In 2023, 顧客への迅速な支払いに関する契約で提供された現金割引は、合意された支払条件に基づいて単位ごとの一律レートに基づいていました2024年第1四半期から、Pm米国およびUSSTCの顧客との契約における現金割引は、合意された支払条件に基づき、リスト価格の一定割合に基づいていました。私たちは 現金割引を考慮に入れ、簡略化された連結貸借対照表で売掛金を記録しています。
ABIの取締役会での席をABIの2025年の定時株主総会まで維持する予定です。 two その後、ABI取引に続くことで、ABIへの所有権が減少することにより、制限株を保持する者としてABIの取締役会に一席を持つことが期待されます。 ABIの取締役会および特定のABI取締役会委員会に積極的な代表権を持つため、ABIへの投資を持分法に従って処理し続けます。この代表権により、ABIの運営方針や財務方針に対して重要な影響力を行使し、ABIの政策決定プロセスに参加します。
与信契約の利子や手数料の価格設定は、当社の長期無担保債の格付けに変更があった場合に変更される可能性があります。与信契約に基づいて借り入れの金利は、新規買に基づいていることを期待しています。 Term Secured Overnight Financing Rateをベースにしており、その他には所定のパーセンテージを加算しています。このパーセンテージは、当社の長期無担保債の格付け（Moody's Investors Service, Inc.およびStandard&Poor's Financial Services LLCによるもののうち高い方）に基づいています。 2024年9月30日時点で、当社の長期無担保債の格付けに基づき、与信契約における借り入れに適用されるパーセンテージは％でした。当社の与信契約には、その他の格付けトリガーや担保の提供を求める規定は含まれていません。 1.0100}% based on our long-term senior unsecured debt ratings on that date. Our Credit Agreement does not include any other rating triggers or any provisions that could require the posting of collateral.
2023年5月、Fuma International LLC（「Fuma」）は、Altriaとその関連会社であるNu Mark LLC（「Nu Mark」）、AGDC、ALCS、NJOYに対して、米国バージニア州東部地区地方裁判所に訴訟を提起しました。これには以下が含まれます。 レースを楽しんでください、米国では。2023年8月、私たちはFumaと契約を結び、その結果、NJOYはFumaが訴訟で主張した特許を取得しました。両当事者は別に、Fumaがドルと引き換えに特許侵害請求を却下することに合意しました10 100万件で、そのような請求は2023年8月に却下されました。$の税引前引当金を計上しました10 2023年の第3四半期には100万ドルが契約に関連して、2023年8月にその金額をFumaに支払いました。
In October 2022, we agreed to settle a series of federal and state derivative cases brought by Altria shareholders on behalf of themselves and Altria against Altria and certain of our current and former executives and directors and JUUL, its founders and certain of its current and former executives. The cases related to our former investment in JUUL and asserted claims of breach of fiduciary duty by the Altria defendants and aiding and abetting in that alleged breach of fiduciary duty by the remaining defendants.
Under the terms of the settlement, which became effective in May 2023, among other things, we agreed to provide $100 million in funding over a five-year period to underage tobacco prevention and cessation programs, which may include positive youth development programs, led by independent third-party organizations. We began providing funding in the third quarter of 2024. In 2022, we recorded pre-tax provisions totaling $27 million for costs associated with the independent monitoring of our funding commitments and attorneys’ fees. In the first quarter of 2023, we recorded pre-tax provisions totaling approximately $100 million related to the settlement, and in April 2023, paid $15 million to plaintiffs’ escrow account for attorneys’ fees.
USt訴訟: UStおよびそのタバコ関連子会社は、時間の経過とともに、多くの個別のタバコおよび健康に関連した訴訟で名前が挙げられてきました。原告の責任に関する主張は、過失、厳格責任、詐欺、虚偽陳述、設計欠陥、警告義務違反、黙示の保証違反、中毒、消費関連の法令違反など、さまざまな回復論に基づいています。原告たちは通常、損害賠償金や懲罰金、免除を含む様々な救済措置を求めてきました。これらの事件で主張された防衛手段には、因果関係の欠如、リスクの承知、比較的な非過失および/または過失、法定時効などが含まれています。2024年10月28日現在、UStおよびそのタバコ関連子会社を相手とする未解決の訴訟が１件あります。 no このような事件がUStおよびそのタバコ関連子会社を相手として現在進行中です。
以下の説明は、フォーム10-Q（「フォーム10-Q」）のこの四半期報告書の他のセクションと併せて読んでください。これには、項目1に含まれる要約連結財務諸表および関連事項が含まれます。このフォーム10-Qの財務諸表（「項目1」）。このフォーム10-Qで使用される場合の用語 “Altria」、「私たち」、「私たち」、「私たち」とは、文脈に応じて、(i) アルトリアグループ株式会社とその連結子会社、または (ii) アルトリアグループ株式会社のみを指し、連結子会社は含まれません。
▪NPM Adjustment Items: For a discussion of NPM Adjustment Items and a breakdown of these items by segment, see Health Care Cost Recovery Litigation in Note 14 and NPM Adjustment Items in Note 11, respectively.
Provision for income taxes increased $533 million (25.1%), due primarily to higher earnings before income taxes, partially offset by favorable tax items as discussed above.
Reported net earnings of $8,225 million increased $2,155 million (35.5%), due primarily to the gain on the sale of the IQOS System commercialization rights, favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income. Reported basic and diluted EPS of $4.75, each increased by 39.7% due to higher reported net earnings and fewer shares outstanding.
Adjusted net earnings of $6,637 million decreased $102 million (1.5%), due primarily to lower adjusted OCI. Adjusted diluted EPS of $3.84 increased by 1.6%, due to fewer shares outstanding, partially offset by lower adjusted net earnings.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Net revenues, which include excise taxes billed to customers, decreased $22 million (0.4%), due to lower net revenues in our smokeable products segment and in our all other category, partially offset by higher net revenues in our oral tobacco products segment.
Cost of sales decreased $42 million (2.7%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges in our smokeable products segment and higher NJOY shipment volume.
Excise taxes on products decreased $89 million (8.9%), due to lower shipment volume in our smokeable products segment.
Marketing, administration and research costs increased $46 million (7.5%), due primarily to higher general corporate expenses and higher investment spending in support of our Vision. The higher general corporate expenses were due primarily to higher acquisition-related costs associated with the NJOY Transaction.
Operating income increased $63 million (2.0%), due primarily to higher OCI, partially offset by higher general corporate expenses.
(Income) losses from investments in equity securities, which were favorable $58 million (100%), were positively impacted by lower special items from our investment in ABI.
Reported net earnings of $2,293 million increased $127 million (5.9%), due primarily to higher operating income and favorable results from our investments in equity securities. Reported basic and diluted EPS of $1.34, each increased by 9.8% due to higher reported net earnings and fewer shares outstanding.
Adjusted net earnings of $2,357 million increased $82 million (3.6%), due primarily to higher adjusted OCI. Adjusted diluted EPS of $1.38 increased by 7.8%, due to fewer shares outstanding and higher adjusted net earnings.
Operating Results by Business Segment
Business Environment
Summary
The U.S. tobacco industry faces a number of business and legal challenges that have materially adversely affected and may continue to materially adversely affect our business, results of operations, cash flows or financial position or our ability to achieve our Vision. These challenges, some of which are discussed in more detail in Note 14, and in Part I, Item 1A. Risk Factors of our 2023 Form 10-K, include:
▪pending and threatened litigation and bonding requirements;
▪restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the FDA;
▪the FDA’s failure to effectively address illicit tobacco products on the market, including illicit e-vapor and oral nicotine pouch products;
▪illicit trade in tobacco products, including cigarettes, e-vapor products and oral nicotine pouch products;
▪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:
▪restrictions on the sale of certain tobacco products, the sale of tobacco products by certain retail establishments, the sale of tobacco products with 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-related legislation and regulation; and
▪governmental investigations;
▪reductions in consumption levels of cigarettes and MST products resulting in lower shipment volumes;
▪increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further restrict the availability and use of tobacco products or the ability to communicate with consumers through third-party digital platforms;
▪changes in adult tobacco consumer purchase behavior, which is influenced by various factors such as macroeconomic conditions (including inflation), excise taxes and price gap relationships, each of which may result in adult tobacco consumers switching to lower-priced tobacco products and lower shipment volumes;
▪the highly competitive nature of all tobacco categories, including competitive disadvantages related to the impact on cigarette prices due to the settlement of certain healthcare cost recovery litigation and the proliferation of innovative tobacco products, such as e-vapor and oral nicotine pouch products;
▪the proliferation of products using nicotine analogues that are designed to imitate the effects of nicotine but are not subject to the FDA regulatory framework for tobacco products; and
▪potential adverse changes in prices, availability and quality of tobacco, other raw materials and component parts, including as a result of changes in macroeconomic, geopolitical and climate and environmental conditions.
In addition to and in connection with the foregoing, evolving adult tobacco consumer preferences continue to impact the tobacco industry, including negatively impacting cigarette and MST shipment volumes. We believe that a significant number of adult tobacco consumers switch among tobacco categories, use multiple forms of tobacco products and try innovative tobacco products, such as e-vapor products and oral nicotine pouches. Adult tobacco consumers continue to transition from cigarettes and MST to exclusive use of innovative smoke-free tobacco product alternatives, which aligns with our Vision.
We 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 other growth strategies (including, where appropriate, arrangements with, or investments in, third parties and acquisitions).
For the third quarter of 2024, we estimate that, when adjusted for trade inventory movements and calendar differences, total estimated domestic cigarette industry volume declined by 9% versus the third quarter of 2023. The cigarette industry volume decline for the third quarter of 2024 was primarily driven by the growth of illicit e-vapor products and continued discretionary income pressures on adult tobacco consumers.
For the 12 months ended September 30, 2024, we estimate the e-vapor category grew approximately 30% versus the prior 12-month period, driven by the growth of illicit flavored disposable products. We estimate the disposable segment now represents 65% of the e-vapor category. We estimate that cross-category movement to illicit disposable e-vapor products, which we discuss in more detail below, contributed to cigarette industry volume declines in a range of 2% to 3% over the last 12 months. These illicit disposable e-vapor products are largely distributed through non-traditional retail channels (including e-commerce and vape retail channels), making them more difficult to track. In addition, we believe illicit cigarettes are becoming more prevalent in the United States, based on the results of discarded pack studies we have conducted in select geographies. We believe the FDA’s inaction, lack of enforcement and slow pace of smoke-free product authorizations enables bad actors to disregard regulation.
For example, we have observed that the lack of effective enforcement against illicit disposable e-vapor products has allowed for the introduction of illicit products in other categories, such as oral nicotine, where we have seen a rise in illicit nicotine pouch products. These products are distributed primarily through e-commerce channels and vape stores that are more difficult to track than traditional retail. We have also noted the emergence of products using nicotine analogues, which are designed to imitate the effects of nicotine and are not subject to the regulatory framework for tobacco products. While illicit oral nicotine products and nicotine analogues have not had a material impact on our business to date, a lack of a regulatory framework and effective enforcement could lead to an increase in the introduction and volume activity of these products, which could have a material impact on our innovative tobacco products businesses. Through our competitive intelligence tracking, we continue to monitor these growing trends and evaluate the impacts on the overall nicotine and tobacco categories.
Through the third quarter of 2024, U.S. adult tobacco consumers have remained under pressure as a result of the cumulative impact of inflation. Wage increases have failed to keep up with the rising prices of everyday expenses in recent years, and we
have observed increases in consumer debt and credit card delinquencies. We also have observed softening in the Consumer Price Index, which was 2.4% for the month of September 2024. Although inflation rates remained lower than prior years, increased prices on certain expenditures, such as groceries and gas, continued to pressure adult tobacco consumer discretionary income. Gas prices throughout the third quarter of 2024 experienced seasonal increases, reaching an average price of $3.21 per gallon for the month of September 2024. While gas prices were lower than in the third quarter of 2023, they remained consistently above $3.00 per gallon in the third quarter of 2024.
Discretionary income pressures on adult tobacco consumers have influenced discount brand share performance. For the third quarter of 2024, the discount share of the cigarette category reached 29.8%, an increase of 0.5 share points sequentially and an increase of 1.5 share points versus the third quarter of 2023. Marlboro share performance is discussed below in Operating Results - Smokeable Products Segment.
For the third quarter of 2024, reported shipment volume of NJOY consumables (including NJOY ACE and NJOY DAILY) was approximately 10.4 million units, and NJOY device shipment volume was approximately 1.1 million units. The NJOY share of the e-vapor category reached 6.2% in the third quarter of 2024, an increase of 0.8 share points sequentially.
The U.S. nicotine pouch category continued to grow significantly throughout the third quarter of 2024 to 43.9% of the U.S. oral tobacco category, an increase of 11.4 share points versus the third quarter of 2023. on! maintained year-over-year share momentum through the third quarter of 2024 to achieve 8.9% of the total oral tobacco category, an increase of 2.0 share points versus the third quarter of 2023 and an increase of 0.8 share points sequentially.
For the third quarter 2024, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 56.1%, down 11.4 share points versus the third quarter of 2023. Copenhagen had an oral tobacco category share of 18.7% for the third quarter of 2024, a decrease of 4.3 share points when compared to the third quarter of 2023. We continue to track the growth of nicotine pouch volumes and the related impact on the size of the MST category. Decreases in the size of the MST category could impact the carrying value of our assets, such as our smokeless tobacco product trademarks. For example, in the second quarter of 2024, we recorded a non-cash, pre-tax impairment on the value of the Skoal trademark.
We continue to monitor changing conditions within our business environment and impacts on our businesses. Changes in these and other conditions could have a material adverse effect on our business, results of operations, cash flows or financial position.
FSPTCA and FDA Regulation
▪The Regulatory Framework:The FSPTCA and its related regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions:
▪impose restrictions on the advertising, promotion, sale and distribution of tobacco products (see Final Tobacco Marketing Rule below);
▪establish pre-market review pathways for new and modified tobacco products (see Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below);
▪prohibit any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without FDA authorization;
▪authorize the FDA to impose tobacco product standards that are appropriate for the protection of the public health (see Potential Product Standards below); and
▪equip the FDA with a variety of investigatory and enforcement tools, including the authority to inspect product manufacturing and other facilities (see Investigation and Enforcement below).
The FSPTCA also bans descriptors such as “light,” “low” or “mild” when used as descriptors of modified risk, unless expressly authorized by the FDA.
Effective April 2022, the U.S. Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine. See Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below for additional information on the effects of the statutory change. Currently, however, the statutory definition of tobacco products does not cover products containing nicotine analogues, which are designed to imitate the effects of nicotine. As a result, products containing nicotine analogues are not subject to the FDA regulatory framework for tobacco products, including the requirements that manufacturers submit a PMTA to, and receive an MGO from, the FDA before marketing such products in the United States.
▪Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010, the FDA promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco(1) products (the “Final Tobacco Marketing Rule”). The May 2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including cigars, pipe tobacco and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives.
The Final Tobacco Marketing Rule, as amended, among other things:
▪restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products;
▪prohibits sampling of all tobacco products except that sampling of smokeless tobacco products is permitted in qualified adult-only facilities;
▪prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos;
▪prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or cultural event, or any entry or team in any event; and
▪requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for other tobacco products and gives the FDA the authority to require new warnings for any type of tobacco product (see FDA Regulatory Actions - Graphic Warnings below).
Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products, in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine, and in April 2022 for tobacco products, including e-vapor and oral nicotine pouch products, that contain nicotine from any source other than tobacco, such as synthetic nicotine. The Final Tobacco Marketing Rule currently does not apply to products containing nicotine analogues.
▪Rulemaking and Guidance: From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, that generally involve public comment and may include scientific review. The FDA also may request comments on broad topics through an Advanced Notice of Proposed Rulemaking (“ANPRM”). We actively engage with the FDA to develop and implement the FSPTCA’s regulatory framework, including submission of comments to various FDA policies and proposals and participation in public hearings and engagement sessions.
The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by states, territories and localities of their laws and regulations as well as of the State Settlement Agreements (see State Settlement Agreements below). Such enforcement efforts may adversely affect our operating companies’ ability to market and sell tobacco products in those states, territories and localities.
▪FDA’s Five-Year Strategic Plan for Tobacco and Nicotine Regulation: In December 2023, the FDA released its five-year strategic plan to address concerns raised by the Reagan-Udall Foundation’s operational evaluation of the FDA’s Center for Tobacco Products. The Reagan-Udall report urged the FDA to clearly define product pathways, accelerate PMTA decision making, address the need for health risk communications to tobacco consumers and take enforcement actions against manufacturers and products that violate the law.
The FDA’s five-year strategic plan lists five goals:
▪develop, advance and communicate comprehensive and impactful tobacco regulations and guidance;
▪ensure timely, clear and consistent product application review;
▪strengthen compliance of regulated industry using all available tools, including robust enforcement actions;
▪enhance knowledge and understanding of the risks associated with tobacco product use; and
▪advance operational excellence.
Although the FDA, in conjunction with other federal entities, has increased enforcement activity, insufficient actions against manufacturers, distributors and retailers of certain product categories that violate the law, including certain disposable and flavored e-vapor products, certain oral nicotine pouch products and products targeted to minors, have allowed such products to proliferate on the market. In addition, the FDA’s failure to clearly define product pathways and accelerate PMTA decision making has resulted in a market with few authorized smoke-free products available to adult tobacco consumers.
▪Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products on the market as of February 15, 2007 and not subsequently modified (“Pre-existing Tobacco Products”) and new or modified products authorized through the PMTA, Substantial Equivalence (“SE”) or SE
(1)“Smokeless tobacco,” as used in this section of this Form 10-Q, refers to smokeless tobacco products first regulated by the FDA in 2009, including MST.It excludes oral nicotine pouches, which were first regulated by the FDA in 2016.
Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.
The FDA pre-market authorization enforcement policy varies based on product type and date of availability on the market, specifically:
▪Pre-existing Tobacco Products are exempt from the pre-market authorization requirement;
▪cigarette and smokeless tobacco products that were modified or first introduced into the market between February 15, 2007 and March 22, 2011 are generally considered “Provisional Products” for which SE reports were required to be filed by March 22, 2011. These reports must demonstrate that the product has the same characteristics as a product on the market as of February 15, 2007 or to a product previously determined to be substantially equivalent, or has different characteristics but does not raise different questions of public health;
▪tobacco products that were first regulated by the FDA in 2016, including cigars, e-vapor products and oral nicotine pouches that are not Pre-existing Tobacco Products, are generally products for which either an SE report or PMTA needed to be filed by September 9, 2020; and
▪tobacco products containing nicotine from any source other than tobacco (e.g., synthetic nicotine) that were on the market between March 15, 2022 and April 14, 2022 and are not Pre-existing Tobacco Products are generally products for which a manufacturer must have filed a PMTA by May 14, 2022. A manufacturer was permitted to keep such a product on the market until July 13, 2022 provided that a PMTA was filed by May 14, 2022. Thereafter, unless the FDA granted the product a marketing order, the product is unlawful and subject to possible FDA enforcement.
Modifications to currently marketed products, including modifications that result from, for example, changes to the quantity of tobacco product(s) in a package, a manufacturer being unable to acquire ingredients or a supplier or contract manufacturer being unable to maintain the consistency required in ingredients or manufacturing processes, could trigger the FDA’s pre-market review processes. Additionally, a manufacturer may be unable to maintain consistency in manufacturing processes as it increases the scale of its manufacturing operations in response to market expansion or product introduction. These circumstances could cause a manufacturer to receive (i) a “not substantially equivalent” determination or (ii) a denial or withdrawal of a PMTA, either of which could result in a product being removed from the market. In addition, new scientific data continues to be developed relating to innovative tobacco products, which could impact the FDA’s determination as to whether a product is, or continues to be, appropriate for the protection of public health and could, therefore, result in the removal of one or more products from the market. Any such actions affecting our operating companies’ products could have a material adverse impact on our business, results of operations, cash flows or financial position.
Products Regulated in 2009:Most cigarette and smokeless tobacco products currently marketed by PM USA and USSTC are “Provisional Products.” PM USA and USSTC timely submitted SE reports for these Provisional Products and have received SE determinations on certain Provisional Products. Those products that were found by the FDA to be not substantially equivalent (certain smokeless tobacco products) had been discontinued for business reasons prior to the FDA’s determinations; therefore, those determinations did not impact business results. PM USA and USSTC have other Provisional Products that continue to be subject to the FDA’s pre-market review process. In the meantime, they can continue marketing these products unless the FDA determines that a specific Provisional Product is not substantially equivalent.
In addition, the FDA has communicated that it will not review a certain subset of Provisional Product SE reports and that the products that are the subject of those reports can continue to be legally marketed without further FDA review. PM USA and USSTC have Provisional Products included in this subset of products.
While we believe PM USA’s and USSTC’s current Provisional Products meet the statutory requirements of the FSPTCA, we cannot predict how the FDA will ultimately apply law, regulation and guidance to their various SE reports. Should PM USA or USSTC receive unfavorable determinations on any SE reports currently pending with the FDA, we believe PM USA and USSTC can replace the vast majority of these product volumes with other FDA authorized products or with Pre-existing Tobacco Products.
Cigarette and smokeless tobacco products introduced into the market or modified after March 22, 2011 are “Non-Provisional Products” and must receive a marketing order from the FDA prior to being offered for sale. Marketing orders for Non-Provisional Products may be obtained by filing an SE report, PMTA or using another pre-market pathway established by the FDA. PM USA and USSTC may not be able to obtain a marketing order for non-provisional products because the FDA may determine that any such product does not meet the statutory requirements for approval.
Products Regulated in 2016: Manufacturers of products first regulated by the FDA in 2016, including cigars, oral nicotine pouches and e-vapor products, that were on the market as of August 8, 2016 and not subsequently modified must have filed an SE report or PMTA by the filing deadline of September 9, 2020 in order for their products to remain on the market. These products can remain on the market during FDA review through court-allowed, case-by-case discretion, so long as the report or
application was timely filed with the FDA. In September 2022, the FDA represented that it had resolved more than 99% of the timely applications it had received, the vast majority of which were for e-vapor products and resulted in denials. A number of the denials are subject to challenges initiated by the affected manufacturers. For those products still under FDA review, it is uncertain when and for how long the FDA may permit continued marketing and sale of those products pursuant to its case-by-case discretion. For products (new or modified) not on the market as of August 8, 2016, manufacturers must file an SE report or PMTA and receive FDA authorization prior to marketing and selling the product.
Helix submitted PMTAs for on! oral nicotine pouches in May 2020 and PMTAs for on! PLUS oral nicotine pouches in tobacco, mint and wintergreen flavors in June 2024. As of October 28, 2024, the FDA has not issued marketing order decisions for any on! or on! PLUS products.
As of October 28, 2024, Middleton has received marketing orders or exemptions that cover over 99% of its cigar product volume.
In October 2021, the FDA authorized the marketing and sale of four of USSTC’s Verve oral nicotine products, including Green Mint and Blue Mint varieties, representing the first flavored product authorizations issued by the FDA for newly deemed innovative products. These products are not currently marketed or sold.
In March 2023, the FDA authorized USSTC to communicate a modified risk claim about its Copenhagen Classic Snuff MST product. This product is not currently marketed or sold. The authorized claim for Copenhagen Classic Snuff is “IF YOU SMOKE, CONSIDER THIS: Switching completely to this product from cigarettes reduces risk of lung cancer.” USSTC’s authorization to use this claim is subject to the FDA’s post-market surveillance requirements described below.
As a result of our June 2023 acquisition of NJOY Holdings, we gained full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE, a pod-based e-vapor product with an MGO from the FDA, and NJOY DAILY, which also has an MGO. In June 2024, NJOY received MGOs with respect to two NJOY ACE mentholproducts and two NJOY DAILY menthol products. In May 2024, NJOY submitted a supplemental PMTA to the FDA to commercialize and market the NJOY ACE 2.0 device, which leverages Bluetooth® connectivity to incorporate access restriction technology designed to prevent underage use by authenticating the user before unlocking the device. Also in May 2024, NJOY re-submitted PMTAs for blueberry and watermelon flavored pod-based e-vapor products that work exclusively with the Bluetooth®-enabled NJOY ACE 2.0 device. These products previously received marketing denial orders (“MDOs”) on the basis of FDA concerns regarding underage use.
Post-Market Surveillance: Manufacturers that receive MGOs must adhere to the FDA post-market record keeping and reporting requirements, as detailed in market orders and in the final PMTA rule. The requirements include prior notification of marketing activities. The FDA may amend requirements of an MGO or withdraw the MGO based on this information if, among other reasons, it determines that the continued marketing of the products is no longer appropriate for the protection of the public health.
Effect of Adverse FDA Determinations: FDA review time frames have varied. It is therefore difficult to predict the duration of FDA reviews of SE reports or PMTAs. An unfavorable determination on an application, the withdrawal by the FDA of a prior MGO or other changes in FDA regulatory requirements could result in the removal of products from the market. A “not substantially equivalent” determination, a denial of a PMTA or an MGO withdrawal by the FDA on one or more products (which would require the removal of the product or products from the market) could have a material adverse impact on our business, results of operations, cash flows or financial position. Also, adverse FDA determinations on innovative tobacco products could have a material adverse effect on our innovative tobacco businesses and our ability to achieve our Vision.
▪FDA Regulatory Actions
▪Graphic Warnings:In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising. PM USA and other cigarette manufacturers filed lawsuits challenging the final rule on substantive and procedural grounds. In December 2022, the U.S. District Court for the Eastern District of Texas found in favor of cigarette manufacturers in one such suit and blocked the rule, finding it unconstitutional on the basis that it compelled speech in violation of the First Amendment. The FDA appealed the decision, and, in March 2024, the U.S. Court of Appeals for the Fifth Circuit reversed the trial court and remanded the case for further proceedings. In August 2024, the cigarette manufacturers in the suit petitioned the U.S. Supreme Court to review the case. In September 2024, the FDA announced in guidance that it generally would not enforce the final rule until December 2025. However, the FDA has separately stated that parties involved in pending litigation would not be required to comply during the pendency of the case before the U.S. Supreme Court and for an additional 15 months after the U.S. Supreme Court’s disposition of the case. We submitted comments in response to the September 2024 guidance asking the FDA to set the same compliance deadline for all manufacturers and, assuming the rule remains in place following the U.S. Supreme Court’s disposition of the case, to begin enforcing the rule no sooner than 15 months following the disposition.
▪Underage Access and Use of Certain Tobacco Products:The FDA announced regulatory actions in September 2018 to address underage access to and use of e-vapor products. We have engaged with the FDA on this topic and have reaffirmed to the FDA our ongoing and long-standing commitment to preventing underage use. For example, we advocated raising the minimum legal age to purchase all tobacco products to 21 at the federal and state levels to further address underage use, which is now federal law. We continue to advocate in states that have not yet raised the minimum legal age to purchase all tobacco products to 21. See Federal, State and Local Legislation to Increase the Legal Age to Purchase Tobacco Products below for further discussion.
Additionally, the FDA issued final guidance in April 2020, stating that it intended to prioritize enforcement action against certain product categories, including pod-based, flavored e-vapor products and products targeted to minors. More recently, the FDA has taken limited enforcement action aimed at manufacturers and retailers of certain disposable flavored e-vapor products. However, despite some enforcement activity, insufficient actions against manufacturers, distributors and retailers of certain product categories that violate the law, including certain disposable and flavored e-vapor products, certain oral nicotine pouch products and products targeted to minors, have allowed such products to proliferate on the market.
▪E-Vapor Products: As of October 28, 2024, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. The FDA has communicated in these MDOs that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications require strong, product-specific evidence. A number of these manufacturers are challenging the MDOs for their products. In January 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that the FDA process and procedure for addressing an e-vapor PMTA violated federal law and that, among other things, the FDA failed to give the manufacturer plaintiff fair notice of, and repeatedly changed positions with respect to, the information required to obtain a PMTA. The court decided the case en banc, with all judges on the court hearing the case. In July 2024, the U.S. Supreme Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s decision. Other U.S. Courts of Appeals have upheld adverse FDA determinations, and there are pending requests that the U.S. Supreme Court review these decisions.
▪Potential Product Standards
▪Nicotine in Cigarettes and Other Combustible Tobacco Products:In March 2018, the FDA issued an ANPRM seeking comments on the potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to non-addictive or minimally addictive levels. Among other issues, the FDA sought comments on (i) whether smokers would compensate by smoking more cigarettes to obtain the same level of nicotine as with their current product and (ii) whether the proposed rule would create an illicit trade of cigarettes containing nicotine at levels higher than a non-addictive threshold that may be established by the FDA. The FDA also sought comments on whether a nicotine product standard should apply to other combustible tobacco products, including cigars. In July 2024, the Biden Administration published its Spring 2024 Unified Regulatory Agenda, which indicates that the date for any final action on this proposed product standard is to be determined. Any proposed product standard would proceed through the rulemaking process, which we believe will take multiple years to complete.
▪Flavors in Tobacco Products:In April 2022, the FDA issued two proposed product standards: (i) banning menthol in cigarettes and (ii) banning all characterizing flavors (including menthol) in cigars. We submitted comments during the notice-and-comment period and plan to continue engaging with the FDA through the rulemaking process. In October 2023, the FDA submitted the two proposed product standards to the White House Office of Management and Budget for review. As of October 28, 2024, the FDA has not completed rulemaking with respect to either proposed product standard. In April 2024, the FDA announced that it would delay a decision on the menthol ban indefinitely, citing the high volume of feedback received during the notice-and-comment period, and the Biden Administration’s Spring 2024 Unified Regulatory Agenda indicates that the date for any final action on these proposed product standards is to be determined. The FDA could propose an additional product standard for flavors in innovative tobacco products, including e-vapor products and oral nicotine products.
▪N-nitrosonornicotine (“NNN”) in Smokeless Tobacco:In January 2017, the FDA proposed a product standard for NNN levels in finished smokeless tobacco products.
If any one or more of the foregoing potential product standards were to become final and was appealed and upheld in the courts, it could have a material adverse effect on our business, results of operations, cash flows or financial position, including a material adverse effect on the carrying value of certain of our assets such as our cigar trademarks.
▪Tobacco Product Manufacturing Practices: In March 2023, the FDA, pursuant to the requirements of the FSPTCA, issued a proposed rule setting forth requirements for tobacco product manufacturers regarding the manufacture, design,
packing and storage of their products. This proposed rule establishes a framework of tobacco product manufacturing practices, including by:
▪establishing tobacco product design and development controls;
▪ensuring that finished and bulk tobacco products are manufactured according to established specifications;
▪minimizing the manufacture and distribution of tobacco products that do not meet specifications;
▪requiring manufacturers to take appropriate measures to prevent contamination of tobacco products;
▪requiring investigation and identification of products that do not meet specifications and requiring manufacturers to institute appropriate corrective actions, such as a recall; and
▪establishing the ability to trace all components or parts, ingredients, additives and materials, as well as each batch of finished or bulk tobacco products, to aid in investigations of those that do not meet specifications.
We engaged with the FDA through the rulemaking process, including during the notice-and-comment period, which closed in October 2023. The Biden Administration’s Spring 2024 Unified Regulatory Agenda includes the FDA’s plans to complete rulemaking with respect to this proposed rule by April 2025. If the proposed rule were to take effect, our operating companies could experience increased costs to comply with the rule.
▪Impact on Our Business; Compliance Costs and User Fees: Additional FDA regulatory actions under the FSPTCA could have a material adverse effect on our business, results of operations, cash flows or financial position in various ways. For example, actions (or inaction) by the FDA could:
▪impact the consumer acceptability of tobacco products;
▪discontinue, delay 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; and
▪otherwise significantly increase the cost of doing business.
The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco, cigar and pipe tobacco manufacturers and importers to pay for the cost of regulation and other matters. The FSPTCA does not impose user fees on e-vapor products or oral nicotine pouch manufacturers. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA user fees and then among manufacturers and importers within each respective category based on their relative market shares, all as prescribed by the FSPTCA and FDA regulations. Payments for user fees are adjusted for several factors, including market share and industry volume. See Liquidity and Capital Resources - Payments Under State Settlement Agreements and FDA Regulation below for a discussion of our FDA user fee payments. In addition, our operating companies’ compliance with the FSPTCA’s regulatory requirements has resulted, and will continue to result, in additional costs. The amount of additional compliance and related costs has not been material in any given quarter or year-to-date period but could become material, either individually or in the aggregate. The failure to comply with FDA regulatory requirements, even inadvertently, and FDA enforcement actions also could have a material adverse effect on our business, results of operations, cash flows or financial position.
▪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, facility closures, examinations and investigations, injunction proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. Investigations or enforcement actions could result in significant costs or otherwise have a material adverse effect on our business, results of operations, cash flows or financial position.
Excise Taxes
Tobacco products are subject to substantial excise taxes in the United States. Significant increases in tobacco-related taxes or fees have been proposed or enacted (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. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies.
Federal, state and local cigarette excise taxes have increased substantially over the past two decades, far outpacing the rate of inflation. Between the end of 1998 and October 28, 2024, the weighted-average state cigarette excise tax increased from $0.36 to $1.93 per pack. As of October 28, 2024, three states (Maryland (effective in July 2024), Colorado (effective in July 2024)
and Rhode Island (effective in September 2024)) have increased excise taxes in 2024. In addition, various increases are under consideration or have been proposed.
A majority of states currently tax MST 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. We support legislation to convert ad valorem taxes on MST 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 October 28, 2024, the federal government, 23 states, Puerto Rico, Philadelphia, Pennsylvania and Cook County, Illinois have adopted a weight-based tax methodology for MST. North Carolina has passed legislation that will cause the state to adopt a weight-based tax methodology for MST in July 2025.
An increasing number of states and localities also are imposing excise taxes on e-vapor products and oral nicotine pouches. As of October 28, 2024, 33 states, the District of Columbia, Puerto Rico and a number of cities and counties have enacted legislation to tax e-vapor products. These taxes are calculated in varying ways and may differ based on the e-vapor product form. Similarly, 13 states and the District of Columbia have enacted legislation to tax oral nicotine pouches.
Tax increases are expected to continue to have an adverse impact on sales of our operating companies’ products through lower consumption levels and the potential shift in adult tobacco consumer purchases from premium to non-premium or discount cigarettes, to lower taxed tobacco products or to counterfeit and contraband products. Lower sales volume and reported share performance of our operating companies’ products could have a material adverse effect on our business, results of operations, cash flows or financial position. In addition, substantial excise tax increases on e-vapor and oral nicotine products may negatively impact adult smokers’ transition to these products, which could materially adversely affect our innovative tobacco businesses and our ability to achieve our Vision.
International Treaty on Tobacco Control
The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. As of October 28, 2024, 182 countries, as well as the European Union, 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 U.S. 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 address various tobacco-related issues.
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. It is not possible to predict the outcome of these proposals or the impact of any FCTC actions on legislation or regulation in the United States, either indirectly or as a result of the United States becoming a party to the FCTC, or whether or how these actions might indirectly influence FDA regulation and enforcement.
State Settlement Agreements
As discussed in Note 14, during 1997 and 1998, PM USA and other major domestic cigarette manufacturers entered into the State Settlement Agreements. These settlements require participating manufacturers to make substantial annual payments, which are adjusted for several factors, including inflation, operating income, market share and industry volume. Increases in inflation can increase our financial liability under the State Settlement Agreements. The State Settlement Agreements’ inflation calculations require us to apply the higher of 3% or the U.S. Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (“CPI-U”) percentage rate as published in January of each year. As of December 2023, the inflation calculation was approximately 3.4% based on the latest CPI-U data. While this calculation resulted in an increase in our annual payments under the State Settlement Agreements, the increase did not have a material impact on our financial position. We believe that inflation will continue at increased levels in 2024, but do not expect the corresponding increase in annual payments to result in a material financial impact. However, we will continue to monitor the impact of increased inflation on the macroeconomic environment and our businesses.
For a discussion of the impact of the State Settlement Agreements on us, see Liquidity and Capital Resources - Payments Under State Settlement Agreements and FDA Regulation below and Note 14. 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). The State Settlement Agreements also place restrictions on the use of brand name sponsorships and brand name non-tobacco products and 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; 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 International, Federal, State and Local Regulation and Governmental and Private Activity
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. Any such legislation, regulation or other governmental action could have a material adverse impact on our business, results of operations, cash flows or financial position.
▪Governmental Investigations: From time to time, we are subject to governmental investigations on a range of matters. For example, we currently are, or recently have been, subject to a number of governmental investigations with respect to our former investment in JUUL, which we divested in March 2023, including the following: (i) the U.S. Federal Trade Commission (“FTC”) issued a Civil Investigative Demand to us while conducting its antitrust review of our former investment in JUUL; (ii) the SEC commenced an investigation relating to our acquisition, disclosures and accountingcontrols in connection with the JUUL investment; and (iii) the New York State Office of the Attorney General and the Commonwealth of Massachusetts Office of the Attorney General, separately, issued independent subpoenas to us seeking documents relating to our former investment in and provision of services to JUUL. For a discussion of our disposition of our former interest in JUUL, see Note 6.
In April 2023, January 2024, February 2024 and April 2024, we agreed to settle the lawsuits relating to our former investment in JUUL initiated by the attorneys general of Minnesota, Alaska, Hawaii and New Mexico, respectively.
Private Sector Activity on Tobacco Products
A number of retailers, including national chains, have discontinued the sale of all tobacco products, and others have discontinued the sale of e-vapor products. Reasons for the discontinuation include change in corporate policy and, with respect to e-vapor products, reported illnesses and the uncertain regulatory environment. Furthermore, third-party digital platforms, such as app stores, have restricted, and in some cases prohibited, communications with adult tobacco consumers concerning tobacco products. It is possible that if this private sector activity becomes more widespread it could have an adverse effect on our business, results of operations, cash flows or financial position.
Illicit Trade in Tobacco Products
Illicit trade in tobacco products can have an adverse impact on our businesses, including the sales volumes and market shares of our operating companies’ innovative and smoke-free products and traditional tobacco products. Illicit trade can take many forms, including the sale of counterfeit tobacco products; the sale of tobacco products that do not comply with the FSPTCA and FDA regulations; the sale of tobacco products in the United States that are intended for sale outside the country; the sale of untaxed tobacco products over the Internet and by other means designed to avoid the collection of applicable taxes; and diversion into one taxing jurisdiction of tobacco products intended for sale in another. Counterfeit tobacco products, for example, are manufactured by unknown third parties in unregulated environments. Counterfeit versions of our products can negatively affect adult tobacco consumer experiences with and opinions of those brands. Illicit disposable e-vapor and oral nicotine pouch products may be designed to appeal to youth and are manufactured without scientific standards, exposing consumers to undocumented risks. Illicit trade in tobacco products also harms law-abiding wholesalers and retailers by depriving them of lawful sales and undermines the significant investment we 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, or asserting claims against manufacturers of tobacco products or members of the trade channels
through which such tobacco products are distributed and sold, each of which could have an adverse effect on our business, results of operations, cash flows or financial position.
We communicate with wholesale and retail trade members regarding illicit trade in tobacco products and how we can help prevent such activities, enforce wholesale and retail trade programs and policies that address illicit trade in tobacco products and, when necessary, litigate to protect our trademarks. We also engage with the FDA and other government agencies to advocate for a well-regulated U.S. tobacco industry that embraces harm reduction and the enforcement of existing regulatory frameworks.
Prohibitory policies, such as California’s ban on the sale of flavored tobacco products, which went into effect in 2022, can have unintended negative consequences, including the proliferation of counterfeit and unregulated products. We actively engage with regulators, state and federal lawmakers, our trade partners and other stakeholders to bring awareness to these issues. When appropriate, we also take legal action to protect our lawful e-vapor product business, such as the lawsuit we have filed in federal court in California against manufacturers of illicit e-vapor products.
In June 2024, the U.S. Department of Justice (“DOJ”) and the FDA announced the creation of a federal multi-agency task force to combat the illegal marketing and sale of e-vapor products in the United States. The announcement noted that, in addition to the DOJ and the FDA, the task force will leverage the criminal and civil law enforcement capabilities of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Customs and Border Protection, the U.S. Marshals Service, the U.S. Postal Inspection Service and the FTC and that additional agencies may join the task force in the future. The DOJ and the FDA stated that the task force will focus on many topics, such as investigating and prosecuting new criminal, civil, seizure and forfeiture actions under various U.S. laws, including the FSPTCA.
Price, Availability and Quality of Tobacco, Other Raw Materials, Ingredients and Component Parts
Shifts in crops (such as those driven by economic conditions, adverse weather patterns and natural disasters), government restrictions and mandated prices, production control programs, economic trade sanctions, import duties and tariffs, international trade disruptions, inflation, geopolitical instability, labor disruptions, climate and environmental changes and disruptions due to man-made or natural disasters may increase the cost or reduce the supply or quality of tobacco, other raw materials, ingredients or component parts used to manufacture our operating companies’ products. Any significant change in the nature or consequences of these factors could negatively impact our ability to continue manufacturing and marketing existing products, increase our costs or negatively impact adult tobacco consumer product acceptability and have a material adverse effect on our business and profitability.
As with other agricultural commodities, tobacco price, quality and availability can be influenced by variations in weather patterns and natural disasters, including those caused by climate change, and macroeconomic conditions and imbalances in supply and demand, among other factors. For varieties of tobacco only available in limited geographies, government-mandated prices and production control programs, political instability or government prohibitions on the import or export of tobacco in certain countries pose additional risks to price, availability and quality. In addition, as consumer demand increases for innovative smoke-free products and decreases for combustible and MST products, the volume of tobacco leaf required for production of these products has decreased, resulting in reduced tobacco leaf demand. Reduced demand for tobacco leaf may result in the reduced supply and availability of domestic tobacco, as growers divert resources to other crops or cease farming, and increased costs. The unavailability or unacceptability of any one or more particular varieties of tobacco leaf or the unavailability of nicotine extract necessary to manufacture our operating companies’ products could negatively impact our ability to continue marketing existing products or impact adult tobacco consumer product acceptability, which could have a material adverse effect on our business and profitability. In addition, the nicotine used in our operating companies’ innovative smoke-free products is extracted from tobacco produced in one country. If we are unable to identify alternate sources of nicotine for our operating companies’ innovative products, we could be exposed to supply risk.
Current macroeconomic conditions, geopolitical instability (including inflation, high interest rates, labor shortages, supply and demand imbalances and geopolitical instability and international armed conflict) and adverse weather events have caused and continue to cause worldwide disruptions and delays to supply chains and commercial markets, which limit access to, and increase the cost of, raw materials, ingredients and component parts (for example, tobacco leaf and resins and aluminum used in our packaging). We have implemented and continue to implement various strategies to help secure sufficient supplies of raw materials, ingredients and component parts for production, including maintaining inventory levels of certain tobacco varieties that cover several years, purchasing raw materials, ingredients and component parts from disperse geographic regions throughout the world and entering into long-term contracts with some of our tobacco growers and direct material suppliers. To date, the impact on us of changes in the price, availability and quality of tobacco, other raw materials, ingredients and component parts has not been material. However, the effects of the current macroeconomic and geopolitical conditions on prices, availability and quality of such items may continue, which could have a material adverse effect on our business, results of operations, cash flows or financial position.
In addition, government taxes and restrictions and prohibitions on the sale and use of certain materials used in our operating companies’ products may limit access to, and increase the costs of, raw materials and component parts and, potentially, impede our ability to sell certain of our products. For example, certain states have passed extended producer responsibility legislation concerning packaging. Because certain of our products’ packaging consists of single-use plastics, single-use plastic bans and extended producer responsibility mandates could result in bans on some of our product packaging or our products and adversely impact our costs and revenues. Additional taxes and limitations on the use of certain single-use plastics have been proposed by the U.S. Congress and various state and local governments. These existing and potential future laws and regulations could increase the costs of, and impair our ability to, source certain materials used in the packaging for our products.
Timing of Sales
In the ordinary course of business, we 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 provides reconciliations of reported OCI to adjusted OCI for our reportable segments, all other category and total OCI and provides the related OCI margins:
For the Nine Months Ended September 30, 2024
(in millions)
Smokeable Products
Oral Tobacco Products
All Other
Total
Net revenues
$
15,941
$
2,084
$
19
$
18,044
Excise taxes
(2,630)
(76)
—
(2,706)
Revenues net of excise taxes
$
13,311
$
2,008
$
19
$
15,338
Reported OCI
$
8,183
$
996
$
(291)
$
8,888
NPM Adjustment Items
(29)
—
—
(29)
Asset impairment
—
354
—
354
Tobacco and health and certain other litigation items
59
—
—
59
Adjusted OCI
$
8,213
$
1,350
$
(291)
$
9,272
Reported OCI margin (1)
61.5
%
49.6
%
(100.0+)%
57.9
%
Adjusted OCI margin (1)
61.7
%
67.2
%
(100.0+)%
60.5
%
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
For further information on our reportable segments, see Note 11.
The following table summarizes operating results, includes reported and adjusted OCI margins and provides a reconciliation of reported OCI to adjusted OCI for our smokeable products segment:
Operating Results
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
(in millions)
2024
2023
Change
2024
2023
Change
Net revenues
$
15,941
$
16,482
(3.3)
%
$
5,540
$
5,572
(0.6)
%
Excise taxes
(2,630)
(2,945)
(888)
(976)
Revenues net of excise taxes
$
13,311
$
13,537
$
4,652
$
4,596
Reported OCI
$
8,183
$
8,092
1.1
%
$
2,937
$
2,743
7.1
%
NPM Adjustment Items
(29)
(15)
(23)
(15)
Tobacco and health and certain other litigation items
59
65
21
13
Adjusted OCI
$
8,213
$
8,142
0.9
%
$
2,935
$
2,741
7.1
%
Reported OCI margins (1)
61.5
%
59.8
%
1.7 pp
63.1
%
59.7
%
3.4 pp
Adjusted OCI margins (1)
61.7
%
60.1
%
1.6 pp
63.1
%
59.6
%
3.5 pp
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Net revenues, which include excise taxes billed to customers, decreased $541 million (3.3%), due primarily to lower shipment volume ($1,991 million), partially offset by higher pricing ($1,444 million), which includes higher promotional investments.
Reported OCI increased $91 million (1.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($131 million), partially offset by lower shipment volume ($1,293 million) and higher per unit settlement charges and manufacturing costs ($206 million).
Adjusted OCI increased $71 million (0.9%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($125 million), partially offset by lower shipment volume and higher per unit settlement charges and manufacturing costs.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Net revenues, which include excise taxes billed to customers, decreased $32 million (0.6%), due primarily to lower shipment volume ($556 million), partially offset by higher pricing ($517 million), which includes higher promotional investments.
Reported OCI increased $194 million (7.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($84 million), partially offset by lower shipment volume ($363 million) and higher per unit settlement charges.
Adjusted OCI increased $194 million (7.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($92 million), partially offset by lower shipment volume and higher per unit settlement charges.
The following table summarizes our smokeable products segment’s shipment volume performance:
Shipment Volume
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
(sticks in millions)
2024
2023
Change
2024
2023
Change
Cigarettes:
Marlboro
47,411
52,339
(9.4)
%
16,122
17,437
(7.5)
%
Other premium
2,397
2,674
(10.4)
%
824
895
(7.9)
%
Discount
2,181
3,119
(30.1)
%
695
970
(28.4)
%
Total cigarettes
51,989
58,132
(10.6)
%
17,641
19,302
(8.6)
%
Cigars:
Black & Mild
1,320
1,359
(2.9)
%
443
451
(1.8)
%
Other
3
2
50.0
%
1
—
100.0
%
Total cigars
1,323
1,361
(2.8)
%
444
451
(1.6)
%
Total smokeable products
53,312
59,493
(10.4)
%
18,085
19,753
(8.4)
%
Note: Cigarettes shipment volume includes Marlboro; Other premium brands, such as Virginia Slims, Parliament and Benson & Hedges; and Discount brands, which include L&M and Basic. Cigarettes volume includes units sold as well as promotional units but excludes units sold for distribution to Puerto Rico, U.S. Territories to overseas military and by Philip Morris Duty Free Inc., none of which, individually or in the aggregate, is material to our smokeable products segment.
The following table summarizes our cigarettes retail share performance:
Retail Share
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
2024
2023
Percentage Point Change
2024
2023
Percentage Point Change
Cigarettes:
Marlboro
41.9
%
42.1
%
(0.2)
41.7
%
42.3
%
(0.6)
Other premium
2.2
2.3
(0.1)
2.2
2.3
(0.1)
Discount
2.0
2.6
(0.6)
1.8
2.4
(0.6)
Total cigarettes
46.1
%
47.0
%
(0.9)
45.7
%
47.0
%
(1.3)
Note: Retail share results for cigarettes are based on data from Circana, LLC (“Circana”), as well as Management Science Associates, Inc. Circana maintains a blended retail service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes. For other trade classes selling cigarettes, retail share is based on shipments from wholesalers to retailers through the Store Tracking Analytical Reporting System (“STARS”), as provided by Management Science Associates, Inc. This service is not designed to capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets. It is the standard practice of retail services to periodically refresh their retail scan services, which could restate retail share results that were previously released in these services.
For a discussion of volume trends and factors that impact volume and retail share performance, see Operating Results by Business Segment - Business Environment - Summary above.
Nine Months Ended September 30, 2024 Compared with the Nine Months Ended September 30, 2023
Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 10.6%, driven primarily by the industry’s decline rate (impacted by the growth of illicit e-vapor products and continued discretionary income pressures on adult tobacco consumers), retail share losses and trade inventory movements, partially offset by calendar differences. When adjusted for calendar differences and trade inventory movements, our smokeable products segment domestic cigarette shipment volume decreased by an estimated 11%. When adjusted for calendar differences, trade inventory movements and other factors, total estimated domestic cigarette industry volume decreased by an estimated 9%.
Shipments of premium cigarettes accounted for 95.8% and 94.6% of our smokeable products segment’s reported domestic cigarettes shipment volume for the nine months ended September 30, 2024 and 2023, respectively.
Marlboro share of the premium segment was 59.3%, an increase of 0.5 share points.
Total cigarettes industry discount category retail share was 29.4%, an increase of 1.1 share points, primarily due to continued discretionary income pressures on adult tobacco consumers.
Three Months Ended September 30, 2024 Compared with the Three Months Ended September 30, 2023
Our smokeable products segment’s reported domestic cigarettes shipment volume decreased 8.6%, driven primarily by the industry’s decline rate (impacted by the growth of illicit e-vapor products and continued discretionary income pressures on adult tobacco consumers) and retail share losses, partially offset by trade inventory movements and calendar differences. When adjusted for trade inventory movements and calendar differences, our smokeable products segment domestic cigarette shipment volume decreased by an estimated 11.5%. When adjusted for trade inventory movements and calendar differences, total estimated domestic cigarette industry volume decreased by an estimated 9%.
Shipments of premium cigarettes accounted for 96.1% and 95.0% of our smokeable products segment’s reported domestic cigarettes shipment volume for the three months ended September 30, 2024 and 2023, respectively.
Marlboro retail share of the total cigarette category was 41.7%, a decrease of 0.6 share points versus the prior year and 0.3 share points sequentially. Additionally, Marlboro share of the premium segment was 59.3%, an increase of 0.3 share points versus the prior year and a decrease of 0.1 share point sequentially.
Total cigarettes industry discount category retail share was 29.8%, an increase of 1.5 share points versus the prior year and 0.5 share points sequentially, primarily due to continued discretionary income pressures on adult tobacco consumers.
For a discussion regarding discount category dynamics in 2024, the growth of illicit e-vapor products and the economic conditions, including the cumulative impact of inflation, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Business Environment - Summary above.
Pricing Actions
PM USA and Middleton executed the following pricing actions during 2024 and 2023:
▪Effective July 14, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol), L&M and Basic by $0.17 per pack. PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.
▪Effective April 21, 2024, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.16 per five-pack.
▪Effective April 14, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol), L&M and Basic by $0.20 per pack. PM USA also increased the list price of all its other cigarette brands by $0.25 per pack.
▪Effective January 14, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol), L&M and Basic by $0.15 per pack. PM USA also increased the list price of all its other cigarette brands by $0.20 per pack.
▪Effective October 15, 2023, PM USA increased the list price of Marlboro, L&M and Basic by $0.17 per pack. PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.
▪Effective July 23, 2023, PM USA increased the list price of Marlboro, L&M and Basic by $0.16 per pack. PM USA also increased the list price of all its other cigarette brands by $0.21 per pack.
▪Effective June 11, 2023, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.15 per five-pack.
▪Effective April 23, 2023, PM USA increased the list price of Marlboro, L&M and Basic by $0.15 per pack. PM USA also increased the list price of all its other cigarette brands by $0.20 per pack.
▪Effective January 22, 2023, PM USA increased the list price of Marlboro, L&M, Basic and Chesterfield by $0.15 per pack. PM USA also increased the list price of all its other cigarette brands by $0.20 per pack.
In addition:
▪Effective October 20, 2024, PM USA increased the list price of Marlboro (excluding Mainline Menthol and 72s Menthol), L&M and Basic by $0.17 per pack. PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.
▪Effective October 6, 2024, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.13 per five-pack.
The following table summarizes operating results, includes reported and adjusted OCI margins, and provides a reconciliation of reported OCI to adjusted OCI for our oral tobacco products segment:
Operating Results
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
(in millions)
2024
2023
Change
2024
2023
Change
Net revenues
$
2,084
$
1,993
4.6
%
$
722
$
685
5.4
%
Excise taxes
(76)
(85)
(27)
(28)
Revenues net of excise taxes
$
2,008
$
1,908
$
695
$
657
Reported OCI
$
996
$
1,314
(24.2)
%
$
464
$
455
2.0
%
Asset impairment
354
—
—
—
Adjusted OCI
$
1,350
$
1,314
2.7
%
$
464
$
455
2.0
%
Reported OCI margins (1)
49.6
%
68.9
%
(19.3) pp
66.8
%
69.3
%
(2.5) pp
Adjusted OCI margins (1)
67.2
%
68.9
%
(1.7) pp
66.8
%
69.3
%
(2.5) pp
(1) Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Net revenues, which include excise taxes billed to customers, increased $91 million (4.6%), due to higher pricing ($170 million), partially offset by lower shipment volume and a higher percentage of on! shipment volume relative to MST ($79 million).
Reported OCI decreased $318 million (24.2%), due primarily to a non-cash impairment of the Skoal trademark ($354 million), lower shipment volume and a higher percentage of on! shipment volume relative to MST ($82 million) and higher marketing, administration and research costs ($44 million), partially offset by higher pricing.
Adjusted OCI increased $36 million (2.7%), due primarily to higher pricing, partially offset by lower shipment volume and a higher percentage of on! shipment volume relative to MST and higher marketing, administration and research costs.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Net revenues, which include excise taxes billed to customers, increased $37 million (5.4%), due primarily to higher pricing ($51 million), which includes higher promotional investments, partially offset by a higher percentage of on! shipment volume relative to MST (net of higher shipment volume) ($15 million).
Reported and adjusted OCI increased $9 million (2.0%), due primarily to higher pricing, which includes higher promotional investments, partially offset by higher marketing, administration and research costs ($27 million) and a higher percentage of on! shipment volume relative to MST (net of higher shipment volume) ($13 million).
The following table summarizes our oral tobacco products segment’s shipment volume performance:
Shipment Volume
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
(cans and packs in millions)
2024
2023
Change
2024
2023
Change
Copenhagen
304.4
333.3
(8.7)
%
101.4
109.4
(7.3)
%
Skoal
111.6
123.3
(9.5)
%
37.4
40.4
(7.4)
%
on!
116.4
83.9
38.7
%
41.9
28.7
46.0
%
Other
50.0
49.3
1.4
%
16.4
16.3
0.6
%
Total oral tobacco products
582.4
589.8
(1.3)
%
197.1
194.8
1.2
%
Note: Other primarily includes Red Seal and Husky. Oral tobacco products shipment volume includes cans and packs sold, as well as promotional units, but excludes international volume, which is currently not material to our oral tobacco products segment. New types of oral tobacco products, as well as new packaging configurations of existing oral tobacco 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 or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed to be equivalent to one can of MST.
The following table summarizes our oral tobacco products segment’s retail share performance (excluding international volume):
Retail Share
For the Nine Months Ended September 30,
For the Three Months Ended September 30,
2024
2023
Percentage Point Change
2024
2023
Percentage Point Change
Copenhagen
19.4
%
24.1
%
(4.7)
18.7
%
23.0
%
(4.3)
Skoal
7.7
9.6
(1.9)
7.4
9.1
(1.7)
on!
8.0
6.8
1.2
8.9
6.9
2.0
Other
2.7
2.9
(0.2)
2.6
2.8
(0.2)
Total oral tobacco products
37.8
%
43.4
%
(5.6)
37.6
%
41.8
%
(4.2)
Note: Our oral tobacco products segment’s retail share results exclude international volume, which is currently not material to our oral tobacco products segment. Retail share results for oral tobacco products are based on data from Circana, a tracking service that uses a sample of stores to project market share and depict share trends. This service tracks sales in the food, drug, mass merchandisers, convenience, military, dollar store and club trade classes on the number of cans and packs sold. Oral tobacco products are defined by Circana as domestic tobacco derived oral products, in the form of MST, snus and oral nicotine pouches. New types of oral tobacco products, as well as new packaging configurations of existing oral tobacco products, may or may not be equivalent to existing MST products on a can-for-can basis. For example, one pack of snus or one can of oral nicotine pouches, irrespective of the number of pouches in the pack or can, is assumed to be equivalent to one can of MST. Because this service represents retail share performance only in key trade channels, it should not be considered a precise measurement of actual retail share. It is the standard practice of retail services to periodically refresh their retail scan services, which could restate retail share results that were previously released in these services.
For a discussion of volume trends and factors that impact volume and retail share performance, see Operating Results by Business Segment -Business Environment - Summary above.
Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023
Our oral tobacco products segment’s reported domestic shipment volume decreased 1.3%, primarily driven by retail share losses and trade inventory movements, partially offset by the industry’s growth rate, calendar differences and other factors. When adjusted for calendar differences and trade inventory movements, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 2.5%.
Total oral tobacco products category industry volume increased by an estimated 7.5% over the six months ended September 30, 2024, primarily driven by growth in oral nicotine pouches, partially offset by declines in MST volumes.
Our oral tobacco products segment’s retail share was 37.8%, as share declines for MST products were partially offset by oral nicotine pouch segment share growth.
The U.S. nicotine pouch category grew to 41.9% of the U.S. oral tobacco category, an increase of 12.4 share points versus the prior year. In addition, on!’s share of the nicotine pouch category was 19.1%, a decrease of 3.8 share points versus the prior year.
Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023
Our oral tobacco products segment’s reported domestic shipment volume increased 1.2%, driven primarily by industry’s growth rate, calendar differences and other factors, partially offset by retail share losses and trade inventory movements. When adjusted for calendar differences and trade inventory movements, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 1%.
Our oral tobacco products segment’s retail share was 37.6%, as share declines for MST products were partially offset by oral nicotine pouch segment share growth.
Total U.S. oral tobacco category share for on! nicotine pouches was 8.9%, an increase of 2.0 share points versus the prior year and 0.8 share points sequentially.
The U.S. nicotine pouch category grew to 43.9% of the U.S. oral tobacco category, an increase of 11.4 share points versus the prior year. In addition, on!’s share of the nicotine pouch category was 20.3%, a decrease of 0.9 share points versus the prior year and an increase of 0.9 share points sequentially.
Pricing Actions
USSTC and Helix executed the following pricing actions during 2024 and 2023:
▪Effective August 25, 2024, Helix increased the list price on its on! brand by $0.10 per can.
▪Effective July 23, 2024, USSTC increased the list price on its Copenhagen, Skoal and Red Seal brands by $0.10 per can.
▪Effective April 23, 2024, USSTC increased the list price on its Copenhagen, Skoal and Red Seal brands by $0.10 per can.
▪Effective January 23, 2024, USSTC increased the list price on its Copenhagen, Skoal and Red Seal brands by $0.11 per can.
▪Effective August 22, 2023, USSTC increased the list price on its Copenhagen, Red Seal and Skoal brands by $0.09 per can. In addition, USSTC decreased the list price on select Husky brandsby $0.18 per can.
▪Effective July 23, 2023, Helix increased the list price on its on! brand by $0.09 per can.
▪Effective April 25, 2023, USSTC increased the list price on its Copenhagen popular price products, Red Seal and Husky brands by $0.09 per can. In addition, USSTC increased the list price on its Skoal brands and on the balance of its Copenhagen brandsby $0.10 per can.
▪Effective January 24, 2023, USSTC increased the list price on its Copenhagen,Skoal, Red Seal and Husky brands by $0.09 per can.
E-Vapor
Our NJOY e-vapor business is reported in our all other category.
Nine Months Ended September 30, 2024
Reported domestic shipment volumes for the nine months ended September 30, 2024 for NJOY consumables(1) and devices were 33.8 million units and 3.9 million units, respectively.
For the nine months ended September 30, 2024 NJOY retail share of consumables in the U.S. multi-outlet and convenience channel was 5.3%.
Three Months Ended September 30, 2024
Reported domestic shipment volumes for the three months ended September 30, 2024 for NJOY consumables(1) increased 15.6% versus the prior year to 10.4 million units. Reported domestic shipment volume for the three months ended September 30, 2024 for NJOY devices increased 100+% versus the prior year to 1.1 million units.
In the third quarter of 2024, NJOY retail share of consumables in the U.S. multi-outlet and convenience channel increased 2.8 share points versus the prior year to 6.2%.
(1) E-vapor shipment volume includes NJOY ACE pods and NJOY DAILY disposables.
Liquidity and Capital Resources
We are a holding company that is primarily dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements. Our access to the operating cash flows of our subsidiaries consists of cash received from the payment of dividends and distributions and the payment of interest on intercompany loans. At September 30, 2024, our significant subsidiaries were not limited by contractual obligations in their ability to pay cash dividends or make other distributions with
respect to their equity interests. In addition, we receive cash dividends on our interest in ABI and will continue to do so as long as we hold shares in ABI and ABI pays dividends.
At September 30, 2024, we had $1.9 billion of cash and cash equivalents. In addition to having access to the operating cash flows of our subsidiaries, our capital resources include access to credit markets in the form of commercial paper, availability under our $3.0 billion senior unsecured 5-year revolving credit agreement (“Credit Agreement”), which we use for general corporate purposes, and access to credit markets through the issuance of long-term senior unsecured notes. For additional information, see Capital Markets and Other Matters below.
In addition to funding current operations, we primarily use our net cash from operating activities for payment of dividends, share repurchases under our share repurchase programs, repayment of debt, acquisitions of or investments in businesses and assets and capital expenditures.
We believe our cash and cash equivalents balance, along with our future cash flows from operations, capacity for borrowings under our Credit Agreement and access to credit and capital markets, provide sufficient liquidity to meet the needs of our business operations and to satisfy our projected cash requirements for the next 12 months and the foreseeable future.
Capital Markets and Other Matters
Credit Ratings - Our cost and terms of financing and our access to commercial paper markets may be impacted by applicable credit ratings. The impact of credit ratings on the cost of borrowings under our Credit Agreement is discussed in Note 12. Debt to our condensed consolidated financial statements in Item 1 (“Note 12”).
At September 30, 2024, the credit ratings and outlook for our indebtedness by major credit rating agencies were:
Short-term Debt
Long-term Debt
Outlook
Moody’s Investors Service, Inc. (“Moody’s”)
P-2
A3
Negative
Standard & Poor’s Financial Services LLC (“S&P”)
A-2
BBB
Positive
Fitch Ratings Inc.
F2
BBB
Stable
Credit Lines - From time to time, we have short-term borrowing needs to meet our working capital requirements arising from the timing of payments under State Settlement Agreements, quarterly income tax payments and quarterly dividend payments, and generally use our commercial paper program to meet those needs.
At September 30, 2024, we had availability under our Credit Agreement for borrowings of up to an aggregate principal amount of $3.0 billion, and we were in compliance with the covenants in our Credit Agreement. We monitor the credit quality of our bank group and do not know of any potential non-performing credit provider in that group. For further discussion on short-term borrowings, see Note 12.
Long-Term Debt - At September 30, 2024 and December 31, 2023, our total long-term debt was $25.2 billion and $26.2 billion, respectively. During the first quarter of 2024, we repaid in full at maturity our 4.000% and 3.800% senior unsecured notes in the aggregate principal amounts of $776 million and $345 million, respectively. For further details on long-term debt, see Note 12.
At September 30, 2024, our debt-to-Consolidated net earnings and debt-to-Consolidated EBITDA ratios were calculated as follows:
For the Twelve Months Ended September 30, 2024 (1)
(in millions)
Consolidated net earnings
$
10,285
Interest and other debt expense, net
1,013
Provision for income taxes
3,331
Depreciation and amortization
291
EBITDA
14,920
(Income) loss from investments in equity securities and noncontrolling interests, net
(668)
Dividends from less than 50% owned affiliates
139
Gain on the sale of IQOS System commercialization rights
(2,700)
Asset impairment
354
Consolidated EBITDA
$
12,045
Current portion of long-term debt (2)
$
1,585
Long-term debt (2)
23,570
Total Debt
$
25,155
Total Debt / Consolidated net earnings
2.4
Total Debt / Consolidated EBITDA
2.1
(1) Calculated as of the end of the applicable quarter on a rolling four quarters basis.
(2) Balance at September 30, 2024.
ABI Transaction - As discussed in Note 6, in March 2024, we received pre-tax cash proceeds from the ABI Transaction of approximately $2.4 billion and paid transaction costs of approximately $62 million. We used the proceeds from the ABI Transaction to fund the ASR transactions discussed below.
NJOY Contingent Payments - In the second quarter of 2024, the FDA issued MGOs for four NJOY e-vapor menthol products. As a result, we became obligated to make cash payments totaling $250 million under the acquisition agreement, which we made in July 2024. For further discussion on the NJOY contingent payments, see Note 2.
Guarantees and Other Similar Matters - As discussed in Note 14, we had unused letters of credit obtained in the ordinary course of business and guarantees (including third-party guarantees) outstanding at September 30, 2024. From time to time, we also issue lines of credit to affiliated entities. As further discussed in Note 4. Supplier Financing to our condensed consolidated financial statements in Item 1 and Note 14, as part of the supplier financing program, Altria guarantees the financial obligations of Altria Client Services LLC under the financing program agreement. In addition, as discussed below in Supplemental Guarantor Financial Information and in Note 12, PM USA guarantees our obligations under our outstanding debt securities, any borrowings under our Credit Agreement and any amounts outstanding under our commercial paper program. These items have not had, and are not expected to have, a significant impact on our liquidity.
Payments Under State Settlement Agreements and FDA Regulation - PM USA has entered into State Settlement Agreements with the states, the District of Columbia and certain U.S. territories that call for certain payments. In addition, PM USA, Middleton and USSTC are subject to quarterly user fees imposed by the FDA as a result of the FSPTCA. For further discussion of State Settlement Agreements, see Health Care Cost Recovery Litigation in Note 14.
Based on current agreements, estimated market share, estimated annual industry volume decline rates and inflation rates, the estimated amounts that we may charge to cost of sales for payments related to State Settlement Agreements and FDA user fees are $3.5 billion on average for the next three years. The estimated amount for 2024 includes PM USA’s obligations under the State Settlement Agreements to pay settling plaintiffs’ attorneys’ fees. We expect PM USA’s obligation to pay these fees will terminate in the fourth quarter of 2024. In addition, the amount excludes the potential impact of any NPM Adjustment Items.
The estimated amounts due under the State Settlement Agreements charged to cost of sales in each year are generally paid in April of 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. We paid approximately $3.3 billion and $3.5 billion for the nine months ended September 30, 2024 and 2023, respectively, in connection with the State Settlement Agreements and FDA user fees, primarily all of which was paid in
the second quarter of each period. We recorded $2.9 billion and $3.0 billion of charges to cost of sales for the nine months ended September 30, 2024 and 2023, respectively, and $0.9 billion and $1.0 billion of charges to cost of sales for the three months ended September 30, 2024 and 2023, respectively, in connection with the State Settlement Agreements and FDA user fees. The payments due under the terms of the State Settlement Agreements and FDA user fees are subject to adjustment for several factors, including volume, operating income, inflation and certain contingent events and, in general, are allocated based on each manufacturer’s market share. The future payment amounts discussed above are estimates, and actual payment amounts will differ to the extent underlying assumptions differ from actual future results. For further discussion on the potential impact of inflation on future payments, see Operating Results by Business Segment - Business Environment - State Settlement Agreements above.
Litigation-Related Deposits and Payments - With respect to certain adverse verdicts currently on appeal, to obtain stays of judgments pending appeals, as of September 30, 2024, PM USA had posted appeal bonds totaling $31 million, which have been collateralized with restricted cash that is included in assets on our condensed consolidated balance sheet.
Litigation is subject to uncertainty, and an adverse outcome or settlement of litigation could have a material adverse effect on our results of operations, cash flows or financial position in a particular fiscal quarter or fiscal year, as more fully disclosed in Note 14.
Equity and Dividends
During the first nine months of 2024 and 2023, we paid dividends of $5,108 million and $5,040 million, respectively, an increase of 1.3%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase programs.
In August 2024, our Board of Directors approved a 4.1% increase in the quarterly dividend rate to $1.02 per share of our common stock versus the previous rate of $0.98 per share. Our current annualized dividend rate is $4.08 per share. We have a progressive dividend goal targeting mid-single digits dividend growth annually through 2028. Future dividend payments remain subject to the discretion of our Board.
ASR - In March 2024, we increased our $1.0 billion share repurchase program to $3.4 billion and entered into the ASR transactions. In the first half of 2024, we paid $2.4 billion for the repurchase of our common stock in the ASR transactions. We funded the ASR transactions with proceeds from the ABI Transaction.
For further discussion of our share repurchase programs, see Note 1 and Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Form 10-Q.
Financial Review
Cash Provided by/Used in Operating Activities
During the first nine months of 2024, net cash provided by operating activities was $5,413 million compared with $6,060 million during the first nine months of 2023. This decrease was due primarily to payments for certain transferable income tax credits, higher litigation payments and a portion of the NJOY contingent payments ($140 million).
We had a working capital deficit at September 30, 2024 and December 31, 2023, and believe we have the ability to fund working capital deficits with cash provided by operating activities, borrowings under our Credit Agreement and access to the credit and capital markets.
Cash Provided by/Used in Investing Activities
During the first nine months of 2024, net cash provided by investing activities was $2,238 million compared with net cash used in investing activities of $1,217 million during the first nine months of 2023. This change was due primarily to proceeds from the ABI Transaction in 2024 and the NJOY Transaction in 2023, partially offset by proceeds from the sale of IQOS System commercialization rights in 2023.
Capital expenditures for 2024 are expected to be in the range of $125 million to $175 million, a reduction from the previous range of $175 million to $225 million, and are expected to be funded from operating cash flows.
Cash Provided by/Used in Financing Activities
During the first nine months of 2024, net cash used in financing activities was $9,444 million compared with $7,353 million during the first nine months of 2023. This increase was due to higher share repurchases in 2024 and a portion of the NJOY contingent payments ($110 million), partially offset by lower repayments of long-term debt in 2024.
New Accounting Guidance Not Yet Adopted
See Note 15. New Accounting Guidance Not Yet Adopted to our condensed consolidated financial statements in Item 1 for a discussion of issued accounting guidance applicable to, but not yet adopted by, us.
PM USA (“Guarantor”), which is a 100% owned subsidiary of Altria Group, Inc. (“Parent”), has guaranteed the Parent’s obligations under its outstanding debt securities, borrowings under its Credit Agreement and amounts outstanding under its commercial paper program (“Guarantees”). Pursuant to the Guarantees, the Guarantor fully and unconditionally guarantees, as primary obligor, the payment and performance of the Parent’s obligations under the guaranteed debt instruments (“Obligations”), subject to release under certain customary circumstances as noted below.
The Guarantees provide that the Guarantor guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the Obligations. The liability of the Guarantor 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, the Parent or the Guarantor.
Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent transfer law, the Guarantees could be voided, or claims in respect of the Guarantees could be subordinated to the debts of the Guarantor, if, among other things, the Guarantor, at the time it incurred the Obligations evidenced by the Guarantees:
▪received less than reasonably equivalent value or fair consideration therefor; and
▪either:
▪was insolvent or rendered insolvent by reason of such occurrence;
▪was engaged in a business or transaction for which the assets of the Guarantor constituted unreasonably small capital; or
▪intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, under such circumstances, the payment of amounts by the Guarantor pursuant to the Guarantees could be voided and required to be returned to the Guarantor, or to a fund for the benefit of the Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Guarantor would be considered insolvent if:
▪the sum of its debts, including contingent liabilities, was greater than the saleable value of its assets, all at a fair valuation;
▪the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
▪it could not pay its debts as they become due.
To the extent the Guarantees are voided as a fraudulent conveyance or held unenforceable for any other reason, the holders of the guaranteed debt obligations would not have any claim against the Guarantor and would be creditors solely of the Parent.
The obligations of the Guarantor under the Guarantees are limited to the maximum amount as will not result in the Guarantor’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 the Guarantor 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.
The Guarantor will be unconditionally released and discharged from the Obligations upon the earliest to occur of:
▪the date, if any, on which the Guarantor consolidates with or merges into the Parent or any successor;
▪the date, if any, on which the Parent or any successor consolidates with or merges into the Guarantor;
▪the payment in full of the Obligations pertaining to such Guarantees; and
▪the rating of the Parent’s long-term senior unsecured debt by S&P of A or higher.
The Parent is a holding company; therefore, 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. Neither the Guarantor nor other 100% owned subsidiaries of the Parent that are not guarantors of the debt (“Non-
Guarantor Subsidiaries”) are limited by contractual obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.
The following tables include summarized financial information for the Parent and the Guarantor. Transactions between the Parent and the Guarantor (including investment and intercompany balances as well as equity earnings) have been eliminated. The Parent’s and the Guarantor’s intercompany balances with Non-Guarantor Subsidiaries have been presented separately. This summarized financial information is not intended to present the financial position or results of operations of the Parent or the Guarantor in accordance with GAAP.
Summarized Balance Sheets
(in millions of dollars)
Parent
Guarantor
September 30, 2024
December 31, 2023
September 30, 2024
December 31, 2023
Assets
Due from Non-Guarantor Subsidiaries
$
—
$
—
$
316
$
316
Other current assets
2,324
4,052
726
678
Total current assets
$
2,324
$
4,052
$
1,042
$
994
Due from Non-Guarantor Subsidiaries
$
6,561
$
6,561
$
—
$
—
Other assets
7,971
9,797
1,319
1,334
Total non-current assets
$
14,532
$
16,358
$
1,319
$
1,334
Liabilities
Due to Non-Guarantor Subsidiaries
$
3,560
$
2,548
$
1,199
$
1,081
Other current liabilities
3,839
3,708
3,254
3,665
Total current liabilities
$
7,399
$
6,256
$
4,453
$
4,746
Total non-current liabilities
$
26,436
$
27,876
$
585
$
590
Summarized Statements of Earnings (Losses)
(in millions of dollars)
For the Nine Months Ended September 30, 2024
Parent(1)
Guarantor (2)
Net revenues
$
—
$
15,049
Gross profit
—
8,590
Net earnings (losses)
(350)
5,803
(1) For the nine months ended September 30, 2024, net earnings (losses) include $276 million of intercompany interest income from non-guarantor subsidiaries and $333 million of interest expense from non-guarantor subsidiaries.
(2) For the nine months ended September 30, 2024, net earnings (losses) include $218 million of intercompany interest income from non-guarantor subsidiaries.
Cautionary Factors That May Affect Future Results
Forward-Looking and Cautionary Statements
This Form 10-Q contains statements concerning our expectations, plans, objectives, future financial performance and other statements that are not historical facts. 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, estimates 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 estimates or assumptions prove inaccurate, actual results could differ materially from those anticipated, estimated or projected. You should bear this in mind as you consider our forward-looking statements and whether to invest in or remain invested in our 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, including with respect to our ability to achieve our Vision, to differ materially from those contained in, or implied by, any forward-looking statements we make. Any such statement is qualified by reference to the following cautionary statements. We elaborate on these important factors and the risks we face throughout this Form 10-Q, particularly in the “Executive Summary” and “Business Environment” sections preceding our discussion of the operating results of our segments above, and in our other publicly filed reports, including our 2023 Form 10-K. These factors and risks include the following:
▪our inability to anticipate and respond to changes in adult tobacco consumer preferences and purchase behavior;
▪our inability to compete effectively;
▪the growth of the e-vapor category, including illicit disposable e-vapor products, which contributes to reductions in domestic cigarette consumption levels and shipment volume;
▪the risks associated with illicit trade in tobacco products (including counterfeit products, illegally imported products, illicit disposable e-vapor products and oral nicotine pouch products) and the sale of products designed to avoid the regulatory framework for tobacco products, such as products using nicotine analogues, each of which contribute to reductions in the consumption levels and shipment volumes of our businesses’ products;
▪our failure to develop and commercialize innovative products, including tobacco products that may reduce health risks relative to other tobacco products and appeal to adult tobacco consumers;
▪changes, including in macroeconomic and geopolitical conditions (including inflation), that result in shifts in adult tobacco consumer disposable income and purchasing behavior, including choosing lower-priced and discount brands or products, and reductions in shipment volumes;
▪unfavorable outcomes with respect to litigation proceedings or any governmental investigations, including significant monetary and non-monetary remedies and importation bans;
▪the risks associated with significant federal, state and local government actions, including FDA regulatory actions and inaction, and various private sector actions;
▪increases in tobacco product-related taxes;
▪our failure to complete or manage successfully strategic transactions, including the NJOY Transaction and other acquisitions, dispositions, joint ventures and investments in third parties, or realize the anticipated benefits of such transactions;
▪significant changes in price, availability or quality of tobacco, other raw materials or component parts, including as a result of changes in macroeconomic, climate and geopolitical conditions;
▪our reliance on a few significant facilities and a small number of key suppliers, distributors and distribution chain service providers and the risks associated with an extended disruption at a facility or in service by a supplier, distributor or distribution chain service provider;
▪the risk that we may be required to write down intangible assets, including trademarks and goodwill, due to impairment;
▪the risk that we could decide, or be required, to recall products;
▪the various risks related to health epidemics and pandemics and the measures that international, federal, state and local governments, agencies, law enforcement and health authorities implement to address them;
▪our inability to attract and retain a highly skilled and diverse workforce due to the decreasing social acceptance of tobacco usage, tobacco control actions and other factors;
▪the risks associated with the various U.S. and foreign laws and regulations to which we are subject due to our international business operations;
▪the risks concerning a challenge to our tax positions, an increase in the income tax rate or other changes to federal or state tax laws;
▪the risks associated with legal and regulatory requirements related to climate change and other environmental sustainability matters;
▪disruption and uncertainty in the credit and capital markets, including risk of losing access to these markets;
▪a downgrade or potential downgrade of our credit ratings;
▪our inability to attract investors due to increasing investor expectations of our performance relating to corporate responsibility factors, including environmental, social and governance matters;
▪the failure of our, or our key service providers’ or key suppliers’, information systems to function as intended, or cyber-attacks or security breaches affecting us or our key service providers or key suppliers;
▪our failure, or the failure of our key service providers or key suppliers, to comply with laws related to personal data protection, privacy, artificial intelligence and information security;
▪our ability to recognize the expected cost savings in connection with the Initiative or successfully reinvest those savings in our businesses in support of our Vision and 2028 Enterprise Goals, in each case, in the expected manner or time frame or at all;
▪the risk that the expected benefits of our investment in ABI may not materialize in the expected manner or timeframe or at all, including due to macroeconomic and geopolitical conditions; foreign currency exchange rates; ABI’s business results; ABI’s share price; impairment losses on the value of our investment; our incurrence of additional tax liabilities related to our investment in ABI; and reductions in the number of directors that we can have appointed to the ABI board of directors; and
▪the risks associated with our investment in Cronos, including legal, regulatory and reputational risks and the risk that the expected benefits of the transaction may not materialize in the expected manner or timeframe or at all.
You should understand that it is not possible to predict or identify all factors and risks. Consequently, you should not consider the foregoing list to be complete. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The fair value of our long-term debt, all of which is fixed-rate debt, is subject to fluctuations resulting primarily from changes in market interest rates. The following table provides the fair value of our long-term debt and the change in fair value based on a 1% increase or decrease in market interest rates at September 30, 2024 and December 31, 2023:
(in billions)
September 30, 2024
December 31, 2023
Fair value
$
24.0
$
24.4
Decrease in fair value from a 1% increase in market interest rates
1.9
1.9
Increase in fair value from a 1% decrease in market interest rates
2.2
2.2
We expect interest rates on borrowings under our Credit Agreement to be based on the Term Secured Overnight Financing Rate, plus a percentage based on the higher of the ratings of our long-term senior unsecured debt from Moody’s and S&P. The applicable percentage for borrowings under our Credit Agreement at September 30, 2024 was 1.0% based on our long-term senior unsecured debt ratings on that date. At September 30, 2024 and December 31, 2023, we had no borrowings under our Credit Agreement.
Item 4. Controls and Procedures
We carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 14 for a discussion of legal proceedings pending against us. See also Exhibits 99.1 and 99.2 to this Form 10-Q.
Item 1A. Risk Factors
Information regarding Risk Factors appears in Part I, Item 1A. Risk Factors of our 2023 Form 10-K. There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2024, our Board of Directors authorized a $1.0 billion share repurchase program that it increased to $3.4 billion in March 2024 (as increased, “January 2024 share repurchase program”). We expect to complete the program by December 31, 2024. The timing of share repurchases depends upon marketplace conditions and other factors, and the program remains subject to the discretion of our Board of Directors.
Our share repurchase activity for each of the three months in the period ended September 30, 2024, was as follows:
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1-31, 2024
4,813,800
48.05
4,813,800
758,711,760
August 1-31, 2024
4,694,454
51.07
4,692,500
519,053,962
September 1-30, 2024
4,003,761
52.34
4,003,000
309,534,422
13,512,015
50.37
13,509,300
(1) The total number of shares purchased includes (a) shares purchased under the January 2024 share repurchase program and (b) shares withheld by Altria in an amount equal to the statutory withholding taxes for vested stock-based awards previously granted to eligible employees (which totaled 1,954 in August and 761 in September).
Item 5. Other Information
During the quarter ended September 30, 2024, none of our directors or officers adopted, modified or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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73
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.