	entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	In	November 2013,	the	trial	court	denied	plaintiff's	post-trial	motion	and,	in	December	2013,	denied	defendants'	post-trial	motions.	Defendants	filed	a	notice	of	appeal	to	the	Florida Fourth	District	Court	of	Appeal,	and	plaintiff	cross-appealed	in	December	2013.	Also	in	December	2013,	PM	USA	posted	a	bond	in	the	amount	of	$766,500.	In	July 2015,	the	District	Court	of	Appeal

reversed	the	compensatory	damages	award	and	ordered	judgment	in	favor	of	defendants	on	the	strict	liability	and	negligence	claims,	but	remanded	plaintiff's	conspiracy and	concealment	claims	for	a	new	trial.	In	August	2015,	defendants	filed	a	motion	for	rehearing,	and	plaintiff	filed	a	motion	for	clarification,	which	the	District	Court	of Appeal	denied	in	September	2015.

# Plaintiff:	Starr-Blundell

A	Duval	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	plaintiff	$500,000	in	compensatory	damages	and allocated	10%	of	the	fault	to	each	defendant	(an	amount	of	$50,000).

In	June	2013,	the	defendants	filed	a	motion	to	set	aside	the	verdict	and	to	enter	judgment	in	accordance	with	their	motion	for	directed	verdict	or,	in	the	alternative,	for	a new	trial,	which	was	denied	in	October	2013.	In	November	2013,	the	trial	court	entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	In	December 2013,	plaintiff	filed	a	notice	of	appeal	to	the	Florida	First	District	Court	of	Appeal.	Plaintiff	agreed	to	waive	the	bond	for	the	appeal.	In	May	2015,	the	Florida	First District	Court	of	Appeal	affirmed	the	final	judgment.	In	June	2015,	plaintiff	filed	a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court.	In	July 2015,	the	Florida	Supreme	Court	stayed	the	case	pending	the	outcome	of	Soffer,	discussed	below	under	Engle	Progeny	Appellate	Issues.	In	April	2016,	the	Florida Supreme	Court	ordered	defendants	to	show	cause	as	to	why	the	case	should	not	be	remanded	in	light	of	the	Soffer	decision.	In	the	first	quarter	of	2016,	PM	USA recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$55,000	for	the	judgment	plus	interest	and	associated	costs.	In	May	2016,	the	Florida Supreme	Court	accepted	jurisdiction	of	plaintiff's	petition	for	review	and	remanded	the	case	for	reconsideration	in	light	of	the	Soffer	decision.	In	September	2016,	the Florida	First	District	Court	of	Appeal	further	remanded	the	case	in	light	of	Soffer.

# Plaintiff:	Graham

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	$2.75 million	in	compensatory	damages	and	allocated	10%	of	the	fault	to	PM	USA	(an	amount	of	$275,000).

In	June	2013,	defendants	filed	several	post-trial	motions,	including	motions	for	judgment	as	a	matter	of	law	and	for	a	new	trial,	which	the	trial	court	denied	in	September 2013.	The	trial	court	entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	In	October	2013,	defendants	filed	a	notice	of	appeal	to	the	U.S.	Court	of Appeals	for	the	Eleventh	Circuit	arguing	that	Engle	progeny	plaintiffs'	product	liability	claims	are	impliedly	preempted	by	federal	law,	and	PM	USA	posted	a	bond	in the	amount	of	$277,750.	In	April	2015,	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit	found	in	favor	of	defendants	on	the	basis	of	federal	preemption,	reversed	the trial	court's	denial	of	judgment	as	a	matter	of	law,	and	plaintiff	filed	a	petition	for	rehearing	en	banc	or	panel	rehearing.	In	January	2016,	the	Eleventh	Circuit	granted	a rehearing	en	banc	on	both	the	preemption	and	due	process	issues.

# Plaintiff:	Searcy

A	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	$6 million	in	compensatory	damages	(allocating	30%	of	the	fault	to	each	defendant)	and	$10	million	in	punitive	damages	against	each	defendant.

In	June	2013,	the	trial	court	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault.	In	July	2013,	defendants	filed	various	post-trial	motions, including	motions	requesting	reductions	in	damages.	In	September	2013,	the	district	court	reduced	the	compensatory	damages	award	to	$1	million	and	the	punitive damages	award	to	$1.67	million	against	each	defendant.	The	district	court	denied	all	other	post-trial	motions.	Plaintiff	filed	a	motion	to	reconsider	the	district	court's remittitur	and,	in	the	alternative,	to	certify	the	issue	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit,	both	of	which	the	court	denied	in	October	2013.	In	November 2013,	defendants	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit.	In	December	2013,	defendants	filed	an

amended	notice	of	appeal	after	the	district	court	corrected	a	clerical	error	in	the	final	judgment,	and	PM	USA	posted	a	bond	in	the	amount	of	approximately	$2.2	million.

# Plaintiff:	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.	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, reduced	the	compensatory	damages	to	$16.1	million	and	entered	final	judgment	without	any	deduction	for	plaintiff's	comparative	fault.	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.	In	August	2013,	plaintiff	filed	a motion	to	determine	the	sufficiency	of	the	bond	in	the	trial	court	on	the	ground	that	the	bond	cap	statute	is	unconstitutional,	which	the	court	denied.	In	January	2016,	a panel	of	the	Florida	Fourth	District	Court	of	Appeal	vacated	the	punitive	damages	award	and	remanded	the	case	for	retrial	on	plaintiff's	claims	of	concealment	and conspiracy,	and	punitive	damages.	The	court	also	found	that	the	trial	court	should	have	applied	the	comparative	fault	deduction,	reducing	the	compensatory	damages against	PM	USA	to	$4.025	million.	In	February	2016,	defendants	and	plaintiff	filed	respective	motions	for	rehearing	and	rehearing	en	banc.	In	March	2016,	plaintiff filed	a	notice	of	supplemental	authority	citing	the	Soffer	decision,	discussed	below	under	Engle	Progeny	Appellate	Issues.	In	September	2016,	the	Florida	Fourth	District Court	of	Appeal,	ruling	en	banc,	reversed	the	judgment	against	PM	USA	and	R.J.	Reynolds	in	its	entirety	on	the	grounds	that	improper	arguments	by	plaintiff's	counsel deprived	defendants	of	a	fair	trial,	and	ordered	a	new	trial.	In	October	2016,	plaintiff	filed	a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court.

# Plaintiff:	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	with	a	deduction	for	plaintiff's	comparative	fault.	PM	USA	filed	its	notice	of	appeal	to	the	Florida	Fourth	District Court	of	Appeal	and,	in	November	2010,	posted	a	$1.6	million	bond.	In	June	2013,	the	Fourth	District	Court	of	Appeal	reversed	and	remanded	the	case	for	further proceedings,	holding	that	the	trial	court	erred	in	(1)	not	reducing	the	compensatory	damages	award	as	excessive	and	(2)	not	instructing	the	jury	on	the	statute	of	repose	in connection	with	plaintiff's	conspiracy	claim	that	resulted	in	the	$2.5	million	punitive	damages	award.	In	July	2013,	plaintiff	filed	a	motion	for	rehearing,	which	the Fourth	District	Court	of	Appeal	denied	in	August	2013.	In	September	2013,	both	parties	filed	notices	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme Court.	In	December	2013,	the	Florida	Supreme	Court	stayed	the	appeal	pending	the	outcome	of	the	Hess	case.	In	April	2015,	the	Florida	Supreme	Court	rejected	the statute	of	repose	defense	in	Hess,	and	PM	USA	moved	for	a	rehearing.	In	September	2015,	the	Florida	Supreme	Court	denied	PM	USA's	rehearing	petition	in	Hess.	In February	2016,	the	Florida	Supreme	Court	upheld	the	trial	court's	decision	in	favor	of	plaintiff	and,	in	March	2016,	clarified	that	its	February	2016	order	reinstated	the trial	court's	decision	on	the	statute	of	repose	only.	In	August	2016,	the	Florida	Fourth	District	Court	of	Appeal	reinstated	the	jury's	punitive	damages	verdict	and reaffirmed	that	the	compensatory	damages	award	was	excessive,	remanding	the	case	to	the	trial	court	to	reduce	the	compensatory	damages.

# Plaintiff:	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,	but	without	any	deduction	for	plaintiff's	comparative	fault.	In	April	2010,	PM	USA	filed	its	notice	of	appeal	and	posted	a	$5	million	bond.	In	June	2012,	the Fourth	District	Court	of	Appeal	affirmed	the	final	judgment	(as	amended	to	correct	a	clerical	error)	in	the	amount	of	approximately	$12.3	million	in	compensatory damages	and	approximately	$24.5	million	in	punitive	damages.	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.	Upon	retrial,	in	October	2013,	the	new	jury awarded	approximately	$3.7	million	in	compensatory	damages	and	$7.5	million	in	punitive	damages.	PM	USA	filed	post-trial	motions,	which	the	trial	court	denied	in April	2014.	In	May	2014,	PM	USA	filed	a	notice	of	appeal	to	the	Fourth	District	Court	of	Appeal	and	plaintiff	cross-appealed.	Also	in	May	2014,	PM	USA	filed	a	rider with	the	Florida	Supreme	Court	to	make	the	previously-posted	Naugle	bond	applicable	to	the	retrial	judgment.	In	January	2016,	the	Fourth	District	Court	of	Appeal reversed	the	trial	court's	decision	and	remanded	the	case	to	the	trial	court	to	conduct	a	juror	interview.	In	April	2016,	PM	USA	moved	for	a	new	trial	following	the	juror interview,	which	the	court	denied.	In	May	2016,	PM	USA	filed	a	notice	of	appeal	to	the	Fourth	District	Court	of	Appeal.

# Engle	Cases	Concluded	Within	Past	12	Months

# Plaintiff:	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	approximately	$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	with	a	deduction	for	plaintiff's	comparative	fault	(PM	USA's portion	of	the	damages	was	approximately	$700)	and	PM	USA	filed	a	motion	to	amend	the	judgment	to	award	PM	USA	attorneys'	fees	of	approximately	$20,000.	In November	2012,	both	sides	filed	notices	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.	Plaintiff	agreed	to	waive	the	bond	for	the	appeal.	In	April	2015,	the Florida	Fourth	District	Court	of	Appeal	affirmed	the	trial	court's	verdict.	In	May	2015,	plaintiff	filed	a	motion	for	rehearing	and	for	a	written	opinion	and	rehearing	en banc,	which	the	Court	of	Appeal	denied	in	June	2015.	In	December	2016,	plaintiff	agreed	not	to	pursue	the	judgment	in	exchange	for	PM	USA	not	pursuing	its	fee award,	thereby	resolving	the	case.

# Plaintiff:	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	with	a	deduction	for	plaintiff's	comparative	fault.	In	August	2010,	PM	USA	filed	its	notice	of	appeal.	In	October 2010,	PM	USA	posted	a	$2.5	million	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.	In	January 2013,	plaintiff	and	defendants	each

filed	a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court.	In	February	2013,	the	Fourth	District	granted	defendants'	motion	to	stay	the	mandate. In	March	2013,	plaintiff	filed	a	motion	for	review	of	the	stay	order	with	the	Florida	Supreme	Court,	which	was	denied	in	April	2013.	In	June	2013,	plaintiff	moved	to consolidate	with	Hess	and	Kayton,	which	defendants	did	not	oppose,	but	in	October	2013,	plaintiff	withdrew	the	motion	for	consolidation.	In	February	2014,	the	Florida Supreme	Court	stayed	the	appeal	pending	the	outcome	of	the	Hess	case.	In	April	2015,	the	Florida	Supreme	Court	rejected	the	statute	of	repose	defense	in	Hess,	and	PM USA	moved	for	a	rehearing.	In	September	2015,	the	Florida	Supreme	Court	denied	PM	USA's	rehearing	petition	in	Hess.	In	the	third	quarter	of	2015,	PM	USA recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$17.9	million	for	the	judgment	plus	interest	and	associated	costs.	In	January	2016,	the Florida	Supreme	Court	upheld	the	trial	court's	decision	in	favor	of	plaintiff.	In	February	2016,	PM	USA	posted	a	rider	increasing	the	amount	of	its	bond	to	$7.5	million. In	April	2016,	PM	USA	filed	a	motion	in	the	trial	court	with	regard	to	Florida's	bond	cap	statute,	seeking	to	confirm	that	the	stay	on	executing	the	judgment	remains	in effect	through	the	completion	of	United	States	Supreme	Court	writ	of	certiorari	review	or	until	the	time	for	moving	for	such	review	has	expired,	which	the	court	granted. See	additional	discussion	below	under	Florida	Bond	Statute.	In	June	2016,	PM	USA	paid	the	judgment	plus	interest	and	associated	costs	in	the	amount	of	approximately $19.1	million.

# Plaintiff:	Buchanan

A	Leon	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	Liggett	Group.	The	jury	awarded	$5.5	million	in	compensatory	damages	and allocated	37%	of	the	fault	to	each	of	the	defendants.

In	December	2012,	defendants	filed	several	post-trial	motions,	including	motions	for	a	new	trial	and	to	set	aside	the	verdict.	In	March	2013,	the	trial	court	denied	all motions	and	entered	final	judgment	against	PM	USA	and	Liggett	Group	without	any	deduction	for	plaintiff's	comparative	fault.	In	April	2013,	defendants	filed	a	notice of	appeal	to	the	Florida	First	District	Court	of	Appeal,	and	PM	USA	posted	a	bond	in	the	amount	of	$2.5	million.	In	July	2014,	the	Florida	First	District	Court	of	Appeal affirmed	the	judgment,	but	certified	to	the	Florida	Supreme	Court	the	issue	of	the	statute	of	repose,	which	was	before	the	court	in	Hess.	In	August	2014,	defendants	filed a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court.	In	September	2014,	the	Florida	Supreme	Court	stayed	the	case	pending	the	outcome	of Hess.	In	April	2015,	the	Florida	Supreme	Court	rejected	the	statute	of	repose	defense	in	Hess,	and	PM	USA	moved	for	a	rehearing.	In	September	2015,	the	Florida Supreme	Court	denied	PM	USA's	rehearing	petition	in	Hess.	In	the	third	quarter	of	2015,	PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of approximately	$4.1	million	for	the	judgment	plus	interest	and	associated	costs.	In	February	2016,	the	Florida	Supreme	Court	declined	to	accept	jurisdiction	of	PM	USA's petition	for	review	and	PM	USA	posted	a	rider	increasing	the	amount	of	its	bond	to	$5.5	million.	In	June	2016,	PM	USA	paid	the	judgment	plus	interest	and	associated costs	in	the	amount	of	approximately	$4.4	million.

# Plaintiff:	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	with	a	deduction	for	plaintiff's	comparative	fault.	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.	In	October	2013,	the	Second	District Court	of	Appeal	affirmed	the	judgment.	In	November	2013,	defendants	filed	a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court.	In	June 2014,	the	Florida	Supreme	Court	stayed	the	case	pending	the	outcome	of	Russo	(presenting	the	same	statute	of	repose	issue	as	Hess).	In	April	2015,	the	Florida	Supreme Court	rejected	the	statute	of	repose	defense	in	the	Hess	and	Russo	cases,	and	defendants	moved	for	a	rehearing.	Additionally,	in	April	2015,	the	Florida	Supreme	Court stayed	the	case	pending	the	outcome	of	Soffer,	discussed	below	under	Engle	Progeny	Appellate	Issues.	In	September	2015,	the	Florida	Supreme	Court	denied	PM	USA's rehearing	petition	in	Hess	and	Russo.	In	October	2015,	the	Florida	Supreme	Court	lifted	its	stay	of	the	case	and	ordered	defendants	to	show	cause	why	the	court	should not	decline	to	exercise	jurisdiction,	to	which	defendants	responded.	In	January	2016,	the	Florida	Supreme	Court	denied	defendants'	petition	for	discretionary	review, and	PM	USA	amended	its	bond	to	post	an	additional	amount	of	approximately	$500,000.	In	the	first	quarter	of	2016,	PM	USA	recorded	a	provision	on	its	condensed consolidated	balance	sheet	of	approximately	$2.2	million	for	the	judgment	plus	interest	and	associated	costs.	In	June

2016,	PM	USA	paid	the	judgment	plus	interest	and	associated	costs	in	the	amount	of	approximately	$2.3	million.

