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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-26 · 731 added, 359 removed, 1149 unchanged (49% of the section changed)

10 unchanged sentences

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

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.

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 our continuing Swedish Match and Wellness and Healthcare segments.

The four geographical segments are as follows:

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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.

As of June 30, 2023, our smoke-free products were available for sale in 80 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.

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

On July, 14, 2023, we made the final payment to Altria under the terms of the agreement.

For further details, see Note 2.

Acquisitions .

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.

Wellness and Healthcare Impairment Charge for Goodwill and Other Intangibles

During the second quarter of 2023, we completed our annual review of goodwill and non-amortizable intangible assets for potential impairment.

Based on this review, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value, primarily reflecting the impact of two factors:

During the second quarter, we received our first clinical trial results for an inhalable aspirin product being developed by its Wellness and Healthcare business.

While it was observed that the experimental product had a rapid onset of effect, which is the key medical advantage sought, there was significant variability in inhaled dose among subjects.

The study was therefore deemed unsuccessful and, as a result, product design improvements are required.

We had planned to file a new drug application for this product with the FDA later this year.

However, additional time is now required to evaluate design improvements and the outcome is correspondingly less certain.

Slower-than-anticipated development of the contract development and manufacturing organization ("CDMO") business, including challenges associated with increased cost related to certain key products.

Consequently, we recorded a total impairment charge in the Wellness and Healthcare segment of $680 million in the second quarter.

The charge is non-cash.

PMI remains committed to developing its Wellness and Healthcare business and continues to see attractive growth potential -- leveraging its unique and enabling R&D capabilities -- in areas such as inhalable drugs, nicotine-replacement therapy ("NRT"), and consumer wellness products, including non-recreational cannabinoids, in line with applicable regulatory requirements.

PMI does, however, expect the aforementioned factors to postpone its 2025 ambition to reach over $1 billion of net revenues for the Wellness and Healthcare segment, and result in a corresponding decrease in the level of investment behind the segment next year.

For further details, see Note 6.

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.

Goodwill and Other Intangible Assets, net .

South Korea Indirect Tax Charge

On July 13, 2023, our South Korean subsidiary, Philip Morris Korea Inc.

("PM Korea"), received an adverse ruling from the Supreme Court of South Korea related to cases alleging underpayment of excise taxes in connection with a 2015 excise tax

increase and subsequent audit by the South Korean Board of Audit and Inspection.

The Supreme Court ruling reversed previous decisions that were in PM Korea’s favor at the trial and appellate levels.

As a result of the ruling, we concluded that an adverse outcome is probable.

Consequently, we recorded a non-cash pre-tax charge of $204 million in the second quarter results of 2023, reflecting the full amount previously paid by PM Korea.

For further details, see Note 10.

Contingencies .

War in Ukraine

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Production at our factory in Kharkiv remains suspended.

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).

On June 20, 2023, we announced the investment of $30 million in a new production facility in the Lviv region, in Western Ukraine.

Preparatory work for the facility began in July 2023 and production is expected to commence in the first quarter of 2024.

As of June 30, 2023, our Ukrainian operations had approximately $0.5 billion in total assets, excluding intercompany balances.

As of June 30, 2023, our Russian operations had approximately $2.4 billion in total assets, excluding intercompany balances, of which approximately $0.6 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).

Additionally, we hold a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia.

For further details, see Note 14.

Related Parties – Equity Investments and Other.

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.

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:

Sale of Swedish Match Subsidiary

As disclosed in Note 2.

Acquisitions , under the EU Merger Regulation, approval by the European Commission of PMI’s Swedish Match acquisition was conditional on the subsequent sale of Swedish Match’s subsidiary, SMD Logistics AB ("SMDL").

On June 30, 2023, PMI completed the sale of SMDL.

Consolidated Operating Results for the Six Months Ended June 30, 2023

• Net Revenues - Net revenues of $17.0 billion for the six months ended June 30, 2023 increased by $1.4 billion, or 9.0%, 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 year-to-date results):

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 6.3%, mainly reflecting:

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

and favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette mix, partially offset by lower cigarette volume and unfavorable smoke-free product 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 in the following " Diluted Earnings Per Share " discussion.

Net revenues by product category for the six months ended June 30, 2023 and 2022 are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the six months ended June 30, 2023, from the comparable 2022 amounts, were as follows:

Diluted EPS % Change

For the three months ended March 31, 2022 $ 1.50

For the six months ended June 30, 2022 $ 2.93

2022 Charges related to the war in Ukraine 0.07

2022 Fair value adjustment for equity security investments 0.03

2022 Amortization and impairment of intangibles 0.02

2022 Amortization of intangibles 0.04

2022 Costs associated with Swedish Match AB offer 0.02

2022 Tax items (0.03)

Subtotal of 2022 items 0.13

2023 Asset impairment and exit costs (0.06)

2023 Amortization and impairment of intangibles (0.04)

2023 South Korea indirect tax charge (0.11)

2023 Fair value adjustment for equity security investments (0.01)

2023 Amortization of intangibles (0.08)

2023 Impairment of goodwill and other intangibles (0.44)

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

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2023 Tax benefit associated with Swedish Match AB financing 0.06

2023 Tax items —

Subtotal of 2023 items (0.69)

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Interest (0.12)

Change in tax rate 0.04

Operations 0.26

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 the six months ended June 30, 2023 $ 2.29 (21.8) %

Charges related to the war in Ukraine – During the six months ended June 30, 2022, we recorded a pre-tax charge of $122 million (representing $105 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 – 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.

Fair value adjustment for equity security investments – During the six months ended June 30, 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).

During the six months ended June 30, 2023, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $10 million after tax (or $0.01 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 ($13 million loss) and provision for income taxes ($3 million benefit) on the condensed consolidated statements of earnings for the six months ended June 30, 2023.

For further details, see Note 14.

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.

Amortization of intangibles – During the six months ended June 30, 2023 and 2022, we recorded amortization of intangibles expense of $163 million (representing $128 million net of income tax or $0.08 per share decrease in diluted EPS) and $74 million (representing $63 million net of income tax or $0.04 per share decrease in diluted EPS), respectively.

The higher amortization expense in 2023 was primarily due to increased acquired intangible assets recorded as a result of our acquisitions in 2022.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net.

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.

Costs associated with Swedish Match AB offer – During the second quarter of 2022, we incurred pre-tax costs associated with the Swedish Match offer of $39 million (representing $30 million net of income tax and a diluted EPS charge of $0.02 per

share) primarily related to financing and certain transaction related costs.

These pre-tax costs of $39 million were recorded in marketing, administration and research costs ($52 million expense) and interest expense, net ($13 million gain) on our condensed consolidated statement of earnings for the six months ended June 30, 2022.

Asset impairment and exit costs – During the six months ended June 30, 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).

South Korea indirect tax charge – As discussed above, on July 13, 2023, our South Korean subsidiary, PM Korea, received an adverse ruling from the Supreme Court of South Korea related to cases alleging underpayment of excise taxes in connection with a 2015 excise tax increase and subsequent audit by the South Korean Board of Audit and Inspection.

The Supreme Court ruling reversed previous decisions that were in PM Korea’s favor at the trial and appellate levels.

As a result of the ruling, we concluded that an adverse outcome is probable.

Consequently, we recorded a non-cash pre-tax charge of $204 million (representing $174 million net of income tax or $0.11 per share decrease in diluted EPS) in the second quarter results of 2023, reflecting the full amount previously paid by PM Korea.

For further details, see Note 10.

Contingencies .

Impairment of goodwill and other intangibles – As discussed above, during the second quarter of 2023, we completed our annual review of goodwill and non-amortizable intangible assets for potential impairment.

Based on this review, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value.

Consequently, we recorded a total non-cash impairment charge of $680 million (representing a $0.44 per share decrease in diluted EPS) consisting of a goodwill impairment charge of $665 million and a non-amortizable intangible asset pre-tax impairment charge of $15 million for an in-process research and development project related to one of our 2021 acquisitions.

The impairment charge was recorded in marketing, administration and research costs in the condensed consolidated statements of earnings and was included in the Wellness and Healthcare segment results.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

Termination of distribution arrangement in the Middle East – 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.

Swedish Match AB acquisition accounting related item – During the six months ended June 30, 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 six months ended June 30, 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.

Income taxes – The 2023 Tax benefit associated with Swedish Match financing that increased our 2023 diluted EPS by $0.06 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 June 30, 2023.

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 $0.04 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.26 per share during the reporting period primarily results from the fluctuations of the U.S.

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

dollar, especially against the Argentine peso, Egyptian pound, Japanese yen and Swiss franc, partially offset by the Turkish lira.

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

Interest – The unfavorable impact of $0.12 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;

Operations – The increase in diluted EPS of $0.26 from our operations in the table above was due primarily to the following segments:

• Swedish Match:

Reflecting the 2023 impact following the fourth quarter 2022 acquisition;

• EA, AU & PMI DF:

Favorable volume/mix and lower supply chain costs;

partially offset by

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

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

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Primarily reflecting investments in research and development.

partially offset by

• Swedish Match:

Reflecting the 2023 impact following the fourth quarter 2022 acquisition;

Consolidated Operating Results for the Three Months Ended June 30, 2023

• Net Revenues - Net revenues of $9.0 billion for the three months ended June 30, 2023 increased by $1,135 million, or 14.5%, 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 10.5%, mainly reflecting:

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

and favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette mix, partially offset by lower cigarette volume and unfavorable HTU mix.

Net revenues by product category for the three months ended June 30, 2023 and 2022, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended June 30, 2023, from the comparable 2022 amounts, were as follows:

Diluted EPS % Change

For the three months ended June 30, 2022 $ 1.43

2022 Charges related to the war in Ukraine

2022 Amortization of intangibles 0.02

2022 Costs associated with Swedish Match AB offer 0.02

2022 Tax items (0.03)

Subtotal of 2022 items 0.05

2023 South Korea indirect tax charge (0.11)

2023 Fair value adjustment for equity security investments (0.01)

2023 Amortization of intangibles (0.04)

2023 Impairment of goodwill and other intangibles (0.44)

2023 Tax benefit associated with Swedish Match AB financing 0.01

2023 Tax items —

Subtotal of 2023 items (0.59)

Currency (0.13)

Interest (0.08)

Change in tax rate 0.04

Operations 0.29

For the three months ended June 30, 2023 $ 1.01 (29.4) %

Charges related to the war in Ukraine – During the second quarter of 2022, we recorded a pre-tax charge of $80 million (representing $66 million net of income tax and a diluted EPS charge of $0.04 per share), related to circumstances driven by the war, including machinery and inventory write-downs and salary continuation.

For further details, see Note 3.

War in Ukraine .

Amortization of intangibles – During the second quarter of 2023 and 2022, we recorded amortization of intangibles expense of $82 million (representing $64 million net of income tax or $0.04 per share decrease in diluted EPS) and $36 million (representing $31 million net of income tax or $0.02 per share decrease in diluted EPS), respectively.

The higher amortization

expense in 2023 was primarily due to increased acquired intangible assets recorded as a result of our acquisitions in 2022.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net.

The Supreme Court ruling reversed previous decisions that were in PM Korea’s favor at the trial and appellate levels.

As a result of the ruling, we concluded that an adverse outcome is probable.

For further details, see Note 10.

Contingencies .

Fair value adjustment for equity security investments – During the second quarter of 2023, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $15 million after tax (or $0.01 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 ($19 million loss) and provision for income taxes ($4 million benefit) on the condensed consolidated statements of earnings for the three months ended June 30, 2023.

For further details, see Note 14.

Related Parties - Equity Investments and Other .

Based on this review, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

Income taxes – The 2023 Tax benefit associated with Swedish Match financing that increased our 2023 diluted EPS by $0.01 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 June 30, 2023.

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 $0.04 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

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 Argentine peso, Egyptian pound, Japanese yen and Swiss franc, partially offset by the Turkish lira.

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

Interest – The unfavorable impact of $0.08 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 increase in diluted EPS of $0.29 from our operations in the table above was due primarily to the following segments:

• EA, AU & PMI DF:

Favorable volume/mix and lower manufacturing costs.

Favorable volume/mix and lower supply chain costs;

• Swedish Match:

Reflecting the second quarter 2023 impact following the fourth quarter 2022 acquisition;

partially offset by

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

• SSEA, CIS & MEA:

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

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

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For information on our critical accounting estimates, see " Critical Accounting Estimates " in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

For our annual review of goodwill and non-amortizable intangible assets for potential impairment completed in the second quarter, we performed a quantitative impairment assessment for all of our reporting units and non-amortizable intangible assets with the exception of the Swedish Match segment.

As the purchase price allocation for the acquisition of Swedish Match is preliminary, PMI has performed a qualitative impairment assessment of the Swedish Match segment.

Goodwill and Other Intangible Assets , net , for additional details.

Consolidated Operating Results

See pages 107 - 118 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 Three Months Ended March 31,

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

2023 2022 2023 2022

Net revenues:

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SSEA, CIS & MEA

5,145 4,959 2,668 2,514

EA, AU & PMI DF

3,200 3,051 1,680 1,464

Americas 921 893 476 469

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SSEA, CIS & MEA

1,570 1,923 858 958

EA, AU & PMI DF

1,167 1,213 544 528

Americas 136 251 70 130

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PMI Net Revenues by Product Category

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

2023 2022 Change

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

2023 2022 Change 2023 2022 Change

Combustible tobacco products

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

• Impairment of goodwill and other intangibles – See Note 6.

Goodwill and Other Intangible Assets, ne t for the details of the $680 million goodwill and non-amortizable intangible assets impairment charges included in the Wellness and Healthcare segment for the six months and three months ended June 30, 2023.

• South Korea indirect tax charge – See Note 10.

Contingencies for details of the $204 million pre-tax charge included in the EA, AU & PMI DF segment results for the six months and three months ended June 30, 2023.

• 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.

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

War in Ukraine for details of the $122 million and $80 million pre-tax charges in the Europe segment for the six months and three months ended June 30, 2022, respectively.

• 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 $109 million pre-tax charges for the three months ended March 31, 2023, as well as a breakdown of these costs by segment.

Asset Impairment and Exit Costs for details of the $109 million pre-tax charges for the six months ended June 30, 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.

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Consolidated Shipment Volume

For the Three Months Ended March 31,

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

For the Six Months Ended June 30, For the Three Months Ended June 30,

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

Cigarettes 300,718 305,916 (1.7) % 157,010 157,678 (0.4) %

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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.

Following the deconsolidation of our Canadian subsidiary, we continue to report the volume and corresponding royalty revenues 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 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).

The volume and corresponding royalty revenues of these brands sold by RBH were not material to PMI for all periods presented.

Heated tobacco units ("HTUs") 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.

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

For the Three Months Ended March 31,

For the Six Months Ended June 30,

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

Market Total Market

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

2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022

Total (1) (2)

1,265.4 1,276.4 359.5 355.6 300.7 305.9 58.8 49.6 27.9 27.4 4.6 4.0

France 15.1 16.3 7.5 7.3 7.4 7.2 0.1 0.1 42.3 43.8 0.8 0.7

33.7 34.0 12.9 13.8 11.6 12.4 1.3 1.4 39.3 38.9 5.4 3.9

Italy 35.6 35.6 18.7 20.7 13.9 14.9 4.8 5.7 53.8 54.1 17.2 14.6

Poland 28.5 27.5 11.6 10.4 9.2 8.3 2.5 2.1 40.8 37.7 8.6 7.5

Spain 21.2 21.6 6.5 7.0 6.0 6.6 0.4 0.4 29.1 30.2 2.2 1.6

SSEA, CIS & MEA

Egypt 38.5 46.0 11.7 10.2 11.3 9.9 0.5 0.3 30.4 22.5 1.4 0.8

Indonesia 141.1 149.5 40.5 42.3 40.5 42.3 — — 28.7 28.3 — —

Philippines 21.3 26.5 12.3 16.7 12.2 16.6 0.1 0.1 57.8 63.0 0.5 0.3

Russia 97.9 100.3 31.2 30.9 23.5 23.6 7.7 7.3 31.7 30.5 8.0 7.7

Turkey 62.3 55.5 31.3 25.5 31.3 25.5 — — 50.3 46.1 — —

EA, AU & PMI DF

Australia 3.8 4.5 1.3 1.5 1.3 1.5 — — 34.2 32.9 — —

72.9 71.9 31.5 26.3 9.6 11.2 21.9 15.1 39.5 37.2 26.3 23.0

South Korea 35.4 35.6 6.9 6.8 4.4 4.6 2.5 2.2 19.5 19.3 6.9 6.2

Argentina 15.0 14.9 9.4 9.6 9.4 9.6 — — 62.3 64.3 — —

Mexico 13.5 14.5 8.3 9.2 8.3 9.2 0.1 0.1 61.9 63.9 0.4 0.4

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

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

(3) PMI market share reflects estimated adjusted in-market sales volume share

For the Three Months Ended June 30,

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

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

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

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

(3) PMI market share reflects estimated adjusted in-market sales volume share.

Historical HTU adjusted in-market sales volume share:

Q3, 2022 (3.7%);

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

Q4, 2022 (4.7%);

Q1, 2023 (5.4%).

Historical total adjusted in-market sales volume share:

Q3, 2022 (38.3%);

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.

Q4, 2022 (39.7%);

Q1, 2023 (39.4%)

Consolidated Operating Results for the Six Months Ended June 30, 2023

The following discussion compares our consolidated operating results for the six months ended June 30, 2023, with the six months ended June 30, 2022.

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs decreased by 0.9% in the first half, reflecting declines in the SSEA, CIS & MEA Region and the Europe Region, partly offset by increases in 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 0.5% to 1.5%.

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 cigarette and HTU shipment volume increased by 1.1%, reflecting an 18.5% increase in HTU shipments across all regions, partly offset by a 1.7% decline in cigarette shipments (mainly due to the Europe and EA, AU & PMI DF Regions).

Cigarette shipment volume for Marlboro decreased by 2.6% to 116.8 billion units, due primarily to the Philippines.

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%:

For comparison purposes, assuming the inclusion of Swedish Match's first six months 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 11.8%, primarily reflecting growth in nicotine pouches (particularly in the U.S.), partly offset by a decline for snus (mainly in Scandinavia).

Swedish Match's total oral product shipment volume increased by 12.6% versus its corresponding shipments in the first half of 2022.

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

For the full year 2023, we currently expect a total cigarette and HTU shipment volume growth for PMI of up 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;

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Impact of Inventory Movements

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

The net impact of estimated distributor inventory movements on PMI's total cigarette and HTU shipment volume was immaterial.

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

Six Months Year-to-Date

2023 2022 Change (pp)

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Financial Summary

Financial Summary -

Quarters Ended March 31, Change

Six Months Ended June 30, Change

Fav./(Unfav.) Variance

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(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.

(2) Cost/Other variance includes charges in 2022 of $46 million related to the war in Ukraine.

For more details, see Note 3.

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.

War in Ukraine and Note 17.

(3) Cost/Other variance includes charges in 2023 of $109 million related to asset impairment and exit costs, the South Korea indirect tax charge of $204 million and an impairment charge for goodwill and other intangibles of $680 million, partially offset by charges in 2022 of $76 million related to the war in Ukraine and $52 million related to costs associated with the Swedish Match AB offer.

For more details,

War in Ukraine , Note 6.

Goodwill and Other Intangible Assets, net, Note 10.

Contingencies and Note 17.

Asset Impairment and Exit Costs.

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.

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 6.3%, mainly reflecting:

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

and favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette mix, partially offset by lower cigarette volume and unfavorable smoke-free product 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.

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

Net revenues include $6.0 billion in 2023 and $4.8 billion in 2022 related to smoke-free products.

Operating income decreased by 16.6%.

Operating income, excluding currency and acquisitions, decreased by 16.2%, primarily reflecting:

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.

the 2023 impairment charge for goodwill and other intangibles of $680 million, the impact of 2023 asset impairment and exit costs of $109 million, the termination of a distribution arrangement in the Middle East of $80 million, and the South Korea indirect tax charge of $204 million, partly offset by the 2022 charges of $122 million related to the war in Ukraine and 2022 costs associated with the Swedish Match AB offer of $52 million.

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);

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

higher manufacturing costs (primarily due to inflationary impacts, notably related to direct materials, tobacco leaf and energy, partly offset by productivity);

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

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.

In recent quarters, we experienced a dilutive margin impact 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.

While this impact is still present, the annualization of prior year impacts and growth of both our smoke-free and combustible businesses overall led to a reduced margin impact in the second quarter of 2023.

Like many other global companies, we are facing continued global inflationary pressures, primarily impacting cost of sales for our business (notably related to certain direct materials, energy, transportation and logistics) and overall inflationary impacts on marketing, administration and research costs (notably wages).

While we expect certain inflationary elements to ease over the course of the year, we anticipate that our 2023 results will likely continue to be impacted by inflationary forces (particularly related to tobacco leaf given the impact of longer inventory durations and higher prices of direct materials).

For further details, see "Impact of Inflation on Our Business and Mitigation Efforts" within the Business Environment section of this MD&A.

Interest expense, net, of $527 million increased by $247 million or 88.2%, 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%.

Our effective tax rate increased by 0.8 percentage points to 20.8%.

For further details, see Note 11.

Income Taxes .

Net earnings attributable to PMI of $3.6 billion decreased by $1.0 billion or 21.9%.

This decrease was due primarily to lower operating income and higher interest expense, net as discussed above.

Basic and diluted EPS of $2.29 decreased by 22.1% and 21.8%, respectively.

Excluding an unfavorable currency impact of $0.26, diluted EPS decreased by 13.0%.

Consolidated Operating Results for the Three Months Ended June 30, 2023

The following discussion compares our consolidated operating results for the three months ended June 30, 2023, with the three months ended June 30, 2022.

During the quarter, estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs decreased by 2.1%, reflecting declines in the SSEA, CIS & MEA Region, the Europe Region and the Americas Region, partly offset by increases in the EA, AU & PMI DF Region, as described in the Regional sections.

Shipment Volume

Our total cigarette and HTU shipment volume increased by 3.3%, reflecting a 26.6% increase in HTU shipments across all regions, partly offset by a 0.4% decline in cigarette shipments (due to the Europe Region, the EA, AU & PMI DF Region and the Americas Region, partially offset by the SSEA, CIS & MEA Region).

Cigarette shipment volume for Marlboro decreased by 2.9% to 60.8 billion units, due primarily to the Philippines.

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 second quarter 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 13.8%, primarily reflecting growth in nicotine pouches (particularly in the U.S.), partly offset by a decline for snus (mainly in Scandinavia).

Swedish Match's total oral product shipment volume increased by 15.1% versus its corresponding shipments in the second quarter of 2022.

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

Impact of Inventory Movements

Excluding the net favorable impact of estimated distributor inventory movements (primarily driven by HTUs), PMI’s total in-market sales for cigarettes and HTUs increased by 2.2%, reflecting 17.0% growth for HTUs (or 15.5% on an adjusted basis), partly offset by a decline of 0.2% for cigarettes.

The net favorable impact of estimated distributor inventory movements for HTUs was driven primarily by Japan (mainly reflecting a favorable comparison due to HTU capacity constraints in the prior year period), partly offset by Italy.

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

Second-Quarter

2023 2022 Change (pp)

Total International Market Share (1)

28.5 % 27.4 % 1.1

Cigarettes 23.9 % 23.5 % 0.4

HTU 4.6 % 3.9 % 0.7

Cigarette over Cigarette Market Share (2)

25.5 % 24.8 % 0.7

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

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

Financial Summary

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

$ 8,967 $ 7,832 14.5 % 10.5 % $ 1,135 $ (351) $ 665 $ 459 $ 390 $ (28)

Cost of Sales (1)

(3,228) (2,648) (21.9) % (16.2) % (580) 85 (235) — (263) (167)

Marketing, Administration and Research Costs (2)

(3,173) (2,128) (49.1) % (43.2) % (1,045) 40 (166) — — (919)

Operating Income $ 2,566 $ 3,056 (16.0) % (17.3) % $ (490) $ (226) $ 264 $ 459 $ 127 $ (1,114)

(1) Cost/Other variance includes charges in 2022 of $20 million related to the war in Ukraine.

For more details, see Note 3.

War in Ukraine .

(2) Cost/Other variance includes charges in 2023 of $204 million related to the South Korea indirect tax charge and an impairment charge for goodwill and other intangibles of $680 million, partially offset by charges in 2022 of $60 million related to the war in Ukraine and $52 million in 2022 related to costs associated with the Swedish Match AB offer.

For more details, see Note 3.

War in Ukraine, Note 6.

Goodwill and Other Intangible Assets, net.

Contingencies.

During the quarter, net revenues, excluding currency and acquisitions, increased by 10.5%, mainly reflecting:

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

and favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette mix, partially offset by lower cigarette volume and unfavorable HTU mix.

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

Net revenues include $3.2 billion in 2023 and $2.4 billion in 2022 related to smoke-free products.

Operating income decreased by 16.0%.

Operating income, excluding currency and acquisitions, decreased by 17.3%, primarily reflecting:

the impact of the 2023 South Korea indirect tax charge of $204 million and the impairment charge for goodwill and other intangibles of $680 million, partly offset by the 2022 charges of $80 million related to the war in Ukraine and costs associated with the Swedish Match AB offer of $52 million.

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

the favorable pricing variance;

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

partially offset by higher marketing, administration and research costs (primarily due to inflationary impacts, notably related to wages);

and higher manufacturing costs (primarily due to inflationary impacts, notably related to direct materials, tobacco leaf and energy, partly offset by productivity).

Interest expense, net, of $297 million increased by $171 million or +100%, 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 increased by 4.4 percentage points to 24.7%, primarily due to the non-deductible Wellness and Healthcare goodwill impairment charge, partially offset by a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing.

For further details, see Note 11.

Income Taxes .

Net earnings attributable to PMI of $1.6 billion decreased by $665 million or 29.8%.

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

Basic EPS and diluted EPS of $1.28 decreased by 14.7%.

This decrease was due primarily to lower operating income and higher interest expense, net as discussed above.

Basic and diluted EPS of $1.01 decreased by 29.9% and 29.4%, respectively.

Excluding an unfavorable currency impact of $0.13, diluted EPS decreased by 20.3%.

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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.

In May 2023, the WHO’s Executive Board acknowledged the report summarizing the eleventh meeting of the WHO Study Group on Tobacco Products Regulation (“TobReg”).

The full report from this meeting is not yet published.

Also, in June 2023, during the virtual press conference on global health issues, the WHO Director General called on governments to strictly regulate nicotine-containing products, like e-cigarettes.

It is not possible to predict whether or to what extent these developments will be reflected in the WHO’s reports to the Tenth Session of the CoP (“CoP 10”) for which documents relating thereto are expected to be published in September (at least 60 days before CoP 10).

The WHO’s reports are not binding on the WHO Member States nor on Parties to the FCTC.

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 cigarettes today, but how fast, and within what regulatory framework to maximize their adoption while minimizing unintended use.

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.

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 smoking cigarettes to receive truthful and non-misleading information about such alternatives 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.

Importantly, regulation must include measures designed to prevent initiation by youth and non-smokers.

We support mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions.

We support mandated health warnings, minimum age laws, restrictions on advertising, and smoking restrictions in public spaces.

We also support regulatory measures that help reduce illicit trade.

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

As of December 2022, and out of 160 contracting parties to the WCO’s Harmonized System Convention, 94 contracting parties, including the EU 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.

As of June 2023, and out of 161 contracting parties to the WCO’s Harmonized System Convention, 105 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.

All member states have adopted laws transposing the TPD.

All EU Member States have adopted laws transposing the TPD.

The TPD sets forth a comprehensive set of regulatory requirements for tobacco products, including:

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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, e-cigarettes and nicotine pouches.

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.

The proposal, after several delays, is now expected to be published during the last quarter of 2023 and adopted by the EU Council in the course of 2024-2025.

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

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

The potential effective date for any changes to TED, after the transposition in Member States' national legislation, is 2026.

Plain Packaging and Other Packaging Restrictions:

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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.

All EU Member States are required to apply the delegated directive as of October 23, 2023, which bans 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.

Therefore, while we believe that short-term volatility is possible, we do not expect a significant change in the structural growth of the heated tobacco product category, with consumers switching to non-flavored products partially mitigating the effect of the ban.

As member states are in the process of transposing the delegated directive in their national legislation, we 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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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.

The country had previously banned the use of e-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 on 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.

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

The Taiwanese central health authority 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.

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

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

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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To date, some member states transposed the Directive into national legislation.

We expect remaining member states to transpose the EU Single-Use Plastics Directive into national legislation including EPR schemes by January 2023.

By 2024, most EU Member States are expected to bring into force national legislation for mandatory EPR schemes and related EPR costs for tobacco manufacturers and importers.

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

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The Protocol came into force in September 2018.

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.

Since then, implementation in national legislations has been ongoing.

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

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

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

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

In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illicit 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 responsible for evaluating and approving funding proposals for PMI IMPACT grants.

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Our Approach to RRPs:

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.

We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harm 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 considerable efforts to discourage smoking.

Cigarettes burn tobacco, which produces smoke.

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Accordingly, our key strategic priorities are to:

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

(i) develop and commercialize products that present less risk of harm to adult smokers who switch to such products versus continued cigarette 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.

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.

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.

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

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

We are committed to conducting 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 cigarette 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 further develop and assess our RRPs.

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Platform 1 uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.

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

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

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.

In addition to the original version of Platform 1 which relies on a heating technology using a blade, a newer 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 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.

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

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

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

We are assessing alternative designs for this consumer segment.

Platform 3 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.

Platform 3 uses a nicotine salt and is composed of two parts:

(1) a consumable that contains a highly soluble encapsulated nicotine salt powder and (2) a non-electric device that activates it.

Once a consumable is inserted into the mechanical device, the nicotine salt 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.

We are working on product modifications to enable adult smokers, who are looking for better alternatives to cigarettes, to switch to a Platform 3 product.

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.

We developed new e-liquids 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.

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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 Aktieselskab ("AG Snus"), a as well as Fertin Pharma A/S, two companies manufacturing and/or marketing nicotine pouches.

In 2021, PMI acquired AG Snus Aktieselskab ("AG Snus"), 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.

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

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

As of June 30, 2023, PMI's smoke-free products were available for sale in 80 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 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 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, and 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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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.

Effective May 1, 2024, PMI will have the full rights to commercialize Platform 1 in the U.S.- the world’s largest smoke-free market.

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

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.

• 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, Greece, France, Slovakia, Serbia and Poland.

• Since June 2022, we have launched our disposable vaping product VEEV NOW , in Canada, the U.K., Ukraine, Serbia, Romania, Czech Republic, Slovakia, France and Poland.

• Following our acquisition of Swedish Match, we have 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.

• In addition to Swedish Match products, we have launched a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our affiliate AG Snus in ten markets.

RRP Regulation and Taxation:

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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.

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

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

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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" ("MRTP").

Platform 1 product, namely IQOS 2.4 and three related consumables, as an MRTP.

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

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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 .

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

On April 28, 2023, 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, 2022 and February 28, 2023.

The report concluded that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while Heated Tobacco Products (“HTPs”) are not risk-free, the use of HTPs are likely to present less risk of harm 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.

We currently anticipate submitting a PMTA for our IQOS ILUMA THS in the fourth quarter of 2023.

The PMTA submission will be followed by a sMRTPA submission for IQOS ILUMA (also planned in 2023), requesting authorization of the exposure reduction marketing order previously granted for IQOS blade versions.

Some states and municipalities in the U.S.

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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.

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.

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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 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.

PMI welcomes the FDA’s rule under section 906(e) of the Federal Food, Drug, and Cosmetic 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.

These standards are mandatory in Bahrain, Egypt, Jordan, Saudi Arabia, Tajikistan, Tunisia, the UAE and Uzbekistan, and voluntary in Algeria, 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.

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.

These standards are mandatory in Armenia, Bahrain, China, Egypt, Jordan, New Zealand, United Arab Emirates, and Saudi Arabia and Tajikistan, 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., Sweden and Pakistan.

These 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.

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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 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.

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 HTPs from being prohibited in Australia.

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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, 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.

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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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.

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 of 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.

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Other Developments:

In September 2017, we announced our support of the Foundation for a Smoke-Free World.

In September 2017, we announced our support of the Foundation for a Smoke-Free World (the "Foundation").

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

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.

To date, we have 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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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.

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 May 19, 2023.

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 (approximately $55.2 million) in damages.

The court admitted the claim and issued summons for PM Italia to appear in the case.

At the first trial hearing on May 19, 2023, the court adjourned the case to September 25, 2023.

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

Impact of Inflation on Our Business and Mitigation Efforts

Like many other global companies, we have experienced inflationary pressures in 2022 and the first six months of 2023, including:

growing pressures on the cost of certain direct materials, wages, energy, transportation, and logistics as well as an increased cost of capital due to interest rate increases driven by the response to increased inflation.

While, the net result of the inflationary impacts and our efforts to mitigate these impacts were not material to PMI during these periods, we expect the impact of inflation to likely exceed $500 million in the aggregate for the full year.

We expect this impact to be significantly offset by the positive elements of pricing, productivities and the mitigating factors as we progress through the year.

Inflationary impacts driven by higher wages have resulted from merit increases that reflect local inflation as we continuously evaluate our compensation and benefit offerings to be competitive with the current market.

Increased transportation costs resulted from increased shipping rates for all modes of transportation (air, ocean and inland) due to ocean and air capacity constraints.

Increases in cost of sales resulted from higher cost of direct materials due to the pass on of energy, transportation, labor and commodity price increases from suppliers as well as increases in utility costs, including gas and electricity prices, primarily in Europe resulting from the war in Ukraine.

Raw materials such as tobacco leaf have longer inventory durations which resulted in insignificant inflationary impacts to our cost of sales in 2022;

however tobacco leaf purchases in both 2022 and 2023 have been at higher prices due to inflationary impacts on fertilizer prices and labor costs, thus resulting in increases in the cost of inventory with corresponding impacts on our financial results expected in 2023.

In addition, our cash flow from

operations was impacted by the net working capital investment related to the procurement of tobacco leaf inventory and higher cost of direct materials, which is expected to continue in 2023.

We have taken several actions to mitigate these inflationary pressures.

Mitigation efforts have included (i) indexation clauses related to commodity costs and energy pricing within contracts, (ii) tactical inventory purchases, (iii) identification of new suppliers in different geographical locations for incremental sourcing, (iv) increasing tobacco leaf inventory durations to secure additional volumes at favorable prices, (v) optimizing the mix of tobacco leaf origins and suppliers, (vi) continuous evaluation of shipping routes and methods of shipment, (vii) supplier negotiations, (viii) variable contract durations for energy costs, (ix) hedging strategies, and (x) other pricing, productivity and procurement initiatives.

Asset Impairment and Exit Costs

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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, the European Commission 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 Task Force on Nature-related Financial Disclosures, the EU Corporate Sustainability Reporting Directive, the EU Taxonomy Regulation, the EU Deforestation Regulation, the EU Proposal for a Corporate Sustainability Due Diligence Directive, the International Sustainability Standards Board proposed standards, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Acquisitions and Other Business Arrangements

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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.

Department of the Treasury's Office of Foreign Assets Control (“OFAC”) and the U.S.

Department of State.

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

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

We comply fully with these Trade Sanctions.

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

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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.

Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the U.K., Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls regarding Russia.

While the introduced sanctions slightly vary from jurisdiction to jurisdiction, they are largely aligned.

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has also introduced a prohibition on new investment in the Russian Federation by a U.S.

person, wherever located.

person, wherever located, and authorized the imposition of blocking sanctions on anyone operating in the Russian manufacturing sector.

Among sanctions targets are Russian political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors.

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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.

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.

The U.S., 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.

The EU, Switzerland and the U.K.

also prohibited technical assistance and other services related to restricted goods.

The EU, Switzerland and the U.K.

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.

Additionally, the EU, the U.S., the U.K., 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.

On May 19, 2023, the U.S.

OFAC issued a determination that identifies the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy pursuant to Executive Order 14024 (“EO 14024”), thus allowing for sanctions to be imposed on persons determined to operate or have operated in any of these sectors.

The potential application of this determination by OFAC to manufacturing for goods other than military goods remains unclear.

banned the export of electronic cigarettes and similar personal electric vaporizing devices to Russia.

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.

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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.

Segment Operating Results – Three Months and Six Months Ended June 30, 2023

The following discussion compares operating results within each of our segments for the three months and six months ended June 30, 2023, with the three months and six months ended June 30, 2022.

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

Financial Summary

Quarters Ended March 31, Change

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 1,563 $ 1,474 6.0 % 3.9 % $ 89 $ 31 $ — $ 149 $ (56) $ (35)

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.

During the quarter, net revenues, excluding currency and acquisitions, increased by 3.1%, reflecting:

a favorable pricing variance, mainly driven by higher combustible tobacco pricing, partly offset by lower HTU (net) pricing (primarily related to the supplemental tax surcharge in Germany);

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

Operating income, excluding currency and acquisitions, increased by 3.9%, primarily reflecting:

a favorable comparison to 2022 of $80 million related to the war in Ukraine and costs associated with the Swedish Match AB offer of $24 million, and favorable pricing, partly offset by higher manufacturing costs (primarily due to inflationary impacts);

higher marketing, administration and research costs (primarily due to inflationary impacts);

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

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,312 $ 6,533 (3.4) % (0.2) % $ (221) $ (208) $ — $ 177 $ (190) $ —

Operating Income $ 2,738 $ 3,032 (9.7) % (7.7) % $ (294) $ (60) $ — $ 177 $ (236) $ (175)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, decreased by 0.2%, reflecting:

unfavorable volume/mix, mainly due to lower cigarette volume, as well as unfavorable HTU and cigarette mix, partly offset by higher HTU volume (despite the adverse net impact of estimated wholesaler and distributor HTU inventory movements in Germany and Italy, respectively, which was concentrated in the first quarter);

largely offset by a favorable pricing variance, mainly driven by higher combustible tobacco pricing, partly offset by lower HTU (net) pricing (primarily related to the supplemental tax surcharge in Germany).

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

The negative impact will continue until a ruling on the legality of the surcharge is issued.

It 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.

A favorable ruling would positively impact future PMI’s operating results.

Operating income, excluding currency and acquisitions, decreased by 7.7%, 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).

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

higher manufacturing costs (primarily due to inflationary impacts) and the 2023 charges for asset impairment and exit costs;

partly offset by the favorable pricing variance and the 2022 charges related to the war in Ukraine.

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

In the second quarter, the estimated total market for cigarettes and HTUs in the Region decreased by 1.5% to 140.7 billion units, reflecting a 3.7% decline for cigarettes, partly offset by a 22.4% increase for HTUs.

The decrease in the estimated total market was notably due to France (down by 10.4%) and the UK (down by 13.3%), partly offset by Ukraine (up by 13.4%).

For the six months year-to-date, the estimated total market for cigarettes and HTUs in the Region decreased by 0.5% to 266.2 billion units, reflecting a 2.3% decline for cigarettes, partly offset by a 18.1% increase for HTUs.

The decrease in the estimated total market was notably due to France (down by 7.3%) and the UK (down by 13.7%), partly offset by Poland (up by 3.3%).

Europe Key Data Second-Quarter Six Months Year-to-Date

Change Change

2023 2022 % / pp 2023 2022 % / pp

PMI Market Share

2 unchanged sentences

Total Europe 39.0 % 38.2 % 0.8 39.1 % 39.1 % —

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.

Sum may not foot to total due to roundings

In the second quarter, our total cigarette and HTU shipment volume in the Region decreased by 0.5% to 55.4 billion units, mainly due to Italy (down by 10.2%;

or by 3.0% excluding the net unfavorable impact of estimated distributor inventory movements), partly offset by Poland (up by 8.5%) and Ukraine (up by 50.3%).

Our estimated HTU adjusted in-market sales volume in the Region increased by approximately 19.7% in the quarter, reflecting the strong continued growth momentum for IQOS (supported by the further roll-out of ILUMA ), including in Germany and Italy, with growth of approximately 36.9% and 16.0%, respectively.

Our HTU share of the total cigarette and HTU market in the Region increased by 1.7 points, or by 1.6 points on an adjusted basis.

Adjusted HTU share for Germany reached 5.4%, an increase of 1.5 points versus the second quarter of 2022.

For the six months year-to-date, our total shipment volume decreased by 2.0% to 104.7 billion units, mainly due to Germany (down by 6.3%, or by 0.1% excluding the net unfavorable impact of estimated wholesaler inventory movements), Italy (down by 9.5%;

or by 0.5% excluding the net unfavorable impact of estimated distributor inventory movements) and Spain (down by 8.3%, or by 5.5% excluding the net unfavorable impact of estimated distributor inventory movements), partly offset by Poland (up by 11.8%).

Our estimated HTU adjusted in-market sales volume in the Region increased by approximately 21.4% in the first half, including growth in Germany and Italy of approximately 36.2% and 16.0%, respectively.

Our HTU share of the total cigarette and HTU market in the Region increased by 1.2 points, or by 1.6 points on an adjusted basis.

SSEA, CIS & MEA:

Financial Summary

Quarters Ended March 31, Change

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

7 unchanged sentences

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.

and favorable volume/mix, primarily driven by favorable cigarette mix, as well as higher volume for cigarettes, HTUs and devices.

Operating income, excluding currency and acquisitions, decreased by 0.2%, 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;

higher marketing, administration and research costs;

and unfavorable volume/mix, mainly due to cigarettes;

partly offset by the favorable pricing variance.

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 5,145 $ 4,959 3.8 % 10.4 % $ 186 $ (332) $ — $ 486 $ 185 $ (153)

Operating Income $ 1,570 $ 1,923 (18.4) % (11.0) % $ (353) $ (142) $ — $ 486 $ (114) $ (583)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 10.4%, 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 volume/mix, as well as higher volume for HTUs and devices.

The increase was 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 11.0%, primarily reflecting:

the termination of a distribution arrangement, as noted for net revenues, higher manufacturing costs (primarily due to inflationary impacts);

higher marketing, administration and research costs;

unfavorable volume/mix, mainly due to cigarettes, partly offset by higher HTU volume;

and the impact of lower fees for certain distribution rights, as noted for net revenues;

partially 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%).

In the second quarter, the estimated total market for cigarettes and HTUs in the Region decreased by around 3%, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Egypt (down by 28.7%), Indonesia (down by 4.7%) and Pakistan (down by 49.5%), partly offset by Turkey (up by 14.4%).

For the six months year-to-date, the estimated total market for cigarettes and HTUs in the Region decreased by around 2%, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Egypt (down by 16.3%), Indonesia (down by 5.6%), Pakistan (down by 41.8%) and the Philippines (down by 19.7%), partly offset by Bangladesh (up by 26.6%) and Turkey (up by 12.4%).

In the second quarter, our total cigarette and HTU shipment volume in the Region increased by 2.6% to 90.3 billion units, mainly driven by Egypt (up by 23.2%) and Turkey (up by 27.6%), partly offset by Pakistan (down by 57.7%) and the Philippines (down by 19.8%).

For the six months year-to-date, our total cigarette and HTU shipment volume in the Region increased by 0.6% to 172.2 billion units, mainly driven by Algeria (up by 39.9%), Egypt (up by 15.0%) and Turkey (up by 22.7%), partly offset by Indonesia (down by 4.1%), Pakistan (down by 50.5%) and the Philippines (down by 26.3%).

EA, AU & PMI DF:

Financial Summary

Quarters Ended March 31, Change

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 544 $ 528 3.0 % 27.7 % $ 16 $ (130) $ — $ 23 $ 244 $ (121)

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.

During the quarter, net revenues, excluding currency and acquisitions, increased by 23.8%, reflecting:

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

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

Operating income, excluding currency and acquisitions, increased by 27.7%, mainly reflecting:

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

and lower supply chain costs, partly offset by the 2023 charge related to the South Korea indirect tax of $204 million.

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,200 $ 3,051 4.9 % 14.8 % $ 149 $ (303) $ — $ 37 $ 415 $ —

Operating Income $ 1,167 $ 1,213 (3.8) % 16.4 % $ (46) $ (245) $ — $ 37 $ 289 $ (127)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 14.8%, 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 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 16.4%, mainly reflecting favorable volume/mix, primarily driven by the same factors as for net revenues, and lower supply chain costs, partly offset by the 2023 charge related to the South Korea indirect tax of $204 million.

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%.

In the second quarter, the estimated total market for cigarettes and HTUs in the Region, excluding China, increased by around 2%, reflecting growth for HTUs, partly offset by a decline for cigarettes.

The increase in the estimated total market was mainly driven by International Duty Free (up by 41.4%), partly offset by Australia (down by 15.3%).

For the six months year-to-date, the estimated total market for cigarettes and HTUs in the Region, excluding China, increased by around 2%, reflecting growth for HTUs, partly offset by a decline for cigarettes.

The increase in the estimated total market was mainly driven by Japan (up by 1.4%) and International Duty Free (up by 42.7%), partly offset by Australia (down by 14.9%).

In the second quarter, our total cigarette and HTU shipment volume in the Region increased by 19.8% to 27.1 billion units, mainly driven by Japan (up by 38.7%).

Excluding the net favorable impact of estimated distributor inventory movements (notably driven by cigarettes and HTUs in Japan), our total in-market sales volume for cigarettes and HTUs increased by 6.8% (reflecting a 16.6% increase for HTUs, partly offset by a 0.6% decline for cigarettes).

Our total in-market sales volume in Japan increased by 6.0%, reflecting a 14.7% increase for HTUs, partly offset by an 8.0% decline for cigarettes.

For the six months year-to-date, our total cigarette and HTU shipment volume in the Region increased by 12.0% to 51.9 billion units, mainly driven by Japan (up by 19.8%) and International Duty Free (up by 10.5%).

Excluding the net favorable impact of estimated distributor inventory movements (notably due to HTUs in Japan, partly offset by cigarettes in Japan and International Duty Free), our total in-market sales for cigarettes and HTUs increased by 7.5% (reflecting a 17.2% increase for HTUs and a 0.2% increase for cigarettes).

Our total in-market sales volume in Japan increased by 7.5%, reflecting a 16.3% increase for HTUs, partly offset by a 6.6% decline for cigarettes.

Financial Summary

Quarters Ended March 31, Change

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 70 $ 130 (46.2) % (26.2) % $ (60) $ (26) $ — $ 36 $ (26) $ (44)

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.

During the quarter, net revenues, excluding currency and acquisitions, decreased by 1.5%, primarily reflecting:

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

partly offset by a favorable pricing variance, driven by higher combustible tobacco pricing.

Operating income, excluding currency and acquisitions, decreased by 26.2%, mainly reflecting:

4 unchanged sentences

partly offset by the favorable pricing variance.

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 921 $ 893 3.1 % 0.6 % $ 28 $ 23 $ — $ 73 $ (61) $ (7)

Operating Income $ 136 $ 251 (45.8) % (31.5) % $ (115) $ (36) $ — $ 73 $ (43) $ (109)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 0.6%, 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 31.5%, mainly reflecting:

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 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.

In the second quarter, the estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by around 2%, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Canada (down by 7.3%) and Mexico (down by 7.6%), partly offset by Brazil (up by 2.9%).

For the six months year-to-date, the estimated total market for cigarettes and HTUs in the Region, excluding the U.S., increased by less than one percent, primarily reflecting growth for cigarettes.

The increase in the estimated total market was mainly driven by Brazil (up by 8.7%), partly offset by Canada (down by 11.5%) and Mexico (down by 6.8%).

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%).

In the second quarter, our total cigarette and HTU shipment volume in the Region decreased by 3.3% to 15.7 billion units, mainly due to Argentina (down by 4.3%) and Mexico (down by 10.2%), partly offset by Brazil (up by 11.6%).

For the six months year-to-date, our total cigarette and HTU shipment volume in the Region decreased by 1.4% to 30.7 billion units, mainly due to Argentina (down by 2.5%) and Mexico (down by 9.8%), partly offset by Brazil (up by 15.5%).

Swedish Match:

2 unchanged sentences

Financial Summary

Quarters Ended March 31, Change

Quarters Ended June 30, Change

Fav./(Unfav.) Variance

6 unchanged sentences

We recorded net revenues of $665 million in the Swedish Match segment for the quarter, with smoke-free products accounting for over 77% of the segment's total net revenues.

We recorded operating income of $193 million in the first quarter.

We recorded operating income of $264 million in the second quarter.

This included $49 million related to the amortization of acquired intangibles.

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,246 $ — — % — % $ 1,246 $ — $ 1,246 $ — $ — $ —

Operating Income $ 457 $ — — % — % $ 457 $ — $ 457 $ — $ — $ —

For the six months ended June 30, 2023, we recorded net revenues of $1.2 billion in the Swedish Match segment, with smoke-free products accounting for over 77% of the segment's total net revenues.

We recorded operating income of $457 million for the six months ended June 30, 2023.

This included $99 million related to the amortization of acquired intangibles and $18 million of charges related to an acquisition accounting-related item.

1 unchanged sentence

Swedish Match Oral Product Shipment Volume (1) (million cans)

For the Three Months Ended March 31,

Nicotine Pouches 2023 2022 Change

Second-Quarter Six Months Year-to-Date

Nicotine Pouches 2023 2022 Change 2023 2022 Change

89.9 — — % 163.1 — — %

Scandinavia 7.5 — — % 14.1 — — %

8 unchanged sentences

(1) Excluding U.S.

Swedish Match Combustible Tobacco Shipment Volume (million units) For the Three Months Ended March 31,

2023 2022 Change

Swedish Match Combustible Tobacco Shipment Volume (million units) Second-Quarter Six Months Year-to-Date

2023 2022 Change 2023 2022 Change

Cigars 430.3 — — % 907.1 — — %

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.

For comparison purposes, the following commentaries assumed the inclusion of Swedish Match's second quarter and first six months of 2022 shipment volume prior to our acquisition, thereby providing the comparability of Swedish Match's volume performance between periods.

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

Second-Quarter

Swedish Match's total shipment volume for oral products increased by 15.1% versus its corresponding shipments of 167.4 million cans in the second quarter of 2022.

Nicotine pouch shipment volume increased by 47.5% compared to Swedish Match's second-quarter 2022 shipment volume of 66.9 million cans, mainly driven by 53.1% growth for ZYN in the U.S.

In Scandinavia, shipment volume for nicotine pouches grew by 4.5%.

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.

Shipment volume for snus declined by 10.2% compared to Swedish Match's second-quarter 2022 shipment volume of 65.4 million cans.

The decrease was primarily due to Scandinavia, mainly reflecting the comparison versus an exceptionally strong total market in the prior year period.

Cigar shipment volume declined by 6.0% compared to Swedish Match's second-quarter 2022 cigar shipment volume of 457.7 million units, primarily due to the impact of price increases partly offset by higher share of market in the natural leaf segment.

Six Months Year-to-Date

Swedish Match's total shipment volume for oral products increased by 12.6% versus its corresponding shipments of 321.9 million cans in the first six months of 2022.

Nicotine pouch shipment volume increased by 45.4% compared to the Swedish Match's first-half 2022 shipment volume of 123.5 million cans, reflecting 50.1% growth for ZYN in the U.S.

In Scandinavia, shipment volume for nicotine pouches grew by 9.6%.

Shipment volume for snus declined by 12.9% compared to the Swedish Match's first-half 2022 shipment volume of 127.6 million cans.

Swedish Match's performance in the first-half primarily reflected the same factors as in the quarter, coupled with the impact of excise tax and price increases on snus in Scandinavia in the first quarter (including related inventory movements).

Cigar shipment volume declined by 0.9% compared to Swedish Match's first-half 2022 cigar shipment volume of 915.1 million units, mainly due to the same factors as in the quarter.

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.

3 unchanged sentences

Financial Summary

Quarters Ended March 31, Change

Quarters Ended

June 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (733) $ (34) -(100)% -(100)% $ (699) $ (3) $ — $ (2) $ — $ (694)

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.

During the quarter, net revenues, excluding currency and acquisitions, were flat, notably reflecting higher net revenues for smoking cessation products, offset by the unfavorable impact of phasing for select inhalation products.

The operating loss of $733 million was primarily due to an impairment charge for goodwill and other intangibles of $680 million, as well as investments in research and development.

For further details on the impairment charge for goodwill and other intangibles, see Note 6.

Goodwill and Other Intangible Assets, net.

Financial Summary

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 162 $ 142 14.1 % 17.6 % $ 20 $ (5) $ — $ 23 $ — $ 2

Operating Income / (Loss) $ (771) $ (65) -(100)% -(100)% $ (706) $ (2) $ — $ 23 $ — $ (727)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 17.6%, notably driven by the favorable impact of phasing for select inhalation products (notably in the first quarter), coupled with higher net revenues for smoking cessation products.

The operating loss of $771 million was primarily due to an impairment charge for goodwill and other intangibles of $680 million in the second quarter, as well as investments in research and development.

For 2023, we currently expect Wellness and Healthcare net revenues of around $300 million (including smoking cessation products).

Financial Review

Cash Flow Highlights

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in millions) 2023 2022

Net cash provided by (used in) operating activities $ (955) $ 1,118

Net cash provided by operating activities $ 2,487 $ 4,642

Net cash used in investing activities (1,074) (55)

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.

Net cash used in financing activities (920) (3,800)

Net Cash Provided by Operating Activities

During the first six months of 2023, net cash provided by operating activities was $2.5 billion as compared to $4.6 billion in the first six months of 2022.

Excluding unfavorable currency movements of $0.7 billion, the unfavorable variance of $1.5 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.

The higher working capital requirements in the first six months of 2023 as compared with the first six months 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, as well as more cash used in accounts payable primarily reflecting payment for higher IQOS ILUMA device purchases in the fourth quarter of 2022 to meet the needs of ILUMA launches, partly offset by less cash used in accounts receivable mainly reflecting the timing of sales and cash collections.

For the full year 2023, we currently expect net cash provided by operating activities 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 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.

During the first six months of 2023, net cash used in investing activities increased by $1.0 billion as compared with the first six months of 2022.

This increase in cash used was primarily due to the unfavorable movements of $856 million in 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.

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Financial Instruments.

Capital expenditures of $279 million during the first three months of 2023 increased by $50 million as compared with the first quarter of 2022.

Capital expenditures of $639 million during the first six months of 2023 increased by $161 million as compared with the first six months 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.

increased investments behind smoke-free product manufacturing capacity, including for ILUMA consumables and Swedish Match's portfolio.

Net Cash Used in Financing Activities

During the first six months of 2023, net cash used in financing activities was $920 million as compared to $3.8 billion in the first six months of 2022.

The decrease in net cash used was primarily due to higher net borrowings in 2023 reflecting proceeds from long-term debt issuances in 2023 of $7.7 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 decrease was also due to a favorable comparison resulting from transactions with noncontrolling interests related to our Turkish subsidiaries (sale of noncontrolling stakes in 2023 compared to purchase of such stakes in 2022) and the suspension of share repurchases.

The decrease was 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 subsidiaries and our purchase of remaining Swedish Match shares, see Note 2.

Acquisitions .

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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.

For the six months ended June 30, 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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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.

At March 31, 2023, our credit ratings and outlook by major credit rating agencies were as follows:

At June 30, 2023, our credit ratings and outlook by major credit rating agencies were as follows:

Short-term Long-term Outlook

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Revolving Credit Facilities

At March 31, 2023, our committed revolving credit facilities were as follows:

At June 30, 2023, our committed revolving credit facilities were as follows:

Type (in billions) Committed

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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 March 31, 2023, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

At June 30, 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.

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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.

These credit arrangements amounted to approximately $2.7 billion at June 30, 2023, and approximately $1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $146 million at June 30, 2023, and $295 million at December 31, 2022.

Credit Facilities related to the Financing of the Swedish Match Acquisition

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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.

As of June 30, 2023 and December 31, 2022, the €5.5 billion (approximately $6 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.

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and in Europe having an aggregate issuance capacity of $8.0 billion.

At March 31, 2023, we had $4.1 billion of commercial paper outstanding.

At June 30, 2023, we had $4.0 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 the first six months of 2023 was $3.9 billion.

The average commercial paper balance outstanding during 2022 was $3.1 billion.

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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.

Debt – Our total debt was $47.9 billion at June 30, 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.

PMI's debt issuances in the first three months of 2023 were as follows:

PMI's debt issuances in the first six 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

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

dollar notes (a) (b) $450 4.875% May 2023 February 2026

dollar notes (a) (c) $550 4.875% May 2023 February 2028

dollar notes (a) (d) $700 5.125% May 2023 February 2030

dollar notes (a) (e) $750 5.375% May 2023 February 2033

(a) Interest is payable semi-annually, commencing in August 2023

(b) These notes are a further issuance of the 4.875% notes issued in February 2023

(d) These notes are a further issuance of the 5.125% notes issued in February 2023

(e) These notes are a further issuance of the 5.375% notes issued in February 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.

PMI used a portion of the May 2023 net proceeds to pay the remaining cash consideration due in accordance with the terms of its agreement with Altria.

For further details on our agreement with Altria, see Note 2.

Acquisitions .

The remaining net proceeds of the February and May 2023 offerings have been or will be used for general corporate purposes.

Guarantees – At June 30, 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.

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Contingencies to our condensed consolidated financial statements.

Swedish Match Notes Consent Solicitation and PMI Guarantee

On June 15, 2023, our wholly owned subsidiary, Swedish Match AB ("Swedish Match"), initiated a public consent solicitation of eligible holders of certain outstanding series of its notes to amend certain terms and conditions of these respective notes.

As consideration for the noteholders consenting to these amendments, it was further proposed that Swedish Match procures a guarantee from Philip Morris International Inc.

to guarantee Swedish Match’s payment obligations under these notes.

As of June 30, 2023, Swedish Match’s obligations under its outstanding notes are included in our consolidated financial statements.

The Swedish Match eligible noteholders have provided the requisite irrevocable consent instructions voting in favor of the amendments, which we expect to be passed by way of extraordinary resolution at the noteholders’ meeting scheduled for July 28, 2023.

Equity and Dividends

We discuss our stock awards as of March 31, 2023 in Note 4.

We discuss our stock awards as of June 30, 2023 in Note 4.

Stock Plans to our condensed consolidated financial statements.

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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.

Dividends paid in the first six months of 2023 were $4.0 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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Our key strategic priorities are to:

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

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

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

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

For our efforts to be successful, we must:

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

• 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;

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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.

Substantive decisions based on these reports were deferred to the Tenth Session of the CoP ("CoP 10"), currently scheduled to take place in November of 2023.

In May 2023, the WHO’s Executive Board noted the report summarizing the eleventh meeting of the WHO Study Group on Tobacco Products Regulation ("TobReg").

The full report from this meeting is not yet published.

In June 2023, during the virtual press conference on global health issues, the WHO Director General called on governments to strictly regulate nicotine-containing products, like e-cigarettes.

It is not possible to predict whether or to what extent these developments will be reflected in the WHO’s reports to CoP 10, for which documents relating thereto are expected to be published in September 2023 (at least 60 days before CoP 10).

The WHO’s reports are not binding on the WHO Member States nor on parties to the FCTC

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.

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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.

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.

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, 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 RRPs will be equally taxed in line with other tobacco products such as ordinary cigarettes.

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and accordingly 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 under which 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.

This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking, 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 in this Form 10-Q .

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Furthermore, our volume and profitability may be adversely affected in these markets.

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."

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 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.

Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or preventing the use of tobacco or nicotine-containing 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 cross-border purchases.

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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.

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.

If implemented, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings.

In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments.

In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty

as a result of such developments.

Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.

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This could subject us to the risks of local currency devaluation and business disruption.

Disruptions in the credit markets or changes to our credit ratings may adversely affect our business.

We currently generate significant cash flows from ongoing operations and have access to global credit markets through our various short- and long term financing activities.

Our financial performance, credit ratings, interest rates, the stability of financial institutions with which we partner, geopolitical or national developments, the stability and liquidity of the credit markets and the state of the global economy could affect the availability and cost of financing.

Disruption in the credit markets, limitations on our ability to borrow or a downgrade of our current credit rating could increase our future borrowing costs which could materially and adversely affect our financial condition and results of operations.

In addition, tighter or more volatile credit markets may lead to business disruptions for certain of our suppliers, contract manufacturers or trade customers which could, in turn, adversely impact our business, results of operations, cash flow and financial condition.

Risks Related to the Impact of the War in Ukraine on our Business

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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.

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.

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 or otherwise, including the possibility of legal action against us or our employees;

the deprivation of rights in, or access to, our Russian assets;

or nationalization of foreign businesses or assets (including cash reserves held in Russia and intangible assets such as trademarks), is impossible to predict.

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.

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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, 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.

Factors beyond our control, such as, without limitation, natural disasters, extreme weather events, pandemics (including COVID-19), 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.

For example, the global pandemic outbreak of the COVID-19 virus in 2020 created significant societal and economic disruption and the closure of stores, factories and offices, restrictions on manufacturing, distribution and travel, and supply chain disruptions, among other impacts.

Such developments – including the impact on energy prices and availability in the EU and elsewhere resulting from the invasion of Ukraine by Russia – could cause significant volume declines in our duty-free business and certain other key markets, disrupt or delay our manufacturing and supply chains, increase currency volatility, 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 business, operations, volumes, revenue, cash flows, financial position, net earnings and profitability.

We discuss additional risks associated with Russia's invasion of Ukraine and climate change, above.

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.

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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.

In recent periods, increased inflation has and may continue to lead to growing pressures on the cost of certain direct materials, wages, energy, transportation, and logistics as well as an increased cost of capital due to interest rate increases driven by the response to increased inflation.

Increasing inflationary pressures may also negatively impact consumer purchasing power, which could result in reduced demand for our products.

If we are unable to increase our prices or take other actions to mitigate the effect of increasing inflationary pressures, our profitability and financial position could be negatively impacted.

We expect inflation to remain elevated through 2023.

unable to increase our prices sufficiently or take other actions to mitigate the effect of increasing inflationary pressures, our profitability and financial position could be negatively impacted.

Risks Related to Legal Challenges and Investigations

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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, antitrust, 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 with the public.

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 are subject to highly competitive conditions in all aspects of our business.

We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs.

We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail

price and, increasingly, adult smoker willingness to convert to our RRPs.

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.

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Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

In addition to economic uncertainty (including recessions and inflation) unusual weather events and global or local epidemics, endemics or pandemics (such as COVID-19) 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.

Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our margins through higher pricing and improvements in our brand and geographic mix.

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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.

relationships will be accretive to earnings or improve our competitive position.

In addition, we may not have a controlling position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.

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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 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.

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 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 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

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Risks Related to Cybersecurity and Data Governance

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 are significantly dependent on our and third party information technology networks and systems, and a cybersecurity incident or attack against those networks or systems may adversely impact our business and operations.

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;

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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.

unauthorized attempts to corrupt or extract data;

security vulnerabilities;

misconfigurations;

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.

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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;

result in litigation and regulatory

action including significant fines or penalties;

impact our operations;

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implement appropriate technological and reasonable security measures;

implement and maintain appropriate safeguards for personal data being transferred internationally;

respect the privacy rights of data subjects;

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("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.

As previously disclosed in this Form 10-Q, since 2021, we acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and subsequently 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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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 acquired in the Acquisitions may have liabilities that are not known to us.

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.

There is no assurance 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.

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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 acquired.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis