Item 1A. Risk Factors

Information regarding Risk Factors appears in Part I, Item 1A. Risk Factors of our 2021 Form 10-K and Second Quarter Form 10-Q. Except as set forth below, there have been no material changes to the risk factors previously disclosed in our 2021 Form 10-K and Second Quarter Form 10-Q. We elaborate on these and other risks we face throughout this Form 10-Q, particularly in the “Business Environment” section preceding our discussion of our operating results above in Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Risks Related to Business Operations

Our tobacco operating companies face significant competition, and our failure to compete effectively could have an adverse effect on our consolidated results of operations or cash flows and on our ability to achieve our Vision.

Our tobacco operating companies operate in a highly competitive environment. Significant competition exists with respect to product quality, taste, price, product innovation, marketing, packaging, distribution and promotional activities. In addition, as adult tobacco consumer preferences continue to evolve, consumers increasingly move across tobacco categories. Our failure to compete effectively in this environment could negatively impact our profitability, market share (including as a result of down-trading to lower-priced competitive brands) and shipment volume, which could have an adverse effect on our consolidated results of operations or cash flows and our ability to achieve our Vision.

The growth of innovative tobacco products, including e-vapor, oral nicotine pouches and heated tobacco products, has contributed to reductions in the consumption levels and industry sales volume of cigarettes and other tobacco products, including MST. Furthermore, growth of synthetic nicotine products could negatively impact the growth of other innovative tobacco products. If we are unable to compete effectively in innovative tobacco product categories, including through internal product development, on! oral nicotine pouch products, our investment in JUUL, potential future investments in the e-vapor category, Horizon (PM USA’s majority-owned joint venture with JTIUH for the marketing and commercialization of heated tobacco stick products in the U.S.) and through potential future partnerships with Japan Tobacco Inc. (“Japan Tobacco”), such inability could have a material adverse impact on our business, results of operations, cash flows or financial positions and negatively impact our ability to achieve our Vision.

PM USA also faces competition from lower-priced brands sold by certain United States and foreign manufacturers that have cost advantages because they are not parties to settlements of certain tobacco litigation in the United States and, as such, are not required to make annual settlement payments as required by the parties to the settlements. These settlement payments are significant for PM USA and have contributed to substantial cigarette price increases to help cover the cost of the settlement payments. Manufacturers not party to the settlements are subject to state escrow legislation requiring escrow deposits. Such manufacturers may avoid these escrow obligations by concentrating on certain states where escrow deposits are not required or are required on fewer than all such manufacturers’ cigarettes sold in such states. Additional competition has resulted from diversion into the United States market of cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes, and imports of foreign lower-priced brands. Our failure to compete with lower-priced cigarette brands and counter the impacts of illicit trade in tobacco products could have a material adverse effect on our business, consolidated results of operations, cash flows or financial position.

We may be unsuccessful in developing and commercializing innovative products, including tobacco products that may reduce the health risks associated with certain other tobacco products and that appeal to adult tobacco consumers, which may have an adverse effect on our business, results of operations, cash flows or financial positions and our ability to achieve our Vision.

We have growth strategies involving innovative products that may reduce the health risks associated with certain other tobacco products, while continuing to offer adult tobacco consumers (within and outside the United States) products that meet their taste expectations and evolving preferences. In addition to internal product development, these efforts include arrangements or partnerships with, or investments in, third parties.

Pursuant to a series of agreements entered into with PMI, PM USA maintains exclusive rights to commercialize IQOS devices and related Marlboro HeatSticks in the United States through the end of April 2024. The IQOS devices and related Marlboro HeatSticks are currently subject to an importation ban and cease-and-desist orders imposed by the ITC. If supply of FDA-authorized product is available before the end of April 2024, PM USA has the option to reintroduce the IQOS System for sale in the United States. Pursuant to a series of agreements entered into with PMI in October 2022, exclusive U.S. commercialization rights to the IQOS System will transition to PMI effective April 30, 2024.

Also in October 2022, we entered into a joint venture with JTIUH for the marketing and commercialization of heated tobacco stick products in the U.S. The joint venture’s success in generating new revenue streams by commercializing current and future heated tobacco stick products owned by us or Japan Tobacco is dependent upon a number of factors. Also, if the parties are unsuccessful in collaborating on the development and global commercialization of additional innovative smoke-free tobacco

products, such an outcome could have negative effects on our ability to generate new revenue streams and enter new geographic markets.

We cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products (including products with claims of reduced risk to adult tobacco consumers), the speed with which they may make such determinations or whether they will impose an unduly burdensome regulatory framework on such products. In addition, the FDA could, for a variety of reasons, determine that innovative products currently on the market but pending FDA review of the associated PMTA (such as on! oral nicotine pouches), or those that have previously received authorization, including with a claim of reduced exposure (such as IQOS), are not appropriate for the public health, and the FDA could require such products be taken off the market. We also cannot predict whether any innovative products we commercialize will appeal to adult tobacco consumers or whether adult tobacco consumers’ purchasing decisions would be affected by reduced-risk claims on such products if permitted.

In September 2022, we exercised our option to be released from our JUUL non-competition obligations. If we are unable to identify and leverage new opportunities to acquire, develop or commercialize innovative products within the e-vapor space, such outcomes could put us at a competitive disadvantage in the e-vapor category and have a negative effect on ability to generate new revenue streams.

If we do not succeed in developing and commercializing innovative tobacco products that appeal to adult tobacco consumers or we fail to obtain or maintain regulatory approval for the marketing or sale of products, including with claims of reduced risk, we may be at a competitive disadvantage, which could have an adverse effect on our business, results of operations, cash flows or financial positions and our ability to achieve our Vision.

Risks Related to Our Investments

The expected benefits of the JUUL transaction may not materialize in the expected manner or timeframe or at all.

The expected benefits of the JUUL transaction may not materialize in the expected manner or timeframe or at all, including due to the risks encountered by JUUL in its business, such as operational, competitive, regulatory and legislative risks at the international, federal, state and local levels, including actions by the FDA; adverse publicity due to underage use of e-vapor products and other factors; changes in JUUL’s relationships with employees, customers, suppliers, lenders and other third parties; potential disruptions to JUUL’s management or current or future plans and operations; adverse changes with respect to JUUL’s ability to satisfy its obligations under its debt arrangements and maintain adequate financing to fund its projected cash needs, which could result in JUUL seeking protection under bankruptcy or other insolvency laws; or developments with respect to domestic or international litigation or investigations. JUUL and Altria and/or one or more of our subsidiaries, including PM USA, are named as defendants in various individual and class action lawsuits, including independent lawsuits initiated by certain state attorneys general. JUUL also is named in a significant number of additional individual and class action lawsuits to which neither Altria nor any of our subsidiaries is a party.

In preparing our financial statements for prior periods, we performed valuations of our investment in JUUL as a result of impairment indicators, determined that our investment in JUUL was impaired and recorded non-cash impairment charges in those periods totaling $11.2 billion. Since the fourth quarter of 2020, we have accounted for our investment in JUUL at fair value. As a result, we make various judgments, estimates and assumptions, including with respect to sales volume, operating margins, discount rates and perpetual growth rates, to estimate the fair value of our investment in JUUL, which is calculated quarterly. In June 2022, the FDA issued JUUL MDOs for all of JUUL’s products currently marketed in the United States. Although the MDOs are stayed on a temporary basis, the possibility of JUUL’s products being removed from the U.S. market and the likelihood and extent of JUUL being able to maintain adequate financing to fund projected cash needs negatively impacted the estimated fair value of our investment beginning in the quarter ended June 30, 2022.

In September 2022, we exercised our option to be released from our JUUL non-competition obligations, resulting in (i) the permanent termination of our non-competition obligations to JUUL, (ii) the loss of our JUUL board designation rights (other than the right to appoint one independent director so long as our ownership continues to be at least 10%), our preemptive rights, our consent rights and certain other rights with respect to our investment in JUUL and (iii) the conversion of our JUUL shares to single vote common stock, significantly reducing our voting power. As a result, we now have less ability to protect the value of our investment in JUUL through the exercise of voting power, influence over JUUL’s financial and operating policies and anti-dilution protections. Additionally, JUUL has greater flexibility to pursue strategic options to secure its business that could have a negative effect on the value of our investment. To realize the originally anticipated benefits of the JUUL transaction to our business, we may need to seek alternative opportunities within the e-vapor category.

If the FDA ultimately denies JUUL authorization to market its products in the United States, we are unsuccessful in seeking alternative opportunities in the e-vapor space in the future or the outcomes in connection with any of the other risks or circumstances discussed above deviate significantly from our then-current expectations, such outcomes could adversely impact our business and negatively impact our ability to achieve our Vision.

If the carrying value of our investment in ABI exceeds its fair value and the loss in value is other than temporary, the investment is considered impaired, which would result in additional impairment losses and could have a material adverse effect on our consolidated financial position or earnings.

In preparing our financial statements for the period ended September 30, 2022, we concluded that the carrying value of our investment in ABI exceeded the fair value of our equity investment in ABI and that the decline in fair value of our investment in ABI below its carrying value was other than temporary at September 30, 2022. As a result, we recorded a non-cash, pre-tax impairment charge of $2.5 billion for the nine and three months ended September 30, 2022, which was recorded to (income) losses from investments in equity securities in our condensed consolidated statements of earnings (losses). We reached a similar conclusion in preparing our financial statements for the period ended September 30, 2021 and recorded a $6.2 billion non-cash, pre-tax impairment charge for the nine and three months ended September 30, 2021. If ABI is unable to successfully execute its business plans and strategies, or external factors such as the macroeconomic and geopolitical environment continue to negatively impact the value of our investment in ABI, and the carrying value of our investment in ABI again exceeds the fair value of our investment in ABI, it could result in additional impairment losses, which could have a material adverse effect on our consolidated financial position or earnings.

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

In January 2021, our Board of Directors authorized a $2.0 billion share repurchase program that it expanded to $3.5 billion in October 2021, which we expect to complete by December 31, 2022. The timing of share repurchases under this program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of our Board.

Our share repurchase activity for each of the three months in the period ended September 30, 2022, was as follows: