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Item 7. Management’s Discussion and Analysis

2023-02-10 compared with 2022-02-11 · 697 added, 543 removed, 850 unchanged (59% of the section changed)

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Description of Our Company

We are a leading international tobacco company working to deliver a smoke-free future and evolving our portfolio for the long-term to include products outside of the tobacco and nicotine sector.

Our current product portfolio primarily consists of cigarettes and reduced-risk products, including heat-not-burn, vapor and oral nicotine products, which are sold in markets outside the United States.

We are a leading international tobacco company working to deliver a smoke-free future and to evolve our portfolio for the long term to include products outside of the tobacco and nicotine sector.

Our current product portfolio primarily consists of cigarettes and smoke-free products, which include heat-not-burn, vapor, and oral nicotine products.

Since 2008, we have invested more than $10.5 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

This includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies.

Food and Drug Administration ("FDA") has authorized the marketing of a version of PMI’s IQOS Platform 1 device and consumables as a Modified Risk Tobacco Product (MRTP), finding that an exposure modification order for these products is appropriate to promote the public health.

We describe the MRTP order in more detail in the "Business Environment" section of this Item 7.

With a strong foundation and significant expertise in life sciences, in February 2021, we announced our ambition to expand into wellness and healthcare areas and deliver innovative products and solutions that aim to address unmet patient and consumer needs.

In the third quarter of 2021, our former Latin America & Canada segment was renamed as the Americas segment.

We currently manage our business in six geographical segments and an Other category:

This investment includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies.

In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free combination led by the companies’ IQOS and ZYN brands.

Food and Drug Administration ("FDA") has authorized versions of our IQOS Platform 1 devices and consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products (MRTPs).

We describe the MRTP orders in more detail in the "Business Environment" section of this Item 7.

As of December 31, 2022, we managed our business in six geographical segments, a Swedish Match segment and a Wellness and Healthcare segment:

• European Union ("EU");

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• Americas ("AMCS");

• Other, which includes our third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

• Swedish Match, which reflects our fourth quarter 2022 acquisition of the company;

• Wellness and Healthcare ("W&H"), which includes the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma.

In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc.

(also known as Vectura Group Ltd.) and OtiTopic, Inc.

For further details, see Item 8, Note 6.

Acquisitions, and Item 8, Note 12.

Segment Reporting.

On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma.

The operating results of this new business are reported in the Wellness and Healthcare segment.

To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and deployment, in January 2023, we rearranged our operations in four geographical segments, down from the current six and as follows:

• Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the United Kingdom, and also Ukraine, Moldova and Southeast Europe;

• South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai, United Arab Emirates.

It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel, Central Asia, Caucasus and Russia;

• East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our international duty free business with East Asia & Australia;

• Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.

The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged.

We will report our financial results based on the new geographical segments as of the first quarter of 2023.

In November 2022, we completed the relocation of our corporate headquarters, including our AMCS headquarters, from New York, New York, to Stamford, Connecticut.

Our cigarettes are sold in approximately 175 markets, and in many of these markets they hold the number one or number two market share position.

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Our portfolio comprises both international and local brands.

Smoke-free products ("SFPs") is the term we primarily use to refer to all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine.

In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

In addition to the manufacture and sale of cigarettes, we are engaged in the development and commercialization of reduced-risk products ("RRPs").

RRPs is the term we use to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking.

IQOS is the leading brand in our smoke-free product portfolio.

As of December 31, 2021, our smoke-free products are available for sale in 71 markets in key cities or nationwide.

During 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group plc and Fertin Pharma A/S which provide essential capabilities for future product development.

We have a range of RRPs in various stages of development, scientific assessment and commercialization.

Our RRPs are SFPs that contain and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.

IQOS is the leading brand in our SFP portfolio.

As of December 31, 2022, our smoke-free products were available for sale in 73 markets.

In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group plc and Fertin Pharma A/S, as noted above, which provide essential capabilities for future product development.

Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life sciences, we aim to expand into wellness and healthcare areas.

In 2022, we acquired Swedish Match AB, a market leader in oral nicotine delivery with a significant presence in the United States market.

The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company.

Swedish Match already has a leading nicotine pouch franchise in the U.S.

under the ZYN brand name.

The Swedish Match product portfolio is complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading heat-not-burn product.

By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve separately.

For further details of our 2021 and 2022 acquisitions, see Item 8, Note 3.

Acquisitions and Note 13.

Segment Reporting

We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

Our net revenues and operating income are

affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell.

Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell.

Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix).

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The following executive summary provides the business update and significant highlights from the Discussion and Analysis that follows.

War in Ukraine

Since the onset of the war in Ukraine, our main priority has been the safety and security of our more than 1,300 employees and their families in the country.

PMI has helped to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict zones to locations in the country away from the heaviest fighting;

provided critical aid to employees who cannot leave or who decide to remain in Ukraine;

and provided those who have left the country with a range of support in neighboring countries.

We are continuing to pay salaries to all our Ukrainian employees and are also providing substantial in-kind support to them and their families.

In addition, we have contributed approximately $10 million in funds and donated essential items across the country.

On February 25, 2022, in order to preserve the safety of our employees, we announced the temporary suspension of our commercial and manufacturing operations in Ukraine, including at our factory in Kharkiv.

We subsequently resumed some retail activities where safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from production centers outside Ukraine, as well as through a contract manufacturing arrangement.

Production at our factory in Kharkiv remains suspended.

In 2022, Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume and around 1% of our total net revenues.

As of December 31, 2022, our Ukrainian operations had approximately $0.4 billion in total assets, excluding intercompany balances.

We employ more than 3,200 people in Russia and will continue to support our employees there, including paying their salaries, while continuing to fulfill our legal obligations.

We will continue to make decisions with employee safety and security as a priority.

On March 24, 2022, we announced the concrete steps we had taken to suspend planned investments and scale down our manufacturing operations in Russia, including:

the discontinuation of a number of cigarette products;

the suspension of our marketing activities;

the cancellation of all product launches planned for 2022, including ILUMA ;

and the cancellation of our plans to manufacture heated tobacco units for ILUMA in Russia.

We are continuously assessing the evolving situation in Russia, including:

recent regulatory constraints in the market that entail very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities;

and restrictions resulting from international regulations.

In 2022, Russia accounted for approximately 9% of total shipment volumes and around 7% of our total net revenues.

As of December 31, 2022, our Russian operations had approximately $2.5 billion in total assets, excluding intercompany balances, of which approximately $0.6 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).

We recorded pre-tax charges related to the war in Ukraine of approximately $151 million in 2022 (including humanitarian efforts).

This includes charges in Russia related to the cancellation of the planned launch of ILUMA and the planned production of related heated tobacco units.

These developments above have and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.

For further details, see Item 8, Note 4.

War in Ukraine to our consolidated financial statements as well as Item 1A.

Risk Factors and the " Trade Policy " section of this MD&A.

Agreement with Altria Group, Inc.

regarding Commercialization of IQOS in the U.S.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' relationship regarding the IQOS commercialization rights in the U.S.

as of April 30, 2024.

As a result of PMI reacquiring these rights, effective May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S.

As part of the agreement, PMI agreed to pay a total cash consideration of $2.7 billion, with $1.0 billion paid at the inception of the agreement and the remaining $1.7 billion (plus interest, at a per annum rate equal to six percent (6%)), to be paid by July 2023 at the latest.

For further details, see Item 8, Note 3.

Acquisitions.

Swedish Match Acquisition

On November 11, 2022, Philip Morris Holland Holdings B.V.

(“PMHH”), a wholly owned subsidiary of PMI, acquired a controlling interest of 85.87% of the total issued and outstanding shares in Swedish Match.

Swedish Match's operating results beginning on November 11, 2022 through December 31, 2022, are included in PMI's consolidated statement of earnings and disclosed as a separate segment.

On November 28, 2022, PMHH announced that it had acquired 93.11% of the shares in Swedish Match and intended to:

(i) initiate compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match;

and (ii) request delisting of Swedish Match’s shares from Nasdaq Stockholm.

On December 16, 2022, Swedish Match announced that the compulsory redemption process had been initiated.

On December 30, 2022, the shares of Swedish Match were delisted from Nasdaq Stockholm, by which time PMHH had become the owner of 94.81% of Swedish Match's shares.

For further details, see Item 8, Note 3.

Acquisitions .

On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide basis (excluding South Korea).

The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and associated commitments, based on volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.

For further details, see " Acquisitions and Other Business Arrangements " section of this MD&A.

Consolidated Operating Results

• Net Revenues – Net revenues of $31.4 billion for the year ended December 31, 2021, increased by $2.7 billion, or 9.4%, from the comparable 2020 amount, and were impacted by the effects of the COVID-19 pandemic, particular in 2020.

• Net Revenues – Net revenues of $31.8 billion for the year ended December 31, 2022, increased by $0.4 billion, or 1.1%, from the comparable 2021 amount.

The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale):

Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Germany, Hungary, Italy and Poland, as well as Japan, Russia and Ukraine), and higher device volume (notably in the EU, primarily Italy, and Japan, partly offset by South Korea), partially offset by lower cigarette volume (mainly in the EU Region, notably the Czech Republic, France and Germany, as well as the GCC, North Africa, the Philippines, Russia and Ukraine, partly offset by India, Indonesia, PMI Duty Free and Turkey) and unfavorable cigarette mix (primarily in Germany, Japan and Russia, partially offset by Indonesia and PMI Duty Free);

and a favorable pricing variance (notably driven by the Czech Republic, Germany, Japan, Kazakhstan, the Philippines, Russia and Turkey, partly offset by Australia, Indonesia, Poland and Ukraine);

partially offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, included in "Other" and further described in the following " Diluted Earnings Per Share " discussion.

This net revenue growth reflects the continued strength of IQOS , and the recovery of the combustible business in many markets from the low base in 2020 due to the impact of COVID-19.

favorable volume/mix, primarily driven by higher heated tobacco units ("HTU") volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix;

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing;

and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Other" and further described in the following " Diluted Earnings Per Share " discussion.

In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

Net revenues by product category for the years ended December 31, 2022 and 2021, are shown below:

Net revenues in the Other category primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems resulting from the third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products.

This reclassification did not impact PMI’s segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented.

For further details, see Item 8, Note 13.

Segment Reporting .

• Diluted Earnings Per Share – The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS % Growth

Diluted EPS % Change

For the year ended December 31, 2021 $ 5.83

2021 Asset impairment and exit costs 0.12

2020 Brazil indirect tax credit (0.05)

2020 Fair value adjustment for equity security investments 0.04

2020 Tax items (0.06)

Subtotal of 2020 items 0.01

2021 Asset impairment and exit costs (0.12)

2021 Saudi Arabia customs assessments 0.14

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2021 Equity investee ownership dilution (0.04)

2021 Amortization and impairment of intangibles 0.05

2021 Tax items —

Subtotal of 2021 items 0.30

2022 Charges related to the war in Ukraine (0.08)

2022 Fair value adjustment for equity security investments 0.02

2022 Amortization and impairment of intangibles (0.15)

2022 Costs associated with Swedish Match AB offer (0.06)

2022 Swedish Match AB acquisition accounting related item (0.06)

2022 Tax benefit associated with Swedish Match AB financing 0.13

2022 Tax items 0.03

Subtotal of 2022 items (0.17)

Currency (0.77)

Interest 0.02

Change in tax rate 0.03

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For the year ended December 31, 2022 $ 5.81 (0.3) %

Asset impairment and exit costs – During 2020, we recorded pre-tax asset impairment and exit costs of $149 million, representing $124 million net of income tax and a diluted EPS charge of $0.08 per share, related to the organizational design optimization plan,

primarily in Switzerland.

During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing $181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

The total pre-tax charges in 2020 and 2021 were included in marketing, administration and research costs on the consolidated statements of earnings.

Asset impairment and exit costs – During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing $181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021.

For further details, see Item 8, Note 20.

Asset Impairment and Exit Costs .

Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, we recorded a gain of $119 million for tax credits in 2020 ($79 million net of income tax and $0.05 per share increase in diluted EPS) representing overpayments of indirect taxes for the period from March 2012 through December 2019;

these tax credits were applied to tax liabilities in Brazil during 2021.

This amount was included as a reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020, and was included in the operating income of the Americas segment.

An additional amount of overpaid indirect taxes of approximately $90 million is dependent on a potential tax authority challenge.

Fair Value adjustment for equity security investments – During 2020, we recorded an unfavorable fair value adjustment for our equity security investments of $60 million after tax (or $0.04 per share decrease in diluted EPS).

The fair value adjustment for our equity security investments was included in equity investments and securities (income)/loss, net ($76 million loss) and provision for income taxes ($16 million benefit) on the consolidated statements of earnings in 2020.

For further details, see Item 8, Note 4.

Related Parties - Equity Investments and Other.

Income taxes – The 2020 Tax items that increased our 2020 diluted EPS by $0.06 per share in the table above were due to final U.S.

tax regulations under the Global Intangible Low-Taxed Income ("GILTI") provisions of the Internal Revenue Code for years 2018 and 2019 ($93 million).

The change in the tax rate that increased our diluted EPS by $0.08 per share in the table above was primarily due to the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by taxing jurisdiction.

For further details, see Item 8, Note 11.

Income Taxes .

Saudi Arabia customs assessment s – In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi Arabia of its decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described in Item 8, Note 18.

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As a result, our share of holdings in Medicago Inc.

was reduced from approximately 32% to approximately 23% as of December 31, 2021.

The ownership dilution resulted in a $0.04 per share favorable impact to diluted EPS and income of $55 million to Equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2021.

was reduced from approximately 32% at December 31, 2020, to approximately 23% as of December 31, 2021.

The ownership dilution resulted in a $0.04 per share

favorable impact to diluted EPS and income of $55 million to equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2021.

For further details, see Item 8, Note 18.

Contingencies - Third Party Guarantees .

Currency – The favorable impact of $0.12 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro.

This favorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Amortization and impairment of intangibles – During 2022 and 2021, we recorded amortization and impairment of intangibles of $271 million (representing $227 million net of income tax or $0.15 per share decrease in diluted EPS) and $96 million (representing $78 million net of income tax or $0.05 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $159 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021, and an impairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

For further details, see Item 8, Note 3.

Acquisitions and Note 5.

Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – During 2022, we recorded a pre-tax charge of $151 million, representing $128 million net of income tax and a diluted EPS charge of $0.08 per share, related to circumstances driven by the war, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts.

For further details, see Item 8, Note 4.

War in Ukraine .

Fair Value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS).

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match acquisition of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs.

These pre-tax costs of $116 million were recorded in marketing, administration and research costs ($115 million expense) and interest expense, net ($1 million expense) on our consolidated statement of earnings for the year ended December 31, 2022.

Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded pre-tax purchase accounting adjustments of $125 million related to the sale of acquired inventories stepped up to fair value (representing $94 million net of income tax and a diluted EPS charge of $0.06 per share).

These pre-tax adjustments were recorded in cost of sales in the consolidated statements of earnings for the year ended December 31, 2022.

For further details, see Item 8, Note 3.

Acquisitions .

Income taxes – The 2022 Tax benefit associated with Swedish Match AB financing that increased our 2022 diluted EPS by $0.13 per share in the table above was due to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity at December 31, 2022.

The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million.

The change in the tax rate that increased our diluted EPS by $0.03 per share in the table above was primarily due to changes in income tax reserves.

Currency – The unfavorable impact of $0.77 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Swiss franc.

This unfavorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Interest – The favorable impact of $0.02 per share from interest in the table above was primarily driven by the repayment of long-term debt maturing in 2021 and 2022, and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Operations – The increase in diluted EPS of $0.57 per share from our operations in the table above was due primarily to the following segments:

• European Union:

Favorable volume/mix, lower manufacturing costs and favorable pricing, partially offset by higher marketing, administration and research costs;

Favorable volume/mix, partly offset by unfavorable pricing, higher manufacturing costs and higher marketing, administration and research costs;

• Middle East & Africa:

Favorable pricing, favorable volume/mix and lower manufacturing costs, partially offset by lower

fees for certain distribution rights and higher marketing, administration and research costs;

• Eastern Europe:

Favorable volume/mix, lower manufacturing costs, favorable pricing and lower marketing, administration and research costs;

• East Asia & Australia:

Favorable pricing and lower manufacturing costs, partially offset by higher marketing, administration and research costs;

Favorable pricing and lower marketing, administration and research costs, partially offset by higher manufacturing costs;

partially offset by

Favorable volume/mix, favorable pricing and lower marketing, administration and research costs, partly offset by higher manufacturing costs;

• South & Southeast Asia:

Unfavorable pricing, unfavorable volume/mix and higher marketing, administration and research costs.

Lower marketing, administration and research costs and favorable pricing, partly offset by unfavorable volume/mix;

partially offset by

• East Asia & Australia:

Unfavorable volume/mix and higher manufacturing costs, partly offset by lower marketing, administration and research costs;

• Wellness and Healthcare:

Primarily reflecting investments in research and development, as well as expenses related to employee retention programs;

Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable pricing;

• Eastern Europe:

Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing.

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

IQOS Device Supply

The current global semiconductor shortage has resulted in a tightness in IQOS device supply in the second half of 2021.

In the fourth quarter of 2021, the IQOS device supply situation eased, resulting in an improved IQOS user growth versus the third quarter.

We expect an improving IQOS device supply situation, with a gradual return to an unconstrained IQOS user quarterly growth progression.

However, we still do not have full visibility over the full year 2022.

IQOS in the United States

On November 29, 2021, an importation ban and cease-and-desist orders imposed by the U.S.

International Trade Commission ("ITC") relating to IQOS Platform 1 products (including consumables and infringing components) went into effect.

As a result, IQOS is not currently available for sale in the U.S.

We have appealed the patent and statutory issues related to the ITC's Final Determination, and also have contingency plans underway, including domestic production.

We hope to be able to resume U.S.

supply in the first half of 2023.

For more details on the ITC case and related legal matters, please refer to Item 8, Note 17 .

Contingencies .

The ITC decision has no bearing outside the U.S.;

competitor lawsuits based on the same patent families have repeatedly and universally failed in European courts and the European Patent Office.

During 2021, PMI acquired the following companies:

• Vectura Group plc, an inhaled therapeutics company based in the United Kingdom;

• Fertin Pharma A/S, a Danish company that is a leading developer and manufacturer of innovative pharmaceutical and well-being products based on oral and intra-oral delivery systems;

• OtiTopic, Inc., a U.S.

respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction;

• AG Snus Aktieselskab, a Danish company, and its Swedish subsidiary, Tobacco House of Sweden AB, fully owned by AG Snus, which operates in the oral tobacco and modern oral product categories.

For further details on these acquisitions, see Item 8, Note 6.

Acquisitions .

Discussion and Analysis

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The following is a discussion of the more significant assumptions, estimates, accounting policies and methods used in the preparation of our consolidated financial statements:

Acquisitions - PMI accounts for business combinations using the acquisition method of accounting.

PMI allocates the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with the excess recorded as Goodwill.

The fair value of the applicable assets acquired and liabilities assumed is determined through established valuation techniques, such as the income, cost or market approach.

PMI may utilize third-party valuation experts to assist in the fair value determination of certain assets acquired and liabilities assumed.

The determination of fair value requires management to make judgements and may involve the use of significant estimates, including assumptions with respect to estimated projected revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty rates and other factors.

Certain acquired intangibles are expected to have indefinite lives based on their history and PMI’s intent to continue to support and build the intangible.

Although PMI believes its estimates of fair value are reasonable, actual financial results could differ from those estimates.

Changes in assumptions related to future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.

See Item 8, Note 3.

Acquisitions to our consolidated financial statements for details of the critical accounting estimates relevant to the business combinations in the periods presented in this Form 10-K.

Revenue Recognition - We recognize revenue as performance obligations are satisfied.

Our primary performance obligation is the distribution and sales of cigarettes and reduced-risk products, including heat-not-burn, vapor and oral nicotine products.

Our primary performance obligation is the distribution and sales of cigarettes and smoke-free products, including heat-not-burn, vapor and oral nicotine products.

Our performance obligations are typically satisfied upon shipment or delivery to our customers.

The company estimates the cost of sales returns based on historical experience, and these estimates are immaterial.

PMI estimates the cost of sales returns based on historical experience, and these estimates are immaterial.

Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience, product failure rates and warranty policies.

The transaction price is typically based on the amount billed to the customer and includes estimated variable consideration where applicable.

The transaction price is typically based on the amount

billed to the customer and includes estimated variable consideration where applicable.

Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.

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Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review.

While the company has the option to perform a qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an impairment exists, the company elects to perform the quantitative assessment for our annual impairment analysis.

While PMI has the option to perform a qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an impairment exists, PMI elects to perform the quantitative assessment for our annual impairment analysis.

The impairment analysis involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value.

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To determine the fair value of goodwill, we primarily use the market approach using earnings multiples of comparable global companies within the tobacco industry, supported by a discounted cash flow model.

At December 31, 2021, the carrying value of our goodwill was $6.7 billion, which is related to ten geographical reporting units, each of which consists of a group of markets with similar operating and economic characteristics and our 2021 acquisitions.

The Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

acquisitions in 2021 are considered separate operating segments and are accounted for within the Other category.

At December 31, 2022, the carrying value of our goodwill was $19.7 billion, which is related to ten geographical reporting units, each of which consists of a group of markets with similar operating and economic characteristics, Wellness and Healthcare business, Vectura Fertin Pharma and our 2022 acquisition.

The acquisition of Swedish Match in 2022 is considered a separate operating segment.

For additional information, see Item 8, Note 3.

Acquisitions .

The estimated fair value of each of our ten reporting units and additional businesses acquired in 2021 exceeded the carrying value as of December 31, 2021.

The estimated fair value of each of our ten geographical reporting units, Wellness and Healthcare business and Swedish Match exceeded the carrying value as of December 31, 2022.

To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash flow model applying the relief-from-royalty method.

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We anticipate that assumption changes will decrease 2023 pre-tax pension and postretirement expense to approximately $91 million as compared with approximately $152 million in 2022, excluding amounts related to employee severance and early retirement programs.

The anticipated decrease is primarily due to lower amortization of unrecognized actuarial gains/losses of $123 million, coupled with lower service cost of $45 million and other movements of $9 million, partially offset by higher interest cost of $29 million.

The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $168 million, coupled with lower service cost of $74 million, partially offset by higher interest cost of $167 million and other movements of $14 million.

Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans.

A fifty-basis-point decrease in our discount rate would increase our 2022 pension and postretirement expense by approximately $70 million, and a fifty-basis-point increase in our discount rate would decrease our 2022 pension and postretirement expense by approximately $58 million.

A fifty-basis-point decrease in our discount rate would increase our 2023 pension and postretirement expense by approximately $40 million, and a fifty-basis-point increase in our discount rate would increase our 2023 pension and postretirement expense by approximately $1 million.

Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would increase (decrease) our 2023 pension expense by approximately $37 million.

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however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.

If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result.

If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would generally result.

If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

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If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders’ (deficit) equity would have been recorded in our net earnings for these derivatives.

Fair value of non-marketable equity securities - For further details, see Item 8, Note 20.

Deconsolidation of RBH.

Contingencies - As discussed in Item 8, Note 18.

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East Asia & Australia 5,132 5,953 5,429

1,843 1,701 2,206

Other 101 — —

Americas 1,903 1,843 1,701

Swedish Match 316 — —

Wellness and Healthcare 271 101 —

Net revenues $ 31,762 $ 31,405 $ 28,694

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East Asia & Australia 1,919 2,556 2,400

Other (52) — —

Americas 436 487 564

Swedish Match (22) — —

Wellness and Healthcare (258) (52) —

Operating income $ 12,246 $ 12,975 $ 11,668

(1) As of March 22, 2019, PMI deconsolidated the financial results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc.

("RBH"), from PMI's financial statements.

For further details, see Item 8, Note 20.

Deconsolidation of RBH .

Items affecting the comparability of results from operations were as follows:

• Charges related to the war in Ukraine - See Item 8, Note 4.

War in Ukraine for details of the $151 million pre-tax charges in the Eastern Europe segment for the year ended December 31, 2022.

• Swedish Match AB acquisition accounting related item - See Item 8, Note 3.

Acquisitions for details of the $125 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish Match segment for the year ended December 31, 2022.

• Impairment of intangibles - See Item 8, Note 5.

Goodwill and Other Intangible Assets, net for the details of the $112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2022.

• Asset impairment and exit costs - See Item 8, Note 20.

Asset Impairment and Exit Costs for details of the $216 million, $149 million and $422 million pre-tax charges for the years ended December 31, 2021, 2020 and 2019, respectively, as well as a breakdown of these costs by segment.

Asset Impairment and Exit Costs for details of the $216 million and $149 million pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by segment.

• Saudi Arabia customs assessments - See Item 8, Note 18.

Contingencies for the details of the $246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the year ended December 31, 2021.

Contingencies for the details of the $246 million reduction in net revenues of combustible tobacco products included in the Middle East & Africa segment for the year ended December 31, 2021.

• Asset acquisition cost - See Item 8, Note 3.

Acquisitions for the details of the $51 million pre-tax charge associated with the asset acquisition of OtiTopic, Inc.

included in Other within the operating income table above for the year ended December 31, 2021.

• Russia excise and VAT audit charge - See Item 8, Note 17.

Contingencies for details of the $374 million pre-tax charge included in the Eastern Europe segment for the year ended December 31, 2019.

• Canadian tobacco litigation-related expense - See Item 8, Note 17.

Contingencies and Note 20.

Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Americas segment for the year ended December 31, 2019.

• Loss on deconsolidation of RBH - See Item 8, Note 20.

Deconsolidation of RBH for details of the $239 million loss included in the Americas segment for the year ended December 31, 2019.

included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2021.

• Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019;

these tax credits were applied to tax liabilities in Brazil during 2021.

An additional amount of overpaid indirect taxes of approximately $90 million is dependent on a potential tax authority challenge.

This amount was included as a

reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Americas segment.

An additional amount of overpaid indirect taxes of approximately $90 million is dependent on the outcome of a challenge by the local tax authority.

Our net revenues by product category were as follows:

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(in millions) 2022 2021 2020

Combustible Products

Combustible tobacco products

European Union $ 7,212 $ 8,211 $ 8,052

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Americas 1,804 1,706 1,577

Total Combustible Products $ 22,190 $ 21,867 $ 24,218

Reduced-Risk Products

Swedish Match 70 — —

Total combustible tobacco products 21,572 22,067 21,747

Smoke-free products

Smoke-free products excluding Wellness and Healthcare:

European Union 4,907 4,064 2,650

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Americas 99 137 124

Total Reduced-Risk Products $ 9,115 $ 6,827 $ 5,587

Other $ 101 $ — $ —

Swedish Match 246 — —

Total smoke-free products excluding Wellness and Healthcare 9,919 9,237 6,947

Wellness and Healthcare 271 101 —

Total smoke-free products 10,190 9,338 6,947

Total PMI net revenues $ 31,762 $ 31,405 $ 28,694

Sum of product categories or Regions might not foot to total PMI due to rounding.

Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

These net revenue amounts consist of the sale of our cigarettes and other tobacco products combined.

Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risk products.

Net revenues related to reduced-risk products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

These net revenue amounts consist of the sale of our heated tobacco units, heat-not-burn devices and related accessories, and other nicotine-containing products, which primarily include our e-vapor and oral nicotine products.

and OtiTopic, Inc.

This reclassification did not impact PMI’s segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented.

For further details, see Item 8, Note 13.

Segment Reporting .

Net revenues related to combustible tobacco products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

These net revenue amounts consist of the sale of our cigarettes and other tobacco products that are combusted.

Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.

Net revenues related to smoke-free products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable.

These net revenue amounts consist of the sale of all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine, also including wellness and healthcare products, as well as consumer accessories such as lighters and matches.

Net revenues related to wellness and healthcare products consist of operating revenues generated from the sale of products primarily associated with inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's new

Wellness and Healthcare business, Vectura Fertin Pharma.

PMI's heat-not-burn products include licensed KT&G heat-not-burn products.

Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States, are included in Net Revenues of the Americas segment.

References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six geographical segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of:

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marketing, administration and research costs (including asset impairment and exit costs);

and amortization of intangibles.

and amortization and impairment of intangibles.

“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to:

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These include HEETS , Next , Philip Morris and Rooftop.

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which include our HEETS , HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO ( defined collectively as HEETS) , Marlboro Dimensions , Marlboro HeatSticks, Parliament HeatSticks and TEREA , as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Market share for HTUs is defined as the total sales volume for HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs.

Shipment volume of heated tobacco units to the United States is included in the heated tobacco unit shipment volume of the Americas segment.

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid products based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or our duty free business.

2020 and 2021 estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which include our BLENDS , HEETS , HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO ( defined collectively as HEETS) , Marlboro Dimensions , Marlboro HeatSticks, Parliament HeatSticks, SENTIA and TEREA , as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Market share for HTUs is defined as the in-market sales volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.

References to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units, unless otherwise stated.

As of 2022 and on a comparative basis, total industry volume, PMI in-market sales volume and PMI market share for the following geographies include the cigarillo category in Japan:

the total international market, East Asia & Australia Region, and Japanese domestic market.

Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

In-market sales ("IMS") is defined as sales to the retail channel, depending on the market and distribution model.

Central Asia is defined as Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.

North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

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Southeast Europe is defined as Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia.

References to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units, unless otherwise stated.

From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures.

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The following discussion compares our consolidated operating results for the year ended December 31, 2022, with the year ended December 31, 2021.

Estimated international industry cigarette and heated tobacco unit volume, excluding China and the U.S., of 2.6 trillion, increased by 2.4%, driven by the EU, Middle East & Africa, South & Southeast Asia and Americas Regions, partly offset by the Eastern Europe and East Asia & Australia Regions, as described in the Regional sections.

Our total shipment volume increased by 2.2%, driven by:

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, particularly in Germany, Hungary, Italy and Poland, partly offset by lower cigarette shipment volume, notably in the Czech Republic, France and Germany;

• Middle East & Africa, reflecting higher cigarette shipment volume (primarily in PMI Duty Free and Turkey, partly offset by the GCC and North Africa), as well as higher heated tobacco unit shipment volume across the Region;

• East Asia & Australia, reflecting higher heated tobacco unit shipment volume driven by Japan, partly offset by lower cigarette shipment volume, predominantly in South Korea;

• Americas, mainly reflecting higher cigarette shipment volume, primarily in Brazil and Mexico, partially offset by Argentina;

partly offset by

• South & Southeast Asia, primarily reflecting lower cigarette shipment volume, mainly in the Philippines, partially offset by Indonesia and Pakistan.

Total shipment volume in Eastern Europe was essentially flat, reflecting lower cigarette shipment volume, mainly in Russia and Ukraine, almost fully offset by higher heated tobacco unit shipment volume, primarily in Russia and Ukraine.

Estimated international industry cigarette and heated tobacco unit volume (excluding China and the U.S.) of 2.6 trillion, increased by 0.2%, driven by the EU, South & Southeast Asia and Americas Regions, partly offset by the Eastern Europe, Middle East & Africa and East Asia & Australia Regions, as described in the Regional sections.

Excluding Russia and Ukraine, estimated international industry volume increased by 0.9%.

Our total shipment volume increased by 1.6%, driven by an increase of 14.9% for HTUs, partly offset by a 0.5% decline for cigarettes.

Excluding Russia and Ukraine, our total shipment volume increased by 3.2%, reflecting increases of 21.5% and 0.8% for HTUs and cigarettes, respectively.

Our total shipment volume in the Eastern Europe Region increased by 2.7%, on the same basis.

For additional detail on PMI's shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.

Impact of Inventory Movements

Excluding the net favorable impact of estimated distributor inventory movements of approximately 8.4 billion units, our total in-market sales increased by 1.0%, driven by a 21.1% increase in heated tobacco units, partly offset by a 1.5% decrease in cigarettes.

The net favorable impact of approximately 8.4 billion units reflected:

• A net favorable impact of 5.6 billion cigarettes, mainly driven by 2020 movements in Japan, PMI Duty Free and Russia;

• A net favorable impact of 2.7 billion heated tobacco units, primarily reflecting the growing category and driven by Japan, Italy, PMI Duty Free and Russia.

Our total heated tobacco unit in-market sales volume in the year was 92.5 billion units.

The net unfavorable impact of estimated distributor inventory movements was immaterial in the year, with PMI’s total in-market sales increasing by 1.7%, or by 3.2% excluding Russia and Ukraine, both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume for the year was 106.9 billion units, or 86.4 billion units excluding Russia and Ukraine, representing growth of 15.6% and 21.4%, respectively.

Our cigarette shipment volume by brand and heated tobacco unit shipment volume was as follows:

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Chesterfield 67,054 58,800 14.0 %

Philip Morris 42,395 45,645 (7.1) %

Parliament 43,999 41,621 5.7 %

Sampoerna A 37,815 32,862 15.1 %

Dji Sam Soe 22,627 24,754 (8.6) %

Lark 15,487 15,489 — %

Bond Street 14,175 24,113 (41.2) %

Next 8,849 8,980 (1.5) %

Philip Morris 39,620 42,395 (6.5) %

Others 143,998 157,812 (8.8) %

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Total Cigarettes and Heated Tobacco Units 731,077 719,851 1.6 %

Lark includes Lark Harmony ;

Next includes Next Dubliss ;

Philip Morris includes Philip Morris/Dubliss .

and Sampoerna A includes Sampoerna .

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia and Ukraine) and Japan.

Our cigarette shipment volume of the following brands increased:

• Marlboro, mainly driven by Mexico, PMI Duty Free, Russia and Turkey, partly offset by France, Japan and the Philippines;

• Chesterfield , primarily driven by Brazil, the Philippines and Russia, partly offset by Saudi Arabia;

• Parliament , mainly driven by Russia, Saudi Arabia and Turkey, partly offset by South Korea;

• Sampoerna A in Indonesia, primarily driven by premium A Mild .

Our cigarette shipment volume of the following brands decreased:

• L&M , mainly due to Egypt, Germany, Poland, Russia and Turkey;

• Philip Morris , primarily due to Indonesia, Italy and Russia, partly offset by Japan;

• Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild ;

• Bond Street , primarily due to Kazakhstan, Russia and Ukraine;

• Next , primarily due to Canada and Ukraine, partly offset by Russia;

• "Others," notably due to:

mid-price Fortune (Philippines) and Sampoerna U (Indonesia);

and low-price Jackpot (Philippines) and More (Philippines);

partly offset by mid-price Sampoerna Hijau (Indonesia) and low-price Morven (Pakistan).

PMI's cigarette shipment volume for Lark was flat.

Shipment volume for our HTU brands increased, primarily driven by the EU, Middle East & Africa and East Asia & Australia Regions, partly offset by the Eastern Europe Region.

Our cigarette shipment volume of the following international brands increased:

• Marlboro, mainly driven by the Eastern Europe, Middle East & Africa and Americas Regions, partly offset by the EU Region;

• Chesterfield , primarily driven by the Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa Region;

• Parliament , mainly driven by the Middle East & Africa Region.

Our cigarette shipment volume of the following international brands decreased:

• L&M , primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa and Americas Regions;

• Philip Morris , mainly due to the Eastern Europe and Americas Regions, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to:

Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 1.8% for Marlboro , 5.6% for Chesterfield , 10.3% for Parliament and 6.3% for Philip Morris , and decreased by 0.3% for L&M .

International Share of Market (Excluding China and the United States)

Our total international market share (excluding China and the United States), defined as our cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, decreased by 0.4 points to 27.3%, reflecting:

• Total international market share for cigarettes of 23.8%, down by 0.9 points;

• Total international market share for heated tobacco units of 3.5%, up by 0.5 points.

Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.8 points to 24.9%, mainly reflecting lower cigarette market share and/or an unfavorable geographic mix impact, notably in Japan, the Philippines and Russia, partly offset by Indonesia and Turkey.

In 2021, we owned five of the world's top 15 international cigarette brands, with international cigarette market shares as follows:

Marlboro , 9.5%;

Chesterfield , 2.3%;

Philip Morris , 1.7%;

and Parliament , 1.7%.

2022 2021 Change (pp)

Total International Market Share (1)

27.6 % 27.2 % 0.4

Cigarettes 23.6 % 23.7 % (0.1)

HTU 4.1 % 3.5 % 0.6

Cigarette over Cigarette Market Share (2)

24.9 % 24.8 % 0.1

(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan

(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan

Sum of share of market by product categories might not foot to total due to roundings

International Share of Market (Excluding China and the United States, as well as Russia and Ukraine)

2022 2021 Change (pp)

Total International Market Share (1)

27.3 % 26.7 % 0.6

Cigarettes 23.7 % 23.7 % —

HTU 3.6 % 3.0 % 0.6

Cigarette over Cigarette Market Share (2)

24.9 % 24.6 % 0.3

(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan

Sum of share of market by product categories might not foot to total due to roundings

Key Market Data

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2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021

Total 2,613.2 2,551.1 719.9 704.6 624.9 628.5 95.0 76.1 27.3 27.7 3.5 3.0

2,626.4 2,620.5 731.1 719.9 621.9 624.9 109.2 95.0 27.6 27.2 4.1 3.5

European Union

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Middle East & Africa

Saudi Arabia 21.1 21.7 8.9 9.1 8.7 9.0 0.2 0.1 41.6 39.0 1.0 0.3

Egypt 93.6 93.4 21.0 19.5 20.0 19.2 1.0 0.2 22.2 20.7 0.8 0.2

Turkey 117.2 125.1 56.1 55.7 56.1 55.7 — — 47.9 44.5 — —

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Australia 8.9 9.7 3.0 3.1 3.0 3.1 — — 33.4 32.3 — —

Japan 139.5 142.9 55.2 51.1 22.1 22.2 33.1 28.9 38.5 37.1 22.9 20.4

148.3 150.5 55.5 55.2 21.1 22.1 34.4 33.1 37.6 35.7 23.6 21.3

South Korea 72.6 71.7 13.9 14.1 9.4 9.4 4.5 4.7 19.2 19.7 6.2 6.5

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(1) Market share estimates are calculated using IMS data

% change for Total Market and PMI shipments is computed based on millions of units.

"-" indicates volume below 50 million units and market share below 0.1%

(2) Total market and market share estimates include cigarillos in Japan

Financial Summary

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Cost of Sales (2)

(11,402) (10,030) (13.7) % (16.5) % (1,372) 695 (414) — (1,089) (564)

Marketing, Administration and Research Costs (3)

(8,114) (8,400) 3.4 % 0.3 % 286 454 (197) — — 29

Amortization of Intangibles (96) (73) (31.5) % (5.5) % (23) (1) (18) — — (4)

Operating Income $ 12,246 $ 12,975 (5.6) % 6.7 % $ (729) $ (1,507) $ (96) $ 528 $ 630 $ (284)

(1) Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the Saudi Arabia customs assessments.

(1) Favorable Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the Saudi Arabia customs assessments.

For more details, see Item 8, Note 18.

Contingencies .

(2) Cost/Other variance includes charges in 2021 and 2020 of $216 million and $149 million, respectively, for asset impairment and exit costs.

Cost/Other variance also includes in 2021 the pre-tax charge of $51 million associated with the asset acquisition cost of OtiTopic, Inc., and in 2020 the Brazil indirect tax credit of $119 million.

(2) C ost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets, $62 million related to the war in Ukraine and $125 million of Swedish Match AB acquisition accounting related item.

For more details, Item 8, see Note 3.

Acquisitions , Note 4.

War in Ukraine and Note 5.

Goodwill and Other Intangible Assets, net .

(3) Cost/Other variance includes charges in 2022 of $89 million related to the war in Ukraine and $115 million in 2022 related to costs associated with the Swedish Match AB offer, offset by charges in 2021 of $216 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of OtiTopic, Inc.

For more details, see Item 8, Note 3.

Acquisitions, Item 8, Note 12.

Segment Reporting and Item 8, Note 19.

Acquisitions , Note 4.

War in Ukraine and Note 20.

Asset Impairment and Exit Costs.

Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Germany, Hungary, Italy and Poland, as well as Japan, Russia and Ukraine) and higher device volume (notably in the EU, primarily Italy, and Japan, partly offset by South Korea), partially offset by lower cigarette volume (mainly in the EU Region, notably the Czech Republic, France and Germany, as well as the GCC, North Africa, the Philippines, Russia and Ukraine, partly offset by India, Indonesia, PMI Duty Free and Turkey) and unfavorable cigarette mix (primarily in Germany, Japan and Russia, partially offset by Indonesia and PMI Duty Free);

and a favorable pricing variance (notably driven by the Czech Republic, Germany, Japan, Kazakhstan, the Philippines, Russia and Turkey, partly offset by Australia, Indonesia, Poland and Ukraine);

partially offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments of $246 million, net revenues increased by 10.3%, or 7.6% excluding favorable currency of $678 million and acquisitions of $109 million.

The favorable currency in net revenues was due primarily to the Australian dollar, Czech krona, Euro, Indonesian rupiah, Mexican peso and Philippine peso, partially offset by the Russian ruble and Turkish lira.

Net revenues include $9.1 billion in 2021 and $6.8 billion in 2020 related to the sale of RRPs.

For the year ended December 31, 2021, IQOS devices accounted for over 6% of RRP net revenues, with a step-up in the second half of 2021 reflecting the IQOS ILUMA launch;

outweighing the effect of supply constraints on other IQOS versions.

Operating income, excluding currency and acquisitions, increased by 8.9%, primarily reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume, partly offset by lower cigarette volume and unfavorable cigarette mix (each mainly reflecting the same geographies as for net revenues noted above);

a favorable pricing variance;

and lower manufacturing costs (driven by significant productivity gains related to reduced-risk and combustible products);

partly offset by higher marketing, administration and research costs, including an unfavorable comparison related to the Brazil indirect tax credit in 2020, higher asset impairment and exit costs (mainly related to organizational design optimization, as well as product distribution restructuring in South Korea) and asset acquisition costs related to OtiTopic;

and the unfavorable impact of the Saudi Arabia customs assessments (as noted above for net revenues).

Interest expense, net, of $628 million increased by $10 million (1.6%).

Our effective tax rate increased by 0.1 percentage point to 21.8%.

We estimate that our 2022 effective tax rate will be around 22%, excluding discrete tax events.

favorable volume/mix, primarily driven by higher HTU volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix;

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing;

and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other".

In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

The unfavorable currency in net revenues was due primarily to the Egyptian pound, Euro, Japanese yen, Philippine peso, Polish zloty and Turkish lira, partly offset by the Russian ruble.

Net revenues include $10.2 billion in 2022 and $9.3 billion in 2021 related to the sale of smoke-free products.

In 2022, IQOS devices accounted for approximately 5% of our full year smoke-free net revenues both including and excluding Russia and Ukraine.

Operating income decreased by 5.6%.

Operating income, excluding currency and acquisitions, increased by 6.7%, which included:

favorable comparisons versus the prior year period related to the 2021 Saudi Arabia customs assessments of $246 million (as noted above for net revenues), 2021 asset impairment and exit costs of $216 million and 2021 asset acquisition cost of $51 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $115 million, higher amortization and impairment of intangibles (primarily $112 million related to impairment charges in 2022), 2022 charges related to the war in Ukraine of $151 million and $125 million of Swedish Match AB acquisition accounting related item in 2022.

In addition to these items, operating income was impacted by:

a favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable cigarette mix, HTU mix and device mix, and the unfavorable impact on profitability of higher device volume;

and a favorable pricing variance;

partially offset by higher manufacturing costs (primarily due to higher logistics costs and other inflationary impacts, partly offset by productivity);

and higher marketing, administration and research costs.

As reduced-risk products grow as a proportion of our business, notably for IQOS ILUMA where unit costs of devices and both the unit costs and weight of consumables are not yet fully optimized, a temporary dilutive margin impact is likely to continue in the coming quarters.

Like many other global companies, we are facing significant inflationary forces in the world economy.

Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs.

These inflationary pressures, including margin pressure from inflation as well as the cost of capital, could continue to grow in the upcoming quarters.

Interest expense, net, of $588 million decreased by $40 million (6.4%) primarily driven by the repayment of long-term debt maturing in 2021 and 2022 and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Our effective tax rate decreased by 2.5 percentage points to 19.3%.

We estimate that our 2023 effective tax rate will be approximately 20.5% to 21.5%, excluding discrete tax events.

For further details, see Item 8, Note 12.

Income Taxes .

Net earnings attributable to PMI of $9.1 billion increased by $1.1 billion or 13.1%.

This increase was due primarily to higher operating income as discussed above, partially offset by a higher effective tax rate.

Basic and diluted EPS of $5.83 increased by 13.0%.

Excluding a favorable currency impact of $0.12, diluted EPS increased by 10.7%.

Net earnings attributable to PMI of $9.0 billion decreased by $0.1 billion or 0.7%.

This decrease was due primarily to lower operating income as discussed above, partially offset by a lower effective income tax rate.

Basic EPS of $5.82 and diluted EPS of $5.81 decreased by 0.2% and 0.3%, respectively.

Excluding an unfavorable currency impact of $0.77, diluted EPS increased by 12.9%.

2021 compared with 2020

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Securities and Exchange Commission on February 11, 2022.

This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.

Operating Results by Business Segment

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These challenges, which are discussed below and in “ Cautionary Factors That May Affect Future Results ,” include:

• regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;

• regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;

• fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;

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The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes.

Much of the regulation that shapes the business environment in which we operate is driven by the Framework Convention on Tobacco Control (the “FCTC”) of the World Health Organization (the "WHO"), which entered into force in 2005.

Much of the regulation that shapes the business environment in which we operate is driven by the FCTC, which entered into force in 2005.

The FCTC has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use.

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We believe that when better alternatives to cigarettes exist, the discussion should not be whether these alternatives should be made available to the more than one billion people who smoke today, but how fast, and within what regulatory framework to maximize their adoption while minimizing unintended use.

Therefore, we advocate for regulatory frameworks that recognize a significant difference on a risk continuum between combustible tobacco on the one hand and non-combustible tobacco and other nicotine-containing products on the other.

Regulation should include measures that will accelerate switching to non-combustible products, for example, by allowing adult consumers who would not otherwise quit to receive truthful and non-misleading information about such products to

enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the safety of these products as well as the absence of combustion.

Therefore, we advocate for regulatory frameworks that are based on a continuum of risk where non-combustible products fall below combustible cigarettes.

Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would not otherwise quit to receive truthful and non-misleading information about such products to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the reduction in harmful and potentially harmful constituents, as well as the absence of combustion.

Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products.

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Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed combustible tobacco products such as fine cut tobacco and illicit cigarettes.

In addition, in certain jurisdictions, some of our combustible products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes.

In addition, in certain jurisdictions, some of our combustible tobacco products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes.

We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity.

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The amendments became effective as of January 1, 2022.

These amendments require WCO member states to transfer products from customs codes in the current nomenclature to the new one.

These amendments are not expected to significantly impact current customs duty rates.

As of December 2022, and out of 160 contracting parties to the WCO’s Harmonized System Convention, 94 contracting parties, including the EU, U.S., have notified the WCO that they have implemented the 2022 edition of the Harmonized System creating new dedicated customs codes for novel tobacco and nicotine products.

EU Tobacco Products Directive:

In April 2014, the EU adopted a significantly revised EU Tobacco Products Directive (the "TPD"), which entered into force in May 2016.

In April 2014, the EU adopted a significantly revised TPD, which entered into force in May 2016.

All member states have adopted laws transposing the TPD.

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According to the Plan, a revision of the TPD is planned for 2024.

EU Tobacco Excise Directive:

The EU Commission is preparing a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive that may include definitions and tax treatment for novel tobacco and nicotine-containing products, including heated tobacco products and e-cigarettes.

The proposal is expected to be finalized and adopted by the EU Council in 2023.

The adoption of the final proposal by the EU Council will require unanimous agreement by all EU member states.

EU Tobacco Excise Directive ("TED"):

The proposal, after several delays, is now expected to be published during

the first half of 2023 and adopted by the EU Council in the course of 2024.

Any final amendments to TED require unanimous agreement by all EU member states, followed by transposition of TED into national legislation.

The earliest potential effective date for any changes to TED, after the transposition period, is 2025.

Plain Packaging and Other Packaging Restrictions:

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To date, plain packaging laws have been adopted in certain markets in all of our operating segments, including the key markets of Australia, France, Saudi Arabia and Turkey.

Some countries, such as Canada, Denmark, Israel and New Zealand adopted plain packaging regulations that apply to all tobacco products, including RRPs.

Some countries, such as Canada, Denmark and Israel adopted plain packaging regulations that apply to all tobacco products, including RRPs.

Other countries are also considering plain packaging legislation.

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The European Union banned cigarettes and roll-your-own tobacco products with characterizing flavors.

Other tobacco products, including heated tobacco products, are exempted from this flavor ban.

The EU Commission is required to withdraw this exemption for a particular product category if it determines that there is a substantial change of circumstances, such as a significant increase of EU-wide sales volumes in such product category.

Other countries may follow the EU’s approach.

Other tobacco products, including heated tobacco products, are currently exempted from this characterizing flavor ban.

However, on November 23, 2022, the European Union Commission published a delegated directive that will end this exemption.

All EU Member States are required to apply the delegated directive as of October 23, 2023, and ban the use of characterizing flavors in heated tobacco products in the European Union, impacting a significant proportion of our RRP products currently sold in the European Union.

While we cannot predict the ultimate impact on our business from this ban, consumer switching to non-flavored products was high in reaction to past bans on flavors in other categories and markets.

We therefore believe any impact will be manageable, with consumers switching to non-flavored products partially mitigating the effect of the ban.

We will actively monitor relevant developments in the European Union market.

Other countries may follow the EU’s approach toward tobacco product ingredients.

Turkey banned menthol as of May 2020.

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These include regulations intended to reduce the number of retailers selling tobacco products by, for example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified distances of certain public facilities.

In addition, South Africa banned the sale of tobacco products, e-cigarettes, and electronic devices that heat tobacco for several months during the COVID-19 pandemic.

The ban, which was lifted on August 17, 2020, resulted in a significant increase of illicit trade of tobacco products.

Other regulators are also considering generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited.

On December 13, 2022 the New Zealand parliament passed a bill introducing regulatory measures restricting the sale and supply of smoked tobacco products, including reducing the number of retail outlets licensed to sell smoked tobacco products, imposing a maximum limit of nicotine content for smoked tobacco products and prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009.

These measures are limited to smoked tobacco products and do not apply to heated tobacco products and e-cigarettes.

In Mexico, a new law

came into force on December 12, 2022 prohibiting imports and exports of certain nicotine and non-nicotine delivery and consumption systems, as well as the consumables used in those systems, including much of our RRP portfolio.

On December 16, 2022, the Federal Government enacted an implementation regulation for the tobacco control law, which includes (i) a point of sale display ban of tobacco products;

(ii) restrictions on where tobacco products can be consumed, and (iii) prohibition to communicate corporate social responsibility programs funded by the tobacco industry.

On January 1, 2023 a law regulating the marketing of nicotine pouches went into effect in Slovakia.

The regulatory framework contains a minimum purchase legal age (18 years), a nicotine limit, and a labelling requirement.

On December 6, 2022 the Dutch Government published a draft bill to ban the placing on the market of nicotine pouches in the Netherlands.

On December 16, 2022 a notification period to the EU Commission expired for a Belgian Royal Decree to ban nicotine pouches.

Based on this decree the Belgian Government could ban the placing on the market of nicotine pouches in Belgium.

In a limited number of markets, most notably Japan, we are dependent on governmental approvals that may limit our pricing flexibility.

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While we cannot predict the impact of this initiative on our business at this time, we are monitoring developments in this area.

In some countries, including in the EU, cigarettes are subject to testing, disclosure and mandatory emissions limits for tar, nicotine, carbon monoxide and other smoke constituents.

In the Netherlands, several public health organizations have requested that the Dutch enforcement body enforce the requirements for maximum tar, nicotine, and carbon monoxide ("TNCO") emissions levels for cigarettes using a test method other than the method currently set forth in the EU TPD and transposed into national legislation.

This request fo llowed publication of a report by the Dutch State Institute for Public Health & Environment, which found that all cigarette brands sold in the Netherlands exceeded the maximum TNCO levels when measured under an alternative method.

While the Dutch enforcement body declined the request, the applicants have challenged that decision in pending legal proceedings in the Netherlands.

While we are not parties to the proceeding and cannot predict the outcome, a decision to enforce the existing TNCO ceilings in the Netherlands using an alternative test method could impact a significant portion of the manufactured cigarettes available on the market in the Netherlands and could lead to similar actions in other EU countries.

Illicit Trade:

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We generally estimate that, excluding China and the U.S., illicit trade may account for as much as 12% of global cigarette consumption;

this includes counterfeit, contraband and the persistent problem of “illicit whites,” which are cigarettes legally produced in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market.

this includes counterfeit, contraband and the persistent problem of "illicit whites," which are cigarettes legally purchased in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market.

Currently, we estimate that illicit trade in the European Union accounted for approximately 8% of total cigarette consumption in 2022.

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In 2009, our Colombian subsidiaries entered into an Investment and Cooperation Agreement with the national and regional governments of Colombia to promote investment in, and cooperation on, anti-contraband and anti-counterfeit efforts.

The agreement provides $200 million in funding over a 20-year period to address issues such as combating illegal cigarette trade and increasing the quality and quantity of locally-grown tobacco.

The agreement

provides $200 million in funding over a 20-year period to address issues such as combating illegal cigarette trade and increasing the quality and quantity of locally-grown tobacco.

In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illegal trade and related crimes such as corruption, organized criminal networks and money laundering.

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(i) to develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking;

and (ii) educate and convince convince current adult smokers who would otherwise continue to smoke to switch to those products.

and (ii) educate and encourage current adult smokers who would otherwise continue to smoke to switch to those products.

We recognize that this transformation from cigarettes to RRPs will take time and that the speed of transformation will depend in part upon factors beyond our control, such as the willingness of governments, regulators and other policy groups to embrace RRPs as a desired alternative to continued cigarette smoking.

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We have a range of RRPs in various stages of development, scientific assessment and commercialization.

We conduct rigorous scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products

present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking.

We conduct rigorous scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking.

We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines and our extensive learnings of adult consumer preferences to develop and assess our RRPs.

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We have conducted a series of clinical studies for this platform, the results of which were included in our submission to the U.S.

Food and Drug Administration (“FDA”) described below.

We completed a 6+6-month exposure response study and shared the results with the FDA in April 2020.

The study showed that for the group that switched to our Platform 1 product, the eight clinical risk endpoints that were tested as co-primary endpoints in the first six-month term moved in the same direction as observed for smoking cessation after 12 months of use of this product.

In addition, we completed an 18-month combined chronic toxicity and carcinogenicity study in mice, which was on-going at the time of our FDA submission.

We shared the results with the FDA in August 2018.

In addition to the original version of Platform 1 which relies on a heating technology using a blade, a new version of Platform 1 is now available using induction.

Food and Drug Administration (“FDA”).

In addition to the original version of Platform 1 which relies on a heating technology using a blade, a new version of Platform 1 is now available using induction instead of heating a blade.

All studies referenced above were conducted with the blade version of Platform 1.

We believe that there is full comparability between the versions, therefore the data from these studies remain valid.

Platform 2 uses a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating tobacco.

The results of our pharmacokinetic study (that measured the nicotine pharmacokinetic profile as well as subjective effects) and of our five-day reduced exposure study indicate that this platform could be an acceptable substitute for adult smokers who seek an alternative to cigarettes.

The reduced exposure study results showed a substantial reduction in relevant biomarkers of exposure to the measured HPHCs in those who switched to Platform 2 compared to those who continued to smoke cigarettes over a five-day period.

The sustainability of this reduction as well as changes in clinical risk markers were assessed in a three-month reduced exposure study, which was completed in 2018.

We conducted a consumer test of our Platform 2 design in the last quarter of 2021.

As a result of the feedback from this consumer test, the design of our current Platform 2 technology has been discontinued.

We believe that there is full comparability between the subsequent Platform 1 versions, and therefore the data from these studies remain valid.

In 2022, we also began the initial launch of a heated tobacco product using external resistive heating technology and commercialized under the BONDS brand.

Platform 2 used a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating tobacco.

As a result of consumer testing feedback, the design of our current Platform 2 technology has been discontinued.

We are assessing alternative designs for this consumer segment.

Platform 3 provides an aerosol of nicotine salt.

We have explored two routes for this platform, one with electronics and one without, and conducted nicotine pharmacokinetic studies with both versions.

The results of our pharmacokinetic study related to the version without electronics indicate this product's potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction.

In February 2020, we completed a one-month product use and adaptation study in adult smokers for the product variant without electronics.

The results of the study indicated that while during the study period, the adult smokers did not fully switch from smoking cigarettes to this Platform 3 product, on average, they used this product on a daily basis and significantly reduced their daily consumption of cigarettes.

Platform 3 is a product using nicotine salt that is composed of two parts:

a consumable that contains a highly soluble encapsulated nicotine powder and a non-electric device that activates it.

Once a consumable is inserted into the mechanical device, the nicotine powder is aerosolized and inhaled.

The results of our pharmacokinetic study related to this version indicate this product's potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction.

We are working on product modifications to enable switching by those adult smokers who are looking for better alternatives to cigarettes.

Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a nicotine-containing liquid solution.

In 2020, our e-vapor products comprised devices with the “coil and wick” technology as well as our e-vapor mesh technology designed to ensure the consistency and quality of the generated aerosol compared to the products with the “coil and wick” technology.

Recently, we discontinued the commercialization of devices with the “coil and wick” technology.

We conducted a nicotine pharmacokinetic study with respect to products with our e-vapor mesh technology in 2017.

The results of this

study indicate that these products are an effective means of nicotine delivery while being a satisfying alternative for e-cigarette users.

In March 2019, a six-month pre-clinical study in mice evaluating the impact of e-cigarette vapor on the risks of pulmonary and cardiovascular disease compared to cigarette smoke was completed;

this study did not pertain to a specific product.

The study demonstrated that e-cigarette vapors induce significantly lower biological responses associated with cardiovascular and pulmonary diseases compared with cigarette smoke.

Recently, we designed a new consumable for our e-vapor mesh technology to deliver real tobacco taste satisfaction in an E-Vapor product liquid-using patented technology, where flavors and nicotine are extracted directly from the tobacco leaves and captured in a liquid solution, without having to add flavoring ingredients.

This consumable has been commercialized in one market in December 2021.

Platform 5 covers Modern Oral Nicotine Pouches, which consist of white pre-portioned pouches containing nicotine derived from tobacco.

Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a tobacco-free liquid solution.

Recently, we developed a new e-liquid for our e-vapor mesh technology to deliver real tobacco taste satisfaction in an E-Vapor product liquid-using patented technology, where flavors and nicotine are extracted directly from the tobacco leaves and captured in a liquid solution, without having to add flavoring ingredients.

We also entered into a licensing agreement with Kaival Brands International, LLC in June 2022 to distribute an e-vapor product, known in the U.S.

as the BIDI® Stick.

The agreement grants PMI certain intellectual property rights relating to the premium e-vapor device and, potentially, other newly developed devices, to permit PMI to manufacture, promote, sell, and distribute the e-vapor device and, to the extent included, other newly developed devices in international markets outside of the U.S.

We have begun commercializing an improved version of the BIDI® Stick under the brand VEEV now in Canada, U.K., Serbia and Ukraine.

Platform 5 covers Snus and Modern Oral Nicotine Pouches.

Snus refers to dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose, moist loose tobacco which is put in the mouth between the lower or upper lip and gum, and Snus pouches which contain grinded tobacco, water, salt and flavors.

Modern Oral Nicotine Pouches consist of white pre-conditioned pouches containing nicotine derived from tobacco.

Users place a pouch between the upper lip and gum and leave it there while the nicotine and taste are being released.

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Nicotine pouches are inherently smoke-free as they are consumed orally, and no combustion process occurs during use.

Our nicotine pouches do not contain tobacco.

Instead, they contain primarily nicotine, flavors, and a cellulose substrate.

They contain primarily nicotine, flavors, and a cellulose substrate.

The nicotine used in the pouches is of pharmaceutical-grade like the nicotine used in medicinal products, such as gums and inhalers, while the flavors are approved for use in food in accordance with the product quality standards for nicotine pouches developed by the Swedish Institute for Standards.

In 2021, PMI acquired AG Snus as well as Fertin Pharma, two companies manufacturing and/or marketing nicotine pouches.

In 2022, we significantly expanded our Platform 5 products portfolio with the acquisition of Swedish Match.

The acquisition also represented an expansion of our RRP presence in the United States market, where Swedish Match's ZYN brand is the leading nicotine pouch franchise.

We aim to expand our brand portfolio and market positions with additional RRPs.

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After we receive the results of our scientific studies, including those mentioned above, in accordance with standard scientific practices, we share the conclusions in scientific forums and submit them for inclusion in peer-reviewed publications.

The research and development expense for our smoke-free portfolio accounted for 99%, 99% and 98% of our total research and development expense for the years ended December 31, 2021, 2020 and 2019, respectively.

The research and development expense for our smoke-free portfolio accounted for 99% of our total research and development expense for each of the three years ended December 31, 2022, 2021 and 2020.

The research and development expense for the years ended December 31, 2022, 2021 and 2020, is set forth in Item 8, Note 15.

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Commercialization of RRPs:

We are building a new product category and tailor our commercialization strategy to the characteristics of each specific market.

We are developing a multicategory product approach and tailoring our commercialization strategy to the characteristics of each specific market.

We focus our commercialization efforts on consumer retail experience, guided consumer trials and customer care, and increasingly, digital communication programs and e-commerce.

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During the COVID-19 pandemic, we accelerated our investments in, and pivot to, digital consumer engagement.

As of December 31, 2021, PMI's smoke-free products are available for sale in 71 markets in key cities or nationwide.

As of December 31, 2022, PMI's smoke-free products were available for sale in 73 markets.

In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy.

Since then, we have continuously expanded our commercialization activities.

We believe that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms, and continue to optimize our manufacturing infrastructure.

An adequate supply chain for our RRP portfolio, including the supply of electronic devices, is important to our business.

We work with four electronics manufacturing service providers for the supply of our Platform 1 and Platform 4 devices, and a small number of other providers for other products in our RRP portfolio and related accessories.

Due to the COVID-19 pandemic, the operations of our two main electronic manufacturing service providers were temporarily suspended at different times.

Even though these suspensions did not materially affect our operations, if one or more of these service providers were significantly constrained at the same time, the supply of the devices could be disrupted.

Although we work closely with these service providers on monitoring their production capability and financial health, we cannot guarantee that they will remain capable of meeting their commitments, particularly during the COVID-19 pandemic;

if they will not, the commercialization of our RRPs could be adversely affected.

The production of our RRP portfolio requires various metals, and we believe that there is an adequate supply of such metals in the world markets to satisfy our

current and anticipated production requirements.

However, some components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations.

While we were successful in maintaining adequate supply of such components and materials so far, we may not be able to secure such supply going forward, particularly during the COVID-19 pandemic;

this could negatively impact the commercialization of our RRPs.

In addition, we are also exposed to a world-wide shortage of semiconductors, which continues to put constraints on our device supplies for RRPs.

We believe, however, that the overall impact of this shortage remains manageable, and we have adjusted our device assortments to limit the effect on consumer availability of our RRPs.

Data shows that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms, continue to optimize our manufacturing infrastructure and expand our commercialization activities to new products and markets.

We discuss certain risks related to the commercialization and supply of our RRP portfolio in Item 1.A.

Risk Factors .

We discuss product warranties in more detail in Item 8, Note 7.

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The significance of warranty claims is dependent on a number of factors, including device version mix, product failure rates, logistics and service delivery costs, and warranty policies, and may increase with the number of devices sold.

Product quality may affect consumer acceptance of our RRPs.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' commercial relationship covering Platform 1 in the U.S.

as of April 30, 2024.

Thereafter, PMI will have the full rights to commercialize Platform 1 in the U.S.- the world’s largest smoke-free market, as of April 30, 2024.

This agreement provides a clear path to fulfilling Platform 1 international success in a market where around 31 million adults continue to smoke.

Our near-term planned commercialization efforts for the other PMI-developed RRP platforms are as follows:

• We started commercializing an improved version of our IQOS MESH product in Canada, Corsica, Croatia, the Czech Republic, Finland, Italy, Ukraine and New Zealand under the IQOS VEEV or VEEV brand names.

We currently plan to launch this product in additional markets.

• With respect to TEEPS , our Platform 2 product, we finalized our improvements to this product and conducted a consumer test in the last quarter of 2021.

As a result of the feedback from this consumer test, the design of our current Platform 2 technology has been discontinued.

We are assessing alternative designs for this consumer segment.

• In late 2022, we began commercializing our BONDS product in the Philippines and Colombia.

• Following the consumer test conducted in 2020, and the results of the product use and adaptation study described above, we are incorporating our learnings into our plans to improve our Platform 3 product.

• We launched a Platform 5 product in Sweden in January 2022, that is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate AG Snus.

Due to the COVID-19 pandemic, certain of these commercialization efforts could be delayed.

• We started commercializing a new version of IQOS MESH in Canada, Croatia, the Czech Republic, Finland, France, Greece, Italy, Ukraine, New Zealand and the Slovak Republic under the IQOS VEEV or VEEV brand names.

• We launched a Platform 5 product in Sweden in January 2022, and have since launched it in ten additional markets, that is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate AG Snus.

In addition, Swedish Match’s commercialization efforts in 2022 included the launch of several variants of existing snus and nicotine pouch brands in different markets, such as the launch of various ZYN variants in multiple markets, as well as the new Volt Pearls nicotine pouch product in Denmark, Iceland and Sweden.

RRP Regulation and Taxation:

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These regulations might foreclose or unreasonably restrict adult consumer access even to products that might be shown to be a better consumer choice than continuing to smoke.

During the COVID-19 pandemic, some governments have been and may continue to be temporarily unable to focus on the development of science-based regulatory frameworks for the development and commercialization of RRPs or on the enforcement or implementation of regulations that are significant to our business.

During the COVID-19 pandemic, some governments have been and may continue to be

temporarily unable to focus on the development of science-based regulatory frameworks for the development and commercialization of RRPs or on the enforcement or implementation of regulations that are significant to our business.

We oppose blanket bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued smoking.

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We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for our Platform 1 product in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for our Platform 1 product in March 2017.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health and authorized it for sale in the United States.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health ("APPH") and authorized it for sale in the United States.

The FDA’s decision followed its comprehensive assessment of our PMTA.

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On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for IQOS 3 requesting authorization to market this version of the device as a Modified Risk Tobacco Product with reduced exposure information like IQOS 2.4.

In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review and, already in May 2021, the FDA opened the period for the public to provide comments on our application.

The public comment period, which was initially scheduled to be closed on August 2, 2021, was extended on July 20, 2021 to provide time for the public to review application materials that were not previously posted by FDA.

The FDA closed the comment period for IQOS 3 's sMRTPA on December 10, 2021.

In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review, following a period for the public to provide comments on our application.

The FDA authorized our sMRTPA for IQOS 3 by issuing a Modified Risk Granted Order – Exposure Modification on March 11, 2022.

There are two types of MRTP orders the FDA may issue:

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This determination included a finding that issuance of the exposure modification order is expected to benefit the health of the population as a whole.

We also received an exposure modification order for IQOS 3.

On April 29, 2022, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the US Food and Drug Administration.

The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2021 and February 28, 2022.

226 publications were identified, of which 132 were in English and contained original research or data on Heated Tobacco Products (27 from PMI or other tobacco manufacturers and 105 from independent researchers).

The report concludes that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while HTPs are not risk-free, the risks of HTPs are significantly reduced for both users and non-users against the well-proven risks of continued smoking, and therefore continue to support the APPH status of IQOS THS.

We look forward to working with the FDA to provide any additional information they may require in order to market this product with reduced risk claims.

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The FDA will monitor the marketing of the product.

On September 29, 2021, the International Trade Commission ("ITC") issued its Final Determination ("FD"), Limited Exclusion Order ("LEO") and Cease and Desist Order ("CDO").

The ITC upheld the finding of infringement in the FD and found a subsequent violation.

The ITC issued a LEO prohibiting the importation of infringing tobacco heating articles and components thereof and CDOs against Philip Morris USA, Inc.

and Altria Client Services, LLC, which went into effect at the end of the 60-day Presidential review period on November 28, 2021.

We have appealed the patent issues.

Furthermore, lawsuits based on the same patent families have been repeatedly and universally rejected in European courts and the European Patent Office.

The decision has no bearing outside the United States.

For further details, see Item 8, Note 18.

Contingencies to our consolidated financial statements.

Some states and municipalities in the U.S.

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We believe that such restrictions on FDA-authorized products will not advance public health and will unreasonably limit adult consumer access to products that are shown to be a better alternative to continued smoking.

In March 2020, we requested a clarification from the FDA regarding the applicability of its new health warning requirements to our heated tobacco units sold in the United States.

In June 2021, the FDA responded to our letter and requested additional information regarding the applicability of the cigarette health warnings rule to the IQOS System and HeatSticks .

In March 2020, the FDA issued a final rule to require new text and graphic health warnings on cigarette packs and advertisements.

Heated tobacco products are technically covered by this rule, however the FDA stated that it would make product-specific decisions about health warnings when issuing or revising individual product or marketing orders.

This approach would be consistent with the original marketing order for Heatsticks where FDA required Philip Morris Products S.A.

to remove the Surgeon General’s health warning for carbon monoxide from packaging and advertising, and to use a nicotine addiction health warning instead.

Philip Morris Products S.A.

is committed to providing adult consumers of tobacco products with complete, accurate and non-misleading information regarding the health risks associated with the use of the IQOS System and HeatSticks .

We shared our views with the FDA on the applicability of new health warnings to our products in our submission on December 2, 2021.

is committed to providing adult consumers with complete, accurate, and non-misleading information about possible health risks associated with its products.

We have shared our views with the FDA on the application of the new warnings to our heated tobacco products.

The final rule is the subject of litigation in the U.S.

and was vacated nationwide by a federal court in November 2022.

Philip Morris Products S.A.

is not a party to this litigation.

In the U.S., tobacco and nicotine-containing products that were not commercially marketed as of February 15, 2007, are subject to review and authorization by the FDA.

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FDA actions may influence the regulatory approach of other governments.

On September 29, 2021, the International Trade Commission ("ITC") issued its Final Determination ("FD"), Limited Exclusion Order ("LEO") and Cease and Desist Order ("CDO").

The ITC upheld the finding of infringement in the ID and found a subsequent violation.

The ITC issued a LEO prohibiting the importation of infringing tobacco heating articles and components thereof and cease and desist orders against Philip Morris USA, Inc.

and Altria Client Services, LLC, which went into effect at the end of the 60-day Presidential review period on November 28, 2021.

We have appealed the patent issues.

Furthermore, lawsuits based on the same patent families have been repeatedly and universally rejected in European courts and the European Patent Office.

The decision has no bearing outside the United States.

Until recently, there were no countries with specific product standards for heat-not-burn products.

Currently, national standards setting minimum quality and safety requirements for such products have been adopted in several countries with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion.

They are mandatory in Egypt, Jordan, Saudi Arabia, Tunisia, the UAE, Uzbekistan and Bahrain, and voluntary in Armenia, Costa Rica, Indonesia, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Vietnam, the U.K.

Currently, national standards in certain countries set minimum quality and safety requirements for heat-not-burn products with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion.

These standards are mandatory in Colombia, Egypt, Jordan, Saudi Arabia, Tajikistan, Tunisia, the UAE, Uzbekistan and Bahrain, and voluntary in Armenia, Costa Rica, Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, Philippines, Russia, Vietnam, the U.K.

In Japan, a voluntary standard sets minimum safety requirements for tobacco heating devices.

We expect other governments to consider similar product standards and encourage making them mandatory.

For e-vapor products (e-cigarettes) national standards setting minimum quality and safety requirements have been adopted in several markets.

These standards are mandatory in Armenia, Bahrain, China, Egypt, Jordan, New Zealand, United Arab Emirates, and Saudi Arabia, and voluntary in Costa Rica, France, Kazakhstan, Philippines, Russia, the U.K.

Currently, industry standards setting minimum quality and safety requirements for tobacco-free oral nicotine products (nicotine pouches) have been adopted in the U.K.

Both standards are voluntary.

We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and encourage making them mandatory.

All EU member states have transposed the EU Tobacco Products Directive, including the provisions on novel tobacco products, such as heated tobacco units, and e-cigarettes.

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To date, we have filed a comprehensive dossier summarizing our scientific assessment of our Platform 1 product in over 20 member states.

On September 12, 2022, Norway rejected a submission for authorization of HEETS as a novel tobacco product.

Norway partially transposed the EU Tobacco Products Directive (the “TPD”) under the European Free Trade Association ("EFTA") agreement and introduced an authorization system for novel tobacco products following article 19 of TPD.

So far Norway has not granted authorization of any novel tobacco product.

E-cigarettes and tobacco free nicotine pouches have not been granted access either.

In addition, in Italy, in April 2018, we submitted an application for HEETS , used with the IQOS device, requesting regulatory recognition of the reduction of toxic substances and potential risk reduction resulting from switching to this product compared to continued cigarette smoking.

In January 2019, our application was not granted primarily on the grounds of insufficient data and questions of methodology.

Due to the constraints of the review process, we had been unable to supplement the application with all the data we subsequently filed with the FDA and to address methodological questions during the review.

We plan to submit a new application where we will clarify the concerns raised by the decision and further strengthen our application by submitting additional evidence that became available since we submitted our first application, consistent with our FDA filings.

Due to the constraints of the review process, we were unable to supplement the application with all the data filed with the FDA and to address methodological questions during the review.

We plan to submit a new application where we will clarify the concerns raised by the decision and further strengthen our application by submitting additional evidence generated since we submitted our first application, consistent with our FDA filings.

We are confident that our evidence supports our application.

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In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in our Platform 1 product contributed to the difference.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating

tobacco in our Platform 1 product contributed to the difference.

The CNTQST stated that the reduction in emissions of harmful constituents cannot be interpreted as a harm/risk reduction for smokers in the same proportion.

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However, in light of the uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn products.

In June 2022, the SHC published new advice on e-cigarettes in which they confirm that e-cigarettes are substantially less harmful than smoking cigarettes and therefore a better alternative for smokers.

The SHC underlines that the vast majority of the risks of tobacco smoking are not caused by nicotine, but by the harmful substances that are released by the combustion of tobacco.

Based on the cited science they call for legislation that makes a clear distinction between cigarettes and e-cigarettes, by focusing on better-informing smokers about the benefits of the lower-risk (but not risk-free) alternative, as well as on protecting non-smokers and young people.

The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.

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While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly.

outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more markets.

The outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more markets.

Our RRP Business Development Initiatives:

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(“PM USA”), began commercialization of a version of our Platform 1 product in the U.S.

Under the agreement, PM USA must achieve certain milestones to maintain its exclusive distribution right and additional milestones to extend the agreement after the initial 5-year term.

PMI and Altria are currently discussing these milestones, the contractual obligations, and the impact of the United States International Trade Commission (“ITC”) Orders (For more details please refer to Item 8, Note 17 .

Under the agreement, PM USA was required to achieve certain milestones in order to maintain its exclusive distribution right and additional milestones to extend the agreement after the initial 5-year term.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' commercial relationship covering IQOS in the U.S.

as of April 30, 2024.

Thereafter, PMI will have the full rights to commercialize IQOS in the U.S.

(For more details, please refer to Note 3.

Acquisitions , and Note 18.

Contingencies ).

In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis.

On January 30, 2023, we announced a renewal and extension of this arrangement.

For more information, see Acquisitions and Other Business Arrangements below.

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In September 2020, our pledge agreement with the Foundation was amended.

We contributed $45 million in 2020, $40 million in 2021, and expect to contribute $35 million annually from 2022 through 2029, as specified in the amended pledge agreement.

We contributed $45 million in 2020, $40 million in 2021, $17.5 million in 2022, and expect to contribute up to $35 million annually from 2023 through 2029, as specified in the amended pledge agreement.

To date, we contributed a total of $267 million.

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Contingencies .

In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute relating to facts that arose from August 2006, between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Item 8, Note 17.

In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Item 8, Note 18.

Contingencies for additional information).

The WTO panel decision, which was upheld by the WTO Appellate Body, concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the Department of Special Investigations of the government of Thailand (“DSI”) in 2009.

The decision also created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports.

Thailand agreed in September 2011 to fully comply with the decision by October 2012.

The Philippines asserts that to date Thailand has not fully complied with the WTO panel decision and commenced challenges at the WTO Appellate Body.

The decision concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the Thai government and created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports.

Thailand agreed to fully comply with the decision, but the Philippines asserts that to date Thailand has not fully complied with the WTO panel decision and commenced challenges at the WTO Appellate Body.

The WTO Appellate Body is not operational, and the appeals by Thailand are suspended indefinitely.

In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues.

It is not possible to predict any future developments in these proceedings or the outcome of these discussions.

In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues and the countries have since agreed to seek the establishment of a bilateral consultative mechanism, with the goal of reaching a comprehensive settlement of their dispute, consistent with their rights and obligations under the WTO Agreement, as well as the recommendations and rulings of the WTO Dispute Settlement Body.

The Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l.

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The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from January to July of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational controls to prevent the alleged actions by the individuals.

At the first trial hearing held on September 22, 2021, BAT filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees.

BAT claims EUR 50 million in damages.

BAT has filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees and seeking EUR 50 million in damages.

The court admitted the claim as a matter of course and issued summons for PM Italia to appear as civil party in the case.

The next trial hearing is scheduled for April 8, 2022.

The next trial hearing is scheduled for February 13, 2023.

PM Italia believes the charges brought against it by the Public Prosecutor are without merit and will defend them vigorously.

Asset Impairment and Exit Costs

We discuss asset impairment and exit costs in Item 8, Note 19.

We discuss asset impairment and exit costs related to restructuring activities in Item 8, Note 20.

Asset Impairment and Exit Costs to our consolidated financial statements.

GAAP Treatment of Turkey as a Highly Inflationary Economy

Following the categorization of Turkey by the International Practices Task Force of the Center for Audit Quality as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S.

Consequently, PMI has begun to account for the operations of its Turkish affiliates as highly inflationary, and treat the U.S.

dollar as the functional currency of the affiliates, effective April 1, 2022.

The impact of this accounting change was not material to our consolidated financial statements for the year ended December 31, 2022.

Climate Change Laws and Regulations

While, to date, the effect of climate-related laws and regulations on PMI has not been material to our business, results of operations or financial conditions, consideration of environmental and climate-related laws and regulations is an integral aspect of PMI’s climate-related risk assessment process.

To this end, we actively monitor the existing and potential impact on PMI of significant pending or existing climate change-related legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance.

Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement, recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s proposed rules regarding climate-related

disclosures, the Taskforce on Nature-related Financial Disclosures, the European Commission Corporate Sustainability Reporting Directive, and the International Sustainability Standards Board proposed standards.

Acquisitions and Other Business Arrangements

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Acquisitions to our consolidated financial statements.

On January 5, 2022, we acquired the remaining 25% stake of our holding in Philsa Philip Morris Sabancı Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.

("PHILSA") and 24.75% stake in Philip Morris SA, Philip Morris Sabancı Pazarlama ve Satış A.Ş.

("PMSA") from our Turkish partners, Sabanci Holding for an acquisition price of $205 million (TRY 2,747 million).

This amount was paid on January 5th 2022, but the final acquisition price remains subject to certain predetermined adjustments based on the audited financial results of PHILSA and PMSA for fiscal years 2021 and 2022.

As a result of this acquisition, PMI now owns 100% of these Turkish subsidiaries.

Global Collaboration Agreement with KT&G

In January 2020, PMI announced a global collaboration agreement with the leading tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G’s smoke-free products outside of the country.

The agreement will run for an initial period of three years.

The two companies plan for global collaboration with the intention to actively expand to cover many markets, based on commercial success.

The agreement allows PMI to distribute current KT&G smoke-free products, and their evolutions, on an exclusive basis, and does not restrict PMI from distributing its own or third-party products.

KT&G’s smoke-free product brand portfolio includes heat-not-burn tobacco products (e.g., LIL Mini and LIL Plus ), hybrid technologies that combine heat-not-burn tobacco and e-vapor technologies (e.g., LIL HYBRID ), and e-vapor products (e.g., LIL Vapor ).

PMI will be responsible for the commercialization of smoke-free products supplied under the agreement.

Products sold under the agreement are subject to careful assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as our standards of quality and scientific substantiation to confirm the absence of combustion and significant reductions of emissions of harmful chemicals compared to cigarettes.

The agreement gives PMI continued exclusive access to KT&G’s smoke-free brands and product-innovation pipeline, including offerings for low- and middle-income markets, that will enhance PMI’s existing portfolio of smoke-free products.

Products sold under the agreement will be subject to assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as PMI’s high standards of quality and scientific substantiation.

PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis.

There are no current plans to commercialize KT&G products in the United States.

Since the third quarter of 2020, we have launched commercial initiatives for licensed KT&G products in select markets.

Equity Investments

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Related Parties - Equity Investments and Other to our consolidated financial statements.

We are subject to various trade restrictions imposed by the U.S.

and countries in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S.

PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates.

We have taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.

We are subject to various trade restrictions imposed by the U.S., EU, Switzerland, the U.K., and other jurisdictions in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S.

Department of the Treasury's Office of Foreign Assets Control and the U.S.

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It is our policy to comply fully with these Trade Sanctions.

Tobacco products are agricultural products under U.S.

law and are not technological or strategic in nature.

From time to time, we make sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or licenses.

From time to time, a subsidiary sells products to distributors that, in turn, sell those products to duty free customers that supply U.N.

peacekeeping forces around the world, including those in the U.N.

peacekeeping mission located in Abyei, a special administrative territory in Sudan.

We do not believe that these sales, which are not subject to Trade Sanctions, and are de minimis in volume and value, present a material risk to our shareholders, our reputation or the value of our shares.

We have no employees, operations or assets in Sudan.

We do not sell products in Iran, North Korea and Syria.

From time to time, we explore opportunities to sell our products in one or more of these countries, as permitted by law.

Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject to Trade Sanctions.

We do not do business or sell products in Iran, North Korea or Syria.

We sell cigarettes in Cuba under a distribution agreement.

These sales are permitted by U.S.

law under a License Exception for Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), granted to our

law under a License Exception for Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), and specifically granted to our distributor.

Certain states within the U.S.

have enacted legislation permitting or requiring state pension funds to divest or abstain from future investment in stocks of companies that do business with certain countries that are sanctioned by the U.S.

Because we do business in certain of these countries, these state pension funds may have divested of our stock or may not invest in our stock.

Because we do business in certain of these countries, consistent with our policy to fully comply with Trade Sanctions and as described above, these state pension funds may have divested of our stock or may not invest in our stock.

We do not believe such legislation has had a material effect on the price of our shares.

PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions ("Trade Sanctions").

PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions.

We comply fully with these Trade Sanctions.

The EU imposed new sanctions regarding the Republic of Belarus ("Belarus") on June 21, 2021, including the designation of additional EU sanctions targets (individuals and legal entities) in Belarus.

On June 24, 2021, the EU council introduced additional sectoral economic sanctions aimed at specific sectors of the Belarus economy, including restrictions on the trade of goods used for the production or manufacture of tobacco products.

Subsequently, six non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Montenegro, and Albania) announced that they “aligned themselves” with the EU sanctions of June 21.

On July 6, 2021, Switzerland imposed sanctions on Belarusian individuals and legal entities effective July 7, 2021.

The Swiss sanctions are similar in scope to the EU sanctions of June 21, 2021.

Further, on August 9, 2021, the U.K.

introduced sectoral economic sanctions similar in scope to the EU sectoral sanctions of June 24, 2021.

Also on August 9, 2021, the U.S.

imposed blocking sanctions on certain individuals and entities pursuant to an Executive Order adding them to the list of Specially Designated Nationals and Blocked Persons (the "SDN List") issued by the U.S.

Department of Treasury's Office of Foreign Asset Control ("OFAC").

The Executive Order expanded the bases for the imposition of sanctions, including, among others, by authorizing the imposition by OFAC of blocking sanctions on persons operating in the tobacco sector of the Belarus economy, as well as for providing material support or assistance to any SDN.

In December 2021, the U.S., the EU, the U.K.

and Canada amended their respective sanctions lists by including additional Belarusian individuals, entities, and aircraft.

PMI complies with all applicable laws and regulations, including sanctions, in the markets where it operates.

We have taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.

On June 24, 2021, the EU introduced sanctions regarding Belarus aimed at specific sectors of the Belarus economy, including the tobacco sector.

Subsequently, seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina,

Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions.

Switzerland and the UK have also imposed sanctions similar in scope to the EU sanctions.

On August 9, 2021, the U.S.

imposed blocking sanctions on certain Belarusian individuals and entities pursuant to an Executive Order, which expanded the bases for the imposition of sanctions, including, among others, by authorizing the imposition by OFAC of blocking sanctions on persons operating in the tobacco sector of the Belarus economy.

In 2021 and 2022, the U.S., the EU, the U.K., Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions targets.

Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the UK, Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls regarding Russia.

While the introduced sanctions slightly vary from jurisdiction to jurisdiction, they are largely aligned.

The restrictions are primarily targeted at the Russian financial, banking, oil, military, aviation and marine sectors.

has also introduced a prohibition on new investment in the Russian Federation by a U.S.

person, wherever located.

Among sanctions targets are Russian political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors.

Export to Russia of certain luxury goods, and goods and technology which might contribute to Russia’s technological enhancement was banned.

Seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina, Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions.

The EU and Switzerland introduced additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia as well as related technical assistance and other related services.

In addition, the EU, the UK, Switzerland, Canada, Australia, New Zealand and Ukraine sanctioned Mr.

Igor Kesaev, a non-majority shareholder of Megapolis Distribution B.V.

banned the export of electronic cigarettes and similar personal electric vaporizing devices to Russia as well as related technical assistance, and financial and brokering services.

Certain countries also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, most with exceptions for subsidiaries of U.S., E.U., or Swiss owned companies.

Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions.

Countermeasures include restrictions on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

PMI continues to monitor the development of new sanctions and ensure full compliance.

2022 compared with 2021

The following discussion compares operating results within each of our geographical segments and Other category for 2021 with 2020.

The following discussion compares operating results within each of our segments for 2022 with 2021.

Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units.

Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data.

Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

European Union:

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Net revenues, excluding currency and acquisitions, increased by 10.6%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume (notably in Germany, Hungary, Italy and Poland), as well as higher device volume and favorable device mix (notably in Italy), partly offset by lower cigarette volume (notably in the Czech Republic, France and Germany) and unfavorable cigarette mix (primarily in Germany);

and a favorable pricing variance, driven by higher combustible pricing (mainly in Germany and Portugal, partly offset by France and Poland) and higher heated tobacco unit pricing (notably in the Czech Republic and Germany, partially offset by Poland), partly offset by lower device pricing (notably in Germany and Italy).

Operating income, excluding currency and acquisitions, increased by 12.5%, primarily reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume and favorable device mix, partly offset by lower cigarette volume and unfavorable cigarette mix (each primarily reflecting the same geographies as for net revenues noted above);

lower manufacturing costs (driven by combustible and reduced-risk products);

and a favorable pricing variance;

partly offset by higher marketing, administration and research costs (due to combustible and reduced-risk products).

favorable volume/mix, mainly driven by higher HTU volume and device volume, partly offset by lower cigarette volume, unfavorable HTU mix, and unfavorable cigarette mix;

partially offset by an unfavorable pricing variance, mainly due to lower HTU (net) pricing and lower device pricing, partly offset by higher combustible tobacco pricing.

The unfavorable pricing variance is impacted by the supplemental excise tax surcharge on heated tobacco units in Germany, which went into effect in 2022.

The legality of the surcharge is currently being assessed in court and the obligation to pay the surcharge is temporarily suspended.

PMI currently accounts for the surcharge as a reduction in net revenues and in accrued liabilities in its consolidated financial statements.

The accrued liability balance will continue to increase with the continuation of the HTU selling activities and in the case of an unfavorable ruling would negatively impact PMI’s future cash provided by operating activities.

The favorable ruling would positively impact future PMI’s operating results.

Operating income, excluding currency and acquisitions, increased by 10.5%, primarily reflecting favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix, unfavorable cigarette mix and the unfavorable impact on profitability of higher device volume;

partially offset by an unfavorable pricing variance;

higher manufacturing costs;

and higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $51 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $68 million).

European Union - Total Market, PMI Shipment Volume and Market Share Commentaries

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Total European Union 39.5 % 38.6 % 0.9

Sum may not foot due to roundings.

The estimated total market in the EU increased by 1.1% to 484.3 billion units, primarily driven by:

• Italy, up by 4.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Poland, up by 8.1%, primarily reflecting the impact on adult smoker average daily consumption and border sales of the easing of pandemic-related measures, as well as a lower prevalence of illicit trade;

• Italy, up by 3.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures (particularly in the first half of the year);

• Poland, up by 13.0%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);

• Romania, up by 8.2%, mainly reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);

partly offset by

• Czech Republic, down by 7.3%, mainly reflecting the impact of excise tax-driven price increases;

• France, down by 6.2%, primarily reflecting the impact of excise tax-driven price increases and higher cross-border (non-domestic) purchases due to the easing of pandemic-related measures.

Our Regional market share decreased by 0.2 points to 38.6%, with declines in the Czech Republic, France and Germany, partly offset by gains in Greece and Italy.

Our total shipment volume increased by 1.5% to 186.1 billion units, primarily driven by:

• Italy, up by 11.5%, or by 6.1% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting the higher total market and a higher market share driven by heated tobacco units;

• Poland, up by 3.7%, primarily reflecting the higher total market, partially offset by a lower market share due to cigarettes;

• Germany, down by 5.1%, primarily reflecting the impact of excise tax-driven price increases and higher cross-border (non-domestic) purchases due to the easing of pandemic-related measures;

• the U.K., down by 13.4%, notably reflecting the impact of increased out-bound tourism compared to the pandemic-affected prior year period.

Our Regional market share increased by 0.9 points to 39.5%, with gains in Germany, Italy and Poland, partly offset by declines in France and Spain.

Our total shipment volume increased by 4.0% to 193.4 billion units, mainly driven by:

• Italy, up by 5.8%, primarily reflecting a higher market share driven by HTUs, as well as a higher total market;

• Poland, up by 17.6%, mainly reflecting the higher total market and a higher market share driven by HTUs;

• Romania, up by 36.1%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 27.3%, primarily reflecting a higher market share driven by HTUs, as well as the higher total market;

partly offset by

• Czech Republic, down by 9.7%, mainly reflecting the lower total market and a lower market share due to cigarettes;

• France, down by 6.6%, primarily reflecting the lower total market and a lower market share due to cigarettes.

• France, down by 8.1%, primarily reflecting a lower total market and a lower market share.

Eastern Europe:

9 unchanged sentences

Net revenues, excluding currency and acquisitions, increased by 3.7%, reflecting:

favorable volume/mix, driven by higher heated tobacco unit volume (mainly in Russia and Ukraine), partly offset by lower cigarette volume (primarily in Russia and Ukraine), as well as unfavorable cigarette mix (mainly in Russia);

and a favorable pricing variance, primarily driven by higher combustible pricing (mainly in Kazakhstan, Russia and Ukraine), partially offset by lower device pricing (primarily in Russia and Ukraine) and lower heated tobacco unit pricing (mainly in Ukraine, partly offset by Russia).

Operating income, excluding currency and acquisitions, increased by 38.5%, primarily reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume, partly offset by lower cigarette volume and unfavorable cigarette mix (all primarily reflecting the same geographies as for net revenues noted above);

lower manufacturing costs (mainly related to reduced-risk products, primarily in Russia);

a favorable pricing variance;

and lower marketing, administration and research costs.

a favorable pricing variance, primarily driven by higher combustible tobacco pricing;

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume, lower HTU volume and unfavorable cigarette mix.

In 2022, Russia and Ukraine accounted for around 70% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 13.9%, notably reflecting the impact of 2022 charges related to the war in Ukraine ($151 million) shown in "Cost/Other", as well as unfavorable volume/mix, mainly due to the same factors as for net revenues;

higher manufacturing costs (notably related to Ukraine);

and higher marketing, administration and research costs;

partly offset by a favorable pricing variance.

Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in Eastern Europe decreased by 1.8% to 373.3 billion units, mainly due to:

• Russia, down by 1.0%, or by 2.7% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Ukraine, down by 9.8%, mainly reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade.

Our Regional market share increased by 0.1 point to 30.6%.

Our total shipment volume was flat at 114.3 billion units, notably reflecting:

• Southeast Europe, up by 6.9%, primarily reflecting a higher total market and a higher market share (driven by heated tobacco units);

partly offset by

• Belarus, down by 43.9%, mainly reflecting the halt of shipments as of the third quarter due to international sanctions;

• Russia, down by 0.5%, or by 3.0% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting a lower market share (due to cigarettes, partly offset by heated tobacco units) and the lower total market;

• Ukraine, down by 3.3%, mainly reflecting the lower total market, partly offset by a higher market share driven by heated tobacco units.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 1.3%.

The estimated total market in Eastern Europe decreased by 4.4% to 358.0 billion units, primarily due to:

• Russia, down by 3.6%, mainly due to the impact of price increases;

• Ukraine, down by 18.3%.

The estimated total market in Eastern Europe, excluding Russia and Ukraine, was essentially stable at 113.3 billion units.

Our Regional market share decreased by 0.8 points to 29.8%.

Excluding Russia and Ukraine, our Regional market share increased by 0.4 points to 26.7%.

Our total shipment volume decreased by 7.1% to 106.3 billion units, primarily due to:

• Russia, down by 6.0%, due to cigarettes and HTUs;

• Ukraine, down by 30.1%, due to cigarettes and HTUs.

In 2022, Russia and Ukraine accounted for around 71% of PMI's total shipment volume in the Region.

Excluding Russia and Ukraine, total shipment volume increased by 2.7%.

Middle East & Africa:

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Operating Income $ 1,758 $ 1,146 53.4 % 67.6 % $ 612 $ (163) $ — $ 200 $ 364 $ 211

Net revenues, excluding currency and acquisitions, increased by 10.4%, despite the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments, unfavorable currency and acquisitions, net revenues increased by 18.3%, reflecting:

favorable volume/mix, primarily driven by higher cigarette volume (predominantly in PMI Duty Free and Turkey, partly offset by the GCC and North Africa), higher heated tobacco unit volume (mainly in Egypt, Jordan and PMI Duty Free) and favorable cigarette mix (mainly in the GCC, PMI Duty Free and Turkey);

and a favorable pricing variance, mainly driven by combustible pricing (primarily in Egypt and Turkey);

partially offset by lower fees for certain distribution rights billed to customers in certain markets, shown in "Cost/Other".

Operating income, excluding currency and acquisitions, increased by 23.8%, mainly reflecting:

Net revenues, excluding currency and acquisitions, increased by 29.0%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other", favorable volume/mix, primarily driven by higher cigarette volume and higher HTU volume;

and a favorable pricing variance, mainly driven by combustible tobacco pricing.

Operating income, excluding currency and acquisitions, increased by 67.6%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments in 2021 (as noted above for net revenues), favorable volume/mix, primarily driven by the same factors as for net revenues;

a favorable pricing variance;

favorable volume/mix, driven by the same factors and geographies as for net revenues noted above;

and lower manufacturing costs (primarily related to combustible products);

partly offset by the unfavorable impact of the Saudi Arabia customs assessments, as noted above for net revenues;

higher marketing, administration and research costs;

and lower fees for certain distribution rights, as noted above for net revenues.

and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $17 million);

partly offset by higher manufacturing costs.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in the Middle East & Africa increased by 2.9% to 560.5 billion units, mainly driven by:

• Algeria, up by 6.2%, primarily reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, partly offset by the impact of price increases;

• Egypt, up by 8.8%, mainly reflecting a favorable comparison due to pandemic-related supply chain shortages for competitors' products in 2020, as well as the favorable impact of adult smoker in-switching to cigarettes (mainly in the low-tax tier) from other combustible tobacco products;

• South Africa, up by 13.2%, primarily reflecting a favorable comparison versus the second and third quarters of 2020, in which the total market was impacted by the pandemic-related ban on all tobacco sales from March 27th through August 17th, partly offset by a higher estimated prevalence of illicit trade stemming from the ban;

• Turkey, up by 8.2%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism (particularly by Turkish expatriates), partially offset by a higher estimated prevalence of illicit trade;

The estimated total market in the Middle East & Africa decreased by 0.8% to 557.2 billion units, mainly due to:

• Algeria, down by 16.1%, or by 6.8% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting industry supply chain disruptions, as well as the impact of excise tax-driven price increases in the first quarter of 2021;

• Turkey, down by 6.3%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism;

partly offset by

• International Duty Free, down by 10.6%, primarily reflecting the impact of government travel restrictions and reduced passenger traffic since the start of the pandemic in March 2020;

• Tunisia, down by 15.6%, mainly reflecting higher estimated prevalence of illicit trade (primarily due to market disruptions impacting product availability and the impact of price increases in July 2021).

• International Duty Free, up by 43.8%, primarily reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies.

Our Regional market share increased by 1.6 points to 24.7%.

Our total shipment volume increased by 9.3% to 130.1 billion units, notably driven by:

• PMI Duty Free, up by 56.9%.

Excluding the net favorable impact of estimated distributor inventory movements (principally due to cigarettes), PMI in-market sales volume was up by 4.1%, primarily reflecting a higher market share driven by Marlboro , partly offset by the lower total market;

• Turkey, up by 17.2%, mainly reflecting a higher market share driven by adult smoker up-trading (mainly benefiting Marlboro and Parliament ) and the higher total market;

partly offset by

• Egypt, down by 5.2%, mainly reflecting a lower market share (due primarily to adult smoker down-trading to products in the low-tax tier), partly offset by the higher total market;

• Kuwait, down by 23.4%, or by 12.3% excluding the net unfavorable impact of estimated distributor inventory movements, primarily reflecting a lower total market.

Our total shipment volume increased by 6.5% to 138.6 billion units, mainly driven by:

• Egypt, up by 8.2%, primarily reflecting a higher market share driven by cigarettes and HTUs;

• PMI Duty Free, up by 61.3%, or by 47.3% excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes), reflecting the higher total market and a higher market share.

South & Southeast Asia:

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Operating Income $ 1,459 $ 1,506 (3.1) % 5.7 % $ (47) $ (133) $ — $ 45 $ (16) $ 57

Net revenues, excluding currency and acquisitions, decreased by 2.3%, primarily reflecting:

an unfavorable pricing variance, mainly due to lower pricing for combustible products (primarily in Indonesia, partly offset by the Philippines).

Volume/mix was slightly unfavorable, mainly due to lower cigarette volume (primarily in the Philippines, partly offset by India and Indonesia), largely offset by favorable cigarette mix (mainly in Indonesia and the Philippines).

Operating income, excluding currency and acquisitions, decreased by 14.0%, primarily reflecting:

an unfavorable pricing variance;

unfavorable volume/mix, mainly due to lower cigarette volume (primarily in the Philippines, partly offset by India and Indonesia), partially offset by favorable cigarette mix (mainly in Indonesia and the Philippines);

and higher marketing, administration and research costs (mainly in Indonesia and the Philippines).

Net revenues, excluding currency and acquisitions, increased by 6.2%, reflecting:

favorable volume/mix, primarily driven by higher cigarette volume and favorable cigarette mix;

and a favorable pricing variance, mainly due to combustible tobacco pricing.

Operating income, excluding currency and acquisitions, increased by 5.7%, primarily reflecting:

lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $21 million and the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million);

and a favorable pricing variance;

partly offset by unfavorable volume/mix, mainly due to lower cigarette mix.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in South & Southeast Asia increased by 7.2% to 722.6 billion units, notably driven by:

• Bangladesh, up by 12.9%, primarily reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions impacted tobacco product availability;

• India, up by 13.6%, mainly reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 7.2%, primarily reflecting the growth of the tax-advantaged 'below tier one' segment and the impact on adult smoker consumption of the easing of pandemic-related measures;

• Pakistan, up by 17.3%, notably reflecting a lower prevalence of illicit trade (partly due to pandemic-related supply disruptions for illicit products);

• Vietnam, up by 10.0%, mainly reflecting a lower prevalence of illicit trade due to pandemic-related supply disruptions for illicit products;

The estimated total market in South & Southeast Asia increased by 2.9% to 743.3 billion units, mainly driven by:

• India, up by 16.8%, primarily reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 4.5%, mainly reflecting the impact on adult smoker consumption of the easing of pandemic-related measures, which drove growth in the tax-advantaged 'below tier one' segment;

partly offset by

• the Philippines, down by 10.7%, primarily reflecting the impact of industry-wide price increases in the fourth quarter of 2020.

• Bangladesh, down by 4.0%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022, as well as the impact of second-quarter 2022 excise tax-driven price increases;

• the Philippines, down by 6.1%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases.

Our Regional market share decreased by 0.3 points to 19.4%.

Our total shipment volume decreased by 1.8% to 142.2 billion units, primarily due to:

• the Philippines, down by 17.6%, mainly reflecting the lower total market and a lower market share (predominantly due to mid-price Fortune , reflecting the impact of price increases in the fourth quarter of 2020, partly offset by Marlboro );

• Thailand, down by 4.7%, primarily reflecting a lower total market, partly offset by a higher market share driven by L&M 7.1 ;

Our total shipment volume increased by 1.6% to 144.5 billion units, mainly driven by:

• India, up by 73.9%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market;

• Indonesia, up by 4.8%, mainly reflecting the higher total market;

partly offset by

• India, up by 43.2%, mainly reflecting a higher market share (driven by Marlboro ) and the higher total market;

• Indonesia, up by 4.3%, primarily reflecting the higher total market, partly offset by a lower market share (mainly due to adult smoker down-trading to the 'below tier one' segment as a result of significantly lower retail prices, partly offset by share growth for PMI's premium and hand-rolled portfolio);

• Pakistan, up by 10.1%, mainly reflecting the higher total market, partly offset by a lower market share.

• the Philippines, down by 6.3%, mainly reflecting the lower total market.

East Asia & Australia:

8 unchanged sentences

Operating Income $ 1,919 $ 2,556 (24.9) % (10.9) % $ (637) $ (358) $ — $ (16) $ (477) $ 214

Net revenues, excluding currency and acquisitions, increased by 8.5%, reflecting:

a favorable pricing variance, primarily driven by higher heated tobacco, combustible and device net pricing in Japan, partly offset by lower combustible pricing in Australia;

and favorable volume/mix, mainly driven by higher heated tobacco unit volume and favorable device volume/mix in Japan (driven by the launch of IQOS ILUMA ), partly offset by unfavorable cigarette mix (mainly in Australia and Japan), lower cigarette volume (primarily in Australia, Japan and South Korea) and unfavorable heated tobacco unit mix in Japan

Operating income, excluding currency acquisitions, increased by 8.7%, mainly reflecting:

a favorable pricing variance;

and lower manufacturing costs (primarily related to reduced-risk products in Japan and South Korea);

partly offset by higher marketing, administration and research costs (notably due to the launch of IQOS ILUMA in Japan and higher asset impairment and exit costs, mainly related to product distribution restructuring in South Korea).

Volume/mix was slightly unfavorable, primarily reflecting unfavorable cigarette mix (mainly in Australia and Japan), lower cigarette volume (primarily in Australia, Japan and South Korea), as well as unfavorable heated tobacco unit mix and device mix in Japan, largely offset by higher heated tobacco unit volume in Japan.

Net revenues, excluding currency and acquisitions, decreased by 3.9%, primarily reflecting:

unfavorable volume/mix, mainly due to unfavorable device mix, lower cigarette volume and unfavorable cigarette mix, partly offset by higher HTU volume and higher device volume;

and an unfavorable pricing comparison.

Operating income, excluding currency and acquisitions, decreased by 10.9%, mainly reflecting:

unfavorable volume/mix, primarily due to unfavorable HTU mix, lower cigarette volume, unfavorable cigarette mix and unfavorable device mix;

and higher manufacturing costs;

partly offset by lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $88 million and the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $21 million).

East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in East Asia & Australia, excluding China, decreased by 0.9% to 292.8 billion units, mainly due to:

• Australia, down by 11.3%, primarily reflecting the impact of the ending of the pandemic-related wage subsidy by the government, coupled with the impact of pandemic-related restrictions;

• Japan, down by 2.4%, mainly reflecting the impact of the October 2020 and 2021 excise tax-driven price increases.

• Japan, down by 1.5%, primarily reflecting the impact of the October 2021 excise tax-driven price increases.

Our Regional market share, excluding China, increased by 0.8 points to 27.3%.

Our total shipment volume increased by 3.9% to 82.1 billion units, mainly driven by:

• Japan, up by 8.0%, or by 1.3% excluding the net favorable impact of estimated distributor inventory movements, primarily reflecting a higher market share (driven by heated tobacco units), partly offset by the lower total market;

Our total shipment volume decreased by 0.2% to 81.9 billion units, mainly due to:

• Australia, down by 5.1%, mainly reflecting a lower total market, partly offset by a higher market share;

• South Korea, down by 1.6%, primarily reflecting a lower market share;

partly offset by

• South Korea, down by 4.7%, mainly reflecting a lower market share due mainly to Parliament .

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume declined by 0.4%.

• Japan, up by 0.6%, or by 3.9% excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to HTUs), reflecting a higher market share, partly offset by the lower total market.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 1.9%.

Financial Summary -

7 unchanged sentences

Operating Income $ 436 $ 487 (10.5) % (8.2) % $ (51) $ (11) $ — $ 102 $ (6) $ (136)

Net revenues, excluding currency and acquisitions, increased by 5.6%, mainly reflecting:

a favorable pricing variance, driven by higher combustible pricing (mainly in Argentina and Colombia);

and favorable volume/mix, primarily driven by higher cigarette volume (mainly in Brazil and Mexico, partly offset by Argentina) and higher device volume, partially offset by unfavorable cigarette mix (primarily in Brazil).

Operating income, excluding currency and acquisitions, decreased by 16.8%, mainly reflecting an unfavorable comparison related to the Brazil indirect tax credit of $119 million in 2020 and higher manufacturing costs (due to reduced-risk and combustible products), partly offset by a favorable pricing variance and lower marketing, administration and research costs.

Volume/mix was slightly unfavorable, mainly reflecting unfavorable cigarette mix (notably in Brazil), largely offset by higher cigarette volume (primarily in Brazil and Mexico, partly offset by Argentina).

Net revenues, excluding currency and acquisitions, increased by 4.1%, primarily reflecting:

a favorable pricing variance, driven by combustible tobacco pricing;

partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette mix.

Operating income, excluding currency and acquisitions, decreased by 8.2%, mainly reflecting:

higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $5 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $8 million);

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Volume/mix was slightly unfavorable, mainly due to unfavorable cigarette mix, largely offset by higher cigarette volume.

Americas - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in Americas, excluding the U.S., increased by 2.2% to 193.9 billion units, mainly driven by:

• Argentina, up by 7.4%, primarily reflecting a lower estimated prevalence of illicit trade and a favorable comparison related to retail out-of-stock in the second quarter of 2020 (due to temporary factory shutdowns related to the pandemic), partly offset by the impact of price increases;

• Brazil, up by 3.1%, mainly reflecting a lower estimated prevalence of illicit trade due to reduced price gaps with legal products and the impact of social incentives provided by the government to mitigate the effects of the pandemic;

• Mexico, up by 4.2%, primarily reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures coupled with the impact of increased in-bound tourism;

The estimated total market in the Americas, excluding the U.S., increased by 1.7% to 190.8 billion units, primarily driven by:

• Brazil, up by 7.6%, primarily reflecting a lower estimated prevalence of illicit trade;

partly offset by

• Canada, down by 12.8%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

Our Regional market share, excluding the U.S., decreased by 0.4 points to 33.4%.

Our total shipment volume increased by 1.5% to 65.2 billion units, primarily driven by:

• Brazil, up by 5.2%, mainly reflecting the higher total market and a higher market share driven by Chesterfield ;

• Mexico, up by 4.7%, primarily reflecting the higher total market, as well as a higher market share driven by Marlboro ;

Our Regional market share, excluding the U.S., increased by 0.3 points to 34.8%.

Our total shipment volume increased by 2.1% to 66.5 billion units, mainly driven by:

• Brazil, up by 13.3%, primarily reflecting the higher total market and a higher market share;

• Mexico, up by 2.5%, mainly reflecting a higher total market and a higher market share for cigarettes;

partly offset by

• Argentina, down by 2.9%, mainly reflecting a lower market share (primarily due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers).

Following the acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc., we added the "Other" category in the third quarter of 2021.

Business operations for the Other category are managed and evaluated separately from the geographical segments.

• Argentina, down by 2.8%, primarily reflecting a lower market share due to adult smoker downtrading to ultra-low-price brands produced by local manufacturers, partly offset by a higher total market.

Swedish Match:

Our results for the Swedish Match operating segment for the full-year include Swedish Match's results beginning on November 11, 2022, when PMI became the owner of a majority position in Swedish Match, through December 31, 2022.

The business operations of our Swedish Match segment are managed and evaluated separately from the geographical segments.

Financial Summary -

7 unchanged sentences

Operating Income / (Loss) $ (22) $ — — % — % $ (22) $ — $ (22) $ — $ — $ —

We recorded net revenues of $101 million in the Other category, with approximately 39% of the total coming from Fertin Pharma's nicotine replacement therapy and nicotine-containing oral products businesses.

The operating loss of $52 million primarily reflected a pre-tax charge of $51 million in the third quarter of 2021 related to the OtiTopic, Inc.

The charge was recorded to research and development costs (within marketing, administration and research costs) and reflected PMI's accounting for the OtiTopic transaction as an asset acquisition, since the in-process research and development of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired and had no alternative future use.

For further details, see Item 8, Note 6.

Acquisitions and Item 8, Note 12.

Segment Reporting .

We recorded net revenues of $316 million in the Swedish Match segment, with an operating loss of $22 million, primarily reflecting $125 million in an acquisition accounting-related item and $26 million related to the amortization of acquired intangibles.

Wellness and Healthcare:

In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

On March 31, 2022, we launched a new Wellness and Healthcare business, Vectura Fertin Pharma, consolidating these entities.

The operating results of this business are reported in the Wellness and Healthcare segment.

The business operations of our Wellness and Healthcare segment are managed and evaluated separately from the geographical segments.

Financial Summary -

Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 271 $ 101 +100% (7.9) % $ 170 $ (11) $ 189 $ (10) $ — $ 2

Operating Income / (Loss) $ (258) $ (52) -(100)% -(100)% $ (206) $ 8 $ (72) $ (10) $ — $ (132)

Net revenues, excluding currency and acquisitions, decreased by 7.9%, primarily reflecting lower product supply revenues and lower royalties.

The operating loss of $258 million in 2022 included $171 million of amortization and impairment of intangibles.

The remaining operating loss in 2022 of $87 million mainly reflected investments in research and development, as well as expenses related to employee retention programs.

2021 compared with 2020

2 unchanged sentences

Securities and Exchange Commission on February 11, 2022.

This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.

Financial Review

3 unchanged sentences

Net cash used in investing activities (15,679) (2,358) (1,154)

Net cash used in financing activities (11,977) (8,496) (8,061)

Net cash provided by (used in) financing activities 3,806 (11,977) (8,496)

2022 compared with 2021

• Net Cash Provided by Operating Activities

Net cash provided by operating activities for the year ended December 31, 2021 increased by $2.2 billion compared with 2020.

Excluding favorable currency movements of $0.8 billion, net cash provided by operating activities increased by $1.4 billion, due primarily to higher net earnings and lower working capital requirements of $0.5 billion, partially offset by higher pension plan contributions.

The lower working capital requirements in 2021 as compared with 2020 were primarily due to more cash provided by the net impact of both inventories and accrued liabilities and other current assets mainly reflecting COVID-19 pandemic related build-up of inventory levels in our supply chain in 2020, and the timing of excise tax-paid inventory movements and excise tax payments, as well as higher cash provided by accounts payable primarily reflecting higher IQOS device purchases in 2021.

More cash used in accounts receivable was mainly due to the lower usage of our factoring arrangements to sell trade receivable, partially offset by the Brazil indirect tax credit recovered in 2021.

For further details on our factoring arrangements to sell trade receivables and our Brazil indirect tax credit recovered in 2021, see Item 8, Note 18.

Sale of Accounts Receivable and Item 8, Note 12.

Segment Reporting, respectively.

Net cash provided by operating activities for the year ended December 31, 2022 decreased by $1.2 billion compared with 2021.

Excluding unfavorable currency movements of $1.5 billion, net cash provided by operating activities increased by $0.3 billion, due primarily to higher currency-neutral net earnings of $1.1 billion and lower pension plan contributions, net of refunds, of $0.3 billion, partially offset by higher working capital requirements of $1.0 billion and other movements.

The unfavorable currency movements primarily related to the currency impact on net earnings and represented the fluctuations of the U.S.

dollar, especially against Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Swiss franc.

The higher working capital requirements in 2022 as compared with 2021 were primarily due to more cash used for accounts receivable in 2022 mainly reflecting the timing of sales and cash collections, and more cash used for inventory mainly reflecting stock movements related to excise tax increases, partially offset by more cash provided by accrued liabilities and other current assets mainly reflecting the timing of excise tax-paid inventory movements and excise tax payments.

• Net Cash Used in Investing Activities

Net cash used in investing activities of $15.7 billion for the year ended December 31, 2022, increased by $13.3 billion from the comparable 2021 period.

This increase was primarily due to $2.1 billion of cash used in 2021 for our acquisitions, net of acquired cash, partially offset by favorable movements of $1.0 billion in cash collateral exchanged with financial institutions to secure derivatives designated as net investment hedges of Euro assets principally related to changes in exchange rates between the Euro and

For further detail on our 2021 acquisitions and derivatives designated as net investment hedges, see Item 8, Note 6.

Acquisitions and Item 8, Note 15.

Financial Instruments.

This increase was due primarily to the $14.0 billion of cash used in 2022 for the Swedish Match acquisition, net of acquired cash, the 2022 cash payment to Altria Group, Inc.

of $1.0 billion for PMI to reacquire the IQOS commercialization

rights in the U.S.

and higher capital expenditures.

These increases were partially offset by the $2.1 billion of cash used in 2021 for our acquisitions, net of acquired cash.

For further detail on our acquisitions and the Altria Group, Inc.

Agreement, see Item 8, Note 3.

Acquisitions.

Our capital expenditures were $1.1 billion in 2022 and $0.7 billion in 2021.

The 2021 expenditures were primarily related to our ongoing investments in RRPs.

We expect total capital expenditures in 2022 of approximately $1.0 billion (including capital expenditures related to our ongoing investment in RRPs), to be funded by operating cash flows.

• Net Cash Used in Financing Activities

Net cash used in financing activities of $12.0 billion for the year ended December 31, 2021, increased by $3.5 billion from the comparable 2020 period.

The change was primarily due to the proceeds we received in 2020 from long-term U.S.

dollar debt issuances ($3.7 billion), share purchases in 2021 under the new share repurchase program and higher dividend payments, partially offset by lower repayments of long-term debt and lower payments to noncontrolling interests.

The 2022 expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

We expect total capital expenditures in 2023 of approximately $1.3 billion, partly reflecting increased investments behind smoke-free product manufacturing capacity, including for ILUMA and Swedish Match's portfolio.

• Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities of $3.8 billion for the year ended December 31, 2022, increased by $15.8 billion from the comparable 2021 period.

The increase was primarily due to higher borrowings in 2022 reflecting net borrowings of $9.9 billion under credit facilities related to the Swedish Match acquisition, proceeds from long-term debt issuances of $6.0 billion and net short-term borrowings of $1.0 billion (primarily commercial paper), as well as lower share repurchases and lower repayments of long-term debt in 2022.

These increases were partially offset by higher cash usage primarily reflecting payments made after the acquisition date to acquire additional Swedish Match shares from noncontrolling interests, higher dividend payments and the purchase of the remaining stakes in our Turkish affiliates in the first quarter of 2022.

For further details on the purchases of additional Swedish Match shares and the remaining stakes in our Turkish affiliates, see Item 8, Note 3.

Acquisitions.

Dividends paid in 2022 and 2021 were $7.8 billion and $7.6 billion, respectively.

3 unchanged sentences

Securities and Exchange Commission on February 11, 2022.

This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.

• Debt and Liquidity

5 unchanged sentences

For 2022 and 2021, the activities for such reverse repurchase agreements were not material.

In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates the company’s smoke-free transformation into its financing strategy.

In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates PMI's smoke-free transformation into its financing strategy.

The Framework outlines the guidelines that we will follow in issuing business transformation-linked financing instruments in the debt capital and loan markets, which may include public notes offerings, private placements, loans, and other relevant financing instruments.

Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings.

On November 10, 2022, Fitch affirmed our long-term credit rating at “A” and short-term at “F1”, and revised our outlook to “Stable” from “Rating Watch Negative”.

On November 11, 2022, Moody’s affirmed our long-term credit rating at “A2” and short-term at “P-1”, and revised our outlook to “Stable” from “Rating(s) Under Review”.

On November 11, 2022, Standard & Poor’s revised our long-term credit rating to “A-” from “A” and short-term to “A-2” from “A-1” with “Stable” outlook (previously “CreditWatch Negative”).

At February 10, 2023, our credit ratings and outlook by major credit rating agencies were as follows:

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Fitch F1 A Stable

Credit Facilities – On January 28, 2022, we entered into an agreement to amend and extend the term of our $1.8 billion 364-day revolving credit facility from February 1, 2022, to January 31, 2023.

At February 10, 2022, our committed credit facilities were as follows:

Revolving Credit Facilities – On January 25, 2023, we entered into an agreement to amend and extend the term of our $1.8 billion 364-day committed revolving credit facility from January 31, 2023, to January 30, 2024.

At February 10, 2023, our committed revolving credit facilities were as follows:

(in billions)

Committed Revolving Credit Facilities

364-day revolving credit, expiring January 30, 2024 $ 1.8

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(2) Includes business transformation-linked pricing adjustments that may result in the reduction or increase in both the interest rate and commitment fee under the credit agreement if PMI achieves, or fails to achieve, certain specified targets based on its business transformation goals.

At February 10, 2022, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

(3) On September 20, 2022, we entered into an agreement, effective September 29, 2022, to amend and extend the term of our $2.5 billion multi-year revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $2.3 billion.

At February 10, 2023, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Subject to market conditions, PMI currently expects to request a further extension of the terms of its $2.5 billion multi-year revolving credit facility for an additional one-year period, in accordance with and subject to the terms and conditions of the relevant revolving credit facility agreement.

All banks participating in our committed credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential non-performing credit provider.

These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral.

These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral.

We expect to continue to meet our covenants.

In addition to the committed credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs.

In addition to the committed revolving credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs.

These credit arrangements, which amounted to approximately $1.9 billion at December 31, 2022 and approximately $2.3 billion at December 31, 2021, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $295 million at December 31, 2022, and $225 million at December 31, 2021.

Financing of the Swedish Match Acquisition – In connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match AB ("Swedish Match"), a public limited liability company organized under the laws of Sweden, for all the outstanding shares of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility.

The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended.

On June 23, 2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027.

In connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion.

On November 11, 2022, PMI acquired a controlling interest of 85.87% of the total issued shares in Swedish Match and has acquired 94.81% of its outstanding shares as of December 31, 2022.

PMI borrowed $8.4 billion under the bridge facility by delivering notices of borrowing for advances of $7.9 billion and $0.5 billion on November 7, 2022 and November 10, 2022, respectively.

All amounts borrowed under the bridge facility will become due on November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility.

On November 7, 2022, PMI also delivered notices of borrowing for advances totaling €5.5 billion under the term loan facility, of which €3.0 billion will become due on November 9, 2025 and €2.5 billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit

On November 21, 2022, PMI repaid $4.0 billion under the bridge facility.

As of December 31, 2022, outstanding borrowings under the bridge facility amounted to $4.4 billion and $1.1 billion commitments remained available for drawing.

As of December 31, 2022, the €5.5 billion (approximately $5.9 billion) term loan facility was fully drawn and remained outstanding.

The proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the payment of related fees and expenses.

For further details, see Item 8, Note 3.

Acquisitions to our consolidated financial statements.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S.

and in Europe having an aggregate issuance capacity of $8.0 billion.

At December 31, 2021, and December 31, 2020, we had no commercial paper outstanding.

At December 31, 2022, we had $0.9 billion of commercial paper outstanding.

At December 31, 2021, we had no commercial paper outstanding.

The average commercial paper balance outstanding during 2022 and 2021 was $3.1 billion and $1.1 billion, respectively.

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Our total debt is primarily fixed rate in nature.

The weighted-average all-in financing cost of our total debt was 2.4% in 2021 and 2020.

For further details,

including the fair value of our debt, see Item 8, Note 7.

The weighted-average all-in financing cost of our total debt was 2.5% in 2022 and 2.4% in 2021.

For further details, including the fair value of our debt, see Item 8, Note 8.

Indebtedness .

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Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period.

During 2021, we had no public debt issuances.

The weighted-average time to maturity of our long-term debt was approximately 10 years at the end of 2021 and 2020.

During February 2023, we plan to file a new shelf registration statement with the Securities and Exchange Commission.

Our notes issuances in 2022 were as follows:

(in millions)

Type Face Value Interest Rate Issuance Maturity

dollar notes (a) $1,000 5.125% November 2022 November 2024

dollar notes (b) $750 5.000% November 2022 November 2025

dollar notes (b) $1,500 5.125% November 2022 November 2027

dollar notes (b) $1,250 5.625% November 2022 November 2029

dollar notes (b) $1,500 5.750% November 2022 November 2032

(a) Interest is payable semi-annually on each May 15 and November 15, commencing May 15, 2023.

(b) Interest is payable semi-annually on each May 17 and November 17, commencing May 17, 2023.

The weighted-average time to maturity of our long-term debt was approximately 8 years at the end of 2022 and 10 years at the end of 2021.

Cash Requirements – At December 31, 2022, our material short-term and long-term cash requirements for various contractual obligations and commitments primarily consisted of the following:

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These purchase obligations are expected to be approximately $3.3 billion in 2023 and approximately $1.6 billion for years beyond;

• As part of the agreement with Altria Group, Inc.

for PMI to reacquire the IQOS commercialization rights in the U.S., PMI agreed to pay the remaining cash consideration of $1.7 billion (plus interest, at a per annum rate equal to six percent (6%)) by July 2023 at the latest.

For further details, see Item 8, Note 3.

Acquisitions to our consolidated financial statements;

• operating lease liabilities, on an undiscounted basis, which were included in our consolidated balance sheets.

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Stock Plans to our consolidated financial statements.

During 2020 and the first six months of 2021, we did not repurchase any shares under a share repurchase program.

On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period.

On July 22, 2021, we began repurchasing shares under this new share repurchase program.

From July 22, 2021 through December 31, 2021, we repurchased 8.5 million shares of our common stock at a cost of $785 million.

From July 22, 2021 through March 31, 2022, we repurchased 10.5 million shares of our common stock at a cost of approximately $1.0 billion.

During the first three months of 2022, we repurchased 2.0 million shares of our common stock at a cost of $199 million.

On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders.

Prior to the suspension of the program, we made no share repurchases during the second quarter of 2022.

For further details on Swedish Match, see the Item 8, Note 3.

Acquisitions .

Dividends paid in 2022 were $7.8 billion.

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We continuously monitor and assess the credit worthiness of all our counterparties.

Derivative Financial Instruments - We operate in markets outside of the United States of America, with manufacturing and sales facilities in various locations throughout the world.

Derivative Financial Instruments - We operate in markets primarily outside of the United States of America, with manufacturing and sales facilities in various locations around the world.

Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure.

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(in millions)

December 31, 2021 Average High Low

At December 31, 2022 Average High Low

Instruments sensitive to:

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(in millions)

December 31, 2020 Average High Low

At December 31, 2021 Average High Low

Instruments sensitive to:

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$217 $200 $217 $179

The significant year-over-year decrease in "average" and "high" impact on the value at risk computation above was primarily due to an increase in interest rate and foreign currency volatility during the first quarter of 2020 resulting from the impact of the COVID-19 pandemic.

The significant year-over-year increase in "average" and "high" impact on the value at risk computation above was primarily due to trends in foreign currency and interest rate volatility.

The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in interest and foreign currency rates under normal market conditions.

The computation does not purport to represent actual losses in fair value or earnings to be incurred by us, nor does it consider the effect of favorable changes in market rates.

cannot predict actual future movements in such market rates and do not present these results to be indicative of future movements in market rates or to be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.

We cannot predict actual future movements in such market rates and do not present these results to be indicative of future movements in market rates or to be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.

Contingencies

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We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions.

Our RRPs constitute a new product category in its early stages that is less predictable than our mature cigarette business.

Our RRPs constitute a new product category that is less predictable than our mature cigarette business.

Achievement of future results is subject to risks, uncertainties and inaccurate assumptions.

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You should understand that it is not possible to predict or identify all risk factors.

Consequently, you should not consider this discussion of potential risks or uncertainties to be complete.

Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis