# 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,	2014

¨ 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)

(I.R.S.	Employer Identification	No.)

(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	o 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,	2014,	the	aggregate	market	value	of	the	registrant's	common	stock	held	by	non-affiliates	of	the	registrant	was	approximately	$83	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	20,	2015,	to	be	filed	with	the Securities	and	Exchange	Commission	on	or	about	April	9,	2015,	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 | 8 |
| Item\t2. | Properties | 8 |
| Item\t3. | Legal\tProceedings | 9 |
| Item\t4. | Mine\tSafety\tDisclosures | 9 |
| PART\tII |  |  |
| Item\t5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 10 |
| Item\t6. | Selected\tFinancial\tData | 12 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 13 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 36 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 37 |
| Item\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 107 |
| Item\t9A. | Controls\tand\tProcedures | 107 |
| Item\t9B. | Other\tInformation | 107 |
| PART\tIII |  |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 107 |
| Item\t11. | Executive\tCompensation | 108 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 108 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 108 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 108 |
| PART\tIV |  |  |
| Item\t15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 109 |
| Signatures |  | 114 |

# 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,	2014,	Altria	Group,	Inc.'s wholly-owned	subsidiaries	included	Philip	Morris	USA	Inc.	("PM	USA"),	which is	engaged	predominantly	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	Inc.,	which	provides	various	support	services,	such	as legal,	regulatory,	finance,	human	resources	and	external	affairs,	to	Altria	Group, Inc.	and	its	subsidiaries.

At	December	31,	2014,	Altria	Group,	Inc.	also	held	approximately	27%	of	the economic	and	voting	interest	of	SABMiller	plc	("SABMiller"),	which	Altria Group,	Inc.	accounts	for	under	the	equity	method	of	accounting. ▪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,	2014,	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	SABMiller	if	and	when	SABMiller	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	reviews	operating companies	income	to	evaluate	the	performance	of,	and

allocate	resources	to,	the	segments.	Operating	companies	income	for	the	segments is	defined	as	operating	income	before	amortization	of	intangibles	and	general corporate	expenses.	Interest	and	other	debt	expense,	net,	and	provision	for	income taxes	are	centrally	managed	at	the	corporate	level	and,	accordingly,	such	items	are not	presented	by	segment	since	they	are	excluded	from	the	measure	of	segment profitability	reviewed	by	Altria	Group,	Inc.'s	chief	operating	decision	maker.	Net revenues	and	operating	companies	income	(together	with	a	reconciliation	to earnings	before	income	taxes)	attributable	to	each	such	segment	for	each	of	the	last three	years	are	set	forth	in	Note	15.	Segment	Reporting	to	the	consolidated financial	statements	in	Item	8.	Financial	Statements	and	Supplementary	Data	of this	Annual	Report	on	Form	10-K	("Item	8").	Information	about	total	assets	by segment	is	not	disclosed	because	such	information	is	not	reported	to	or	used	by Altria	Group,	Inc.'s	chief	operating	decision	maker.	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:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts | 87.2\t% | 84.5% | 83.7% |
| Smokeless\tproducts | 13.4 | 12.2 | 12.5 |
| Wine | 1.7 | 1.4 | 1.4 |
| All\tother | (2.3) | 1.9 | 2.4 |
| Total | 100.0\t% | 100.0% | 100.0% |

For	items	affecting	the	comparability	of	the	relative	percentages	of	operating companies	income	(loss)	attributable	to	each	reportable	segment,	see	Note	15. Segment	Reporting	to	the	consolidated	financial	statements	in	Item	8	("Note	15").

# Narrative	Description	of	Business

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

# Tobacco	Space

Altria	Group,	Inc.'s	tobacco	operating	companies	include	PM	USA,	USSTC	and other	subsidiaries	of	UST,	Middleton	and	Nu	Mark.	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	comprised	of	cigarettes	manufactured	and	sold	by	PM	USA	and machine-made	large

cigars	and	pipe	tobacco	manufactured	and	sold	by	Middleton;	smokeless	tobacco products,	substantially	all	of	which	are	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	125.4 billion	units	in	2014,	a	decrease	of	3.0%	from	2013.	Marlboro,	the	principal cigarette	brand	of	PM	USA,	has	been	the	largest-selling	cigarette	brand	in	the United	States	for	over	35	years.

▪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	1.3	billion	units	in	2014,	an	increase	of	6.1%	from 2013.	Black	&	Mild	is	the	principal	cigar	brand	of	Middleton.

▪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,	value	brands,	Red	Seal	and Husky,	and	Marlboro	Snus,	a	premium	PM	USA	spit-free	smokeless	tobacco product.	Substantially	all	of	the	smokeless	tobacco	products	are	manufactured	and sold	to	customers	in	the	United	States.	Total	smokeless	products	shipment	volume was	793.3	million	units	in	2014,	an	increase	of	0.7%	from	2013.

▪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	Indiana	and	Arizona.	During	2014,	Nu	Mark	expanded	MarkTen nationally.	In	April	2014,	Nu	Mark	acquired	the	e-vapor	business	of	Green Smoke,	Inc.	and	its	affiliates	("Green	Smoke"),	which	has	been	selling	e-vapor products	since	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").	Further,	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	Altria	Group,	Inc.'s	subsidiaries'	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	technologies	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	and	other	discounts,	including	coupons,	product promotions	and	allowances	for	new	products.

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	United	States	Food	and	Drug	Administration	("FDA")	with	broad authority	to	regulate	the	design,	manufacture,	packaging,	advertising,	promotion, sale	and	distribution	of	cigarettes,	cigarette	tobacco	and	smokeless	tobacco products;	the	authority	to	require	disclosures	of	related	information;	and	the authority	to	enforce	the	FSPTCA	and	related	regulations.	The	FSPTCA	imposes restrictions	on	the	advertising,	promotion,	sale	and	distribution	of	tobacco products,	including	at	retail.	The	law	also	grants	the	FDA	authority	to	extend	the FSPTCA	application,	by	regulation,	to	all	other	tobacco	products,	including	cigars, pipe	tobacco	and	electronic	cigarettes.	In	April	2014,	the	FDA	issued	proposed regulations	for	other	tobacco	products,	which	as	proposed	would	include	machine- made	large	cigars,	e-vapor	products	(such	as	electronic	cigarettes),	pipe	tobacco and	chewable	tobacco-derived	nicotine	products	marketed	and	sold	by	some	of our	tobacco	subsidiaries.	The	proposed	regulations	would	impose	the	FSPTCA regulatory	framework,	including	the	foregoing	measures,	on	products manufactured,	marketed	and	sold	by	Nu	Mark	and	Middleton	with	potentially wide-ranging	impact	on	their	businesses.	PM	USA	and	USSTC	are	subject	to quarterly	user	fees	as	a	result	of	the	FSPTCA,	and	the	cost	is	being	allocated	based on	the	relative	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	United	States	tobacco	requirements	through	leaf	merchants. Tobacco	production	in	the	United	States	was	historically	subject	to government	controls,	including	the	production	control	programs	administered	by the	United	States	Department	of	Agriculture	(the	"USDA").	In	October	2004,	the Fair	and	Equitable	Tobacco	Reform	Act	of	2004	("FETRA"),	which	applied	to PM	USA,	Middleton	and	USSTC,	was	signed	into	law.	FETRA	eliminated	the federal	tobacco	quota	and	price	support	program	through	an	industry-funded	buy- out	of	tobacco	growers	and	quota	holders.	The	cost	of	the	10-year	buy-out,	which expired	after	the	third	quarter	of	2014,	was	approximately	$9.5	billion	and	was paid	by	manufacturers	and	importers	of	each	kind	of	tobacco	product	subject	to federal	excise	tax	("FET").	The	cost	was	allocated	based	on	the	relative	market shares	of	manufacturers	and	importers	of	each	kind	of	tobacco	product.	As

a	result	of	FETRA,	Altria	Group,	Inc.'s	subsidiaries	recorded	charges	to	cost	of sales	of	approximately	$0.3	billion	during	the	year	ended	December	31,	2014	and approximately	$0.4	billion	for	each	of	the	years	ended	December	31,	2013	and 2012.

The	quota	buy-out	and	the	expiration	of	the	quota	buy-out	did	not	have	a material	impact	on	Altria	Group,	Inc.'s	2014	consolidated	results.

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	and	dark	air-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.	Management's	Discussion	and Analysis	of	Financial	Condition	and	Results	of	Operations	of	this	Annual	Report on	Form	10-K	for	a	discussion	of	risks	associated	with	tobacco	supply.

Ste.	Michelle	is	a	producer	of	premium	varietal	and	blended	table	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	wine	regions	and	foreign	countries.	Ste.	Michelle's	total	2014 wine	shipment	volume	of	approximately	8.4	million	cases	increased	4.8%	from 2013.

Ste.	Michelle	holds	an	85%	ownership	interest	in	Michelle-Antinori,	LLC, which	owns	Stag's	Leap	Wine	Cellars	in	Napa	Valley.	Ste.	Michelle	also	owns Conn	Creek	in	Napa	Valley	and	Erath	in	Oregon.	In	addition,	Ste.	Michelle 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	through	state-licensed	distributors.

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

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.

# 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	7.	Finance	Assets,	net to	the	consolidated	financial	statements	in	Item	8	("Note	7").

# Other	Matters

▪Customers:	The	largest	customer	of	PM	USA,	USSTC	and	Middleton, McLane	Company,	Inc.,	accounted	for	approximately	27%	of	Altria	Group,	Inc.'s consolidated	net	revenues	for	each	of	the	years	ended	December	31,	2014,	2013 and	2012.	Substantially	all	of	these	net	revenues	were	reported	in	the	smokeable products	and	smokeless	products	segments.

Sales	to	three	distributors	accounted	for	approximately	67%	of	net	revenues for	the	wine	segment	for	the	year	ended	December	31,	2014	and	66%	for	each	of the	years	ended	December	31,	2013	and	2012.

▪Employees:	At	December	31,	2014,	Altria	Group,	Inc.	and	its	subsidiaries employed	approximately	9,000	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,	2015	of	this	Annual Report	on	Form	10-K.

▪Research	and	Development:	Research	and	development	expense	for	the years	ended	December	31,	2014,	2013	and	2012	is	set	forth	in	Note	17.	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,	2014,	the	portfolio	of	over	650	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,	2014.	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	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.

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.

We	elaborate	on	these	and	other	risks	we	face	throughout	this	document, particularly	in	the	"Business	Environment"	sections	preceding	our	discussion	of operating	results	of	our	subsidiaries'	businesses	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").	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	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	46	states	and	Puerto	Rico	now	limit	the	dollar	amount	of	bonds or	require	no	bond	at	all.	As	discussed	in	Note	18,	Contingencies	to	the consolidated	financial	statements	in	Item	8	("Note	18"),	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,	PM	USA	faces	potentially	significant	non-monetary remedies.	For	example,	in	the	lawsuit	brought	by	the	United	States	Department	of Justice,	discussed	in	Note	18,	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	18	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.

As	described	in	Tobacco	Space	-	Business	Environment	in	Item	7,	PM	USA	faces significant	governmental	and	private	sector	actions,	including	efforts	aimed	at reducing	the	incidence	of	tobacco	use	and	efforts	seeking	to	hold	PM	USA 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,	other	federal,	state	or	local	governments	or	agencies, including	those	actions	described	in	Tobacco	Space	-	Business	Environment	in Item	7,	may	impact	the	consumer	acceptability	of	tobacco	products,	limit	adult tobacco	consumer	choices,	delay	or	prevent	the	launch	of	new	or	modified	tobacco

products	or	products	with	claims	of	reduced	risk,	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,	require	the	recall	or removal	of	tobacco	products	from	the	marketplace	(including	without	limitation as	a	result	of	product	contamination),	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.

# 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	business	of	Altria Group,	Inc.'s	tobacco	subsidiaries.

Each	of	Altria	Group,	Inc.'s	tobacco	subsidiaries	operates	in	highly	competitive tobacco	categories.	Settlements	of	certain	tobacco	litigation	in	the	United	States, among	other	factors,	have	resulted	in	substantial	cigarette	price	increases.	PM USA	faces	competition	from	lowest	priced	brands	sold	by	certain	United	States and	foreign	manufacturers	that	have	cost	advantages	because	they	are	not	parties to	these	settlements.	These	manufacturers	may	fail	to	comply	with	related	state escrow	legislation	or	may	avoid	escrow	deposit	obligations	on	the	majority	of	their sales	by	concentrating	on	certain	states	where	escrow	deposits	are	not	required	or are	required	on	fewer	than	all	such	manufacturers'	cigarettes	sold	in	such	states. Additional	competition	has	resulted	from	diversion	into	the	United	States	market of	cigarettes	intended	for	sale	outside	the	United	States,	the	sale	of	counterfeit cigarettes	by	third	parties,	the	sale	of	cigarettes	by	third	parties	over	the	Internet and	by	other	means	designed	to	avoid	collection	of	applicable	taxes,	and	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	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 increased	consumer	awareness	of,	and	expenditures	on,	e-vapor	products. Continued	growth	of	this	product	category	could	further	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,	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.	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.	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	and	manufacturing	equipment	and	facilities.	Its	lessees	are	also	subject to	intense	competition	and	economic	conditions.	If	parties	to	PMCC's	leases	fail to	manage	through	difficult	economic	and	competitive	conditions,	PMCC	may have	to	increase	its	allowance	for	losses,	which	would	adversely	affect	our earnings.

# Altria	Group,	Inc.'s	tobacco	subsidiaries	may	be	unsuccessful	in	developing and	commercializing	innovative	tobacco	products	that	may	reduce	the	health risks	associated	with	current	tobacco	products	and	that	appeal	to	adult tobacco	consumers.

Altria	Group,	Inc.'s	tobacco	subsidiaries	continue	to	develop	and	commercialize innovative	tobacco	products,	including	new	product	technologies	that	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.

# Altria	Group,	Inc.	and	its	subsidiaries'	ability	to	grow	new	revenue	streams may	be	limited	if	our	operating	companies	are	unable	to	move	successfully into	complementary	products	or	processes.

Altria	Group,	Inc.	and	its	subsidiaries	have	adjacency	growth	strategies	involving moves	and	potential	moves	into	complementary	products	or	processes.	We	cannot guarantee	that	these	strategies,	or	any	products	introduced	in	connection	with these	strategies,	will	be	successful.	See	the	immediately	preceding	paragraph	for	a related	discussion	concerning	new	product	technologies.

# 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.	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.

Altria	Group,	Inc.	from	time	to	time	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	other	event	could	impact	our	credit	ratings	or	the	outlook	for those	ratings.	Furthermore,	acquisition	opportunities	are	limited,	and	acquisitions present	risks	of	failing	to	achieve	efficient	and	effective	integration,	strategic objectives	and	anticipated	revenue	improvements	and	cost	savings.	There	can	be no	assurance	that	we	will	be	able	to	acquire	attractive	businesses	on	favorable terms,	that	we	will	realize	any	of	the	anticipated	benefits	from	an	acquisition	or that	acquisitions	will	be	quickly	accretive	to	earnings.

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

# Altria	Group,	Inc.'s	reported	earnings	from	and	carrying	value	of	its	equity investment	in	SABMiller	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	SABMiller	are	translated	into	U.S.	dollars	from	various	local currencies.	During	times	of	a	strengthening	U.S.	dollar	against	these	currencies, our	reported	earnings	from	and	carrying	value	of	our	equity	investment	in SABMiller	will	be	reduced	because	the	local	currencies	will	translate	into	fewer U.S.	dollars.	The	earnings	from	and	carrying	value	of	our	equity	investment	in SABMiller	are	also	subject	to	the	risks	encountered	by	SABMiller	in	its	business.

# 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.	If	an	impairment	is	determined	to	exist,	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	to	function	as intended,	or	the	penetration	by	outside	parties	intent	on	disrupting	business processes,	could	result	in	significant	costs,	loss	of	revenue,	assets	or	personal or	other	sensitive	data	and	reputational	harm.

Altria	Group,	Inc.	and	its	subsidiaries	use	information	systems	to	help	manage business	processes,	collect	and	interpret	business

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

# 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.

# 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,	2014,	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	Inc.

At	December	31,	2014,	the	smokeless	products	segment	used	four	smokeless tobacco	manufacturing	and	processing	facilities	located	in	Franklin	Park,	Illinois; Hopkinsville,	Kentucky;	Nashville,	Tennessee;	and	Richmond,	Virginia,	all	of which	are	owned	and	operated	by	USSTC.

At	December	31,	2014,	the	wine	segment	used	11	wine-making	facilities	- seven	in	Washington,	three	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	which	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	18	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, 2014	were	filed	on	Form	8-K	on	January	30,	2015	(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

# ▪Tentative	Agreement	to	Resolve	Federal	Engle	Progeny	Cases:

On	February	25,	2015,	PM	USA,	R.J.	Reynolds	Tobacco	Company	and	Lorillard Tobacco	Company	reached	a	tentative	agreement	to	resolve	approximately	415 pending	federal	Engle	progeny	cases	(the	"Agreement").	Under	the	terms	of	the Agreement,	PM	USA	will	pay	$42.5	million.	PM	USA	will	record	a	pre-tax provision	of	$42.5	million	in	the	first	quarter	of	2015.	Federal	cases	that	were	in trial	as	of	February	25,	2015	and	those	that	have	previously	reached	final	verdict are	not	included	in	the	Agreement.	Engle	progeny	lawsuits	pending	in	Florida	state courts	are	also	not	part	of	the	Agreement.

The	Agreement	is	conditioned	on	approval	by	all	federal-court	plaintiffs	in	the cases	resolved	by	the	Agreement	or	as	the	parties	otherwise	agree.	On	February 25,	2015,	the	U.S.	District	Court	for	the	Middle	District	of	Florida	issued	an	order staying	all	upcoming	federal	trials	pending	final	approval	of	the	Agreement.

# ▪Engle	Progeny	Trial	Results:

In	Caprio,	on	February	24,	2015,	a	Broward	County	jury	returned	a	partial verdict	in	favor	of	plaintiff	and	against	PM

USA,	R.J.	Reynolds	Tobacco	Company,	Lorillard	Tobacco	Company	and	Liggett Group	LLC.	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	McKeever,	on	February	20,	2015,	a	Broward	County	jury	returned	a	verdict	in favor	of	plaintiff	and	against	PM	USA	awarding	approximately	$5.78	million	in compensatory	damages	and	allocating	60%	of	the	fault	to	PM	USA	(an	amount	of approximately	$3.48	million).		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.		The	Florida	Supreme	Court	is	currently	considering	the	applicability	of the	statue	of	repose	defense	in	Engle	progeny	cases.

In	McMannis,	a	Charlotte	County	jury	returned	a	verdict	in	favor	of	PM	USA on	February	19,	2015.

In	Landau,	on	February	19,	2015,	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	Tobacco	Company	and	Lorillard	Tobacco	Company	awarding $100,000	in	compensatory	damages.	One	defendant	settled	the	case.

In	Sowers,	a	jury	in	the	U.S.	District	Court	for	the	Middle	District	of	Florida returned	a	verdict	in	favor	of	PM	USA	on	February	11,	2015.

In	Boatright,	on	February	9,	2015,	defendants	filed	a	notice	of	appeal	to	the Florida	Second	District	Court	of	Appeal.

# Medical	Monitoring	Cases

Trial	in	the	Donovan	case	is	scheduled	for	January	25,	2016.

# "Lights/Ultra-Lights"	Cases

The	re-trial	in	the	Larsen	case	is	scheduled	to	begin	on	February	22,	2016. In	the	Price	case,	on	February	9,	2015,	plaintiffs	filed	a	new	motion	seeking recusal	or	disqualification	of	Justice	Karmeier,	one	of	the	Illinois	Supreme	Court justices.

# 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.

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, 2015,	there	were	approximately	74,000	holders	of	record	of	Altria	Group,	Inc.'s	common	stock.

# 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	Index	(1).	The	graph	assumes	the	investment	of	$100	in	common	stock	and	each	of	the	indices as	of	the	market	close	on	December	31,	2009	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\t2009 | $100.00 | $100.00 | $100.00 |
| December\t2010 | $133.92 | $113.38 | $115.06 |
| December\t2011 | $170.96 | $129.99 | $117.49 |
| December\t2012 | $191.08 | $141.36 | $136.27 |
| December\t2013 | $245.66 | $176.72 | $180.40 |
| December\t2014 | $330.43 | $198.76 | $205.08 |

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

(1) The	Altria	Group,	Inc.	Peer	Group	consists	of	13	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	Foods,	Inc.,	General	Mills,	Inc.,	The Hershey	Company,	Kellogg	Company,	Kimberly-Clark	Corporation,	Mondelēz	International,	Inc.,	Kraft	Foods	Group,	Inc.,	Lorillard,	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).

# Issuer	Purchases	of	Equity	Securities	During	the	Quarter	Ended	December	31,	2014

Altria	Group,	Inc.'s	Board	of	Directors	(the	"Board	of	Directors"),	authorized	a	$1.0	billion	share	repurchase	program	in	July	2014	(the	"July	2014	share	repurchase program"),	which	Altria	Group,	Inc.	expects	to	complete	by	the	end	of	2015.	The	timing	of	share	repurchases	under	the	July	2014	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,	2014,	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,\t2014 | 543,248 | $45.88 | 543,000 | $752,882,710 |
| November\t1-\tNovember\t30,\t2014 | 2,112,000 | $49.25 | 2,112,000 | $648,865,971 |
| December\t1-\tDecember\t31,\t2014 | 2,873,672 | $50.45 | 2,585,000 | $518,341,843 |
| For\tthe\tQuarter\tEnded\tDecember\t31,\t2014 | 5,528,920 | $49.54 |  |  |

(1)	The	total	number	of	shares	purchased	include	(a)	shares	purchased	under	the	July	2014	share	repurchase	program	(which	totaled	543,000	shares	in	October,	2,112,000	shares	in November	and	2,585,000	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	and	deferred	stock,	and	forfeitures	of	restricted	stock	for	which	consideration	was	paid	in	connection	with	termination	of	employment	of	certain	employees	(which	totaled 248	shares	in	October	and	288,672	shares	in	December).

The	other	information	called	for	by	this	Item	is	included	in	Note	20.	Quarterly	Financial	Data	(Unaudited)	to	the	consolidated	financial	statements	in	Item	8.

# Item	6.	Selected	Financial	Data.

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

|  | 2014 | 2013 | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Summary\tof\tOperations: |  |  |  |  |  |
| Net\trevenues | $24,522 | $24,466 | $24,618 | $23,800 | $24,363 |
| Cost\tof\tsales | 7,785 | 7,206 | 7,937 | 7,680 | 7,704 |
| Excise\ttaxes\ton\tproducts | 6,577 | 6,803 | 7,118 | 7,181 | 7,471 |
| Operating\tincome | 7,620 | 8,084 | 7,253 | 6,068 | 6,228 |
| Interest\tand\tother\tdebt\texpense,\tnet | 808 | 1,049 | 1,126 | 1,216 | 1,133 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | 1,006 | 991 | 1,224 | 730 | 628 |
| Earnings\tbefore\tincome\ttaxes | 7,774 | 6,942 | 6,477 | 5,582 | 5,723 |
| Pre-tax\tprofit\tmargin | 31.7% | 28.4% | 26.3% | 23.5% | 23.5% |
| Provision\tfor\tincome\ttaxes | 2,704 | 2,407 | 2,294 | 2,189 | 1,816 |
| Net\tearnings | 5,070 | 4,535 | 4,183 | 3,393 | 3,907 |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | 5,070 | 4,535 | 4,180 | 3,390 | 3,905 |
|  | 2.56 | 2.26 | 2.06 | 1.64 | 1.87 |
| Dividends\tdeclared\tper\tshare | 2.00 | 1.84 | 1.70 | 1.58 | 1.46 |
| Weighted\taverage\tshares\t(millions)\t—\tBasic | 1,978 | 1,999 | 2,024 | 2,064 | 2,077 |
| Weighted\taverage\tshares\t(millions)\t—\tDiluted | 1,978 | 1,999 | 2,024 | 2,064 | 2,079 |
| Capital\texpenditures | 163 | 131 | 124 | 105 | 168 |
| Depreciation | 188 | 192 | 205 | 233 | 256 |
| Property,\tplant\tand\tequipment,\tnet | 1,983 | 2,028 | 2,102 | 2,216 | 2,380 |
| Inventories | 2,040 | 1,879 | 1,746 | 1,779 | 1,803 |
| Total\tassets | 34,475 | 34,859 | 35,329 | 36,751 | 37,402 |
| Long-term\tdebt | 13,693 | 13,992 | 12,419 | 13,089 | 12,194 |
| Total\tdebt | 14,693 | 14,517 | 13,878 | 13,689 | 12,194 |
| Total\tstockholders'\tequity | 3,010 | 4,118 | 3,170 | 3,683 | 5,195 |
| Common\tdividends\tdeclared\tas\ta\t%\tof\tBasic\tand\tDiluted\tEPS | 78.1% | 81.4% | 82.5% | 96.3% | 78.1% |
| Book\tvalue\tper\tcommon\tshare\toutstanding | 1.53 | 2.07 | 1.58 | 1.80 | 2.49 |
| Market\tprice\tper\tcommon\tshare\t—\thigh/low | 51.67-33.80 | 38.58-31.85 | 36.29-28.00 | 30.40-23.20 | 26.22-19.14 |
| Closing\tprice\tper\tcommon\tshare\tat\tyear\tend | 49.27 | 38.39 | 31.44 | 29.65 | 24.62 |
| Price/earnings\tratio\tat\tyear\tend\t—\tBasic\tand\tDiluted | 19 | 17 | 15 | 18 | 13 |
| Number\tof\tcommon\tshares\toutstanding\tat\tyear\tend\t(millions) | 1,971 | 1,993 | 2,010 | 2,044 | 2,089 |
| Approximate\tnumber\tof\temployees | 9,000 | 9,000 | 9,100 | 9,900 | 10,000 |

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,	2014,	Altria	Group,	Inc.'s	wholly-owned	subsidiaries	included PM	USA,	which	is	engaged	predominantly	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	Inc.,	which	provides	various	support	services,	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, 2014,	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	December	31,	2014,	Altria	Group,	Inc.	also	held	approximately	27%	of	the economic	and	voting	interest	of	SABMiller,	which	Altria	Group,	Inc.	accounts	for under	the	equity	method	of	accounting.	Altria	Group,	Inc.	receives	cash	dividends on	its	interest	in	SABMiller	if	and	when	SABMiller	pays	such	dividends.

# 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,	2014, from	the	year	ended	December	31,	2013,	were	due	primarily	to	the	following:

| (in	millions,	except	per	share	data) | Net<br>Earnings | Diluted<br>EPS |
| :--- | :--- | :--- |
| For\tthe\tyear\tended\tDecember\t31,\t2013 | $4,535 | $2.26 |
| 2013\tNPM\tAdjustment\tItems | (427) | (0.21) |
| 2013\tAsset\timpairment,\texit\tand\timplementation\ncosts | 7 | — |
| 2013\tTobacco\tand\thealth\tlitigation\titems | 14 | 0.01 |
| 2013\tSABMiller\tspecial\titems | 20 | 0.01 |
| 2013\tLoss\ton\tearly\textinguishment\tof\tdebt | 678 | 0.34 |
| 2013\tTax\titems | (64) | (0.03) |
| Subtotal\t2013\tspecial\titems | 228 | 0.12 |
| 2014\tNPM\tAdjustment\tItems | 56 | 0.03 |
| 2014\tAsset\timpairment,\texit,\tintegration\tand\nacquisition-related\tcosts | (14) | (0.01) |
| 2014\tTobacco\tand\thealth\tlitigation\titems | (28) | (0.01) |
| 2014\tSABMiller\tspecial\titems | (17) | (0.01) |
| 2014\tLoss\ton\tearly\textinguishment\tof\tdebt | (28) | (0.02) |
| 2014\tTax\titems | 14 | 0.01 |
| Subtotal\t2014\tspecial\titems | (17) | (0.01) |
| Fewer\tshares\toutstanding | — | 0.03 |
| Change\tin\ttax\trate | 86 | 0.04 |
| Operations | 238 | 0.12 |
| For\tthe\tyear\tended\tDecember\t31,\t2014 | $5,070 | $2.56 |

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	2014 compared	with	2013	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	due	primarily	to	a	reduction in	certain	consolidated	tax	benefits	in	2013	resulting	from	the	2013	debt tender	offer,	and	an	increased	recognition	of	foreign	tax	credits	in	2014 primarily	associated	with	SABMiller	dividends.

▪Operations:	The	increase	of	$238	million	in	operations	shown	in	the	table above	was	due	primarily	to	the	following:

▪higher	income	from	the	smokeable	products	segment;

▪lower	interest	and	other	debt	expense,	net;

partially	offset	by:

▪higher	investment	spending	in	the	innovative	tobacco	products	businesses; and

▪lower	income	from	the	financial	services	business.

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

# 2015	Forecasted	Results

In	January	2015,	Altria	Group,	Inc.	forecasted	that	its	2015	full-year	adjusted diluted	EPS	growth	rate	is	expected	to	be	in	the	range	of	7%	to	9%	over	2014	full- year	adjusted	diluted	EPS.	This	forecasted	growth	rate	excludes	the	net	expenses in	the	table	below.

The	factors	described	in	Item	1A	represent	continuing	risks	to	this	forecast.

Expense	(Income),	Net	Excluded	from	Adjusted	Diluted	EPS

|  | 2015 | 2014 |
| :--- | :--- | :--- |
| NPM\tAdjustment\tItems | $— | $(0.03) |
| Asset\timpairment,\texit,\tintegration\tand |  |  |
| acquisition-related\tcosts | — | 0.01 |
| Tobacco\tand\thealth\tlitigation\titems\t1 | 0.02 | 0.01 |
| SABMiller\tspecial\titems | — | 0.01 |
| Loss\ton\tearly\textinguishment\tof\tdebt | — | 0.02 |
| Tax\titems | — | (0.01) |
|  | $0.02 | $0.01 |

1	The	2015	amount	represents	a	provision	that	will	be	recorded	by	PM	USA	in	the	first quarter	of	2015	related	to	the	tentative	agreement	to	resolve	approximately	415	pending federal	Engle	progeny	cases. See	Item	3.

Altria	Group,	Inc.	reports	its	financial	results	in	accordance	with	accounting principles	generally	accepted	in	the	United	States	of	America	("U.S.	GAAP"). Altria	Group,	Inc.'s	management	reviews	certain	financial	results,	including diluted	EPS,	on	an	adjusted	basis,	which	exclude	certain	income	and	expense items	that	management	believes	are	not	part	of	underlying	operations.	These	items may	include,	for	example,	loss	on	early	extinguishment	of	debt,	restructuring charges,	SABMiller	special	items,	certain	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	(the	"MSA")	for	the	years	2003-2012	(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	18).	Altria	Group,	Inc.'s	management	does	not	view	any	of	these special	items	to	be	part	of	Altria	Group,	Inc.'s	sustainable	results	as	they	may	be highly	variable,	are	difficult	to	predict	and	can	distort	underlying	business	trends and	results.	Altria	Group,	Inc.'s	management	believes	that	these	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	Altria	Group,	Inc.'s	chief	operating decision	maker	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	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.

Altria	Group,	Inc.'s	full-year	adjusted	diluted	EPS	guidance	excludes	the impact	of	certain	income	and	expense	items,	including	those	items	noted	in	the preceding	paragraph.	Altria	Group,	Inc.'s	management	cannot	estimate	on	a forward-looking	basis	the	impact	of	these	items	on	Altria	Group,	Inc.'s	reported diluted	EPS	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	U.S.	GAAP	measure	for,	or	a	reconciliation	to,	its	adjusted	diluted EPS	guidance.

# 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.	exercises	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,	2014	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,	2014	were	as	follows:

|  |  | Indefinite-Lived |
| :--- | :--- | :--- |
| (in\tmillions) | Goodwill | Intangible\tAssets |
| Cigarettes | $— | $2 |
| Smokeless\tproducts | 5,023 | 8,801 |
| Cigars | 77 | 2,640 |
| Wine | 74 | 258 |
| E-vapor | 111 | 10 |
| Total | $5,285 | $11,711 |

During	2014,	2013	and	2012,	Altria	Group,	Inc.	completed	its	quantitative annual	impairment	test	of	goodwill	and	indefinite-lived	intangible	assets,	and	no impairment	charges	resulted.

At	December	31,	2014,	(i)	the	estimated	fair	values	of	the	indefinite-lived intangible	assets	within	the	smokeless	products,	cigars	and	wine	reporting	units (except	for	the	Skoal	trademark	in	the	smokeless	products	reporting	unit	and	the Columbia	Crest	trademark	in	the	wine	reporting	unit)	substantially	exceeded	their carrying	values,	(ii)	the	carrying	values	of	the	Skoal	and	Columbia	Crest trademarks	were	$3.9	billion	and	$54	million,	respectively,	and	(iii)	the	estimated fair	value	of	the	smokeless	products	reporting	unit	did	not	substantially	exceed	its carrying	value.

At	December	31,	2014,	the	estimated	fair	value	of	the	Skoal	trademark exceeded	its	carrying	value	by	approximately	17%,	and	the	estimated	fair	value	of the	smokeless	products	reporting	unit	exceeded	its	carrying	value	by approximately	20%.	In	the	smokeless	products	reporting	unit,	2014	results	for Skoal	were	impacted	by	strategies	to	enhance	Skoal's	equity	and	targeted investments	to	narrow	price	gaps,	which	are	expected	to	strengthen	the	brand	over the	long	term.	In	addition,	USSTC	estimates	that	the	smokeless	products	category volume	growth	rate	slowed	to	approximately	2%	for	2014	as	compared	to approximately	5.5%	for	2013.	USSTC	continues	to	believe	that	the	smokeless category's	growth	rate	is	best	determined	over	a	longer	time	horizon	and	will continue	to	monitor	industry	volume	closely.

In	2014,	Altria	Group,	Inc.	used	an	income	approach	to	estimate	the	fair values	of	its	reporting	units	and	its	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	average	discount	rate	used	in	performing	the valuations	was	approximately	10%.

In	performing	the	2014	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	and	also included	market	participant	assumptions	regarding	the	highest	and	best	use	of Altria	Group,	Inc.'s	indefinite-lived	intangible	assets.	Assumptions	are	also

made	for	perpetual	growth	rates	for	periods	beyond	the	long-term	financial forecast.	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;	changes	in	category	growth	rates	as	a	result	of changing	consumer	preferences;	success	of	planned	new	product	introductions; competitive	activity;	and	tobacco-related	taxes.

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,	but	are	not	limited	to,	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	customers	and	consumers	at	the	end of	a	period,	based	principally	on	historical	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	18	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	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,	FETRA	and	the FDA	user	fees	are	based	on	variable	factors,	such	as	volume,	market	share	and inflation,	depending	on	the	subject	payment.	Altria	Group,	Inc.'s	subsidiaries account	for	the	cost	of	the	State	Settlement	Agreements,	FETRA	and	FDA	user fees	as	a	component	of	cost	of	sales.	As	a	result	of	the	State	Settlement Agreements,	FETRA	and	FDA	user	fees,	Altria	Group,	Inc.'s	subsidiaries recorded	approximately	$4.9	billion,	$4.4	billion	and	$5.1	billion	of	charges	to	cost of	sales	for	the	years	ended	December	31,	2014,	2013	and	2012,	respectively.	The 2014	and	2013	amounts	included	reductions	to	cost	of	sales	of	$43	million	and $664	million,	respectively,	related	to	the	NPM	Adjustment	Items	discussed	further below	and	in	Health	Care	Cost	Recovery	Litigation	-	NPM	Adjustment	Disputes	in Note	18.	In	addition,	the	2014	amount	included	a	decrease	in	the	charge	to	cost	of sales	of	approximately	$100	million,	reflecting	the	expiration	of	the	obligations imposed	by	FETRA	after	the	third	quarter	of	2014.

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	18	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	on	the	consolidated	statements	of earnings.

▪Employee	Benefit	Plans:	As	discussed	in	Note	16.	Benefit	Plans	to	the consolidated	financial	statements	in	Item	8	("Note	16"),	Altria	Group,	Inc. provides	a	range	of	benefits	to	its	employees	and	retired	employees,	including pensions,	postretirement	health	care	and	postemployment	benefits	(primarily severance).	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.

At	December	31,	2014,	Altria	Group,	Inc.'s	discount	rate	assumptions	for	its pension	and	postretirement	plans	decreased	to	4.1%	and	4.0%,	respectively,	from 4.9%	and	4.8%,	respectively,	at	December	31,	2013.	In	addition,	at	December	31, 2014,	Altria	Group,	Inc.	updated	its	mortality	assumptions	to	reflect	longer	life expectancy	for	its	defined	benefit	pension	plan	and	postretirement	health	care	plan participants.	Altria	Group,	Inc.	presently	anticipates	an	increase	of	approximately $100	million	in	its	2015	pre-tax	pension	and	postretirement	expense	versus	2014, not	including	amounts	in	each	year,	if	any,	related	to	termination,	settlement	and curtailment.	This	anticipated	increase	is	due	primarily	to	the	impact	of	the	updated mortality	assumptions	($70	million).	The	impact	of	the	lower	discount	rate	was largely	offset	by	the	impact	of	higher	than	expected	returns	on	plan	assets.	A	50 basis	point	decrease	(increase)	in	Altria	Group,	Inc.'s	discount	rates	would increase	(decrease)	Altria	Group,	Inc.'s	pension	and	postretirement	expense	by approximately	$52	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	$34	million.	See	Note	16	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.	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	on	its	consolidated	statements	of	earnings.

As	discussed	in	Note	14.	Income	Taxes	to	the	consolidated	financial statements	in	Item	8	("Note	14"),	Altria	Group,	Inc.	recognized	income	tax benefits	and	charges	in	the	consolidated	statements	of	earnings	during	2014,	2013 and	2012	as	a	result	of	various	tax	events.

▪Leasing:	Substantially	all	of	PMCC's	net	revenues	in	2014	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.	As	discussed	in	Note	7,	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,	2014	and	2013.	At December	31,	2014,	PMCC's

net	finance	receivables	of	approximately	$1.7	billion,	which	are	included	in finance	assets,	net,	on	Altria	Group,	Inc.'s	consolidated	balance	sheet,	consisted	of rents	receivable	($3.4	billion)	and	the	residual	value	of	assets	under	lease	($0.8 billion),	reduced	by	third-party	nonrecourse	debt	($2.1	billion)	and	unearned income	($0.4	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	$1.6	billion	at	December	31,	2014	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	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	2014 and	2012,	PMCC's	annual	review	of	estimated	residual	values	resulted	in	a decrease	of	$63	million	and	$19	million,	respectively,	to	unguaranteed	residual values.	These	decreases	in	unguaranteed	residual	values	resulted	in	a	reduction	to PMCC's	net	revenues	of	$26	million	and	$8	million	in	2014	and	2012, respectively.	There	were	no	such	adjustments	in	2013.

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,	2014.

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	7.

# Consolidated	Operating	Results

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Net\tRevenues: |  |  |  |
| Smokeable\tproducts | $21,939 | $21,868 | $22,216 |
| Smokeless\tproducts | 1,809 | 1,778 | 1,691 |
| Wine | 643 | 609 | 561 |
| All\tother | 131 | 211 | 150 |
| Net\trevenues | $24,522 | $24,466 | $24,618 |
| Excise\tTaxes\ton\tProducts: |  |  |  |
| Smokeable\tproducts | $6,416 | $6,651 | $6,984 |
| Smokeless\tproducts | 138 | 130 | 113 |
| Wine | 23 | 22 | 21 |
| Excise\ttaxes\ton\tproducts | $6,577 | $6,803 | $7,118 |
| Operating\tIncome: |  |  |  |
| Operating\tcompanies\tincome\t(loss): |  |  |  |
| Smokeable\tproducts | $6,873 | $7,063 | $6,239 |
| Smokeless\tproducts | 1,061 | 1,023 | 931 |
| Wine | 134 | 118 | 104 |
| All\tother | (185) | 157 | 176 |
| Amortization\tof\tintangibles | (20) | (20) | (20) |
| General\tcorporate\texpenses | (241) | (235) | (229) |
| Changes\tto\tMondelēz\tand\tPMI\ntax-related\treceivables/payables | (2) | (22) | 52 |
| Operating\tincome | $7,620 | $8,084 | $7,253 |

As	discussed	further	in	Note	15,	Altria	Group,	Inc.'s	chief	operating	decision maker	reviews	operating	companies	income	to	evaluate	the	performance	of,	and allocate	resources	to,	the	segments.	Operating	companies	income	for	the	segments is	defined	as	operating	income	before	amortization	of	intangibles	and	general corporate	expenses.	Management	believes	it	is	appropriate	to	disclose	this	measure to	help	investors	analyze	the	business	performance	and	trends	of	the	various business	segments.

The	following	events	that	occurred	during	2014,	2013	and	2012	affected	the comparability	of	statement	of	earnings	amounts.

▪NPM	Adjustment	Items:	For	the	years	ended	December	31,	2014	and 2013,	pre-tax	income	for	NPM	Adjustment	Items	was	recorded	in	Altria	Group, Inc.'s	consolidated	statements	of

# earnings	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $43 | $664 |
| Interest\tand\tother\tdebt\texpense,\tnet | 47 | — |
| Total | $90 | $664 |

The	amounts	shown	in	the	table	above	for	the	smokeable	products	segment were	recorded	by	PM	USA	as	reductions	to	costs	of	sales,	which	increased operating	companies	income	in	the	smokeable	products	segment.	For	further discussion,	see	Health	Care	Cost	Recovery	Litigation	-	NPM	Adjustment	Disputes in	Note	18.

▪Tobacco	and	Health	Litigation	Items:	For	the	years	ended	December	31,

2014,	2013	and	2012,	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) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $27 | $18 | $4 |
| General\tcorporate | 15 | — | — |
| Interest\tand\tother\tdebt\texpense,\tnet | 2 | 4 | 1 |
| Total | $44 | $22 | $5 |

During	the	second	quarter	of	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	Lawsuit	in	Note	18.

▪Asset	Impairment,	Exit,	Integration	and	Acquisition-Related	Costs:	Pre- tax	asset	impairment,	exit,	integration	and	acquisition-related	costs	for	the	years ended	December	31,	2014,	2013	and	2012	were	$21	million,	$11	million	and	$61 million,	respectively.

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	during	the	second	quarter	of	2014.	For further	discussion	of	the	Green	Smoke	acquisition,	see	Note	3.

For	2012,	these	costs	were	primarily	due	to	Altria	Group,	Inc.'s	cost	reduction program	announced	in	2011	(the	"2011	Cost	Reduction	Program").

For	a	breakdown	of	asset	impairment	and	exit	costs	by	segment,	see	Note	15.

▪PMCC	Leveraged	Lease	Benefit:	During	the	second	quarter	of	2012,	Altria Group,	Inc.	entered	into	a	closing	agreement	(the	"Closing	Agreement")	with	the Internal	Revenue	Service	("IRS")	that	conclusively	resolved	the	federal	income tax	treatment	for	all	prior	and	future	tax	years	of	certain	leveraged	lease transactions	entered	into	by	PMCC.	As	a	result	of	the	Closing	Agreement,	Altria Group,	Inc.	recorded	a	one-time	net	earnings	benefit	of	$68	million	during	the second	quarter	of	2012	due	primarily	to	lower	than	estimated	interest	on	tax underpayments.	See	Note	7	and	Note	14	for	a	further	discussion	of	the	Closing Agreement.

# ▪Loss	on	Early	Extinguishment	of	Debt:	During	the	fourth	quarter	of	2014,

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

In	addition,	during	the	fourth	quarter	of	2013	and	the	third	quarter	of	2012,	Altria Group,	Inc.	completed	debt	tender	offers	to	purchase	for	cash	certain	of	its	senior unsecured	notes	in	aggregate	principal	amounts	of	$2.1	billion	and	$2.0	billion, respectively.

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

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Premiums\tand\tfees | $44 | $1,054 | $864 |
| Write-off\tof\tunamortized\tdebt\tdiscounts\tand\ndebt\tissuance\tcosts | — | 30 | 10 |
| Total | $44 | $1,084 | $874 |

For	further	discussion,	see	Note	9.	Long-Term	Debt	to	the	consolidated financial	statements	in	Item	8	("Note	9").

▪SABMiller	Special	Items:	Altria	Group,	Inc.'s	earnings	from	its	equity investment	in	SABMiller	for	2012	included	net	pre-tax	income	of	$248	million, consisting	of	gains	resulting	from	SABMiller's	strategic	alliance	transactions	with Anadolu	Efes	and	Castel,	partially	offset	by	costs	for	SABMiller's	"business capability	programme"	and	costs	related	to	SABMiller's	acquisition	of	Foster's Group	Limited.

▪Tax	Items:	Tax	items	for	2014	included	the	reversal	of	tax	accruals	no longer	required.	Tax	items	for	2013	included	the	reversal	of	tax	accruals	no	longer required	and	the	recognition	of	previously	unrecognized	foreign	tax	credits primarily	associated	with	SABMiller	dividends.	Excluding	the	tax	impact	included in	the	PMCC	leveraged	lease	benefit,	tax	items	for	2012	included	the	reversal	of tax	reserves	and	associated	interest	due	primarily	to	the	closure	in	2012	of	the	IRS audit	of	Altria	Group,	Inc.	and	its	consolidated	subsidiaries'	2004	-	2006	tax years.	For	further	discussion,	see	Note	14.

The	following	discussion	compares	consolidated	operating	results	for	the	year ended	December	31,	2014,	with	the	year	ended	December	31,	2013.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	were	essentially unchanged,	due	primarily	to	higher	net	revenues	in	all	reportable	segments,	offset by	lower	gains	on	asset	sales	in	the	financial	services	business.

Excise	taxes	on	products	decreased	$226	million	(3.3%),	due	primarily	to lower	smokeable	products	shipment	volume.

Cost	of	sales	increased	$579	million	(8.0%),	due	primarily	to	higher	NPM Adjustment	Items	in	2013.

Marketing,	administration	and	research	costs	increased	$199	million	(8.5%), due	primarily	to	higher	investment	spending	in	the	innovative	tobacco	products businesses,	lower	reductions	to	the	allowance	for	losses	in	the	financial	services

business	and	higher	costs	in	the	smokeable	products	segment.

Operating	income	decreased	$464	million	(5.7%),	due	primarily	to	lower operating	results	from	the	smokeable	products	segment	(which	reflected	higher NPM	Adjustment	Items	in	2013),	higher	investment	spending	in	the	innovative tobacco	products	businesses	and	lower	income	from	the	financial	services business,	partially	offset	by	higher	operating	results	from	the	smokeless	products segment.

Interest	and	other	debt	expense,	net,	decreased	$241	million	(23.0%)	due primarily	to	lower	interest	costs	on	debt	as	a	result	of	debt	maturities	in	2013	and 2014,	and	debt	refinancing	activities	during	2013,	as	well	as	interest	income recorded	in	2014	as	a	result	of	the	NPM	Adjustment	Items.

Net	earnings	attributable	to	Altria	Group,	Inc.	of	$5,070	million	increased $535	million	(11.8%),	due	primarily	to	lower	losses	on	early	extinguishment	of debt,	lower	interest	and	other	debt	expense,	net,	partially	offset	by	lower	operating income.	Diluted	and	basic	EPS	attributable	to	Altria	Group,	Inc.	of	$2.56,	each increased	by	13.3%	due	to	higher	net	earnings	attributable	to	Altria	Group,	Inc. and	fewer	shares	outstanding.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	decreased	$152 million	(0.6%),	due	primarily	to	lower	net	revenues	from	the	smokeable	products segment,	partially	offset	by	higher	net	revenues	from	the	smokeless	products	and wine	segments,	and	higher	gains	on	asset	sales	in	the	financial	services	business. Excise	taxes	on	products	decreased	$315	million	(4.4%),	due	primarily	to lower	smokeable	products	shipment	volume.

Cost	of	sales	decreased	$731	million	(9.2%),	due	primarily	to	NPM Adjustment	Items	and	lower	smokeable	products	shipment	volume,	partially	offset by	higher	per	unit	settlement	charges.

Marketing,	administration	and	research	costs	increased	$39	million	(1.7%), due	primarily	to	spending	related	to	the	innovative	tobacco	products	businesses and	a	postretirement	benefit	plan	curtailment	gain	in	2012	related	to	the	2011	Cost Reduction	Program,	partially	offset	by	lower	spending	in	the	smokeable	products segment	as	a	result	of	cost	reduction	initiatives.

Operating	income	increased	$831	million	(11.5%),	due	primarily	to	higher operating	results	from	the	smokeable	products	segment	(which	includes	NPM Adjustment	Items)	and	higher	operating	results	from	the	smokeless	products segment,	partially	offset	by	changes	to	Mondelēz	International,	Inc.	("Mondelēz") and	PMI	tax-related	receivables/payables	as	discussed	further	in	Note	14.

Interest	and	other	debt	expense,	net,	decreased	$77	million	(6.8%)	due primarily	to	lower	interest	costs	on	debt	as	a	result	of	debt	refinancing	activities related	to	the	debt	tender	offer	in	2012.

Earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller	decreased

SABMiller	special	items	(which	included	gains	of	$342	million	resulting	from SABMiller's	strategic	alliance	transactions	with	Anadolu	Efes	and	Castel	in	2012). Altria	Group,	Inc.'s	effective	income	tax	rate	decreased	0.7	percentage	points to	34.7%,	due	primarily	to	an	increased	recognition	of	foreign	tax	credits	in	2013 primarily	associated	with	SABMiller	dividends,	and	the	resolution	of	various Mondelēz	and	PMI	tax	matters	during	2013	and	2012,	partially	offset	by	the leveraged	lease	benefit	recorded	by	PMCC	during	the	second	quarter	of	2012.

Net	earnings	attributable	to	Altria	Group,	Inc.	of	$4,535	million	increased $355	million	(8.5%),	due	primarily	to	higher	operating	income,	lower	interest	and other	debt	expense,	net,	and	a	lower	income	tax	rate,	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	$2.26,	each	increased	by	9.7%	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	18,	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	that	have	been,	and	in	the	future	will	be,	imposed	by the	FDA	under	this	statute;

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

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

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

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

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

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

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

▪governmental	investigations;

▪the	diminishing	prevalence	of	cigarette	smoking	and	increased	efforts	by tobacco	control	advocates	and	others	(including	employers	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;

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

▪illicit	trade	in	tobacco	products;

▪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	or	use	multiple	forms	of tobacco	products	and	that	approximately	50%	of	adult	smokers	say	they	are interested	in	trying	innovative	tobacco	products.	Altria	Group,	Inc.'s	tobacco subsidiaries	further	believe	that	nearly	all	adult	smokers	are	aware	of	e-vapor products	(such	as	electronic	cigarettes)	and	approximately	60%	have	tried	them. Nu	Mark	estimates	2014	total	consumer	expenditures	on	e-vapor	products	of approximately	$2	billion	based	on	annualized	sales	information.

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	with	the	introduction	of	MarkTen	e-vapor products	into	two	lead	markets.	Nu	Mark	completed	the	national	expansion	of MarkTen	products	in	December	2014.	In	addition,	as	further	discussed	in	Note	3, in	April	2014,	Nu	Mark	completed	the	acquisition	of	the	e-vapor	business	of Green	Smoke.	See	the	discussions	regarding	new	product	technologies,	adjacency growth	strategy	and	evolving

consumer	preferences	in	Item	1A	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	cigarette	and	smokeless	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	cigarettes,	cigarette	tobacco	and	smokeless tobacco	products;	(2)	require	disclosures	of	related	information;	and	(3)	enforce the	FSPTCA	and	related	regulations.

Among	other	measures,	the	FSPTCA:

▪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,	and	gives	the	FDA	the	authority to	require	new	warnings;

▪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,	including:

▪authorizing	the	FDA	to	subject	tobacco	products	that	would	be modified	or	first	introduced	into	the	market	after	March	22, 2011	to	application	and	pre-market	review	and	authorization requirements	(the	"New	Product	Application	Process")	if	the FDA	does	not	find	them,	as	a	manufacturer	may	contend,	to	be "substantially	equivalent"	to	products	commercially	marketed as	of	February	15,	2007,	and	possibly	to	deny	any	such	new product	application,	thereby	preventing	the	distribution	and sale	of	any	product	affected	by	such	denial;

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

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

In	April	2014,	the	FDA	issued	proposed	regulations	for	other	tobacco products,	which	as	proposed	would	include	machine-made	large	cigars,	e-vapor products	(such	as	electronic	cigarettes),	pipe	tobacco	and	chewable	tobacco- derived	nicotine	products	marketed	and	sold	by	some	of	our	tobacco	subsidiaries. The	proposed	regulations	would	impose	the	FSPTCA	regulatory	framework, including	the	foregoing	measures,	on	products	manufactured,	marketed	and	sold by	Nu	Mark	and	Middleton	with	potentially	wide-ranging	impact	on	their businesses.	As	discussed	below	in	FDA	Regulatory	Actions	-	Proposed	Deeming Regulations,	Nu	Mark	and	Middleton	submitted	comments	on	the	proposed regulations	in	August	2014.

▪Implementation	Timing,	Rulemaking	and	Guidance:	The	implementation

of	the	FSPTCA	began	in	2009	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	also	issues	guidance	for	public	comment,	which may	be	issued	in	draft	or	final	form.	Such	guidance,	when	finalized,	is	intended	to represent	the	FDA's	current	thinking	on	a	particular	topic	and	may	be	predictive of	the	FDA's	enforcement	stance	on	that	topic.		Such	guidance,	even

when	finalized,	is	not	intended	to	bind	the	FDA	or	the	public	or	establish	legally enforceable	responsibilities.

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; or

▪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	fees	on	tobacco	product	manufacturers	and	importers to	pay	for	the	cost	of	regulation	and	other	matters.	The	cost	of	the	FDA	user	fee	is allocated	first	among	tobacco	product	categories	subject	to	FDA	regulation	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	subject	to	adjustment	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	and	Other	Tobacco	Agreements,	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	but	could	become	material, either	individually	or	in	the	aggregate,	and	will	depend	on	the	nature	of	the requirements	imposed	by	the	FDA.

▪Investigation	and	Enforcement:	The	FDA	has	a	number	of	investigatory and	enforcement	tools	available	to	it,	including	document	requests	and	other required	information	submissions,	facility	inspections,	examinations	and investigations,	injunction	proceedings,	monetary	penalties,	product	withdrawals and	recalls,	and	product	seizures.	The	use	of	any	of	these	investigatory	or enforcement	tools	by	the	FDA	could	result	in	significant	costs	to	the	tobacco businesses	of	Altria	Group,	Inc.	or	otherwise	have	a	material	adverse	effect	on	the business,	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	Tobacco	Company	("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	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the District	of	Columbia	Circuit	in	September	2014.

▪TPSAC	Action	on	Menthol:	As	mandated	by	the	FSPTCA,	in	March	2011,	the TPSAC	submitted	to	the	FDA	a	report	on	the	impact	of	the	use	of menthol	in	cigarettes	on	the	public	health	and	related	recommendations. The	TPSAC	report	stated	that	"[m]enthol	cigarettes	have	an	adverse impact	on	public	health	in	the	United	States."		The	TPSAC	report recommended,	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.		The	TPSAC	report	also	recommended	that additional	research	could	address	gaps	in	understanding	menthol	cigarettes. In	March	2011,	PM	USA	submitted	a	report	to	the	FDA	outlining	its position	that	neither	science	nor	other	evidence	demonstrates	that	regulatory actions	or	restrictions	related	to	the	use	of	menthol	cigarettes	are	warranted. The	report	noted	PM	USA's	belief	that	significant	restrictions	on	the	use	of menthol	cigarettes	would	have	unintended	consequences	detrimental	to	public health	and	society.	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,	including	comments	demonstrating	that	menthol cigarettes	do	not	affect	population	harm	differently	than	non-menthol cigarettes.	PM	USA	also	reiterated	that	significant	restrictions	on	the	use	of menthol	in	cigarettes	would	have	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.	As	noted	above, the	FDA	is	subject	to	a	July	2014	court	order	that	bars	it	from	relying	on	the TPSAC	report,	although	the	FDA	is	currently	appealing	that	order.	At	this time,	it	is	unclear	how	the	FDA	plans	to	proceed	while	that	appeal	is	pending.

▪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	Final	Tobacco Marketing	Rule:

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

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

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

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

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

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

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

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

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

Since	enactment,	several	lawsuits	have	been	filed	challenging	various provisions	of	the	FSPTCA	and	the	Final	Tobacco	Marketing	Rule,	including	their constitutionality	and	the	scope	of	the	FDA's	authority	thereunder.	Altria	Group, Inc.	and	its	tobacco	subsidiaries	are	not	parties	to	any	of	these	lawsuits.		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.

# ▪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	FDA-regulated	tobacco	products	that the	manufacturer	modified	or	introduced	for	the	first	time	into	the	market	after February	15,	2007.	These	reports	must	be	reviewed	by	the	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	these	products	sold	before	March	22,	2011, manufacturers	of	FDA-regulated	tobacco	products	were	required	to	send	to the	FDA	a	report	demonstrating	substantial	equivalence	by	March	22,	2011. PM	USA	and	USSTC	submitted	timely	reports.	PM	USA	and	USSTC	can continue	marketing	these	products	unless	the	FDA	makes	a	determination	that a	specific	product	is	not	substantially	equivalent.	If	the	FDA	ultimately	makes such	a	determination,	it	could	require	the	removal	of	such	products	or	subject them	to	the	New	Product	Application	Process	and,	if	any	such	applications are	denied,	prevent	the	continued	distribution	and	sale	of	such	products. While	PM	USA	and	USSTC	believe	that	all	of	their	current	products	meet	the statutory	requirements	of	the	FSPTCA,	they	cannot	predict	whether,	when	or how	the	FDA	ultimately	will	apply	its	guidance	to	their	various	respective substantial	equivalence	reports	or	seek	to	enforce	the	law	and	regulations consistent	with	its	guidance.

Manufacturers	intending	to	introduce	new	products	and	certain modified	products	into	the	market	after	March	22,	2011	must	submit	a	report to	the	FDA	and	obtain	a	"substantial	equivalence	order"	from	the	FDA	before introducing	the	products	into	the	market.	If	the	FDA	declines	to	issue	a	so- called	"substantial	equivalence	order"	for	a	product	or	if	the	manufacturer itself	determines	that	the	product	does	not	meet	the	substantial	equivalence requirements,	the	product	would	need	to	undergo	the	New	Product Application	Process.

The	FDA	began	announcing	its	decisions	on	substantial	equivalence reports	in	the	second	quarter	of	2013.	However,	there	are	a	significant	number of	substantial	equivalence	reports	for	which	the	FDA	has	not	announced decisions.	At	this	time,	it	is	not	possible	to	predict	how	long	reviews	by	the FDA	of	substantial	equivalence	reports	or	new	product	applications	will	take.

▪Good	Manufacturing	Practices:	The	FSPTCA	requires	that	the	FDA promulgate	good	manufacturing	practice	regulations	for	tobacco	product manufacturers,	but	does	not	specify	a	timeframe	for	such	regulations.	In 2013,	the	FDA	obtained	input	through	a	public	docket	on	proposed	Good Manufacturing	Practice	regulations	recommended	to	the	FDA	by	a	group	of tobacco	companies,	including	PM	USA	and	USSTC.

▪Proposed	Deeming	Regulations:	As	noted	above	in	FSPTCA	and	FDA Regulation	-	The	Regulatory	Framework,	the	FDA	proposed	regulations	in April	2014	that	would	impose	the	FSPTCA	regulatory	framework	on machine-made	large	cigars,	e-vapor	products	(such	as	electronic	cigarettes), pipe	tobacco	and	chewable	tobacco-derived	nicotine	products.	Nu	Mark	and Middleton	submitted	comments	on	the	proposed	regulations	in	August	2014. Nu	Mark's	submission	covers	a	number	of	topics,	including	its	perspective	on (1)	the	guiding	principles	that	the	FDA	should	follow	to	help	ensure successful	implementation	of	the	deeming	regulation,	(2)	the	potential	for	e- vapor	products	and	other	tobacco-derived	nicotine	products	to	reduce tobacco-related	harm	and	(3)	the	establishment	of	product	approval	pathways that	encourage	innovation	of	potentially	reduced	harm	products.	Middleton's comments	covered	its	perspective	on	the	overall	regulation	of	cigars	and	on the	use	of	the	word	"mild"	in	the	Black	&	Mild	brand	name.	The	proposed regulations	suggested	that	the	FDA	may	apply	the	descriptor	prohibition	to cigars	and	pipe	tobacco,	which	could	potentially	prohibit	the	use	of	the	word "Mild"	in	the	Black	&	Mild	brand	name.	As	reflected	in	the	comments, Middleton	believes	neither	the	FDA's	regulatory	authority	nor	the	First	or Fifth	Amendments	to	the	United	States	Constitution	allow	the	FDA	to	ban words	such	as	"mild"	regardless	of	the	context	and	that	the	FDA	can	only prohibit	the	word	"mild"	when	used	as	a	descriptor	of	modified	risk.

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	FET 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	20,	2015,	the	weighted-average state	and	certain	local	cigarette	excise	taxes	increased	from	$0.36	to	$1.49	per pack.	During	2014,	Vermont	was	the	only	state	to	enact	a	cigarette	excise	tax increase.	As	of	February	20,	2015,	no	state	has	increased	its	cigarette	excise	tax	in 2015.	The	President's

2015	Budget	proposes	significant	increases	in	the	FET	for	all	tobacco	products. The	proposed	budget	would	increase	the	FET	on	a	pack	of	cigarettes	by	$0.94	per pack,	raising	the	total	FET	to	$1.95	per	pack,	and	would	also	increase	the	tax	on other	tobacco	products	by	a	proportionate	amount.	It	is	not	possible	to	predict whether	this	proposed	FET	increase	will	be	enacted.

Tax	increases	are	expected	to	continue	to	have	an	adverse	impact	on	sales	of the	tobacco	products	of	our	tobacco	subsidiaries	through	lower	consumption levels	and	the	potential	shift	in	adult	consumer	purchases	from	the	premium	to	the non-premium	or	discount	segments	or	to	other	low-priced	or	low-taxed	tobacco products	or	to	counterfeit	and	contraband	products.	Such	shifts	may	have	an 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	20,	2015,	the	federal	government,	22	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	20,	2015,	178 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.

As	discussed	in	Note	18,	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,	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	and	Other	Tobacco	Agreements,	and	FDA	Regulation below	and	Note	18.	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.

# Other	Federal,	State	and	Local	Regulation	and	Activity

▪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	or	to increase	the	legal	age	to	purchase	tobacco	products	above	the	current	federal minimum	age	requirement	of	18).	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.	For	example,	in	January 2014,	PM	USA,	Middleton	and	a	USSTC	subsidiary,	along	with	other	tobacco product	manufacturers	and	three	trade	associations	representing	New	York	City retailers,	filed	a	lawsuit	in	the	U.S.	District	Court	for	the	Southern	District	of	New York	challenging	the	coupon/discount	ban	included	in	a	recently-enacted	New York	City	ordinance	on	the	grounds	that	it	violates	the	First	Amendment	and	is preempted	by	federal	and	state	law.	In	June	2014,	the	district	court	upheld	the ordinance.

▪Federal	Tobacco	Quota	Buy-Out:	In	October	2004,	FETRA,	which applied	to	PM	USA,	Middleton	and	USSTC,	was	signed	into	law.	FETRA eliminated	the	federal	tobacco	quota	and	price	support	program	through	an industry-funded	buy-out	of	tobacco	growers	and	quota	holders.	The	cost	of	the	10- year	buy-out,	which	expired	after	the	third	quarter	of	2014,	was	approximately $9.5	billion	and	was	paid	by	manufacturers	and	importers	of	each	kind	of	tobacco product	subject	to	FET.	The	cost	was	allocated	based	on	the	relative	market	shares of	manufacturers	and	importers	of	each	kind	of	such	tobacco	product.

For	a	discussion	of	the	impact	of	FETRA	payments	on	Altria	Group,	Inc.,	see Financial	Review	-	Off-Balance	Sheet	Arrangements	and	Aggregate	Contractual Obligations	-	Payments	Under	State	Settlement	and	Other	Tobacco	Agreements, and	FDA	Regulation	below.	Neither	the	quota	buy-out	nor	the	expiration	of	the quota	buy-out	had	a	material	impact	on	our	consolidated	financial	results	in	2014.

# ▪Health	Effects	of	Tobacco	Consumption	and	Exposure	to	Environmental

Tobacco	Smoke	("ETS"):	It	is	the	policy	of	Altria	Group,	Inc.	and	its	tobacco subsidiaries	to	defer	to	the

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

Reports	with	respect	to	the	health	effects	of	smoking	have	been	publicized	for many	years,	including	in	a	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	might	materially	adversely	affect	the	business	and volume	of	our	tobacco	subsidiaries	and	our	consolidated	results	of	operations	and cash	flows.

▪Governmental	Investigations:	From	time	to	time,	Altria	Group,	Inc.	and	its subsidiaries	are	subject	to	governmental	investigations	on	a	range	of	matters.

Altria	Group,	Inc.	and	its

subsidiaries	cannot	predict	whether	new	investigations	may	be	commenced.

Illicit	trade	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	PM	USA,	USSTC	or	Middleton	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	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	products.	As	with	other	agriculture commodities,	the	price	of	tobacco	leaf	can	be	influenced	by	economic	conditions and	imbalances	in	supply	and	demand	and	crop	quality	and	availability	can	be influenced	by	variations	in	weather	patterns,	including	those	caused	by	climate change.	Tobacco	production	in	certain	countries	is	subject	to	a	variety	of	controls, including	government	mandated	prices	and	production	control	programs.		Changes in	the	patterns	of	demand	for	agricultural	products	and	the	cost	of	tobacco production	could	impact	tobacco	leaf	prices	and	tobacco	supply.	Any	significant change	in	the	price,	quality	or	availability	of	tobacco	leaf	or	other	agricultural products	used	to	manufacture	our	products	could	adversely	affect	our	subsidiaries' profitability	and	businesses.

# Timing	of	Sales

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

# Operating	Results

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

|  |  | Net	Revenues |  | Operating	Companies	Income | Operating	Companies	Income | Operating	Companies	Income |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 |
| Smokeable\nproducts | $21,939 | $21,868 | $22,216 | $6,873 | $7,063 | $6,239 |
| Smokeless\nproducts | 1,809 | 1,778 | 1,691 | 1,061 | 1,023 | 931 |
| Total |  |  |  |  |  |  |
| smokeable |  |  |  |  |  |  |
| and |  |  |  |  |  |  |
| smokeless |  |  |  |  |  |  |
| products | $23,748 | $23,646 | $23,907 | $7,934 | $8,086 | $7,170 |

# Smokeable	Products	Segment

The	smokeable	products	segment's	operating	companies	income	decreased	during 2014	due	primarily	to	higher	NPM	Adjustment	Items	in	2013	and	lower	reported shipment	volume,	partially	offset	by	higher	pricing.	PM	USA	grew	Marlboro's and	its	total	cigarette	category	retail	share	versus	2013.

The	following	table	summarizes	the	smokeable	products	segment	shipment volume	performance:

# Shipment	Volume

|  |  | Shipment	Volume |  |
| :--- | :--- | :--- | :--- |
|  | For\tthe\tYears\tEnded\tDecember\t31, | For\tthe\tYears\tEnded\tDecember\t31, | For\tthe\tYears\tEnded\tDecember\t31, |
| (sticks\tin\tmillions) | 2014 | 2013 | 2012 |
| Cigarettes: |  |  |  |
| \t\t\t\t\tMarlboro | 108,023 | 111,421 | 116,377 |
| \t\t\t\t\tOther\tpremium | 7,047 | 7,721 | 8,629 |
| \t\t\t\t\tDiscount | 10,320 | 10,170 | 9,868 |
| Total\tcigarettes | 125,390 | 129,312 | 134,874 |
| Cigars: |  |  |  |
| \t\t\t\t\tBlack\t&amp;\tMild | 1,246 | 1,177 | 1,219 |
| \t\t\t\t\tOther | 25 | 21 | 18 |
| Total\tcigars | 1,271 | 1,198 | 1,237 |
| Total\tsmokeable\tproducts | 126,661 | 130,510 | 136,111 |

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	in	Puerto	Rico	and	U.S.	Territories,	to Overseas	Military	and	by	Philip	Morris	Duty	Free	Inc.,	none	of	which, individually	or	in	the	aggregate,	is	material	to	the	smokeable	products	segment. The	following	table	summarizes	the	smokeable	products	segment	retail	share performance:

|  |  | Retail	Share |  |
| :--- | :--- | :--- | :--- |
|  | For\tthe\tYears\tEnded\tDecember\t31, | For\tthe\tYears\tEnded\tDecember\t31, |  |
|  | 2014 | 2013 | 2012 |
| Cigarettes: |  |  |  |
| \t\t\t\t\tMarlboro | 43.8% | 43.7% | 43.6% |
| \t\t\t\t\tOther\tpremium | 2.9 | 3.1 | 3.3 |
| \t\t\t\t\tDiscount | 4.2 | 3.9 | 3.5 |
| Total\tcigarettes | 50.9% | 50.7% | 50.4% |
| Cigars: |  |  |  |
| \t\t\t\t\tBlack\t&amp;\tMild | 28.6% | 28.9% | 29.9% |
| \t\t\t\t\tOther | 0.4 | 0.2 | 0.2 |
| Total\tcigars | 29.0% | 29.1% | 30.1% |

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	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	and	Middleton	executed	the	following	pricing	and	promotional allowance	actions	during	2014,	2013	and	2012:

▪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.

▪Effective	December	1,	2013,	PM	USA	reduced	its	wholesale	promotional allowance	on	Marlboro	and	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	June	10,	2013,	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.

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

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

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

The	following	discussion	compares	operating	results	for	the	smokeable products	segment	for	the	year	ended	December	31,	2014	with	the	year	ended December	31,	2013.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$71 million	(0.3%),	due	primarily	to	higher	pricing,	partially	offset	by	lower	shipment volume	($724	million).

Operating	companies	income	decreased	$190	million	(2.7%),	due	primarily	to higher	NPM	Adjustment	Items	in	2013	($621	million),	lower	shipment	volume ($360	million)	and	higher	marketing,	administration	and	research	costs,	partially offset	by	higher	pricing.

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	18	and	Item	3.	For the	years	ended	December	31,	2014,	2013	and	2012,	product	liability	defense	costs for	PM	USA	were	$230	million,	$247	million	and	$228	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.

For	2014,	total	smokeable	products	reported	shipment	volume	decreased 2.9%	versus	2013.	PM	USA's	2014	reported	domestic	cigarettes	shipment	volume decreased	3.0%,	due	primarily	to	the	industry's	decline,	partially	offset	by	retail share	gains.	When	adjusted	for	trade	inventory	changes	and	other	factors,	PM USA	estimates	that	its	2014	domestic	cigarettes	shipment	volume	decreased approximately	3%,	and	that	total	industry	cigarette	volumes	declined approximately	3.5%.

PM	USA's	shipments	of	premium	cigarettes	accounted	for	91.8%	of	its reported	domestic	cigarettes	shipment	volume	for	2014,	versus	92.1%	for	2013. Middleton's	reported	cigars	shipment	volume	for	2014	increased	6.1%,	driven by	Black	&	Mild's	performance	in	the	tipped	cigars	segment,	including	Black	&

# Mild	Jazz.

Marlboro's	retail	share	for	2014	increased	0.1	share	point	versus	2013. PM	USA	grew	its	total	retail	share	for	2014	by	0.2	share	points	versus	2013, driven	by	Marlboro,	and	L&M	in	Discount,	partially	offset	by	share	losses	on other	portfolio	brands.	In	the	fourth	quarter	of	2014,	PM	USA	expanded distribution	of	Marlboro	Menthol	Rich	Blue	to	28	states,	primarily	in	the	eastern U.S.,	to	enhance	Marlboro's	position	in	the	menthol	segment.

In	the	machine-made	large	cigars	category,	Black	&	Mild's	retail	share	for 2014	declined	0.3	share	points.	In	December	2014,	Middleton	announced	the national	expansion	of	Black	&	Mild	Casino,	a	dark	tobacco	blend,	in	the	tipped segment.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	decreased	$348 million	(1.6%),	due	primarily	to	lower	shipment	volume	($1,046	million),	partially offset	by	higher	pricing.

Operating	companies	income	increased	$824	million	(13.2%),	due	primarily to	higher	pricing	($765	million),	NPM	Adjustment	Items	($664	million)	and	lower marketing,	administration	and	research	costs,	partially	offset	by	lower	shipment volume	($512	million),	and	higher	per	unit	settlement	charges. For	2013,	total	smokeable	products	reported	shipment

volume	decreased	4.1%	versus	2012.	PM	USA's	2013	reported	domestic cigarettes	shipment	volume	decreased	4.1%,	due	primarily	to	the	industry's	rate	of decline,	changes	in	trade	inventories	and	other	factors,	partially	offset	by	retail share	gains.	When	adjusted	for	trade	inventories	and	other	factors,	PM	USA estimated	that	its	2013	domestic	cigarettes	shipment	volume	was	down approximately	4%,	which	was	consistent	with	the	estimated	category	decline. PM	USA's	shipments	of	premium	cigarettes	accounted	for	92.1%	of	its reported	domestic	cigarettes	shipment	volume	for	2013,	versus	92.7%	for	2012. Middleton's	reported	cigars	shipment	volume	for	2013	decreased	3.2%	due primarily	to	changes	in	wholesale	inventories	and	retail	share	losses.

Marlboro's	retail	share	for	2013	increased	0.1	share	point	versus	2012	behind investments	in	the	Marlboro	architecture.	PM	USA	expanded	Marlboro	Edge distribution	nationally	in	the	fourth	quarter	of	2013.

PM	USA's	2013	retail	share	increased	0.3	share	points	versus	2012,	due	to retail	share	gains	by	Marlboro,	as	well	as	L&M	in	Discount,	partially	offset	by share	losses	on	other	portfolio	brands.	In	2013,	L&M	continued	to	gain	retail	share as	the	total	discount	segment	was	flat	to	declining	versus	2012.

In	the	machine-made	large	cigars	category,	Black	&	Mild's	retail	share	for 2013	decreased	1.0	share	point,	driven	by	heightened	competitive	activity	from low-priced	cigar	brands.

# Smokeless	Products	Segment

During	2014,	the	smokeless	products	segment	grew	operating	companies	income and	expanded	operating	companies	income	margins.	USSTC	also	increased Copenhagen	and	Skoal's	combined	retail	share	versus	2013.

The	 following	 table	 summarizes	 smokeless	 products segment shipment volume	performance:

| (cans	and	packs	in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Copenhagen | 448.6 | 426.1 | 392.5 |
| Skoal | 269.6 | 283.8 | 288.4 |
| Copenhagen\tand\tSkoal | 718.2 | 709.9 | 680.9 |
| Other | 75.1 | 77.6 | 82.4 |
| Total\tsmokeless\tproducts | 793.3 | 787.5 | 763.3 |

Smokeless	products	shipment	volume	includes	cans	and	packs	sold,	as	well	as promotional	units,	but	excludes	international	volume,	which	is	not	material	to	the smokeless	products	segment.	Other	includes	certain	USSTC	and	PM	USA smokeless	products.	New	types	of	smokeless	products,	as	well	as	new	packaging configurations	of	existing	smokeless	products,	may	or	may	not	be	equivalent	to existing	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):

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Copenhagen | 30.8% | 29.3% | 27.9% |
| Skoal | 20.4 | 21.4 | 22.5 |
| Copenhagen\tand\tSkoal | 51.2 | 50.7 | 50.4 |
| Other | 4.0 | 4.3 | 4.8 |
| Total\tsmokeless\tproducts | 55.2% | 55.0% | 55.2% |

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

USSTC	executed	the	following	pricing	actions	during	2014,	2013	and	2012:

▪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.

▪Effective	December	8,	2013,	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,	2014	with	the	year	ended December	31,	2013.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$31 million	(1.7%),	due	primarily	to	higher	pricing,	which	includes	higher	promotional investments,	and	higher

volume,	partially	offset	by	mix	due	to	growth	in	popular	priced	products. Operating	companies	income	increased	$38	million	(3.7%),	due	primarily	to higher	pricing	($43	million),	which	includes	higher	promotional	investments,	and higher	volume	($9	million),	partially	offset	by	product	mix.

Reported	domestic	smokeless	products	shipment	volume	for	2014	increased 0.7%	as	volume	growth	for	Copenhagen	was	mostly	offset	by	volume	declines	in Skoal	and	Other	portfolio	brands.	Copenhagen	and	Skoal's	combined	reported shipment	volume	increased	1.2%	for	2014.

After	adjusting	for	trade	inventory	changes	and	other	factors,	USSTC estimates	that	domestic	smokeless	products	shipment	volume	grew	approximately 2.5%	for	2014.	USSTC	estimates	that	the	smokeless	products	category	volume grew	approximately	2%	for	2014	as	compared	to	approximately	5.5%	for	2013. USSTC	continues	to	believe	that	the	smokeless	category's	growth	rate	is	best determined	over	a	longer	time	horizon	and	will	continue	to	monitor	industry volume	closely.

Copenhagen	and	Skoal's	combined	retail	share	increased	0.5	share	points	to 51.2%	for	2014.	Copenhagen's	retail	share	increased	1.5	share	points,	while Skoal's	retail	share	declined	1.0	share	point.

Retail	share	for	the	smokeless	products	segment	increased	0.2	share	points	to 55.2%,	as	retail	share	gains	for	Copenhagen	were	mostly	offset	by	share	losses	for Skoal	and	Other	portfolio	brands.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$87 million	(5.1%),	due	primarily	to	higher	shipment	volume	and	higher	pricing, which	includes	higher	promotional	investments,	partially	offset	by	mix	due	to growth	in	popular	priced	products.

Operating	companies	income	increased	$92	million	(9.9%),	due	primarily	to higher	shipment	volume	($39	million),	higher	pricing	($34	million),	which includes	higher	promotional	investments,	lower	restructuring	charges	($25 million)	and	effective	cost	management,	partially	offset	by	mix.

Calendar	differences	affected	reported	domestic	smokeless	products	shipment volume	due	to	one	less	shipping	day	in	2013,	representing	approximately	one	full week	of	volume.	Reported	domestic	smokeless	products	shipment	volume	for 2013	increased	3.2%	versus	2012	due	to	volume	growth	for	Copenhagen,	partially offset	by	volume	declines	in	Skoal	and	Other	portfolio	brands.	Copenhagen	and Skoal's	combined	reported	shipment	volume	increased	4.3%	versus	2012. After	adjusting	for	calendar	differences,	trade	inventory	changes	and	other factors,	USSTC	estimates	that	domestic	smokeless	products	shipment	volume grew	5%	for	2013,	while	smokeless	products	category	volume	grew approximately	5.5%.

Copenhagen	and	Skoal's	combined	retail	share	increased	0.3	share	points	to 50.7%	for	2013.	Copenhagen's	retail	share	grew	1.4	share	points,	as	the	brand continued	to	benefit	from	products	introduced	over	the	past	several	years.	Skoal's 2013	retail	share

declined	1.1	share	points,	due	primarily	to	competitive	activity	and	Copenhagen's performance.

Retail	share	for	the	smokeless	products	segment	decreased	0.2	share	points versus	2012	as	retail	share	losses	for	Skoal	and	Other	portfolio	brands	were	mostly offset	by	retail	share	gains	for	Copenhagen.

# 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	wine	regions	and	foreign	countries.	Ste.	Michelle	holds an	85%	ownership	interest	in	Michelle-Antinori,	LLC,	which	owns	Stag's	Leap Wine	Cellars	in	Napa	Valley.	Ste.	Michelle	also	owns	Conn	Creek	in	Napa	Valley and	Erath	in	Oregon.	In	addition,	Ste.	Michelle	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	business	is	subject	to	significant	competition,	including competition	from	many	larger,	well-established	domestic	and	international companies,	as	well	as	from	many	smaller	wine	producers.	Wine	segment competition	is	primarily	based	on	quality,	price,	consumer	and	trade	wine	tastings, competitive	wine	judging,	third-party	acclaim	and	advertising.	Substantially	all	of Ste.	Michelle's	sales	occur	through	state-licensed	distributors.

Federal,	state	and	local	governmental	agencies	regulate	the	alcohol	beverage industry	through	various	means,	including	licensing	requirements,	pricing, labeling	and	advertising	restrictions,	and	distribution	and	production	policies. Further	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	delivered	higher	net	revenues	and	operating	companies	income	in 2014	due	primarily	to	higher	shipment	volume.

The	following	table	summarizes	operating	results	for	the	wine	segment:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Net\trevenues | $643 | $609 | $561 |
| Operating\tcompanies\tincome | $134 | $118 | $104 |

The	following	table	summarizes	wine	segment	case	shipment	volume performance:

| (cases	in	thousands) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Chateau\tSte.\tMichelle | 3,035 | 2,753 | 2,780 |
| Columbia\tCrest1 | 1,032 | 1,031 | 858 |
| 14\tHands | 1,662 | 1,374 | 1,024 |
| Other1 | 2,622 | 2,814 | 2,927 |
| Total\twine | 8,351 | 7,972 | 7,589 |

1	Two	Vines	is	no	longer	sold	under	the	Columbia	Crest	brand.	Effective	January	1,	2014, shipment	volume	for	Two	Vines	is	included	in	Other.	Prior-period	shipment	volume	for Columbia	Crest	and	Other	have	been	adjusted	to	reflect	this	change.

The	following	discussion	compares	operating	results	for	the	wine	segment	for the	year	ended	December	31,	2014	with	the	year	ended	December	31,	2013.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	and	operating companies	income	increased	$34	million	(5.6%)	and	$16	million	(13.6%), respectively,	due	primarily	to	higher	shipment	volume.

For	2014,	Ste.	Michelle's	reported	wine	shipment	volume	increased	4.8% driven	by	increased	volume	of	14	Hands	and	Chateau	Ste.	Michelle,	partially offset	by	declines	in	Other	brands.

Net	revenues,	which	include	excise	taxes	billed	to	customers,	increased	$48 million	(8.6%),	due	to	higher	shipment	volume,	improved	premium	mix	and	higher pricing.

Operating	companies	income	increased	$14	million	(13.5%),	due	to	higher shipment	volume,	higher	pricing	and	improved	premium	mix,	partially	offset	by higher	selling,	general	and	administrative	costs	and	higher	manufacturing	costs. For	2013,	Ste.	Michelle's	reported	wine	shipment	volume	increased	5.0%	due primarily	to	increased	distribution	of	14	Hands.

# Financial	Review

# Net	Cash	Provided	by	Operating	Activities

During	2014,	net	cash	provided	by	operating	activities	was	$4.7	billion	compared with	$4.4	billion	during	2013.	This	increase	was	due	primarily	to	the	following:

▪a	voluntary	$350	million	contribution	to	Altria	Group,	Inc.'s	pension plans	during	2013;

▪lower	interest	payments	in	2014,	resulting	from	debt	maturities	in	2013 and	2014,	as	well	as	debt	refinancing	activities	in	2013;	and

▪higher	income	tax	payments	in	2014,	resulting	primarily	from	the	loss	on early	extinguishment	of	debt	in	2013;	and

▪higher	settlement	payments	during	2014,	driven	primarily	by	the	impact of	higher	NPM	Adjustment	Items	in	2013.

▪lower	settlement	payments,	which	include	the	$483	million	credit	that PM	USA	received	against	its	April	2013	MSA	payment	as	a	result	of the	NPM	Adjustment	Items;

▪lower	income	tax	payments,	which	include	the	Closing	Agreement	with the	IRS	that	resulted	in	a	payment	for	federal	income	tax	and	estimated interest	of	$456	million	in	2012;	and

▪timing	of	spending	related	to	inventory	purchases	and	other	working capital	requirements.

Altria	Group,	Inc.	had	a	working	capital	deficit	at	December	31,	2014	and 2013.	Altria	Group,	Inc.'s	management	believes	that	it	has	the	ability	to	fund	these working	capital	deficits	with	cash	provided	by	operating	activities	and/or	short- term	borrowings	under	its	commercial	paper	program	as	discussed	in	the	Debt	and Liquidity	section	below.

# Net	Cash	Provided	by	Investing	Activities

During	2014,	net	cash	provided	by	investing	activities	was	$177	million	compared with	$602	million	during	2013.	This	decrease	was	due	primarily	to	the	following:

▪lower	proceeds	from	asset	sales	in	the	financial	services	business	during 2014;	and

▪Nu	Mark's	acquisition	of	Green	Smoke	during 2014.

During	2013,	net	cash	provided	by	investing	activities	was	$602	million compared	with	$920	million	during	2012.	This	decrease	was	due	primarily	to lower	proceeds	from	asset	sales	in	the	financial	services	business	in	2013. Capital	expenditures	for	2014	increased	24.4%	to	$163	million.	Capital expenditures	for	2015	are	expected	to	be	in	the	range	of	$200	million	to	$250 million,	and	are	expected	to	be	funded	from	operating	cash	flows.	The	increase	in expected	capital	expenditures	in	2015	compared	with	2014	is	due	primarily	to	a new	USSTC	manufacturing	facility.

# Net	Cash	Used	in	Financing	Activities

During	2014,	net	cash	used	in	financing	activities	was	$4.7	billion,	essentially unchanged	compared	to	2013,	which	primarily	reflected	the	following:

▪higher	repayments	of	debt	in	2013	driven	primarily	by	the	repurchase	of senior	unsecured	notes	in	connection	with	the	2013	debt	tender	offer;	and ▪higher	premiums	and	fees	in	2013	in	connection	with	the	2013	debt tender	offer; offset	by:

▪debt	issuances	of	$3.2	billion	in	2013	used	to	repurchase	senior unsecured	notes	in	connection	with	the	2013	debt	tender	offer;

▪higher	share	repurchases	during	2014;	and

▪higher	dividends	paid	during	2014.

During	2013,	net	cash	used	in	financing	activities	was	$4.7	billion	compared with	$5.2	billion	during	2012.	This	decrease	was	due	primarily	to	the	following:

▪lower	share	repurchases	during	2013;

▪higher	repayments	of	debt	at	scheduled	maturities	in	2013; and

# Debt	and	Liquidity

Credit	Ratings	-	Altria	Group,	Inc.'s	cost	and	terms	of	financing	and	its	access	to commercial	paper	markets	may	be	impacted	by	applicable	credit	ratings.		Under the	terms	of	certain	of	Altria	Group,	Inc.'s	existing	debt	instruments,	a	change	in	a credit	rating	could	result	in	an	increase	or	a	decrease	of	the	cost	of	borrowings. For	instance,	as	discussed	in	Note	9,	the	interest	rate	payable	on	certain	of	Altria Group,	Inc.'s	outstanding	notes	is	subject	to	adjustment	from	time	to	time	if	the rating	assigned	to	the	notes	of	such	series	by	Moody's	Investors	Service,	Inc. ("Moody's")	or	Standard	&	Poor's	Ratings	Services	("Standard	&	Poor's")	is downgraded	(or	subsequently	upgraded)	as	and	to	the	extent	set	forth	in	the

notes.	The	impact	of	credit	ratings	on	the	cost	of	borrowings	under	Altria	Group, Inc.'s	credit	agreements	is	discussed	below.

At	December	31,	2014,	the	credit	ratings	and	outlook	for	Altria	Group,	Inc.'s indebtedness	by	major	credit	rating	agencies	were:

1	On	March	12,	2014,	Standard	&	Poor's	raised	the	long-term	debt	credit	rating	for	Altria Group,	Inc.	to	"BBB+"	from	"BBB".

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,	2014,	2013	and	2012,	Altria Group,	Inc.	had	no	short-term	borrowings.

Altria	Group,	Inc.'s	average	daily	short-term	borrowings,	peak	short-term borrowings	outstanding	and	weighted-average	interest	rate	on	short-term borrowings	were	as	follows:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Average\tdaily\tshort-term\tborrowings | $35 | $37 | $8 |
| Peak\tshort-term\tborrowings\toutstanding | $650 | $650 | $190 |
| Weighted-average\tinterest\trate\ton\tshort-\nterm\tborrowings | 0.27% | 0.34% | 0.42% |

Short-term	borrowings	were	repaid	with	cash	provided	by	operating	activities. Peak	borrowings	were	due	primarily	to	payments	related	to	State	Settlement Agreements	as	further	discussed	in	Tobacco	Space	-	Business	Environment,	Off Balance	Sheet	Arrangements	and	Aggregate	Contractual	Obligations	-	Payments Under	State	Settlement	and	Other	Tobacco	Agreements,	and	FDA	Regulation,	and Note	18.

During	the	third	quarter	of	2014,	Altria	Group,	Inc.	entered	into	an	extension agreement	(the	"Extension	Agreement")	to	amend	its	$3.0	billion	senior	unsecured 5-year	revolving	credit	agreement,	dated	as	of	August	19,	2013	(the	"Credit Agreement").	The	Extension	Agreement	extends	the	expiration	date	of	the	Credit Agreement	from	August	19,	2018	to	August	19,	2019	pursuant	to	the	terms	of	the Credit	Agreement.	All	other	terms	and	conditions	of	the	Credit	Agreement	remain in	full	force	and	effect.	The	Credit	Agreement	contains	an	additional	option, subject	to	certain	conditions,	for	Altria	Group,	Inc.	to	extend	the	expiration	date for	an	additional	one-year	period.

The	Credit	Agreement	provides	for	borrowings	up	to	an	aggregate	principal amount	of	$3.0	billion.	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	Standard	&	Poor's	and	Moody's.	The applicable	percentage	based	on	Altria	Group,	Inc.'s	long-term	senior	unsecured debt	ratings	at	December	31,	2014	for	borrowings	under	the	Credit	Agreement	was 1.25%.	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,	2014,	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,	2014,	the	ratios	of	debt	to consolidated	EBITDA	and	consolidated	EBITDA	to	consolidated	interest	expense, calculated	in	accordance	with	the	Credit	Agreement,	were	1.8	to	1.0	and	9.7	to	1.0, respectively.	Altria	Group,	Inc.	expects	to	continue	to	meet	its	covenants associated	with	the	Credit	Agreement.	The	terms	"consolidated	EBITDA,"	"debt" and	"consolidated	interest	expense,"	as	defined	in	the	Credit	Agreement,	include certain	adjustments.	Exhibit	99.3	to	Altria	Group,	Inc.'s	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	19. Condensed	Consolidating	Financial	Information	to	the	consolidated	financial statements	in	Item	8	("Note	19").

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.

As	discussed	in	Note	9,	on	November	14,	2014,	Altria	Group,	Inc.	issued	$1.0 billion	aggregate	principal	amount	of	2.625%	senior	unsecured	long-term	notes due	2020.	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	for	general	corporate	purposes.	The	obligations	of Altria	Group,

Inc.	under	the	notes	are	guaranteed	by	PM	USA.	For	further	discussion,	see	Note 19.

During	the	first	quarter	of	2014,	Altria	Group,	Inc.	repaid	in	full	at	maturity senior	unsecured	notes	in	the	aggregate	principal	amount	of	$525	million. During	the	fourth	quarter	of	2014,	UST	redeemed	in	full	its	$300	million (aggregate	principal	amount)	5.75%	senior	notes	due	2018.

All	of	Altria	Group,	Inc.'s	debt	was	fixed-rate	debt	at	December	31,	2014	and 2013.	The	weighted-average	coupon

interest	rate	on	total	debt	was	approximately	5.7%	and

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	18,	Altria	Group,	Inc.	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,	2014.	From	time	to	time,	subsidiaries	of	Altria Group,	Inc.	also	issue	lines	of	credit	to	affiliated	entities.	In	addition,	as	discussed	in	Note	19,	PM	USA	has	issued	guarantees	relating	to	Altria	Group,	Inc.'s	obligations under	its	outstanding	debt	securities,	borrowings	under	its	Credit	Agreement	and	amounts	outstanding	under	its	commercial	paper	program.	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,	2014:

| (in	millions) | Total | 2015 | 2016	-	2017 | 2018	-	2019 | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt\t(1) | $14,742 | $1,000 | $— | $2,800 | $10,942 |
| Interest\ton\tborrowings\t(2) | 11,091 | 826 | 1,586 | 1,425 | 7,254 |
| Operating\tleases\t(3) | 322 | 56 | 93 | 55 | 118 |
| Purchase\tobligations:\t(4) |  |  |  |  |  |
| Inventory\tand\tproduction\tcosts | 2,938 | 1,001 | 1,037 | 517 | 383 |
| Other | 668 | 529 | 122 | 17 | — |
|  | 3,606 | 1,530 | 1,159 | 534 | 383 |
| Other\tlong-term\tliabilities\t(5) | 2,641 | 152 | 327 | 329 | 1,833 |
|  | $32,402 | $3,564 | $3,165 | $5,143 | $20,530 |

(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,	2014,	is	presented	using	the	stated	coupon	interest	rate.	Amounts	exclude	the	amortization	of	debt	discounts	and	premiums,	the	amortization	of	loan	fees	and	fees for	lines	of	credit	that	would	be	included	in	interest	and	other	debt	expense,	net	on	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	supplies,	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	2015	through	2019.	Contributions	beyond	2019	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	18	and	Item	3,	are excluded	from	the	table	above,	as	the	payments	are	subject	to	adjustment	for several	factors,	including	inflation,	market	share	and	industry	volume.	Litigation escrow	deposits,	as	discussed	below	and	in	Note	18,	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	and	Other	Tobacco	Agreements,	and	FDA Regulation	-	As	discussed	previously	and	in	Note	18	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, FETRA	and	the	FDA	user	fees	are	based	on	variable	factors,	such	as	volume, market	share	and	inflation,	depending	on	the	subject	payment.	Altria	Group,	Inc.'s subsidiaries	account	for	the	cost	of	the	State	Settlement	Agreements,	FETRA	and FDA	user	fees	as	a	component	of	cost	of	sales.	As	a	result	of	the	State	Settlement Agreements,	FETRA	and	FDA	user	fees,	Altria	Group,	Inc.'s	subsidiaries recorded	approximately	$4.9	billion,	$4.4	billion	and	$5.1	billion	of	charges	to	cost of	sales	for	the	years	ended	December	31,	2014,	2013	and	2012,	respectively.	The 2014	and	2013	amounts	included	reductions	to	cost	of	sales	of	$43	million	and $664	million,	respectively,	for	the	NPM	Adjustment	Items.	In	addition,	the	2014 amount	included	a	decrease	in	the	charge	to	cost	of	sales	of	approximately	$100 million,	reflecting	the	expiration	of	the	obligations	imposed	by	FETRA	after	the third	quarter	of	2014.

In	connection	with	the	settlement	of	the	NPM	Adjustment	disputes	under	the MSA	for	the	years	2003-2012,	the	formula	for	allocating	the	revised	NPM Adjustments	applicable	to	the	signatory	states	for	2013	and	subsequent	years among	the	tobacco	product	manufacturers	that	are	original	signatories	to	the	MSA ("OPMs")	has	been	modified	in	a	manner	favorable	to	PM	USA,	although	the extent	to	which	it	remains	favorable	to	PM	USA	will	depend	upon	future developments.	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	18.

Based	on	current	agreements,	2014	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	$4.6	billion	in	2015	and	each	year thereafter.	The	decrease	in	these	amounts	compared	with	approximately	$4.9 billion	charged	to	cost	of	sales	in	2014	reflects	the	expiration	of	obligations imposed

by	FETRA	after	the	third	quarter	of	2014.	These	amounts	exclude	the	potential impact	of	the	revised	and	streamlined	NPM	Adjustment	provision	applicable	to signatory	states	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,	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	Escrow	Deposits	-	With	respect	to	certain	adverse	verdicts currently	on	appeal,	to	obtain	stays	of	judgments	pending	appeals,	as	of	December 31,	2014,	PM	USA	had	posted	various	forms	of	security	totaling	approximately $61	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	18, 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	11.	Stock	Plans	to	the	consolidated	financial	statements	in Item	8,	during	2014	Altria	Group,	Inc.	granted	an	aggregate	of	1.4	million	shares of	restricted	and	deferred	stock	to	eligible	employees.

At	December	31,	2014,	the	number	of	shares	to	be	issued	upon	vesting	of deferred	stock	was	not	significant.	In	addition,	there	were	no	stock	options outstanding	at	December	31,	2014.

Dividends	paid	in	2014	and	2013	were	approximately	$3.9	billion	and	$3.6 billion,	respectively,	an	increase	of	7.8%,	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	discussed	below. During	the	third	quarter	of	2014,	the	Board	of	Directors	approved	an	8.3% increase	in	the	quarterly	dividend	rate	to	$0.52	per	common	share	versus	the previous	rate	of	$0.48	per	common	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	$2.08	per	Altria	Group,	Inc. common	share.	Future

dividend	payments	remain	subject	to	the	discretion	of	the	Board	of	Directors. During	2014,	2013	and	2012	the	Board	of	Directors	authorized	Altria	Group, Inc.	to	repurchase	shares	of	its	outstanding	common	stock	under	several	share repurchase	programs.

Altria	Group,	Inc.'s	total	share	repurchase	activity	was	as	follows:

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |
| :--- | :--- | :--- | :--- |
|  | 2014 | 2013 | 2012 |
|  | (in\tmillions,\texcept\tper\tshare\tdata) | (in\tmillions,\texcept\tper\tshare\tdata) | (in\tmillions,\texcept\tper\tshare\tdata) |
| Total\tnumber\tof\tshares\trepurchased | 22.5 | 16.7 | 34.9 |
| Aggregate\tcost\tof\tshares\trepurchased | $939 | $600 | $1,116 |
| Average\tprice\tper\tshare\tof\tshares\nrepurchased | $41.79 | $36.05 | $32.00 |

At	December	31,	2014,	Altria	Group,	Inc.	had	approximately	$518	million remaining	in	the	July	2014	share	repurchase	program,	which	it	expects	to complete	by	the	end	of	2015.	The	timing	of	share	repurchases	under	the	July	2014 share	repurchase	program	depends	upon	marketplace	conditions	and	other	factors, and	the	program	remains	subject	to	the	discretion	of	the	Board	of	Directors. For	further	discussion	of	Altria	Group,	Inc.'s	share	repurchase	programs,	see Note	1.	Background	and	Basis	of	Presentation	to	the	consolidated	financial statements	in	Item	8.

# Recent	Accounting	Guidance	Not	Yet	Adopted

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

# Contingencies

See	Note	18	and	Item	3	for	a	discussion	of	contingencies.

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

At	December	31,	2014	and	2013,	the	fair	value	of	Altria	Group,	Inc.'s	total	debt was	$17.0	billion	and	$16.1	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,	2014	and	2013 would	decrease	the	fair	value	of	Altria	Group,	Inc.'s	total	debt	by	approximately $1.3	billion	and	$1.2	billion,	respectively.	A	1%	decrease	in	market	interest	rates at	December	31,	2014	and	2013	would	increase	the	fair	value	of	Altria	Group, Inc.'s	total	debt	by	approximately	$1.5	billion	and	$1.4	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	Standard	&	Poor's	and Moody's.	The	applicable	percentage	based	on	Altria	Group,	Inc.'s	long-term senior	unsecured	debt	ratings	at	December	31,	2014	for	borrowings	under	the Credit	Agreement	was	1.25%.	At	December	31,	2014,	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, | 2014 | 2013 |
| :--- | :--- | :--- |
| Assets |  |  |
| Cash\tand\tcash\tequivalents | $3,321 | $3,175 |
| Receivables | 124 | 115 |
| Inventories: |  |  |
| Leaf\ttobacco | 991 | 933 |
| Other\traw\tmaterials | 200 | 180 |
| Work\tin\tprocess | 429 | 394 |
| Finished\tproduct | 420 | 372 |
|  | 2,040 | 1,879 |
| Deferred\tincome\ttaxes | 1,143 | 1,100 |
| Other\tcurrent\tassets | 250 | 321 |
| Total\tcurrent\tassets | 6,878 | 6,590 |
| Property,\tplant\tand\tequipment,\tat\tcost: |  |  |
| Land\tand\tland\timprovements | 293 | 291 |
| Buildings\tand\tbuilding\tequipment | 1,323 | 1,308 |
| Machinery\tand\tequipment | 2,986 | 3,111 |
| Construction\tin\tprogress | 153 | 107 |
|  | 4,755 | 4,817 |
| Less\taccumulated\tdepreciation | 2,772 | 2,789 |
|  | 1,983 | 2,028 |
| Goodwill | 5,285 | 5,174 |
| Other\tintangible\tassets,\tnet | 12,049 | 12,058 |
| Investment\tin\tSABMiller | 6,183 | 6,455 |
| Finance\tassets,\tnet | 1,614 | 1,997 |
| Other\tassets | 483 | 557 |
| Total\tAssets | $34,475 | $34,859 |

See	notes	to	consolidated	financial	statements.

# Consolidated	Balance	Sheets	(Continued)

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

| at	December	31, | 2014 | 2013 |
| :--- | :--- | :--- |
| Liabilities |  |  |
| Current\tportion\tof\tlong-term\tdebt | $1,000 | $525 |
| Accounts\tpayable | 416 | 409 |
| Accrued\tliabilities: |  |  |
| Marketing | 618 | 512 |
| Employment\tcosts | 186 | 255 |
| Settlement\tcharges | 3,500 | 3,391 |
| Other | 925 | 1,007 |
| Dividends\tpayable | 1,028 | 959 |
| Total\tcurrent\tliabilities | 7,673 | 7,058 |
| Long-term\tdebt | 13,693 | 13,992 |
| Deferred\tincome\ttaxes | 6,088 | 6,854 |
| Accrued\tpension\tcosts | 1,012 | 212 |
| Accrued\tpostretirement\thealth\tcare\tcosts | 2,461 | 2,155 |
| Other\tliabilities | 503 | 435 |
| Total\tliabilities | 31,430 | 30,706 |
| Contingencies\t(Note\t18) |  |  |
| Redeemable\tnoncontrolling\tinterest | 35 | 35 |
| 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 | 5,735 | 5,714 |
| Earnings\treinvested\tin\tthe\tbusiness | 26,277 | 25,168 |
| Accumulated\tother\tcomprehensive\tlosses | (2,682) | (1,378) |
| Cost\tof\trepurchased\tstock |  |  |
| (834,486,794\tshares\tat\tDecember\t31,\t2014\tand |  |  |
| 812,482,035\tshares\tat\tDecember\t31,\t2013) | (27,251) | (26,320) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 3,014 | 4,119 |
| Noncontrolling\tinterests | (4) | (1) |
| Total\tstockholders'\tequity | 3,010 | 4,118 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $34,475 | $34,859 |

# Consolidated	Statements	of	Earnings

(in	millions	of	dollars,	except	per	share	data)

| for	the	years	ended	December	31, | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Net\trevenues | $24,522 | $24,466 | $24,618 |
| Cost\tof\tsales | 7,785 | 7,206 | 7,937 |
| Excise\ttaxes\ton\tproducts | 6,577 | 6,803 | 7,118 |
| Gross\tprofit | 10,160 | 10,457 | 9,563 |
| Marketing,\tadministration\tand\tresearch\tcosts | 2,539 | 2,340 | 2,301 |
| Changes\tto\tMondelēz\tand\tPMI\ttax-related\treceivables/payables | 2 | 22 | (52) |
| Asset\timpairment\tand\texit\tcosts | (1) | 11 | 61 |
| Operating\tincome | 7,620 | 8,084 | 7,253 |
| Interest\tand\tother\tdebt\texpense,\tnet | 808 | 1,049 | 1,126 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 44 | 1,084 | 874 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (1,006) | (991) | (1,224) |
| Earnings\tbefore\tincome\ttaxes | 7,774 | 6,942 | 6,477 |
| Provision\tfor\tincome\ttaxes | 2,704 | 2,407 | 2,294 |
| Net\tearnings | 5,070 | 4,535 | 4,183 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (3) |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $5,070 | $4,535 | $4,180 |
| Per\tshare\tdata: |  |  |  |
|  | $2.56 | $2.26 | $2.06 |

# Consolidated	Statements	of	Comprehensive	Earnings

| for	the	years	ended	December	31, | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Net\tearnings | $5,070 | $4,535 | $4,183 |
| Other\tcomprehensive\tearnings\t(losses),\tnet\tof\tdeferred\tincome\ttaxes: |  |  |  |
| Currency\ttranslation\tadjustments | (2) | (2) | — |
| Benefit\tplans | (767) | 1,141 | (352) |
| SABMiller | (535) | (477) | 199 |
| Other\tcomprehensive\t(losses)\tearnings,\tnet\tof\tdeferred\tincome\ttaxes | (1,304) | 662 | (153) |
| Comprehensive\tearnings | 3,766 | 5,197 | 4,030 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (3) |
| Comprehensive\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $3,766 | $5,197 | $4,027 |

# Consolidated	Statements	of	Cash	Flows

| for	the	years	ended	December	31, | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\t(Used\tin)\tOperating\tActivities |  |  |  |
| Net\tearnings | $5,070 | $4,535 | $4,183 |
| Adjustments\tto\treconcile\tnet\tearnings\tto\toperating\tcash\tflows: |  |  |  |
| Depreciation\tand\tamortization | 208 | 212 | 225 |
| Deferred\tincome\ttax\tbenefit | (129) | (86) | (929) |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (1,006) | (991) | (1,224) |
| Dividends\tfrom\tSABMiller | 456 | 439 | 402 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 44 | 1,084 | 874 |
| IRS\tpayment\trelated\tto\tthe\tClosing\tAgreement | — | — | (456) |
| Cash\teffects\tof\tchanges,\tnet\tof\tthe\teffects\tfrom\tacquisition\tof\tGreen\tSmoke: |  |  |  |
| Receivables,\tnet | (8) | 78 | 202 |
| Inventories | (184) | (133) | 33 |
| Accounts\tpayable | (5) | (76) | (13) |
| Income\ttaxes | 1 | (95) | 883 |
| Accrued\tliabilities\tand\tother\tcurrent\tassets | (107) | (107) | (14) |
| Accrued\tsettlement\tcharges | 109 | (225) | 103 |
| Pension\tplan\tcontributions | (15) | (393) | (557) |
| Pension\tprovisions\tand\tpostretirement,\tnet | 21 | 177 | 192 |
| Other | 208 | (44) | (19) |
| Net\tcash\tprovided\tby\toperating\tactivities | 4,663 | 4,375 | 3,885 |

# Consolidated	Statements	of	Cash	Flows	(Continued)

| for	the	years	ended	December	31, | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |
| Capital\texpenditures | $(163) | $(131) | $(124) |
| Acquisition\tof\tGreen\tSmoke,\tnet\tof\tacquired\tcash | (102) | — | — |
| Proceeds\tfrom\tfinance\tassets | 369 | 716 | 1,049 |
| Other | 73 | 17 | (5) |
| Net\tcash\tprovided\tby\tinvesting\tactivities | 177 | 602 | 920 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |
| Long-term\tdebt\tissued | 999 | 4,179 | 2,787 |
| Long-term\tdebt\trepaid | (825) | (3,559) | (2,600) |
| Repurchases\tof\tcommon\tstock | (939) | (634) | (1,082) |
| Dividends\tpaid\ton\tcommon\tstock | (3,892) | (3,612) | (3,400) |
| Financing\tfees\tand\tdebt\tissuance\tcosts | (7) | (39) | (22) |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (44) | (1,054) | (864) |
| Other | 14 | 17 | 6 |
| Net\tcash\tused\tin\tfinancing\tactivities | (4,694) | (4,702) | (5,175) |
| Cash\tand\tcash\tequivalents: |  |  |  |
| Increase\t(decrease) | 146 | 275 | (370) |
| Balance\tat\tbeginning\tof\tyear | 3,175 | 2,900 | 3,270 |
| Balance\tat\tend\tof\tyear | $3,321 | $3,175 | $2,900 |
| Cash\tpaid:\t\t\t\tInterest | $820 | $1,099 | $1,219 |
| \t\tIncome\ttaxes | $2,765 | $2,448 | $3,338 |

# 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,\t2011 | $935 | $5,674 | $23,583 | $(1,887) | $(24,625) | $3 | $3,683 |
| Net\tearnings\t(1) | — | — | 4,180 | — | — | — | 4,180 |
| Other\tcomprehensive\tlosses,\tnet\nof\tdeferred\tincome\ttaxes | — | — | — | (153) | — | — | (153) |
| Stock\taward\tactivity | — | 14 | — | — | 10 | — | 24 |
| Cash\tdividends\tdeclared\t($1.70\tper\tshare) | — | — | (3,447) | — | — | — | (3,447) |
| Repurchases\tof\tcommon\tstock | — | — | — | — | (1,116) | — | (1,116) |
| Other | — | — | — | — | — | (1) | (1) |
| Balances,\tDecember\t31,\t2012 | 935 | 5,688 | 24,316 | (2,040) | (25,731) | 2 | 3,170 |
| Net\tearnings\t(losses)(1) | — | — | 4,535 | — | — | (3) | 4,532 |
| Other\tcomprehensive\tearnings,\tnet\nof\tdeferred\tincome\ttaxes | — | — | — | 662 | — | — | 662 |
| Stock\taward\tactivity | — | 26 | — | — | 11 | — | 37 |
| Cash\tdividends\tdeclared\t($1.84\tper\tshare) | — | — | (3,683) | — | — | — | (3,683) |
| Repurchases\tof\tcommon\tstock | — | — | — | — | (600) | — | (600) |
| 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 |

(1)	Net	earnings/losses	attributable	to	noncontrolling	interests	for	each	of	the	years	ended	 December	31,	2014,	2013	and	2012	exclude	net	earnings	of	$3	million	due	to	the	redeemable	noncontrolling interest	related	to	Stag's	Leap	Wine	Cellars,	which	is	reported	in	the	mezzanine	equity	section	in	the	consolidated	balance	sheets	at December	31,	2014,	2013	and	2012.	See	Note	18.

# Notes	to	Consolidated	Financial	Statements

# Note	1.					Background	and	Basis	of	Presentation

▪Background:	At	December	31,	2014,	Altria	Group,	Inc.'s	wholly-owned subsidiaries	included	Philip	Morris	USA	Inc.	("PM	USA"),	which	is	engaged predominantly	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	Inc., which	provides	various	support	services,	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, 2014,	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	December	31,	2014,	Altria	Group,	Inc.	also	held	approximately	27%	of	the economic	and	voting	interest	of	SABMiller	plc	("SABMiller"),	which	Altria Group,	Inc.	accounts	for	under	the	equity	method	of	accounting.	Altria	Group,	Inc. receives	cash	dividends	on	its	interest	in	SABMiller	if	and	when	SABMiller	pays such	dividends.

▪Dividends	and	Share	Repurchases:	During	the	third	quarter	of	2014,	Altria Group,	Inc.'s	Board	of	Directors	(the	"Board	of	Directors")	approved	an	8.3% increase	in	the	quarterly	dividend	rate	to	$0.52	per	common	share	versus	the previous	rate	of	$0.48	per	common	share.	The	current	annualized	dividend rate	is	$2.08	per	Altria	Group,	Inc.	common	share.	Future	dividend	payments remain	subject	to	the	discretion	of	the	Board	of	Directors.

In	October	2011,	the	Board	of	Directors	authorized	a	$1.0	billion	share repurchase	program	and	expanded	it	to	$1.5	billion	in	October	2012	(as expanded,	the	"October	2011	share	repurchase	program").	During	the	first quarter	of	2013,	Altria	Group,	Inc.	completed	the	October	2011	share repurchase	program,	under	which	Altria	Group,	Inc.

repurchased	a	total	of	48.3	million	shares	of	its	common	stock	at	an	average price	of	$31.06	per	share.

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 2014,	Altria	Group,	Inc.	repurchased	10.4	million	shares	of	its	common	stock (at	an	aggregate	cost	of	approximately	$482	million,	and	at	an	average	price of	$46.41	per	share)	under	the	July	2014	share	repurchase	program.	At December	31,	2014,	Altria	Group,	Inc.	had	approximately	$518	million remaining	in	the	July	2014	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.

Inc.'s	total	share	repurchase	activity	was	as	follows:

| repurchased | 22.5 | 16.7 | 34.9 |
| :--- | :--- | :--- | :--- |
| Aggregate\tcost\tof\tshares\nrepurchased | $939 | $600 | $1,116 |
| Average\tprice\tper\tshare\tof\tshares\nrepurchased | $41.79 | $36.05 | $32.00 |

▪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.	exercises	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.

# 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	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.

▪Employee	Benefit	Plans:	Altria	Group,	Inc.	provides	a	range	of	benefits	to its	employees	and	retired	employees,	including	pensions,	postretirement	health care	and	postemployment	benefits	(primarily	severance).	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.

▪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	18.	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 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	18.	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	on	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	on	the	consolidated statements	of	earnings.

▪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.

▪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	deferred	stock	is	determined	based	on	the	number of	shares	granted	and	the	market	value	at	date	of	grant.

▪New	Accounting	Standards:	In	May	2014,	the	Financial	Accounting Standards	Board	issued	authoritative	guidance	for	recognizing	revenue	from contracts	with	customers.	The	objective	of	this	guidance	is	to	establish	principles for	reporting	information	about	the	nature,	amount,	timing	and	uncertainty	of revenue	and	cash	flows	arising	from	an	entity's	contracts	with	customers.	For Altria	Group,	Inc.,	the	new	guidance	will	be	effective	for	annual	reporting	periods beginning	after	December	15,	2016,	including	interim	periods	within	that reporting	period.	Early	application	is	not	permitted.	Altria	Group,	Inc.	is	in	the process	of	evaluating	the	impact	of	this	guidance	on	its	consolidated	financial statements	and	related	disclosures.

# 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	up	to	approximately $130	million,	which	includes	contingent	consideration.	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.

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

The	following	amounts	represent	the	fair	value	of	identifiable	assets	acquired and	liabilities	assumed	in	the	Green	Smoke	acquisition,	which	will	be	finalized during	the	first	quarter	of	2015:

# (in	millions)

| (in	millions) |  |
| :--- | :--- |
| Cash\tand\tcash\tequivalents | $3 |
| Inventory\tand\tother\tcurrent\tassets | 12 |
| Indefinite-lived\tintangible\tasset\t-\ttrademark | 10 |
| Definite-lived\tintangible\tassets | 1 |
| Current\tliabilities | (8) |
| Other\tassets\tand\tliabilities,\tnet | 1 |
| Total\tidentifiable\tnet\tassets | 19 |
| Total\tpurchase\tprice | 130 |
| Goodwill | $111 |

Costs	incurred	to	effect	the	acquisition,	as	well	as	integration	costs,	are	being recognized	as	expenses	in	the	periods	in	which	the	costs	are	incurred.	For	the	year ended	December	31,	2014,	Altria	Group,	Inc.	incurred	$28	million	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	statement	of	earnings.

# Note	4.	Goodwill	and	Other	Intangible	Assets,	net

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

| (in	millions) | December	31,	2014 | December	31,	2013 | December	31,	2014 | December	31,	2013 |
| :--- | :--- | :--- | :--- | :--- |
| Smokeable\tproducts | $77 | $77 | $2,937 | $2,954 |
| Smokeless\tproducts | 5,023 | 5,023 | 8,833 | 8,836 |
| Wine | 74 | 74 | 268 | 268 |
| Other | 111 | — | 11 | — |
| Total | $5,285 | $5,174 | $12,049 | $12,058 |

Goodwill	relates	to	Altria	Group,	Inc.'s	2014	acquisition	of	Green	Smoke,	2009	acquisition	of	UST	and	2007	acquisition	of	Middleton.

Other	intangible	assets	consisted	of	the	following:

|  | December	31,	2014 | December	31,	2014 | December	31,	2013 | December	31,	2013 |
| :--- | :--- | :--- | :--- | :--- |
| (in\tmillions) | Gross\tCarrying\nAmount | Accumulated\nAmortization | Gross\tCarrying\nAmount | Accumulated\nAmortization |
| Indefinite-lived\tintangible\tassets | $11,711 | $— | $11,701 | $— |
| Definite-lived\tintangible\tassets | 465 | 127 | 464 | 107 |
| Total\tother\tintangible\tassets | $12,176 | $127 | $12,165 | $107 |

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	each	of	the	years	ended	December	31,	2014,	2013	and	2012,	was	$20 million.	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	2014,	2013	and	2012,	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,	2014,	2013	and	2012,	there	have	been	no changes	in	goodwill	and	the	gross	carrying	amount	of	other	intangible	assets except	for	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,	2014	and	2013.

# Note	5.	Inventories

The	cost	of	approximately	66%	and	67%	of	inventories	at	December	31,	2014	and 2013,	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,	2014	and	2013.

# Note	6.	Investment	in	SABMiller

At	December	31,	2014,	Altria	Group,	Inc.	held	approximately	27%	of	the economic	and	voting	interest	of	SABMiller.	Altria	Group,	Inc.	accounts	for	its investment	in	SABMiller	under	the	equity	method	of	accounting.

Pre-tax	earnings	from	Altria	Group,	Inc.'s	equity	investment	in	SABMiller were	$1,006	million,	$991	million	and	$1,224	million	for	the	years	ended December	31,	2014,	2013	and	2012,	respectively.	Altria	Group,	Inc.'s	pre-tax earnings	from	its	equity	investment	in	SABMiller	for	the	year	ended	December 31,	2012	included	its	share	of	pre-tax	non-cash	gains	of	$342	million	resulting from	SABMiller's	strategic	alliance	transactions	with	Anadolu	Efes	and	Castel. Summary	financial	data	of	SABMiller	is	as	follows:

|  | At	December	31, | At	December	31, |
| :--- | :--- | :--- |
| (in\tmillions) | 2014 | 2013 |
| Current\tassets | $5,878 | $5,833 |
| Long-term\tassets | $43,812 | $48,460 |
| Current\tliabilities | $10,051 | $8,177 |
| Long-term\tliabilities | $14,731 | $20,315 |
| Noncontrolling\tinterests | $1,241 | $1,202 |

|  | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, | For	the	Years	Ended	December	31, |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2014 | 2013 | 2012 |
| Net\trevenues | $22,380 | $22,684 | $23,449 |
| Operating\tprofit | $4,478 | $4,201 | $5,243 |
| Net\tearnings | $3,532 | $3,375 | $4,362 |

The	fair	value	of	Altria	Group,	Inc.'s	equity	investment	in	SABMiller	is	based on	unadjusted	quoted	prices	in	active	markets	and	is	classified	in	Level	1	of	the fair	value	hierarchy.	The	fair	value	of	Altria	Group,	Inc.'s	equity	investment	in SABMiller	at	December	31,	2014	and	2013,	was	$22.5	billion	and	$22.1	billion, respectively,	as	compared	with	its	carrying	value	of	$6.2	billion	and	$6.5	billion, respectively.

At	December	31,	2014,	Altria	Group,	Inc.'s	earnings	reinvested	in	the business	on	its	consolidated	balance	sheet	included	approximately	$3.0	billion	of undistributed	earnings	from	its	equity	investment	in	SABMiller.

# Note	7.	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,	2014,	finance	assets,	net,	of	$1,614	million	were	comprised	of investments	in	finance	leases	of	$1,656	million,	reduced	by	the	allowance	for losses	of	$42	million.	At	December	31,	2013,	finance	assets,	net,	of	$1,997	million were	comprised	of	investments	in	finance	leases	of	$2,049	million,	reduced	by	the allowance	for	losses	of	$52	million.

During	the	second	quarter	of	2012,	Altria	Group,	Inc.	entered	into	a	closing agreement	(the	"Closing	Agreement")

with	the	Internal	Revenue	Service	(the	"IRS")	that	conclusively	resolved	the federal	income	tax	treatment	for	all	prior	and	future	tax	years	of	certain	leveraged lease	transactions	entered	into	by	PMCC.	As	a	result	of	the	Closing	Agreement, Altria	Group,	Inc.	recorded	a	one-time	net	earnings	benefit	of	$68	million	during the	second	quarter	of	2012,	due	primarily	to	lower	than	estimated	interest	on	tax underpayments,	which	was	recorded	as	follows:

|  | For	the	Year	Ended	December	31,	2012 | For	the	Year	Ended	December	31,	2012 |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | Net\tRevenues | Benefit\tfor\nIncome\tTaxes | Total |
| Reduction\tto\tcumulative\nlease\tearnings | $7 | $(2) | $5 |
| Interest\ton\ttax\nunderpayments | — | (73) | (73) |
| Total | $7 | $(75) | $(68) |

				See	Note	14.	Income	Taxes	for	a	further	discussion	of	the	Closing	Agreement. A	summary	of	the	net	investments	in	finance	leases,	substantially	all	of	which are	leveraged	leases,	at	December	31,	2014	and	2013,	before	allowance	for	losses is	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Rents\treceivable,\tnet | $1,241 | $1,495 |
| Unguaranteed\tresidual\tvalues | 827 | 1,127 |
| Unearned\tincome | (412) | (573) |
| Investments\tin\tfinance\tleases | 1,656 | 2,049 |
| Deferred\tincome\ttaxes | (1,135) | (1,440) |
| Net\tinvestments\tin\tfinance\tleases | $521 | $609 |

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	$2.1	billion	and	$2.8	billion	at	December	31,	2014	and 2013,	respectively,	has	been	offset	against	the	related	rents	receivable.	There	were no	leases	with	contingent	rentals	in	2014	and	2013.

In	2014	and	2012,	PMCC's	annual	review	of	estimated	residual	values resulted	in	a	decrease	of	$63	million	and	$19	million,	respectively,	to unguaranteed	residual	values.	These	decreases	in	unguaranteed	residual	values resulted	in	a	reduction	to	PMCC's	net	revenues	of	$26	million	and	$8	million	in 2014	and	2012,	respectively.	There	were	no	such	adjustments	in	2013.

At	December	31,	2014,	PMCC's	investments	in	finance	leases	were principally	comprised	of	the	following	investment	categories:	aircraft	(39%),	rail and	surface	transport	(25%),	electric	power	(21%),	real	estate	(10%)	and manufacturing	(5%).	There	were	no	investments	located	outside	the	United	States at

Rents	receivable	in	excess	of	debt	service	requirements	on	third-party nonrecourse	debt	at	December	31,	2014	were	as	follows:

Included	in	net	revenues	for	the	years	ended	December	31,	2014,	2013	and 2012	were	leveraged	lease	revenues	of	$80	million,	$209	million	and	$149 million,	respectively.	Income	tax	expense	(benefit),	excluding	interest	on	tax underpayments,	on	leveraged	lease	revenues	for	the	years	ended	December	31, 2014,	2013	and	2012	was	$30	million,	$80	million	and	$54	million,	respectively. Income	from	investment	tax	credits	on	leveraged	leases	was	not	significant during	2014,	2013	and	2012.

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	wide	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,	but	are	not limited	to,	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	2014,	2013	and	2012, 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,	$47	million	and	$10	million	for	the	years ended	December	31,	2014,	2013	and	2012,	respectively.	These	decreases	to	the allowance	for	losses	were	recorded	as	a	reduction	to	marketing,	administration	and research	costs	on	Altria	Group,	Inc.'s	consolidated	statements	of	earnings.	PMCC believes	that,	as	of	December	31,	2014,	the	allowance	for	losses	of	$42	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,	2014,	2013	and	2012	was	as	follows:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $52 | $99 | $227 |
| Decrease\tto\tallowance | (10) | (47) | (10) |
| Amounts\twritten-off | — | — | (118) |
| Balance\tat\tend\tof\tyear | $42 | $52 | $99 |

As	a	result	of	developments	related	to	the	American	Airlines,	Inc. ("American")	bankruptcy	filing	in	2011,	PMCC	wrote	off	$118	million	of	the related	investment	in	finance	lease	balance	against	its	allowance	for	losses	during 2012.	Also	during	2012,	PMCC	recorded	$34	million	of	pre-tax	income	primarily related	to	recoveries	from	the	sale	of	bankruptcy	claims	on,	as	well	as	the	sale	of aircraft	under,	its	leases	to	American.	During	the	first	quarter	of	2013,	PMCC	sold its	remaining	interest	in	the	American	aircraft	leases.

All	PMCC	lessees	were	current	on	their	lease	payment	obligations	as	of December	31,	2014.

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,	2014	and	2013	was	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Credit\tRating\tby\tStandard\t&amp;\tPoor's/Moody's: |  |  |
| "AAA/Aaa"\tto\t"A-/A3" | $417 | $464 |
| "BBB+/Baa1"\tto\t"BBB-/Baa3" | 833 | 927 |
| "BB+/Ba1"\tand\tLower | 406 | 658 |
| Total | $1,656 | $2,049 |

# Note	8.	Short-Term	Borrowings	and	Borrowing	Arrangements

At	December	31,	2014	and	December	31,	2013,	Altria	Group,	Inc.	had	no	short- term	borrowings.	The	credit	line	available	to	Altria	Group,	Inc.	at	December	31, 2014	under	the	Credit	Agreement	(as	defined	below)	was	$3.0	billion.

During	the	third	quarter	of	2014,	Altria	Group,	Inc.	entered	into	an	extension agreement	(the	"Extension	Agreement")	to	amend	its	$3.0	billion	senior	unsecured 5-year	revolving	credit	agreement,	dated	as	of	August	19,	2013	(the	"Credit Agreement").	The	Extension	Agreement	extends	the	expiration	date	of	the	Credit Agreement	from	August	19,	2018	to	August	19,	2019

pursuant	to	the	terms	of	the	Credit	Agreement.	All	other	terms	and	conditions	of the	Credit	Agreement	remain	in	full	force	and	effect.	The	Credit	Agreement contains	an	additional	option,	subject	to	certain	conditions,	for	Altria	Group,	Inc. to	extend	the	expiration	date	for	an	additional	one-year	period.

The	Credit	Agreement	provides	for	borrowings	up	to	an	aggregate	principal amount	of	$3.0	billion.	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	Standard	&	Poor's	and	Moody's.	The applicable	percentage	based	on	Altria	Group,	Inc.'s	long-term	senior	unsecured debt	ratings	at	December	31,	2014	for	borrowings	under	the	Credit	Agreement	was 1.25%.	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,	2014,	the	ratios	of	debt	to consolidated	EBITDA	and	consolidated	EBITDA	to	consolidated	interest	expense, calculated	in	accordance	with	the	Credit	Agreement,	were	1.8	to	1.0	and	9.7	to	1.0, respectively.	Altria	Group,	Inc.	expects	to	continue	to	meet	its	covenants associated	with	the	Credit	Agreement.	The	terms	"consolidated	EBITDA,"	"debt" and	"consolidated	interest	expense,"	as	defined	in	the	Credit	Agreement,	include certain	adjustments.

Any	commercial	paper	issued	by	Altria	Group,	Inc.	and	borrowings	under	the Credit	Agreement	are	guaranteed	by	PM	USA	as	further	discussed	in	Note	19.

# Condensed	Consolidating	Financial	Information.

# Note	9.	Long-Term	Debt

At	December	31,	2014	and	2013,	Altria	Group,	Inc.'s	long-term	debt	consisted	of the	following:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Notes,\t2.625%\tto\t10.20%,\tinterest\tpayable\tsemi-\nannually,\tdue\tthrough\t2044\t(1) | $14,651 | $14,475 |
| Debenture,\t7.75%,\tinterest\tpayable\tsemi-annually,\tdue\n2027 | 42 | 42 |
|  | 14,693 | 14,517 |
| Less\tcurrent\tportion\tof\tlong-term\tdebt | 1,000 | 525 |
|  | $13,693 | $13,992 |

Aggregate	maturities	of	long-term	debt	are	as	follows:

| (in	millions) |  |
| :--- | :--- |
| 2015 | $1,000 |
| 2018 | 1,656 |
| 2019 | 1,144 |
| 2020 | 1,000 |
| 2021 | 1,500 |
| Thereafter | 8,442 |

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,	2014	and	2013,	was	$17.0 billion	and	$16.1	billion,	respectively,	as	compared	with	its	carrying	value	of	$14.7 billion	and	$14.5	billion,	respectively.

▪Altria	Group,	Inc.	Senior	Notes:	On	November	14,	2014,	Altria	Group, Inc.	issued	$1.0	billion	aggregate	principal	amount	of	2.625%	senior	unsecured long-term	notes	due	2020.	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	for	general	corporate	purposes. 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	$4.2	billion	aggregate	principal	amount	of	Altria	Group,	Inc.'s senior	unsecured	long-term	notes	issued	in	2009	and	2008,	the	interest	rate payable	on	each	series	of	notes	is	subject	to	adjustment	from	time	to	time	if	the rating	assigned	to	the	notes	of	such	series	by	Moody's	or	Standard	&	Poor's	is downgraded	(or	subsequently	upgraded)	as	and	to	the	extent	set	forth	in	the	terms of	the	notes.

During	the	first	quarter	of	2014,	Altria	Group,	Inc.	repaid	in	full	at	maturity senior	unsecured	notes	in	the	aggregate	principal	amount	of	$525	million.

The	obligations	of	Altria	Group,	Inc.	under	the	notes	are	guaranteed	by	PM USA	as	further	discussed	in	Note	19.	Condensed	Consolidating	Financial Information.

# ▪Debt	Redemption	and	Tender	Offers:	During	the	fourth	quarter	of	2014,

During	the	fourth	quarter	of	2013	and	the	third	quarter	of	2012,	Altria	Group, Inc.	completed	debt	tender	offers	to	purchase	for	cash	certain	of	its	senior unsecured	notes	in	aggregate	principal	amounts	of	$2.1	billion	and	$2.0	billion, respectively.	Details	of	these	debt	tender	offers	were	as	follows:

| (in	millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Notes\tPurchased |  |  |
| 9.95%\tNotes\tdue\t2038 | $818 | $— |
| 10.20%\tNotes\tdue\t2039 | 782 | — |
| 9.70%\tNotes\tdue\t2018 | 293 | 1,151 |
| 9.25%\tNotes\tdue\t2019 | 207 | 849 |
| Total | $2,100 | $2,000 |

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Premiums\tand\tfees | $44 | $1,054 | $864 |
| Write-off\tof\tunamortized\tdebt\tdiscounts\tand\ndebt\tissuance\tcosts | — | 30 | 10 |
| Total | $44 | $1,084 | $874 |

# Note	10.	Capital	Stock

At	December	31,	2014,	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,\n2011 | 2,805,961,317 | (761,542,032) | 2,044,419,285 |
| Stock\taward\tactivity | — | 181,011 | 181,011 |
| Repurchases\tof\ncommon\tstock | — | (34,860,000) | (34,860,000) |
| Balances,\tDecember\t31,\n2012 | 2,805,961,317 | (796,221,021) | 2,009,740,296 |
| Stock\taward\tactivity | — | 391,899 | 391,899 |
| Repurchases\tof\ncommon\tstock | — | (16,652,913) | (16,652,913) |
| 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 |

At	December	31,	2014,	45,070,039	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.

# Note	11.	Stock	Plans

Under	the	Altria	Group,	Inc.	2010	Performance	Incentive	Plan	(the	"2010	Plan"), Altria	Group,	Inc.	may	grant	to	eligible	employees	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. Up	to	50	million	shares	of	common	stock	may	be	issued	under	the	2010	Plan.	In addition,	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. under	the	Stock	Compensation	Plan	for	Non-Employee	Directors	(the	"Directors Plan").	Shares	available	to	be	granted	under	the	2010	Plan	and	the	Directors	Plan at	December	31,	2014,	were	44,518,983	and	477,785,	respectively.

▪Restricted	and	Deferred	Stock:	Altria	Group,	Inc.	may	grant	shares	of restricted	stock	and	deferred	stock	to	eligible	employees.	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	deferred	stock	generally	vest	three	years	after	the grant	date.

The	fair	value	of	the	shares	of	restricted	stock	and	deferred	stock	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	deferred	stock	granted	to	employees	for	the	years ended	December	31,	2014,	2013	and	2012	of	$46	million,	$49	million	and	$46 million,	respectively.	The	deferred	tax	benefit	recorded	related	to	this compensation	expense	was	$18	million,	$19	million	and	$18	million	for	the	years ended	December	31,	2014,	2013	and	2012,	respectively.	The	unamortized compensation	expense	related	to	Altria	Group,	Inc.	restricted	stock	and	deferred stock	was	$58	million	at	December	31,	2014	and	is	expected	to	be	recognized	over a	weighted-average	period	of	approximately	two	years.

Altria	Group,	Inc.'s	restricted	stock	and	deferred	stock	activity	was	as	follows for	the	year	ended	December	31,	2014:

|  | Number	of<br>Shares | Weighted-Average<br>Grant	Date	Fair<br>Value	Per	Share |
| :--- | :--- | :--- |
| Balance\tat\tDecember\t31,\t2013 | 5,332,862 | $27.77 |
| Granted | 1,441,880 | 36.75 |
| Vested | (2,187,921) | 23.10 |
| Forfeited | (74,910) | 32.47 |
| Balance\tat\tDecember\t31,\t2014 | 4,511,911 | 32.83 |

					The	weighted-average	grant	date	fair	value	of	Altria	Group,	Inc.	restricted	stock and	deferred	stock	granted	during	the	years	ended	December	31,	2014,	2013	and 2012	was	$53	million,	$49	million	and	$53	million,	respectively,	or	$36.75, $33.76	and	$28.77	per	restricted	or	deferred	share,	respectively.	The	total	fair value	of	Altria	Group,	Inc.	restricted	stock	and	deferred	stock	vested	during	the years	ended	December	31,	2014,	2013	and	2012	was	$86	million,	$89	million	and $81	million,	respectively.

▪Stock	Options:	Altria	Group,	Inc.	has	not	granted	stock	options	since	2002, and	there	have	been	no	stock	options	outstanding	since	February	29,	2012.	The total	intrinsic	value	of	options	exercised	during	the	year	ended	December	31,	2012 was	insignificant.

# Note	12.	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) | 2014 | 2013 | 2012 |
| Net\tearnings\tattributable\tto\tAltria\nGroup,\tInc. | $5,070 | $4,535 | $4,180 |
| Less:\tDistributed\tand\tundistributed |  |  |  |
| earnings\tattributable\tto\tunvested |  |  |  |
| restricted\tand\tdeferred\tshares | (12) | (12) | (13) |
| Earnings\tfor\tbasic\tand\tdiluted\tEPS | $5,058 | $4,523 | $4,167 |
| Weighted-average\tshares\tfor\tbasic\nand\tdiluted\tEPS | 1,978 | 1,999 | 2,024 |

Since	February	29,	2012,	there	have	been	no	stock	options	outstanding.	For the	2012	computation,	there	were	no	antidilutive	stock	options.

# Note	13.	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,\t2011 | $2 | $(2,062) | $173 |  | $(1,887) |
| Other\tcomprehensive\t(losses)\tearnings\tbefore\treclassifications | — | (815) | 303 |  | (512) |
| Deferred\tincome\ttaxes | — | 315 | (106) |  | 209 |
| Other\tcomprehensive\t(losses)\tearnings\tbefore\treclassifications,\tnet\tof\ndeferred\tincome\ttaxes | — | (500) | 197 |  | (303) |
| Amounts\treclassified\tto\tnet\tearnings | — | 241 | 3 |  | 244 |
| Deferred\tincome\ttaxes | — | (93) | (1) |  | (94) |
| Amounts\treclassified\tto\tnet\tearnings,\tnet\tof\ndeferred\tincome\ttaxes | — | 148 | 2 |  | 150 |
| Other\tcomprehensive\t(losses)\tearnings,\tnet\tof\tdeferred\tincome\ttaxes | — | (352) | 199 | (1) | (153) |
| Balances,\tDecember\t31,\t2012 | 2 | (2,414) | 372 |  | (2,040) |
| Other\tcomprehensive\t(losses)\tearnings\tbefore\treclassifications | (2) | 1,559 | (740) |  | 817 |
| Deferred\tincome\ttaxes | — | (609) | 259 |  | (350) |
| Other\tcomprehensive\t(losses)\tearnings\tbefore\treclassifications,\tnet\tof\ndeferred\tincome\ttaxes | (2) | 950 | (481) |  | 467 |
| Amounts\treclassified\tto\tnet\tearnings | — | 311 | 6 |  | 317 |
| Deferred\tincome\ttaxes | — | (120) | (2) |  | (122) |
| Amounts\treclassified\tto\tnet\tearnings,\tnet\tof\ndeferred\tincome\ttaxes | — | 191 | 4 |  | 195 |
| Other\tcomprehensive\t(losses)\tearnings,\tnet\tof\tdeferred\tincome\ttaxes | (2) | 1,141 | (477) | (1) | 662 |
| 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\nincome\ttaxes | (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) |

(1)	For	the	years	ended	December	31,	2014,	2013	and	2012,	Altria	Group,	Inc.'s	proportionate	share	of	SABMiller's	other	comprehensive	earnings/losses	consisted primarily	of	currency	translation	adjustments.

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) | 2014 | 2013 | 2012 |
| Benefit\tPlans:\t(1) |  |  |  |
| Net\tloss | $187 | $346 | $302 |
| Prior\tservice\tcost/credit | (33) | (35) | (61) |
|  | 154 | 311 | 241 |
| SABMiller\t(2) | 59 | 6 | 3 |
| Pre-tax\tamounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\tlosses\tto\tnet\tearnings | $213 | $317 | $244 |

(1)	Amounts	are	included	in	net	defined	benefit	plan	costs.	For	further	details,	see	Note	16.	Benefit	Plans.

(2)	Amounts	are	included	in	earnings	from	equity	investment	in	SABMiller.	For	further	information	on	Altria	Group,	Inc.'s	equity	investment	in	SABMiller,	see	Note	6. Investment	in	SABMiller.

# Note	14.	Income	Taxes

Earnings	before	income	taxes	and	provision	for	income	taxes	consisted	of	the following	for	the	years	ended	December	31,	2014,	2013	and	2012:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Earnings\tbefore\tincome\ttaxes: |  |  |  |
| United\tStates | $7,763 | $6,929 | $6,461 |
| Outside\tUnited\tStates | 11 | 13 | 16 |
| Total | $7,774 | $6,942 | $6,477 |
| Provision\tfor\tincome\ttaxes: |  |  |  |
| Current: |  |  |  |
| Federal | $2,350 | $2,066 | $2,870 |
| State\tand\tlocal | 480 | 423 | 348 |
| Outside\tUnited\tStates | 3 | 4 | 5 |
|  | 2,833 | 2,493 | 3,223 |
| Deferred: |  |  |  |
| Federal | (124) | (77) | (920) |
| State\tand\tlocal | (5) | (9) | (9) |
|  | (129) | (86) | (929) |
| Total\tprovision\tfor\tincome\ttaxes | $2,704 | $2,407 | $2,294 |

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	2007	and	forward,	with	years	2007	to	2009	currently	under examination	by	the	IRS	as	part	of	a	routine	audit	conducted	in	the	ordinary	course of	business.	State	jurisdictions	have	statutes	of	limitations	generally	ranging	from three	to	four	years.	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,	2014,	2013	and	2012	was	as	follows:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $227 | $262 | $381 |
| Additions\tbased\ton\ttax\tpositions\nrelated\tto\tthe\tcurrent\tyear | 15 | 15 | 15 |
| Additions\tfor\ttax\tpositions\tof\nprior\tyears | 29 | 35 | 170 |
| Reductions\tfor\ttax\tpositions\tdue\tto\nlapse\tof\tstatutes\tof\tlimitations | (2) | (1) | (16) |
| Reductions\tfor\ttax\tpositions\tof\nprior\tyears | — | — | (102) |
| Settlements | (11) | (84) | (186) |
| Balance\tat\tend\tof\tyear | $258 | $227 | $262 |

					Unrecognized	tax	benefits	and	Altria	Group,	Inc.'s	consolidated	liability	for	tax contingencies	at	December	31,	2014	and	2013,	were	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\t—\tAltria\tGroup,\tInc. | $228 | $188 |
| Unrecognized\ttax\tbenefits\t—\tMondelēz | — | 9 |
| Unrecognized\ttax\tbenefits\t—\tPMI | 30 | 30 |
| Unrecognized\ttax\tbenefits | 258 | 227 |
| Accrued\tinterest\tand\tpenalties | 57 | 48 |
| Tax\tcredits\tand\tother\tindirect\tbenefits | (17) | (14) |
| Liability\tfor\ttax\tcontingencies | $298 | $261 |

The	amount	of	unrecognized	tax	benefits	that,	if	recognized,	would	impact	the effective	tax	rate	at	December	31,	2014	was	$207	million,	along	with	$51	million affecting	deferred	taxes.	However,	the	impact	on	net	earnings	at	December	31, 2014	would	be	$177	million,	as	a	result	of	the	net	receivable	from	Altria	Group, Inc.'s	former	subsidiary,	Philip	Morris	International	Inc.	("PMI"),	of	$30	million discussed	below.	The	amount	of	unrecognized	tax	benefits	that,	if	recognized, would	impact	the	effective	tax	rate	at	December	31,	2013	was	$212	million,	along with	$15	million	affecting	deferred	taxes.	However,	the	impact	on	net	earnings	at December	31,	2013	would	be	$173	million,	as	a	result	of	net	receivables	from Altria	Group,	Inc.'s	former	subsidiaries	Kraft	Foods	Inc.	(now	known	as Mondelēz	International,	Inc.	("Mondelēz"))	and	PMI	of	$9	million	and	$30 million,	respectively,	discussed	below.

Under	tax	sharing	agreements	entered	into	in	connection	with	the	2007	and 2008	spin-offs	between	Altria	Group,	Inc.	and	its	former	subsidiaries	Mondelēz and	PMI,	respectively,	Mondelēz	and	PMI	are	responsible	for	their	respective	pre- spin-off	tax	obligations.	Altria	Group,	Inc.,	however,	remains	severally	liable	for Mondelēz's	and	PMI's	pre-spin-off	federal	tax	obligations	pursuant	to	regulations governing	federal	consolidated	income	tax	returns,	and	continues	to	include	the pre-spin-off	federal	income	tax	reserves	of	PMI	of	$30	million	in	its	liability	for uncertain	tax	positions.	Altria	Group,	Inc.	also	includes	corresponding receivables/payables	from/to	PMI	in	its	other	assets	and	other	liabilities	on	Altria Group,	Inc.'s	consolidated	balance	sheet	at	December	31,	2014.	As	of	December 31,	2014,	there	are	no	remaining	pre-spin-off	tax	reserves	related	to	Mondelēz. During	2014	and	2013,	Altria	Group,	Inc.	recorded	net	tax	benefits	of	$2 million	and	$22	million,	respectively,	for	Mondelēz	tax	matters,	primarily	relating to	the	IRS	audit	of	Altria	Group,	Inc.	and	its	consolidated	subsidiaries'	2007-2009 tax	years.

During	2012,	Altria	Group,	Inc.	recorded	an	additional	income	tax	provision of	$52	million	for	Mondelēz	and	PMI	tax	matters,	primarily	as	a	result	of	the closure	in	August	2012	of	the	IRS	audit	of	Altria	Group,	Inc.	and	its	consolidated subsidiaries'	2004-2006	tax	years	("IRS	2004-2006	Audit").

The	net	tax	benefits	of	$2	million	and	$22	million	for	the	years	ended December	31,	2014	and	2013,	respectively,	were	offset	by	the	recording	of corresponding	net	payables	to	Mondelēz,	which	were	recorded	as	a	decrease	to operating	income	on	Altria	Group,	Inc.'s	consolidated	statements	of	earnings	for the	years	ended	December	31,	2014	and	2013,	respectively.	The	additional	income tax	provision	of	$52	million	for	the	year	ended	December	31,	2012	was	offset	by increases	to	the	corresponding	receivables	from	Mondelēz	and	PMI,	which	were recorded	as	increases	to	operating	income	on	Altria	Group,	Inc.'s	consolidated statement	of	earnings	for	the	year	ended	December	31,	2012.	Due	to	these	offsets, the	Mondelēz	and	PMI	tax	matters	had	no	impact	on	Altria	Group,	Inc.'s	net earnings	for	the	years	ended	December	31,	2014,	2013	and	2012.

Altria	Group,	Inc.	recognizes	accrued	interest	and	penalties	associated	with uncertain	tax	positions	as	part	of	the	tax	provision.	At	December	31,	2014,	Altria Group,	Inc.	had	$57	million	of	accrued	interest	and	penalties,	of	which approximately

$7	million	related	to	PMI,	for	which	PMI	is	responsible	under	its	tax	sharing agreement.	At	December	31,	2013,	Altria	Group,	Inc.	had	$48	million	of	accrued interest	and	penalties,	of	which	approximately	$2	million	and	$6	million	related	to Mondelēz	and	PMI,	respectively,	for	which	Mondelēz	and	PMI	are	responsible under	their	respective	tax	sharing	agreements.	The	corresponding receivables/payables	from/to	Mondelēz	and	PMI	were	included	in	assets	and liabilities	on	Altria	Group,	Inc.'s	consolidated	balance	sheets	at	December	31, 2014	and	2013.

For	the	years	ended	December	31,	2014,	2013	and	2012,	Altria	Group,	Inc. recognized	in	its	consolidated	statements	of	earnings	$14	million,	$5	million	and $(88)	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	$139	million,	a	portion	of which	would	relate	to	the	unrecognized	tax	benefits	of	PMI,	for	which	Altria Group,	Inc.	is	indemnified	by	PMI	under	its	tax	sharing	agreement.

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, 2014,	2013	and	2012:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| 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 | 4.0 | 3.8 | 3.5 |
| Uncertain\ttax\tpositions | 0.5 | 0.7 | (0.7) |
| SABMiller\tdividend\tbenefit | (2.3) | (2.0) | (0.1) |
| Domestic\tmanufacturing\tdeduction | (2.4) | (2.7) | (2.0) |
| Other | — | (0.1) | (0.3) |
| Effective\ttax\trate | 34.8\t% | 34.7\t% | 35.4\t% |

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	tax	matters	discussed	above.

The	tax	provision	in	2013	included	net	tax	benefits	of	(i)	$39	million	from	the reversal	of	tax	accruals	no	longer	required	that	was	recorded	during	the	third quarter	of	2013	($25	million)	and	fourth	quarter	of	2013	($14	million);	(ii)	$25 million	related	to	the	recognition	of	previously	unrecognized	foreign	tax	credits primarily	associated	with	SABMiller	dividends	that	were	recorded	during	the fourth	quarter	of	2013;	and	(iii)	$22	million

for	Mondelēz	tax	matters	discussed	above.	The	tax	provision	in	2013	also	included a	reduction	in	certain	consolidated	tax	benefits	resulting	from	the	2013	debt	tender offer	that	is	discussed	further	in	Note	9.	Long-Term	Debt.

The	tax	provision	in	2012	included	(i)	a	$73	million	interest	benefit	resulting primarily	from	lower	than	estimated	interest	on	tax	underpayments	related	to	the Closing	Agreement;	(ii)	the	reversal	of	tax	reserves	and	associated	interest	of	$53 million	due	primarily	to	the	closure	of	the	IRS	2004-2006	Audit	that	was	recorded during	the	third	quarter	of	2012;	and	(iii)	an	additional	tax	provision	of	$52 million	related	to	the	resolution	of	various	Mondelēz	and	PMI	tax	matters.	These amounts	are	primarily	reflected	in	uncertain	tax	positions	shown	in	the	table above.	The	2012	SABMiller	dividend	benefit	and	domestic	manufacturing deduction	shown	in	the	table	above	includes	a	reduction	in	consolidated	tax benefits	resulting	from	the	2012	debt	tender	offer	that	is	discussed	further	in	Note 9.	Long-Term	Debt.

In	addition,	as	a	result	of	the	Closing	Agreement,	Altria	Group,	Inc.	paid,	in June	2012,	$456	million	in	federal	income	taxes	and	related	estimated	interest	on tax	underpayments.	The	tax	component	of	these	payments	represents	an acceleration	of	federal	income	taxes	that	Altria	Group,	Inc.	would	have	otherwise paid	over	the	lease	terms	of	the	subject	lease	transactions.	Altria	Group,	Inc. previously	paid	a	total	of	approximately	$1.1	billion	($945	million	in	2010)	in federal	income	taxes	and	interest	with	respect	to	these	transactions.	Altria	Group, Inc.	treated	the	$1.1	billion	paid	to	the	IRS	as	deposits	for	financial	reporting purposes	pending	the	ultimate	outcomes	of	the	litigation	and	did	not	include	such amounts	in	the	supplemental	disclosure	of	cash	paid	for	income	taxes	on	the consolidated	statements	of	cash	flows	in	the	years	paid.	During	the	years	ended December	31,	2012	and	2011,	Altria	Group,	Inc.	relinquished	its	right	to	seek refunds	of	the	deposits	and	included	approximately	$750	million	and	$362	million, respectively,	in	the	supplemental	disclosure	of	cash	paid	for	income	taxes	on	the consolidated	statements	of	cash	flows.

For	further	discussion	of	the	Closing	Agreement,	see	Note	7.	Finance	Assets,

The	tax	effects	of	temporary	differences	that	gave	rise	to	deferred	income	tax assets	and	liabilities	consisted	of	the	following	at	December	31,	2014	and	2013:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Deferred\tincome\ttax\tassets: |  |  |
| Accrued\tpostretirement\tand\tpostemployment |  |  |
| benefits | $1,054 | $934 |
| Settlement\tcharges | 1,379 | 1,338 |
| Accrued\tpension\tcosts | 410 | 33 |
| Net\toperating\tlosses\tand\ttax\tcredit\tcarryforwards | 357 | 331 |
| Total\tdeferred\tincome\ttax\tassets | 3,200 | 2,636 |
| Deferred\tincome\ttax\tliabilities: |  |  |
| Property,\tplant\tand\tequipment | (468) | (462) |
| Intangible\tassets | (3,915) | (3,848) |
| Investment\tin\tSABMiller | (2,039) | (2,135) |
| Finance\tassets,\tnet | (1,123) | (1,424) |
| Other | (190) | (190) |
| Total\tdeferred\tincome\ttax\tliabilities | (7,735) | (8,059) |
| Valuation\tallowances | (211) | (195) |
| Net\tdeferred\tincome\ttax\tliabilities | $(4,746) | $(5,618) |

At	December	31,	2014,	Altria	Group,	Inc.	had	estimated	gross	state	tax	net operating	losses	of	$512	million	that,	if	unused,	will	expire	in	2015	through	2034, state	tax	credit	carryforwards	of	$62	million	that,	if	unused,	will	expire	in	2015 through	2017,	and	foreign	tax	credit	carryforwards	of	$324	million	that,	if	unused, will	expire	in	2020	through	2024.	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 SABMiller.	A	valuation	allowance	of	$211	million	has	been	established	for	these benefits	that	more-likely-than-not	will	not	be	realized.

# Note	15.	Segment	Reporting

The	products	of	Altria	Group,	Inc.'s	subsidiaries	include	smokeable	products comprised	of	cigarettes	manufactured	and	sold	by	PM	USA	and	machine-made large	cigars	and	pipe	tobacco	manufactured	and	sold	by	Middleton;	smokeless products,	substantially	all	of	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	reviews	operating companies	income	to	evaluate	the	performance	of,	and	allocate	resources	to,	the segments.	Operating	companies	income	for	the	segments	is	defined	as	operating income	before	amortization	of	intangibles	and	general	corporate	expenses.	Interest and	other	debt	expense,	net,	and	provision	for	income	taxes	are	centrally	managed at	the	corporate	level	and,	accordingly,	such	items	are	not	presented	by	segment since	they

are	excluded	from	the	measure	of	segment	profitability	reviewed	by	Altria	Group, Inc.'s	chief	operating	decision	maker.	Information	about	total	assets	by	segment	is not	disclosed	because	such	information	is	not	reported	to	or	used	by	Altria	Group, Inc.'s	chief	operating	decision	maker.	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) | 2014 | 2013 | 2012 |
| Net\trevenues: |  |  |  |
| Smokeable\tproducts | $21,939 | $21,868 | $22,216 |
| Smokeless\tproducts | 1,809 | 1,778 | 1,691 |
| Wine | 643 | 609 | 561 |
| All\tother | 131 | 211 | 150 |
| Net\trevenues | $24,522 | $24,466 | $24,618 |
| Earnings\tbefore\tincome\ttaxes: |  |  |  |
| Operating\tcompanies\nincome\t(loss): |  |  |  |
| Smokeable\tproducts | $6,873 | $7,063 | $6,239 |
| Smokeless\tproducts | 1,061 | 1,023 | 931 |
| Wine | 134 | 118 | 104 |
| All\tother | (185) | 157 | 176 |
| Amortization\tof\tintangibles | (20) | (20) | (20) |
| General\tcorporate\texpenses | (241) | (235) | (229) |
| Changes\tto\tMondelēz\tand\tPMI\ttax-\nrelated\treceivables/payables | (2) | (22) | 52 |
| Operating\tincome | 7,620 | 8,084 | 7,253 |
| Interest\tand\tother\tdebt\texpense,\nnet | (808) | (1,049) | (1,126) |
| Loss\ton\tearly\textinguishment\tof\ndebt | (44) | (1,084) | (874) |
| Earnings\tfrom\tequity\tinvestment\nin\tSABMiller | 1,006 | 991 | 1,224 |
| Earnings\tbefore\tincome\ttaxes | $7,774 | $6,942 | $6,477 |

PM	USA,	USSTC	and	Middleton's	largest	customer,	McLane	Company,	Inc., accounted	for	approximately	27%	of	Altria	Group,	Inc.'s	consolidated	net revenues	for	each	of	the	years	ended	December	31,	2014,	2013	and	2012. Substantially	all	of	these	net	revenues	were	reported	in	the	smokeable	products and	smokeless	products	segments.	Sales	to	three	distributors	accounted	for approximately	67%	of	net	revenues	for	the	wine	segment	for	the	year	ended December	31,	2014	and	66%	for	each	of	the	years	ended	December	31,	2013	and 2012.

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, |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2014 | 2013 | 2012 |
| Depreciation\texpense: |  |  |  |
| Smokeable\tproducts | $112 | $113 | $125 |
| Smokeless\tproducts | 22 | 25 | 26 |
| Wine | 30 | 30 | 27 |
| General\tcorporate\tand\tother | 24 | 24 | 27 |
| Total\tdepreciation\texpense | $188 | $192 | $205 |
| Capital\texpenditures: |  |  |  |
| Smokeable\tproducts | $49 | $39 | $48 |
| Smokeless\tproducts | 40 | 32 | 36 |
| Wine | 46 | 42 | 30 |
| General\tcorporate\tand\tother | 28 | 18 | 10 |
| Total\tcapital\texpenditures | $163 | $131 | $124 |

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,	2014	and	2013,	pre-tax	income	for	NPM	adjustment items	was	recorded	in	Altria	Group,	Inc.'s	consolidated	statements	of	earnings	as follows:

These	adjustments	resulted	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	(the	"MSA") for	the	years	2003-2012	(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	18.

Contingencies).	The	amounts	shown	in	the	table	above	for	the	smokeable	products segment	were	recorded	by	PM	USA	as	reductions	to	cost	of	sales,	which	increased operating	companies	income	in	the	smokeable	products	segment.

▪Tobacco	and	Health	Litigation	Items:	For	the	years	ended	December	31,	2014, 2013	and	2012,	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) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts\tsegment | $27 | $18 | $4 |
| General\tcorporate | 15 | — | — |
| Interest\tand\tother\tdebt\texpense,\tnet | 2 | 4 | 1 |
| Total | $44 | $22 | $5 |

During	the	second	quarter	of	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	18. Contingencies.

▪Asset	Impairment	and	Exit	Costs:	Asset	impairment	and	exit	costs	for	the years	ended	December	31,	2014,	2013	and	2012	were	as	follows:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Smokeable\tproducts | $(6) | $3 | $38 |
| Smokeless\tproducts | 5 | 3 | 22 |
| General\tcorporate\tand\tother | — | 5 | 1 |
|  | $(1) | $11 | $61 |

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.

The	pre-tax	asset	impairment	and	exit	costs	for	the	year	ended	December	31, 2012	were	due	primarily	to	Altria	Group,	Inc.'s	cost	reduction	program	announced in	2011	(the	"2011	Cost	Reduction	Program").

# Note	16.	Benefit	Plans

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

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.

# Pension	Plans

▪Obligations	and	Funded	Status:	The	projected	benefit	obligations,	plan assets	and	funded	status	of	Altria	Group,	Inc.'s	pension	plans	at	December	31, 2014	and	2013,	were	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation\tat\nbeginning\tof\tyear | $7,137 | $7,924 |
| Service\tcost | 68 | 86 |
| Interest\tcost | 345 | 314 |
| Benefits\tpaid | (410) | (410) |
| Actuarial\tlosses\t(gains) | 1,190 | (784) |
| \t\t\t\tOther | — | 7 |
| Projected\tbenefit\tobligation\tat\tend\tof\tyear | 8,330 | 7,137 |
| Fair\tvalue\tof\tplan\tassets\tat\nbeginning\tof\tyear | 7,077 | 6,167 |
| Actual\treturn\ton\tplan\tassets | 615 | 927 |
| Employer\tcontributions | 15 | 393 |
| Benefits\tpaid | (410) | (410) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | 7,297 | 7,077 |
| Funded\tstatus\tat\tDecember\t31 | $(1,033) | $(60) |

Amounts	recognized	in	Altria	Group,	Inc.'s	consolidated	balance	sheets	at December	31,	2014	and	2013,	were	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Other\tassets | $— | $173 |
| Other\taccrued\tliabilities | (21) | (21) |
| Accrued\tpension\tcosts | (1,012) | (212) |
|  | $(1,033) | $(60) |

The	accumulated	benefit	obligation,	which	represents	benefits	earned	to	date, for	the	pension	plans	was	$7.9	billion	and	$6.8	billion	at	December	31,	2014	and 2013,	respectively.

At	December	31,	2014,	the	accumulated	benefit	obligations	were	in	excess	of plan	assets	for	all	pension	plans.	For	plans	with	accumulated	benefit	obligations	in excess	of	plan	assets	at	December	31,	2013,	the	projected	benefit	obligation, accumulated	benefit	obligation	and	fair	value	of	plan	assets	were	$299	million, $261	million	and	$66	million,	respectively.	These	amounts	were	primarily	related to	plans	for	salaried	employees	that	cannot	be	funded	under	IRS	regulations.

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

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

At	December	31,	2014,	Altria	Group,	Inc.	updated	its	mortality	assumptions to	reflect	longer	life	expectancy	for	its	pension	plan	participants,	resulting	in	an increase	of	$401	million	to	the	projected	benefit	obligation	at	December	31,	2014.

# ▪Components	of	Net	Periodic	Benefit	Cost:	Net	periodic	pension	cost	consisted

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $68 | $86 | $79 |
| Interest\tcost | 345 | 314 | 344 |
| Expected\treturn\ton\tplan\tassets | (518) | (493) | (442) |
| Amortization: |  |  |  |
| Net\tloss | 147 | 271 | 224 |
| Prior\tservice\tcost | 10 | 10 | 10 |
| Termination\tand\tsettlement | — | 7 | 21 |
| Net\tperiodic\tpension\tcost | $52 | $195 | $236 |

Termination	and	settlement	shown	in	the	table	above	primarily	include charges	related	to	the	2011	Cost	Reduction	Program.

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

For	the	pension	plans,	the	estimated	net	loss	and	prior	service	cost	that	are expected	to	be	amortized	from	accumulated	other	comprehensive	losses	into	net periodic	benefit	cost	during	2015	are	$237	million	and	$7	million,	respectively. The	following	weighted-average	assumptions	were	used	to	determine	Altria Group,	Inc.'s	net	pension	cost	for	the	years	ended	December	31:

|  | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Discount\trate | 4.9% | 4.0% | 5.0% |
| Expected\trate\tof\treturn\ton\tplan\nassets | 8.0 | 8.0 | 8.0 |
| Rate\tof\tcompensation\tincrease | 4.0 | 4.0 | 4.0 |

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	$82	million,	$80	million	and $81	million	in	2014,	2013	and	2012,	respectively.

▪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,	2014	was	broadly	characterized	as	an	allocation	between equity	securities	(55%),	corporate	bonds	(33%),	U.S.	Treasury	and	foreign government	securities	(7%)	and	all	other	types	of	investments	(5%).	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	19%	of	the	fixed	income	holdings	or	9%	of	total	plan	assets at	December	31,	2014.	The	allocation	to	emerging	markets	represented	5%	of	the equity	holdings	or	2%	of	total	plan	assets	at	December	31,	2014.	The	allocation	to real	estate	and	private	equity	investments	was	immaterial	at	December	31,	2014. 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.

The	fair	values	of	Altria	Group,	Inc.'s	pension	plan	assets	by	asset	category were	as	follows:

Investments	at	Fair	Value	as	of	December	31,	2014

| (in	millions) | Level	1 | Level	2 | Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Common/collective\ntrusts: |  |  |  |  |
| U.S.\tlarge\tcap | $— | $1,870 | $— | $1,870 |
| U.S.\tsmall\tcap | — | 442 | — | 442 |
| International |  |  |  |  |
| developed |  |  |  |  |
| markets | — | 79 | — | 79 |
| U.S.\tand\tforeign |  |  |  |  |
| government |  |  |  |  |
| securities\tor\ttheir |  |  |  |  |
| agencies: |  |  |  |  |
| U.S.\tgovernment\nand\tagencies | — | 296 | — | 296 |
| U.S.\tmunicipal\nbonds | — | 124 | — | 124 |
| Foreign\tgovernment\nand\tagencies | — | 281 | — | 281 |
| Corporate\tdebt\ninstruments: |  |  |  |  |
| Above\tinvestment\ngrade | — | 1,765 | — | 1,765 |
| Below\tinvestment\ngrade\tand\tno\nrating | — | 527 | — | 527 |
| Common\tstock: |  |  |  |  |
| International\nequities | 1,000 | — | 1 | 1,001 |
| U.S.\tequities | 556 | — | — | 556 |
| Registered\tinvestment\ncompanies | 63 | 113 | — | 176 |
| Other,\tnet | 74 | 91 | 15 | 180 |
| Total\tinvestments\tat\nfair\tvalue,\tnet | $1,693 | $5,588 | $16 | $7,297 |

| (in	millions) | Level	1 | Level	2 | Level	3 | Total |
| :--- | :--- | :--- | :--- | :--- |
| Common/collective\ntrusts: |  |  |  |  |
| U.S.\tlarge\tcap | $— | $1,971 | $— | $1,971 |
| U.S.\tsmall\tcap | — | 546 | — | 546 |
| International |  |  |  |  |
| developed |  |  |  |  |
| markets | — | 159 | — | 159 |
| U.S.\tand\tforeign |  |  |  |  |
| government |  |  |  |  |
| securities\tor\ttheir |  |  |  |  |
| agencies: |  |  |  |  |
| U.S.\tgovernment\nand\tagencies | — | 226 | — | 226 |
| U.S.\tmunicipal\nbonds | — | 127 | — | 127 |
| Foreign\tgovernment\nand\tagencies | — | 275 | — | 275 |
| Corporate\tdebt\ninstruments: |  |  |  |  |
| Above\tinvestment\ngrade | — | 1,371 | 1 | 1,372 |
| Below\tinvestment\ngrade\tand\tno\nrating | — | 380 | — | 380 |
| Common\tstock: |  |  |  |  |
| International\nequities | 1,050 | — | 1 | 1,051 |
| U.S.\tequities | 506 | — | — | 506 |
| Registered\tinvestment\ncompanies | 159 | 137 | — | 296 |
| Other,\tnet | 108 | 47 | 13 | 168 |
| Total\tinvestments\tat\nfair\tvalue,\tnet | $1,823 | $5,239 | $15 | $7,077 |

Level	3	holdings	and	transactions	were	immaterial	to	total	plan	assets	at December	31,	2014	and	2013.

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.

▪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	net	asset	value	("NAV")	as provided	by	the	investment	account	manager.

▪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	mutual	funds	sponsored	by a	registered	investment	company	are	valued	based	on	exchange	listed	prices and	are	classified	in	Level	1.	Registered	investment	company	funds	that	are designed	specifically	to	meet	Altria	Group,	Inc.'s	pension	plans	investment strategies,	but	are	not	traded	on	an	active	market,	are	valued	based	on	the NAV	of	the	underlying	securities	as	provided	by	the	investment	account manager	and	are	classified	in	Level	2.

▪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. Currently,	Altria	Group,	Inc.	anticipates	making	employer	contributions	to	its pension	plans	of	approximately	$20	million	to

$50	million	in	2015	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.

The	estimated	future	benefit	payments	from	the	Altria	Group,	Inc.	pension	plans	at December	31,	2014,	were	as	follows:

# Postretirement	Benefit	Plans

Net	postretirement	health	care	costs	consisted	of	the	following	for	the	years	ended December	31,	2014,	2013	and	2012:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $15 | $18 | $18 |
| Interest\tcost | 107 | 99 | 115 |
| Amortization: |  |  |  |
| Net\tloss | 22 | 51 | 40 |
| Prior\tservice\tcredit | (43) | (45) | (45) |
| Curtailment | — | — | (26) |
| Net\tpostretirement\thealth\ncare\tcosts | $101 | $123 | $102 |

The	curtailment	gain	shown	in	the	table	above	resulted	from	plan amendments	made	to	an	Altria	Group,	Inc.	postretirement	plan	during	2012 related	to	the	2011	Cost	Reduction	Program.	The	curtailment	gain	was	recorded	as a	reduction	to	prior	service	credit	in	other	comprehensive	earnings/losses.

For	the	postretirement	benefit	plans,	the	estimated	net	loss	and	prior	service credit	that	are	expected	to	be	amortized	from	accumulated	other	comprehensive losses	into	net	postretirement	health	care	costs	during	2015	are	$46	million	and $(39)	million,	respectively.

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

Altria	Group,	Inc.'s	postretirement	health	care	plans	are	not	funded.	The changes	in	the	accumulated	postretirement	benefit	obligation	at	December	31, 2014	and	2013,	were	as	follows:

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Accrued\tpostretirement\thealth\tcare\tcosts\tat\nbeginning\tof\tyear | $2,317 | $2,663 |
| Service\tcost | 15 | 18 |
| Interest\tcost | 107 | 99 |
| Benefits\tpaid | (132) | (138) |
| Actuarial\tlosses\t(gains) | 306 | (327) |
| Other | — | 2 |
| Accrued\tpostretirement\thealth\tcare\tcosts\tat\tend\tof\nyear | $2,613 | $2,317 |

The	current	portion	of	Altria	Group,	Inc.'s	accrued	postretirement	health	care costs	of	$152	million	and	$162	million	at	December	31,	2014	and	2013, respectively,	is	included	in	other	accrued	liabilities	on	the	consolidated	balance sheets.

The	Patient	Protection	and	Affordable	Care	Act	("PPACA"),	as	amended	by the	Health	Care	and	Education	Reconciliation	Act	of	2010,	was	signed	into	law	in March	2010.	The	PPACA	mandates	health	care	reforms	with	staggered	effective dates	from	2010	to	2018,	including	the	imposition	of	an	excise	tax	on	high	cost health	care	plans	effective	in	2018.	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,	2014	and	2013.	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 postretirement	benefit	obligations	at	December	31:

					At	December	31,	2014,	Altria	Group,	Inc.	updated	its	mortality	assumptions	to reflect	longer	life	expectancy	for	its	postretirement	health	care	plan	participants, resulting	in	an	increase	of	$110	million	to	the	accrued	postretirement	health	care costs	at	December	31,	2014.

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	amounts reported	for	the	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,	2014:

Altria	Group,	Inc.'s	estimated	future	benefit	payments	for	its	postretirement health	care	plans	at	December	31,	2014,	were	as	follows:

# Postemployment	Benefit	Plans

Altria	Group,	Inc.	sponsors	postemployment	benefit	plans	covering	substantially all	salaried	and	certain	hourly	employees.	The	cost	of	these	plans	is	charged	to expense	over	the	working	life	of	the	covered	employees.	Net	postemployment costs	consisted	of	the	following	for	the	years	ended	December	31,	2014,	2013	and 2012:

| (in	millions) | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- |
| Service\tcost | $1 | $1 | $1 |
| Interest\tcost | 1 | 1 | 1 |
| Amortization\tof\tnet\tloss | 18 | 18 | 17 |
| Other | 2 | (17) | (7) |
| Net\tpostemployment\tcosts | $22 | $3 | $12 |

For	the	postemployment	benefit	plans,	the	estimated	net	loss	that	is	expected to	be	amortized	from	accumulated	other	comprehensive	losses	into	net postemployment	costs	during	2015	is	approximately	$19	million. Altria	Group,	Inc.'s	postemployment	benefit	plans	are	not	funded.	The changes	in	the	benefit	obligations	of	the	plans	at

| (in	millions) | 2014 | 2013 |
| :--- | :--- | :--- |
| Accrued\tpostemployment\tcosts\tat\tbeginning\tof\tyear | $65 | $149 |
| Service\tcost | 1 | 1 |
| Interest\tcost | 1 | 1 |
| Benefits\tpaid | (30) | (65) |
| Actuarial\tlosses\t(gains)\tand\tassumption\tchanges | 30 | (4) |
| Other | 2 | (17) |
| Accrued\tpostemployment\tcosts\tat\tend\tof\tyear | $69 | $65 |

The	accrued	postemployment	costs	were	determined	using	a	weighted- average	discount	rate	of	3.0%	and	3.7%	in	2014	and	2013,	respectively,	an assumed	weighted-average	ultimate	annual	turnover	rate	of	0.5%	in	2014	and 2013,	assumed	compensation	cost	increases	of	4.0%	in	2014	and	2013,	and assumed	benefits	as	defined	in	the	respective	plans.	Postemployment	costs	arising from	actions	that	offer	employees	benefits	in	excess	of	those	specified	in	the respective	plans	are	charged	to	expense	when	incurred.

# Comprehensive	Earnings/Losses

The	amounts	recorded	in	accumulated	other	comprehensive	losses	at	December	31,	2014	consisted	of	the	following:

| (in	millions) | Pensions | Post-<br>retirement | Post-<br>employment | Total |
| :--- | :--- | :--- | :--- | :--- |
| Net\tloss | $(2,637) | $(823) | $(122) | $(3,582) |
| Prior\tservice\t(cost)\tcredit | (23) | 264 | — | 241 |
| Deferred\tincome\ttaxes | 1,037 | 218 | 46 | 1,301 |
| Amounts\trecorded\tin\taccumulated\tother\tcomprehensive\tlosses | $(1,623) | $(341) | $(76) | $(2,040) |

    The	movements	in	other	comprehensive	earnings/losses	during	the	year	ended	December	31,	2014	were	as	follows:

# Note	17.	Additional	Information

|  |  | For	the	Years	Ended	December	31, |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions) | 2014 | 2013 | 2012 |
| Research\tand\tdevelopment\texpense | $167 | $153 | $136 |
| Advertising\texpense | $30 | $7 | $6 |
| Interest\tand\tother\tdebt\texpense,\tnet: |  |  |  |
| Interest\texpense | $857 | $1,053 | $1,128 |
| Interest\tincome | (49) | (4) | (2) |
|  | $808 | $1,049 | $1,126 |
| Rent\texpense | $52 | $49 | $49 |

					Minimum	rental	commitments	and	sublease	income	under	non-cancelable	operating	leases	in	effect	at	December	31,	2014	were	as	follows:

| (in	millions) | Rental	Commitments | Sublease	Income |
| :--- | :--- | :--- |
| 2015 | $56 | $5 |
| 2016 | 52 | 5 |
| 2017 | 41 | 4 |
| 2018 | 31 | 4 |
| 2019 | 24 | 4 |
| Thereafter | 118 | 20 |
|  | $322 | $42 |

The	activity	in	the	allowance	for	discounts	and	allowance	for	returned	goods	for	the	years	ended	December	31,	2014,	2013	and	2012	was	as	follows:

| (in	millions) |  | 2014 | 2013 |  |  | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Discounts | Returned\nGoods | Discounts | Returned\nGoods | Discounts | Returned\nGoods |
| Balance\tat\tbeginning\tof\tyear | $— | $41 | $— | $42 | $— | $54 |
| Charged\tto\tcosts\tand\texpenses | 599 | 179 | 610 | 150 | 619 | 114 |
| Deductions\t(1) | (599) | (174) | (610) | (151) | (619) | (126) |
| Balance\tat\tend\tof\tyear | $— | $46 | $— | $41 | $— | $42 |

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

# Note	18.	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	46	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. 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 18.	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.	Legal	defense costs	are	expensed	as	incurred.

Altria	Group,	Inc.	and	its	subsidiaries	have	achieved	substantial	success	in managing	litigation.	Nevertheless,	litigation	is	subject	to	uncertainty	and significant	challenges	remain.	It	is	possible	that	the	consolidated	results	of operations,	cash	flows	or	financial	position	of	Altria	Group,	Inc.,	or	one	or	more	of its	subsidiaries,	could	be	materially

affected	in	a	particular	fiscal	quarter	or	fiscal	year	by	an	unfavorable	outcome	or settlement	of	certain	pending	litigation.	Altria	Group,	Inc.	and	each	of	its subsidiaries	named	as	a	defendant	believe,	and	each	has	been	so	advised	by counsel	handling	the	respective	cases,	that	it	has	valid	defenses	to	the	litigation pending	against	it,	as	well	as	valid	bases	for	appeal	of	adverse	verdicts.	Each	of the	companies	has	defended,	and	will	continue	to	defend,	vigorously	against litigation	challenges.	However,	Altria	Group,	Inc.	and	its	subsidiaries	may	enter into	settlement	discussions	in	particular	cases	if	they	believe	it	is	in	the	best interests	of	Altria	Group,	Inc.	to	do	so.

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

▪Types	and	Number	of	Cases:	Claims	related	to	tobacco	products	generally fall	within	the	following	categories:	(i)	smoking	and	health	cases	alleging	personal injury	brought	on	behalf	of	individual	plaintiffs;	(ii)	smoking	and	health	cases primarily	alleging	personal	injury	or	seeking	court-supervised	programs	for ongoing	medical	monitoring	and	purporting	to	be	brought	on	behalf	of	a	class	of individual	plaintiffs,	including	cases	in	which	the	aggregated	claims	of	a	number of	individual	plaintiffs	are	to	be	tried	in	a	single	proceeding;	(iii)	health	care	cost recovery	cases	brought	by	governmental	(both	domestic	and	foreign)	plaintiffs seeking

reimbursement	for	health	care	expenditures	allegedly	caused	by	cigarette	smoking and/or	disgorgement	of	profits;	(iv)	class	action	suits	alleging	that	the	uses	of	the terms	"Lights"	and	"Ultra	Lights"	constitute	deceptive	and	unfair	trade	practices, common	law	or	statutory	fraud,	unjust	enrichment,	breach	of	warranty	or violations	of	the	Racketeer	Influenced	and	Corrupt	Organizations	Act	("RICO"); and	(v)	other	tobacco-related	litigation	described	below.	Plaintiffs'	theories	of recovery	and	the	defenses	raised	in	pending	smoking	and	health,	health	care	cost recovery	and	"Lights/Ultra	Lights"	cases	are	discussed	below.

The	table	below	lists	the	number	of	certain	tobacco-related	cases	pending	in	the	United	States	against	PM	USA	and,	in	some	instances,	Altria	Group,	Inc.	as	of December	31,	2014,	December	31,	2013	and	December	31,	2012.

| Type	of	Case | Number	of	Cases<br>Pending	as	of<br>December	31,	2014 | Number	of	Cases<br>Pending	as	of<br>December	31,	2013 | Number	of	Cases<br>Pending	as	of<br>December	31,	2012 |
| :--- | :--- | :--- | :--- |
| Individual\tSmoking\tand\tHealth\tCases\t(1) | 67 | 67 | 77 |
| Smoking\tand\tHealth\tClass\tActions\tand\tAggregated\tClaims\tLitigation\t(2) | 5 | 6 | 7 |
| Health\tCare\tCost\tRecovery\tActions\t(3) | 1 | 1 | 1 |
| "Lights/Ultra\tLights"\tClass\tActions | 12 | 15 | 14 |

(1)	Does	not	include	2,558	cases	brought	by	flight	attendants	seeking	compensatory	damages	for	personal	injuries	allegedly	caused	by	exposure	to	environmental	tobacco	smoke	("ETS").	The	flight attendants	allege	that	they	are	members	of	an	ETS	smoking	and	health	class	action	in	Florida,	which	was	settled	in	1997	(Broin).	The	terms	of	the	court-approved	settlement	in	that	case	allow	class members	to	file	individual	lawsuits	seeking	compensatory	damages,	but	prohibit	them	from	seeking	punitive	damages.	Also,	does	not	include	individual	smoking	and	health	cases	brought	by	or	on behalf	of	plaintiffs	in	Florida	state	and	federal	courts	following	the	decertification	of	the	Engle	case	(discussed	below	in	Smoking	and	Health	Litigation	-	Engle	Class	Action ).

(2)	Includes	as	one	case	the	600	civil	actions	(of	which	346	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	has	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,	if	any,	will	consist	of	individual	trials	to	determine	liability	and	compensatory	damages	on	that	claim only.	In	August	2013,	the	trial	court	denied	all	post-trial	motions.	The	trial	court	entered	final	judgment	in	October	2013	and,	in	November	2013,	plaintiffs	filed	their	notice	of	appeal	to	the	West Virginia	Supreme	Court	of	Appeals.	On	November	3,	2014,	the	West	Virginia	Supreme	Court	of	Appeals	affirmed	the	final	judgment.	Plaintiffs	filed	a	petition	for	rehearing	with	the	West	Virginia Supreme	Court	of	Appeals,	which	the	court	denied	on	January	8,	2015.

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

# ▪International	Tobacco-Related	Cases:	As	of	January	27,	2015,	PM	USA	is

a	named	defendant	in	ten	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,	2015,	57	Engle progeny	cases	and	three	individual	smoking	and	health	cases	against	PM	USA	are set	for	trial	in	2015.	Cases	against	other	companies	in	the	tobacco	industry	are	also scheduled	for	trial	in	2015.	Trial	dates	are	subject	to	change.

▪Trial	Results:	Since	January	1999,	excluding	the	Engle	progeny	cases (separately	discussed	below),	verdicts	have	been	returned	in	56	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	38	of	the	56	cases.	These	38	cases	were	tried	in	Alaska	(1),	California (6),	Florida	(10),	Louisiana	(1),	Massachusetts	(1),	Mississippi	(1),	Missouri	(3), New	Hampshire	(1),	New	Jersey	(1),	New	York	(5),	Ohio	(2),	Pennsylvania	(1), Rhode	Island	(1),	Tennessee	(2)	and	West	Virginia	(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.	Oral	argument	of	plaintiff's	appeal	of	this	ruling occurred	in	September	2014.	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	18	non-Engle	progeny	cases	in	which	verdicts	were	returned	in	favor of	plaintiffs,	15	have	reached	final	resolution.	A	verdict	against	defendants	in	one health	care	cost	recovery	case	(Blue	Cross/Blue	Shield)	was	reversed	and	all claims	were	dismissed	with	prejudice.	In	addition,	a	verdict	against	defendants	in	a purported	"Lights"	class	action	in	Illinois	(Price)	was	reversed	and	the	case	was dismissed	with	prejudice	in	December	2006,	but	plaintiff	is	seeking	to	reinstate	the verdict,	which	an	intermediate	appellate	court	ordered	in	April	2014.	PM	USA filed	a	petition	for	leave	to	appeal,	which	automatically	stayed	the	April	2014 order.	In	September	2014,	the	Illinois	Supreme	Court	granted	PM	USA's	motion for	leave	to	appeal.	See	"Lights/Ultra	Lights"	Cases	-	The	Price	Case	below	for	a discussion	of	developments	in	Price.

				As	of	January	27,	2015,	70	state	and	federal	Engle	progeny	cases	involving	PM USA	have	resulted	in	verdicts	since	the	Florida	Supreme	Court's	Engle	decision. Thirty-six	verdicts	were	returned	in	favor	of	plaintiffs	and	34	verdicts	were returned	in	favor	of	PM	USA.	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 (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	related	costs and	fees)	totaling	approximately	$266	million	and	interest	totaling	approximately $144	million	as	of	December	31,	2014.	These	amounts	include	payments	for Engle	progeny	judgments	(and	related	costs	and	fees)	totaling	approximately	$13.8 million	and	interest	totaling	approximately	$2.5	million.

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

| Accrued	liability	for	tobacco	and	health	judgments	at	beginning	of	period | $3 | $— | $122 |
| :--- | :--- | :--- | :--- |
| Pre-tax\tcharges\tfor\ttobacco\tand\thealth\tjudgments | 11 | 18 | 4 |
| Pre-tax\tcharges\tfor\trelated\tinterest\tcosts | 2 | 4 | 1 |
| Pre-tax\tcharges\trelated\tto\timplementation\tof\tcorrective\tcommunications\tremedy\tpursuant\tto\tthe\tfederal\ngovernment's\tlawsuit | 31 | — | — |
| Payments | (8) | (19) | (127) |
| Accrued\tliability\tfor\ttobacco\tand\thealth\tjudgments\tat\tend\tof\tperiod | $39 | $3 | $— |

The	accrued	liability	for	tobacco	and	health	litigation,	including	related	interest	costs,	was	included	in	liabilities	on	Altria	Group,	Inc.'s	consolidated	balance	sheets.	Pre- tax	charges	for	tobacco	and	health	judgments	and	corrective	communications	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,	2014,	PM	USA	has	posted	various	forms	of	security totaling	approximately	$61	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	Trial	Results:	Summarized	below	are	the	non-Engle progeny	smoking	and	health	cases	pending	during	2014	or	2015	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	Court	Results	below.

Mulholland:	In	July	2013,	a	jury	in	the	U.S.	District	Court	for	the	Southern	District of	New	York	returned	a	verdict	in	favor	of	plaintiff	and	awarded	$5.5	million	in compensatory	damages	against	PM	USA.	In	August	2013,	after	taking	into account	a	prior	recovery	by	the	plaintiff	against	third	parties,	the	court	entered final	judgment	in	the	amount	of	$4.9	million.	In	September	2013,	PM	USA	filed	a renewed	motion	for	judgment	as	a	matter	of	law	and	plaintiff	moved	to	modify	the amount	of	the	judgment.	In	December	2013,	the	trial	court	denied	the	parties' post-trial	motions.	In	January	2014,	PM	USA	filed	a	notice	of	appeal	to	the	U.S. Court	of	Appeals	for	the	Second	Circuit,	plaintiff	cross-appealed	and	PM	USA posted	a	bond	in	the	amount	of	$5.5	million.	On	January	7,	2015,	the	U.S.	Court	of Appeals	for	the	Second	Circuit	affirmed	the	trial	court's	decision.	In	the	fourth quarter	of	2014,	PM	USA	recorded	a	provision	on	its	consolidated	balance	sheet in	the	amount	of	approximately	$5	million	for	the	judgment	plus	interest	and	paid this	amount	on	January	21,	2015.

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	2006, plaintiff	petitioned	the	Oregon	Supreme	Court	to	review	the	portion	of	the	court	of appeals'	decision	reversing	and	remanding	the	case	for	a	new	trial	on	punitive damages.	In	June	2010,	the	Oregon	Supreme	Court	affirmed	the	court	of	appeals' decision	and	remanded	the	case	to	the	trial	court	for	a	new	trial	limited	to	the question	of	punitive	damages.	In	December	2010,	the	Oregon	Supreme	Court reaffirmed	its	earlier	ruling	and	awarded	PM	USA	approximately	$500,000	in costs.	In	March	2011,	PM	USA	filed	a	claim	against	the	plaintiff	for	its	costs	and disbursements	on	appeal,	plus	interest.	Trial	on	the	amount	of	punitive	damages began	in	January	2012.	In	February	2012,	the	jury	awarded	plaintiff	$25	million	in punitive	damages.	In	September	2012,	PM	USA	filed	a	notice	of	appeal	from	the trial	court's	judgment	with	the	Oregon	Court	of	Appeals.	Oral	argument	at	the Oregon	Court	of	Appeals	occurred	in	September	2014.

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	healthcare	cost	recovery	case.

▪Engle	Class	Action:	In	July	2000,	in	the	second	phase	of	the	Engle	smoking and	health	class	action	in	Florida,	a	jury	returned	a	verdict	assessing	punitive damages	totaling	approximately	$145	billion	against	various	defendants,	including $74	billion	against	PM	USA.	Following	entry	of	judgment,	PM	USA	appealed. In	May	2001,	the	trial	court	approved	a	stipulation	providing	that	execution of	the	punitive	damages	component	of	the	Engle	judgment	will	remain	stayed against	PM	USA	and	the	other	participating	defendants	through	the	completion	of all	judicial	review.	As	a	result	of	the	stipulation,	PM	USA	placed	$500	million	into an	interest-bearing	escrow	account	that,	regardless	of	the	outcome	of	the	judicial review,	was	to	be	paid	to	the	court	and	the	court	was	to	determine	how	to	allocate or	distribute	it	consistent	with	Florida	Rules	of	Civil	Procedure.	In	May	2003,	the Florida	Third	District	Court	of	Appeal	reversed	the	judgment	entered	by	the	trial court	and	instructed	the	trial	court	to	order	the	decertification	of	the	class. Plaintiffs	petitioned	the	Florida	Supreme	Court	for	further	review.

In	July	2006,	the	Florida	Supreme	Court	ordered	that	the	punitive	damages award	be	vacated,	that	the	class	approved	by	the	trial	court	be	decertified	and	that members	of	the	decertified	class	could	file	individual	actions	against	defendants within	one	year	of	issuance	of	the	mandate.	The

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

In	August	2006,	PM	USA	sought	rehearing	from	the	Florida	Supreme	Court on	parts	of	its	July	2006	opinion,	including	the	ruling	(described	above)	that certain	jury	findings	have	res	judicata	effect	in	subsequent	individual	trials	timely brought	by	Engle	class	members.	The	rehearing	motion	also	asked,	among	other things,	that	legal	errors	that	were	raised	but	not	expressly	ruled	upon	in	the	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.	In	October	2007,	the	United	States	Supreme	Court	denied defendants'	petition.	In	November	2007,	the	United	States	Supreme	Court	denied defendants'	petition	for	rehearing	from	the	denial	of	their	petition	for	writ	of certiorari.

In	February	2008,	the	trial	court	decertified	the	class,	except	for	purposes	of the	May	2001	bond	stipulation,	and	formally	vacated	the	punitive	damages	award pursuant	to	the	Florida	Supreme	Court's	mandate.	In	April	2008,	the	trial	court ruled	that	certain	defendants,	including	PM	USA,	lacked	standing	with	respect	to allocation	of	the	funds	escrowed	under	the	May	2001	bond	stipulation	and	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,	2015,	approximately	3,200	state	court	cases	were	pending against	PM	USA	or	Altria	Group,	Inc.	asserting	individual	claims	by	or	on	behalf of	approximately	4,200	state	court	plaintiffs.		Furthermore,	as	of	January	27,	2015, approximately	700	cases	were	pending	against	PM	USA	in	federal	district	court asserting	individual	claims	by	or	on	behalf	of	a	similar	number	of	federal	court plaintiffs.	Most	of	these	federal	cases	are	pending	in	the	U.S.	District	Court	for	the Middle	District	of	Florida.	Because	of	a	number	of	factors,	including,	but	not limited	to,	docketing	delays,	duplicated	filings	and	overlapping	dismissal	orders, these	numbers	are	estimates.

In	July	2013,	the	district	court	issued	an	order	transferring,	for	case management	purposes,	all	the	Middle	District	of	Florida	Engle	progeny	cases	to	a judge	presiding	in	the	District	of	Massachusetts.	The	order	directed	that	the	cases will	remain	in	the	Middle	District	of	Florida	and	that	such	judge	will	be	designated a	judge	of	that	district	for	purposes	of	managing	the	cases.	The	U.S.	District	Court for	the	Middle	District	of	Florida	dismissed	a	significant	number	of	cases,	of which	approximately	750	were	appealed	by	plaintiffs	to	the	U.S.	Court	of	Appeals for	the	Eleventh	Circuit.	In	September	2014,	the	Eleventh	Circuit	affirmed	those dismissals.	All	remaining	cases	pending	in	the	Middle	District	of	Florida	have been	activated	or	are	scheduled	to	be	activated	by	May	2015.

▪Engle	Progeny	Trial	Results:	As	of	January	27,	2015,	70	federal	and	state Engle	progeny	cases	involving	PM	USA	have	resulted	in	verdicts	since	the	Florida Supreme	Court

# Engle	decision.	Thirty-six	verdicts	were	returned	in	favor	of	plaintiffs.

Thirty-four	verdicts	were	returned	in	favor	of	PM	USA	(Gelep,	Kalyvas,	Gil de	Rubio,	Warrick,	Willis,	Russo	(formerly	Frazier),	C.	Campbell,	Rohr,	Espinosa, Oliva,	Weingart,	Junious,	Szymanski,	Gollihue,	McCray,	Denton,	Hancock,	Wilder, D.	Cohen,	LaMotte,	J.	Campbell,	Dombey,	Haldeman,	Jacobson,	Blasco,	Gonzalez, Reider,	Banks,	Surico,	Davis,	Baum,	Bishop,	Starbuck	and	Vila).	In	addition,	there have	been	a	number	of	mistrials,	only	some	of	which	have	resulted	in	new	trials	as of	January	27,	2015.	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.	In	the	Russo	case	(formerly	Frazier),	however,	the Florida

Third	District	Court	of	Appeal	reversed	the	judgment	in	defendants'	favor	in	April 2012	and	remanded	the	case	for	a	new	trial.	Defendants	sought	review	of	the	case in	the	Florida	Supreme	Court,	which	was	granted	in	September	2013.	Oral argument	occurred	in	April	2014	in	the	Florida	Supreme	Court	on	the	question	of whether	the	statute	of	repose	applies	in	Engle	progeny	cases.

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,	2015;	the	second	chart	lists such	cases	that	were	pending	in	2014,	but	that	are	now	concluded.

# Currently-Pending	Cases

# Plaintiff:	Brown

# Verdict:

On	January	21,	2015,	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	$9	million	in	punitive	damages.

# Plaintiff:	Allen

On	November	26,	2014,	a	Duval	County	jury	returned	a	verdict	against	PM	USA	and	R.J.	Reynolds	Tobacco	Company	("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.

# Post-Trial	Developments:

On	December	9,	2014,	defendants	filed	various	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	motions	for	a	new	trial.

# Plaintiff:	Perrotto

On	November	21,	2014,	a	Palm	Beach	County	jury	returned	a	verdict	against	PM	USA,	R.J.	Reynolds,	Lorillard	Tobacco	Company	("Lorillard")	and	Liggett	Group LLC	("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).

On	December	4,	2014,	the	court	entered	final	judgment.	On	December	5,	2014,	plaintiff	filed	a	motion	for	a	new	trial.	On	December	8,	2014,	defendants	filed	various post-trial	motions,	including	motions	to	set	aside	the	verdict	and	motions	for	a	new	trial.

# Plaintiff:	Boatright

On	November	10,	2014,	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	$12.75	million).	On	November	12,	2014,	the	jury

awarded	plaintiff	approximately	$19.7	million	in	punitive	damages	against	PM	USA	and	$300,000	in	punitive	damages	against	Liggett	Group.

On	November	25,	2014,	PM	USA	filed	various	post-trial	motions.	On	January	20,	2015,	the	court	denied	PM	USA's	motions	for	a	new	trial	and	for	remittitur,	but agreed	to	reduce	the	compensatory	damages	award	by	the	jury's	assessment	of	comparative	fault.

# 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	awarding	plaintiff	$15.8	million	in	compensatory	damages	and	$25.3	million	in	punitive	damages.	On	December	11,	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.

# 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).

On	October	27,	2014,	defendants	filed	a	motion	for	judgment	in	accordance	with	their	motion	for	directed	verdict	and	a	motion	for	a	new	trial.	The	court	denied defendants'	post-trial	motions	on	November	3,	2014	and,	on	November	6,	2014,	entered	final	judgment.	On	November	7,	2014,	defendants	filed	a	notice	of	appeal	to	the Florida	Second	District	Court	of	Appeal.	On	November	7,	2014,	PM	USA	posted	a	bond	in	the	amount	of	$370,318.

# 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 $20.76	million	in	punitive	damages.

The	court	entered	final	judgment	against	PM	USA	in	September	2014.	In	October	2014,	the	court	entered	an	order	scheduling	post-trial	motions	and	confirming	that plaintiff	agreed	to	waive	bond	for	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.

# 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.	On	December	18,	2014,	the	court entered	final	judgment	in	favor	of	plaintiff.	On	January	15,	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.

# 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	court	entered	final	judgment	against	PM	USA	in	July	2014.	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.	District	Court	of	Appeals	for	the	Eleventh	Circuit.

# 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	fault	among	the	defendants	as	follows:	15%	to	PM	USA,	25%	to	R.J.	Reynolds	and	10%	to	Lorillard.	The	court declined	defendants'	request	to	reduce	the	compensatory	damages	award	by	the	jury's	assessment	of	comparative	fault,	imposing	joint	and	several	liability.	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.	In	October	2014,	defendants	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit.

# 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	court	entered	final	judgment	against	defendants	in	March	2014.	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.

# Plaintiff:	Goveia

An	Orange	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	$850,000	in	compensatory	damages	and allocated	35%	of	the	fault	against	each	defendant	(an	amount	of	$297,500).	The	jury	also	awarded	$2.25	million	in	punitive	damages	against	each	defendant.

In	February	2014,	defendants	filed	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	April	2014,	the	court	denied	defendants'	motions and	entered	final	judgment	against	defendants.	In	April	2014,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fifth	District	Court	of	Appeal.	In	May	2014,	PM	USA posted	a	bond	in	the	amount	of	$2.5	million.

# Plaintiff:	Cuculino

A	Miami-Dade	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA.	The	jury	awarded	plaintiff	$12.5	million	in	compensatory	damages	and	allocated 40%	of	the	fault	to	PM	USA	(an	amount	of	$5	million).

In	January	2014,	the	court	entered	final	judgment	against	PM	USA,	and	PM	USA	filed	post-trial	motions,	including	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In March	2014	and	April	2014,	the	court	denied	PM	USA's	post-trial	motions.	Also	in	April	2014,	PM	USA	filed	a	notice	of	appeal	to	the	Florida	Third	District	Court	of Appeal,	plaintiff	cross-appealed	and	PM	USA	posted	a	bond	in	the	amount	of	$5	million.

# Plaintiff:	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.

In	September	2013,	defendants	filed	post-trial	motions,	including	a	motion	to	reduce	damages.	In	September	2013,	the	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	court	declined	defendants'	request to	reduce	the	compensatory	damages	award	by	the	jury's	assessment	of	comparative	fault,	imposing	joint	and	several	liability	for	the	compensatory	damages.	The	court denied	all	other	motions	except	for	defendants'	motion	for	a	juror	interview,	which	was	granted.	In	October	2013,	defendants	filed	a	notice	of	appeal	to	the	Florida	Fifth District	Court	of	Appeal,	which	ordered	resolution	of	the	juror	issue	prior	to	appeal.	In	December	2013,	subsequent	to	the	juror	interview,	the	court	entered	an	order	that granted	no	relief	with	respect	to	the	alleged	misconduct	of	the	juror.	Plaintiff	agreed	to	waive	the	bond	for	the	appeal.

# 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	court	entered	final	judgment	against	defendants	in	July	2013.	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	plaintiffs	cross-appealed	in	December	2013.	Also	in	December	2013,	PM	USA	posted	a	bond	in	the	amount	of	$766,500.

# 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,	final	judgment	was	entered	in	favor	of	plaintiff	affirming	the	compensatory	damages	award.	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.

# Plaintiff:	Ruffo

A	Miami-Dade	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	Lorillard.	The	jury	awarded	plaintiff	$1.5	million	in	compensatory	damages and	allocated	12%	of	the	fault	to	PM	USA	(an	amount	of	$180,000).

In	May	2013,	defendants	filed	several	post-trial	motions,	including	motions	for	a	new	trial	and	to	set	aside	the	verdict,	which	the	trial	court	denied	in	October	2013	and entered	final	judgment	in	favor	of	plaintiff.	In	October	2013,	PM	USA	and	Lorillard	appealed	to	the	Florida	Third	District	Court	of	Appeal,	and	PM	USA	posted	a	bond in	the	amount	of	$180,000.	On	November	19,	2014,	the	Florida	Third	District	Court	of	Appeal	affirmed	the	final	judgment.	In	the	fourth	quarter	of	2014,	PM	USA recorded	a	provision	on	its	consolidated	balance	sheet	of	approximately	$193,000	for	the	judgment	plus	interest.

# 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.	In	October	2013,	defendants	filed	a	notice	of	appeal	to	the	U.S.	Court	of	Appeals	for	the	Eleventh	Circuit,	and	PM	USA	posted	a	bond	in	the	amount	of	$277,750.

# 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	declining	defendants'	request	to	reduce	the	compensatory	damages	award	by	the	jury's	assessment	of	comparative fault	and	imposing	joint	and	several	liability	for	the	compensatory	damages.	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.	Plaintiffs	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:	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	(an	amount	of	approximately	$2	million).

In	December	2012,	defendants	filed	several	post-trial	motions,	including	motions	for	a	new	trial	and	to	set	aside	the	verdict.	In	March	2013,	the	trial	court	denied	all motions	and	entered	final	judgment	against	PM	USA	and	Liggett	Group	refusing	to	reduce	the	compensatory	damages	award	by	plaintiff's	comparative	fault	and	holding PM	USA	and	Liggett	Group	jointly	and	severally	liable	for	$5.5	million.	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	is	currently	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.

# 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.	PM	USA's	portion	of	the	damages	was	approximately	$700.	In November	2012,	both	sides	filed	notices	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.

# 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,	but	the	trial	court	ruled	that	it	will	not	apply	the	comparative	fault	allocations	because the	jury	found	against	each	defendant	on	the	intentional	tort	claims.	The	jury	also	awarded	approximately	$17	million	in	punitive	damages	against	PM	USA,

approximately	$17	million	in	punitive	damages	against	R.J.	Reynolds,	approximately	$13	million	in	punitive	damages	against	Lorillard	and	approximately	$8	million	in punitive	damages	against	Liggett	Group.

In	May	and	June	2012,	defendants	filed	motions	to	set	aside	the	verdict	and	for	a	new	trial.	In	August	2012,	the	trial	court	denied	the	remaining	post-trial	motions	and entered	final	judgment,	reducing	the	total	compensatory	damages	award	to	$16.1	million	but	leaving	undisturbed	the	separate	punitive	damages	awards.	In	September 2012,	PM	USA	posted	a	bond	in	an	amount	of	$1.5	million	and	defendants	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal.	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.

# 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.	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).

# 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,	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.	Upon	retrial,	if	the	jury	finds	in plaintiff's	favor	on	that	claim,	the	original	$16.2	million	punitive	damages	award	will	be	reinstated.	PM	USA	filed	a	motion	for	rehearing,	which	was	denied	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.

# 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.	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.

# 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	and,	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.	If	the	jury	finds	in	plaintiff's	favor	on	that	claim,	the $10	million	punitive	damages	award	against	each	defendant	will	be	reinstated.	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.

# 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.	In	April	2010,	PM	USA	filed	its	notice	of	appeal	and	posted	a	$5	million	bond.	In	August	2010,	upon	the	motion	of	PM	USA,	the	trial	court	entered	an amended	final	judgment	of	approximately	$12.3	million	in	compensatory	damages	and	approximately	$24.5	million	in	punitive	damages	to	correct	a	clerical	error.	In June	2012,	the	Fourth	District	Court	of	Appeal	affirmed	the	amended	final	judgment.	In	July	2012,	PM	USA	filed	a	motion	for	rehearing.	In	December	2012,	the	Fourth District	withdrew	its	prior	decision,	reversed	the	verdict	as	to	compensatory	and	punitive	damages	and	returned	the	case	to	the	trial	court	for	a	new	trial	on	the	question of	damages.	In	December	2012,	plaintiff	filed	a	motion	for	rehearing	en	banc	or	for	certification	to	the	Florida	Supreme	Court,	which	was	denied	in	January	2013.	In February	2013,	plaintiff	and	PM	USA	each	filed	a	notice	to	invoke	the	discretionary	jurisdiction	of	the	Florida	Supreme	Court,	which	the	Florida	Supreme	Court	denied in	February	2014.	Upon	retrial	on	the	question	of	damages,	in	October	2013,	the	new	jury	awarded	approximately	$3.7	million	in	compensatory	damages	and	$7.5 million	in	punitive	damages.	In	October	2013,	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.

# Plaintiff:	Hess

A	Broward	County	jury	found	in	favor	of	plaintiff	and	against	PM	USA.	The	jury	awarded	$3	million	in	compensatory	damages	and	$5	million	in	punitive	damages.	In June	2009,	the	trial	court	entered	final	judgment	and	awarded	plaintiff	$1.26	million	in	actual	damages	and	$5	million	in	punitive	damages.	The	judgment	reduced	the jury's	$3	million	award	of	compensatory	damages	due	to	the	jury	allocating	42%	of	the	fault	to	PM	USA.

PM	USA	filed	a	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal	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	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.	Oral	argument	was	heard	in	April	2014	in	the	Florida	Supreme	Court	on	the statute	of	repose	question.

# Concluded	Cases

# Plaintiff:	Tullo

A	Palm	Beach	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA,	Lorillard	and	Liggett	Group.	The	jury	awarded	a	total	of	$4.5	million	in compensatory	damages	and	allocated	45%	of	the	fault	to	PM	USA	(an	amount	of	$2.025	million).

In	April	2011,	the	trial	court	entered	final	judgment.	In	July	2011,	PM	USA	filed	its	notice	of	appeal	to	the	Florida	Fourth	District	Court	of	Appeal	and	posted	a	$2 million	bond.	In	August	2013,	the	Fourth	District	Court	of	Appeal	affirmed	the	judgment.	In	October	2013,	defendants	filed	a	notice	to	invoke	the	discretionary jurisdiction	of	the	Florida	Supreme	Court,	which	declined	jurisdiction	in	September	2014.	In	the	third	quarter	of	2014,	PM	USA	recorded	a	provision	on	its	condensed consolidated	balance	sheet	of	approximately	$3.9	million	for	the	judgment	plus	interest	and	associated	costs	and	paid	this	amount	in	October	2014.

# Plaintiff:	Barbanell

A	Broward	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA,	awarding	$5.3	million	in	compensatory	damages.	The	judge	had	previously dismissed	the	punitive	damages	claim.	In	September	2009,	the	trial	court	entered	final	judgment	and	awarded	plaintiff	$1.95	million	in	actual	damages.	The	judgment reduced	the	jury's	compensatory	damages	award	due	to	the	jury	allocating	36.5%	of	the	fault	to	PM	USA.

A	notice	of	appeal	was	filed	by	PM	USA	in	September	2009.	In	February	2012,	the	Florida	Fourth	District	Court	of	Appeal	reversed	the	judgment,	holding	that	the statute	of	limitations	barred	plaintiff's	claims.	In	October	2012,	on	motion	for	rehearing,	the	Florida	Fourth	District	Court	of	Appeal	withdrew	its	prior	decision	and affirmed	the	trial	court's	judgment.	In	November	2012,	PM	USA	filed	a	notice	to	invoke	the	jurisdiction	of	the	Florida	Supreme	Court,	which	the	Florida	Supreme	Court denied.	In	the	first	quarter	of	2014,	PM	USA	recorded	a	provision	on	its	condensed	consolidated	balance	sheet	of	approximately	$3.6	million	for	the	judgment	plus interest	and	associated	costs.	In	March	2014,	PM	USA	filed	a	petition	for	writ	of	certiorari	with	the	United	States	Supreme	Court,	which	was	denied	in	June	2014.	Also in	June	2014,	PM	USA	paid	the	judgment	plus	interest	and	associated	costs	in	the	amount	of	approximately	$3.6	million.

# Plaintiff:	Lock

A	Pinellas	County	jury	returned	a	verdict	in	favor	of	plaintiff	and	against	PM	USA	and	R.J.	Reynolds.	The	jury	awarded	$1.15	million	in	compensatory	damages	and allocated	9%	of	the	fault	to	each	of	the	defendants	(an	amount	of	$103,500).

In	November	2012,	defendants	filed	several	post-trial	motions,	including	motions	for	a	new	trial,	to	set	aside	the	verdict	and	to	reduce	the	damages	award	by	the	amount of	economic	damages	paid	by	third	parties.	In	January	2013,	the	trial	court	orally	denied	all	post-trial	motions.	In	February	2013,	the	trial	court	entered	final	judgment. In	March	2013,	defendants	filed	a	notice	of	appeal	to	the	Florida	Second	District	Court	of	Appeal.	In	March	2014,	PM	USA	paid	the	judgment	plus	interest	and associated	costs	in	the	amount	of	approximately	$140,000.

▪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,	in	September	2013,	rejected	the	due	process	defense	and	affirmed the	underlying	judgments.	In	October	2013,	R.J.	Reynolds	filed	a	petition	for rehearing	or	rehearing	en	banc.	Thereafter,	the	Eleventh	Circuit	vacated	its decision	and	substituted	a	new	opinion.	In	November	2013,	the	Eleventh	Circuit denied	R.J.	Reynolds'	initial	petition	for	rehearing.	R.J.	Reynolds	filed	a	petition for	rehearing	en	banc	or	panel	rehearing	of	the

substituted	decision,	which	was	denied	in	January	2014.	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	is	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	Eleventh	Circuit	Court	of	Appeals,	defendants	argued	that	the	Engle progeny	plaintiffs'	product	liability	claims	are	impliedly	preempted	by	federal	law. Oral	argument	was	heard	on	November	20,	2014.

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.	In	February	2014,	the	Florida Supreme	Court	accepted	jurisdiction	over	plaintiff's	appeal	from	the	Florida	First District	Court	of	Appeal's	holding	and	heard	oral	argument	on	December	4,	2014. 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	in	June	2014	and	heard	oral	argument	on December	4,	2014.

▪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	below,	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.

No	federal	court	has	yet	addressed	the	constitutionality	of	the	bond	cap	statute or	the	applicability	of	the	bond	cap	to	Engle	progeny	cases	tried	in	federal	court. However,	in	April	2013,	PM	USA,	R.J.	Reynolds	and	Lorillard	filed	a	motion	in the	U.S.	District	Court	for	the	Middle	District	of	Florida	to	have	the	court	apply the	Florida	bond	cap	statute	to	all	federal	Engle	progeny	cases.	In	August	2013, the	court	denied	the	motion	without	prejudice	on	the	grounds	that	it	was	premature to	adjudicate	such	issue.

# Other	Smoking	and	Health	Class	Actions

Since	the	dismissal	in	May	1996	of	a	purported	nationwide	class	action	brought	on behalf	of	allegedly	addicted	smokers,	plaintiffs	have	filed	numerous	putative smoking	and	health	class	action	suits	in	various	state	and	federal	courts.	In general,	these	cases	purport	to	be	brought	on	behalf	of	residents	of	a	particular state	or	states	(although	a	few	cases	purport	to	be	nationwide	in	scope)	and	raise addiction	claims	and,	in	many	cases,	claims	of	physical	injury	as	well. Class	certification	has	been	denied	or	reversed	by	courts	in	59	smoking	and health	class	actions	involving	PM	USA	in	Arkansas	(1),	California	(1),	the	District of	Columbia	(2),	Florida	(2),	Illinois	(3),	Iowa	(1),	Kansas	(1),	Louisiana	(1), Maryland	(1),	Michigan	(1),	Minnesota	(1),	Nevada	(29),	New	Jersey	(6),	New York	(2),	Ohio	(1),	Oklahoma	(1),	Pennsylvania	(1),	Puerto	Rico	(1),	South Carolina	(1),	Texas	(1)	and	Wisconsin	(1).

As	of	January	27,	2015,	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	seek	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 seek	to	impose	liability	under	various	product-based	causes	of	action	and	the creation	of	a	court-supervised	program	providing	members	of	the	purported	class Low	Dose	CT	("LDCT")	scanning	in	order	to	identify	and	diagnose	lung	cancer. Plaintiffs	in	these	cases	do	not	seek	punitive	damages,	although	plaintiffs	in Donovan	have	indicated	they	may	seek	to	treble	any	damages	awarded.	The	future defense	of	these	cases	may	be	negatively	impacted	by	evolving	medical	standards and	practice.

One	medical	monitoring	class	action	is	currently	pending	against	PM	USA.	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	the	state's residents	who	are:	age	50	or	older;	have	smoked	the	Marlboro	brand	for	20	pack- years	or	more;	and	have	neither	been	diagnosed	with	lung	cancer	nor	are	under investigation	by	a	physician	for	suspected	lung	cancer.	The	Supreme	Judicial Court	of	Massachusetts,	in	answering	questions	certified	to	it	by	the	district	court, held	in	October	2009	that	under	certain	circumstances	state	law	recognizes	a	claim by	individual	smokers	for	medical	monitoring	despite	the	absence	of	an	actual injury.	The	court	also	ruled	that	whether	or	not	the	case	is	barred	by	the	applicable statute	of	limitations	is	a	factual	issue	to	be	determined	by	the	trial	court.	The	case was	remanded	to	federal	court	for	further	proceedings.	In	June	2010,	the	district court	granted	in	part	the	plaintiffs'	motion	for	class	certification,	certifying	the class	as	to	plaintiffs'	claims	for	breach	of	implied	warranty	and	violation	of	the Massachusetts	Consumer	Protection	Act,	but	denying	certification	as	to	plaintiffs' negligence	claim.	In	July	2010,	PM	USA	petitioned	the	U.S.	Court	of	Appeals	for the	First	Circuit	for	appellate	review	of	the	class	certification	decision.	The petition	was	denied	in	September	2010.	As	a	remedy,	plaintiffs	have	proposed	a 28-year	medical	monitoring	program	with	an	approximate	cost	of	$190	million.	In June	2011,	plaintiffs	filed	various	motions	for	partial	summary	judgment	and	to strike	affirmative	defenses,	which	the	district	court	denied	in	March	2012	without prejudice.	In	October	2011,	PM	USA	filed	a	motion	for	class	decertification, which	motion	was	denied	in	March	2012.	In	February	2013,	the	district	court amended	the	class	definition	to	extend	to	individuals	who	satisfy	the	class membership	criteria	through	February	26,	2013,	and	to	exclude	any	individual who	was	not	a	Massachusetts	resident	as	of	February	26,	2013.	In	January	2014, plaintiffs	renewed	their	previously	filed	motions	for	partial	summary	judgment	and to	strike	affirmative	defenses.	In	December	2014,	the	court	issued	its	rulings	on plaintiffs'	previously-filed	motions,	granting	and	denying	the	motions	in	part.	A trial	date	has	not	been	set.

Other	medical	monitoring	cases	previously	brought	against	PM	USA	include Caronia,	filed	in	January	2006	in	the	U.S.	district	court	for	the	Eastern	District	of New	York.	In	January	2011,	the	district	court	dismissed	plaintiffs'	implied warranty	and	medical	monitoring	claims	and	declared	plaintiffs'	motion	for	class certification	moot	in	light	of	the	dismissal	of	the	case.	The	plaintiffs	appealed	to the	U.S.	Court	of	Appeals	for	the	Second	Circuit.	In	May	2013,	the	Second	Circuit affirmed	the	dismissal	of	plaintiffs'	traditional	negligence,	strict	liability	and breach	of	warranty	claims	on	the	grounds	of	statute	of	limitations	and	the widespread	knowledge	regarding	the	risks	of	cigarette	smoking,	but	certified certain	questions	to	the	New	York	State	Court	of	Appeals,	including	whether	New York	would	recognize	an	independent	claim	for	medical	monitoring.	In	May 2013,	the	New	York	Court	of	Appeals	accepted	the	certified	questions	and,	in December	2013,	ruled	that	New	York	law	does	not	allow	for	an	independent	cause of	action	for	medical	monitoring.	The	Second	Circuit	affirmed	the	district	court's dismissal	of	the	entire	case	in	April	2014,	including	the	so-called	independent claim	for	medical	monitoring,	and	issued	its	mandate	in	May	2014.	Two	other cases	(California	(Xavier)	and	Florida	(Gargano))	were	dismissed	in	2011.

# Health	Care	Cost	Recovery	Litigation

▪Overview:	In	the	health	care	cost	recovery	litigation,	governmental	entities seek	reimbursement	of	health	care	cost	expenditures	allegedly	caused	by	tobacco products	and,	in	some	cases,	of	future	expenditures	and	damages.	Relief	sought	by some	but	not	all	plaintiffs	includes	punitive	damages,	multiple	damages	and	other statutory	damages	and	penalties,	injunctions	prohibiting	alleged	marketing	and sales	to	minors,	disclosure	of	research,	disgorgement	of	profits,	funding	of	anti- smoking	programs,	additional	disclosure	of	nicotine	yields,	and	payment	of attorney	and	expert	witness	fees.

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

Defenses	raised	include	lack	of	proximate	cause,	remoteness	of	injury,	failure to	state	a	valid	claim,	lack	of	benefit,	adequate	remedy	at	law,	"unclean	hands" (namely,	that	plaintiffs	cannot	obtain	equitable	relief	because	they	participated	in, and	benefited	from,	the	sale	of	cigarettes),	lack	of	antitrust	standing	and	injury, federal	preemption,	lack	of	statutory	authority	to	bring	suit	and	statutes	of limitations.	In	addition,	defendants	argue	that	they	should	be	entitled	to	"set	off" any	alleged	damages	to	the	extent	the	plaintiffs

benefit	economically	from	the	sale	of	cigarettes	through	the	receipt	of	excise	taxes or	otherwise.	Defendants	also	argue	that	these	cases	are	improper	because plaintiffs	must	proceed	under	principles	of	subrogation	and	assignment.	Under traditional	theories	of	recovery,	a	payor	of	medical	costs	(such	as	an	insurer)	can seek	recovery	of	health	care	costs	from	a	third	party	solely	by	"standing	in	the shoes"	of	the	injured	party.	Defendants	argue	that	plaintiffs	should	be	required	to bring	any	actions	as	subrogees	of	individual	health	care	recipients	and	should	be subject	to	all	defenses	available	against	the	injured	party.

Although	there	have	been	some	decisions	to	the	contrary,	most	judicial decisions	in	the	United	States	have	dismissed	all	or	most	health	care	cost	recovery claims	against	cigarette	manufacturers.	Nine	federal	circuit	courts	of	appeals	and eight	state	appellate	courts,	relying	primarily	on	grounds	that	plaintiffs'	claims were	too	remote,	have	ordered	or	affirmed	dismissals	of	health	care	cost	recovery actions.	The	United	States	Supreme	Court	has	refused	to	consider	plaintiffs' appeals	from	the	cases	decided	by	five	circuit	courts	of	appeals.	In	2011,	in	the health	care	cost	recovery	case	brought	against	PM	USA	and	other	defendants	by the	City	of	St.	Louis,	Missouri	and	approximately	40	Missouri	hospitals,	a	verdict was	returned	in	favor	of	defendants.

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

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

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

defendants	to	cross-appeal	the	Court	of	Appeals'	decision	to	dismiss	claims against	the	Federal	Government	of	Canada	based	on	other	theories	of	liability.	In July	2011,	the	Supreme	Court	of	Canada	dismissed	the	third-party	claims	against the	Federal	Government	of	Canada.

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

# ▪Settlements	of	Health	Care	Cost	Recovery	Litigation:	In	November	1998,

PM	USA	and	certain	other	United	States	tobacco	product	manufacturers	entered into	the	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	make annual	payments	of	approximately	$9.4	billion,	subject	to	adjustments	for	several factors,	including	inflation,	market	share	and	industry	volume.	In	addition,	the original	participating	manufacturers	are	required	to	pay	settling	plaintiffs' attorneys'	fees,	subject	to	an	annual	cap	of	$500	million.	For	the	years	ended December	31,	2014,	2013	and	2012,	the	aggregate	amount	recorded	in	cost	of sales	with	respect	to	the	State	Settlement	Agreements	and	the	Fair	and	Equitable Tobacco	Reform	Act	of	2004	("FETRA")	was	approximately	$4.6	billion,	$4.2 billion	and	$4.9	billion,	respectively.	The	2014	and	2013	amounts	include	a reduction	to	cost	of	sales	of	approximately	$43	million	and	$664	million, respectively,	related	to	the	NPM	Adjustment	disputes	discussed	below. The	State	Settlement	Agreements	also	include	provisions	relating	to advertising	and	marketing	restrictions,	public	disclosure	of	certain	industry documents,	limitations	on	challenges	to	certain	tobacco	control	and	underage	use laws,	restrictions	on	lobbying	activities	and	other	provisions.

▪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	2003-2012.	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.

# 2003-2012	NPM	Adjustment	Disputes	-	Settlement	with	24	States	and	Territories:

PM	USA	has	settled	the	NPM	Adjustment	disputes	for	the	years	2003-2012	with 24	of	the	52	MSA	states	and	territories	(the	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,	PM	USA	expects	to receive	a	total	of	at	least	$599	million	for	2003-2012.	Of	this	total,	PM	USA	has already	received	$579	million	in	the	form	of	reductions	to	its	MSA	payments	in 2013	or	2014	and	expects	to	receive	the	remaining	$20	million	as	a	reduction	to	its MSA	payment	due	in	April	2015.

PM	USA	recorded	$519	million	of	the	$599	million	as	a	reduction	to	cost	of sales	that	increased	its	reported	pre-tax	earnings	by	$483	million	and	$36	million in	the	first	quarter	of	2013	and	second	quarter	of	2013,	respectively.	The remainder	of	the	$599	million	consists	of	$80	million	attributable	to	two	states	that joined	the	settlement	after	having	been	found	subject	to	the	2003	NPM Adjustment	by	an	arbitration	panel	in	the	third	quarter	of	2013,	as	discussed below.	As	a	result	of	the	arbitration	panel's	findings,	however,	PM	USA	had already	recorded	$54	million	in	pre-tax	earnings	in	respect	of	those	two	states	for the	2003	NPM	Adjustment	before	they	joined	the	settlement,	leaving	an	additional $26	million	to	be	recorded	when	they	joined	the	settlement.	The	$54	million already	recorded	consisted	of	$37	million	recorded	as	a	reduction	to	cost	of	sales and	$17	million	recorded	as	interest	income.	Because	the	$80	million	settlement recovery	would	all	be	recorded	as	a	reduction	to	cost	of	sales,	upon	these	two states'	joinder	of	the	settlement	in	the	second	quarter	of	2014,	a	further	$43 million	reduction	to	cost	of	sales	while	also	recording	a	$17	million	reduction	in interest	income	to	reverse	the	earlier	recording	of	interest	income	in	that	amount. The	result	was	a	net	increase	in	reported	pre-tax	earnings	of	$26	million	in	the second	quarter	of	2014.

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	are	"transition years,"	for	which	the	PMs	receive	specified	payments.	PM	USA	has	already received	$35	million	for	the	2013	transition	year	pursuant	to	this	revised	provision in	the	form	of	a	reduction	to	its	MSA	payments	in	2014,	resulting	in	a	reduction	to cost	of	sales	in	the	first	quarter	of	2014.	PM	USA	also	expects	to	receive	an additional	$3	million	for	the	2013	transition	year	as	a	result	of	the	two	additional states

joining	the	settlement	in	the	form	of	a	reduction	to	its	MSA	payment	due	in	April 2015.	PM	USA	will	also	receive	a	payment	for	the	2014	transition	year,	in	an amount	subsequently	to	be	calculated,	in	the	form	of	a	reduction	to	its	MSA payment	due	in	April	2015.	PM	USA,	R.J.	Reynolds	and	Lorillard	(the	"original participating	manufacturers"	or	"OPMs")	have	agreed	that	the	amounts	they receive	under	the	settlement	for	the	transition	years	and	subsequent	years	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.

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.	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	and Maryland	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. Another	state's	motions	remain	pending	in	its	state	trial	court.	As	for	the	remaining states,	rulings	rejecting	their	motions	to	vacate	the	Stipulated	Award	are	on	appeal by	the	respective	states,	or	the	motions	have	been	voluntarily	dismissed	or	stayed pending	further	state	action.

2003-2013	NPM	Adjustment	Disputes	-	Continuing	Disputes	with	Non-Signatory States:	PM	USA	has	continued	to	pursue	the	NPM	Adjustments	for	2003	and subsequent	years	with	respect	to	the	non-signatory	states.	Under	the	MSA,	once	all conditions	for	the	NPM	Adjustment	for	a	particular	year	are	met,	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	2003-2012,	all	conditions	for	the	NPM	Adjustment	have	been	met,	either by	determination	or	agreement	among	the	parties.	For	2013,	one	condition	(that the	disadvantages	of	the	MSA	were	a	"significant	factor"	contributing	to	the	PMs' collective	loss	of	market	share)	potentially	remains	in	dispute;	however, proceedings	as	to	the	"significant	factor"	issue	for	2013	cannot	be	commenced until	April	2015.

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.

The	2003	arbitration	was	conducted	from	July	2010	to	September	2013. Following	discovery,	the	PMs	determined	no	longer	to	contest	the	2003	diligent enforcement	claims	of	14	of	the	non-signatory	states	in	the	arbitration.	In	the Stipulated	Award,	the	arbitration	panel	ruled	that	the	total	2003	NPM	Adjustment would	be	reduced	pro	rata	by	the	aggregate	allocable	share	of	the	signatory	states (at	the	relevant	time,	approximately	46%)	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").

In	September	2013,	the	arbitration	panel	issued	rulings	regarding	the	15 contested	states	and	territories	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	are	entitled	to	receive	from	the	six	non-diligent states	the	entire	2003	NPM	Adjustment	remaining	after	the	pro	rata	judgment reduction.	PM	USA	believes	it	is	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	believes	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	yet	record	the	remaining	$25	million	based	on its	assessment	of	a	certain	dispute	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	will	retain	those	amounts	from	the	two	states,	plus	receive 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	believes	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	has	filed	a motion	in	its	state	court	to	(i)	vacate	the	panel's	ruling	as	to	its	diligence	and	(ii)	to modify	the	pro	rata	judgment	reduction	and	to	substitute	a	reduction	method	more favorable	to	the	state.	These	four	states	have	also	raised	a	dispute	concerning	the independent	auditor's

calculation	of	interest.	In	addition,	one	of	the	other	OPMs	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	May	2014,	a	Missouri	state	trial court	ruled	similarly	on	Missouri's	motions.	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.	PM	USA	is	appealing	the	Pennsylvania	and Missouri	decisions	modifying	the	pro	rata	judgment	reduction.	Maryland	is appealing	its	court's	decision	declining	to	modify	the	pro	rata	judgment	reduction. Maryland	and	Missouri	each	is	appealing	its	court's	ruling	denying	its	motion	to vacate	the	arbitration	panel's	diligence	ruling	as	to	that	state.	The	motions	filed	by the	fourth	state,	New	Mexico,	remain	pending	in	its	state	trial	court. As	a	result	of	the	Pennsylvania	state	trial	court	ruling,	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	believes	it	would	be	entitled	from	those	four	states.	If PM	USA	is	successful	in	judicial	review	of	the	Pennsylvania	trial	court	ruling,	it will	recover	the	difference	($29	million	of	2003	NPM	Adjustment	and	$18	million in	interest	(subject	to	the	separate	interest	disputes	referenced	above)),	with interest,	as	a	credit	against	a	subsequent	MSA	payment.	If	PM	USA	is	not successful	on	judicial	review	of	the	Pennsylvania	trial	court	ruling,	it	would	need to	reverse	$29	million	of	the	2003	NPM	Adjustment	and	part	of	the	interest	that	it recorded.	Because	the	Missouri	state	trial	court	ruling	post-dated	PM	USA's	April 2014	MSA	payment,	that	ruling	did	not	reduce	the	credit	that	PM	USA	received against	that	payment.	If	PM	USA	is	not	successful	on	judicial	review	of	the Missouri	court's	ruling,	it	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	the	Missouri	appeal,	PM	USA	has	posted	a	bond	in	the	amount	of $22	million.	In	addition,	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	PM USA's	appeals	of	the	Pennsylvania	and	Missouri	state	trial	court	rulings,	or	the other	litigation	and	disputes	discussed	above,	will	be	resolved	in	a	manner favorable	to	PM	USA.

2004-2013	NPM	Adjustments.	Proceedings	regarding	state	diligent	enforcement claims	for	2004-2013	have	not	yet	been	scheduled.	PM	USA	believes	that	the MSA	requires	these	claims	to	be	determined	in	a	multi-state	arbitration,	although	a number	of	non-signatory	states	have	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.	No	assurance	can	be	given	as	to	when proceedings	for	2004-2013	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	these	years	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,	$219	million for	2010,	$165	million	for	2011,	$207	million	for	2012	and	$215	million	for	2013. These	maximum	amounts	will	be	reduced	by	a	judgment	reduction	to	reflect	the settlement	with	the	signatory	states.	The	judgment	reduction	method	applicable	to the	2004-2013	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.	Finally, PM	USA's	recovery	of	these	amounts,	even	as	reduced,	is	dependent	upon subsequent	determinations	of	non-signatory	states'	diligent	enforcement	claims. The	availability	and	amount	of	any	NPM	Adjustment	for	2004-2013	from	the	non- signatory	states	will	not	be	finally	determined	in	the	near	term.	There	is	no assurance	that	the	OPMs	and	other	MSA-participating	manufacturers	will ultimately	receive	any	adjustment	from	the	non-signatory	states	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.

# ▪Other	Disputes	Related	to	MSA	Payments:	In	addition	to	the	disputed

NPM	Adjustments	described	above,	MSA	states	and	PMs,	including	PM	USA, conducted	another	arbitration	to	resolve	certain	other	disputes	related	to	the calculation	of	the	participating	manufacturers'	payments	under	the	MSA.	PM USA	disputed	the	method	by	which	ounces	of	"roll	your	own"	tobacco	had	been converted	to	cigarettes	for	purposes	of	calculating	the	downward	volume adjustments	to	its	MSA	payments,	but	in	February	2013,	the	arbitration	panel issued	a	ruling	in	favor	of	the	MSA	states.	This	same	arbitration	panel	also	issued	a ruling	in	the	dispute	over	whether	the	"adjusted	gross"	or	the	"net"	number	of cigarettes	on	which	federal	excise	tax	is	paid	is	the	correct	methodology	for calculating	MSA	payments	due	from	certain	subsequent	participating manufacturers.	PM	USA	does	not	currently	have	access	to	the	data	necessary	to determine	the

magnitude	and	the	direction	of	the	effects	of	this	ruling	on	past	and	future	MSA payments	from	such	subsequent	participating	manufacturers.

▪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.	In	September	2000,	the	trial	court	dismissed	the	government's MCRA	and	MSP	claims,	but	permitted	discovery	to	proceed	on	the	government's claims	for	relief	under	the	civil	provisions	of	RICO.

The	government	alleged	that	disgorgement	by	defendants	of	approximately $280	billion	is	an	appropriate	remedy	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	June	2005,	the	government	filed	with	the	trial	court	its	proposed	final judgment	seeking	remedies	of	approximately	$14	billion,	including	$10	billion over	a	five-year	period	to	fund	a	national	smoking	cessation	program	and	$4 billion	over	a	10-year	period	to	fund	a	public	education	and	counter-marketing campaign.	Further,	the	government's	proposed	remedy	would	have	required defendants	to	pay	additional

monies	to	these	programs	if	targeted	reductions	in	the	smoking	rate	of	those	under 21	were	not	achieved	according	to	a	prescribed	timetable.	The	government's proposed	remedies	also	included	a	series	of	measures	and	restrictions	applicable	to cigarette	business	operations,	including,	but	not	limited	to,	restrictions	on advertising	and	marketing,	potential	measures	with	respect	to	certain	price promotional	activities	and	research	and	development,	disclosure	requirements	for certain	confidential	data	and	implementation	of	a	monitoring	system	with	potential broad	powers	over	cigarette	operations.

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

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

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

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

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

▪defendants	falsely	denied	that	they	intentionally	marketed	to youth;

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

# ▪defendants	suppressed	scientific	research.

The	court	did	not	impose	monetary	penalties	on	defendants,	but	ordered	the following	relief:	(i)	an	injunction	against	"committing	any	act	of	racketeering" relating	to	the	manufacturing,	marketing,	promotion,	health	consequences	or	sale of	cigarettes	in	the	United	States;	(ii)	an	injunction	against	participating	directly	or indirectly	in	the	management	or	control	of	the	Council	for	Tobacco	Research,	the Tobacco	Institute,	or	the	Center	for	Indoor	Air	Research,	or	any	successor	or affiliated	entities	of	each;	(iii)	an	injunction	against	"making,	or	causing	to	be made	in	any	way,	any	material	false,	misleading,	or	deceptive	statement	or representation	or	engaging	in	any	public	relations	or	marketing	endeavor	that	is disseminated	to	the	United	States	public	and	that	misrepresents	or	suppresses information	concerning	cigarettes";	(iv)	an	injunction	against	conveying	any express	or	implied	health	message	through	use	of	descriptors	on	cigarette packaging	or	in	cigarette	advertising

or	promotional	material,	including	"lights,"	"ultra	lights"	and	"low	tar,"	which	the court	found	could	cause	consumers	to	believe	one	cigarette	brand	is	less hazardous	than	another	brand;	(v)	the	issuance	of	"corrective	statements"	in various	media	regarding	the	adverse	health	effects	of	smoking,	the	addictiveness of	smoking	and	nicotine,	the	lack	of	any	significant	health	benefit	from	smoking "low	tar"	or	"light"	cigarettes,	defendants'	manipulation	of	cigarette	design	to ensure	optimum	nicotine	delivery	and	the	adverse	health	effects	of	exposure	to environmental	tobacco	smoke;	(vi)	the	disclosure	on	defendants'	public	document websites	and	in	the	Minnesota	document	repository	of	all	documents	produced	to the	government	in	the	lawsuit	or	produced	in	any	future	court	or	administrative action	concerning	smoking	and	health	until	2021,	with	certain	additional requirements	as	to	documents	withheld	from	production	under	a	claim	of	privilege or	confidentiality;	(vii)	the	disclosure	of	disaggregated	marketing	data	to	the government	in	the	same	form	and	on	the	same	schedule	as	defendants	now	follow in	disclosing	such	data	to	the	Federal	Trade	Commission	("FTC")	for	a	period	of 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:	National	Newspaper	Publishers	Association, National	Association	of	Black	Owned	Broadcasters,	Inc.,	National	Association	for the	Advancement	of	Colored	People,	The	Little	Rock	Sun	Community	Newspaper, Turner	Broadcasting	System,	Inc.,	The	CW	Network,	LLC,	Univision Communications	Inc.,	Radio	One,	Inc.,	TV	One,	LLC,	Interactive	One,	LLC,	Fox Broadcasting	Company,	Viacom	Inc.	and	A&E	Television	Networks,	LLC.	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.	Oral	argument	is	scheduled	for	February 23,	2015.

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	the appeal	on	the	content	of	the	corrective	communications,	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.

▪Overview:	Plaintiffs	in	certain	pending	matters	seek	certification	of	their cases	as	class	actions	and	allege,	among	other	things,	that	the	uses	of	the	terms "Lights"	and/or	"Ultra	Lights"	constitute	deceptive	and	unfair	trade	practices, common	law	or	statutory	fraud,	unjust	enrichment	or	breach	of	warranty,	and	seek injunctive	and	equitable	relief,	including	restitution	and,	in	certain	cases,	punitive damages.	These	class	actions	have	been	brought	against	PM	USA	and,	in	certain instances,	Altria	Group,	Inc.	or	its	subsidiaries,	on	behalf	of	individuals	who purchased	and	consumed	various

brands	of	cigarettes,	including	Marlboro	Lights,	Marlboro	Ultra	Lights,	Virginia Slims	Lights	and	Superslims,	Merit	Lights	and	Cambridge	Lights.	Defenses	raised in	these	cases	include	lack	of	misrepresentation,	lack	of	causation,	injury	and damages,	the	statute	of	limitations,	non-liability	under	state	statutory	provisions exempting	conduct	that	complies	with	federal	regulatory	directives,	and	the	First Amendment.	As	of	January	27,	2015,	a	total	of	12	such	cases	are	pending	in various	U.S.	state	courts.

In	El-Roy,	a	purported	"Lights"	class	action	in	Israel,	the	trial	court	denied	the plaintiffs'	motion	for	class	certification	and	ordered	the	plaintiffs	to	pay defendants	approximately	$100,000	in	attorneys'	fees.	Plaintiffs	in	that	case noticed	an	appeal.	Oral	argument	at	the	Israel	Supreme	Court	occurred	on November	17,	2014,	and	the	same	day	plaintiffs	agreed	to	accept	judgment	against them	in	return	for	trial	costs.	See	Guarantees	and	Other	Similar	Matters	below	for a	discussion	of	the	Distribution	Agreement	between	Altria	Group,	Inc.	and	PMI that	provides	for	indemnities	for	certain	liabilities	concerning	tobacco	products.

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

▪Federal	Multidistrict	Proceeding	and	Subsequent	Developments:	Since the	December	2008	United	States	Supreme	Court	decision	in	Good,	and	through January	27,	2015,	26	purported	"Lights"	class	actions	were	served	upon	PM	USA and,	in	certain	cases,	Altria	Group,	Inc.	These	cases	were	filed	in	15	states,	the U.S.	Virgin	Islands	and	the	District	of	Columbia.	All	of	these	cases	either	were filed	in	federal	court	or	were	removed	to	federal	court	by	PM	USA	and	were transferred	and	consolidated	by	the	Judicial	Panel	on	Multidistrict	Litigation ("JPMDL")	before	the	U.S.	District	Court	for	the	District	of	Maine	for	pretrial proceedings	("MDL	proceeding").

In	November	2010,	the	district	court	in	the	MDL	proceeding	denied	plaintiffs' motion	for	class	certification	in	four	cases,	covering	the	jurisdictions	of	California, the	District	of	Columbia,	Illinois	and	Maine.	These	jurisdictions

were	selected	by	the	parties	as	sample	cases,	with	two	selected	by	plaintiffs	and two	selected	by	defendants.	Plaintiffs	sought	appellate	review	of	this	decision	but, in	February	2011,	the	U.S.	Court	of	Appeals	for	the	First	Circuit	denied	plaintiffs' petition	for	leave	to	appeal.	Later	that	year,	plaintiffs	in	13	cases	voluntarily dismissed	without	prejudice	their	cases.	In	April	2012,	the	JPMDL	remanded	the remaining	four	cases	(Phillips,	Tang,	Wyatt	and	Cabbat)	back	to	the	federal	district courts	in	which	the	suits	originated.	These	cases	were	ultimately	resolved	in	a manner	favorable	to	PM	USA.

In	Tang,	which	was	pending	in	the	U.S.	District	Court	for	the	Eastern	District of	New	York,	the	plaintiffs	voluntarily	dismissed	the	case	without	prejudice	in July	2012,	concluding	the	litigation.	In	Phillips,	which	was	pending	in	the	U.S. District	Court	for	the	Northern	District	of	Ohio,	following	the	district	court's denial	of	class	certification,	PM	USA	made	an	offer	of	judgment	to	resolve	the case	for	$6,000,	which	plaintiff	accepted,	and	the	court	dismissed	the	case.	In Cabbat,	the	U.S.	District	Court	for	the	District	of	Hawaii	denied	plaintiffs'	class certification	motion	in	January	2014.	After	plaintiffs	were	unsuccessful	in obtaining	appellate	review,	in	July	2014,	the	parties	filed,	and	the	court	approved, a	stipulation	for	dismissal	with	prejudice.	In	Wyatt,	the	U.S.	District	Court	for	the Eastern	District	of	Wisconsin	denied	plaintiffs'	class	certification	motion	in August	2013.	After	plaintiffs	were	unsuccessful	in	obtaining	appellate	review,	PM USA	made	an	offer	of	judgment	to	resolve	the	case	for	$1,000,	which	plaintiff accepted	in	September	2014.	The	district	court	dismissed	the	case	in	October 2014.

# ▪"Lights"	Cases	Dismissed,	Not	Certified	or	Ordered	De-Certified:	As	of

January	27,	2015,	in	addition	to	the	federal	district	court	in	the	MDL	proceeding, 18	courts	in	19	"Lights"	cases	have	refused	to	certify	class	actions,	dismissed	class action	allegations,	reversed	prior	class	certification	decisions	or	have	entered judgment	in	favor	of	PM	USA.

Trial	courts	in	Arizona,	Hawaii,	Illinois,	Kansas,	New	Jersey,	New	Mexico, Ohio,	Tennessee,	Washington	and	Wisconsin	have	refused	to	grant	class certification	or	have	dismissed	plaintiffs'	class	action	allegations.	Plaintiffs voluntarily	dismissed	a	case	in	Michigan	after	a	trial	court	dismissed	the	claims plaintiffs	asserted	under	the	Michigan	Unfair	Trade	and	Consumer	Protection	Act. Several	appellate	courts	have	issued	rulings	that	either	affirmed	rulings	in favor	of	Altria	Group,	Inc.	and/or	PM	USA	or	reversed	rulings	entered	in	favor	of plaintiffs.	In	Florida,	an	intermediate	appellate	court	overturned	an	order	by	a	trial court	that	granted	class	certification	in	Hines.	The	Florida	Supreme	Court	denied review	in	January	2008.	The	Supreme	Court	of	Illinois	overturned	a	judgment	that awarded	damages	to	a	certified	class	in	the	Price	case.	See	The	Price	Case	below for	further	discussion.	In	Louisiana,	the	U.S.	Court	of	Appeals	for	the	Fifth	Circuit dismissed	a	purported	"Lights"	class	action	(Sullivan)	on	the	grounds	that plaintiffs'	claims	were	preempted	by	the	FCLAA.	In	New	York,	the

U.S.	Court	of	Appeals	for	the	Second	Circuit	overturned	a	trial	court	decision	in Schwab	that	granted	plaintiffs'	motion	for	certification	of	a	nationwide	class	of	all U.S.	residents	that	purchased	cigarettes	in	the	United	States	that	were	labeled "Light"	or	"Lights."	In	July	2010,	plaintiffs	in	Schwab	voluntarily	dismissed	the case	with	prejudice.	In	Ohio,	the	Ohio	Supreme	Court	overturned	class certifications	in	the	Marrone	and	Phillips	cases.	Plaintiffs	voluntarily	dismissed without	prejudice	both	cases	in	August	2009,	but	refiled	in	federal	court	as	the Phillips	case	discussed	above.	The	Supreme	Court	of	Washington	denied	a	motion for	interlocutory	review	filed	by	the	plaintiffs	in	the	Davies	case	that	sought review	of	an	order	by	the	trial	court	that	refused	to	certify	a	class.	Plaintiffs subsequently	voluntarily	dismissed	the	Davies	case	with	prejudice.	In	August 2011,	the	U.S.	Court	of	Appeals	for	the	Seventh	Circuit	affirmed	the	Illinois federal	district	court's	dismissal	of	"Lights"	claims	brought	against	PM	USA	in the	Cleary	case.	In	Curtis,	a	certified	class	action,	in	May	2012,	the	Minnesota Supreme	Court	affirmed	the	trial	court's	entry	of	summary	judgment	in	favor	of PM	USA,	concluding	this	litigation.

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

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

Aspinall:	In	August	2004,	the	Massachusetts	Supreme	Judicial	Court	affirmed	the class	certification	order.	In	August	2006,	the	trial	court	denied	PM	USA's	motion for	summary	judgment	and	granted	plaintiffs'	cross-motion	for	summary	judgment on	the	defenses	of	federal	preemption	and	a	state	law	exemption	to	Massachusetts' consumer	protection	statute.	On	motion	of	the	parties,	the	trial	court	subsequently reported	its	decision	to	deny	summary	judgment	to	the	appeals	court	for	review and	stayed	further	proceedings	pending	completion	of	the	appellate	review.	In March	2009,	the	Massachusetts	Supreme	Judicial	Court	affirmed	the	order denying	summary	judgment	to	PM	USA	and	granting	the	plaintiffs'	cross-motion. In	January	2010,	plaintiffs	moved	for	partial	summary	judgment	as	to	liability claiming	collateral	estoppel	from	the	findings	in	the	case	brought	by	the Department	of	Justice	(see	Health	Care	Cost	Recovery	Litigation	-	Federal Government's	Lawsuit	described	above).	In	March	2012,	the	trial	court	denied plaintiffs'	motion.	In	February	2013,	the	trial	court,	upon	agreement	of	the	parties, dismissed	without

prejudice	plaintiffs'	claims	against	Altria	Group,	Inc.	PM	USA	is	now	the	sole defendant	in	the	case.	In	September	2013,	the	case	was	transferred	to	the	Business Litigation	Session	of	the	Massachusetts	Superior	Court.	Also	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.	Plaintiffs	filed a	motion	asking	the	trial	court	to	report	its	February	2014	ruling	to	the Massachusetts	Appeals	Court	for	review,	which	the	trial	court	denied.	In	March 2014,	plaintiffs	petitioned	the	Massachusetts	Appeals	Court	for	review	of	the ruling,	which	the	appellate	court	denied.	Trial	is	scheduled	to	begin	October	19, 2015.

Brown:	In	June	1997,	plaintiffs	filed	suit	in	California	state	court	alleging	that domestic	cigarette	manufacturers,	including	PM	USA	and	others,	violated California	law	regarding	unfair,	unlawful	and	fraudulent	business	practices.		In May	2009,	the	California	Supreme	Court	reversed	an	earlier	trial	court	decision that	decertified	the	class	and	remanded	the	case	to	the	trial	court.		At	that	time,	the class	consisted	of	individuals	who,	at	the	time	they	were	residents	of	California,	(i) smoked	in	California	one	or	more	cigarettes	manufactured	by	PM	USA	that	were labeled	and/or	advertised	with	the	terms	or	phrases	"light,"	"medium,"	"mild," "low	tar,"	and/or	"lowered	tar	and	nicotine,"	but	not	including	any	cigarettes labeled	or	advertised	with	the	terms	or	phrases	"ultra	light"	or	"ultra	low	tar,"	and (ii)	who	were	exposed	to	defendant's	marketing	and	advertising	activities	in California.		Plaintiffs	are	seeking	restitution	of	a	portion	of	the	costs	of	"light" cigarettes	purchased	during	the	class	period	and	injunctive	relief	ordering corrective	communications.	In	September	2012,	at	the	plaintiffs'	request,	the	trial court	dismissed	all	defendants	except	PM	USA	from	the	lawsuit.		Trial	began	in April	2013.	In	May	2013	the	plaintiffs	redefined	the	class	to	include	California residents	who	smoked	in	California	one	or	more	of	defendant's	Marlboro	Lights cigarettes	between	January	1,	1998	and	April	23,	2001,	and	who	were	exposed	to defendant's	marketing	and	advertising	activities	in	California.	In	June	2013,	PM USA	filed	a	motion	to	decertify	the	class.	Trial	concluded	in	July	2013.	In September	2013,	the	court	issued	a	final	Statement	of	Decision,	in	which	the	court found	that	PM	USA	violated	California	law,	but	that	plaintiffs	had	not	established a	basis	for	relief.	On	this	basis,	the	court	granted	judgment	for	PM	USA.	The	court also	denied	PM	USA's	motion	to	decertify	the	class.	In	October	2013,	the	court entered	final	judgment	in	favor	of	PM	USA.	In	November	2013,	plaintiffs	moved for	a	new	trial,	which	the	court	denied.	In	December	2013,	plaintiffs	filed	a	notice of	appeal	and	PM	USA	filed	a	conditional	cross-appeal.	In	February	2014,	the	trial court

awarded	PM	USA	$764,553	in	costs.	Also	in	February	2014,	plaintiffs	appealed the	costs	award.

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.	A	trial	date	has	not	been	set.

Miner:	In	June	2007,	the	United	States	Supreme	Court	reversed	the	lower	court rulings	in	Miner	(formerly	known	as	Watson)	that	denied	plaintiffs'	motion	to have	the	case	heard	in	a	state,	as	opposed	to	federal,	trial	court.	The	Supreme Court	rejected	defendants'	contention	that	the	case	must	be	tried	in	federal	court under	the	"federal	officer"	statute.	Following	remand,	the	case	was	removed	again to	federal	court	in	Arkansas	and	transferred	to	the	MDL	proceeding	discussed above.	In	November	2010,	the	district	court	in	the	MDL	proceeding	remanded	the case	to	Arkansas	state	court.	In	December	2011,	plaintiffs	voluntarily	dismissed their	claims	against	Altria	Group,	Inc.	without	prejudice.	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,	including	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.	Oral	argument	is	scheduled	for	February	12,	2015.

▪Other	Developments:	In	Oregon	(Pearson),	a	state	court	denied	plaintiffs' motion	for	interlocutory	review	of	the	trial	court's	refusal	to	certify	a	class.	In February	2007,	PM	USA	filed	a	motion	for	summary	judgment	based	on	federal preemption	and	the	Oregon	statutory	exemption.	In	September	2007,	the	district court	granted	PM	USA's	motion	based	on	express	preemption	under	the	FCLAA, and	plaintiffs	appealed	this	dismissal	and	the	class	certification	denial	to	the Oregon	Court	of	Appeals.	Argument	was	held	in	April	2010.	In	June	2013,	the Oregon	Court	of	Appeals	reversed	the	trial	court's	denial	of	class	certification	and remanded	to	the	trial	court	for	further	consideration	of	class	certification.	In	July 2013,	PM	USA	filed	a	petition	for	reconsideration	with	the	Oregon	Court	of Appeals,	which	was	denied	in	August	2013.	PM	USA	filed	its	petition	for	review to	the	Oregon	Supreme	Court	in	October	2013,	which	the	court	accepted	in January	2014.	Oral	argument	occurred	in	June	2014.

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.

▪The	Price	Case:	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	$3.0	billion	in	punitive damages	against	PM	USA.	In	December	2005,	the	Illinois	Supreme	Court	reversed the	trial	court's	judgment	in	favor	of	the	plaintiffs.	In	November	2006,	the	United States	Supreme	Court	denied	plaintiffs'	petition	for	writ	of	certiorari	and,	in December	2006,	the	Circuit	Court	of	Madison	County	enforced	the	Illinois Supreme	Court's	mandate	and	dismissed	the	case	with	prejudice.

In	December	2008,	plaintiffs	filed	with	the	trial	court	a	petition	for	relief	from the	final	judgment	that	was	entered	in	favor	of	PM	USA.	Specifically,	plaintiffs sought	to	vacate	the	judgment	entered	by	the	trial	court	on	remand	from	the	2005 Illinois	Supreme	Court	decision	overturning	the	verdict	on	the	ground	that	the United	States	Supreme	Court's	December	2008	decision	in	Good	demonstrated that	the	Illinois	Supreme	Court's	decision	was	"inaccurate."	PM	USA	filed	a motion	to	dismiss	plaintiffs'	petition	and,	in	February	2009,	the	trial	court	granted PM	USA's	motion	on	the	basis	that	the	petition	was	not	timely	filed.	In	March 2009,	the	Price	plaintiffs	filed	a	notice	of	appeal	with	the	Fifth	Judicial	District	of the	Appellate	Court	of	Illinois.	In	February	2011,	the	intermediate	appellate	court ruled	that	the	petition	was	timely	filed	and	reversed	the	trial	court's	dismissal	of the	plaintiffs'	petition	and,	in	September	2011,	the	Illinois

Supreme	Court	declined	PM	USA's	petition	for	review.	As	a	result,	the	case	was returned	to	the	trial	court	for	proceedings	on	whether	the	court	should	grant	the plaintiffs'	petition	to	reopen	the	prior	judgment.	In	February	2012,	plaintiffs	filed an	amended	petition,	which	PM	USA	opposed.	Subsequently,	in	responding	to	PM USA's	opposition	to	the	amended	petition,	plaintiffs	asked	the	trial	court	to reinstate	the	original	judgment.		The	trial	court	denied	plaintiffs'	petition	in December	2012.	In	January	2013,	plaintiffs	filed	a	notice	of	appeal	with	the	Fifth Judicial	District.	In	January	2013,	PM	USA	filed	a	motion	asking	the	Illinois Supreme	Court	to	immediately	exercise	its	jurisdiction	over	the	appeal.	In February	2013,	the	Illinois	Supreme	Court	denied	PM	USA's	motion.	Oral argument	on	plaintiffs'	appeal	to	the	Fifth	Judicial	District	was	heard	in	October 2013.	In	April	2014,	the	Fifth	Judicial	District	reversed	and	ordered	reinstatement of	the	original	$10.1	billion	trial	court	judgment	against	PM	USA.	In	May	2014, PM	USA	filed	in	the	Illinois	Supreme	Court	a	petition	for	a	supervisory	order	and a	petition	for	leave	to	appeal.	The	filing	of	the	petition	for	leave	to	appeal automatically	stayed	the	Fifth	District's	mandate	pending	disposition	by	the Illinois	Supreme	Court.	Also	in	May	2014,	plaintiffs	filed	a	motion	seeking recusal	of	Justice	Karmeier,	one	of	the	Illinois	Supreme	Court	justices,	which	PM USA	opposed.	In	September	2014,	the	Illinois	Supreme	Court	granted	PM	USA's motion	for	leave	to	appeal	and	took	no	action	on	PM	USA's	motion	for	a supervisory	order.	Justice	Karmeier	denied	plaintiffs'	motion	seeking	his	recusal. In	June	2009,	the	plaintiff	in	an	individual	smoker	lawsuit	(Kelly)	brought	on behalf	of	an	alleged	smoker	of	"Lights"	cigarettes	in	Madison	County,	Illinois state	court	filed	a	motion	seeking	a	declaration	that	his	claims	under	the	Illinois Consumer	Fraud	Act	are	not	(i)	barred	by	the	exemption	in	that	statute	based	on his	assertion	that	the	Illinois	Supreme	Court's	decision	in	Price	is	no	longer	good law	in	light	of	the	decisions	by	the	United	States	Supreme	Court	in	Good	and Watson,	and	(ii)	preempted	in	light	of	the	United	States	Supreme	Court's	decision in	Good.	In	September	2009,	the	court	granted	plaintiff's	motion	as	to	federal preemption,	but	denied	it	with	respect	to	the	state	statutory	exemption.

# Certain	Other	Tobacco-Related	Litigation

▪Tobacco	Price	Case:		One	case	remains	pending	in	Kansas	(Smith)	in	which plaintiffs	allege	that	defendants,	including	PM	USA	and	Altria	Group,	Inc., conspired	to	fix	cigarette	prices	in	violation	of	antitrust	laws.	Plaintiffs'	motion	for class	certification	was	granted.	In	March	2012,	the	trial	court	granted	defendants' motions	for	summary	judgment.	Plaintiffs	sought	the	trial	court's	reconsideration of	its	decision,	but	in	June	2012,	the	trial	court	denied	plaintiffs'	motion	for reconsideration.	Plaintiffs	appealed	the	decision,	and	defendants	cross-appealed the	trial	court's	class	certification	decision,	to	the	Court	of	Appeals	of	Kansas.	In July	2014,	the	Court	of	Appeals	affirmed	the	entry	of	summary	judgment	in	favor of	defendants.	Plaintiffs	filed	a

petition	for	review	in	the	Kansas	Supreme	Court	in	August	2014.

▪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.

▪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.	Oral	argument occurred	in	May	2014.	In	August	2014,	the	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.	On	October	28,	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	Court	of	Appeals for	the	District	of	Columbia	Circuit.

▪Argentine	Grower	Cases:	PM	USA	and	Altria	Group,	Inc.	are	named	as defendants	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 hazardous	herbicides	and	pesticides	used	in	the	production	and	cultivation	of tobacco.	Plaintiffs	seek	compensatory	and	punitive	damages	against	all defendants.	In	December	2012,	Altria	Group,	Inc.	and	certain	other	defendants were	dismissed	from	the	Hupan,	Chalanuk	and	Rodriguez	Da	Silva	cases.	Altria Group,	Inc.	and	certain	other	defendants	were	dismissed	from	Aranda,	Taborda and	Biglia	in	May	2013,	October	2013	and	February	2014,	respectively.	The	three remaining	defendants	in	the	six	cases	are	PM	USA,	Philip	Morris	Global	Brands Inc.	(a	subsidiary	of	PMI)	and	Monsanto	Company.	Following	discussions regarding	indemnification	for	these	cases	pursuant	to	the	Distribution	Agreement between	PMI	and	Altria	Group,	Inc.,	PMI	and	PM	USA	have	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	are	currently	stayed	pending	the	court's resolution	of	the	motions	to	dismiss	filed	in	Hupan.

# 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	five	individuals alleging	use	of	USSTC's	smokeless	tobacco	products	and	alleging	the	types	of injuries	claimed	to	be	associated	with	the	use	of	smokeless	tobacco	products. USSTC,	along	with	other	non-cigarette	manufacturers,	has	remained	severed	from such	proceedings	since	December	2001.

Second,	UST	and/or	its	tobacco	subsidiaries	has	been	named	in	a	number	of other	individual	tobacco	and	health	suits	over	time.	Plaintiffs'	allegations	of liability	in	these	cases	are	based	on	various	theories	of	recovery,	such	as negligence,	strict	liability,	fraud,	misrepresentation,	design	defect,	failure	to	warn, breach	of	implied	warranty,	addiction	and	breach	of	consumer	protection	statutes. Plaintiffs	seek	various	forms	of	relief,	including	compensatory	and	punitive damages,	and	certain	equitable	relief,	including	but	not	limited	to	disgorgement. Defenses	raised	in	these	cases	include	lack	of	causation,	assumption	of	the	risk, comparative	fault	and/or	contributory	negligence,	and	statutes	of	limitations. USSTC	is	currently	named	in	one	such	action	in

Florida	(Vassallo).	In	December	2014,	the	court	entered	a	scheduling	order	setting trial	to	commence	in	the	first	quarter	of	2016.

# 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,	2014,	Altria	Group,	Inc.	and	certain	of	its	subsidiaries (i)	had	$66	million	of	unused	letters	of	credit	obtained	in	the	ordinary	course	of business;	(ii)	were	contingently	liable	for	$32	million	of	guarantees,	consisting primarily	of	surety	bonds,	related	to	their	own	performance;	and	(iii)	had	a redeemable	noncontrolling	interest	of	$35	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,	2014	as	the	fair	value	of	this	indemnification	is insignificant.

As	more	fully	discussed	in	Note	19.	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,	2014,	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, 2014	and	2013.

# Note	19.	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,	2014,	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,	2014	and	2013,	condensed	consolidating	statements	of	earnings	and comprehensive	earnings	for	the	years	ended	December	31,	2014,	2013	and	2012,	and	condensed	consolidating	statements	of	cash	flows	for	the	years	ended	December	31, 2014,	2013	and	2012	for	Altria	Group,	Inc.,	PM	USA	and	Altria	Group,	Inc.'s	other	subsidiaries	that	are	not	guarantors	of	Altria	Group,	Inc.'s	debt	instruments	(the "Non-Guarantor	Subsidiaries").	The	financial	information	is	based	on	Altria	Group,	Inc.'s	understanding	of	the	Securities	and	Exchange	Commission	("SEC") interpretation	and	application	of	Rule	3-10	of	SEC	Regulation	S-X.

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

# Condensed	Consolidating	Balance	Sheets

| at	December	31,	2014 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $3,281 | $3 | $37 | $— | $3,321 |
| Receivables | — | 6 | 118 | — | 124 |
| Inventories: |  |  |  |  |  |
| Leaf\ttobacco | — | 616 | 375 | — | 991 |
| Other\traw\tmaterials | — | 132 | 68 | — | 200 |
| Work\tin\tprocess | — | 4 | 425 | — | 429 |
| Finished\tproduct | — | 134 | 286 | — | 420 |
|  | — | 886 | 1,154 | — | 2,040 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 568 | 3,535 | 1,279 | (5,382) | — |
| Deferred\tincome\ttaxes | — | 1,190 | 9 | (56) | 1,143 |
| Other\tcurrent\tassets | 54 | 101 | 122 | (27) | 250 |
| Total\tcurrent\tassets | 3,903 | 5,721 | 2,719 | (5,465) | 6,878 |
| Property,\tplant\tand\tequipment,\tat\tcost | — | 3,112 | 1,643 | — | 4,755 |
| Less\taccumulated\tdepreciation | — | 2,091 | 681 | — | 2,772 |
|  | — | 1,021 | 962 | — | 1,983 |
| Goodwill | — | — | 5,285 | — | 5,285 |
| Other\tintangible\tassets,\tnet | — | 2 | 12,047 | — | 12,049 |
| Investment\tin\tSABMiller | 6,183 | — | — | — | 6,183 |
| Investment\tin\tconsolidated\tsubsidiaries | 10,665 | 2,775 | — | (13,440) | — |
| Finance\tassets,\tnet | — | — | 1,614 | — | 1,614 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,790 | — | — | (4,790) | — |
| Other\tassets | 148 | 541 | 121 | (327) | 483 |
| Total\tAssets | $25,689 | $10,060 | $22,748 | $(24,022) | $34,475 |

# Condensed	Consolidating	Balance	Sheets	(Continued)

| at	December	31,	2014 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Liabilities |  |  |  |  |  |
| Current\tportion\tof\tlong-term\tdebt | $1,000 | $— | $— | $— | $1,000 |
| Accounts\tpayable | 18 | 118 | 280 | — | 416 |
| Accrued\tliabilities: |  |  |  |  |  |
| Marketing | — | 505 | 113 | — | 618 |
| Employment\tcosts | 18 | 10 | 158 | — | 186 |
| Settlement\tcharges | — | 3,495 | 5 | — | 3,500 |
| Other | 321 | 400 | 287 | (83) | 925 |
| Dividends\tpayable | 1,028 | — | — | — | 1,028 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,414 | 402 | 566 | (5,382) | — |
| Total\tcurrent\tliabilities | 6,799 | 4,930 | 1,409 | (5,465) | 7,673 |
| Long-term\tdebt | 13,693 | — | — | — | 13,693 |
| Deferred\tincome\ttaxes | 1,754 | — | 4,661 | (327) | 6,088 |
| Accrued\tpension\tcosts | 233 | — | 779 | — | 1,012 |
| Accrued\tpostretirement\thealth\tcare\tcosts | — | 1,608 | 853 | — | 2,461 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | — | 4,790 | (4,790) | — |
| Other\tliabilities | 196 | 151 | 156 | — | 503 |
| Total\tLiabilities | 22,675 | 6,689 | 12,648 | (10,582) | 31,430 |
| Contingencies |  |  |  |  |  |
| Redeemable\tnoncontrolling\tinterest | — | — | 35 | — | 35 |
| Stockholders'\tEquity |  |  |  |  |  |
| Common\tstock | 935 | — | 9 | (9) | 935 |
| Additional\tpaid-in\tcapital | 5,735 | 3,310 | 10,688 | (13,998) | 5,735 |
| Earnings\treinvested\tin\tthe\tbusiness | 26,277 | 402 | 995 | (1,397) | 26,277 |
| Accumulated\tother\tcomprehensive\tlosses | (2,682) | (341) | (1,623) | 1,964 | (2,682) |
| Cost\tof\trepurchased\tstock | (27,251) | — | — | — | (27,251) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 3,014 | 3,371 | 10,069 | (13,440) | 3,014 |
| Noncontrolling\tinterests | — | — | (4) | — | (4) |
| Total\tstockholders'\tequity | 3,014 | 3,371 | 10,065 | (13,440) | 3,010 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $25,689 | $10,060 | $22,748 | $(24,022) | $34,475 |

| at	December	31,	2013 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Assets |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $3,114 | $1 | $60 | $— | $3,175 |
| Receivables | — | 11 | 104 | — | 115 |
| Inventories: |  |  |  |  |  |
| Leaf\ttobacco | — | 564 | 369 | — | 933 |
| Other\traw\tmaterials | — | 121 | 59 | — | 180 |
| Work\tin\tprocess | — | 3 | 391 | — | 394 |
| Finished\tproduct | — | 141 | 231 | — | 372 |
|  | — | 829 | 1,050 | — | 1,879 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 590 | 3,253 | 1,706 | (5,549) | — |
| Deferred\tincome\ttaxes | 2 | 1,133 | 26 | (61) | 1,100 |
| Other\tcurrent\tassets | 109 | 125 | 105 | (18) | 321 |
| Total\tcurrent\tassets | 3,815 | 5,352 | 3,051 | (5,628) | 6,590 |
| Property,\tplant\tand\tequipment,\tat\tcost | 2 | 3,269 | 1,546 | — | 4,817 |
| Less\taccumulated\tdepreciation | 2 | 2,168 | 619 | — | 2,789 |
|  | — | 1,101 | 927 | — | 2,028 |
| Goodwill | — | — | 5,174 | — | 5,174 |
| Other\tintangible\tassets,\tnet | — | 2 | 12,056 | — | 12,058 |
| Investment\tin\tSABMiller | 6,455 | — | — | — | 6,455 |
| Investment\tin\tconsolidated\tsubsidiaries | 11,227 | 2,988 | — | (14,215) | — |
| Finance\tassets,\tnet | — | — | 1,997 | — | 1,997 |
| Due\tfrom\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,790 | — | — | (4,790) | — |
| Other\tassets | 157 | 455 | 218 | (273) | 557 |
| Total\tAssets | $26,444 | $9,898 | $23,423 | $(24,906) | $34,859 |

| at	December	31,	2013 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Liabilities |  |  |  |  |  |
| Current\tportion\tof\tlong-term\tdebt | $525 | $— | $— | $— | $525 |
| Accounts\tpayable | 26 | 106 | 277 | — | 409 |
| Accrued\tliabilities: |  |  |  |  |  |
| Marketing | — | 464 | 48 | — | 512 |
| Employment\tcosts | 94 | 10 | 151 | — | 255 |
| Settlement\tcharges | — | 3,386 | 5 | — | 3,391 |
| Other | 302 | 531 | 253 | (79) | 1,007 |
| Dividends\tpayable | 959 | — | — | — | 959 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 4,487 | 473 | 589 | (5,549) | — |
| Total\tcurrent\tliabilities | 6,393 | 4,970 | 1,323 | (5,628) | 7,058 |
| Long-term\tdebt | 13,692 | — | 300 | — | 13,992 |
| Deferred\tincome\ttaxes | 1,867 | — | 5,260 | (273) | 6,854 |
| Accrued\tpension\tcosts | 197 | — | 15 | — | 212 |
| Accrued\tpostretirement\thealth\tcare\tcosts | — | 1,437 | 718 | — | 2,155 |
| Due\tto\tAltria\tGroup,\tInc.\tand\tsubsidiaries | — | — | 4,790 | (4,790) | — |
| Other\tliabilities | 176 | 130 | 129 | — | 435 |
| Total\tLiabilities | 22,325 | 6,537 | 12,535 | (10,691) | 30,706 |
| Contingencies |  |  |  |  |  |
| Redeemable\tnoncontrolling\tinterest | — | — | 35 | — | 35 |
| Stockholders'\tEquity |  |  |  |  |  |
| Common\tstock | 935 | — | 9 | (9) | 935 |
| Additional\tpaid-in\tcapital | 5,714 | 3,310 | 10,328 | (13,638) | 5,714 |
| Earnings\treinvested\tin\tthe\tbusiness | 25,168 | 282 | 1,498 | (1,780) | 25,168 |
| Accumulated\tother\tcomprehensive\tlosses | (1,378) | (231) | (981) | 1,212 | (1,378) |
| Cost\tof\trepurchased\tstock | (26,320) | — | — | — | (26,320) |
| Total\tstockholders'\tequity\tattributable\tto\tAltria\tGroup,\tInc. | 4,119 | 3,361 | 10,854 | (14,215) | 4,119 |
| Noncontrolling\tinterests | — | — | (1) | — | (1) |
| Total\tstockholders'\tequity | 4,119 | 3,361 | 10,853 | (14,215) | 4,118 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $26,444 | $9,898 | $23,423 | $(24,906) | $34,859 |

# Condensed	Consolidating	Statements	of	Earnings	and	Comprehensive	Earnings

| 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 |
| Changes\tto\tMondelēz\t&amp;\tPMI\ttax-related\treceivables/payables | 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\tincome\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 |

| for	the	year	ended	December	31,	2013 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\trevenues | $— | $21,231 | $3,269 | $(34) | $24,466 |
| Cost\tof\tsales | — | 6,281 | 959 | (34) | 7,206 |
| Excise\ttaxes\ton\tproducts | — | 6,553 | 250 | — | 6,803 |
| Gross\tprofit | — | 8,397 | 2,060 | — | 10,457 |
| Marketing,\tadministration\tand\tresearch\tcosts | 223 | 1,837 | 280 | — | 2,340 |
| Changes\tto\tMondelēz\tand\tPMI\ttax-related\treceivables/payables | 25 | (3) | — | — | 22 |
| Asset\timpairment\tand\texit\tcosts | — | 3 | 8 | — | 11 |
| Operating\t(expense)\tincome | (248) | 6,560 | 1,772 | — | 8,084 |
| Interest\tand\tother\tdebt\texpense,\tnet | 643 | 2 | 404 | — | 1,049 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 1,084 | — | — | — | 1,084 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (991) | — | — | — | (991) |
| (Loss)\tearnings\tbefore\tincome\ttaxes\tand\tequity\tearnings\tof\tsubsidiaries | (984) | 6,558 | 1,368 | — | 6,942 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (488) | 2,406 | 489 | — | 2,407 |
| Equity\tearnings\tof\tsubsidiaries | 5,031 | 216 | — | (5,247) | — |
| Net\tearnings | 4,535 | 4,368 | 879 | (5,247) | 4,535 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | — | — | — |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $4,535 | $4,368 | $879 | $(5,247) | $4,535 |
| Net\tearnings | $4,535 | $4,368 | $879 | $(5,247) | $4,535 |
| Other\tcomprehensive\tearnings,\tnet\tof\tdeferred\nincome\ttaxes | 662 | 198 | 910 | (1,108) | 662 |
| Comprehensive\tearnings | 5,197 | 4,566 | 1,789 | (6,355) | 5,197 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | — | — | — |
| Comprehensive\tearnings\tattributable\tto\nAltria\tGroup,\tInc. | $5,197 | $4,566 | $1,789 | $(6,355) | $5,197 |

| for	the	year	ended	December	31,	2012 | Altria<br>Group,	Inc. | PM	USA | Non-<br>Guarantor<br>Subsidiaries | Total<br>Consolidating<br>Adjustments | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\trevenues | $— | $21,531 | $3,110 | $(23) | $24,618 |
| Cost\tof\tsales | — | 7,067 | 893 | (23) | 7,937 |
| Excise\ttaxes\ton\tproducts | — | 6,831 | 287 | — | 7,118 |
| Gross\tprofit | — | 7,633 | 1,930 | — | 9,563 |
| Marketing,\tadministration\tand\tresearch\tcosts | 210 | 1,867 | 224 | — | 2,301 |
| Changes\tto\tMondelēz\tand\tPMI\ttax-related\treceivables/payables | (52) | — | — | — | (52) |
| Asset\timpairment\tand\texit\tcosts | 1 | 59 | 1 | — | 61 |
| Operating\t(expense)\tincome | (159) | 5,707 | 1,705 | — | 7,253 |
| Interest\tand\tother\tdebt\texpense\t(income),\tnet | 705 | (3) | 424 | — | 1,126 |
| Loss\ton\tearly\textinguishment\tof\tdebt | 874 | — | — | — | 874 |
| Earnings\tfrom\tequity\tinvestment\tin\tSABMiller | (1,224) | — | — | — | (1,224) |
| (Loss)\tearnings\tbefore\tincome\ttaxes\tand\tequity\tearnings\tof\tsubsidiaries | (514) | 5,710 | 1,281 | — | 6,477 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (196) | 2,100 | 390 | — | 2,294 |
| Equity\tearnings\tof\tsubsidiaries | 4,498 | 218 | — | (4,716) | — |
| Net\tearnings | 4,180 | 3,828 | 891 | (4,716) | 4,183 |
| Net\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (3) | — | (3) |
| Net\tearnings\tattributable\tto\tAltria\tGroup,\tInc. | $4,180 | $3,828 | $888 | $(4,716) | $4,180 |
| Net\tearnings | $4,180 | $3,828 | $891 | $(4,716) | $4,183 |
| Other\tcomprehensive\tlosses,\tnet\tof\tdeferred\nincome\ttaxes | (153) | (117) | (242) | 359 | (153) |
| Comprehensive\tearnings | 4,027 | 3,711 | 649 | (4,357) | 4,030 |
| Comprehensive\tearnings\tattributable\tto\tnoncontrolling\tinterests | — | — | (3) | — | (3) |
| Comprehensive\tearnings\tattributable\tto\nAltria\tGroup,\tInc. | $4,027 | $3,711 | $646 | $(4,357) | $4,027 |

# Condensed	Consolidating	Statements	of	Cash	Flows

| 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.\nand\tsubsidiaries | (411) | (351) | 762 | — | — |
| Financing\tfees\tand\tdebt\tissuance\tcosts | (7) | — | — | — | (7) |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | — | — | (44) | — | (44) |
| Cash\tdividends\tpaid\tto\tparent | — | (4,124) | (1,295) | 5,419 | — |
| Other | 18 | — | (4) | — | 14 |
| 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 |

| for	the	year	ended	December	31,	2013 | 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 | $4,520 | $4,192 | $387 | $(4,724) | $4,375 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |  |  |
| Capital\texpenditures | — | (31) | (100) | — | (131) |
| Proceeds\tfrom\tfinance\tassets | — | — | 716 | — | 716 |
| Other | — | — | 17 | — | 17 |
| Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | — | (31) | 633 | — | 602 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |  |  |
| Long-term\tdebt\tissued | 4,179 | — | — | — | 4,179 |
| Long-term\tdebt\trepaid | (3,559) | — | — | — | (3,559) |
| Repurchases\tof\tcommon\tstock | (634) | — | — | — | (634) |
| Dividends\tpaid\ton\tcommon\tstock | (3,612) | — | — | — | (3,612) |
| Changes\tin\tamounts\tdue\tto/from\tAltria\tGroup,\tInc.\nand\tsubsidiaries | 432 | 240 | (672) | — | — |
| Financing\tfees\tand\tdebt\tissuance\tcosts | (39) | — | — | — | (39) |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (1,054) | — | — | — | (1,054) |
| Cash\tdividends\tpaid\tto\tparent | — | (4,400) | (324) | 4,724 | — |
| Other | 19 | — | (2) | — | 17 |
| Net\tcash\tused\tin\tfinancing\tactivities | (4,268) | (4,160) | (998) | 4,724 | (4,702) |
| Cash\tand\tcash\tequivalents: |  |  |  |  |  |
| Increase | 252 | 1 | 22 | — | 275 |
| Balance\tat\tbeginning\tof\tyear | 2,862 | — | 38 | — | 2,900 |
| Balance\tat\tend\tof\tyear | $3,114 | $1 | $60 | $— | $3,175 |

| for	the	year	ended	December	31,	2012 | 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 | $3,063 | $4,200 | $549 | $(3,927) | $3,885 |
| Cash\tProvided\tby\t(Used\tin)\tInvesting\tActivities |  |  |  |  |  |
| Capital\texpenditures | — | (35) | (89) | — | (124) |
| Proceeds\tfrom\tfinance\tassets | — | — | 1,049 | — | 1,049 |
| Other | — | — | (5) | — | (5) |
| Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | — | (35) | 955 | — | 920 |
| Cash\tProvided\tby\t(Used\tin)\tFinancing\tActivities |  |  |  |  |  |
| Long-term\tdebt\tissued | 2,787 | — | — | — | 2,787 |
| Long-term\tdebt\trepaid | (2,000) | — | (600) | — | (2,600) |
| Repurchases\tof\tcommon\tstock | (1,082) | — | — | — | (1,082) |
| Dividends\tpaid\ton\tcommon\tstock | (3,400) | — | — | — | (3,400) |
| Changes\tin\tamounts\tdue\tto/from\tAltria\tGroup,\tInc.\tand\tsubsidiaries | 1,128 | (475) | (653) | — | — |
| Financing\tfees\tand\tdebt\tissuance\tcosts | (22) | — | — | — | (22) |
| Premiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (864) | — | — | — | (864) |
| Cash\tdividends\tpaid\tto\tparent | — | (3,690) | (237) | 3,927 | — |
| Other | 7 | — | (1) | — | 6 |
| Net\tcash\tused\tin\tfinancing\tactivities | (3,446) | (4,165) | (1,491) | 3,927 | (5,175) |
| Cash\tand\tcash\tequivalents: |  |  |  |  |  |
| (Decrease)\tincrease | (383) | — | 13 | — | (370) |
| Balance\tat\tbeginning\tof\tyear | 3,245 | — | 25 | — | 3,270 |
| Balance\tat\tend\tof\tyear | $2,862 | $— | $38 | $— | $2,900 |

# Note	20.	Quarterly	Financial	Data	(Unaudited)

During	2014	and	2013,	the	following	pre-tax	charges	or	(gains)	were	included	in	net	earnings	attributable	to	Altria	Group,	Inc.:

As	discussed	in	Note	14.	Income	Taxes,	Altria	Group,	Inc.	has	recognized	income	tax	benefits	and	charges	in	the	consolidated	statements	of	earnings	during	2014 and	2013	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,	2014	and	2013,	and	the results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the period	ended	December	31,	2014	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,	2014,	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

PricewaterhouseCoopers	LLP,	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,	2014,	as	stated in	their	report	herein.

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,	2014.	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. 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, 2014,	Altria	Group,	Inc.	maintained	effective	internal	control	over	financial reporting.

# 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	20,	2015	that	will	be	filed	with	the	SEC	on	or about	April	9,	2015	(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	the	Company	-	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,	2015:

| Name | Office | Age |
| :--- | :--- | :--- |
| Martin\tJ.\tBarrington | Chairman\tof\tthe\tBoard\tand\tChief\tExecutive\tOfficer | 61 |
| David\tR.\tBeran | President\tand\tChief\tOperating\tOfficer | 60 |
| James\tE.\tDillard\tIII | Senior\tVice\tPresident,\tRegulatory\tAffairs\tand\tChief\tInnovation\tOfficer,\tAltria\tClient\tServices\tInc. | 51 |
| Ivan\tS.\tFeldman | Vice\tPresident\tand\tController | 48 |
| Clifford\tB.\tFleet | President\tand\tChief\tExecutive\tOfficer,\tPhilip\tMorris\tUSA\tInc. | 44 |
| Michael\tB.\tFrench | Senior\tVice\tPresident\tand\tChief\tMarketing\tOfficer,\tAltria\tClient\tServices\tInc. | 60 |
| William\tF.\tGifford,\tJr. | Senior\tVice\tPresident,\tStrategy\tand\tBusiness\tDevelopment | 44 |
| Louanna\tO.\tHeuhsen | Vice\tPresident,\tCorporate\tGovernance\tand\tAssociate\tGeneral\tCounsel | 64 |
| Craig\tA.\tJohnson | President\tand\tChief\tExecutive\tOfficer,\tAltria\tGroup\tDistribution\tCompany | 62 |
| Denise\tF.\tKeane | Executive\tVice\tPresident\tand\tGeneral\tCounsel | 62 |
| Salvatore\tMancuso | Treasurer\tand\tSenior\tVice\tPresident,\tInvestor\tRelations\tand\tAccounting | 49 |
| John\tR.\tNelson | Executive\tVice\tPresident\tand\tChief\tTechnology\tOfficer | 62 |
| Brian\tW.\tQuigley | President\tand\tChief\tExecutive\tOfficer,\tU.S.\tSmokeless\tTobacco\tCompany\tLLC | 41 |
| W.\tHildebrandt\tSurgner,\tJr. | Corporate\tSecretary\tand\tSenior\tAssistant\tGeneral\tCounsel | 49 |
| Charles\tN.\tWhitaker | Senior\tVice\tPresident,\tHuman\tResources\t&amp;\tCompliance\tand\tChief\tCompliance\tOfficer | 48 |
| Howard\tA.\tWillard\tIII | Executive\tVice\tPresident\tand\tChief\tFinancial\tOfficer | 51 |

2011	until	joining	Altria	Client	Services	Inc.,	Mr.	French	worked	as	a	private marketing	and	strategy	consultant.

On	January	30,	2015,	Altria	Group,	Inc.	announced	that	Mr.	Beran	will retire	as	President	and	Chief	Operating	Officer	effective	March	1,	2015.	Altria Group,	Inc.	further	announced	that	Mr.	Willard	will	become	Executive	Vice President	and	Chief	Operating	Officer	of	Altria	Group,	Inc.	and	Mr.	Gifford	will become	Executive	Vice	President	and	Chief	Financial	Officer	of	Altria	Group, Inc.	effective	immediately	upon	Mr.	Beran's	retirement.

Effective	March	1,	2015,	Daniel	J.	Bryant	will	become	Vice	President	and Treasurer	of	Altria	Group,	Inc.	effective	March	1,	2015.	Mr.	Bryant,	age	45, currently	serves	as	Assistant	Treasurer	of	Altria	Group,	Inc.,	a	position	he	has held	since	November	2013.	Since	1995,	he	has	been	employed	by	Altria	Group, Inc.	or	its	subsidiaries	in	various	finance	positions.

Effective	March	1,	2015,	Mr.	Whitaker	will	become	Senior	Vice	President, Human	Resources,	Compliance	and	Information	Services	and	Chief	Compliance Officer	of	Altria	Group,	Inc.

Effective	March	1,	2015,	Mr.	Mancuso	will	become	Senior	Vice	President, Strategy,	Planning	and	Accounting	of	Altria	Group,	Inc.

Effective	March	1,	2015,	Mr.	Barrington	will	become	Chairman	of	the Board,	Chief	Executive	Officer	and	President	of	Altria	Group,	Inc. Effective	December	1,	2014,	Mr.	Dillard,	Senior	Vice	President, Regulatory	Affairs,	Altria	Client	Services	Inc.	was	appointed	to	the	additional position	of	Chief	Innovation	Officer.	Mr.	Dillard	has	held	the	position	of	Senior Vice	President,	Regulatory	Affairs	since	2009.	Prior	to	Altria	Group,	Inc.'s acquisition	of	UST	in	2009,	Mr.	Dillard	served	as	Senior	Vice	President, Manufacturing,	Science	and	Technology	for	USSTC.	He	joined	USSTC	in December	2001.

Mr.	Whitaker's	wife	and	Mr.	Surgner's	wife	are	first	cousins.

# 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.

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.

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	Conduct,	will	be	disclosed	on	Altria	Group,	Inc.'s website	at	www.altria.com	within	the	time	period	required	by	applicable	rules. 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.

# 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,	2014,"	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.

Refer	to	"Ownership	of	Equity	Securities	of	the	Company"	and	"Equity	Compensation	Plan	Information"	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,\t2014\tand\t2013 | 37 |
| Consolidated\tStatements\tof\tEarnings\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 39 |
| Consolidated\tStatements\tof\tComprehensive\tEarnings\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 40 |
| Consolidated\tStatements\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 41 |
| Consolidated\tStatements\tof\tStockholders'\tEquity\tfor\tthe\tyears\tended\tDecember\t31,\t2014,\t2013\tand\t2012 | 43 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 44 |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 105 |
| Report\tof\tManagement\ton\tInternal\tControl\tOver\tFinancial\tReporting | 106 |

(b)	The	following	exhibits	are	filed	as	part	of	this	Annual	Report	on	Form	10-K:

4.1 Indenture	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	December	2, 1996.	Incorporated	by	reference	to	Altria	Group,	Inc.'s	Registration	Statement	on	Form	S-3/A	filed	on January	29,	1998	(No.	333-35143).

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).

4.3 Indenture	among	Altria	Group,	Inc.,	as	Issuer,	Philip	Morris	USA	Inc.,	as	Guarantor,	and	Deutsche Bank	Trust	Company	Americas,	as	Trustee,	dated	as	of	November	4,	2008.	Incorporated	by	reference	to Altria	Group,	Inc.'s	Registration	Statement	on	Form	S-3	filed	on	November	4,	2008	(No.	333-155009).

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).

*	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	of	the	Board	and

Chief	Executive	Officer)

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 portion of total smokeless products shipments are related to copenhagen segment during 2013?
Calculation: shipment_volume_2013 = 426.1
shipment_volume_2012 = 787.5
percent_2013 = shipment_volume_2013 / shipment_volume_2012
answer = percent_2013 * 100
Answer: 54.1%