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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-27 · 775 added, 1209 removed, 733 unchanged (73% 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.

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 versions of our IQOS Platform 1 devices and consumables as Modified Risk Tobacco Products (MRTPs), finding that exposure modification orders for these products are appropriate to promote the public health.

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 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

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 consumer and patient needs.

We currently manage our business in six geographical segments and a Wellness and Healthcare segment (formerly the Other category):

• European Union ("EU");

• Eastern Europe ("EE");

• Middle East & Africa ("ME&A"), which includes our international duty free business;

• South & Southeast Asia ("S&SA");

• East Asia & Australia ("EA&A");

• Americas ("AMCS");

• 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.

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.

For further details, see Note 2.

Acquisitions and Note 9.

Segment Reporting .

In the fourth quarter of 2021, we announced that we will be relocating our PMI corporate headquarters, including our AMCS headquarters, from New York, New York, to Stamford, Connecticut.

This move is expected to be completed in November 2022.

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 began managing our business in four geographical segments, down from six previously, in addition to its continuing Swedish Match and Wellness and Healthcare segments.

The four geographical segments are as follows:

Europe Region;

South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region ("SSEA, CIS & MEA");

East Asia, Australia, and PMI Duty Free Region ("EA, AU & PMI DF");

and Americas Region.

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 September 30, 2022, excluding Russia and Ukraine, our smoke-free products were available for sale in 70 markets.

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, as noted above, 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 SFPs portfolio.

As of March 31, 2023, our smoke-free products were available for sale in 78 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, which provide essential capabilities for future product development.

Now, through our Vectura Fertin Pharma business, 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 cigarettes to better alternatives faster than either company could achieve separately.

For further details, see Note 2.

Acquisitions.

In 2022, we also completed an agreement with Altria Group, Inc.

to end our commercial relationship in the U.S.

covering IQOS as of April 30, 2024.

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

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.

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).

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).

Mix can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix).

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

Swedish Match AB Redemption of Remaining Shares

As of December 31, 2022, Philip Morris Holland Holdings B.V.

(“PMHH”), a wholly owned subsidiary of PMI, had acquired 94.81% of the outstanding shares of Swedish Match.

On February 17, 2023, PMHH obtained legal title under the Swedish Companies Act to the remaining issued and outstanding shares in Swedish Match, following the exercise of its right to compulsory redemption of all remaining shares.

For further details on the Swedish Match acquisition, see Note 2.

Acquisitions .

Distribution Agreement Termination

Following the termination of a distribution arrangement in the Middle East, PMI recorded a pre-tax charge of $80 million in the first quarter of 2023.

The charge was recognized as a reduction of net revenues in the condensed consolidated statement of earnings.

e-Vapor Products Manufacturing Optimization

In the first quarter of 2023, PMI initiated a project to fully outsource and restructure the manufacturing of e-vapor devices and consumables.

As a result, PMI recorded pre-tax asset impairment and exit costs of $109 million.

For further details, see Note 17.

Asset Impairment and Exit Costs .

While staying clearly focused on the heat-not-burn and nicotine pouch categories, which present the largest and most accretive growth opportunities, the company is adjusting its VEEV e-vapor portfolio and approach.

PMI intends to focus on commercializing VEEV in select markets, with an emphasis on profitability given the known category challenges.

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.

The company 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, we announced the temporary suspension of our 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 contract manufacturing by a third party.

We are applying increased security and safety measures for personnel.

In Ukraine, our main priority remains the safety and security of our more than 1,300 employees and their families in the country.

We continue select retail activities where safety allows, in order to provide product availability and service to adult consumers, and supplies the market from production centers outside Ukraine, as well as through a contract manufacturing arrangement.

Production at our factory in Kharkiv remains suspended.

In 2021, Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume and under 2% of our total net revenues.

As of September 30, 2022, our Ukrainian operations had approximately $0.5 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.

As previously announced, we intend to exit the Russian market in an orderly manner, as the complexities of continuing to operate in Russia increase, such as supply chain challenges and financial and banking sector restrictions.

Our Board of Directors and senior executives continue to actively work on options for doing so, in the context of an increasingly complex and

rapidly changing regulatory and operating environment, including the requirement to obtain certain governmental approvals for any transaction.

In 2021, Russia made up almost 10% of total shipment volumes and around 6% of our total net revenues.

As of September 30, 2022, our Russian operations had approximately $2.6 billion in total assets, excluding intercompany balances.

We recorded pre-tax charges related to the war in Ukraine of approximately $6 million in the third quarter of 2022 and approximately $128 million in the September year-to-date period.

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

As of March 31, 2023, our Ukrainian operations had approximately $0.5 billion in total assets, excluding intercompany balances.

In Russia, we are continuously assessing the evolving situation in the country, including recent regulatory constraints in the market entailing 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.

As of March 31, 2023, our Russian operations had approximately $2.4 billion in total assets, excluding intercompany balances, of which approximately $0.4 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).

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.

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War in Ukraine to our condensed consolidated financial statements as well as the " Trade Policy " and " Cautionary Factors That May Affect Future Results" sections 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' 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.

As part of the agreement, PMI will pay a total cash consideration of $2.7 billion, of which $1.0 billion was paid at the inception of the agreement using available cash.

The remaining $1.7 billion, plus interest, at a per annum rate equal to six percent (6%), will be paid by July 2023 at the latest.

PMI is currently evaluating the impact of this agreement on its consolidated financial statements.

For further details, see Note 19.

Subsequent Event to our condensed consolidated financial statements.

Swedish Match Offer

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

("PMHH"), an affiliate of PMI, announced a recommended public offer to the shareholders of Swedish Match AB ("Swedish Match") to tender all shares in Swedish Match (excluding treasury shares) to PMHH at a price of SEK 106 in cash per share.

On June 28, 2022, the offer document regarding PMHH's recommended offer was made public, following approval and registration by the Swedish Financial Supervisory Authority.

On October 20, 2022, PMHH announced an increase in the price in its recommended public offer to the shareholders of Swedish Match to SEK 116 in cash per share.

On October 25, 2022, PMHH announced that the European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Swedish Match, subject to PMHH’s divestiture of Swedish Match’s subsidiary SMD Logistics AB following the completion of the offer.

PMHH does not believe that Swedish Match’s earnings and operations will be materially affected by the divestiture and the continued operation of SMD Logistics AB by a third-party outside of the Swedish Match Group.

Accordingly, the condition to PMHH’s offer that all necessary regulatory, governmental or similar clearances, approvals, decisions and other actions be obtained on terms which, in PMHH’s opinion, are acceptable, has been satisfied.

PMI expects the transaction to close in the fourth quarter of this year, subject to the terms and conditions of the offer being fulfilled or waived as further set out in the offer document.

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

Consolidated Operating Results for the Nine Months Ended September 30, 2022

• Net Revenues - Net revenues of $23.6 billion for the nine months ended September 30, 2022 increased by $0.3 billion, or 1.3%, 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 with year-to-date results):

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.1%, mainly reflecting:

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

For the nine months ended September 30, 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

Net revenues by product category for the nine months ended September 30, 2022 and 2021 are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the nine months ended September 30, 2022, from the comparable 2021 amounts, were as follows:

Consolidated Operating Results for the Three Months Ended March 31, 2023

• Net Revenues - Net revenues of $8.0 billion for the three months ended March 31, 2023 increased by $273 million, or 3.5%, from the comparable 2022 amount.

The change in our net revenues from the comparable 2022 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues, excluding currency and acquisitions, increased by 2.1%, mainly reflecting a favorable pricing variance, primarily driven by higher combustible tobacco pricing, partly offset by lower HTU (net) pricing.

Volume/mix was slightly unfavorable, with lower cigarette volume and unfavorable smoke-free product mix largely offset by higher HTU and device volume, as well as favorable cigarette mix.

The 2023 net revenues included a charge of $80 million following the termination of a distribution arrangement in the Middle East, shown in "Other" and further described above and in the following " Diluted Earnings Per Share " discussion.

Net revenues by product category for the three months ended March 31, 2023 and 2022, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the three months ended March 31, 2023, from the comparable 2022 amounts, were as follows:

Diluted EPS % Change

For the nine months ended September 30, 2021 $ 4.48

2021 Asset impairment and exit costs 0.09

2021 Saudi Arabia customs assessments 0.14

2021 Asset acquisition cost 0.03

2021 Equity investee ownership dilution (0.02)

2021 Amortization and impairment of intangibles 0.03

2021 Tax items —

Subtotal of 2021 items 0.27

For the three months ended March 31, 2022 $ 1.50

2022 Charges related to the war in Ukraine

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2022 Amortization and impairment of intangibles 0.02

2022 Costs associated with Swedish Match AB offer (0.13)

2022 Tax items 0.03

Subtotal of 2022 items 0.08

Currency (0.58)

Interest 0.03

Change in tax rate 0.03

Operations 0.36

For the nine months ended September 30, 2022 $ 4.27 (4.7) %

Asset impairment and exit costs – During the nine months ended September 30, 2021, we recorded pre-tax asset impairment and exit costs of $170 million, representing $143 million net of income tax and a diluted EPS charge of $0.09 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

For further details, see Note 17.

2023 Asset impairment and exit costs (0.06)

Saudi Arabia customs assessments – 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 Note 10.

Contingencies .

On the basis of these decisions and in line with arrangements with the distributors, we recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted EPS charge of $0.14 per share).

The pre-tax charge was recorded as a reduction of net revenues on the condensed consolidated statement of earnings for the nine months ended September 30, 2021 and was included in the Middle East & Africa segment results.

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S.

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

We accounted for this transaction as an asset acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired.

At the date of acquisition, we determined that the acquired IPR&D had no alternative future use.

As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 charge to diluted EPS) to research and development costs within marketing, administration and research costs in the condensed consolidated statements of earnings for the nine months ended September 30, 2021.

For further details, see Note 2.

Acquisitions .

Equity investee ownership dilution – In July 2021, our equity method investee, Medicago Inc, initiated an additional round of equity funding in which we did not participate.

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

was reduced from approximately 32% at December 31, 2020 to approximately 25% as of September 30, 2021.

The ownership dilution resulted in a $0.02 favorable impact to diluted EPS and income of $38 million to Equity investments and securities (income)/loss, net in the condensed consolidated statements of earnings for the nine months ended September 30, 2021.

For further details, see Note 10.

Contingencies .

Amortization and impairment of intangibles – During the nine months ended September 30, 2022 and 2021, we recorded amortization and impairment of intangibles of $213 million (representing $182 million net of income tax or $0.12 per share decrease in diluted EPS) and $55 million (representing $45 million net of income tax or $0.03 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $101 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 Note 2.

Acquisitions and Note 6.

Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – During the nine months ended September 30, 2022, we recorded a pre-tax charge of $128 million, representing $109 million net of income tax and a diluted EPS charge of $0.07 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 Note 3.

War in Ukraine .

Fair Value adjustment for equity security investments – During the nine months ended September 30, 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.03 per share decrease in diluted EPS).

For further details, see Note 14.

Related Parties - Equity Investments and Other .

Costs associated with Swedish Match AB offer – During the nine months ended September 30, 2022, we incurred pre-tax costs associated with the Swedish Match offer of $266 million (representing $203 million net of income tax and a diluted EPS charge of $0.13 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs.

These pre-tax costs of $266 million were recorded in marketing, administration and research costs ($269 million expense) and interest expense, net ($3 million gain) on our condensed consolidated statement of earnings for the nine months ended September 30, 2022.

Income taxes – 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 earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.58 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the 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 $0.03 per share from interest in the table above was primarily driven by the repayment of long-term debt.

Operations – The increase in diluted EPS of $0.36 from our operations in the table above was due primarily to the following segments:

• Middle East & Africa:

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

• European Union:

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

• Eastern Europe:

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

• South & Southeast Asia:

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

partially offset by

• East Asia & Australia:

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

• Wellness and Healthcare:

Primarily reflecting investments in research and development, and expenses related to employee retention programs in 2022;

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

Consolidated Operating Results for the Three Months Ended September 30, 2022

• Net Revenues - Net revenues of $8.0 billion for the three months ended September 30, 2022 decreased by $90 million, 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 with quarterly results):

During the quarter, net revenues, excluding currency and acquisitions, increased by 6.7%, mainly reflecting:

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

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

During the quarter, Russia and Ukraine accounted for around 10% of PMI's total net revenues.

Net revenues by product category for the three months ended September 30, 2022 and 2021, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended September 30, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS % Change

For the three months ended September 30, 2021 $ 1.55

2021 Asset impairment and exit costs 0.02

2021 Asset acquisition cost 0.03

2021 Equity investee ownership dilution (0.02)

2023 Amortization and impairment of intangibles (0.04)

2021 Tax items —

Subtotal of 2021 items 0.04

2022 Amortization and impairment of intangibles (0.08)

2022 Costs associated with Swedish Match AB offer (0.11)

2022 Tax items —

2023 Termination of distribution arrangement in the Middle East (0.04)

2023 Swedish Match AB acquisition accounting related item (0.01)

2023 Tax benefit associated with Swedish Match AB financing 0.05

Subtotal of 2023 items (0.10)

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Interest (0.04)

Change in tax rate —

Operations (0.03)

For the three months ended September 30, 2022 $ 1.34 (13.5) %

Asset impairment and exit costs – In the third quarter of 2021, we recorded pre-tax asset impairment and exit costs of $43 million, representing $38 million net of income tax and a diluted EPS charge of $0.02 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

For further details, see Note 17.

Asset Impairment and Exit Costs .

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S.

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

At the date of acquisition, we determined that the acquired IPR&D had no alternative future use.

For the three months ended March 31, 2023 $ 1.28 (14.7) %

Charges related to the war in Ukraine – During the first quarter of 2022, we recorded a pre-tax charge of $42 million (representing $39 million net of income tax and a diluted EPS charge of $0.03 per share), related to circumstances driven by the war, including inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts.

For further details, see Note 3.

Acquisitions .

Equity investee ownership dilution – In July 2021, our equity method investee, Medicago Inc, initiated an additional round of equity funding in which we did not participate.

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

was reduced from approximately 32% at June 30, 2021 to approximately 25% as of September 30, 2021.

War in Ukraine .

Fair value adjustment for equity security investments – In the first quarter of 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $47 million after tax (or $0.03 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 ($60 million loss) and provision for income taxes ($13 million benefit) on the condensed consolidated statements of earnings for the three months ended March 31, 2022.

For further details, see Note 14.

Contingencies .

Amortization and impairment of intangibles – During the third quarter of 2022 and 2021, we recorded amortization and impairment of intangibles of $139 million (representing $119 million net of income tax or $0.08 per share decrease in diluted EPS) and $18 million (representing $12 million net of income tax or $0.01 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $27 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.

Related Parties - Equity Investments and Other .

Amortization and impairment of intangibles – During the first quarter of 2023 and 2022, we recorded amortization and impairment of intangibles of $81 million (representing $64 million net of income tax or $0.04 per share decrease in diluted EPS) and $38 million (representing $32 million net of income tax or $0.02 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2023 and 2022 represented amortization expense primarily due to increased acquired intangible assets recorded as a result of our acquisitions in 2021 and 2022.

For further details, see Note 6.

Acquisitions and Note 6.

Goodwill and Other Intangible Assets, net.

Costs associated with Swedish Match AB offer – During the third quarter of 2022, we incurred pre-tax costs associated with the Swedish Match offer of $227 million (representing $173 million net of income tax and a diluted EPS charge of $0.11 per share)

primarily related to financing costs, derivative financial instruments and certain transaction related costs.

These pre-tax costs of $227 million were recorded in marketing, administration and research costs ($217 million expense) and interest expense, net ($10 million expense) on our condensed consolidated statement of earnings for the three months ended September 30, 2022.

Asset impairment and exit costs – As discussed above, in the first quarter of 2023, we recorded pre-tax asset impairment and exit costs of $109 million, representing $96 million net of income tax and a diluted EPS charge of $0.06 per share, related to a project to fully outsource and restructure the manufacturing of e-vapor devices and consumables.

For further details, see Note 17.

Asset Impairment and Exit Costs .

Termination of distribution arrangement in the Middle East – As discussed above, following the termination of a distribution arrangement in the Middle East, we recorded a pre-tax charge of $80 million in the first quarter of 2023 (representing $70 million net of income tax and a diluted EPS charge of $0.04 per share).

The pre-tax charge was recorded as a reduction of net revenues in the condensed consolidated statements of earnings and was included in the SSEA, CIS & MEA segment results.

Swedish Match AB acquisition accounting related item – During the first quarter of 2023, we recorded pre-tax purchase accounting adjustments of $18 million related to the sale of acquired inventories stepped up to fair value (representing $13 million net of income tax and a diluted EPS charge of $0.01 per share).

These pre-tax adjustments were recorded in cost of sales in the condensed consolidated statements of earnings for the three months ended March 31, 2023.

For further details on the Swedish Match acquisition, see Note 2.

Acquisitions .

Income taxes – The 2023 Tax benefit associated with Swedish Match financing that increased our 2023 diluted EPS by $0.05 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 condensed consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in the condensed consolidated statements of stockholders' (deficit) equity at March 31, 2023.

Currency – The unfavorable impact of $0.13 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro, Hungarian forint and Japanese yen, partially offset by the Russian ruble.

dollar, especially against the Egyptian pound, Euro and Japanese yen.

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

Operations – The increase in diluted EPS of $0.12 from our operations in the table above was due primarily to the following segments:

• European Union:

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

• South & Southeast Asia:

Favorable pricing and lower marketing, administration and research costs;

• Middle East & Africa:

Favorable volume/mix and favorable pricing, partly offset by higher manufacturing costs;

• Eastern Europe:

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

partially offset by

• East Asia & Australia:

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

Interest – The unfavorable impact of $0.04 per share from interest in the table above was due primarily to higher interest expense in connection with the Swedish Match acquisition, partially offset by higher net interest income driven by higher interest rates.

Operations – The decrease in diluted EPS of $0.03 from our operations in the table above was due primarily to the following segments:

Unfavorable volume/mix, higher marketing, administration and research costs and higher manufacturing costs;

• SSEA, CIS & MEA:

Higher marketing, administration and research costs, unfavorable volume/mix, higher manufacturing costs and the impact of lower fees for certain distribution rights billed to customers in certain markets, partly offset by favorable pricing;

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

• Wellness and Healthcare:

Primarily reflecting investments in research and development in 2022;

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

Primarily reflecting investments in research and development;

partially offset by

• Swedish Match:

Reflecting the 2023 impact following the fourth quarter 2022 acquisition;

• EA, AU & PMI DF:

Favorable volume/mix and lower manufacturing costs.

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

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See pages 88 - 99 for a discussion of our " Cautionary Factors That May Affect Future Results ." Our net revenues and operating income by segment are shown in the table below:

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2022 2021 2022 2021

(in millions) For the Three Months Ended March 31,

Net revenues:

European Union $ 9,229 $ 9,250 $ 3,074 $ 3,192

Eastern Europe 2,733 2,632 1,109 941

Middle East & Africa 2,977 2,306 980 945

South & Southeast Asia 3,295 3,284 1,138 1,065

East Asia & Australia 3,810 4,509 1,200 1,523

Europe $ 2,910 $ 3,224

SSEA, CIS & MEA

EA, AU & PMI DF

Americas 445 424

Swedish Match 581 —

Wellness and Healthcare 86 66

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Operating income (loss):

European Union $ 4,441 $ 4,811 $ 1,395 $ 1,680

Eastern Europe 860 913 425 338

Middle East & Africa 1,451 739 432 388

South & Southeast Asia 1,135 1,208 384 348

East Asia & Australia 1,315 2,041 398 631

Europe $ 1,175 $ 1,558

SSEA, CIS & MEA

EA, AU & PMI DF

Americas 66 121

Swedish Match 193 —

Wellness and Healthcare (38) (31)

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PMI Net Revenues by Product Category

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2022 2021 Change 2022 2021 Change

Combustible Products

European Union $ 5,625 $ 6,283 (10.5) % $ 1,862 $ 2,170 (14.2) %

Eastern Europe 1,774 1,681 5.5 % 732 635 15.4 %

Middle East & Africa 2,771 2,208 25.5 % 909 901 0.9 %

South & Southeast Asia 3,279 3,277 0.1 % 1,132 1,061 6.6 %

East Asia & Australia 1,644 1,850 (11.2) % 515 591 (13.0) %

(in millions) For the Three Months Ended March 31,

2023 2022 Change

Combustible tobacco products

Europe $ 1,815 $ 1,937 (6.3) %

SSEA, CIS & MEA

2,154 2,195 (1.9) %

EA, AU & PMI DF

689 769 (10.4) %

Americas 430 402 6.9 %

Total combustible products $ 16,432 $ 16,577 (0.9) % $ 5,613 $ 5,796 (3.2) %

Reduced-Risk Products

European Union $ 3,604 $ 2,967 21.4 % $ 1,212 $ 1,022 18.6 %

Eastern Europe 959 951 0.9 % 377 306 23.0 %

Middle East & Africa 206 98 +100% 71 44 60.2 %

South & Southeast Asia 16 7 +100% 6 4 63.0 %

East Asia & Australia 2,166 2,659 (18.5) % 685 932 (26.4) %

Swedish Match 136 — — %

Total combustible tobacco products 5,223 5,303 (1.5) %

Smoke-free products:

Smoke-free products excluding Wellness and Healthcare:

Europe 1,095 1,287 (14.9) %

SSEA, CIS & MEA

323 250 29.6 %

EA, AU & PMI DF

831 818 1.6 %

Americas 15 22 (30.1) %

Total reduced-risk products $ 6,979 $ 6,724 3.8 % $ 2,362 $ 2,326 1.6 %

Wellness and Healthcare

Swedish Match 445 — — %

Total smoke-free products excluding Wellness and Healthcare 2,710 2,377 14.0 %

Wellness and Healthcare 86 66 30.3 %

Total smoke-free products 2,796 2,443 14.5 %

Total PMI net revenues $ 8,019 $ 7,746 3.5 %

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

• Charges related to the war in Ukraine – See Note 3.

War in Ukraine for details of the $128 million and $6 million pre-tax charges in the Eastern Europe segment for the nine months and three months ended September 30, 2022, respectively.

• Impairment of intangibles - See Note 6.

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 nine months and three months ended September 30, 2022.

• Saudi Arabia customs assessments - See Note 10.

Contingencies for the details of the $246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the nine months ended September 30, 2021.

• Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $80 million following the termination of a distribution arrangement in the Middle East.

This pre-tax charge was recorded as a reduction of net revenues in the condensed consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the three months ended March 31, 2023.

• Charges related to the war in Ukraine – In the first quarter of 2022, PMI recorded a pre-tax charge of $42 million related to the war in Ukraine.

This pre-tax charge was included in the Europe segment for the three months ended March 31, 2022.

For further details, see Note 3.

War in Ukraine.

• Swedish Match AB acquisition accounting related item - See Note 2.

Acquisitions for details of the $18 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 three months ended March 31, 2023.

• Asset impairment and exit costs – See Note 17.

Asset Impairment and Exit Costs for details of the $170 million and $43 million pre-tax charges and a breakdown of these costs by segment for the nine months and three months ended September 30, 2021, respectively.

• Asset acquisition cost - See Note 2.

Acquisitions for the details of the $51 million pre-tax charge associated with the 2021 asset acquisition of OtiTopic, Inc.

included in the Wellness and Healthcare segment within the operating income table above for the nine months and three months ended September 30, 2021.

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.

Net revenues related to wellness and healthcare products primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma.

Asset Impairment and Exit Costs for details of the $109 million pre-tax charges for the three months ended March 31, 2023, as well as a breakdown of these costs by segment.

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 consolidated financial position, results of operations or cash flows in any of the periods presented.

For further details, see Note 9.

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 products, 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 our Wellness and Healthcare business, Vectura Fertin Pharma.

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

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:

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

cost of sales (excluding the volume/mix cost component);

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

and amortization of and impairment 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:

fees for certain distribution rights billed to customers in certain markets in the ME&A Region.

Our shipment volume by segment for cigarettes and heated tobacco units is shown in the table below:

PMI Shipment Volume (Million Units)

For the Nine Months Ended September 30, For the Three Months Ended September 30,

2022 2021 Change 2022 2021 Change

European Union 118,465 120,238 (1.5) % 40,745 41,965 (2.9) %

Eastern Europe 61,694 67,771 (9.0) % 22,547 25,020 (9.9) %

Middle East & Africa 98,351 93,155 5.6 % 34,336 35,166 (2.4) %

South & Southeast Asia 109,391 105,787 3.4 % 37,176 35,578 4.5 %

East Asia & Australia 32,440 33,450 (3.0) % 10,496 11,120 (5.6) %

Americas 47,541 46,092 3.1 % 16,666 15,994 4.2 %

Total Cigarettes 467,882 466,493 0.3 % 161,966 164,843 (1.7) %

fees for certain distribution rights billed to customers in certain markets in the SSEA, CIS & MEA Region and the revenue adjustment for the termination of a distribution arrangement in the Middle East.

Our consolidated shipment volume is shown in the table below:

Consolidated Shipment Volume

For the Three Months Ended March 31,

Cigarettes and Heated Tobacco Units (million units) 2023 2022 Change

Cigarettes 143,708 148,238 (3.1) %

Heated Tobacco Units 27,396 24,819 10.4 %

European Union 28,130 20,405 37.9 % 10,211 7,058 44.7 %

Eastern Europe 18,275 18,594 (1.7) % 6,487 6,119 6.0 %

Middle East & Africa 3,073 1,485 +100% 1,018 577 76.4 %

South & Southeast Asia 315 151 +100% 125 79 58.2 %

East Asia & Australia 27,016 28,478 (5.1) % 9,542 9,435 1.1 %

Americas 339 466 (27.3) % 125 221 (43.4) %

Total Heated Tobacco Units 77,148 69,579 10.9 % 27,508 23,489 17.1 %

Cigarettes and Heated Tobacco Units

European Union 146,595 140,643 4.2 % 50,956 49,023 3.9 %

Eastern Europe 79,969 86,365 (7.4) % 29,034 31,139 (6.8) %

Middle East & Africa 101,424 94,640 7.2 % 35,354 35,743 (1.1) %

South & Southeast Asia 109,706 105,938 3.6 % 37,301 35,657 4.6 %

East Asia & Australia 59,456 61,928 (4.0) % 20,038 20,555 (2.5) %

Americas 47,880 46,558 2.8 % 16,791 16,215 3.6 %

Total Cigarettes and Heated Tobacco Units 171,104 173,057 (1.1) %

Following the deconsolidation of our Canadian subsidiary in 2019, we continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners.

Oral Product Shipment Volume (million cans) (1)

Nicotine Pouches 81.3 1.0 +100%

Snus 55.6 2.5 +100%

Moist Snuff 35.2 — — %

Other 1.3 — — %

Total Oral Products 173.3 3.5 +100%

(1) Excluding snuff, snuff leaf and U.S.

Sum may not foot to total due to roundings

Following the deconsolidation of our Canadian subsidiary, we continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners.

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 , 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 in-market sales volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.

For Japan, total estimated industry sales volume also includes cigarillos.

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).

Unless otherwise stated, 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 the first quarter of 2022, 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.

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.

2021 and 2022 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.

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, EA, AU & PMI DF Region, and Japanese domestic market.

2022 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.

The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

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

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.

From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements (or wholesaler inventory movements in certain markets where PMI does not sell to distributors), 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.

Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers.

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Key market data regarding total market size, our shipments and market share are shown in the tables below:

For the Nine Months Ended September 30,

PMI Shipments (billion units) PMI Market Share (%) (2)

Market Total Market

(billion units) Total Cigarette Heated Tobacco Unit Total Heated Tobacco Unit

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

Total (1) (3) 1,778.6 1,755.7 545.0 536.1 467.9 466.5 77.1 69.6 27.2 26.6 3.6 3.0

European Union

France 24.8 26.3 10.8 11.6 10.6 11.4 0.2 0.2 43.7 43.7 0.7 0.6

Germany 54.2 56.5 21.1 21.6 19.0 20.0 2.1 1.7 38.9 38.3 4.0 3.0

Italy 55.0 53.0 30.7 28.9 22.2 22.4 8.5 6.5 54.0 52.9 14.3 11.1

Poland 42.9 37.2 16.6 13.9 13.0 11.7 3.6 2.2 38.7 37.4 8.3 5.9

Spain 34.0 32.2 10.6 10.2 9.9 9.8 0.7 0.4 30.3 31.5 1.6 1.2

Eastern Europe

Russia n/a 163.9 48.6 52.0 37.3 40.4 11.3 11.7 n/a 31.5 n/a 7.2

Middle East & Africa

Egypt 68.9 70.2 15.2 14.7 14.6 14.6 0.5 0.1 22.3 20.7 0.8 0.1

Turkey 86.1 91.2 40.4 40.4 40.4 40.4 — — 46.9 44.3 — —

South & Southeast Asia

Indonesia 234.8 217.4 65.6 60.8 65.6 60.8 — — 28.0 28.0 — —

Philippines 40.0 41.2 24.5 25.6 24.3 25.5 0.2 0.1 61.3 62.2 0.4 0.3

East Asia & Australia

Australia 6.6 7.1 2.2 2.3 2.2 2.3 — — 33.6 32.4 — —

110.4 116.7 39.5 41.6 16.1 16.8 23.3 24.7 37.5 35.6 23.4 21.1

South Korea 55.0 54.1 10.6 10.7 7.2 7.2 3.4 3.5 19.2 19.7 6.1 6.4

Argentina 22.8 21.8 14.4 14.6 14.4 14.6 — — 63.1 66.9 — —

Mexico 22.6 22.5 14.5 14.1 14.4 14.1 0.1 0.1 64.3 62.8 0.4 0.3

(1) Total market and market share estimates excludes Russia & Ukraine

(2) Market share estimates are calculated using IMS data

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

For the Three Months Ended September 30,

For the Three Months Ended March 31,

PMI Shipments (billion units) PMI Market Share (%) (2)

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Total (1) (2)

European Union

612.3 612.7 171.1 173.1 143.7 148.2 27.4 24.8 27.4 27.4 4.5 4.1

France 7.5 7.8 3.8 3.5 3.7 3.5 0.1 0.1 42.3 45.0 0.8 0.7

Germany 20.2 20.5 7.3 7.3 6.6 6.8 0.7 0.6 36.3 35.8 3.7 2.8

15.9 16.1 6.0 6.8 5.5 5.9 0.5 0.9 39.8 39.0 5.3 3.9

Italy 17.2 16.8 8.9 9.7 6.9 7.1 2.0 2.6 54.0 54.2 17.4 14.8

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Spain 9.9 10.1 2.9 3.3 2.7 3.2 0.2 0.2 29.2 30.3 2.1 1.5

Eastern Europe

Russia n/a 59.5 17.7 18.8 13.7 15.0 4.0 3.8 n/a 31.9 n/a 6.8

Middle East & Africa

SSEA, CIS & MEA

Egypt 22.5 23.5 5.8 5.4 5.6 5.2 0.2 0.2 25.6 22.0 1.2 0.7

Turkey 30.6 35.2 14.9 16.0 14.9 16.0 — — 48.4 45.3 — —

South & Southeast Asia

Indonesia 69.1 73.9 19.7 20.9 19.7 20.9 — — 28.5 28.3 — —

Philippines 11.1 15.3 6.7 9.7 6.6 9.6 0.1 — 59.8 62.9 0.5 0.3

East Asia & Australia

Russia 44.8 45.7 14.7 14.1 10.9 10.8 3.8 3.4 31.2 30.5 8.3 8.7

Turkey 26.1 23.9 12.8 11.0 12.8 11.0 — — 49.0 46.3 — —

EA, AU & PMI DF

Australia 1.9 2.2 0.7 0.8 0.7 0.8 — — 35.8 33.9 — —

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Mexico 6.0 6.5 3.7 4.1 3.7 4.0 — — 61.1 62.7 0.5 0.4

(1) Total market and market share estimates exclude Russia & Ukraine

(2) Market share estimates are calculated using IMS data

(1) Market share estimates are calculated using IMS data, unless otherwise stated

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

Consolidated Operating Results for the Nine Months Ended September 30, 2022

The following discussion compares our consolidated operating results for the nine months ended September 30, 2022, with the nine months ended September 30, 2021.

Our total shipment volume increased by 1.7%, driven by increases of 10.9% and 0.3% for HTUs and cigarettes, respectively.

Excluding Russia and Ukraine, our total shipment volume increased by 3.4%, reflecting increases of 15.8% and 1.8% for HTUs and cigarettes, respectively.

On the same basis, our total shipment volume in the Eastern Europe Region increased by 2.5%.

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.

(3) PMI market share reflects estimated adjusted in-market sales volume share (see Impact of Inventory Movements section below for more information).

Historical HTU adjusted in-market sales volume share:

Q2, 2022 (3.9%);

Q3, 2022 (3.7%), Q4, 2022 (4.7%).

Historical total adjusted in-market sales volume share:

Q2, 2022 (38.7%);

Q3, 2022 (38.3%), Q4, 2022 (39.7%).

Consolidated Operating Results for the Three Months Ended March 31, 2023

The following discussion compares our consolidated operating results for the three months ended March 31, 2023, with the three months ended March 31, 2022.

During the quarter, estimated international industry volume (excluding China and the U.S.) for cigarettes and heated tobacco units was essentially stable, reflecting a decline in the SSEA, CIS & MEA Region, partly offset by increases in the Europe Region, the EA, AU & PMI DF Region and the Americas Region, as described in the Regional sections.

For the full year 2023, we currently expect an estimated total international industry volume decline for cigarettes and HTUs, excluding China and the U.S., of 1% to 2%.

Shipment Volume

Our total cigarette and HTU shipment volume decreased by 1.1%, reflecting a 3.1% decline in cigarette shipments (mainly due to the Europe, SSEA, CIS & MEA, and EA, AU & PMI DF Regions), partly offset by a 10.4% increase in HTU shipments (primarily driven by the EA, AU & PMI DF Region).

Cigarette shipment volume for Marlboro decreased by 2.4% to 55.9 billion units.

Our total oral product shipment volume increased by +100%, driven by the Swedish Match acquisition.

For comparison purposes, assuming the inclusion of Swedish Match's first quarter 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 9.7%, primarily reflecting growth in nicotine pouches (particularly in the U.S.

and Scandinavia), partly offset by a decline for snus (mainly in Scandinavia).

Volume comparisons versus Swedish Match's first quarter 2022 results reflect data sourced from company disclosures, available at www.swedishmatch.com/investors.

For the full year 2023, we currently expect a total cigarette and HTU shipment volume change for PMI of approximately flat to +1%:

• HTU shipment volume of 125 to 130 billion units, broadly in line with anticipated adjusted in-market sales volume and reflecting an acceleration in growth versus 2022;

• A cigarette shipment volume decline of approximately 2.5% to 3.5%.

Impact of Inventory Movements

The net unfavorable impact of estimated distributor inventory movements was immaterial in the period, with PMI’s total in-market sales increasing by 1.8%, or by 3.4% excluding Russia and Ukraine -- both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume in the nine months year-to-date was 78.5 billion units, or 63.3 billion units excluding Russia and Ukraine, representing growth of 14.0% and 19.2%, respectively.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

PMI Shipment Volume by Brand (Million Units)

Nine Months Year-to-Date

2022 2021 Change

Marlboro 183,977 177,287 3.8 %

L&M 62,257 64,028 (2.8) %

Chesterfield 50,060 43,021 16.4 %

Parliament 32,001 30,535 4.8 %

Philip Morris 30,325 31,881 (4.9) %

Others 109,262 119,741 (8.8) %

Total Cigarettes 467,882 466,493 0.3 %

Heated Tobacco Units 77,148 69,579 10.9 %

Total Cigarettes and Heated Tobacco Units 545,030 536,072 1.7 %

Philip Morris includes Philip Morris/Dubliss .

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

Our cigarette shipment volume of the following 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;

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

Our cigarette shipment volume of the following brands decreased:

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

• Philip Morris , mainly due to the Eastern Europe Region, 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) and Sampoerna A (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 3.3% for Marlboro , 6.8% for Chesterfield , 9.4% for Parliament and 12.3% for Philip Morris , and decreased by 1.1% for L&M .

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

Nine Months Year-to-Date

Excluding the net unfavorable impact of estimated distributor inventory movements, PMI’s total in-market sales for cigarettes and HTUs was essentially stable with a decrease of 0.1%, reflecting a decline of 2.1% for cigarettes, partly offset by 11.4% growth for HTUs.

However, in certain markets, in-market sales volumes are not measured at the point of distributor sales to the retail trade, as the data is not available.

In such cases, shipments serve as the proxy.

As a result, shipment volume fluctuations can impact in-market sales volumes and reported market share, which therefore may not be representative of consumer offtake dynamics.

Given the related volatility observed this quarter, we are also providing select metrics based on estimated in-market sales volume on an adjusted basis, where available, when there is a significant difference between estimated offtake performance and in-market sales data.

The volatility is more pronounced for HTUs, given the relatively small volume base compared to cigarettes in certain markets.

Adjusted in-market sales volume and market share exclude the net impact of estimated distributor and wholesaler inventory movements.

In the first quarter, adjusted in-market sales volume for HTUs increased by 16%, further demonstrating continued strong growth momentum for IQOS .

The divergence between HTU shipment volume and estimated consumer offtake in the quarter primarily reflected the reversal in several European markets of inventory build-ups at the end of the fourth quarter of 2022 to meet the needs of ILUMA launches, and to create safety stock to mitigate the risk of production and distribution constraints due to energy shortages.

In the first quarter, PMI was able to decrease the level of blade HTU inventories in several markets to reduce the risk of obsolete stock (given the rapid transition to ILUMA ), and also adjust safety stock levels as the risk of energy shortages receded.

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

First-Quarter

2023 2022 Change (pp)

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24.3 % 24.6 % (0.3)

Excludes Russia and Ukraine

(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

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Financial Summary -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

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Operating Income $ 2,731 $ 3,298 (17.2) % (15.2) % $ (567) $ (259) $ 193 $ 337 $ (231) $ (607)

(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 Note 10.

Contingencies .

(2) C ost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets and $46 million related to the war in Ukraine.

For more details, see Note 3.

War in Ukraine and Note 6.

Goodwill and Other Intangible Assets, net .

(3) Cost/Other variance includes charges in 2022 of $82 million related to the war in Ukraine and $269 million in 2022 related to costs associated with the Swedish Match AB offer, partly offset by charges in 2021 of $170 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 Note 2.

Acquisitions , Note 3.

War in Ukraine and Note 17.

Asset Impairment and Exit Costs.

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.1%, mainly reflecting:

favorable volume/mix, primarily driven by higher HTU volume and device volume, partly offset by 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".

For the nine months ended September 30, 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 Euro, Japanese yen, Philippine peso, Polish zloty and Turkish lira, partly offset by the Russian ruble.

Net revenues include $7.0 billion in 2022 and $6.7 billion in 2021 related to the sale of RRPs.

Operating income decreased by 7.0%.

Operating income, excluding currency and acquisitions, increased by 4.6%, 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 $170 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 $269 million, higher

amortization and impairment of intangibles (primarily $112 million related to impairment charges in 2022), and 2022 charges related to the war in Ukraine of $128 million.

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

a favorable pricing variance;

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

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 temporary margin pressure from inflation as well as the cost of capital, could continue to grow in the upcoming quarters.

Interest expense, net, of $418 million decreased by $64 million (13.3%) primarily driven by the repayment of long-term debt.

Our effective tax rate decreased by 1.4 percentage points to 20.6%.

We estimate that our full-year 2022 effective tax rate will be 21% to 22%, excluding discrete tax events.

For further details, see Note 11.

Income Taxes .

Net earnings attributable to PMI of $6.7 billion decreased by $365 million or 5.2%.

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

Basic EPS of $4.28 and diluted EPS of $4.27 both decreased by 4.7%.

Excluding an unfavorable currency impact of $0.58, diluted EPS increased by 8.3%.

Consolidated Operating Results for the Three Months Ended September 30, 2022

The following discussion compares our consolidated operating results for the three months ended September 30, 2022, with the three months ended September 30, 2021.

During the quarter, our total shipment volume increased by 0.6%, driven by a 17.1% increase in HTU shipments, partly offset by a 1.7% decline in cigarette shipments.

Excluding Russia and Ukraine, our total shipment volume increased by 2.3%, reflecting a 21.9% increase for HTUs, partly offset by a 0.2% decrease for cigarettes.

On the same basis, our total shipment volume in the Eastern Europe Region increased by 6.8%.

For additional detail on our 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

The net unfavorable impact of estimated distributor inventory movements was immaterial in the quarter, with PMI’s total in-market sales increasing by 0.8%, or by 2.5% excluding Russia and Ukraine -- both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume in the quarter was 27.9 billion units, or 22.7 billion units excluding Russia and Ukraine, representing growth of 13.5% and 18.2%, respectively.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

PMI Shipment Volume by Brand (Million Units)

Third-Quarter

2022 2021 Change

Marlboro 64,041 65,139 (1.7) %

L&M 21,037 21,564 (2.4) %

Chesterfield 17,369 15,994 8.6 %

Parliament 11,890 11,556 2.9 %

Philip Morris 10,255 11,107 (7.7) %

Others 37,374 39,483 (5.3) %

Total Cigarettes 161,966 164,843 (1.7) %

Heated Tobacco Units 27,508 23,489 17.1 %

Total Cigarettes and Heated Tobacco Units 189,474 188,332 0.6 %

Philip Morris includes Philip Morris/Dubliss .

Shipment volume for PMI's HTU brands increased, primarily driven by the EU, Eastern Europe and Middle East & Africa Regions.

Our cigarette shipment volume of the following brands increased:

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

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

Our cigarette shipment volume of the following brands decreased:

• Marlboro, mainly due to the EU and Eastern Europe Regions, partly offset by the Americas Region;

• L&M , primarily due to the Eastern Europe Region;

• Philip Morris , mainly due to the Eastern Europe Region, 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 1.5% for Chesterfield , 7.9% for Parliament and 6.1% for Philip Morris , and decreased by 0.4% for Marlboro and 0.5% for L&M .

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

Third-Quarter

2022 2021 Change (pp)

Total International Market Share (1)

27.7 % 27.2 % 0.5

Cigarettes 24.1 % 24.1 % —

HTU 3.7 % 3.1 % 0.6

Cigarette over Cigarette Market Share (2)

25.3 % 25.1 % 0.2

Excludes Russia and Ukraine

(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

Financial Summary

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 8,032 $ 8,122 (1.1) % 6.7 % $ (90) $ (687) $ 50 $ 216 $ 316 $ 15

Cost of Sales (1)

(2,935) (2,596) (13.1) % (17.8) % (339) 198 (74) — (188) (275)

Marketing, Administration and Research Costs (2)

(2,129) (2,071) (2.8) % (8.2) % (58) 111 — — — (169)

Operating Income $ 2,968 $ 3,455 (14.1) % (2.5) % $ (487) $ (378) $ (24) $ 216 $ 128 $ (429)

(1) Cost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets.

(1) Cost/Other variance includes charges in 2023 of $80 million following the termination of a distribution arrangement in the Middle East.

(2) Cost/Other variance includes charges in 2023 of $18 million related to a Swedish Match AB acquisition accounting related item, partially offset by charges in 2022 of $26 million related to the war in Ukraine.

For more details, see Note 2.

Goodwill and Other Intangible Assets, net .

(2) Cost/Other variance includes charges in 2022 of $6 million related to the war in Ukraine and $217 million related to costs associated with the Swedish Match AB offer, partly offset by charges in 2021 of $43 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of OtiTopic, Inc.

Acquisitions and Note 3.

War in Ukraine .

(3) Cost/Other variance includes charges in 2023 of $109 million related to asset impairment and exit costs, partly offset by charges in 2022 of $16 million related to the war in Ukraine.

For more details, see Note 3.

Acquisitions , Note 3.

War in Ukraine and Note 17.

Asset Impairment and Exit Costs .

During the quarter, net revenues, excluding currency and acquisitions, increased by 6.7%, mainly reflecting:

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

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

During the quarter, Russia and Ukraine accounted for nearly 10% of PMI's total net revenues.

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

Net revenues include $2.4 billion in 2022 and $2.3 billion in 2021 related to the sale of RRPs.

Volume/mix was slightly unfavorable, with lower cigarette volume and unfavorable smoke-free product mix largely offset by higher HTU and device volume, as well as favorable cigarette mix.

The 2023 net revenues included a charge of $80 million following the termination of a distribution arrangement in the Middle East, shown in "Cost/Other".

The unfavorable currency in net revenues was due primarily to the Egyptian pound, Euro, Indonesian rupiah and Japanese yen, partly offset by the Russian ruble.

Net revenues include $2.8 billion in 2023 and $2.4 billion in 2022 related to the of smoke-free products.

Operating income decreased by 17.2%.

Operating income, excluding currency and acquisitions, decreased by 15.2%, primarily reflecting:

the impact of 2022 costs associated with the Swedish Match AB offer of $217 million, higher amortization and impairment of intangibles (primarily $112 million related to an impairment charge of intangible assets in 2022), partly offset by a favorable comparison versus the prior year period related to the 2021 asset acquisition cost of $51 million and 2021 asset impairment and exit costs of $43 million.

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

a favorable pricing variance;

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

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

and higher marketing, administration and research costs.

Interest expense, net, of $138 million decreased by $16 million (10.4)%.

the impact of 2023 asset impairment and exit costs of $109 million and the termination of a distribution arrangement in the Middle East of $80 million, partly offset by the 2022 charges of $42 million related to the war in Ukraine.

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

higher marketing, administration and research costs (primarily due to inflationary impacts and lower commercial investments in the prior period);

unfavorable volume/mix, mainly due to lower cigarette volume and unfavorable HTU mix, partly offset by higher HTU volume;

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

partially offset by the favorable pricing variance.

As smoke-free products continue to grow as a proportion of our business, a temporary dilutive margin impact is likely to continue, due to the transitory impacts associated with the IQOS ILUMA roll-out, including the margin impact of accelerated device replacements and higher initial costs of devices and consumables.

Like many other global companies, we are facing continued global inflationary pressures, primarily impacting cost of sales for the combustible tobacco business (notably related to leaf, acetate tow and energy prices) and overall inflationary impacts on marketing, administration and research costs.

We expect these inflationary pressures to continue.

Interest expense, net, of $230 million increased by $76 million or 49.4%, primarily due to higher interest expense in connection with the Swedish Match acquisition, partially offset by higher net interest income driven by higher interest rates.

Our effective tax rate decreased by 2.4 percentage points to 17.3%.

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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.

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

To date, 182 countries and the European Union are Parties to the FCTC.

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

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

To date, 182 countries and the European Union ("EU") are Parties to the FCTC.

The treaty requires Parties to have in place various tobacco control measures and recommends others.

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Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit heated tobacco products, as appropriate under their national laws.

Prior to CoP 9 that took place in November 2021, the WHO and the WHO FCTC Secretariat published two reports on novel and emerging tobacco products.

The reports were noted by CoP 9 and related substantive discussions and decisions were

deferred to CoP 10, currently scheduled for 2023.

Prior to the Ninth Session of the CoP ("CoP 9") to the FCTC, which took place in November 2021, the WHO and the WHO FCTC Secretariat published two reports on novel and emerging tobacco products.

The reports were noted by CoP 9 and related substantive discussions and decisions were deferred to CoP 10, currently scheduled for 2023.

It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

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.

EU Tobacco Products Directive:

As of December 2022, and out of 160 contracting parties to the WCO’s Harmonized System Convention, 94 contracting parties, including the EU and the 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 ("TPD"):

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

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The report identifies significant progress made due to the implementation of the TPD and where there is still room for improvement.

Most notably, it finds that the EU legislation has enhanced tobacco control, contributed to protecting the health of EU citizens by providing Member States with strong rules to address the use of tobacco products in the EU.

Most notably, it finds that the EU legislation has enhanced tobacco control, which contributed to protecting the health of EU citizens by providing Member States with strong rules to address the use of tobacco products in the EU.

The TPD reportedly achieved the 2% reduction target of the impact assessment with decreased smoking prevalence among youth.

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EU Tobacco Excise Directive ("TED"):

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 published in the course of 2022 and adopted by the EU Council in 2023.

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

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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In many countries, menthol bans would eliminate the entire category of mentholated tobacco products.

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

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

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

However, the European Union Commission adopted a proposal for a delegated directive that would end this exemption.

If the European Parliament and the Council of the European Union do not object, the Commission's proposal will be published and will enter into force.

If fully enacted, it would likely take effect in the second half of 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.

However, on November 23, 2022, the EU Commission published a delegated directive that will eliminate 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 EU, impacting a significant proportion of our RRP products currently sold in the EU.

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 continue to actively monitor relevant developments in the EU market.

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

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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.

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.

In Mexico, a presidential decree was adopted on May 31, 2022, prohibiting the "circulation and commercialization of electronic nicotine delivery systems, electronic non-nicotine delivery systems, alternative nicotine consumption systems, e-cigarettes and vaporizer devices with similar uses, as well as the solutions and mixtures used in said systems."

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 Mexican 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 March 27, 2023, the Argentinian Ministry of Health, through publication of Resolution 565/2023 in the Official Gazette, prohibited the import, distribution, commercialization and advertising of heated tobacco products, including related devices.

The resolution entered into force on March 28, 2023.

The country had previously banned the use of electronic cigarettes in 2011.

On February 15, 2023, a bill amending the Tobacco Hazards Prevention and Control Act was adopted in Taiwan and entered into force in March 22, 2023.

It regulates heated tobacco products but bans e-cigarettes.

The amendment particularly specifies that designated tobacco products (including heated tobacco products) that are neither cigarettes, cut tobacco, cigars, snuff nor chewing tobacco, have to undergo a health risk assessment as part of an authorization system.

The Taiwanese central health authority has announced on March 22, 2023 that heated tobacco products are designated tobacco products.

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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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.

The Dutch enforcement body declined the request, and the applicants have challenged such 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 the 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.

Currently, we estimate that illicit trade in the European Union accounted for approximately 8% of total cigarette consumption in 2021.

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 EU accounted for approximately 8% of total cigarette consumption in 2022.

A number of jurisdictions are considering actions to prevent illicit trade.

In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels and the implementation of tracking and tracing technologies.

To date, 66 Parties, including the European Union, have ratified it.

To date, 66 Parties, including the EU, have ratified it.

The Protocol came into force in September 2018.

Parties must start implementing its provisions in their national legislation.

Since then, implementation in national legislations have been ongoing.

In November 2021, the second Meeting of the Parties to the Protocol decided, among others, to focus on the implementation of a framework for global information sharing to combat illicit tobacco trade and enable the parties to exchange products' tracking and tracing information in a secure manner.

We welcome this decision and expect that other Parties will ratify the Protocol.

We welcome this decision and expect that other countries will ratify the Protocol.

We devote substantial resources to help prevent illicit trade in combustible tobacco products and RRPs.

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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.

The centerpiece of PMI

IMPACT is a council of external independent experts in the fields of law, anti-corruption and law enforcement.

The experts are responsible for evaluating and approving funding proposals for PMI IMPACT grants.

The centerpiece of PMI IMPACT is a council of external independent experts in the fields of law, anti-corruption and law enforcement responsible for evaluating and approving funding proposals for PMI IMPACT grants.

PMI has pledged $100 million to fund projects within PMI IMPACT over three funding rounds.

The third funding round is ongoing.

Reduced-Risk Products (RRPs)

Our Approach to RRPs:

We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harms of smoking is never to start or to quit.

We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harms of smoking is to never start or to quit.

Nevertheless, it is predicted that by 2025, the number of smokers will remain largely unchanged from the current estimate of 1.1 billion, despite the considerable efforts to discourage smoking.

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In contrast, RRPs do not burn tobacco and therefore contain significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.

For adult smokers who would otherwise continue to smoke, we believe that RRPs, while not risk-free, offer a much better consumer choice.

For adult smokers who would otherwise continue to smoke cigarettes, we believe that RRPs, while not risk-free, offer a much better choice.

Accordingly, our key strategic priorities are to:

(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 current adult smokers who would otherwise continue to smoke to switch to those products.

(i) 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 encourage current adult smokers who would otherwise continue to smoke cigarettes 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.

For as long as a significant number of adult smokers continues to smoke, responsible leadership of the category is critical.

As a leading international cigarette manufacturer, we will continue to accelerate this transformation by using our extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of

switching to our RRPs.

For as long as a significant number of adult smokers continue to smoke cigarettes, responsible leadership of the category is critical.

We aim to maintain our competitive position in the cigarette market through selective investment.

As a leading international cigarette manufacturer, we will continue to accelerate this transformation by using our regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.

While seeking to remain competitive in the cigarette market, we are judiciously reallocating resources from cigarettes to RRPs and are streamlining our cigarette portfolio.

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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.

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 further develop and assess our RRPs.

Our efforts are guided by the following key objectives:

• to develop RRPs that adult smokers who would otherwise continue to smoke find to be satisfying alternatives to smoking;

• for those adult smokers, our goal is to offer RRPs with a scientifically substantiated risk-reduction profile that approaches as closely as possible that associated with smoking cessation;

• to develop RRPs that adult smokers who would otherwise continue to smoke cigarettes find to be satisfying alternatives to smoking;

• for those adult smokers, our goal is to offer RRPs with a scientifically substantiated risk-reduction profile that approaches as closely as possible the risk-reduction profile associated with smoking cessation;

• to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent scientists and relevant regulatory bodies;

• to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including the communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

Our RRP Platforms:

Our product development is based on the elimination of combustion via tobacco heating and other innovative systems, which we believe are the most promising path to providing a better consumer choice for those who would otherwise continue to smoke.

We recognize that no single product will appeal to all adult smokers.

Therefore, we are developing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences.

Therefore, we are developing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences and achieve population harm reduction.

Five PMI-developed or improved RRP platforms are in various stages of development and commercialization readiness:

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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.

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.

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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 upon inhalation.

The results of our pharmacodynamic 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 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.

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

We developed a new e-liquid for our e-vapor products to deliver real tobacco taste satisfaction.

Using patented technology, flavors and nicotine are extracted directly from the tobacco leaves and captured in a tobacco-free liquid solution, without having to add flavoring ingredients.

In the first quarter of 2023, we initiated a project to fully outsource and restructure the manufacturing of e-vapor devices and consumables.

As a result, PMI recorded pre-tax asset impairment and exit costs of $109 million.

We intend to focus on commercializing these products in select markets, with an emphasis on profitability.

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 VEEBA in Canada.

Platform 5 covers Modern Oral Nicotine Pouches, which consist of white pre-portioned 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.

The agreement grants PMI certain intellectual property rights relating to the premium e-vapor devices 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.

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 ground 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 flavor are being released.

At the end of the use, the user can dispose of the pouch.

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

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

They contain primarily nicotine, flavors, and 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 2021, PMI acquired AG Snus Aktieselskab ("AG Snus"), a as well as Fertin Pharma A/S, 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 represents 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.

In addition, we are continuing to use our expertise, technology and capabilities to explore new growth opportunities beyond our current business, including products that do not contain nicotine or tobacco.

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.

In addition, we continue to use our expertise, technology and capabilities to explore new growth opportunities beyond our current business, including products that do not contain nicotine or tobacco.

Commercialization of RRPs:

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

We are developing a multiplatform 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 September 30, 2022, excluding Russia and Ukraine, PMI's smoke-free products are available for sale in 70 markets.

As of March 31, 2023, PMI's smoke-free products were available for sale in 78 markets.

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

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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 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 five 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 and the armed conflict between Russia and Ukraine;

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 and the supply chain disruptions caused by the armed conflict between Russia and Ukraine;

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.

We have integrated the production of our heated tobacco units into several 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 for new products and markets.

We discuss certain risks related to the commercialization and supply of our RRP portfolio in “ Cautionary Factors That May Affect Future Results ”.

We discuss product warranties in more detail in Note 16.

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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.

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, Croatia, the Czech Republic, Finland, France, Greece, Italy, Ukraine, New Zealand and the Slovak Republic under the IQOS VEEV or VEEV brand names.

We currently plan to launch this product in additional markets.

• 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, and have since launched it in nine additional markets, 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 and the armed conflict between Russia and Ukraine, certain of these commercialization efforts could be delayed.

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, effective May 1, 2024.

This agreement provides a clear path to expanding Platform 1's international success in a market where approximately 31 million adults continue to smoke.

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

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

• Since August 2020, we have launched our Platform 4 premium vaping product (branded IQOS VEEV or VEEV ) in New Zealand, Czech Republic, Finland, Croatia, Ukraine, Canada, Australia, Corsica, Greece, France, Slovakia and Serbia.

• Since June 2022, we have launched our disposable vaping product VEEBA in Canada, the UK, Ukraine, Serbia, Romania, Czech Republic, Slovakia and France.

• We launched a Platform 5 product, which currently has a presence in ten markets, including Scandinavian markets.

The product is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our affiliate AG Snus.

Additionally, following PMI's acquisition of Swedish Match, PMI now has access to a strong portfolio of Swedish Match brands in both the Snus and nicotine pouch categories.

Swedish Match nicotine pouches are currently available in more than 20 markets.

RRP Regulation and Taxation:

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Some governments have banned, or are seeking to ban or severely restrict, emerging tobacco and nicotine-containing products, such as our RRPs, and communication of truthful and non-misleading information about such products.

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.

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

By contrast, we support regulation that sets clear standards for all RRP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke.

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 cigarettes.

Since 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 cigarette smoking.

By contrast, we support regulation that sets clear standards for all RRP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke cigarettes.

In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” and “New Tobacco Products” exists under the jurisdiction of the FDA.

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On December 7, 2020, the FDA reached the same determination for the IQOS 3 device and authorized that version of our Platform 1 product for sale in the United States.

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of our Platform 1 product, namely IQOS 2.4 and three related consumables, as a "modified risk tobacco product." The FDA authorized the marketing of this product in the U.S.

The FDA authorized the marketing of this product in the U.S.

with the following information:

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We must request and receive authorization from the FDA in order to continue marketing this product with the same modified exposure information after the present order expires in four years from the date of the orders.

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.

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

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

The FDA may issue two types of MRTP orders:

a “risk modification” order or an “exposure modification” order.

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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 requested (and 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.

We also received an exposure modification order for IQOS 3.

We look forward to working with the FDA to provide any additional information they may require to market Platform 1 products with reduced risk claims.

The FDA’s PMTA and MRTP orders do not mean that the agency “approved” our Platform 1 product.

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The FDA will monitor the marketing of the product.

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 MRTP with reduced exposure information like IQOS 2.4.

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.

On April 29, 2022, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the FDA.

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 ("HTPs") (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 cigarette smoking, and therefore continues to support the APPH status of IQOS THS.

On January 26, 2023, the FDA authorized the marketing of two new tobacco-flavored consumables ( Marlboro Sienna HeatSticks and Marlboro Bronze HeatSticks ) and a modified version of the authorized Marlboro Amber HeatSticks .

These products are line extensions and/or modified versions of the tobacco-flavored consumables for which the FDA had previously issued a marketing granted order.

In its assessment, the FDA determined that the three variants of HeatSticks were comparable to the previously authorized tobacco-flavored consumables.

Some states and municipalities in the U.S.

have introduced severe restrictions for the sale of certain e-cigarettes and tobacco products, including those authorized by the FDA.

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.

HTPs 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 granted for Heatsticks where the FDA required Philip Morris Products S.A.

to remove the Surgeon General’s health warning for carbon monoxide from its 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.

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.

Manufacturers of all non-authorized products currently on the market were required to file a PMTA with the FDA by September 9, 2020.

The FDA announced on September 9, 2020 that it will prioritize enforcement against any tobacco and nicotine-containing product sold without a PMTA.

On October 5, 2021, FDA published its final PMTA rule in the Federal Register, which is effective November 4, 2021.

All future applications will have to comply with the requirements in the PMTA rule, which is substantially similar to the version of the final PMTA rule which was posted on Advanced Federal Register on January 19, 2021.

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 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.

On March 15, 2022, the Consolidated Appropriations Act, 2022 amended the definition of “tobacco product” contained in the Federal Food, Drug and Cosmetic Act ("FD&C Act") to “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption.” Under this definition, products containing synthetic nicotine, e.g., e-cigarettes, are subject to the FDA’s tobacco regulatory authority.

According to this new provision, effective April 14, 2022,

manufacturers of tobacco products containing nicotine not derived from tobacco will be required to submit a PMTA to the FDA and obtain authorization from the Agency to market their product under the FD&C Act or they will be subject to FDA enforcement actions.

This new provision does not have any impact on tobacco products developed by PMI and intended for commercialization in the U.S.

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, Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, Philippines, Russia, Tajikistan, Vietnam, the U.K.

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 HTPs.

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.

On March 8, 2023, the FDA proposed new requirements for tobacco product manufacturers regarding the manufacture, design, packing and storage of their products.

The FDA stated that these proposed requirements would help protect public health by, among other things, minimizing or preventing contamination and limiting additional risks by ensuring product consistency.

The FDA held a public hearing on April 12, 2023, to gather additional comments from stakeholders, including the industry, the

scientific community, advocacy groups, and the public.

The proposed rule has also been made available for public comment for 180 days.

The FDA will review all comments as part of the rulemaking process for this rule.

PMI welcomes the FDA’s rule under section 906(e) of the FD&C Act and plans to share its views with the FDA on this important foundational rule.

FDA actions may influence the regulatory approach of other governments and regulatory agencies.

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 Bahrain, Egypt, Jordan, Saudi Arabia, Tajikistan, Tunisia, the UAE and Uzbekistan, and voluntary in Armenia, Colombia, Costa Rica, Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, the 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.

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.

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, the 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 TPD, including the provisions on novel tobacco products, such as heated tobacco units, and e-cigarettes.

Most of the EU member states require a notification submitted six months before the intended placing on the market of such products, while some require pre-market authorizations for the introduction of such products.

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

On March 23, 2023, the Greek Ministry of Health ("MoH") authorized a claim for IQOS with HEETS AMBER to inform Greek IQOS users about reduction in emissions of toxicants when using such product compared to cigarette smoking.

The decision authorized the following claim:

“The concentration of chemical substances with recognized toxicity produced when using IQOS with HEETS AMBER tobacco sticks is lower compared to conventional smoking.

A reduction in the concentration of chemical substances with recognized toxicity does not mean a corresponding reduction in risk for health.

The aerosol of this tobacco product contains nicotine and other hazardous chemicals.

This tobacco product harms your health and is addictive.

The best choice is to quit tobacco and nicotine use altogether.” With this authorization, Greece is the second country officially recognizing the reduction in level of toxicants in the IQOS aerosol compared to cigarette smoke.

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 be 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.

Norway partially transposed the EU TPD under the European Free Trade Association agreement and introduced an authorization system for novel tobacco products following Article 19 of TPD.

To date, Norway has not granted authorization of any novel tobacco product, and e-cigarettes and tobacco free nicotine pouches have not been granted access, either.

In addition, in April 2018, we submitted an application in Italy 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.

We are confident that our evidence supports our application.

On October 31, 2019, our Australian subsidiary, Philip Morris Limited (“PML”), submitted an application to the Scheduling Committee of the Therapeutic Goods Administration of Australia (“TGA”) seeking to exempt heated tobacco products from being prohibited in Australia.

In August 2020, the TGA issued its decision denying the application and stating that it did not present compelling evidence to establish a public health benefit from greater access to nicotine in heated tobacco products.

To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain RRPs versus continuing smoking, including:

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 wherein we will clarify the concerns raised by the January 2019 decision and further strengthen our application by submitting additional evidence generated since our initial application, consistent with our FDA filings.

We are confident that our evidence supports our new application.

In August 2020, the TGA issued its decision denying the application and stating that the application did not present compelling evidence to establish a public health benefit from greater access to nicotine in HTPs.

To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain RRPs versus continuing to smoke cigarettes, including:

In December 2017, at the request of the U.K.

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The assessment concluded that, while still harmful to health, compared with the known risks from cigarettes, heat-not-burn products are probably less harmful.

Subsequently, in February 2018, Public Health England published a report stating that the available evidence suggests that heat-not-burn products may be considerably less harmful than cigarettes and more harmful than e-cigarettes.

In May 2018, the German Federal Institute for Risk Assessment (“BfR”) published a study on the Platform 1 aerosol relative to cigarette smoke using the Health Canada Intense Smoking Regimen.

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In May 2018, the Dutch National Institute for Public Health and Environment (“RIVM”) published a factsheet on novel tobacco products that heat rather than burn tobacco, focusing on our Platform 1 product.

RIVM analyzed the aerosol generated by our Platform 1 product and concluded that the use of this product, while still harmful to health, is probably less harmful than continued smoking.

RIVM analyzed the aerosol generated by our Platform 1 product and concluded that the use of this product, while still harmful to health, is probably less harmful than continuing to smoke cigarettes.

In June 2018, the Korean Food and Drug Administration (“KFDA”) issued a statement on products that heat rather than burn tobacco.

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In May 2020, the court ordered KFDA to produce certain records.

Subsequent to that decision, and after exchanges between the parties, the case was closed.

In August 2018, the Science & Technology Committee of the U.K.

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The report called for a risk-proportionate regulatory environment for both e-cigarettes and heat-not-burn products and noted that e-cigarettes should remain the least taxed, cigarettes the most taxed, with heat-not-burn products falling between the two.

Committee on Advertising Practice announced the removal of a prohibition of health claims in the advertising of e-cigarettes in the U.K.

effective November 2018.

Committee on Advertising Practice announced the removal of a prohibition of health claims in the advertising of e-cigarettes in the U.K., effective November 2018.

In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including our Platform 1 product.

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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.

In 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products.

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

In April 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products.

The SHC concluded that heat-not-burn products, while not safe, have a more favorable toxicity profile than cigarettes.

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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.

Based on the cited science, the SHC calls 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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We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.

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.

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 with the public.

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

In April 2020, affiliates of British American Tobacco plc ("BAT") filed a complaint against PMI, Philip Morris Products S.A., Altria Group, Inc., and its subsidiaries b efore the International Trade Commission ("ITC").

On September 29, 2021, the 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 against Philip Morris Products S.A., prohibiting the importation of infringing tobacco heating articles and components thereof, and CDOs against Altria Client Services, LLC, and certain its affiliates, 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 Note 10.

Contingencies to our condensed consolidated financial statements.

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 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.

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

On October 20, 2022, PMI announced that it had reached an agreement with Altria to terminate 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 10.

Contingencies , and Note 19.

Subsequent Event ).

For more details, see Note 2.

Acquisitions and Note 10.

Contingencies to our condensed consolidated financial statements.

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.

The Foundation is an independent body and is governed by its independent Board of Directors.

The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.

The Foundation’s role, as set out in its corporate charter, includes funding research in the

field of tobacco harm reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.

Governmental Investigations

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We describe certain matters pending in Russia, South Korea and Thailand in Note 10.

Contingencies .

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 Note 10.

Contingencies to our condensed consolidated financial statements.

Contingencies for additional information).

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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.

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.

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 December 2, 2022.

The next trial hearing is scheduled for May 19, 2023.

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

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Asset Impairment and Exit Costs to our condensed 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 condensed consolidated financial statements for the nine months and three months ended September 30, 2022.

Climate Change Laws and Regulations

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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, European Commission proposal for a Corporate Sustainability Reporting Directive, and the International Sustainability Standards Board proposed standards.

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 condensed consolidated financial statements.

Swedish Match Offer

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

("PMHH"), an affiliate of PMI, announced a recommended public offer to the shareholders of Swedish Match AB ("Swedish Match") to tender all shares in Swedish Match to PMHH at a price of SEK 106 in cash per share.

The total value of the Swedish Match offer amounts to approximately SEK 161.2 billion, or approximately $16.0 billion, using the exchange rate at the time of the Swedish Match offer.

On June 28, 2022, the offer document regarding PMHH's recommended offer was made public, following approval and registration by the Swedish Financial Supervisory Authority.

On October 20, 2022, PMHH announced an increase in the price in its recommended public offer to the shareholders of Swedish Match to SEK 116 in cash per share.

The price in the revised offer represents a premium of 52.5% compared to the undisturbed Swedish Match closing share price of SEK 76.06 on May 9, 2022, and the offer price will not be further increased by PMHH.

In accordance with the Takeover Rules for Nasdaq Stockholm, PMHH cannot increase the price in the revised offer any further.

The revised offer remains subject to the 90% acceptance condition, which PMI believes to be critical to capture the full potential of the combination.

The price in the revised offer primarily reflects the higher net value to PMI related to the portion of Swedish Match’s cash flows generated in U.S.

dollars, given currency movements since the initial offer was announced in May.

PMI believes that the

deterioration in the global economic outlook, equity markets and the interest rate environment since the time of the initial offer strengthens yet further the attractiveness of the revised offer to Swedish Match shareholders.

PMI expects the transaction to close in the fourth quarter of this year, subject to the terms and conditions of the offer being fulfilled or waived as further set out in the offer document.

Should the offer fail, PMI will continue with its strategic alternatives to the Swedish Match combination, including its well-advanced plans for the U.S.

commercialization of IQOS -- upon regaining full control after April 30, 2024 -- as well as its broader smoke-free portfolio.

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.

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.

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 condensed consolidated financial statements.

We are subject to various trade restrictions imposed by the U.S., EU, and other jurisdictions 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., the 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.

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.

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

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 distributor.

law under a License Exception for Agricultural Commodities, issued by the U.S.

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.

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, 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.

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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.

Switzerland and the U.K.

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, the U.S., the EU, the U.K., Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions targets.

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.

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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.

Ukraine imposed its own sanctions against Russia, and certain targeted Russian entities and individuals.

On April 8, 2022, the EU 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.

On April 27, 2022, Switzerland introduced similar restrictions.

In addition, the EU, the UK, Switzerland, Canada, Australia and New Zealand sanctioned Mr.

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.

The EU and Switzerland prohibited import into their territories of certain goods, including cigarettes, among others, which might generate significant revenues for Russia if they originate in Russia or are exported from Russia.

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 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.

Segment Operating Results – Three Months and Nine Months Ended September 30, 2022

The following discussion compares operating results within each of our geographical segments and the Wellness and Healthcare segment for the three months and nine months ended September 30, 2022, with the three months and nine months ended September 30, 2021.

PMI continues to monitor the development of new sanctions and ensure full compliance.

Segment Operating Results – Three Months Ended March 31, 2023

The following discussion compares operating results within each of our segments for the three months ended March 31, 2023, with the three months ended March 31, 2022.

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 during pandemic-related restrictions.

European Union:

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,074 $ 3,192 (3.7) % 10.8 % $ (118) $ (465) $ 3 $ (8) $ 352 $ —

Operating Income $ 1,395 $ 1,680 (17.0) % 2.0 % $ (285) $ (318) $ — $ (8) $ 246 $ (205)

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.8%, reflecting:

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.

Pricing variance was slightly unfavorable, primarily reflecting lower device pricing and lower HTU (net) pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 2.0%, 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 higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $96 million);

and higher manufacturing costs.

Financial Summary -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

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Operating Income $ 1,175 $ 1,558 (24.6) % (18.7) % $ (383) $ (91) $ — $ 28 $ (180) $ (140)

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.5%, reflecting:

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

partially offset by an unfavorable pricing variance, mainly due to lower device pricing and lower HTU (net) pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 7.1%, primarily reflecting:

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

partially offset by higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $119 million, partly offset by a favorable comparison versus the prior year period related to asset impairment and exit costs of $56 million);

higher manufacturing costs;

and an unfavorable pricing variance.

European Union - Total Market, PMI Shipment Volume and Market Share Commentaries

Total market and market share performance are shown in the table below:

European Union Key Data Third-Quarter Nine Months Year-to-Date

Change Change

2022 2021 % / pp 2022 2021 % / pp

Total Market (billion units) 133.0 132.2 0.6 % 369.0 361.0 2.2 %

During the quarter, net revenues, excluding currency and acquisitions, decreased by 3.6%, reflecting:

unfavorable volume/mix,

mainly due to lower cigarette and HTU volume (with the latter primarily reflecting the adverse net impact of estimated wholesaler and distributor HTU inventory movements in Germany and Italy, respectively).

Pricing variance was slightly favorable, mainly driven by higher combustible tobacco pricing, notably offset by lower HTU (net) pricing (primarily related to Germany due to supplemental excise tax surcharge discussed below).

The pricing variance for the full year 2022 and the first quarter of 2023 was negatively impacted by the supplemental excise tax surcharge on heated tobacco units in Germany, which went into effect in 2022.

We expect this negative impact to continue.

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 results.

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, decreased by 18.7%, primarily reflecting:

unfavorable volume/mix, mainly due to the same factors as for net revenues;

higher marketing, administration and research costs (primarily due to inflationary impacts and lower commercial investments in the prior period);

higher manufacturing costs (primarily due to inflationary impacts and higher logistics costs).

Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

In the first quarter, the estimated total market for cigarettes and HTUs in the Region increased by 0.6% to 125.4 billion units, reflecting a 13.8% increase for HTUs, partly offset by a 0.7% decline for cigarettes.

The increase in the estimated total market was notably driven by Italy (up by 2.7%) and Poland (up by 5.6%), partly offset by France (down by 3.9%) and Germany (down by 1.4%).

Europe Key Data First-Quarter

2023 2022 % / pp

PMI Market Share

Marlboro 15.7 % 16.6 % (0.9) 15.9 % 16.7 % (0.8)

L&M 5.3 % 5.6 % (0.3) 5.4 % 5.6 % (0.2)

Chesterfield 5.5 % 5.5 % — 5.5 % 5.5 % —

Philip Morris 2.0 % 2.2 % (0.2) 2.1 % 2.2 % (0.1)

Cigarettes 30.2 % 32.0 % (1.8)

Heated Tobacco Units 8.9 % 8.0 % 0.9

Others 2.9 % 3.0 % (0.1) 3.0 % 3.1 % (0.1)

Total European Union 38.8 % 38.3 % 0.5 39.3 % 38.6 % 0.7

Sum may not foot due to roundings.

In the third quarter, the estimated total market in the EU increased by 0.6% to 133.0 billion units, primarily driven by:

• Poland, up by 10.0%, 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 8.4%, 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

• the U.K., down by 15.0%, notably reflecting the impact of increased out-bound tourism compared to the pandemic-affected prior year period.

For the nine months year-to-date, the estimated total market in the EU increased by 2.2% to 369.0 billion units, primarily driven by:

• Italy, up by 3.9%, 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 15.3%, primarily reflecting the same factors as in the quarter;

• Romania, up by 9.7%, mainly reflecting the same factors as in the quarter;

partly offset by

• Germany, down by 4.0%, 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 12.5%, primarily reflecting the same factor as in the quarter.

In the third quarter, our total shipment volume increased by 3.9% to 51.0 billion units, mainly driven by:

• Italy, up by 6.7%, mainly reflecting a higher market share driven by HTUs, as well as a higher total market;

• Poland, up by 17.1%, primarily reflecting the higher total market and a higher market share driven by HTUs;

• Romania, up by 51.4%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 26.8%, mainly reflecting a higher market share driven by HTUs, as well as the higher total market.

For the nine months year-to-date, our total shipment volume increased by 4.2% to 146.6 billion units, primarily driven by:

• Italy, up by 6.1%, primarily reflecting the same factors as in the quarter;

• Poland, up by 19.1%, mainly reflecting the same factors as in the quarter;

• Romania, up by 42.6%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 31.6%, mainly reflecting the same factors as in the quarter.

Eastern Europe:

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,109 $ 941 17.9 % 9.5 % $ 168 $ 79 $ — $ 119 $ (30) $ —

Operating Income $ 425 $ 338 25.7 % 3.8 % $ 87 $ 74 $ — $ 119 $ (52) $ (54)

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 9.5%, reflecting:

a favorable pricing variance, primarily driven by higher combustible pricing;

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume, partially offset by higher HTU volume.

During the quarter, Russia and Ukraine accounted for around 71% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, increased by 3.8%, mainly reflecting:

a favorable pricing variance;

and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $23 million);

partly offset by unfavorable volume/mix, primarily due to the same factors as for net revenues;

and higher manufacturing costs.

Financial Summary -

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,733 $ 2,632 3.8 % 2.9 % $ 101 $ 25 $ — $ 244 $ (168) $ —

Operating Income $ 860 $ 913 (5.8) % (13.5) % $ (53) $ 70 $ — $ 244 $ (147) $ (220)

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 2.9%, reflecting:

a favorable pricing variance, primarily driven by higher combustible pricing;

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume and unfavorable cigarette mix.

For the nine months ended September 30, 2022, Russia and Ukraine accounted for around 69% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 13.5%, primarily reflecting 2022 charges related to the war in Ukraine ($128 million) and costs associated with the Swedish Match AB offer of $29 million, as well as unfavorable volume/mix, mainly due to the same factors as for net revenues;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

Given the company's intention to exit the Russian market and the impact of the war in Ukraine on business operations in the country, PMI's references to the total market estimate for the Eastern Europe Region exclude Russia and Ukraine.

In the third quarter, the estimated total market in Eastern Europe, excluding Russia and Ukraine, increased, mainly driven by:

• Kazakhstan, up by 5.5%.

Excluding the net unfavorable impact of estimated trade inventory movements, total in-market sales volume decreased by 0.9%;

• Southeast Europe, up by 2.8%, mainly reflecting increased in-bound travel, the impact on adult smoker average daily consumption of the easing of pandemic-related measures and a lower estimated prevalence of illicit trade.

For the nine months year-to-date, the estimated total market in Eastern Europe, excluding Russia and Ukraine, increased, mainly driven by:

• Southeast Europe, up by 7.5%, mainly reflecting the same factors as in the quarter;

partly offset by

• Central Asia, down by 11.0%, primarily reflecting a higher estimated prevalence of illicit trade following excise tax-driven price increases in July 2021.

The company's reported shipment volume, presented below, includes Russia and Ukraine.

In the third quarter, our total shipment volume decreased by 6.8% to 29.0 billion units, primarily due to:

• Russia, down by 5.6%, due to cigarettes;

• Ukraine, down by 37.0%, due to cigarettes and HTUs;

partly offset by

• Kazakhstan, up by 19.7%, or by 11.0% excluding the net favorable impact of estimated distributor inventory movements, primarily driven by a higher market share for cigarettes and HTUs, as well as the higher total market.

During the third quarter of 2022, Russia and Ukraine accounted for around 70% of PMI's total shipment volume in the Region.

Excluding Russia and Ukraine, total shipment volume increased by 6.8%.

For the nine months year-to-date, our total shipment volume decreased by 7.4% to 80.0 billion units, primarily due to:

• Russia, down by 6.5%, due to cigarettes and HTUs;

• Ukraine, down by 29.6%, due to cigarettes and HTUs.

During the first nine months of 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 2.5%.

Middle East & Africa:

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 980 $ 945 3.7 % 9.7 % $ 35 $ (57) $ — $ 22 $ 54 $ 16

Operating Income $ 432 $ 388 11.3 % 11.9 % $ 44 $ (2) $ — $ 22 $ 46 $ (22)

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 9.7%, primarily reflecting:

favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette volume/mix;

and a favorable pricing variance, driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by 11.9%, primarily reflecting:

favorable volume/mix, mainly driven by the same factors as for net revenues;

and a favorable pricing variance;

partly offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $24 million.

Financial Summary -

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,977 $ 2,306 29.1 % 40.0 % $ 671 $ (251) $ — $ 205 $ 440 $ 277

Operating Income $ 1,451 $ 739 96.3 % +100% $ 712 $ (121) $ — $ 205 $ 353 $ 275

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 40.0%, 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, higher HTU volume and favorable cigarette mix;

and a favorable pricing variance, mainly driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by +100%, 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;

and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $30 million);

partly offset by higher manufacturing costs.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries

In the third quarter, the estimated total market in the Middle East & Africa decreased, mainly due to:

• Egypt, down by 4.5%, primarily reflecting a higher estimated prevalence of illicit trade and the impact of price increases in the first half of 2022;

• Turkey, down by 13.1%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact of increased in-bound tourism;

partly offset by

• International Duty Free, up by 41.6%, primarily reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies.

For the nine months year-to-date, the estimated total market in the Middle East & Africa decreased, mainly due to:

• Algeria, down by 11.5%, 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 5.7%, 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, up by 42.1%, reflecting the same factors as in the quarter.

In the third quarter, our total shipment volume decreased by 1.1% to 35.4 billion units, mainly due to:

• Turkey, down by 6.9%, primarily reflecting the total market, partially offset by a higher market share, driven by cigarettes;

partly offset by

• PMI Duty Free, up by 30.6%, or by 42.2% excluding the net unfavorable impact of estimated distributor inventory movements, reflecting the higher total market and a higher market share.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 3.5%.

For the nine months year-to-date, our total shipment volume increased by 7.2% to 101.4 billion units, mainly driven by:

• PMI Duty Free, up by 94.4%, or by 47.6% excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes) reflecting the same factors as in the quarter.

South & Southeast Asia:

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,138 $ 1,065 6.9 % 13.9 % $ 73 $ (75) $ — $ 68 $ 80 $ —

Operating Income $ 384 $ 348 10.3 % 19.3 % $ 36 $ (31) $ — $ 68 $ (5) $ 4

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 13.9%, reflecting:

favorable volume/mix, primarily driven by favorable cigarette mix and higher cigarette volume;

and a favorable pricing variance, driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by 19.3%, primarily reflecting:

a favorable pricing variance and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $24 million).

Financial Summary -

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,295 $ 3,284 0.3 % 5.1 % $ 11 $ (158) $ — $ (60) $ 229 $ —

Operating Income $ 1,135 $ 1,208 (6.0) % 0.4 % $ (73) $ (78) $ — $ (60) $ 46 $ 19

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 5.1%, reflecting:

favorable volume/mix, primarily driven by higher cigarette volume and favorable cigarette mix;

partly offset by an unfavorable pricing variance, mainly due to combustible pricing.

Operating income, excluding currency and acquisitions, increased by 0.4%, primarily reflecting:

favorable volume/mix, mainly driven by higher cigarette volume, partly offset by lower cigarette mix;

and lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $17 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $29 million).

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the third quarter, the estimated total market in South & Southeast Asia increased, mainly driven by:

• India, up by 21.3%, primarily reflecting a favorable comparison versus the prior year period, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 11.5%, 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

• Bangladesh, down by 9.6%, primarily reflecting the impact of second-quarter 2022 excise tax-driven price increases;

• the Philippines, down by 9.7%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases.

For the nine months year-to-date, the estimated total market in South & Southeast Asia increased, mainly driven by:

• India, up by 17.5%, primarily reflecting the same factor as in the quarter;

• Indonesia, up by 8.0%, mainly reflecting the same factor as in the quarter;

partly offset by

• Bangladesh, down by 13.0%, 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.

In the third quarter, our total shipment volume increased by 4.6% to 37.3 billion units, mainly driven by:

• Indonesia, up by 12.1%, primarily reflecting the higher total market and a higher market share (mainly driven by share growth for PMI's premium and hand-rolled portfolio, partly offset by adult smoker down-trading to the 'below tier one' segment as a result of significantly lower retail prices;

partly offset by

• the Philippines, down by 12.8%, primarily reflecting the lower total market and a lower market share for cigarettes.

For the nine months year-to-date, our total shipment volume increased by 3.6% to 109.7 billion units, mainly driven by:

• India, up by 78.4%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market;

• Indonesia, up by 7.9%, mainly reflecting the higher total market;

partly offset by

• the Philippines, down by 4.5%, primarily reflecting the same factors as in the quarter.

East Asia & Australia:

Total Europe 39.1 % 40.0 % (0.9)

In the first quarter, our total cigarette and HTU shipment volume in the Region decreased by 3.6% to 49.3 billion units, mainly due to Germany (down by 11.0%, or by 1.8% excluding the net unfavorable impact of estimated wholesaler inventory movements), Italy (down by 8.7%;

or up by 2.2% excluding the net unfavorable impact of estimated distributor inventory movements) and Ukraine (down by 26.7%), partly offset by Poland (up by 15.7%).

Our estimated HTU adjusted in-market sales volume in the Region increased by approximately 24% in the quarter, reflecting the strong continued growth momentum for IQOS , including in Germany and Italy, with growth of approximately 32% and 21%, respectively.

Our HTU share of the total cigarette and HTU market in the Region increased by 0.9 points, despite the adverse impact of estimated wholesaler inventory movements.

Excluding such movements, notably in Germany, our adjusted HTU share in the Region increased by 1.7 points.

On the same basis, adjusted HTU share for Germany reached 5.3%, an increase of 1.4 points versus the first quarter of 2022 and 0.6 points sequentially versus the fourth quarter.

SSEA, CIS & MEA:

Financial Summary -

Quarters Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 712 $ 965 (26.2) % (21.7) % $ (253) $ (44) $ — $ 233 $ (79) $ (363)

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, decreased by 10.6%, reflecting:

unfavorable volume/mix, mainly due to unfavorable device mix (primarily due to ILUMA ONE ), lower cigarette volume (largely due to an unfavorable comparison versus the third quarter of 2021 related to the October 2021 excise tax-driven price increases) and lower device volume (mainly due to an unfavorable comparison versus the third quarter of 2021 associated with the initial launch of ILUMA );

and an unfavorable pricing variance.

Operating income, excluding currency and acquisitions, decreased by 20.3%, mainly reflecting:

unfavorable volume/mix, primarily due to lower cigarette volume and unfavorable HTU mix;

higher manufacturing costs (mainly due to higher logistics costs);

and an unfavorable pricing variance;

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 $21 million, partly offset by the unfavorable impact of the 2022 costs associated with the Swedish Match AB offer of $39 million.

During the quarter, net revenues, excluding currency and acquisitions, increased by 5.8%, primarily reflecting:

a favorable pricing variance, mainly driven by higher combustible tobacco pricing, with HTU pricing also higher;

and favorable volume/mix, primarily driven by favorable cigarette mix and higher smoke-free product volume (HTUs and devices), partly offset by lower cigarette volume;

These increases were partially offset by the 2023 termination of a distribution arrangement in the Middle East of $80 million (recognized as a reduction in net revenues) and lower fees for certain distribution rights billed to customers in certain markets, both included in "Cost/Other" in the table above.

Operating income, excluding currency and acquisitions, decreased by 21.7%, primarily reflecting:

the termination of a distribution arrangement, as noted for net revenues, charges in 2023 related to asset impairment and exit costs, higher marketing, administration and research costs;

unfavorable volume/mix, mainly due to lower cigarette volume;

higher manufacturing costs (primarily due to inflationary impacts);

and the impact of lower fees for certain distribution rights billed to customers in certain markets, as noted for net revenues;

partly offset by the favorable pricing variance.

SSEA, CIS & MEA - Total Market, PMI Shipment Volume and Market Share Commentaries

In the first quarter, the estimated total market for cigarettes and HTUs in the Region decreased, reflecting a decline for cigarettes, partly offset by an increase for HTUs.

The decrease in the estimated total market was mainly due to Indonesia (down by 6.5%), Pakistan (down by 34.0%) and the Philippines (down by 27.5%), partly offset by Bangladesh (up by 19.5%), India (up by 10.7%) and Turkey (up by 9.5%).

In the first quarter, our total cigarette and HTU shipment volume in the Region decreased by 1.5% to 82.0 billion units, mainly due to Indonesia (down by 5.8%), Pakistan (down by 43.8%) and the Philippines (down by 31.1%), partly offset by Algeria (up by 72.8%) and Turkey (up by 16.4%).

EA, AU & PMI DF:

Financial Summary -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 623 $ 685 (9.1) % 7.7 % $ (62) $ (115) $ — $ 14 $ 45 $ (6)

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, decreased by 7.1%, reflecting:

unfavorable volume/mix, mainly due to lower HTU volume (primarily in Japan, as the company manages temporary production and supply chain impacts), unfavorable device mix, unfavorable cigarette mix and lower cigarette volume, partly offset by higher device volume.

Pricing variance in the period was favorable.

Operating income, excluding currency and acquisitions, decreased by 22.8%, mainly reflecting:

unfavorable volume/mix, primarily due to lower HTU volume, unfavorable mix for cigarettes, devices and HTUs, and lower cigarette volume;

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 $67 million, partially offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $49 million);

and a favorable pricing variance.

East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the third quarter, the estimated total market in East Asia & Australia, excluding China, decreased, mainly due to:

• Japan, down by 10.4%, primarily reflecting the impact of the October 2021 excise tax-driven price increase.

For the nine months year-to-date, the estimated total market in East Asia & Australia, excluding China, decreased, mainly due to:

• Japan, down by 5.4%, primarily reflecting the same factor as in the quarter;

partly offset by

• South Korea, up by 1.7%, primarily reflecting a favorable comparison versus the prior year period due to the easing of pandemic-related measures.

In the third quarter, our total shipment volume decreased by 2.5% to 20.0 billion units, mainly due to:

• Japan, down by 3.2%, primarily reflecting the lower total market, partly offset by a higher market share (driven by HTUs).

For the nine months year-to-date, our total shipment volume decreased by 4.0% to 59.5 billion units, mainly due to:

• Japan, down by 5.1%.

Excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to HTUs), total in-market sales volume decreased by 0.1%, reflecting the lower total market, essentially offset by a higher market share.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 0.7%.

During the quarter, net revenues, excluding currency and acquisitions, increased by 6.5%, reflecting favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable smoke-free product mix (for HTUs and devices).

Pricing variance was slightly favorable, driven by higher cigarette and device pricing largely offset by lower HTU (net) pricing (primarily related to Japan).

Operating income, excluding currency and acquisitions, increased by 7.7%, mainly reflecting favorable volume/mix, primarily driven by the same factors as for net revenues, and lower manufacturing costs (primarily supply chain costs), partly offset by charges in 2023 related to asset impairment and exit costs.

EA, AU & PMI DF - Total Market, PMI Shipment Volume and Market Share Commentaries

In the first quarter, the estimated total market for cigarettes and HTUs in the Region, excluding China, increased, reflecting growth for both HTUs and cigarettes.

The increase in the estimated total market was mainly driven by Japan (up by 2.7%) and International Duty Free (up by 51.1%).

Our total cigarette and HTU shipment volume in the Region increased by 4.5% to 24.9 billion units, mainly due to Japan (up by 3.8%) and International Duty Free (up by 24.6%).

Excluding the net unfavorable impact of estimated distributor inventory movements (notably due to cigarettes in Japan), our total in-market sales for cigarettes and HTUs increased by 9.0%.

Financial Summary -

Quarters Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 66 $ 121 (45.5) % (37.2) % $ (55) $ (10) $ — $ 37 $ (17) $ (65)

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 5.5%, primarily reflecting:

a favorable pricing variance, driven by combustible pricing.

Volume/mix was slightly unfavorable, mainly reflecting unfavorable cigarette mix and lower device volume, largely offset by higher cigarette volume.

During the quarter, net revenues, excluding currency and acquisitions, increased by 2.8%, primarily reflecting a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by unfavorable volume/mix, mainly due to lower cigarette volume and unfavorable cigarette mix.

Operating income, excluding currency and acquisitions, decreased by 37.2%, mainly reflecting:

higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $11 million;

higher marketing, administration and research costs (including incremental investments in the U.S.

in preparation for smoke-free product commercialization);

unfavorable volume/mix, mainly due to the same factors as for net revenues;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Volume/mix was slightly favorable, reflecting higher cigarette volume, largely offset by unfavorable cigarette mix.

partly offset by the favorable pricing variance.

Americas - Total Market, PMI Shipment Volume and Market Share Commentaries

In the first quarter, the estimated total market for cigarettes and HTUs in the Region, excluding the U.S., increased, primarily reflecting growth for cigarettes.

The increase in the estimated total market was mainly driven by Brazil (up by 15.0%), partly offset by Canada (down by 18.1%) and Mexico (down by 6.9%).

In the first quarter, our total cigarette and HTU shipment volume in the Region increased by 0.7% to 15.0 billion units, mainly driven by Brazil (up by 19.7%), partly offset by Mexico (down by 9.2%).

Swedish Match:

As of November 11, 2022, PMI became the owner of a majority position in Swedish Match and started consolidating Swedish Match operating results.

The business operations of our Swedish Match segment are evaluated separately from the geographical segments.

Financial Summary -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 193 $ — — % — % $ 193 $ — $ 193 $ — $ — $ —

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 4.8%, primarily reflecting:

a favorable pricing variance, driven by combustible pricing;

partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette mix and lower device volume, partially offset by higher cigarette volume.

Operating income, excluding currency and acquisitions, decreased by 9.5%, mainly reflecting:

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 $13 million);

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

In the third quarter, the estimated total market in Americas, excluding the U.S., increased, primarily driven by:

• Argentina, up by 5.4%, mainly reflecting a favorable comparison due to the impact on adult smoker average daily consumption of strict pandemic-related measures implemented during 2021;

• Brazil, up by 5.8%, primarily reflecting a lower estimated prevalence of illicit trade;

• Mexico, up by 4.3%, mainly 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;

partly offset by

• Canada, down by 10.1%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

For the nine months year-to-date, the estimated total market in Americas, excluding the U.S., increased, primarily driven by:

• Argentina, up by 4.9% mainly reflecting the same factor as in the quarter;

• Brazil, up by 7.5%, primarily reflecting the same factor as in the quarter;

partly offset by

• Canada, down by 13.4%, notably reflecting the same factors as in the quarter.

In the third quarter, our total shipment volume increased by 3.6% to 16.8 billion units, mainly driven by:

• Brazil, up by 17.5%, mainly reflecting the higher total market and a higher market share driven by Chesterfield ;

• Mexico, up by 4.8%, primarily reflecting the higher total market.

For the nine months year-to-date, our total shipment volume increased by 2.8% to 47.9 billion units, mainly driven by:

• Brazil, up by 13.7%, primarily reflecting the same factors as in the quarter;

• Mexico, up by 2.7%, mainly reflecting a higher market share for cigarettes;

partly offset by

• Argentina, down by 1.2%, primarily reflecting a lower market share due to adult smokers downtrading to ultra-low-price brands produced by local manufacturers.

We recorded net revenues of $581 million in the Swedish Match segment for the quarter, with smoke-free products accounting for over 75% of the segment's total net revenues.

We recorded operating income of $193 million in the first quarter.

This included $50 million related to the amortization of acquired intangibles and $18 million of charges related to an acquisition accounting-related item.

Swedish Match - PMI Shipment Volume Commentary

Swedish Match Oral Product Shipment Volume (million cans) (1)

For the Three Months Ended March 31,

Nicotine Pouches 2023 2022 Change

Scandinavia 6.6 — — %

Other 1.0 — — %

Total Nicotine Pouches 80.8 — — %

Scandinavia 50.5 — — %

Other 2.0 — — %

Total Snus 52.5 — — %

Moist Snuff 35.2 — — %

Other 1.3 — — %

Total Oral Products 169.8 — — %

(1) Excluding U.S.

Swedish Match Combustible Tobacco Shipment Volume (million units) For the Three Months Ended March 31,

2023 2022 Change

Cigars 476.8 — — %

For comparison purposes, the following commentaries assumed the inclusion of Swedish Match's first quarter 2022 shipment volume prior to our acquisition, thereby providing the comparability of Swedish March's volume performance between periods.

Volume comparisons versus Swedish Match's first quarter 2022 results reflect data sourced from company disclosures, available at www.swedishmatch.com/investors.

Swedish Match's total shipment volume for oral products increased by 9.9% versus the company's corresponding shipments of 154.5 million cans in the first quarter of 2022.

Nicotine pouch shipment volume increased by 42.9% compared to first-quarter 2022 Swedish Match nicotine pouch shipment volume of 56.6 million cans, mainly driven by 46.7% growth for ZYN in the U.S., which benefited in part from inventory movements, including in California following the December 2022 flavor ban.

In Scandinavia, shipment volume for nicotine pouches grew by 16.0%.

Shipment volume for snus declined by 15.7% compared to first-quarter 2022 Swedish Match snus shipment volume of 62.3 million cans.

The decrease was primarily due to Scandinavia, reflecting the impact of excise tax and price increases (including related inventory movements), as well as broader pressures on consumer spending (particularly with respect to Swedish Match's premium snus portfolio).

Swedish Match's moist snuff shipment volume increased by 3.0%, driven by higher market share.

Cigar shipment volume increased by 4.2% compared to first-quarter 2022 Swedish Match cigar shipment volume of 457.4 million units, driven by higher share of market in the natural leaf segment.

For 2023, we currently expect strong full-year performance for Swedish Match’s existing operations, underpinned by strong shipment volume growth for ZYN in the U.S.

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 (formerly the Other category).

The business operations of our Wellness and Healthcare segment are managed and evaluated separately from the geographical segments.

Financial Summary -

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 57 $ — — % — % $ 57 $ (1) $ 47 $ 11 $ — $ —

Operating Income / (Loss) $ (151) $ (51) -(100)% -(100)% $ (100) $ 2 $ (24) $ 11 $ — $ (89)

For the three months ended September 30, 2022, we recorded net revenues of $57 million in the Wellness and Healthcare segment, with an operating loss of $151 million, primarily reflecting a $112 million impairment on acquired intangibles, and investments in research and development, partly offset by a favorable comparison versus the prior year period related to asset acquisition cost of $51 million.

The operating results of PMI’s Vectura Fertin Pharma business are reported in the Wellness and Healthcare segment.

The business operations of our Wellness and Healthcare segment are evaluated separately from the geographical segments.

Financial Summary -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (38) $ (31) (22.6) % (25.8) % $ (7) $ 1 $ — $ 25 $ — $ (33)

For the nine months ended September 30, 2022, we recorded net revenues of $199 million in the Wellness and Healthcare segment, with an operating loss of $216 million, primarily reflecting a $112 million impairment on acquired intangibles (as noted above for the quarter) and investments in research and development, as well as expenses related to employee retention, partly offset by a favorable comparison versus the prior year period related to asset acquisition cost of $51 million.

During the quarter, net revenues, excluding currency and acquisitions, increased by 37.9%, notably driven by the favorable impact of phasing for select inhalation products, coupled with higher net revenues for smoking cessation products.

The operating loss of $38 million primarily reflected investments in research and development, as well as amortization and impairment of intangibles.

Financial Review

Cash Flow Highlights

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in millions) 2023 2022

Net cash provided by operating activities $ 7,710 $ 7,935

Net cash provided by (used in) operating activities $ (955) $ 1,118

Net cash used in investing activities (591) (196)

Net cash used in financing activities (6,071) (8,176)

Net Cash Provided by Operating Activities

During the first nine months of 2022, net cash provided by operating activities decreased by $0.2 billion compared with the first nine months of 2021.

Excluding unfavorable currency movements of $0.7 billion, net cash provided by operating activities increased by $0.5 billion, due primarily to higher currency-neutral net earnings of $0.5 billion and lower pension plan contributions, net of refunds, of $0.3 billion, partially offset by higher working capital requirements of $0.4 billion and other movements.

For details on our pension contributions, net of refunds, see Note 5.

Benefit Plans.

The higher working capital requirements in the first nine months of 2022 as compared with the first nine months of 2021 were primarily due to more cash used for accounts receivable in 2022 mainly reflecting the timing of sales and cash collections, and less cash provided by inventory mainly reflecting unfavorable comparison with 2021 primarily due to depletion of COVID-19 pandemic related build-up of inventory levels across our supply chain in 2020, 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, as well as less cash used in accounts payable mainly reflecting higher IQOS device purchases.

Net cash provided by (used in) financing activities 864 (701)

Net Cash Provided by (Used in) Operating Activities

During the first quarter of 2023, net cash used in operating activities was $1.0 billion as compared to $1.1 billion of net cash provided by operating activities in the first quarter of 2022.

Excluding unfavorable currency movements of $0.2 billion, the unfavorable variance of $1.8 billion was due primarily to higher working capital requirements.

The higher working capital requirements in the first quarter of 2023 as compared with the first quarter of 2022 were primarily due to more cash used in accrued liabilities and other current assets and more cash used for inventory mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and timing of the corresponding excise tax payments, partly offset by more cash provided by accounts receivable mainly reflecting the timing of sales and cash collections, as well as higher usage of our factoring arrangements to sell trade receivables.

For the full year 2023, we currently expect an operating cash flow of $10 billion to $11 billion at prevailing exchange rates, subject to year-end working capital requirements.

Net Cash Used in Investing Activities

During the first nine months of 2022, net cash used in investing activities decreased by $1.9 billion as compared with the first nine months of 2021.

This decrease was due primarily to the $1.9 billion of cash used in 2021 for our acquisitions, net of acquired cash and favorable movements of $356 million in cash collateral received from financial institutions primarily to secure derivatives designated as net investment hedges of Euro assets and was principally related to changes in exchange rates between the Euro and the U.S.

dollar, partly offset by higher capital expenditures and other investments.

For further detail on our acquisitions and derivatives designated as net investment hedges and other investments, see Note 2.

Acquisitions and Note 7.

During the first quarter of 2023, net cash used in investing activities increased by $395 million as compared with the first quarter of 2022.

This increase was primarily due to the unfavorable movements of $285 million in cash collateral received from financial institutions primarily to secure derivatives designated as net investment hedges of Euro assets and was principally related to changes in exchange rates between the Euro and the U.S.

dollar, as well as an increase in other investments.

For further detail on our derivatives designated as net investment hedges and other investments, see Note 7.

Financial Instruments.

Capital expenditures of $730 million during the first nine months of 2022 increased by $271 million as compared with the first nine months of 2021.

The 2022 capital expenditures were primarily related to our ongoing investments in RRPs.

total capital expenditures in 2022 to be approximately $1.0 billion.

Net Cash Used in Financing Activities

During the first nine months of 2022, net cash used in financing activities decreased by $2.1 billion compared to the first nine months of 2021.

The lower cash usage primarily reflected proceeds from short-term borrowings in 2022 (primarily commercial paper of $2.6 billion), partially offset by 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 purchase of the remaining stakes in our Turkish affiliates, see Note 2.

Capital expenditures of $279 million during the first three months of 2023 increased by $50 million as compared with the first quarter of 2022.

The 2023 capital expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

We expect total capital expenditures in 2023 to be 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

During the first quarter of 2023, net cash provided by financing activities was $864 million as compared to $701 million of net cash used in financing activities in the first quarter of 2022.

The favorable variance of $1.6 billion was primarily due to higher net borrowings in 2023 reflecting proceeds from long-term debt issuances in 2023 of $5.2 billion and higher net short-term borrowings (primarily commercial paper), partially offset by repayment on the bridge facility related to the Swedish Match acquisition and higher long-term debt repayments.

The variance was also due to a favorable comparison resulting from transactions with noncontrolling interests related to our Turkish affiliates (sale of noncontrolling stakes in 2023 compared to purchase of such stakes in 2022) and the suspension of share repurchases, partially offset by payments to acquire remaining issued and outstanding shares in Swedish Match.

For further details on the transactions with noncontrolling interests in our Turkish affiliates and our purchase of remaining Swedish Match shares, see Note 2.

Acquisitions .

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Such agreements are collateralized with government or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank.

For the nine months ended September 30, 2022 and the full-year 2021, the activities for such reverse repurchase agreements were not material.

For the full-year 2022, the activities for such reverse repurchase agreements were not material.

For the three months ended March 31, 2023, we did not enter into such reverse repurchase agreements.

We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy.

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We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

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.

Following the announcement of the Swedish Match Offer on May 11, 2022, Moody's, Standard & Poor's and Fitch revised their respective credit rating outlooks.

Accordingly, at September 30, 2022, our credit ratings and outlook by major credit rating agencies were as follows:

At March 31, 2023, our credit ratings and outlook by major credit rating agencies were as follows:

Short-term Long-term Outlook

Moody’s P-1 A2 Rating(s) Under Review

Standard & Poor’s A-1 A CreditWatch Negative

Fitch F1 A Rating Watch Negative

For further details of the Swedish Match offer, see the Acquisitions and Other Business Arrangements section of this MD&A.

Moody’s P-1 A2 Stable

Standard & Poor’s A-2 A- Stable

Fitch F1 A Stable

Revolving Credit Facilities

At September 30, 2022, our committed revolving credit facilities were as follows:

(in billions)

Type Committed

At March 31, 2023, our committed revolving credit facilities were as follows:

Type (in billions) Committed

Revolving Credit

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(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 September 30, 2022, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Subject to market conditions, we currently expect to request a further extension of the terms of our 364-day 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.

At March 31, 2023, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Subject to market conditions, we currently expect to request a further extension of the terms of our $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 revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

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We expect to continue to meet our covenants.

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 $2.0 billion at September 30, 2022 and $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 $229 million at September 30, 2022, and $225 million at December 31, 2021.

Financing of the Swedish Match Offer

In connection with the Swedish Match offer, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility.

In addition to the committed revolving credit facilities discussed above, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs.

These credit arrangements amounted to approximately $3.1 billion at March 31, 2023, and approximately $1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $708 million at March 31, 2023, and $295 million at December 31, 2022.

Credit Facilities related to the Financing of the Swedish Match Acquisition

In connection with PMI's all-cash recommended public offer to the shareholders 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.

On June 23, 2022, PMI entered into a €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.

As of September 30, 2022, there were no borrowings under these two facilities.

If drawn upon, the proceeds under the bridge facility and the term loan facility will be used, directly or indirectly, to finance the Swedish Match offer, including, the payment of related fees and expenses.

For further details of the Swedish Match offer, see the Acquisitions and Other Business Arrangements section of this MD&A.

On November 11, 2022, PMI acquired a controlling interest of 85.87% of the total issued shares in Swedish Match and acquired 94.81% of its outstanding shares as of December 31, 2022.

In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100% of the shares in Swedish Match on February 17, 2023.

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 would 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 agreement.

On November 21, 2022 and February 17, 2023, PMI repaid $4.0 billion and $4.4 billion, respectively, under the bridge facility.

Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.

As of March 31, 2023 and December 31, 2022, the €5.5 billion (approximately $6.0 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 on this acquisition, see Note 2.

Acquisitions .

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 September 30, 2022, we had $2.6 billion of commercial paper outstanding.

At December 31, 2021, we had no commercial paper outstanding.

The average commercial paper balance outstanding during the first nine months of 2022 was $3.3 billion.

At March 31, 2023, we had $4.1 billion of commercial paper outstanding.

At December 31, 2022, we had $0.9 billion commercial paper outstanding.

The average commercial paper balance outstanding during the first three months of 2023 was $3.6 billion.

The average commercial paper balance outstanding during 2022 was $3.1 billion.

Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to unaffiliated financial institutions.

These arrangements allow us to sell, on an ongoing basis, certain trade receivables without recourse.

The trade receivables sold are generally short-term in nature and are removed from the condensed consolidated balance sheets.

We sell trade receivables under two types of arrangements, servicing and nonservicing.

Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions.

The trade receivables sold that remained outstanding under these arrangements as of September 30, 2022, and September 30, 2021 were $512 million and $652 million, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

For further details, see Note 15.

Sale of Accounts Receivable to our condensed consolidated financial statements.

Debt – Our total debt was $27.2 billion at September 30, 2022 and $27.8 billion at December 31, 2021.

Supply Chain Financing – We engage with unaffiliated global financial institutions that offer a voluntary supply chain financing program to some of our suppliers.

For further details, see Note 19.

Supply Chain Financing to our condensed consolidated financial statements.

Debt – Our total debt was $47.1 billion at March 31, 2023 and $43.1 billion at December 31, 2022.

On February 10, 2023, we filed a shelf registration statement with the U.S.

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.

Guarantees – At September 30, 2022, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

PMI's debt issuances in the first three months of 2023 were as follows:

(in millions)

Type Face Value Interest Rate Issuance Maturity

dollar notes (a)

$1,250 4.875% February 2023 February 2026

dollar notes (a)

$1,000 4.875% February 2023 February 2028

dollar notes (a)

$1,500 5.125% February 2023 February 2030

dollar notes (a)

$1,500 5.375% February 2023 February 2033

(a) Interest is payable semi-annually, commencing in August 2023

On February 17, 2023, PMI applied a portion of the net proceeds of the debt issuances to prepay $4.4 billion under its bridge facility, which represented all borrowings outstanding under the bridge facility.

The remaining net proceeds of the offering have been or will be used for general corporate purposes.

Guarantees – At March 31, 2023, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

There is no liability in the condensed consolidated financial statements associated with these guarantees.

These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.

In October 2020, we guaranteed an obligation for an equity method investee.

In October 2020, we guaranteed an obligation for a then equity method investee that was subsequently divested in 2022.

For further details, see Note 10.

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Equity and Dividends

We discuss our stock awards as of September 30, 2022 in Note 4.

We discuss our stock awards as of March 31, 2023 in Note 4.

Stock Plans to our condensed consolidated financial statements.

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Prior to the suspension of the program, we made no share repurchases during the second quarter of 2022.

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

Dividends paid in the first nine months of 2022 were $5.8 billion.

We do not currently anticipate restarting our share repurchase program during 2023.

Dividends paid in the first three months of 2023 were $2.0 billion.

During the third quarter of 2022, our Board of Directors approved a 1.6% increase in the quarterly dividend to $1.27 per common share.

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

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

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

For our efforts to be successful, we must:

• develop RRPs that adult smokers find acceptable alternatives to smoking;

• conduct rigorous scientific studies to substantiate that they reduce exposure to harmful and potentially harmful constituents in smoke 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;

• effectively advocate for a timely development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

• develop RRPs that adult smokers who would otherwise continue to smoke find to be satisfying alternatives to smoking;

• substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent scientists and relevant regulatory bodies;

• advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including the communication of scientifically substantiated information to enable adult smokers to make better choices.

We might not succeed in our efforts.

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Such restrictions could limit the success of our RRPs.

The WHO study group on tobacco product regulation ("TobReg") published their eighth report on the scientific basis of tobacco product regulation in May 2021.

The report is based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems ("ENNDS") and heated tobacco products ("HTPs") on a number of scientific topics.

The WHO study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation in May 2021.

The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products and the access to accurate information about them.

In August 2021, the WHO FCTC Secretariat published two reports on novel and emerging tobacco products to the ninth session of the Conference of the Parties ("CoP") of the FCTC, which are not materially different from the WHO study group report.

Substantive decisions based on these reports were deferred to CoP 10, currently scheduled to take place in the fourth quarter of 2023.

In August 2021, the FCTC Secretariat published two reports on novel and emerging tobacco products to the ninth session of the CoP of the FCTC, which are not materially different from the WHO study group report.

Substantive decisions based on these reports were deferred to the Tenth Session of the CoP, currently scheduled to take place in the fourth quarter of 2023.

It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development of science-based regulatory frameworks for the commercialization of the RRP category and the commercialization of the RRP category in general.

of the RRP category in general.

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products, and not for non-smokers or youth.

We put significant effort in place to restrict access of our products to non-smokers or youth.

Nevertheless, technological, operational, regulatory and/or commercial setbacks might prevent us from delivering necessary infrastructure required to fulfill our commitment of having 100% of our RRP device portfolio equipped with “Age Verification”-technology and device activation features by 2023.

If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our credibility may suffer, and our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly impacted.

We put significant effort to restrict access of our products from non-smokers or youth.

Nevertheless, technological, operational, regulatory and/or commercial setbacks might impact the implementation or effectiveness of youth access prevention mechanisms and surrounding infrastructure.

If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our reputation and credibility may suffer, the regulatory approach to our products may become more restrictive, and our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly impacted.

Moreover, the FDA’s premarket tobacco product and modified risk tobacco product authorizations of two versions of our Platform 1 product are subject to strict marketing, reporting and other requirements.

Although we have received these products' authorizations from the FDA, there is no guarantee that the product will remain authorized for sale in the U.S., particularly if there is a significant uptake in youth or non-smoker initiation.

Although we have received these authorizations from the FDA, there is no guarantee that the product will remain authorized for sale in the U.S., or that new versions of the product (Platform 1 or other smoke-free platforms) will receive necessary authorizations, particularly if there is a significant uptake in youth or non-smoker initiation.

The financial and business performance of our reduced-risk products is less predictable than our cigarette business.

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There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business.

a result of unpredictability due to shortage of key components in our supply chain or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption.

The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category, during the COVID-19 pandemic as a result of unpredictability due to shortage of key components in our supply chain, or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption, which in turn may have a material adverse effect on our results of operation.

We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Nevertheless, we are unable to predict whether regulators will be issuing new regulations where RRP will be equally taxed in line with other tobacco products such as ordinary cigarettes.

However, if we cease to be successful in these efforts, RRP unit margins may be materially adversely affected.

Nevertheless, we are unable to predict whether regulators will be issuing new regulations where RRPs will be equally taxed in line with other tobacco products such as ordinary cigarettes.

However, if we cease to be successful in these efforts, RRP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operation.

Consumption of tax-paid cigarettes continues to decline in many of our markets.

This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products.

These factors and their potential consequences are discussed more fully below and in the Business Environment section .

A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability.

These factors and their potential consequences are discussed more fully below and in the "Business Environment" section in this Form 10-Q .

A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability, which in turn may have a material adverse effect on our ability to fund our smoke-free transformation.

Cigarettes are subject to substantial taxes.

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Furthermore, our volume and profitability may be adversely affected in these markets.

In addition, increases in cigarette taxes are expected to continue to have an adverse impact on our sales of cigarettes, due to resulting lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border purchases of lower price products, or to illicit products such as contraband, counterfeit and "illicit whites."

from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to cross-border purchases of lower price products, or to illicit products such as contraband, counterfeit and "illicit whites."

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or preventing the use of tobacco products.

Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volumes for our products in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase down-trading and the risk of counterfeiting, contraband, "illicit whites" and legal cross-border purchases.

Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the World Health Organization's Framework Convention on Tobacco Control (the "FCTC").

Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the FCTC.

Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to adult smokers.

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We are subject to income tax laws in the United States and numerous foreign jurisdictions.

The new administration resulting from the 2020 U.S.

presidential and congressional elections could lead to changes in the U.S.

Changes in the U.S.

tax system, including significant increases in the U.S.

corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries.

If ultimately enacted into law, such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings.

corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries could be enacted.

Such changes could have a material adverse impact on our effective tax rate thereby reducing our

net earnings.

Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles.

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Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.

As a result of Russia’s invasion of Ukraine, certain taxing jurisdictions, including the U.S., have proposed punitive tax legislation applicable to companies doing business in Russia.

While we are working on options to exit the Russian market in an orderly manner, these punitive tax law changes, if enacted, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings.

Further, in the event we are able to successfully exit the Russian market, the sale of our Russian assets may result in U.S.

tax liabilities that are material to our financial results.

As a result of Russia’s invasion of Ukraine, certain taxing jurisdictions, including the U.S., have proposed punitive tax legislation applicable to companies doing business in Russia, which could also have a material adverse impact on our effective tax rate if enacted, thereby reducing our net earnings.

Because we are a U.S.

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In 2022, Russia accounted for around 9% of our total cigarette and heated tobacco unit shipment volume, and around 7% of our total net revenues.

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

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

Historically, we also produced finished goods in Ukraine for export and manufactured products in Russia.

As a result of Russia’s invasion of Ukraine, we have stopped both planned and any new investments in Russia, including all new product launches and commercial, innovation, and manufacturing investments.

We have also scaled down our Russian manufacturing operations and continue to work on options to exit the Russian market in an orderly manner.

In Ukraine, we have temporarily reduced operations, including closing our factory in the country.

In 2022, as a result of Russia’s invasion of Ukraine, we suspended planned investments and scaled down our manufacturing operations in Russia.

The short and long-term implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict at this time.

There can be no assurance that our exit from the Russian market will be successful, orderly, or represent a fair value for our Russian assets and operations.

The likelihood of retaliatory action by the Russian government against companies, including us, as a result of actions and statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or nationalization of foreign businesses or assets, including cash reserves held in Russia and intangible assets such as trademarks, is impossible to predict.

Further, if we are able to divest our Russian assets in an orderly manner, the circumstances of our divestiture may adversely impact the value we receive for those assets or, due to financial or legal restrictions, our ability to access the proceeds of the sale.

The likelihood of retaliatory action by the Russian government against companies, including PMI, as a result of actions and statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or nationalization of foreign businesses or assets, including cash reserves held in Russia and intangible assets such as trademarks, is impossible to predict.

We are continuously assessing the evolving situation in Russia, including recent regulatory constraints in the market entailing 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 Ukraine, there is no way to know when and to what extent we will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact.

These developments 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.

The conflict also elevates the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products.

The conflict also continues to elevate the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products.

For example, historically we sourced certain finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials.

These disruptions, to the extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and may result in impairment charges.

Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions and the ban on exports of various products and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions, the ban on exports of various products, and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts, as well as adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets.

Given the nature of our business and global operations, such geo-political instability and uncertainty could increase the costs of our materials and operations;

Given the nature of our business and global operations, such geopolitical instability and uncertainty could increase the costs of our materials and operations;

reduce demand for our products;

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The conflict may also have the effect of heightening many other risks disclosed in this Form 10-Q, any of which could adversely affect our business, results of operations, cash flows or financial position.

Such risks include, but are not limited to, the achievement of our strategic priorities, including achievement of our RRP growth targets;

Such risks could affect, without limitation, the achievement of our strategic priorities, including achievement of our RRP growth targets;

the availability of third-party manufacturing resources;

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and our loss of revenue from counterfeiting and similar illicit activities.

Risks Related to Sourcing of Materials, Products and Services

Use of third-party resources may negatively impact quality and availability of our products and services, and we may be required to replace third-party contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources and their subcontractors/suppliers, sometimes concentrated in a specific geographic areas, to manufacture some of our products and product parts (particularly, the electronic devices and accessories),

and to provide services, including to support our finance, commercialization and information technology processes.

Risks Related to Sourcing and Distribution of Products, Services and Materials

Use of third-parties may negatively impact the distribution, quality, and availability of our products and services, and we may be required to replace third-party contract distributors, manufacturers or service providers.

We increasingly rely on third-parties and their subcontractors/suppliers, sometimes concentrated in a specific geographic area, for product distribution and to manufacture some of our products and product parts (particularly, the electronic devices and accessories), as well as to provide services, including to support our finance, commercialization and information technology processes.

While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control.

Such diminished control may have a material adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage.

In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with our own resources.

Government mandated prices, production control programs, shifts in crops driven by economic conditions and the impact of climate change may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.

Such diminished control may lead to disruption in the distribution of our products and may have a material adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage.

The effects of climate change and legal or regulatory responses related to climate change may have a negative impact on our business and results of operations.

While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted.

Among other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including tobacco, due to a number of factors beyond our control, including more frequent variations in weather patterns, extreme weather events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade, all of which may lead to disruption of operations at factories, warehouses and other premises.

Furthermore, risks related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world, biodiversity loss, water resource depletion and deforestation, which are partially driven or exacerbated by climate change, may disrupt our business operations or those of our suppliers and business partners.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change.

New climate-related legal or regulatory requirements may lead to additional carbon taxation, energy price increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operation.

Even if we make changes to align ourselves with legal or regulatory requirements, we may still be subject to significant penalties if such laws or regulations are interpreted and applied in a manner inconsistent with our practices.

Government mandated prices, production control programs, and shifts in crops driven by economic conditions may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.

As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand and the impacts of natural disasters and pandemics such as COVID-19.

Furthermore, crop quality may be influenced by variations in weather patterns, including those caused by climate change.

Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs.

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In others, nationalization, terrorism, conflict and the threats of war or acts of war may have a significant impact on the business environment.

Natural disasters, pandemics, economic, political, regulatory, acts of war or threats of war, or other developments could disrupt our supply chain, manufacturing capabilities or distribution capabilities, and our business continuity plans and other safeguards might not always be effective to fully mitigate their impact.

In addition, such developments could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could have a material adverse effect on our operations, volumes, revenue, net earnings and profitability.

We discuss risks associated with the invasion of Ukraine above and with the COVID-19 pandemic below.

Natural disasters, extreme weather events, pandemics, economic, political, regulatory, acts of war or threats of war, or other developments could disrupt or increase the expenses related to our supply chain, manufacturing capabilities, distribution capabilities, or the energy and other utility services required to operate our factories, warehouses, and other premises.

Our business continuity plans and other safeguards might not always be effective to fully mitigate their impact.

In addition, such developments – including the impact on energy prices and availability in the EU and elsewhere resulting from the invasion of Ukraine by Russia – could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could have a material adverse effect on our operations, volumes, revenue, net earnings and profitability.

We discuss additional risks associated with Russia's invasion of Ukraine and climate change, above, and with the COVID-19 pandemic, below.

In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such approvals could impair growth of our profitability.

In addition, despite our high ethical standards and rigorous controls and compliance procedures aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners.

In addition, despite our high ethical standards and rigorous controls and compliance policies aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners.

Such improper or unlawful conduct (actual or alleged) could lead to litigation and regulatory action, cause damage to our reputation and that of our brands, and result in substantial costs.

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Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs.

While we take actions, wherever possible, to reduce the impact of the effects of inflation;

in cases of sustained and elevated inflation across several of our major markets it may be difficult to effectively control the increases to our costs.

While we take actions, wherever possible, to reduce the impact of the effects of inflation, in cases of sustained and elevated inflation across several of our major markets, it may be difficult to effectively control the increases to our costs.

Increased inflation also has and may continue to lead to interest rate increases, thereby increasing our interest expense.

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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.

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 with the public.

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

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We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially adversely affected by an unfavorable outcome of pending or future investigations.

Contingencies—Other Litigation and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Business Environment—Governmental Investigations” for a description of certain governmental investigations to which we are subject.

Contingencies—Other Litigation to our condensed consolidated financial statements and the “Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Business Environment—Governmental Investigations” in this Form 10-Q for a description of certain governmental investigations to which we are subject.

We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights could harm our business.

Our intellectual property rights are valuable assets, and their protection is important to our business.

If the steps we take to protect our intellectual property rights globally, including through applying for, prosecuting, maintaining and enforcing, where relevant, a combination of trademark, design, copyright, patent, trade secrets and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business could be adversely impacted.

Our intellectual property rights are valuable assets, their protection is important to our business, and that protection may not be equally available in every country in which we operate or in which our products are sold.

Moreover, failing to manage our existing and/or future intellectual property may place us at a competitive disadvantage.

Intellectual property rights of third parties may limit our ability to develop, manufacture and/or commercialize our products in one or more markets.

Competitors or other third parties may claim that we infringe their intellectual property rights.

Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages, and may impede our ability to develop, manufacture and/or commercialize new RRPs and improve our products, and thus have a material adverse effect on our revenue and our profitability.

Competitors or other third parties may claim that we infringe on their intellectual property rights.

Any such claims, regardless of merit, could divert management’s attention;

be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages;

and may impede our ability to develop, manufacture and/or commercialize new RRPs and improve our products, and thus have a material adverse effect on our revenue and our profitability.

In addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected.

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The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, novel products which given their taste characteristics may be more commercially successful, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include three large international tobacco companies, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vietnam.

Some competitors have different profit, volume and regulatory objectives, and some international competitors are susceptible to changes in different currency exchange rates.

Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards.

The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs, all of which could have a mutual adverse effect on our profitability and results of operations.

Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam.

Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible than PMI to changes in currency exchange rates.

Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, and without scientific substantiation based on appropriate R&D protocols and standards.

The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our profitability and results of operations.

We may be unable to anticipate changes in adult consumer preferences.

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• improve productivity;

• educate and convince adult smokers to convert to our RRPs;

• educate and encourage adult smokers to convert to our RRPs;

• ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;

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• be able to protect or enhance margins through price increases.

In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result.

In periods of economic uncertainty, adult consumers may tend to purchase low-price brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result.

Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

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One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships.

Acquisition and strategic business development opportunities are limited and

present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings.

Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings.

There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position.

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To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business.

We compete for talent, including in areas that are new to us, such as digital, information technology, life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance.

We compete for talent, including in areas that are new to us such as digital, information technology, and life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance.

As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

Risks Related to the Impact of COVID-19 on our Business

Our business, results of operations, cash flows and financial position may be adversely impacted during the continuation of the COVID-19 pandemic.

The ongoing COVID-19 pandemic has created significant societal and economic disruption, and resulted in closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and will continue to adversely impact our business, results of operations, cash flows and financial position.

Our business continuity plans and other safeguards may not be effective to mitigate the impact of the pandemic.

An adequate supply chain for our cigarettes and 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.

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

Risks Related to the Impact of a Pandemic on our Business

Our business, results of operations, cash flows and financial position may be materially adversely impacted by an epidemic, endemic or pandemic, such as COVID-19.

The outbreak of the global COVID-19 pandemic in 2020 has created significant societal and economic disruption, and resulted in the closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and may continue to adversely impact our business, results of operations, cash flows and financial position.

Our business continuity plans and other safeguards may not be effective to mitigate the ongoing or potential impact of COVID-19 or other epidemics, endemics, or pandemics.

The production of our RRP portfolio requires various components and materials, and we believe that there is an adequate supply of such components and materials in the world markets to satisfy our current and anticipated production requirements.

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;

While we have been successful in maintaining adequate supply of such components and materials during the ongoing COVID-19 pandemic, the COVID-19 pandemic, or another epidemic, endemic or pandemic, may disrupt that supply, whether through regulatory enforced actions taken to contain its spread or through other supply chain disruptions caused by such epidemic, endemic or pandemic.

This could negatively impact the commercialization of our RRPs.

Significant risks to our business during the ongoing COVID-19 pandemic also include our diminished ability to convert adult smokers to our RRPs, significant volume declines in our duty-free business and certain other key markets, disruptions or delays in our manufacturing and supply chain, including delays and increased costs in the shipment of parts to manufacture our products or for the products themselves, increased currency volatility, and delays in certain cost saving, transformation and restructuring initiatives.

Our business could also be adversely impacted if key personnel or a significant number of employees or business partners become unavailable due to the COVID-19 outbreak.

The significant adverse impact of COVID-19 on the economic or political conditions in markets in which we operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

Continuation of the pandemic could disrupt our access to the credit markets or increase our borrowing costs.

Governments may temporarily be 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.

In addition, messaging about the potential negative impacts of the use of our products on COVID-19 risks may lead to increasingly restrictive regulatory measures on the sale and use of our products, negatively impact demand for our products and the willingness of adult consumers to switch to our RRPs, and adversely impact our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs.

All of the aforementioned impacts

of the ongoing COVID-19 pandemic could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

The impact of these risks also depends on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic in general and specifically in the jurisdictions in which we operate, its recurrence in our key markets, actions taken to contain its spread and to mitigate its public health effects, and the ultimate economic consequences thereof.

Significant risks to our business during an epidemic, endemic or pandemic, such as the ongoing consequences of the COVID-19 outbreak, also include:

• our diminished ability to convert adult smokers to our RRPs;

• significant volume declines in our duty-free business and certain other key markets;

• disruptions or delays in our manufacturing and supply chain, including delays and increased costs in the shipment of parts to manufacture our products or for the products themselves;

• increased currency volatility;

• delays in certain cost saving, transformation and restructuring initiatives.

The significant adverse effect of an epidemic, endemic or pandemic on the economic or political conditions in markets in which we operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

Risks Related to Illicit Trade

We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.

Large quantities of counterfeit cigarettes are sold in the international market.

We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity.

In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers.

Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

In addition, our revenues are reduced by contraband, cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers.

Our revenues and consumer satisfaction with our smoke-free products' devices and consumables may be materially adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

Risks Related to Cybersecurity and Data Governance

The failure of our information systems, and systems owned and operated by our business partners, to function as intended, or their penetration with the intent to corrupt them or to extract data from them, or our and our business partners failure to adhere to strict data governance and cybersecurity protocols, and to comply with privacy laws and regulations, could result in business disruption, loss of reputation, litigation and regulatory action, and loss of revenue, assets or personal or other confidential data.

We as well as our business partners use information systems to help manage business processes, collect and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others.

Some of these information systems are managed by third-party service providers.

Our business continuity plans and other safeguards may not be effective to mitigate the impact of service interruptions, connectivity outages, and other failures of these systems to function as intended, or to mitigate the penetration of these systems or systems owned and operated by our business partners by parties intent on extracting or corrupting information or otherwise disrupting business processes.

These events could place us at a competitive disadvantage, result in a loss of revenue, assets, including our intellectual property, personal or other sensitive data, result in litigation and regulatory action, impact our operations, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

Failure to protect personal data, respect the rights of data subjects, and adhere to strict data governance and cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation.

As we are increasingly relying on digital platforms in our business, and as privacy, data and cyber laws in the jurisdictions in which we do business are introduced or become more stringent, the magnitude of these risks is likely to increase.

Risks related to the proposed acquisition of Swedish Match AB (“Swedish Match”)

The proposed acquisition of all the issued and outstanding shares of Swedish Match may not be timely completed, or completed at all, and may not achieve the intended benefits.

Consummation of our proposed acquisition of Swedish Match is conditioned on, among other things, the acceptance of the offer by Swedish Match shareholders and obtaining necessary governmental and regulatory approvals.

If any of the conditions to the acquisition are not satisfied, it could delay or prevent the proposed acquisition from occurring, which could negatively impact our stock price, future business or financial results.

Further, regulators and regulatory requirements may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of our business after the closing.

These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the acquisition or may reduce the anticipated benefits of the transaction.

Moreover, the occurrence of any other event, change or other circumstance that could give rise to the termination of the offer could negatively impact our stock price, future business or financial results.

We may fail to realize the anticipated benefits of the Swedish Match acquisition.

If consummated, the success of the Swedish Match acquisition will depend on, among other things, our ability to integrate and combine our business and the business of Swedish Match in a manner that facilitates our strategic and financial goals.

If we are not able to successfully achieve these objectives, the anticipated benefits of the Swedish Match acquisition may not be realized fully or at all or may take longer to realize than expected.

The integration may be complex and time consuming and involve delays or additional and unforeseen expenses.

Any failure to successfully or cost-effectively integrate Swedish Match following the acquisition could have a material adverse effect on our business and financial results and cause reputational harm.

We expect to incur a substantial amount of debt in connection with the acquisition.

To fund the cash consideration for the acquisition and pay related fees and expenses, we expect to incur substantial acquisition-related debt.

Following completion of the acquisition, our increased indebtedness and higher debt-to-equity ratio may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions, may increase our borrowing costs, and could adversely affect our business, financial condition or results of operations.

Risks Related to the Acquisitions of OtiTopic, Inc.

The failure or disruption of our information technology networks and systems, or those managed by third-party service providers or owned by our business partners and used in furtherance of PMI’s business, due to cybersecurity attacks;

unauthorized attempts to corrupt or extract data;

security vulnerabilities;

misconfigurations;

or failure or inability by us, third-parties, or our business partners to adhere to cybersecurity industry best practices, could place us at a competitive disadvantage, cause reputational damage, impact our operations, result in data breaches, significant business disruption, litigation, regulatory action including significant fines or penalties, financial impact, loss of revenue or assets including our intellectual property, personal, confidential, or sensitive data.

We and our business partners heavily rely on information technology networks and systems, including those connected to the Internet, to help manage business processes and operations, including the collection, storage, interpretation, and processing of confidential, sensitive, personal and other data;

internal and external communications;

marketing and e-commerce activities;

the manufacture, sale, and distribution of our products;

management of third-party business relationships;

engagement with governmental authorities;

innovation through research and development;

and other activities necessary for business operations.

Some of these information systems and networks are developed, supplied, or managed by third-party service providers that may make us vulnerable to “supply chain” style cyberattacks.

Cyberattacks, security incidents and vulnerabilities impacting PMI, newly acquired companies, our business partners, or our third-party providers, continue to dynamically evolve in sophistication and volume, making it difficult for us to predict probability, frequency, and impact severity of security incidents.

Further, it may be inherently difficult to detect vulnerabilities during due diligence, for long periods of time, or soon enough to mitigate exploitation.

There can be no assurance that such security incidents or vulnerabilities will not have a material adverse effect on us in the future.

We continue to make investments in administrative, technical, and physical safeguards to maintain information security protections in line with industry standards and best practices.

We evaluate the adequacy of preventative actions to reduce security incidents on an ongoing basis.

Our safeguards may not, however, be effective in mitigating the impact of service disruptions or other failures of these information technology networks and systems.

Failure to timely respond and mitigate security incidents could result in wide-ranging business interruptions.

Such security incidents could place us at a competitive disadvantage;

result in financial impacts, a loss of revenue, assets, including our intellectual property, personal or other sensitive data;

result in litigation and regulatory action including significant fines or penalties;

impact our operations;

cause damage to our reputation and that of our brands;

and result in significant remediation and other costs.

Our or our business partners’ failure or inability to adhere to privacy, data, artificial intelligence and information security laws could result in business disruption, loss of reputation and consumer trust, litigation, regulatory action including significant fines or penalties, financial impact, and loss of revenue, assets or personal, confidential, or sensitive data.

An actual or alleged failure to comply with complex and changing privacy, data, artificial intelligence and information security laws and regulations under the EU General Data Protection Regulation, various United States state and federal laws, and other similar privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data;

implement appropriate technological and reasonable security measures;

respect the privacy rights of data subjects;

provide sufficient detailed notices of personal data processing;

retrieve consent and provide opt-outs;

meet stringent timeframe requirements for incident reporting to regulatory authorities;

comply with artificial intelligence regulations;

and others, could have a material adverse effect on us, subject us to substantial fines and/or legal challenges, and/or harm our business, reputation, financial condition, or operating results.

Such laws and regulations across the jurisdictions in which PMI operates may vary, resulting in inconsistent or conflicting legal obligations.

Risks Related to the Acquisitions of Swedish Match, OtiTopic, Inc.

("OtiTopic"), Fertin Pharma A/G ("Fertin Pharma") and Vectura Group Ltd.

As previously disclosed in this Form 10-Q, we have acquired Fertin Pharma and Vectura, and have since launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma (with the Fertin Pharma acquisition and the Vectura acquisition being collectively referred to in these Risk Factors as the “Acquisitions”).

("Vectura") (collectively, the "Acquisitions")

As previously disclosed in this Form 10-Q, since 2021, we acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and launched Vectura Fertin Pharma, our new Wellness and Healthcare business consolidating OtiTopic, Fertin Pharma and Vectura.

We may be unable to successfully integrate and realize the expected benefits from the Acquisitions.

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(i) the challenge of integrating complex organizations, systems, operating procedures, industry specific compliance programs, technology, networks and other assets of the businesses that we acquire, and the costs related to such integration efforts;

(ii) the possibility that we are unable to gain access to differentiated proprietary technology and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms;

(iii) the challenge of integrating the cultures and business practices of each of Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees;

(ii) the possibility that we are unable to gain access to differentiated intellectual property, proprietary technology, and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms;

(iii) the challenge of integrating the cultures and business practices of each of Swedish Match, Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees;

and (iv) the challenge of achieving a successful integration as a result of our affiliation to our combustible product portfolio.

In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

Furthermore, the success of the Acquisition also depends on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, our affiliation to its combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent us in being successful in developing a long-term sustainable ecosystem of products in the wellness, therapeutic and healthcare categories.

Furthermore, the success of the Acquisitions also depends on Swedish Match's continued growth in highly competitive markets and on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, our combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness, therapeutic, and healthcare categories.

The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.

The businesses that we have acquired in the Acquisitions may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the Acquisitions thereof.

We cannot assure you that the indemnification available to us under the respective acquisition agreements that we have negotiated, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each acquisition.

The businesses that we have acquired may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the Acquisitions thereof.

We cannot assure you that the indemnification available to us under the respective acquisition agreements, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each Acquisition.

Furthermore, the acquisition of Swedish Match was structured as a direct purchase of shares from Swedish Match shareholders and therefore did not include an acquisition agreement or indemnification rights.

Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

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We have accounted for the completion of the Acquisitions using the acquisition method of accounting.

Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses

Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

PMI and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.

Our success following these Acquisitions will depend in part upon our ability, and the ability of Vectura Fertin Pharma, to maintain business relationships.

Uncertainty about the effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired with the proposed Acquisitions.

Customers, suppliers and others who do business with Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired with these Acquisitions.

Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Vectura Fertin Pharma value chain, as well as our revenues, earnings and cash flow.

If we are unable to maintain the business and operational relationships of Vectura Fertin Pharma, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

PMI, Swedish Match and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.

Our success following these Acquisitions will depend in part upon our ability and the ability of each of Swedish Match and Vectura Fertin Pharma to maintain business relationships.

Uncertainty about the effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired through the Acquisitions.

Customers, suppliers and others who do business with Swedish Match or Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired.

Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Swedish Match or Vectura Fertin Pharma value chains, as well as our revenues, earnings and cash flow.

If we are unable to maintain the business and operational relationships of Swedish Match, or of Vectura Fertin Pharma, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

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-Q

Item 2. Management’s Discussion and Analysis