Altria Reaches Agreement with Philip Morris International for Transition to IQOS | Company

RICHMOND, Va.–(BUSINESS WIRE)–October 19, 2022–

Altria Group, Inc. (NYSE:MO) today announced that a subsidiary has entered into an agreement (the Agreement) with a subsidiary of Philip Morris International Inc. (PMI) pursuant to which Altria will receive cash payments from PMI totaling approximately $2.7 billion (pre-tax) in exchange for granting exclusive U.S. marketing rights IQOS tobacco heating system ® from April 30, 2024.

“We remain committed to creating long-term value through our vision,” said Billy Gifford, CEO of Altria. “We believe this agreement provides us with fair compensation and greater flexibility in allocating resources to Go beyond smoking.”

Background

In 2013, we entered into a series of agreements with PMI related to innovative tobacco products, which included the exclusive U.S. marketing rights of PM USA, a subsidiary of Altria, to the IQOS system. PM USA’s commercialization rights were subject to an initial term of five years, which began when the system received clearance from the United States Food and Drug Administration (FDA) in April 2019 and continued until in April 2024. Under the 2013 agreement, PM USA was entitled to retain exclusive marketing rights in the United States after reaching an initial milestone by April 2022. After reaching additional milestones, PM USA had the option to renew for an additional five years through April 2029. We believe PM USA has achieved each of these milestones. , but PMI disagreed with our position. The parties were unable to reach a long-term agreement and decided to complete the transition agreement and ultimately end their relationship.

Financial conditions

We received a payment from PMI of $1.0 billion upon closing of the deal. Under the terms of the agreement, PMI is required to make an additional payment of $1.7 billion (plus interest) by July 2023 for a total cash payment of approximately $2.7 billion ( before taxes). We plan to use the cash proceeds for several items, which may include investments in the pursuit of our vision, debt repayment, share buybacks and general corporate purposes. Share buybacks depend on market conditions and other factors and remain subject to the discretion of our Board of Directors.

We expect to record the pre-tax transaction amount of $2.7 billion as a deferred gain on our Consolidated Balance Sheet in the fourth quarter of 2022. This gain will be recognized in earnings when we dispose of our rights to the IQOS system.

IQOS Return to the United States

IQOS and Marlboro HeatSticks are not currently available for sale in the United States due to orders imposed by the United States International Trade Commission that prohibit the importation of IQOS and Marlboro HeatSticks in the United States in patent litigation. PMI remains responsible for the manufacture of the IQOS system and Marlboro HeatSticks and aims to resume product supply in the first half of 2023. If FDA cleared product supply becomes available to us before May 2024, PM USA has the option to reintroduce the IQOS system and Marlboro HeatSticks on sale in the United States On April 30, 2024, the U.S. commercialization rights to the IQOS system will switch to PMI. PMI will not have access to Marlboro brand name or other brand assets, as PM USA owns the Marlboro US registered trademark

Altria’s ongoing commitment to tobacco harm reduction

We remain committed to our vision of responsibly leading the transition of adult smokers to a smoke-free future. We believe in a portfolio approach to tobacco harm reduction and plan to be competitive in major smoke-free categories. We have reinvested in our internal product development system and expect to finalize the design of two smokeless products, including a heated tobacco product, by the end of 2022.

Altria profile

We have a leading portfolio of tobacco products for US tobacco consumers ages 21 and older. Our vision by 2030 is to responsibly lead the transition of adult smokers to a smoke-free future (Vision). We are Go beyond smoking ™, paving the way for adult smokers to move away from cigarettes by taking action to switch millions of people to potentially less harmful choices – believing this to be a substantial opportunity for tobacco users adults, our businesses and society.

Our wholly owned subsidiaries include leading manufacturers of combustible and smokeless products. In fuels, we own Philip Morris USA Inc. (PM USA), the most profitable US cigarette manufacturer, and John Middleton Co. (Middleton), one of the largest cigar manufacturers in the United States. Our smokeless portfolio includes ownership of US Smokeless Tobacco Company LLC (USSTC), the world’s leading manufacturer of wet smokeless tobacco (MST), and Helix Innovations LLC (Helix), a rapidly growing manufacturer of oral nicotine pouches. Additionally, we own an interest in JUUL Labs, Inc. (JUUL) and have exclusive United States marketing rights to the IQOS tobacco heating system ® and Marlboro HeatSticks ® until April 2024.

We also have interests in Anheuser-Busch InBev SA/NV (ABI), the world’s largest brewer, and Cronos Group Inc. (Cronos), a leading Canadian cannabinoid company.

The brand portfolios of our tobacco companies include Marlboro ®, Black and Soft ®, Copenhagen ®, Scoal ® and on! ®. The Altria-related trademarks and service marks referenced in this release are the property of Altria or its affiliates or are used with permission.

Learn more about Altria at www.altria.com and follow us on Twitter, Facebook and LinkedIn.

Forward-Looking Statements and Cautions

This release contains certain forward-looking statements regarding the IQOS transition agreement with PMI, which are subject to various risks and uncertainties. These forward-looking statements relate to, among other things, Altria’s receipt of future cash payments, the expected use of these products, the future availability and supply of IQOS products and the design and development of future products. Factors that could cause actual results to differ include the receipt of regulatory approvals required to reintroduce the IQOS system and Marlboro HeatSticks for sale in the United States and for any future product, risks relating to our ability to realize the expected benefits of the transaction in the manner or within the timeframe anticipated, if applicable, economic, market, regulatory or commercial conditions in force, or changes in these conditions, adversely affecting the parties, changes in the market and other conditions resulting in other uses of the product or unforeseen delays in the design and development of future products, the result of any legal proceedings or investigation that may be brought against the parties or others connected with the transaction, significant changes in the price, availability or quality of raw materials or components, including as a result of changes in macroeconomic conditions, climatic and geopolitical conditions, and the risk of a prolonged interruption of a facility or service by a supplier, distributor or provider of the distribution chain of our subsidiaries or of PMI. Other risk factors are detailed from time to time in Altria’s Quarterly Reports on Form 10-Q and the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this press release. Altria undertakes no obligation to provide revisions or updates to the projections and forward-looking statements contained in this press release.

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KEYWORD: VIRGINIA UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: TOBACCO RETAIL SPECIALTY OTHER RETAIL

SOURCE: Altria Group, Inc.

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PUBLISHED: 10/19/2022 6:45 PM / DISK: 10/19/2022 6:47 PM

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