Plaintiff:	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	with	a	deduction	for	plaintiff's	comparative	fault,	and	PM	USA	filed	its	notice	of	appeal	and	posted	a	$5	million 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.	PM	USA	filed	a	motion	for	rehearing,	which	was	denied	in	January	2013.	In	January	2013,	plaintiff	and	defendant	each	filed	a	notice	to	invoke	the discretionary	jurisdiction	of	the	Florida	Supreme	Court.	In	June	2013,	the	Florida	Supreme	Court	stayed	the	appeal	pending	the	outcome	of	Hess.	In	April	2015,	the Florida	Supreme	Court	rejected	the	statute	of	repose	defense	in	Hess,	and	PM	USA	moved	for	a	rehearing.	In	September	2015,	the	Florida	Supreme	Court	denied	PM USA's	rehearing	petition	in	Hess.	In	the	third	quarter	of	2015,	PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$28.2	million for	the	judgment	plus	interest	and	associated	costs.	In	February	2016,	the	Florida	Supreme	Court	upheld	the	trial	court's	decision	in	favor	of	plaintiff,	and	PM	USA posted	a	rider	increasing	the	amount	of	its	bond	to	$15	million.	In	April	2016,	PM	USA	filed	a	motion	in	the	trial	court	with	regard	to	Florida's	bond	cap	statute,	seeking to	confirm	that	the	stay	on	executing	the	judgment	remains	in	effect	through	the	completion	of	United	States	Supreme	Court	writ	of	certiorari	review	or	until	the	time	for moving	for	such	review	has	expired,	which	the	court	granted.	See	additional	discussion	below	under	Florida	Bond	Statute.	In	June	2016,	PM	USA	paid	the	judgment plus	interest	and	associated	costs	in	the	amount	of	approximately	$30.1	million.

# Plaintiff:	Bowden

A	Duval	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	plaintiff	$5	million	in	compensatory	damages	and allocated	30%	of	the	fault	to	PM	USA	(an	amount	of	$1.5	million).

The	trial	court	entered	final	judgment	in	March	2014	with	a	deduction	for	plaintiff's	comparative	fault.	In	April	2014,	defendants	filed	post-trial	motions,	including motions	for	a	new	trial	and	to	set	aside	the	verdict.	In	May	2014,	the	court	denied	defendants'	post-trial	motions.	In	June	2014,	defendants	filed	a	notice	of	appeal	to	the Florida	First	District	Court	of	Appeal,	and	PM	USA	posted	a	bond	in	the	amount	of	$1.5	million.	In	February	2016,	the	Florida	First	District	Court	of	Appeal	affirmed the	trial	court's	decision	in	favor	of	plaintiff.	In	the	first	quarter	of	2016,	PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately $1.6	million	for	the	judgment	plus	interest.	In	June	2016,	PM	USA	paid	the	judgment	plus	interest	and	associated	costs	in	the	amount	of	approximately	$2.7	million.

# Plaintiff:	Hess

A	Broward	County	jury	found	in	favor	of	plaintiff	and	against	PM	USA.	The	jury	awarded	$3	million	in	compensatory	damages	and	allocated	42%	of	the	fault	to	PM USA	(an	amount	of	approximately	$1.2	million).	The	jury	also	awarded	$5	million	in	punitive	damages.

In	June	2009,	the	trial	court	entered	final	judgment	with	a	deduction	for	plaintiff's	comparative	fault.	PM	USA	filed	a	notice	of	appeal	to	the	Florida	Fourth	District Court	of	Appeal	and	posted	a	$7	million	bond	in	July	2009.	In	May	2012,	the	Fourth	District	reversed	and	vacated	the	punitive	damages	award	on	the	basis	that	it	was barred	by	the	statute	of	repose	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	plaintiff	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	compensatory	damages	component	of	the	judgment	plus	interest	and	associated	costs.	In	June	2013,	the	Florida	Supreme	Court	accepted	jurisdiction	of plaintiff's	petition	for	review,	but	declined	to	accept	jurisdiction	of	PM	USA's	petition.	In	April	2015,	the	Florida	Supreme	Court	rejected	the	statute	of	repose	defense and	reinstated	the	punitive	damages	award	against	PM	USA,	and	PM	USA	moved	for	a	rehearing.	In	September	2015,	the	Florida	Supreme	Court	denied	PM	USA's rehearing	petition.	In	the	third	quarter	of	2015,	PM	USA	recorded	an	additional	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$6.6	million	for the	punitive	damages	component	of	the	judgment	plus	interest	and	associated	costs.	In	February	2016,	PM	USA	paid	the	judgment	plus	interest	and	associated	costs	in the	amount	of	approximately	$10.6	million.	In	June	2016,	PM	USA	paid	an	additional	$843,261	in	interest	on	the	judgment,	an	amount	that	had	been	disputed	between the	parties.

# Plaintiff:	Greene	(formerly	Rizzuto)

A	Hernando	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	Liggett	Group.	The	jury	awarded	plaintiff	$12.55	million	in	compensatory damages	and	allocated	55%	of	the	fault	to	PM	USA.

In	September	2013,	defendants	filed	post-trial	motions,	including	a	motion	to	reduce	damages.	In	September	2013,	the	trial	court	granted	a	remittitur	in	part	on economic	damages,	which	the	court	reduced	from	$2.55	million	to	$1.1	million	for	a	total	award	of	$11.1	million	in	compensatory	damages.	The	trial	court	entered	final judgment	without	a	deduction	for	plaintiff's	comparative	fault.	In	July	2015,	the	Florida	Fifth	District	Court	of	Appeal	found	that	the	trial	court	should	have	applied	the comparative	fault	deduction	to	the	compensatory	damages	award.	As	a	result,	the	judgment	against	PM	USA	was	reduced	to	approximately	$6.1	million.	In	September 2015,	the	Fifth	District	Court	of	Appeal	denied	PM	USA's	motion	for	rehearing.	In	October	2015,	PM	USA	posted	a	bond	in	the	amount	of	$6.1	million.	In	the	third quarter	of	2015,	PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$6.7	million	for	the	judgment	plus	interest	and	associated costs.	In	February	2016,	PM	USA	paid	the	judgment	plus	interest	in	the	amount	of	approximately	$6.8	million.	In	April	2016,	PM	USA	paid	fees	of	approximately	$1.45 million.

▪Engle	Progeny	Appellate	Issues:	Three	Florida	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. The	appeal	in	Burr	was	dismissed	for	lack	of	prosecution,	and	the	case	was ultimately	dismissed	on	statute	of	limitations	grounds.

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,	the	court	held	that 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,	several	state	appellate	rulings	superseded	the Eleventh	Circuit's	ruling	on	Florida	state	law.	These	cases	include	Martin,	a	case against	R.J.	Reynolds	in	Escambia	County,	and	J.	Brown,	a	case	against	R.J. Reynolds	in	Broward	County.	In	December	2011,	petitions	for	writ	of

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	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.	In	March	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.	PM	USA	filed	its	petition	for writ	of	certiorari	with	the	United	States	Supreme	Court	in	August	2013,	which	the court	denied	in	October	2013.

Meanwhile,	in	the	Waggoner	case,	the	U.S.	District	Court	for	the	Middle District	of	Florida	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.		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, R.J.	Reynolds	appealed	the	rulings	in	the	Walker	and	Duke	cases	to	the	Eleventh Circuit,	which	ultimately	rejected	the	due	process

defense.	In	March	2014,	R.J.	Reynolds	filed	petitions	for	writ	of	certiorari	to	the United	States	Supreme	Court	in	the	Walker	and	Duke	cases,	as	well	as	in	J.	Brown. Defendants	filed	petitions	for	writ	of	certiorari	in	eight	other	Engle	progeny	cases that	were	tried	in	Florida	state	courts,	including	one	case,	Barbanell,	in	which	PM USA	was	the	defendant.	In	these	eight	petitions,	defendants	asserted	questions similar	to	those	in	Walker,	Duke	and	J.	Brown.	In	June	2014,	the	United	States Supreme	Court	denied	defendants'	petitions	for	writ	of	certiorari	in	all	11	cases. In	Graham,	an	Engle	progeny	case	against	PM	USA	and	R.J.	Reynolds	on appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit,	in	April	2015	the court,	found	in	favor	of	defendants	on	the	basis	of	federal	preemption,	reversing the	trial	court's	denial	of	judgment	as	a	matter	of	law.	Thereafter,	plaintiff	filed	a petition	for	rehearing	en	banc,	which	the	Eleventh	Circuit	granted	in	January	2016. The	Eleventh	Circuit	directed	the	parties	to	file	briefs	and	argue	both	the	federal preemption	and	due	process	issues.	Also	in	January	2016,	in	Marotta,	a	case against	R.J.	Reynolds	on	appeal	to	the	Florida	Fourth	District	Court	of	Appeal,	the court	rejected	R.J.	Reynolds's	federal	preemption	defense,	but	noted	the	conflict with	Graham	and	certified	the	preemption	question	to	the	Florida	Supreme	Court. In	March	2016,	the	Florida	Supreme	Court	accepted	review	of	Marotta.	Argument was	held	in	November	2016.

In	Searcy,	an	Engle	progeny	case	against	PM	USA	and	R.J.	Reynolds	on appeal	to	the	Eleventh	Circuit,	defendants	argued	that	application	of	the	Engle findings	to	the	Engle	progeny	plaintiffs'	concealment	and	conspiracy	claims violated	defendants'	due	process	rights.	The	appeal	is	pending.

In	Soffer,	an	Engle	progeny	case	against	R.J.	Reynolds,	the	Florida	First District	Court	of	Appeal	held	that	Engle	progeny	plaintiffs	can	recover	punitive damages	only	on	their	intentional	tort	claims.	The	Florida	Supreme	Court	accepted jurisdiction	over	plaintiff's	appeal	from	the	Florida	First	District	Court	of	Appeal's decision	and,	in	March	2016,	held	that	Engle	progeny	plaintiffs	can	recover punitive	damages	in	connection	with	all	of	their	claims.	Plaintiffs	have increasingly	relied	on	this	Florida	Supreme	Court	decision	at	the	trial	and appellate	court	levels	in	seeking	punitive	damages	in	connection	with	all	of	their claims.

In	Ciccone,	an	Engle	progeny	case	against	R.J.	Reynolds,	the	Florida	Fourth District	Court	of	Appeal	held	that	Engle	progeny	plaintiffs	could	establish	class membership	by	showing	that	they	developed	symptoms	during	the	Engle	class period	that	could,	in	hindsight,	be	attributed	to	their	smoking-related	disease.	The court	certified	a	conflict	with	Castleman,	a	Florida	First	District	Court	of	Appeal decision,	which	held	that	manifestation	requires	Engle	progeny	plaintiffs	to	have been	aware	during	the	class	period	that	they	had	a	disease	caused	by	smoking	in order	to	establish	class	membership.	The	Florida	Supreme	Court	accepted jurisdiction	in	the	Ciccone	case	and,	in	March	2016,	ruled	in	favor	of	plaintiff, approving	the	Fourth	District	Court	of	Appeal's	definition.

In	Schoeff,	an	Engle	progeny	case	against	R.J.	Reynolds,	the	Florida	Fourth District	Court	of	Appeal	held	that	comparative	fault	findings	should	apply	to reduce	all	compensatory	damage	awards,	including	awards	based	on	intentional fraud	claims.	The

Florida	Supreme	Court	accepted	jurisdiction	over	plaintiff's	appeal	of	the	Florida Fourth	District	Court	of	Appeal's	decision.	Oral	argument	is	scheduled	for	March 8,	2017.

▪Florida	Bond	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	state	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. In	August	2013,	in	Calloway,	discussed	further	above,	plaintiff	filed	a	motion	in the	trial	court	to	determine	the	sufficiency	of	the	bond	posted	by	defendants	on	the ground	that	the	bond	cap	statute	is	unconstitutional,	which	was	denied.

In	February	2016,	in	the	Sikes	case	against	R.J.	Reynolds,	the	trial	court	held that	Florida's	bond	cap	statute	does	not	stay	the	execution	of	judgment	after	a	case is	final	in	the	Florida	judicial	system	and	before	the	defendant	files	a	petition	for writ	of	certiorari	in	the	United	States	Supreme	Court.	The	District	Court	of	Appeal for	the	First	District	of	Florida	issued	an	order	staying	execution	of	the	judgment and	requesting	that	plaintiff	show	cause	why	the	stay	should	not	remain	in	effect through	the	completion	of	United	States	Supreme	Court	writ	of	certiorari	review or	until	the	time	for	moving	for	such	review	has	expired.	In	April	2016,	the District	Court	of	Appeal	held	that	the	bond	cap	applies	to	the	period	between	a Florida	Supreme	Court	ruling	and	completion	of	United	States	Supreme	Court	writ of	certiorari	review.	In	April	2016,	PM	USA	filed	motions	in	the	trial	court	in	the R.	Cohen	and	Kayton	cases	seeking	confirmation	that	the	stay	on	executing	the judgment	remains	in	effect	through	the	completion	of	United	States	Supreme Court	writ	of	certiorari	review	or	until	the	time	for	moving	for	such	review	has expired,	which	the	court	granted.

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. The	Florida	Legislature	is	considering	legislation	that	would	repeal	the	2009 appeal	bond	cap	statute.

# 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	60	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),	Oregon	(1),	Pennsylvania	(1),	Puerto Rico	(1),	South	Carolina	(1),	Texas	(1)	and	Wisconsin	(1).

As	of	January	27,	2017,	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.

# Medical	Monitoring	Class	Actions

In	medical	monitoring	actions,	plaintiffs	have	sought	to	recover	the	cost	for,	or otherwise	the	implementation	of,	court-supervised	programs	for	ongoing	medical monitoring	purportedly	on	behalf	of	a	class	of	individual	plaintiffs.	Plaintiffs	in these	cases	have	sought	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	have	not	sought	punitive	damages,	although plaintiffs	in	Donovan	sought	permission	from	the	court	to	seek	to	treble	any damages	awarded,	which	the	court	denied.	The	defense	of	any	future	medical monitoring	cases	may	be	negatively	impacted	by	evolving	medical	standards	and practice.

In	Donovan,	filed	in	December	2006	in	the	U.S.	District	Court	for	the	District of	Massachusetts,	plaintiffs	purportedly	brought	the	action	on	behalf	of	certain residents	who	had	neither	been	diagnosed	with	lung	cancer	nor	were	under investigation	by	a	physician	for	suspected	lung	cancer.	The	Supreme	Judicial Court	of	Massachusetts,	in	answering	questions	certified	to	it	by	the	district	court, held	that	under	certain	circumstances	state	law	recognizes	a	claim	by	individual smokers	for	medical	monitoring	despite	the	absence	of	an	actual	injury.	The	case was	remanded	to

federal	court	for	further	proceedings.	The	district	court	granted	in	part	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. As	a	remedy,	plaintiffs	proposed	a	28-year	medical	monitoring	program	with	a	cost in	excess	of	$190	million.

Both	parties	filed	various	motions,	including	motions	for	partial	summary judgment	and	to	exclude	certain	evidence.	The	district	court	granted	PM	USA's motion	for	partial	summary	judgment	holding	that	e-vapor	products	may	not	be deemed	an	alternative	design	for	ordinary	cigarettes.	In	2016,	PM	USA	ultimately prevailed	at	trial	on	the	warranty	claim	and	the	Massachusetts	Consumer Protection	Act	claim	with	final	judgment	entered	in	favor	of	PM	USA	in September	2016.	Plaintiff	did	not	appeal	the	judgment,	concluding	this	litigation.

▪Overview:	In	the	health	care	cost	recovery	litigation,	governmental	entities seek	reimbursement	of	health	care	cost	expenditures	allegedly	caused	by	tobacco products	and,	in	some	cases,	of	future	expenditures	and	damages.	Relief	sought	by some	but	not	all	plaintiffs	includes	punitive	damages,	multiple	damages	and	other statutory	damages	and	penalties,	injunctions	prohibiting	alleged	marketing	and sales	to	minors,	disclosure	of	research,	disgorgement	of	profits,	funding	of	anti- smoking	programs,	additional	disclosure	of	nicotine	yields,	and	payment	of attorney	and	expert	witness	fees.

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.

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	(10),	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.

Since	the	beginning	of	2008,	the	Canadian	Provinces	of	British	Columbia, New	Brunswick,	Ontario,	Newfoundland	and	Labrador,	Quebec,	Alberta, Manitoba,	Saskatchewan,	Prince	Edward	Island	and	Nova	Scotia	have	brought health	care	reimbursement	claims	against	cigarette	manufacturers.	PM	USA	is named	as	a	defendant	in	the	British	Columbia	and	Quebec	cases,	while	both	Altria Group,	Inc.	and	PM	USA	are	named	as	defendants	in	the	New	Brunswick, Ontario,	Newfoundland	and	Labrador,	Alberta,	Manitoba,	Saskatchewan,	Prince Edward	Island	and	Nova	Scotia	cases.	The	Nunavut	Territory	and	Northwest Territory	have	passed	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	1998	Master	Settlement	Agreement	(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	entered	into	agreements	to settle	similar	claims

brought	by	Mississippi,	Florida,	Texas	and	Minnesota	(together	with	the	MSA,	the "State	Settlement	Agreements").	The	State	Settlement	Agreements	require	that	the original	participating	manufacturers	or	"OPMs"	(now	PM	USA	and	R.J.	Reynolds and,	with	respect	to	the	brands	it	acquired	from	R.J.	Reynolds	and	Lorillard,	ITG Brands,	LLC	("ITG"),	subject	to	a	dispute	discussed	below	with	respect	to	some	of the	State	Settlement	Agreements)	make	annual	payments	of	approximately	$9.4 billion,	subject	to	adjustments	for	several	factors,	including	inflation,	market	share and	industry	volume.	In	addition,	the	OPMs	are	required	to	pay	settling	plaintiffs' attorneys'	fees,	subject	to	an	annual	cap	of	$500	million.	For	the	years	ended December	31,	2016,	2015	and	2014,	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,	which	expired	after	the	third	quarter	of	2014,	was approximately	$4.6	billion,	$4.5	billion	and	$4.6	billion,	respectively. 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.

▪NPM	Adjustment	Disputes:	PM	USA	is	participating	in	proceedings regarding	potential	downward	adjustments	(the	"NPM	Adjustment")	to	MSA payments	made	by	manufacturers	that	are	signatories	to	the	MSA	(the "participating	manufacturers"	or	"PMs")	for	2003-2015.	The	NPM	Adjustment	is	a reduction	in	MSA	payments	that	applies	if	the	PMs	collectively	lose	at	least	a specified	level	of	market	share	to	non-participating	manufacturers	("NPMs") between	1997	and	the	year	at	issue,	subject	to	certain	conditions	and	defenses.	The independent	auditor	appointed	under	the	MSA	calculates	the	maximum	amount,	if any,	of	the	NPM	Adjustment	for	any	year	in	respect	of	which	such	NPM Adjustment	is	potentially	applicable.

2003-2014	NPM	Adjustment	Disputes	-	Settlement	with	24	States	and	Territories and	Settlement	with	New	York:	PM	USA	has	settled	the	NPM	Adjustment	disputes for	the	years	2003-2012	with	24	of	the	52	MSA	states	and	territories	(these	24 states	and	territories	are	referred	to	as	the	"signatory	states,"	and	the	remaining MSA	states	and	territories	are	referred	to	as	the	"non-signatory	states").	Pursuant to	the	settlement	with	these	24	signatory	states,	PM	USA	has	received	a	total	of $599	million	for	2003-2012	in	the	form	of	reductions	to	its	MSA	payments	in 2013,	2014	and	2015.

In	addition,	the	settlement	provides	that	the	NPM	Adjustment	provision	will be	revised	and	streamlined	as	to	the	signatory	states	for	the	years	after	2012. Under	the	revised	provision,	the	2013	and	2014	NPM	Adjustments	were "transition	years,"	for	which	the	PMs	received	specified	payments	in	settlement	of the	NPM	Adjustments	for	those	years.	PM	USA	received	$38	million	for	the	2013 transition	year	and	$41	million	for	the	2014	transition	year	pursuant	to	this	revised provision	in	the	form	of	reductions	to	its	MSA	payments	in	2014	and	2015, respectively.

The	revised	NPM	Adjustment	provision	in	the	settlement	provides	that,	for 2015	and	subsequent	years,	there	is	a	potential	downward	adjustment	to	the	PMs' MSA	payment	relating	to	NPM	sales	on	which	state	excise	tax	("SET")	is	paid. Pursuant	to	such	adjustment,	each	signatory	state	will	pay	an	amount	to	the	OPMs tied	to	the	number	of	NPM	cigarettes	sold	during	the	year	at	issue	on	which	that state	collected	its	SET	(or,	potentially,	on	which	a	comparable	tax	was	collected) but	on	which	that	state	did	not	collect	escrow	("non-compliant	NPM	sales"). These	payments	will	be	made	in	the	form	of	future	reductions	to	MSA	payments by	the	OPMs.	This	adjustment	for	SET-paid	NPM	sales	is	subject	to	certain exceptions	and	to	a	"safe	harbor"	under	which	a	state	does	not	owe	any	payment	if the	number	or	percentage	of	non-compliant	NPM	sales	is	below	certain	stated benchmarks.		In	addition,	the	settlement	further	provides	that	the	NPM Adjustment	for	2015	and	subsequent	years	will	continue	to	apply	to	the	signatory states,	subject	to	certain	defenses,	but	that	those	states	will	receive	a	partial liability	reduction	tied	to	the	percentage	of	NPM	sales	nationwide	during	the	year at	issue	on	which	either	an	MSA	state	has	collected	SET	(or	potentially	a comparable	tax	is	collected)	or,	potentially,	Mississippi,	Florida,	Texas	or Minnesota	collected	an	equity	fee	(as	defined	in	the	settlement)	on	cigarettes sold	by	NPMs	in	those	respective	states.		The	amount	(if	any)	of	the	potential adjustments	relating	to	SET-paid	NPM	sales	for	2015	and	2016	and	the	amount	of the	partial	liability	reductions	for	2015	and	2016	have	not	yet	been	determined.	In addition,	proceedings	to	determine	the	availability	of	and	defenses	to	the	2015	and 2016	NPM	Adjustments	as	to	the	signatory	states	will	likely	not	take	place	for	a considerable	period	of	time.	In	the	meantime,	pursuant	to	the	settlement,	the OPMs	and	the	signatory	states	have	agreed	to	split	the	NPM	Adjustment	amount for	2015	and	each	subsequent	year	thereafter	pending	the	ultimate	outcome	of	the applicable	proceedings.	As	a	result,	in	the	second	quarter	of	2016,	approximately $43	million	was	returned	to	PM	USA	related	to	the	2015	NPM	Adjustment.	This amount	was	included	in	other	liabilities	on	the	condensed	consolidated	balance sheet	at	June	30,	2016	and,	once	the	proceedings	to	determine	the	amount	of	the 2015	NPM	Adjustment	are	concluded,	it	will	either	be	paid	to	the	signatory	states or	retained	by	PM	USA	(in	each	case,	without	interest)	as	part	of	the	ultimately determined	amount	payable.	The	OPMs	have	agreed	that	the	amounts	they	receive under	the	settlement	for	the	2013-2014	transition	years	and	for	subsequent	years from	the	signatory	states	will	be	allocated	among	them	pursuant	to	a	formula	that modifies	the	MSA	allocation	formula	in	a	manner	favorable	to	PM	USA.	The extent	to	which	it	remains	favorable	to	PM	USA	will	depend	upon	future developments,	as	well	as	upon	the	resolution	of	certain	disputes	among	the	OPMs discussed	below.

Many	of	the	non-signatory	states	objected	to	the	settlement	before	the arbitration	panel	hearing	the	2003	NPM	Adjustment	dispute.	In	March	2013,	the panel	issued	a	stipulated	partial	settlement	and	award	(the	"Stipulated	Award") rejecting	the	objections	and	permitting	the	settlement	to	proceed.	In	the	Stipulated Award,	the	arbitration	panel	also	ruled	that	the	total	2003	NPM	Adjustment	would 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	whose	diligent	enforcement	claims	the	PMs	continued	to contest	(the	"pro	rata	judgment	reduction").

Fourteen	of	the	non-signatory	states	filed	motions	in	their	state	courts	to vacate	and/or	modify	the	Stipulated	Award	in	whole	or	part.	Decisions	by	the Pennsylvania,	Missouri,	Maryland	and	New	Mexico	courts	on	such	motions,	and the	subsequent	appeals	of	those	rulings,	are	discussed	below.		One	state's	motion was	denied	without	an	appeal	by	the	state.	As	for	the	remaining	states,	rulings rejecting	their	motions	to	vacate	the	Stipulated	Award	have	been	affirmed	on appeal,	or	the	motions	have	been	voluntarily	dismissed	or	stayed	pending	further state	action.

In	October	2015,	PM	USA,	along	with	the	other	PMs,	settled	the	2004-2014 NPM	Adjustment	disputes	with	New	York.	The	New	York	settlement	is	separate from	the	settlement	with	the	24	signatory	states	and	is	different	from	that settlement	in	certain	respects.	Pursuant	to	the	New	York	settlement,	PM	USA received	approximately	$126	million	for	2004-2014	in	the	form	of	a	reduction	to its	MSA	payment	in	2016.	PM	USA	previously	recorded	$126	million	as	a reduction	to	cost	of	sales	in	the	third	quarter	of	2015	to	reflect	the	New	York settlement	in	its	estimate	of	MSA	expenses	related	to	prior	years.	In	addition,	the New	York	settlement	provides	that	the	NPM	Adjustment	provision	will	be	revised as	to	New	York	for	the	years	after	2014.	The	revised	provision	with	respect	to NPM	cigarettes	on	which	New	York	SET	is	paid	is	largely	similar	to	the	revised provision	in	the	settlement	with	the	24	signatory	states	with	respect	to	an adjustment	relating	to	SET-paid	NPM	sales.	Based	on	the	information	provided	by New	York,	no	such	adjustment	is	due	for	2015.

As	to	other	NPM	cigarettes,	the	New	York	settlement	provides	that,	in	lieu	of the	NPM	Adjustment	provision	for	years	after	2014,	New	York	will	make	annual payments	to	the	PMs	tied	to	the	number	of	NPM	cigarettes	on	which	New	York did	not	collect	SET	that	were	sold	on	or	through	Native	American	reservations located	in	New	York	(or	otherwise	met	the	standard	in	the	settlement	agreement) during	the	year	at	issue	to	New	York	consumers	("Tribal	NPM	Packs").	These annual	payments	will	be	made	in	the	form	of	reductions	to	future	MSA	payments by	the	PMs,	beginning	with	the	MSA	payment	in	2017.	The	OPMs	have	agreed that	the	amounts	they	receive	under	the	New	York	settlement	for	the	years	after 2014	will	be	allocated	among	them	pursuant	to	a	formula	that	modifies	the	MSA allocation	formula	in	a	manner	favorable	to	PM	USA,	although	the	extent	to	which it	remains	favorable	to	PM	USA	will	depend	upon	future	developments,	as	well	as upon	the	resolution	of	certain	disputes	among	the	OPMs	discussed	below.	Under the	New	York	settlement,	in	return	for	the	payments	described	above	and	other consideration	described	in	the	New	York	settlement,	the	PMs	have	released	New York	from	the	NPM	Adjustment	provision	for	all	years	except	as	provided	in	the New	York	settlement.

The	number	of	Tribal	NPM	Packs	sold	in	a	given	year	will	be	determined	by an	investigative	firm	based	on	information	provided	by	the	PMs	and	New	York and	by	the	investigative

firm's	own	research	and	activities	(the	"investigative	proceeding").	The investigative	firm's	determination	of	the	number	of	Tribal	NPM	Packs	sold	in	a given	year	will	apply	for	that	year	as	well	as	for	the	following	year,	with	the	result that	an	investigative	proceeding	is	expected	to	be	held	every	two	years. Accordingly,	the	number	of	Tribal	NPM	Packs	determined	by	the	investigative firm	to	have	been	sold	during	2015	(which	is	expected	to	result	in	a	reduction	of the	PMs'	MSA	payments	due	in	April	2017)	will	also	apply	to	2016	(which	is expected	to	result	in	a	reduction	of	the	PMs'	MSA	payments	due	in	April	2018). While	an	investigative	proceeding	to	determine	the	number	of	Tribal	NPM	Packs sold	during	2015	has	been	commenced,	PM	USA	does	not	expect	a	determination by	the	investigative	firm	until	later	in	the	first	quarter	of	2017.

In	connection	with	the	investigative	proceeding,	PM	USA	recorded	for	the years	2015	and	2016	a	$58	million	reduction	to	cost	of	sales	in	the	fourth	quarter of	2016.	This	amount	represents	PM	USA's	estimate,	based	on	information submitted	by	the	PMs	and	New	York	to	the	investigative	firm,	of	the	minimum number	of	Tribal	NPM	Packs	that	the	investigative	firm	is	likely	to	find	were	sold during	2015	and	the	related	reductions	to	PM	USA's	MSA	payments	in	April	2017 and	April	2018.	Depending	upon	whether	the	investigative	firm's	determination	of the	number	of	Tribal	NPM	Packs	sold	during	2015	is	greater	or	lower	than	PM USA's	estimate,	PM	USA	will	respectively	record	later	in	2017	either	an additional	reduction	in	cost	of	sales	or	an	increase	in	cost	of	sales.

2003	and	Subsequent	NPM	Adjustment	Disputes	-	Continuing	Disputes	with	Non-

Signatory	States	other	than	New	York:	PM	USA	has	continued	to	pursue	the	NPM Adjustments	for	2003	and	subsequent	years	with	respect	to	the	non-signatory states	other	than	New	York.	Under	the	MSA,	once	all	conditions	for	the	NPM Adjustment	for	a	particular	year	are	met	(including	the	condition	that	the disadvantages	of	the	MSA	were	a	"significant	factor"	contributing	to	the	PMs' collective	loss	of	market	share),	each	state	may	avoid	an	NPM	Adjustment	to	its share	of	the	PMs'	MSA	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	NPM	Adjustment	would	then	be	reallocated	to	any	states	that	are found	not	to	have	diligently	enforced	for	that	year.	For	2003-2014,	all	conditions for	the	NPM	Adjustment	have	been	met,	either	by	determination	or	agreement among	the	parties	(although	the	parties'	agreement	provides	that	the	"significant factor"	condition	for	2014	will	become	effective	in	February	2017).	Whether	the "significant	factor"	condition	for	2015	has	been	met	has	not	yet	been	resolved.

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

litigate	its	diligent	enforcement	claims	in	state	court,	rather	than	in	arbitration.	In June	2012,	the	PMs	and	Montana	entered	a	consent	decree	pursuant	to	which Montana	would	not	be	subject	to	the	2003	NPM	Adjustment.

In	September	2013,	the	arbitration	panel	issued	rulings	regarding	the	15	states and	territories	whose	diligent	enforcement	the	PMs	contested	that	had	not	as	of that	time	joined	the	settlement,	ruling	that	six	of	them	(Indiana,	Kentucky, Maryland,	Missouri,	New	Mexico	and	Pennsylvania)	did	not	diligently	enforce during	2003	and	that	nine	of	them	did.	Based	on	this	ruling,	the	PMs	were	entitled to	receive	from	the	six	non-diligent	states	the	entire	2003	NPM	Adjustment remaining	after	the	pro	rata	judgment	reduction.	PM	USA	believed	it	was	entitled to	receive	an	NPM	Adjustment	for	2003	based	on	this	ruling,	after	reflecting	the 20%	partial	liability	reduction	noted	above,	of	approximately	$145	million.	PM USA	recorded	this	$145	million	as	a	reduction	to	cost	of	sales,	which	increased	its reported	pre-tax	earnings	in	the	third	quarter	of	2013.	In	addition,	PM	USA believed	it	would	be	entitled	to	interest	on	this	amount	of	approximately	$89 million.	PM	USA	recorded	$64	million	of	this	amount	as	interest	income,	which reduced	interest	and	other	debt	expense,	net	in	the	first	quarter	of	2014,	but	did	not record	the	remaining	$25	million	based	on	its	assessment	of	certain	disputes concerning	interest	discussed	below.

After	PM	USA	recorded	these	amounts,	two	of	the	six	non-diligent	states (Indiana	and	Kentucky)	joined	the	settlement	and	became	signatory	states.		Those two	states	account	for	(i)	$37	million	of	the	$145	million	NPM	Adjustment	for 2003	that	PM	USA	recorded	and	(ii)	$17	million	of	the	interest	that	PM	USA recorded.		PM	USA	has	retained	those	amounts	from	the	two	states,	and	has received	additional	amounts	as	part	of	the	settlement	recoveries	for	the	2003-2012 NPM	Adjustment	disputes	described	above.	The	remaining	four	states	account	for approximately	(i)	$108	million	of	the	$145	million	2003	NPM	Adjustment	that PM	USA	recorded	and	(ii)	$66	million	of	the	$89	million	of	interest	to	which	PM USA	believed	it	would	be	entitled	on	the	$145	million	(and	$47	million	of	the	$64 million	of	interest	that	PM	USA	recorded).	Each	of	these	four	states	filed	a	motion in	its	state	court	to	(i)	vacate	the	panel's	ruling	as	to	its	diligence	and	(ii)	modify the	pro	rata	judgment	reduction	and	to	substitute	a	reduction	method	more favorable	to	the	state.	These	four	states	also	raised	a	dispute	concerning	the independent	auditor's	calculation	of	interest.	In	addition,	another	OPM	has	raised a	dispute	concerning	the	allocation	of	the	interest	and	disputed	payments	account earnings	among	the	OPMs.

In	April	2014,	a	Pennsylvania	state	trial	court	denied	Pennsylvania's	motion to	vacate	the	arbitration	panel's	ruling	that	Pennsylvania	had	not	diligently enforced,	but	granted	Pennsylvania's	motion	to	modify,	with	respect	to Pennsylvania,	the	pro	rata	judgment	reduction.	In	April	2015,	a	Pennsylvania intermediate	appellate	court	affirmed	the	trial	court's	modification,	with	respect	to Pennsylvania,	of	the	pro	rata	judgment	reduction.	In	December	2015,	the	Supreme Court	of	Pennsylvania	denied	PM	USA's	petition	for	further	judicial	review	of	the Pennsylvania	intermediate	appellate	court	decision.	Because	the	Pennsylvania state	trial	court	ruling	preceded	PM

USA's	2014	MSA	payment	date,	the	total	2014	MSA	payment	credit	PM	USA received	on	account	of	the	2003	NPM	Adjustment	from	the	four	states	was reduced	from	$108	million	to	$79	million,	and	the	interest	PM	USA	received	from the	four	states	was	$48	million	rather	than	the	$66	million	in	interest	to	which	PM USA	believed	it	would	be	entitled	from	those	four	states.	As	a	result	of	the	denial by	the	Supreme	Court	of	Pennsylvania	of	PM	USA's	petition	for	review	of	the intermediate	appellate	court	ruling	on	the	modification	of	the	pro	rata	judgment reduction	method,	PM	USA	reversed	$29	million	of	the	reduction	to	cost	of	sales and	$13	million	of	the	interest	income	that	had	been	previously	recorded	in respect	of	Pennsylvania	for	the	2003	NPM	Adjustment,	which	reduced	its	reported pre-tax	earnings	by	approximately	$42	million	in	the	fourth	quarter	of	2015.	In April	2016,	PM	USA	filed	a	petition	for	writ	of	certiorari	with	the	United	States Supreme	Court,	which	was	denied	in	October	2016.

In	July	2014,	a	Maryland	state	trial	court	denied	both	Maryland's	motion	to vacate	the	arbitration	panel's	ruling	that	Maryland	had	not	diligently	enforced	and Maryland's	motion	to	vacate	or	modify	the	pro	rata	judgment	reduction.	In October	2015,	a	Maryland	intermediate	appellate	court	reversed	the	Maryland	trial court's	ruling	on	the	pro	rata	judgment	reduction	method	and	applied	a	judgment reduction	method	that	is	more	favorable	to	the	state.	PM	USA	sought	further discretionary	review	of	this	decision	in	the	Maryland	Court	of	Appeals	but,	in February	2016,	the	Court	of	Appeals	denied	PM	USA's	petition.	As	a	result,	PM USA	returned	approximately	$12	million	of	the	2003	NPM	Adjustment	and	$7 million	of	the	interest	it	received	(plus	interest	on	those	amounts).	In	addition,	PM USA	recorded	a	corresponding	reduction	to	its	pre-tax	earnings	in	the	first	quarter of	2016.	In	June	2016,	PM	USA	filed	a	petition	for	writ	of	certiorari	with	the United	States	Supreme	Court,	which	was	denied	in	October	2016.

In	May	2014,	a	Missouri	state	trial	court	denied	Missouri's	motion	to	vacate the	arbitration	panel's	ruling	that	Missouri	had	not	diligently	enforced,	but	granted Missouri's	motion	to	modify,	with	respect	to	Missouri,	the	pro	rata	judgment reduction.	In	September	2015,	however,	a	Missouri	intermediate	appellate	court reversed	the	Missouri	state	trial	court's	ruling	that	modified	the	pro	rata	judgment reduction,	effectively	reinstating	the	application	of	that	reduction	method	to Missouri.	The	Supreme	Court	of	Missouri	granted	Missouri's	request	for	review	of the	intermediate	appellate	court	decision.	If	Missouri	is	successful	on	further judicial	review	of	the	Missouri	intermediate	appellate	court's	ruling	reversing	the Missouri	trial	court	ruling,	PM	USA	will	be	required	to	return	approximately	$12 million	of	the	2003	NPM	Adjustment	and	$7	million	of	the	interest	it	received	(in each	case	subject	to	confirmation	by	the	independent	auditor),	plus	applicable interest,	and	would	need	to	make	corresponding	reversals	to	amounts	previously recorded.	In	connection	with	its	appeal	of	the	Missouri	state	trial	court's	ruling, PM	USA	posted	a	bond	in	the	amount	of	$22	million,	which	will	remain	in	place despite	the	reversal	of	the	Missouri	state	trial	court's	ruling	by	the	intermediate appellate	court	until	all	appeals	are	exhausted.

In	September	2016,	a	New	Mexico	state	trial	court	denied	New	Mexico's motion	to	vacate	the	arbitration	panel's	ruling	that

New	Mexico	had	not	diligently	enforced,	but	granted	New	Mexico's	motion	to modify,	with	respect	to	New	Mexico,	the	pro	rata	judgment	reduction.	PM	USA	is appealing	the	New	Mexico	trial	court's	decision	regarding	the	pro	rata	judgment reduction.	If	PM	USA	is	not	successful	on	further	judicial	review	of	the	trial court's	ruling	on	the	judgment	reduction	issue,	PM	USA	will	have	to	return	$3 million	of	the	2003	NPM	Adjustment	and	$2	million	of	the	interest	it	received (plus	interest	on	those	amounts)	and	would	need	to	make	corresponding	revisions to	amounts	previously	recorded.	This	and	the	other	litigation	and	disputes discussed	above	could	further	reduce	PM	USA's	recovery	on	the	2003	NPM Adjustment	or	recovery	of	interest	and	potentially	require	PM	USA	to	return amounts	previously	received	and/or	reverse	amounts	previously	recorded.	No assurance	can	be	given	that	the	litigation	and	disputes	discussed	above	will	be resolved	in	a	manner	favorable	to	PM	USA.

2004	and	Subsequent	NPM	Adjustments.	PM	USA	believes	that	the	MSA	requires the	states'	diligent	enforcement	claims	for	2004	and	thereafter	to	be	determined	in multi-state	arbitrations,	although	a	number	of	non-signatory	states	filed	motions	in their	state	courts	contending	that	the	claims	are	to	be	determined	in	separate arbitrations	for	individual	states	or	that	there	is	no	arbitrable	dispute	for	2004.	In September	2015,	a	Missouri	intermediate	appellate	court	ruled	that	Missouri	was entitled	to	a	single-state	arbitration	to	determine	whether	Missouri	diligently enforced	for	2004.	PM	USA	appealed	this	ruling,	and	the	Supreme	Court	of Missouri	granted	review.	No	assurance	can	be	given	that	the	outcome	of	such appeal	will	be	favorable	to	PM	USA.	In	December	2015,	a	Wisconsin	trial	court ruled	that	Wisconsin	must	arbitrate	its	claim	of	diligent	enforcement	for	2004,	and Wisconsin	has	since	agreed	to	join	the	2004	diligent	enforcement	arbitration. In	June	2015,	PM	USA	entered	into	an	agreement	with	17	of	the	non- signatory	states	to	form	an	arbitration	panel	to	conduct	an	arbitration	regarding	the 2004	NPM	Adjustment.	Pursuant	to	that	agreement,	in	July	2015	PM	USA	and	the 17	states	each	appointed	its	respective	side's	arbitrator	for	that	arbitration	panel. In	December	2015,	the	two	appointed	arbitrators	selected	the	third	arbitrator	for	a three-arbitrator	panel	required	by	the	MSA.	Other	PMs	declined	to	participate	in appointing	the	arbitrators,	and	instead	filed	motions	in	courts	in	each	of	the	17 states	seeking	to	compel	these	states	to	participate	in	an	arbitration	of	the	2004 NPM	Adjustment	dispute	between	the	states	and	the	PMs	that	would	also	include disputes	solely	between	the	OPMs	regarding	the	allocation	of	NPM	Adjustments as	between	them	(the	"inter-company	disputes").	Several	of	the	17	states	and	PM USA	filed	cross-motions	objecting	to	the	motions	filed	by	the	other	PMs	and seeking	to	confirm	the	arbitrators	selected	by	them	in	July	2015	as	properly selected	pursuant	to	the	MSA	to	resolve	the	2004	NPM	Adjustment	dispute between	the	17	states	and	the	PMs.	PM	USA,	the	17	states	and	the	other	PMs resolved	these	disputes,	and	the	2004	diligent	enforcement	arbitration	is	underway before	two	separate	arbitration	panels,	with	certain	states'	claims	of	diligent enforcement	to	be	decided	by	one	panel	and	certain	other	states'	claims	of	diligent enforcement	decided	by	the	other	panel.	These

two	arbitration	panels	have	two	arbitrators	in	common.	As	part	of	the	resolution	of these	disputes,	the	OPMs	have	agreed	that	the	inter-company	disputes	will	be heard	by	a	separate	arbitration	panel.	In	addition,	Wisconsin,	Pennsylvania	and Maryland	have	agreed	to	join	in	the	2004	diligent	enforcement	arbitration.	In November	2016,	New	Mexico	was	ordered	by	its	trial	court	to	join	the	arbitration. New	Mexico	has	appealed	the	decision.

Proceedings	regarding	diligent	enforcement	claims	for	2005	and	subsequent years	have	not	yet	been	scheduled.	No	assurance	can	be	given	as	to	when proceedings	for	2005	and	subsequent	years	will	be	scheduled	or	the	precise	form those	proceedings	will	take.

The	independent	auditor	has	calculated	that	PM	USA's	share	of	the maximum	potential	NPM	Adjustments	for	2004-2015	is	(exclusive	of	interest	or earnings):	$388	million	for	2004,	$181	million	for	2005,	$154	million	for	2006, $185	million	for	2007,	$250	million	for	2008,	$211	million	for	2009,	$218	million for	2010,	$166	million	for	2011,	$210	million	for	2012,	$218	million	for	2013, $241	million	for	2014	and	$289	million	for	2015.	These	maximum	amounts	will be	reduced	by	a	judgment	reduction	to	reflect	the	settlement	with	the	signatory states	(for	2004-2014)	and	the	New	York	settlement.	The	judgment	reduction	for the	2004	and	subsequent	NPM	Adjustments	has	not	yet	been	determined.	In addition,	these	maximum	amounts	may	also	be	further	reduced	by	other developments,	including	agreements	that	may	be	entered	in	the	future,	disputes that	may	arise	or	recalculation	of	the	NPM	Adjustment	amounts	by	the independent	auditor.	Further,	the	maximum	amount	for	2004	may	also	be	reduced due	to	a	dispute	raised	by	another	OPM	regarding	the	allocation	of	the	maximum potential	2004	NPM	Adjustment	among	the	OPMs.	In	addition,	as	discussed below,	PM	USA	believes	that	the	amount	shown	above	as	PM	USA's	share	of	the maximum	potential	NPM	Adjustment	for	2015	was	incorrectly	calculated	by	the independent	auditor,	and	that	PM	USA's	correct	share	is	higher.	Finally,	PM USA's	recovery	of	these	amounts,	even	as	reduced,	is	dependent	upon	subsequent determinations	of	state	diligent	enforcement	claims,	and	is	subject	(in	the	case	of signatory	states	found	non-diligent)	to	the	partial	liability	reduction	under	the settlement.	The	availability	and	amount	of	any	NPM	Adjustment	for	2004	and subsequent	years	will	not	be	finally	determined	in	the	near	term.	There	is	no assurance	that	PM	USA	will	ultimately	receive	any	adjustment	as	a	result	of	these proceedings.	PM	USA's	receipt	of	amounts	on	account	of	the	2003	NPM Adjustment	and	interest	from	non-signatory	states	does	not	provide	any	assurance that	PM	USA	will	receive	any	NPM	Adjustment	amounts	(or	associated	interest	or earnings)	for	2004	or	any	subsequent	year.	PM	USA	may	enter	into	settlement discussions	regarding	the	NPM	Adjustment	disputes	with	any	state	if	PM	USA believes	it	is	in	its	best	interests	to	do	so.

▪Other	Disputes	Under	the	State	Settlement	Agreements:	The	payment

obligations	of	the	tobacco	product	manufacturers	that	are	parties	to	the	State Settlement	Agreements,	as	well	as	the	allocations	of	any	NPM	Adjustments received	by	them	pursuant	to	the	MSA	or	the	settlements	of	NPM	Adjustment disputes	with	certain	states	described	above,	as	calculated	by	the	independent

auditor,	have	been	and	may	continue	to	be	affected	by	R.J.	Reynolds's	acquisition of	Lorillard	and	the	related	assignment	of	certain	cigarette	brands	by	R.J. Reynolds	to	ITG	(the	"RJR-Lorillard-ITG	transaction").	For	example,	R.J. Reynolds	and	ITG	have	taken	the	position	that	they	do	not	have	to	make	payments on	those	brands	under	the	Florida,	Minnesota	and	Texas	State	Settlement Agreements	or	include	those	brands	in	their	reported	volumes	or	profits	for purposes	of	certain	calculations	under	the	State	Settlement	Agreements.	PM	USA believes	that	the	position	taken	by	R.J.	Reynolds	and	ITG	violates	the	State Settlement	Agreements	and	applicable	law.	In	that	regard,	PM	USA	disputes several	calculations	made	by	the	independent	auditor	since	the	RJR-Lorillard-ITG transaction.	In	particular,	PM	USA	believes	that	the	independent	auditor's calculations	incorrectly	increased	PM	USA's	payments	for	2015	due	to Mississippi,	Florida,	Texas	and	Minnesota	under	their	State	Settlement Agreements	by	at	least	$42	million	and	for	2016	by	an	amount	that	cannot	yet	be determined	because	the	final	2016	payment	amounts	have	not	been	calculated	by the	independent	auditor	(see	below	for	a	discussion	of	the	portion	of	these improperly	increased	payments	attributable	to	the	Florida	Settlement	Agreement). PM	USA	further	believes	that	such	payments	due	to	those	states	for	subsequent years	may	also	be	incorrectly	increased	by	amounts	that	will	depend	on	the independent	auditor's	future	calculations.

In	January	2017,	PM	USA	and	the	State	of	Florida	each	filed	in	Florida	state court	a	motion	against	R.J.	Reynolds	and	ITG	to	enforce	the	Florida	State Settlement	Agreement	with	respect	to	their	failure	to	make	payments	to	Florida	on the	assigned	brands	and	failure	to	include	those	brands	in	their	reported	volumes and	profits	for	purposes	of	certain	calculations	under	the	Florida	State	Settlement Agreement.	PM	USA	believes	that,	as	a	result	of	these	failures	by	R.J.	Reynolds and	ITG,	its	settlement	payments	to	Florida	have	been	improperly	increased	by over	$13	million.

In	addition	to	the	disputes	noted	above,	PM	USA	believes	that	the calculations	by	the	independent	auditor	have	resulted	in	an	improper	decrease	of PM	USA's	share	of	the	2015	NPM	Adjustment	pursuant	to	the	MSA	and	the settlements	of	the	NPM	Adjustment	disputes	and	may	result	in	improper	decreases of	its	share	for	subsequent	years,	although	the	amounts	of	such	decreases	depend on	a	number	of	factors	that	cannot	be	determined	at	this	time.	PM	USA	cannot provide	any	assurance	that	it	will	be	successful	in	any	such	disputes	that	it	has raised	or	may	raise.

▪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.	Courts	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.	The	case	ultimately	proceeded	only	under	the	civil	provisions of	RICO.

The	government	alleged	that	disgorgement	by	defendants	of	approximately $280	billion	is	an	appropriate	remedy	and	the	trial	court	agreed.	In	February	2005, however,	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.	In	October	2005,	the	United	States	Supreme	Court	denied	the government's	petition	for	writ	of	certiorari.

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	or	health	descriptors	on	cigarette	packaging	or	in	cigarette	advertising	or promotional	material,	including	"lights,"	"ultra	lights"	and	"low	tar,"	which	the court	found	could	cause	consumers	to	believe	one	cigarette	brand	is	less hazardous	than	another	brand;	(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 ETS;	(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	10	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.	In	July	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	content	of	the	court-ordered corrective	communications	and	(ii)	the	requirements	related	to	point-of-sale signage.	In	November	2012,	the	district	court	issued	its	order	specifying	the content	of	the	corrective	communications	described	above.	The	district	court's order	required	the	parties	to	engage	in	negotiations	with	the	special	master regarding	implementation	of	the	corrective	communications	remedy	for	television, newspapers,	cigarette	pack	onserts	and	websites.	In	January	2013,	defendants	filed a	notice	of	appeal	from	the	order	on	the	content	and	vehicles	of	the	corrective communications	and	a	motion	to	hold	the	appeal	in	abeyance	pending	completion of	the	negotiations,	which	the	U.S.	Court	of	Appeals	granted	in	February	2013.	In January	2014,	the	parties	submitted	a	motion	for	entry	of	a	consent	order	in	the district	court,	setting	forth	their	agreement	on	the	implementation	details	of	the corrective	communications	remedy.	The	agreement

provides	that	the	"trigger	date"	for	implementation	is	after	the	appeal	on	the content	of	the	communications	has	been	exhausted.	Also	in	January	2014,	the district	court	convened	a	hearing	and	ordered	further	briefing.	A	number	of	amici who	sought	modification	or	rejection	of	the	agreement	for	a	variety	of	reasons were	given	leave	to	appear.	In	April	2014,	the	parties	filed	an	amended	proposed consent	order	and	accompanying	submission	in	the	district	court	seeking	entry	of	a revised	agreement	on	the	implementation	details	of	the	corrective	communications remedy.	In	June	2014,	the	district	court	approved	the	April	2014	proposed	consent order.	Also	in	June	2014,	defendants	filed	a	notice	of	appeal	of	the	consent	order solely	for	the	purpose	of	perfecting	the	U.S.	Court	of	Appeals'	jurisdiction	over	the pending	appeal	relating	to	the	content	and	vehicles	of	the	corrective communications	and,	in	July	2014,	defendants	moved	to	consolidate	this	appeal with	the	appeal	filed	in	January	2013.	The	U.S.	Court	of	Appeals	granted	the motion	to	consolidate	in	August	2014.

In	May	2015,	the	U.S.	Court	of	Appeals	affirmed	in	part	and	reversed	in	part, concluding	that	certain	portions	of	the	statements	exceeded	the	district	court's jurisdiction	under	RICO,	but	upheld	other	portions	challenged	by	defendants.	The Court	of	Appeals	remanded	the	case	to	the	trial	court	for	further	proceedings.	In July	2015,	the	government	filed	a	petition	for	panel	rehearing,	which	the	U.S. Court	of	Appeals	denied	on	August	2015.	In	October	2015,	the	district	court ordered	further	briefing	on	the	content	of	the	corrective	communications	reversed by	the	U.S.	Court	of	Appeals	and	any	implementation	changes	the	parties	propose. In	February	2016,	the	U.S.	District	Court	for	the	District	of	Columbia	issued	an order	on	the	content	of	the	corrective	communications	and	ordered	the	parties	to submit	proposed	changes	to	the	consent	order	on	the	implementation	details, which	the	parties	jointly	submitted	and	the	court	approved	in	April	2016.	Also	in April	2016,	defendants	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the District	of	Columbia	Circuit	on	the	content	of	the	corrective	communications.	In May	2016,	defendants	filed	a	notice	of	appeal	of	the	consent	order	for	the	purpose of	perfecting	the	appeal	of	the	district	court's	February	2016	order	on	the	content of	the	corrective	communications.	Oral	argument	is	scheduled	for	February	14, 2017	on	defendants'	appeal.

In	the	second	quarter	of	2014,	Altria	Group,	Inc.	and	PM	USA	recorded provisions	on	each	of	their	respective	balance	sheets	totaling	$31	million	for	the estimated	costs	of	implementing	the	corrective	communications	remedy.		This estimate	is	subject	to	change	due	to	several	factors,	including	the	outcome	of further	proceedings,	though	Altria	Group,	Inc.	and	PM	USA	do	not	expect	any change	in	this	estimate	to	be	material.

The	consent	order	approved	by	the	district	court	in	June	2014	did	not	address the	requirements	related	to	point-of-sale	signage.	In	May	2014,	the	district	court ordered	further	briefing	by	the	parties	on	the	issue	of	corrective	statements	on point-of-sale	signage,	which	was	completed	in	June	2014.

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	other	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	January	27,	2017,	a total	of	8	such	cases	are	pending	in	various	U.S.	state	courts.

▪The	Good	Case	and	Federal	Multidistrict	Proceeding:	In	Good,	a

purported	"Lights"	class	action,	the	United	States	Supreme	Court	ruled	in December	2008	that	plaintiffs'	claims	are	not	preempted	by	the	Federal	Cigarette Labeling	and	Advertising	Act	("FCLAA").	The	case	was	returned	to	federal	court in	Maine	and	consolidated	with	other	federal	cases	in	a	multidistrict	litigation ("MDL")	proceeding.	In	June	2011,	the	plaintiffs	voluntarily	dismissed	the	Good case	without	prejudice.	The	other	multidistrict	cases	were	either	voluntarily dismissed	or	resolved	in	a	manner	favorable	to	PM	USA.

# ▪"Lights"	Cases	Dismissed,	Not	Certified	or	Ordered	De-Certified:	As	of

January	27,	2017,	in	addition	to	the	federal	MDL	proceeding	discussed	above,	20 courts	in	21	"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.

▪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.	One	certified class	action	remains	pending	on	appeal.

Larsen:	In	August	2005,	a	Missouri	Court	of	Appeals	affirmed	the	class certification	order.	In	December	2009,	the	trial	court	denied	plaintiffs'	motion	for reconsideration	of	the	period	during	which	potential	class	members	can	qualify	to become	part	of	the	class.	The	class	period	remains	1995-2003.	In	June	2010,	PM USA's	motion	for	partial	summary	judgment	regarding	plaintiffs'	request	for punitive	damages	was	denied.	In	April	2010,	plaintiffs	moved	for	partial	summary judgment	as	to	an	element	of	liability	in	the	case,	claiming	collateral	estoppel from	the	findings	in	the	case	brought	by	the	Department	of	Justice	(see	Health Care	Cost	Recovery	Litigation	-	Federal	Government's	Lawsuit	described	above).

The	plaintiffs'	motion	was	denied	in	December	2010.	In

June	2011,	PM	USA	filed	various	summary	judgment	motions	challenging	the plaintiffs'	claims.	In	August	2011,	the	trial	court	granted	PM	USA's	motion	for partial	summary	judgment,	ruling	that	plaintiffs	could	not	present	a	damages	claim based	on	allegations	that	Marlboro	Lights	are	more	dangerous	than	Marlboro Reds.	The	trial	court	denied	PM	USA's	remaining	summary	judgment	motions. Trial	in	the	case	began	in	September	2011	and,	in	October	2011,	the	court	declared a	mistrial	after	the	jury	failed	to	reach	a	verdict.	In	January	2014,	the	trial	court reversed	its	prior	ruling	granting	partial	summary	judgment	against	plaintiffs' "more	dangerous"	claim	and	allowed	plaintiffs	to	pursue	that	claim.	In	October 2014,	PM	USA	filed	motions	to	decertify	the	class	and	for	partial	summary judgment	on	plaintiffs'	"more	dangerous"	claim,	which	the	court	denied	in	June 2015.	Upon	retrial,	in	April	2016,	the	jury	returned	a	verdict	in	favor	of	PM	USA. In	May	2016,	plaintiffs	filed	a	motion	for	a	new	trial,	which	PM	USA	opposed	in June	2016.	In	August	2016,	the	trial	court	denied	plaintiffs'	motion	for	a	new	trial, plaintiffs	filed	a	notice	of	appeal	and	PM	USA	cross-appealed.	In	November	2016, the	court	of	appeals	dismissed	PM	USA's	cross-appeal	without	prejudice	upon joint	motion	of	the	parties.

▪State	Trial	Court	Class	Certifications	Concluded	in 2016:

Aspinall:	In	August	2004,	the	Massachusetts	Supreme	Judicial	Court	affirmed	the class	certification	order.	In	September	2013,	plaintiffs	filed	a	motion	for	partial summary	judgment	on	the	scope	of	remedies	available	in	the	case,	which	the Massachusetts	Superior	Court	denied	in	February	2014,	concluding	that	plaintiffs cannot	obtain	disgorgement	of	profits	as	an	equitable	remedy	and	that	their recovery	is	limited	to	actual	damages	or	$25	per	class	member	if	they	cannot prove	actual	damages	greater	than	$25.	Trial	began	in	October	2015	and concluded	in	November	2015.	In	February	2016,	the	trial	court	issued	its "Findings	of	Fact	and	Conclusions	of	Law,"	and	awarded	statutory	damages	of $25	per	class	member,	for	a	total	of	$4.9	million,	plus	interest,	attorneys'	fees	and costs.	In	April	2016,	subject	to	the	court's	approval,	the	parties	agreed	to	settle	all claims	for	approximately	$32	million.	In	the	first	quarter	of	2016,	PM	USA recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately $32	million	for	the	judgment	plus	interest	and	associated	costs.	In	May	2016,	PM USA	paid	approximately	$32	million	to	plaintiffs'	escrow	agent.	In	September 2016,	the	court	approved	the	settlement	in	which	PM	USA	agreed	to	pay approximately	$15.3	million	to	the	class	and	$16.5	million	in	attorneys'	fees	and costs,	and	dismissed	the	case	with	prejudice,	concluding	this	litigation.

Miner:	In	March	2013,	plaintiffs	filed	a	class	certification	motion.	In	November 2013,	the	trial	court	granted	class	certification.	The	certified	class	includes	those individuals	who,	from	November	1,	1971	through	June	22,	2010,	purchased Marlboro	Lights	and	Marlboro	Ultra	Lights	for	personal	consumption	in Arkansas.	PM	USA	filed	a	notice	of	appeal	of	the	class	certification	ruling	to	the Arkansas	Supreme	Court	in	December	2013.	In	February	2015,	the	Arkansas Supreme	Court	affirmed	the	trial	court's	class	certification	order.	In	May	2015, PM	USA	filed	a	motion	for	partial	summary	judgment	seeking	to

foreclose	any	recovery	for	cigarette	purchases	prior	to	1999,	when	a	private	right of	action	was	added	to	the	consumer	protection	statute	under	which	plaintiffs	are suing.	The	trial	court	denied	the	motion	in	July	2015.	In	June	2016,	the	trial	court granted	PM	USA's	motion	for	partial	summary	judgment	to	limit	any	damages claimed	by	the	plaintiffs'	class	to	purchases	made	prior	to	May	2003.	In	July	2016, the	parties	agreed	to	settle	all	claims	for	$45	million.	In	the	third	quarter	of	2016, PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	$45 million.	In	November	2016,	the	trial	court	granted	final	approval	of	the	settlement, concluding	this	litigation.	In	December	2016,	PM	USA	paid	$45	million	to plaintiff's	escrow	agent.

Price:	Trial	in	Price	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	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.	In	February	2012,	plaintiffs	filed an	amended	petition	asking	the	trial	court	to	reinstate	the	original	judgment,	which the	court	denied	in	December	2012.	On	appeal,	in	April	2014,	the	Fifth	Judicial District	reversed	and	ordered	reinstatement	of	the	original	$10.1	billion	trial	court judgment	against	PM	USA.	In	September	2014,	the	Illinois	Supreme	Court granted	PM	USA's	motion	for	leave	to	appeal.	In	November	2015,	the	Illinois Supreme	Court	vacated	the	Fifth	Judicial	District's	decision	and	dismissed	the cause	of	action	without	prejudice	to	plaintiffs	to	file	a	motion	to	recall	the	mandate in	the	Illinois	Supreme	Court.	In	November	2015,	the	plaintiffs	filed	a	motion	in the	Illinois	Supreme	Court	seeking	to	recall	the	2005	mandate	issued	in	PM	USA's favor,	which	the	court	denied.	The	litigation	concluded	in	June	2016	after	the United	States	Supreme	Court	denied	plaintiffs'	petition	for	writ	of	certiorari. ▪Other	Developments:	In	Oregon	(Pearson),	a	state	court	in	October	2006 denied	plaintiffs'	motion	for	interlocutory	review	of	the	trial	court's	refusal	to certify	a	class.	The	denial	was	ultimately	affirmed	on	appeal	and	the	case	was remanded	to	the	trial	court	to	adjudicate	the	claims	of	the	individual	plaintiffs.	In April	2016,	the	parties	agreed	to	settle	plaintiffs'	individual	claims	for	an aggregate	amount	of	$30,000	and,	pursuant	to	that	settlement,	the	parties	filed	a stipulation	of	voluntary	dismissal	with	prejudice	with	the	Circuit	Court	of Multnomah	County.	This	litigation	has	concluded.

In	December	2009,	the	state	trial	court	in	Carroll	(formerly	known	as Holmes)	(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	February	2013,	the	trial

court	approved	the	parties'	stipulation	to	the	dismissal	without	prejudice	of	Altria Group,	Inc.	and	PMI,	leaving	PM	USA	as	the	sole	defendant	in	the	case.	In	March 2015,	plaintiffs	moved	for	class	certification	and,	in	July	2015,	PM	USA	filed	a summary	judgment	motion	seeking	to	dismiss	plaintiffs'	claims	in	their	entirety	on preemption	grounds.

# Certain	Other	Tobacco-Related	Litigation

▪Ignition	Propensity	Cases:	PM	USA	and	Altria	Group,	Inc.	are	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.	Defendants	filed	a	renewed	motion	to	dismiss	in state	court	in	March	2013.	Based	on	new	evidence,	in	June	2013,	defendants removed	the	case	for	a	second	time	to	the	U.S.	District	Court	for	the	Western District	of	Kentucky	and	re-filed	their	motion	to	dismiss	in	June	2013.	In	July 2013,	plaintiffs	filed	a	motion	to	remand	the	case	to	Kentucky	state	court,	which was	granted	in	March	2014.	In	November	2016,	defendants	filed	renewed	motions to	dismiss	the	case.

▪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,	which	was	granted	on	jurisdictional	grounds	in	June	2013,	and	the	case was	dismissed	with	prejudice.	In	July	2013,	the	relator	appealed	the	dismissal	to the	U.S.	Court	of	Appeals	for	the	District	of	Columbia	Circuit.	In	August	2014, the	U.S.	Court	of	Appeals	reversed	the	jurisdictional	issue	and	remanded	the	case to	the	district	court	for	further	proceedings,	including	consideration	of	PM	USA's alternative	grounds	for	dismissal.	In	October	2014,	PM	USA	filed	a	second	motion to	dismiss	in	the	U.S.	District	Court	for	the	District	of	Columbia	for	lack	of	subject matter	jurisdiction	based	on	issues	left	unresolved	by	the	opinion	of	the	U.S.	Court of	Appeals	for	the	District	of	Columbia	Circuit.	In	April	2015,	the	district	court granted	PM	USA's	second	motion	to	dismiss	for	lack	of	subject	matter	jurisdiction and	again	dismissed	the	case	with	prejudice.	The	relator	appealed	the	latest dismissal	to	the	U.S.	Court	of	Appeals	for	the	District	of	Columbia	Circuit	in	May

2015.	In	June	2016,	the	U.S.	Court	of	Appeals	for	the	District	of	Columbia	Circuit affirmed	the	dismissal	of	the	case	on	jurisdictional	grounds.	In	July	2016,	the relator	filed	a	petition	for	rehearing	or	rehearing	en	banc.	In	September	2016,	the U.S.	Court	of	Appeals	for	the	District	of	Columbia	Circuit	denied	the	petition	for rehearing.	Plaintiffs	did	not	file	a	certiorari	petition	in	the	United	States	Supreme Court	within	the	required	time,	and	the	case	is	thus	concluded.

▪Argentine	Grower	Cases:	PM	USA	and	Altria	Group,	Inc.	were	sued	in	six cases	(Hupan,	Chalanuk,	Rodriguez	Da	Silva,	Aranda,	Taborda	and	Biglia)	filed in	Delaware	state	court	against	multiple	defendants	by	the	parents	of	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	Monsanto	Company's	("Monsanto")	Roundup	herbicide	during	the production	and	cultivation	of	tobacco.	Plaintiffs	seek	compensatory	and	punitive damages	against	all	defendants.	Altria	Group,	Inc.	and	certain	other	defendants were	dismissed	from	the	Hupan,	Chalanuk,	Rodriguez	Da	Silva,	Aranda,	Taborda and	Biglia	cases.	The	three	remaining	defendants	in	the	six	cases	were	PM	USA, Philip	Morris	Global	Brands	Inc.	(a	subsidiary	of	PMI)	and	Monsanto.	Following discussions	regarding	indemnification	for	these	cases	pursuant	to	the	Distribution Agreement	between	PMI	and	Altria	Group,	Inc.,	PMI	and	PM	USA	agreed	to resolve	conflicting	indemnity	demands	after	final	judgments	are	entered.	See Guarantees	and	Other	Similar	Matters	below	for	a	discussion	of	the	Distribution Agreement.	In	April	2014,	all	three	defendants	in	the	Hupan	case	filed	motions	to dismiss	for	failure	to	state	a	claim,	and	PM	USA	and	Philip	Morris	Global	Brands filed	separate	motions	to	dismiss	based	on	the	doctrine	of	forum	non	conveniens. All	proceedings	in	the	other	five	cases	were	stayed	pending	the	court's	resolution of	the	motions	to	dismiss	filed	in	Hupan.	In	November	2015,	the	trial	court	granted PM	USA's	motion	to	dismiss	on	forum	non	conveniens	grounds.	Plaintiffs	filed	a motion	for	clarification	or	re-argument	in	December	2015,	which	the	court	denied in	August	2016.	Later	in	August	2016,	PM	USA	and	Philip	Morris	Global	Brands moved	for	entry	of	final	judgment	in	the	Hupan	case	and	also	moved	to	lift	the stays	in	the	other	five	cases	for	the	limited	purpose	of	entering	final	judgment	of dismissal	in	those	cases	as	well	based	on	the	forum	non	conveniens	decision	in Hupan.	The	court	granted	those	motions	in	September	2016,	and	entered	final judgment	of	dismissal	in	all	six	cases.	In	October	2016,	plaintiffs	filed	their	notice of	appeal	to	the	Delaware	Supreme	Court.

# UST	Litigation

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

First,	UST	and/or	its	tobacco	subsidiaries	have	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 three	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	have	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.	In July	2016,	USSTC	and	Altria	Group,	Inc.	were	named	as	defendants,	along	with other	named	defendants,	in	one	such	case	in	California	(Gwynn).		In	August	2016, defendants	removed	the	case	to	federal	court.	In	September	2016,	plaintiffs	filed	a motion	to	remand	the	case	back	to	state	court,	which	the	court	granted	in	January 2017.

# Nu	Mark	Patent	Litigation

In	April	2016,	Fontem	Ventures	B.V.	and	Fontem	Holdings	1	B.V.,	both subsidiaries	of	ITG,	sued	Nu	Mark	for	alleged	patent	infringement	in	the	U.S. District	Court	for	the	Central	District	of	California.		The	suit	alleged	that	Nu Mark's	MarkTen,	MarkTen	XL	and	Green	Smoke	products	infringe	one	or	more claims	under	eight	separate	Fontem	patents	for	e-vapor	products.		The	suit	sought recovery	of	an	unspecified	amount	of	money	damages	for	alleged	past infringement	and	an	injunction	against	future	infringement,	which	injunction	may have	resulted	in	Nu	Mark	being	enjoined	from	marketing	one	or	more	of	the products	at	issue	in	the	suit.	In	June	and	July	2016,	Nu	Mark	filed	multiple	inter partes	review	petitions	with	the	U.S.	Patent	Trial	and	Appeal	Board	challenging the	validity	of	all	patents	and	claims	asserted	against	it	in	the	lawsuit	on	multiple grounds.

In	June	2016,	the	same	Fontem	entities	filed	a	second	lawsuit	against	Nu Mark	in	the	U.S.	District	Court	for	the	Central	District	of	California	asserting infringement	of	eight	additional	e-vapor	patents	that	have	issued	since	the	filing	of the	first	case	in	April	2016.	The	second	case	involved	the	same	Nu	Mark	products as	the	first	case,	and	likewise	sought	recovery	of	an	unspecified	amount	of	money damages	for	alleged	past	infringement	and	an	injunction	against	future infringement.	In	June	2016,	Nu	Mark	filed	a	motion	to	transfer	venue	of	both lawsuits	from	California	to	the	Middle	District	of	North	Carolina,	which	the	court granted	in	August	2016.	Between	August	and	November	2016,	Nu	Mark	filed multiple	inter	partes	review	petitions	with	the	U.S.	Patent	Trial	and	Appeal	Board challenging	the	validity	of	all	patents	and	claims	asserted	against	it	in	the	second lawsuit.	In	December	2016,	the	parties	entered	into	a	settlement	and	license agreement,	resulting	in	the	dismissal	of	the	litigation	and	termination	of	all

pending	inter	partes	review	proceedings.		Under	the	terms	of	the	agreement,	in January	2017,	Nu	Mark	made	an	upfront	payment	of	$21	million	and	will	make future	royalty	payments	in	amounts	that	Altria	Group,	Inc.	does	not	expect	to	be material.		In	the	fourth	quarter	of	2016,	Nu	Mark	recorded	a	provision	on	its consolidated	balance	sheet	of	$21	million.

# 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	December	31,	2016,	Altria	Group,	Inc.	and	certain	of	its	subsidiaries (i)	had	$59	million	of	unused	letters	of	credit	obtained	in	the	ordinary	course	of business;	(ii)	were	contingently	liable	for	$25	million	of	guarantees,	consisting primarily	of	surety	bonds,	related	to	their	own	performance;	and	(iii)	had	a redeemable	noncontrolling	interest	of	$38	million	recorded	on	its	consolidated balance	sheet.	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	consolidated	balance	sheet	at December	31,	2016	as	the	fair	value	of	this	indemnification	is	insignificant. As	more	fully	discussed	in	Note	20.	Condensed	Consolidating	Financial Information,	PM	USA	has	issued	guarantees	relating	to	Altria	Group,	Inc.'s obligations	under	its	outstanding	debt	securities,	borrowings	under	the	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	in	September 2010	and	has	no	expiration	date.	As	of	December	31,	2016,	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	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	consolidated	balance	sheets	at	December	31, 2016	and	2015.

# Note	20.	Condensed	Consolidating	Financial	Information

PM	USA,	which	is	a	100%	owned	subsidiary	of	Altria	Group,	Inc.,	has	guaranteed 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	not	result	in	PM	USA's	obligations	under	the	Guarantees constituting	a	fraudulent	transfer	or	conveyance,	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.	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	December	31,	2016,	the	respective	principal	100%	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	equity	interests.

The	following	sets	forth	the	condensed	consolidating	balance	sheets	as	of December	31,	2016	and	2015,	condensed	consolidating	statements	of	earnings	and comprehensive	earnings	for	the	years	ended	December	31,	2016,	2015	and	2014, and	condensed	consolidating	statements	of	cash	flows	for	the	years	ended December	31,	2016,	2015	and	2014	for	Altria	Group,	Inc.,	PM	USA	and, collectively,	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.

# Condensed	Consolidating	Balance	Sheets

| at	December	31,	2016 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $4,521 | $1 | $47 | $— | $4,569 |
| Receivables | — | 8 | 143 | — | 151 |
| Inventories: |  |  |  |  |  |
| Leaf\ttobacco | — | 541 | 351 | — | 892 |
| Other\traw\tmaterials | — | 111 | 53 | — | 164 |
| Work\tin\tprocess | — | 3 | 509 | — | 512 |
| Finished\tproduct | — | 112 | 371 | — | 483 |
|  | — | 767 | 1,284 | — | 2,051 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | 3,797 | 1,511 | (5,308) | — |
| Other\tcurrent\tassets | 170 | 118 | 201 | — | 489 |
| Total\tcurrent\tassets | 4,691 | 4,691 | 3,186 | (5,308) | 7,260 |
| Property,\tplant\tand\tequipment,\tat\tcost | — | 2,971 | 1,864 | — | 4,835 |
| Less\taccumulated\tdepreciation | — | 2,073 | 804 | — | 2,877 |
|  | — | 898 | 1,060 | — | 1,958 |
| Goodwill | — | — | 5,285 | — | 5,285 |
| Other\tintangible\tassets,\tnet | — | 2 | 12,034 | — | 12,036 |
| Investment\tin\tAB\tInBev | 17,852 | — | — | — | 17,852 |
| Investment\tin\tconsolidated\tsubsidiaries | 11,636 | 2,632 | — | (14,268) | — |
| Finance\tassets,\tnet | — | — | 1,028 | — | 1,028 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,790 | — | — | (4,790) | — |
| Other\tassets | 18 | 1,748 | 131 | (1,384) | 513 |
| Total\tAssets | $38,987 | $9,971 | $22,724 | $(25,750) | $45,932 |

# Condensed	Consolidating	Balance	Sheets	(Continued)

| at	December	31,	2016 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Liabilities |  |  |  |  |  |
| Accounts\tpayable | $1 | $92 | $332 | $— | $425 |
| Accrued\tliabilities: |  |  |  |  |  |
| Marketing | — | 619 | 128 | — | 747 |
| Employment\tcosts | 104 | 14 | 171 | — | 289 |
| Settlement\tcharges | — | 3,696 | 5 | — | 3,701 |
| Other | 261 | 438 | 326 | — | 1,025 |
| Dividends\tpayable | 1,188 | — | — | — | 1,188 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 5,030 | 237 | 41 | (5,308) | — |
| Total\tcurrent\tliabilities | 6,584 | 5,096 | 1,003 | (5,308) | 7,375 |
| Long-term\tdebt | 13,881 | — | — | — | 13,881 |
| Deferred\tincome\ttaxes | 5,424 | — | 4,376 | (1,384) | 8,416 |
| Accrued\tpension\tcosts | 207 | — | 598 | — | 805 |
| Accrued\tpostretirement\thealth\tcare\tcosts | — | 1,453 | 764 | — | 2,217 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | — | 4,790 | (4,790) | — |
| Other\tliabilities | 121 | 146 | 160 | — | 427 |
| Total\tliabilities | 26,217 | 6,695 | 11,691 | (11,482) | 33,121 |
| Contingencies |  |  |  |  |  |
| Redeemable\tnoncontrolling\tinterest | — | — | 38 | — | 38 |
| Stockholders'\tEquity |  |  |  |  |  |
| Common\tstock | 935 | — | 9 | (9) | 935 |
| Additional\tpaid-in\tcapital | 5,893 | 3,310 | 11,585 | (14,895) | 5,893 |
| Earnings\treinvested\tin\tthe\tbusiness | 36,906 | 237 | 1,118 | (1,355) | 36,906 |
| Accumulated\tother\tcomprehensive\tlosses | (2,052) | (271) | (1,720) | 1,991 | (2,052) |
| Cost\tof\trepurchased\tstock | (28,912) | — | — | — | (28,912) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 12,770 | 3,276 | 10,992 | (14,268) | 12,770 |
| Noncontrolling\tinterests | — | — | 3 | — | 3 |
| Total\tstockholders'\tequity | 12,770 | 3,276 | 10,995 | (14,268) | 12,773 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $38,987 | $9,971 | $22,724 | $(25,750) | $45,932 |

| at	December	31,	2015 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $2,313 | $— | $56 | $— | $2,369 |
| Receivables | — | 7 | 117 | — | 124 |
| Inventories: |  |  |  |  |  |
| Leaf\ttobacco | — | 562 | 395 | — | 957 |
| Other\traw\tmaterials | — | 123 | 58 | — | 181 |
| Work\tin\tprocess | — | 5 | 439 | — | 444 |
| Finished\tproduct | — | 121 | 328 | — | 449 |
|  | — | 811 | 1,220 | — | 2,031 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | 3,821 | 1,807 | (5,628) | — |
| Other\tcurrent\tassets | 284 | 65 | 112 | (74) | 387 |
| Total\tcurrent\tassets | 2,597 | 4,704 | 3,312 | (5,702) | 4,911 |
| Property,\tplant\tand\tequipment,\tat\tcost | — | 3,102 | 1,775 | — | 4,877 |
| Less\taccumulated\tdepreciation | — | 2,157 | 738 | — | 2,895 |
|  | — | 945 | 1,037 | — | 1,982 |
| Goodwill | — | — | 5,285 | — | 5,285 |
| Other\tintangible\tassets,\tnet | — | 2 | 12,026 | — | 12,028 |
| Investment\tin\tSABMiller | 5,483 | — | — | — | 5,483 |
| Investment\tin\tconsolidated\tsubsidiaries | 11,648 | 2,715 | — | (14,363) | — |
| Finance\tassets,\tnet | — | — | 1,239 | — | 1,239 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,790 | — | — | (4,790) | — |
| Other\tassets | 20 | 1,804 | 138 | (1,431) | 531 |
| Total\tAssets | $24,538 | $10,170 | $23,037 | $(26,286) | $31,459 |

| at	December	31,	2015 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Liabilities |  |  |  |  |  |
| Current\tportion\tof\tlong-term\tdebt | $— | $— | $4 | $— | $4 |
| Accounts\tpayable | 3 | 104 | 293 | — | 400 |
| Accrued\tliabilities: |  |  |  |  |  |
| Marketing | — | 586 | 109 | — | 695 |
| Employment\tcosts | 18 | 11 | 169 | — | 198 |
| Settlement\tcharges | — | 3,585 | 5 | — | 3,590 |
| Other | 255 | 616 | 276 | (74) | 1,073 |
| Dividends\tpayable | 1,110 | — | — | — | 1,110 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 5,427 | 191 | 10 | (5,628) | — |
| Total\tcurrent\tliabilities | 6,813 | 5,093 | 866 | (5,702) | 7,070 |
| Long-term\tdebt | 12,831 | — | 12 | — | 12,843 |
| Deferred\tincome\ttaxes | 1,646 | — | 4,452 | (1,431) | 4,667 |
| Accrued\tpension\tcosts | 215 | — | 1,062 | — | 1,277 |
| Accrued\tpostretirement\thealth\tcare\tcosts | — | 1,460 | 785 | — | 2,245 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | — | 4,790 | (4,790) | — |
| Other\tliabilities | 153 | 126 | 168 | — | 447 |
| Total\tliabilities | 21,658 | 6,679 | 12,135 | (11,923) | 28,549 |
| Contingencies |  |  |  |  |  |
| Redeemable\tnoncontrolling\tinterest | — | — | 37 | — | 37 |
| Stockholders'\tEquity |  |  |  |  |  |
| Common\tstock | 935 | — | 9 | (9) | 935 |
| Additional\tpaid-in\tcapital | 5,813 | 3,310 | 11,456 | (14,766) | 5,813 |
| Earnings\treinvested\tin\tthe\tbusiness | 27,257 | 436 | 1,099 | (1,535) | 27,257 |
| Accumulated\tother\tcomprehensive\tlosses | (3,280) | (255) | (1,692) | 1,947 | (3,280) |
| Cost\tof\trepurchased\tstock | (27,845) | — | — | — | (27,845) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 2,880 | 3,491 | 10,872 | (14,363) | 2,880 |
| Noncontrolling\tinterests | — | — | (7) | — | (7) |
| Total\tstockholders'\tequity | 2,880 | 3,491 | 10,865 | (14,363) | 2,873 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $24,538 | $10,170 | $23,037 | $(26,286) | $31,459 |

# Condensed	Consolidating	Statements	of	Earnings	and	Comprehensive	Earnings

| for	the	year	ended	December	31,	2016 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\trevenues | $— | $22,146 | $3,633 | $(35) | $25,744 |
| Cost\tof\tsales | — | 6,628 | 1,153 | (35) | 7,746 |
| Excise\ttaxes\ton\tproducts | — | 6,187 | 220 | — | 6,407 |
| Gross\tprofit | — | 9,331 | 2,260 | — | 11,591 |
| Marketing,\tadministration\tand\tresearch\tcosts | 165 | 1,996 | 489 | — | 2,650 |
| Asset\timpairment\tand\texit\tcosts | 5 | 97 | 77 | — | 179 |
| Operating\t(expense)\tincome | (170) | 7,238 | 1,694 | — | 8,762 |
| Interest\tand\tother\tdebt\texpense,\tnet | 519 | 10 | 218 | — | 747 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 823 | — | — | — | 823 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (795) | — | — | — | (795) |
| Gain\ton\tAB\tInBev/SABMiller\tbusiness\tcombination | (13,865) | — | — | — | (13,865) |
| Earnings\tbefore\tincome\ttaxes\tand\tequity\tearnings\tof\tsubsidiaries | 13,148 | 7,228 | 1,476 | — | 21,852 |
| Provision\tfor\tincome\ttaxes | 4,453 | 2,631 | 524 | — | 7,608 |
| Equity\tearnings\tof\tsubsidiaries | 5,544 | 268 | — | (5,812) | — |
| Net\tearnings | 14,239 | 4,865 | 952 | (5,812) | 14,244 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (5) | — | (5) |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $14,239 | $4,865 | $947 | $(5,812) | $14,239 |
| Net\tearnings | $14,239 | $4,865 | $952 | $(5,812) | $14,244 |
| Other\tcomprehensive\tearnings\t(losses),\tnet\tof\tdeferred\tincome\ttaxes | 1,228 | (16) | (28) | 44 | 1,228 |
| Comprehensive\tearnings | 15,467 | 4,849 | 924 | (5,768) | 15,472 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (5) | — | (5) |
| Comprehensive\tearnings\tattributable\tto\nAltria\tGroup,\tInc. | $15,467 | $4,849 | $919 | $(5,768) | $15,467 |

| for	the	year	ended	December	31,	2015 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\trevenues | $— | $22,133 | $3,342 | $(41) | $25,434 |
| Cost\tof\tsales | — | 6,664 | 1,117 | (41) | 7,740 |
| Excise\ttaxes\ton\tproducts | — | 6,369 | 211 | — | 6,580 |
| Gross\tprofit | — | 9,100 | 2,014 | — | 11,114 |
| Marketing,\tadministration\tand\tresearch\tcosts | 189 | 2,094 | 425 | — | 2,708 |
| Reduction\tof\tPMI\ttax-related\treceivable | 41 | — | — | — | 41 |
| Asset\timpairment\tand\texit\tcosts | — | — | 4 | — | 4 |
| Operating\t(expense)\tincome | (230) | 7,006 | 1,585 | — | 8,361 |
| Interest\tand\tother\tdebt\texpense,\tnet | 560 | 33 | 224 | — | 817 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 228 | — | — | — | 228 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (757) | — | — | — | (757) |
| Gain\ton\tAB\tInBev/SABMiller\tbusiness\tcombination | (5) | — | — | — | (5) |
| (Loss)\tearnings\tbefore\tincome\ttaxes\tand\tequity\tearnings\tof\tsubsidiaries | (256) | 6,973 | 1,361 | — | 8,078 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (184) | 2,536 | 483 | — | 2,835 |
| Equity\tearnings\tof\tsubsidiaries | 5,313 | 268 | — | (5,581) | — |
| Net\tearnings | 5,241 | 4,705 | 878 | (5,581) | 5,243 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (2) | — | (2) |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $5,241 | $4,705 | $876 | $(5,581) | $5,241 |
| Net\tearnings | $5,241 | $4,705 | $878 | $(5,581) | $5,243 |
| Other\tcomprehensive\t(losses)\tearnings,\tnet\tof\tdeferred\nincome\ttaxes | (598) | 86 | (69) | (17) | (598) |
| Comprehensive\tearnings | 4,643 | 4,791 | 809 | (5,598) | 4,645 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (2) | — | (2) |
| Comprehensive\tearnings\tattributable\tto\nAltria\tGroup,\tInc. | $4,643 | $4,791 | $807 | $(5,598) | $4,643 |

| for	the	year	ended	December	31,	2014 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\trevenues | $— | $21,298 | $3,267 | $(43) | $24,522 |
| Cost\tof\tsales | — | 6,722 | 1,106 | (43) | 7,785 |
| Excise\ttaxes\ton\tproducts | — | 6,358 | 219 | — | 6,577 |
| Gross\tprofit | — | 8,218 | 1,942 | — | 10,160 |
| Marketing,\tadministration\tand\tresearch\tcosts | 231 | 1,889 | 419 | — | 2,539 |
| Reduction\tof\tMondelēz\ttax-related\treceivable | 2 | — | — | — | 2 |
| Asset\timpairment\tand\texit\tcosts | — | (6) | 5 | — | (1) |
| Operating\t(expense)\tincome | (233) | 6,335 | 1,518 | — | 7,620 |
| Interest\tand\tother\tdebt\texpense\t(income),\tnet | 614 | (46) | 240 | — | 808 |
| Loss\ton\tearly\textinguishment\tof\tdebt | — | — | 44 | — | 44 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (1,006) | — | — | — | (1,006) |
| Earnings\tbefore\tincome\ttaxes\tand\tequity\tearnings\tof\tsubsidiaries | 159 | 6,381 | 1,234 | — | 7,774 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (119) | 2,381 | 442 | — | 2,704 |
| Equity\tearnings\tof\tsubsidiaries | 4,792 | 244 | — | (5,036) | — |
| Net\tearnings | 5,070 | 4,244 | 792 | (5,036) | 5,070 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | — | — | — |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $5,070 | $4,244 | $792 | $(5,036) | $5,070 |
| Net\tearnings | $5,070 | $4,244 | $792 | $(5,036) | $5,070 |
| Other\tcomprehensive\tlosses,\tnet\tof\tdeferred\nincome\ttaxes | (1,304) | (110) | (642) | 752 | (1,304) |
| Comprehensive\tearnings | 3,766 | 4,134 | 150 | (4,284) | 3,766 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | — | — | — |
| Comprehensive\tearnings\tattributable\tto\nAltria\tGroup,\tInc. | $3,766 | $4,134 | $150 | $(4,284) | $3,766 |

# Condensed	Consolidating	Statements	of	Cash	Flows

| for	the	year	ended	December	31,	2016 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\tOperating\tActivities |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $4,326 | $5,138 | $319 | $(5,992) | $3,791 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |  |  |
| Capital\texpenditures | — | (45) | (144) | — | (189) |
| Proceeds\tfrom\tfinance\tassets | — | — | 231 | — | 231 |
| Proceeds\tfrom\tAB\tInBev/SABMiller\tbusiness\tcombination | 4,773 | — | — | — | 4,773 |
| Purchase\tof\tAB\tInBev\tordinary\tshares | (1,578) | — | — | — | (1,578) |
| Payment\tfor\tderivative\tfinancial\tinstrument | (3) | — | — | — | (3) |
| Proceeds\tfrom\tderivative\tfinancial\tinstruments | 510 | — | — | — | 510 |
| Other | — | — | (36) | — | (36) |
| Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | 3,702 | (45) | 51 | — | 3,708 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |  |  |
| Long-term\tdebt\tissued | 1,976 | — | — | — | 1,976 |
| Long-term\tdebt\trepaid | (933) | — | — | — | (933) |
| Repurchases\tof\tcommon\tstock | (1,030) | — | — | — | (1,030) |
| Dividends\tpaid\ton\tcommon\tstock | (4,512) | — | — | — | (4,512) |
| Changes\tin\tamounts\tdue\tto/from\tAltria\tGroup,\tInc.\nand\tsubsidiaries | (530) | (28) | 558 | — | — |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (809) | — | — | — | (809) |
| Cash\tdividends\tpaid\tto\tparent | — | (5,064) | (928) | 5,992 | — |
| Other | 18 | — | (9) | — | 9 |
| Net\tcash\tused\tin\tfinancing\tactivities | (5,820) | (5,092) | (379) | 5,992 | (5,299) |
| Cash\tand\tcash\tequivalents: |  |  |  |  |  |
| Increase\t(decrease) | 2,208 | 1 | (9) | — | 2,200 |
| Balance\tat\tbeginning\tof\tyear | 2,313 | — | 56 | — | 2,369 |
| Balance\tat\tend\tof\tyear | $4,521 | $1 | $47 | $— | $4,569 |

| for	the	year	ended	December	31,	2015 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\tOperating\tActivities |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $5,085 | $5,204 | $961 | $(5,440) | $5,810 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |  |  |
| Capital\texpenditures | — | (51) | (178) | — | (229) |
| Proceeds\tfrom\tfinance\tassets | — | — | 354 | — | 354 |
| Payment\tfor\tderivative\tfinancial\tinstrument | (132) | — | — | — | (132) |
| Other | — | 10 | (18) | — | (8) |
| Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | (132) | (41) | 158 | — | (15) |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |  |  |
| Long-term\tdebt\trepaid | (1,793) | — | — | — | (1,793) |
| Repurchases\tof\tcommon\tstock | (554) | — | — | — | (554) |
| Dividends\tpaid\ton\tcommon\tstock | (4,179) | — | — | — | (4,179) |
| Changes\tin\tamounts\tdue\tto/from\tAltria\tGroup,\tInc.\nand\tsubsidiaries | 814 | (495) | (319) | — | — |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (226) | — | — | — | (226) |
| Cash\tdividends\tpaid\tto\tparent | — | (4,671) | (769) | 5,440 | — |
| Other | 17 | — | (12) | — | 5 |
| Net\tcash\tused\tin\tfinancing\tactivities | (5,921) | (5,166) | (1,100) | 5,440 | (6,747) |
| Cash\tand\tcash\tequivalents: |  |  |  |  |  |
| (Decrease)\tincrease | (968) | (3) | 19 | — | (952) |
| Balance\tat\tbeginning\tof\tyear | 3,281 | 3 | 37 | — | 3,321 |
| Balance\tat\tend\tof\tyear | $2,313 | $— | $56 | $— | $2,369 |

| for	the	year	ended	December	31,	2014 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\tOperating\tActivities |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $4,924 | $4,451 | $707 | $(5,419) | $4,663 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |  |  |
| Capital\texpenditures | — | (44) | (119) | — | (163) |
| Acquisition\tof\tGreen\tSmoke,\tnet\tof\tacquired\tcash | — | — | (102) | — | (102) |
| Proceeds\tfrom\tfinance\tassets | — | — | 369 | — | 369 |
| Other | — | 70 | 3 | — | 73 |
| Net\tcash\tprovided\tby\tinvesting\tactivities | — | 26 | 151 | — | 177 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |  |  |
| Long-term\tdebt\tissued | 999 | — | — | — | 999 |
| Long-term\tdebt\trepaid | (525) | — | (300) | — | (825) |
| Repurchases\tof\tcommon\tstock | (939) | — | — | — | (939) |
| Dividends\tpaid\ton\tcommon\tstock | (3,892) | — | — | — | (3,892) |
| Changes\tin\tamounts\tdue\tto/from\tAltria\tGroup,\tInc.\tand\tsubsidiaries | (411) | (351) | 762 | — | — |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | — | — | (44) | — | (44) |
| Cash\tdividends\tpaid\tto\tparent | — | (4,124) | (1,295) | 5,419 | — |
| Other | 11 | — | (4) | — | 7 |
| Net\tcash\tused\tin\tfinancing\tactivities | (4,757) | (4,475) | (881) | 5,419 | (4,694) |
| Cash\tand\tcash\tequivalents: |  |  |  |  |  |
| Increase\t(decrease) | 167 | 2 | (23) | — | 146 |
| Balance\tat\tbeginning\tof\tyear | 3,114 | 1 | 60 | — | 3,175 |
| Balance\tat\tend\tof\tyear | $3,281 | $3 | $37 | $— | $3,321 |

# Note	21.	Quarterly	Financial	Data	(Unaudited)

During	2016	and	2015,	the	following	pre-tax	charges	or	(gains)	were	included	in	net	earnings	attributable	to	Altria	Group,	Inc.:

(1)	During	the	fourth	quarter	of	2016,	Altria	Group,	Inc.	recorded	a	non-cash	gain,	reflecting	its	share	of	SABMiller's	increase	to	shareholders'	equity,	resulting from	the	third	quarter	of	2016	completion	of	the	SABMiller,	The	Coca-Cola	Company	and	Gutsche	Family	Investments	transaction,	combining	bottling	operations	in Africa.	The	gain	was	included	in	earnings	from	equity	investment	in	SABMiller,	and	increased	Altria	Group,	Inc.'s	earnings	before	income	taxes	($309	million),	net earnings	($201	million),	net	earnings	attributable	to	Altria	Group,	Inc.	($201	million)	and	diluted	EPS	attributable	to	Altria	Group,	Inc.	($0.10)	in	the	fourth	quarter	of 2016.	The	impact	of	recording	the	gain	in	the	fourth	quarter	of	2016	rather	than	the	third	quarter	of	2016	was	not	material	to	Altria	Group,	Inc.'s	financial	statements	in either	quarter.

As	discussed	in	Note	15.	Income	Taxes,	Altria	Group,	Inc.	has	recognized	income	tax	benefits	and	charges	in	the	consolidated	statements	of	earnings	during	2016 and	2015	as	a	result	of	various	tax	events.

# Report	of	Independent	Registered	Public	Accounting	Firm

To	the	Board	of	Directors	and Stockholders	of	Altria	Group,	Inc.:

In	our	opinion,	the	accompanying	consolidated	balance	sheets	and	the	related consolidated	statements	of	earnings,	comprehensive	earnings,	stockholders' equity,	and	cash	flows,	present	fairly,	in	all	material	respects,	the	financial	position of	Altria	Group,	Inc.	and	its	subsidiaries	at	December	31,	2016	and	2015,	and	the results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the period	ended	December	31,	2016	in	conformity	with	accounting	principles generally	accepted	in	the	United	States	of	America.	Also	in	our	opinion,	Altria Group,	Inc.	maintained,	in	all	material	respects,	effective	internal	control	over financial	reporting	as	of	December	31,	2016,	based	on	criteria	established	in Internal	Control	-	Integrated	Framework	(2013)	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission	(COSO).	Altria	Group, Inc.'s	management	is	responsible	for	these	financial	statements,	for	maintaining effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the effectiveness	of	internal	control	over	financial	reporting,	included	in	the accompanying	Report	of	Management	on	Internal	Control	over	Financial Reporting.	Our	responsibility	is	to	express	opinions	on	these	financial	statements and	on	Altria	Group,	Inc.'s	internal	control	over	financial	reporting	based	on	our integrated	audits.	We	conducted	our	audits	in	accordance	with	the	standards	of	the Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards require	that	we	plan	and	perform	the	audits	to	obtain	reasonable	assurance	about whether	the	financial	statements	are	free	of	material	misstatement	and	whether effective	internal	control	over	financial	reporting	was	maintained	in	all	material respects.	Our	audits	of	the	financial	statements	included	examining,	on	a	test	basis, evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements, assessing	the	accounting	principles	used	and	significant	estimates	made	by management,	and	evaluating	the	overall	financial	statement	presentation.	Our	audit of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of internal	control	over	financial	reporting,	assessing	the	risk	that	a	material weakness	exists,	and	testing	and	evaluating	the	design	and	operating	effectiveness of	internal	control	based	on	the	assessed	risk.	Our	audits	also	included	performing such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	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.	A	company's	internal	control	over financial	reporting	includes	those	policies	and	procedures	that	(i)	pertain	to	the maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the transactions	and	dispositions	of	the	assets	of	the	company;	(ii)	provide	reasonable

assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of financial	statements	in	accordance	with	generally	accepted	accounting	principles, and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in accordance	with	authorizations	of	management	and	directors	of	the	company;	and (iii)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with the	policies	or	procedures	may	deteriorate.

# /s/	PricewaterhouseCoopers	LLP

Richmond,	Virginia

# Report	of	Management	On	Internal	Control	Over	Financial Reporting

Management	of	Altria	Group,	Inc.	is	responsible	for	establishing	and	maintaining adequate	internal	control	over	financial	reporting	as	defined	in	Rules	13a-15(f)	and 15d-15(f)	under	the	Securities	Exchange	Act	of	1934,	as	amended.	Altria	Group, Inc.'s	internal	control	over	financial	reporting	is	a	process	designed	to	provide reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with accounting	principles	generally	accepted	in	the	United	States	of	America.	Internal control	over	financial	reporting	includes	those	written	policies	and	procedures that:

n		pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	Altria	Group,	Inc.; n		provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to permit	preparation	of	financial	statements	in	accordance	with	accounting principles	generally	accepted	in	the	United	States	of	America;

n		provide	reasonable	assurance	that	receipts	and	expenditures	of	Altria	Group, Inc.	are	being	made	only	in	accordance	with	the	authorization	of	management	and directors	of	Altria	Group,	Inc.;	and

n		provide	reasonable	assurance	regarding	prevention	or	timely	detection	of unauthorized	acquisition,	use	or	disposition	of	assets	that	could	have	a	material effect	on	the	consolidated	financial	statements.

Internal	control	over	financial	reporting	includes	the	controls	themselves, monitoring	and	internal	auditing	practices	and	actions	taken	to	correct	deficiencies as	identified.

Management	assessed	the	effectiveness	of	Altria	Group,	Inc.'s	internal control	over	financial	reporting	as	of	December	31,	2016.	Management	based	this assessment	on	criteria	for	effective	internal	control	over	financial	reporting described	in	Internal	Control	-	Integrated	Framework	(2013)	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO). Management's	assessment	included	an	evaluation	of	the	design	of	Altria	Group, Inc.'s	internal	control	over	financial	reporting	and	testing	of	the	operational effectiveness	of	its	internal	control	over	financial	reporting.	Management reviewed	the	results	of	its	assessment	with	the	Audit	Committee	of	our	Board	of Directors.

Based	on	this	assessment,	management	determined	that,	as	of	December	31, 2016,	Altria	Group,	Inc.	maintained	effective	internal	control	over	financial reporting.

PricewaterhouseCoopers	LLP,	an	independent	registered	public	accounting firm,	who	audited	and	reported	on	the	consolidated	financial	statements	of	Altria Group,	Inc.	included	in	this	report,	has	audited	the	effectiveness	of	Altria	Group, Inc.'s	internal	control	over	financial	reporting	as	of	December	31,	2016,	as	stated in	their	report	herein.

# Item	9.	Changes	in	and	Disagreements	with	Accountants	on Accounting	and	Financial	Disclosure.

# Item	9A.	Controls	and	Procedures.

# Disclosure	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	Exchange	Act)	as of	the	end	of	the	period	covered	by	this	Annual	Report	on	Form	10-K.	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.

The	Report	of	Independent	Registered	Public	Accounting	Firm	and	the Report	of	Management	on	Internal	Control	over	Financial	Reporting	are	included in	Item	8.

# Item	9B.	Other	Information.

# Part	III

Except	for	the	information	relating	to	the	executive	officers	set	forth	in	Item	10,	the	information	called	for	by	Items	10-14	is	hereby	incorporated	by	reference	to	Altria Group,	Inc.'s	definitive	proxy	statement	for	use	in	connection	with	its	Annual	Meeting	of	Shareholders	to	be	held	on	May	18,	2017	that	will	be	filed	with	the	SEC	on	or about	April	6,	2017	(the	"proxy	statement"),	and,	except	as	indicated	therein,	made	a	part	hereof.

# Item	10.	Directors,	Executive	Officers	and	Corporate	Governance.

Refer	to	"Proposals	Requiring	Your	Vote	-	Proposal	1	-	Election	of	Directors,"	"Ownership	of	Equity	Securities	of	Altria	-	Section	16(a)	Beneficial	Ownership Reporting	Compliance"	and	"Board	and	Governance	Matters	-	Committees	of	the	Board	of	Directors"	sections	of	the	proxy	statement.

# Executive	Officers	as	of	February	13,	2017:

| Name | Office | Age |
| :--- | :--- | :--- |
| Martin\tJ.\tBarrington | Chairman,\tChief\tExecutive\tOfficer\tand\tPresident | 63 |
| Daniel\tJ.\tBryant | Vice\tPresident\tand\tTreasurer | 47 |
| James\tE.\tDillard\tIII | Senior\tVice\tPresident,\tResearch,\tDevelopment\tand\tRegulatory\tAffairs | 53 |
| Ivan\tS.\tFeldman | Vice\tPresident\tand\tController | 50 |
| Clifford\tB.\tFleet | President\tand\tChief\tExecutive\tOfficer,\tPhilip\tMorris\tUSA\tInc. | 46 |
| William\tF.\tGifford,\tJr. | Executive\tVice\tPresident\tand\tChief\tFinancial\tOfficer | 46 |
| Craig\tA.\tJohnson | President\tand\tChief\tExecutive\tOfficer,\tAltria\tGroup\tDistribution\tCompany | 64 |
| Denise\tF.\tKeane | Executive\tVice\tPresident\tand\tGeneral\tCounsel | 64 |
| Salvatore\tMancuso | Senior\tVice\tPresident,\tStrategy,\tPlanning\tand\tProcurement | 51 |
| Brian\tW.\tQuigley | President\tand\tChief\tExecutive\tOfficer,\tU.S.\tSmokeless\tTobacco\tCompany\tLLC | 43 |
| W.\tHildebrandt\tSurgner,\tJr. | Corporate\tSecretary\tand\tSenior\tAssistant\tGeneral\tCounsel | 51 |
| Charles\tN.\tWhitaker | Senior\tVice\tPresident,\tHuman\tResources,\tCompliance\tand\tInformation\tServices\tand\tChief\tCompliance\tOfficer | 50 |
| Howard\tA.\tWillard\tIII | Executive\tVice\tPresident\tand\tChief\tOperating\tOfficer | 53 |

# Codes	of	Conduct	and	Corporate	Governance

Altria	Group,	Inc.	has	adopted	the	Altria	Code	of	Conduct	for	Compliance	and Integrity,	which	complies	with	requirements	set	forth	in	Item	406	of	Regulation	S- K.	This	Code	of	Conduct	applies	to	all	of	its	employees,	including	its	principal executive	officer,	principal	financial	officer,	principal	accounting	officer	or controller,	and	persons	performing	similar	functions.	Altria	Group,	Inc.	has	also adopted	a	code	of	business	conduct	and	ethics	that	applies	to	the	members	of	its Board	of	Directors.	These	documents	are	available	free	of	charge	on	Altria	Group, Inc.'s	website	at	www.altria.com.

Conduct,	will	be	disclosed	on	Altria	Group,	Inc.'s	website	at	www.altria.com within	the	time	period	required	by	applicable	rules.

In	addition,	Altria	Group,	Inc.	has	adopted	corporate	governance	guidelines and	charters	for	its	Audit,	Compensation	and	Nominating,	Corporate	Governance and	Social	Responsibility	Committees	and	the	other	committees	of	the	Board	of Directors.	All	of	these	documents	are	available	free	of	charge	on	Altria	Group, Inc.'s	website	at	www.altria.com.

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

Any	waiver	granted	by	Altria	Group,	Inc.	to	its	principal	executive	officer, principal	financial	officer	or	controller	under	the	Code	of	Conduct,	and	certain amendments	to	the	Code	of

# Item	11.	Executive	Compensation.

Refer	to	"Executive	Compensation,"	"Compensation	Committee	Matters	-	Compensation	Committee	Interlocks	and	Insider	Participation,"	"Compensation	Committee Matters	-	Compensation	Committee	Report	for	the	Year	Ended	December	31,	2016"	and	"Board	and	Governance	Matters	-	Directors	-	Director	Compensation"	sections of	the	proxy	statement.

# Item	12.	Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters.

The	number	of	shares	to	be	issued	upon	exercise	or	vesting	and	the	number	of	shares	remaining	available	for	future	issuance	under	Altria	Group,	Inc.'s	equity compensation	plans	at	December	31,	2016,	were	as	follows:

Equity	compensation	plans	approved	by	shareholders	 (1)

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

(2) Represents	1,951,214	shares	of	restricted	stock	units	(also	referred	to	as	deferred	stock).

(3) Includes	39,046,757	shares	available	under	the	2015	Performance	Incentive	Plan	and	954,574	shares	available	under	the	2015	Stock	Compensation	Plan	for	Non-Employee Directors,	and	excludes	shares	reflected	in	column	(a).

Refer	to	"Ownership	of	Equity	Securities	of	Altria	-	Directors	and	Executive	Officers"	and	"Ownership	of	Equity	Securities	of	Altria	-	Certain	Other	Beneficial Owners"	sections	of	the	proxy	statement.

# Item	13.	Certain	Relationships	and	Related	Transactions,	and	Director	Independence.

Refer	to	"Related	Person	Transactions	and	Code	of	Conduct"	and	"Board	and	Governance	Matters	-	Directors	-	Director	Independence	Determinations"	sections	of	the proxy	statement.

# Item	14.	Principal	Accounting	Fees	and	Services.

Refer	to	"Audit	Committee	Matters	-	Independent	Registered	Public	Accounting	Firm's	Fees"	and	"Audit	Committee	Matters	-	Pre-Approval	Policy"	sections	of	the proxy	statement.

# Part	IV

# Item	15.	Exhibits	and	Financial	Statement	Schedules.

(a)	Index	to	Consolidated	Financial	Statements

| Part	IV |  |
| :--- | :--- |
| Item\t15.\tExhibits\tand\tFinancial\tStatement\tSchedules. |  |
| (a)\tIndex\tto\tConsolidated\tFinancial\tStatements |  |
|  | Page |
| Consolidated\tBalance\tSheets\tat\tDecember\t31,\t2016\tand\t2015 | 38 |
| Consolidated\tStatements\tof\tEarnings\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 40 |
| Consolidated\tStatements\tof\tComprehensive\tEarnings\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 41 |
| Consolidated\tStatements\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 42 |
| Consolidated\tStatements\tof\tStockholders'\tEquity\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 43 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 44 |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 112 |
| Report\tof\tManagement\ton\tInternal\tControl\tOver\tFinancial\tReporting | 113 |

(b)	The	following	exhibits	are	filed	as	part	of	this	Annual	Report	on	Form	10-K:

4.2 First	Supplemental	Indenture	to	Indenture,	dated	as	of	December	2,	1996,	between	Altria	Group,	Inc. and	The	Bank	of	New	York	(as	successor	in	interest	to	JPMorgan	Chase	Bank,	formerly	known	as	The Chase	Manhattan	Bank),	as	Trustee,	dated	as	of	February	13,	2008.	Incorporated	by	reference	to	Altria Group,	Inc.'s	Current	Report	on	Form	8-K	filed	on	February	15,	2008	(File	No.	1-08940).

10.11 Term	Sheet	effective	December	17,	2012,	between	Philip	Morris	USA	Inc.,	the	other	participating manufacturers,	and	various	states	and	territories	for	settlement	of	the	2003	-	2012	Non-Participating Manufacturer	Adjustment	with	those	states.	Incorporated	by	reference	to	Altria	Group,	Inc.'s	Current Report	on	From	8-K	filed	on	December	18,	2012	(File	No.	1-08940).

10.12 Employee	Matters	Agreement	by	and	between	Altria	Group,	Inc.	and	Kraft	Foods	Inc.	(now	known	as Mondelēz	International,	Inc.),	dated	as	of	March	30,	2007.	Incorporated	by	reference	to	Altria	Group, Inc.'s	Current	Report	on	Form	8-K	filed	on	March	30,	2007	(File	No.	1-08940).

10.13 Tax	Sharing	Agreement	by	and	between	Altria	Group,	Inc.	and	Kraft	Foods	Inc.	(now	known	as Mondelēz	International,	Inc.),	dated	as	of	March	30,	2007.	Incorporated	by	reference	to	Altria	Group, Inc.'s	Current	Report	on	Form	8-K	filed	on	March	30,	2007	(File	No.	1-08940).

# Long-Term	Disability	Benefit	Equalization	Plan,	effective	as	of	January	1,	1989,	as	amended.

# Incorporated	by	reference	to	Altria	Group,	Inc.'s	Quarterly	Report	on	Form	10-Q	for	the	period	ended

10.35 Form	of	Deferred	Stock	Agreement,	dated	as	of	January	29,	2013.	Incorporated	by	reference	to	Altria Group,	Inc.'s	Quarterly	Report	on	Form	10-Q	for	the	period	ended	March	31,	2013	(File	No.	1-08940).*

*	Denotes	management	contract	or	compensatory	plan	or	arrangement	in	which	directors	or	executive	officers	are	eligible	to	participate.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	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.

By: /s/	MARTIN	J.	BARRINGTON

(Martin	J.	Barrington

Chairman,	Chief	Executive	Officer	and

President)

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the registrant	and	in	the	capacities	and	on	the	date	indicated:



Question: what is the roi of an investment in s&p500 from december 2011 to december 2013?
Calculation: a = 153.55 - 100
b = a / 100 
answer = b * 100
Answer: 53.55%