What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 457 added, 418 removed, 1462 unchanged (37% of the section changed)

19 unchanged sentences

Our portfolio comprises both international and local brands.

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

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

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

4 unchanged sentences

IQOS is the leading brand in our SFPs portfolio.

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

As of September 30, 2023, our smoke-free products were available for sale in 82 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.

11 unchanged sentences

covering IQOS as of April 30, 2024.

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

Thereafter, PMI will hold 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.

20 unchanged sentences

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

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.

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

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

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

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

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

Production at our factory in Kharkiv remains suspended.

1 unchanged sentence

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.

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 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).

As of September 30, 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.

This includes regulatory constraints in the market entailing very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities, and restrictions resulting from international regulations.

In the event of a divestment, our ability to fully realize the value of the business would likely be subject to material impairment.

As of September 30, 2023, our Russian operations had approximately $2.4 billion in total assets, excluding intercompany balances, of which approximately $0.7 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.

4 unchanged sentences

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.

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.

Consolidated Operating Results for the Nine Months Ended September 30, 2023

• Net Revenues - Net revenues of $26.1 billion for the nine months ended September 30, 2023 increased by $2.5 billion, or 10.7%, 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:

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 7.4%, 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:

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 increase was partly offset by lower fees for certain distribution rights billed to customers in certain markets and a charge to net revenues in 2023 of $80 million following the termination of a distribution arrangement in the Middle East, both shown in "Other".

The termination of a distribution arrangement in the Middle East is further described in the following " Diluted Earnings Per Share " discussion.

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

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

Diluted EPS % Change

For the six months ended June 30, 2022 $ 2.93

For the nine months ended September 30, 2022 $ 4.27

2022 Charges related to the war in Ukraine 0.07

1 unchanged sentence

2022 Amortization of intangibles 0.06

2022 Impairment of goodwill and other intangibles 0.06

2022 Costs associated with Swedish Match AB offer 0.13

1 unchanged sentence

Subtotal of 2022 items 0.32

2023 Charges related to the war in Ukraine (0.01)

2023 Asset impairment and exit costs (0.06)

2023 South Korea indirect tax charge (0.11)

2023 Termination of agreement with Foundation for a Smoke-Free World (0.07)

2023 Fair value adjustment for equity security investments 0.02

3 unchanged sentences

2023 Swedish Match AB acquisition accounting related item (0.01)

2023 Tax benefit associated with Swedish Match AB financing 0.06

2023 Income tax impact associated with Swedish Match AB financing (0.03)

2023 Tax items (0.11)

4 unchanged sentences

Operations 0.65

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 the nine months ended September 30, 2023 $ 3.61 (15.5) %

Charges related to the war in Ukraine – During the nine months ended September 30, 2022, we recorded a pre-tax charge of $128 million (representing $109 million net of income tax and a diluted EPS charge of $0.07 per share), related to circumstances driven by the war, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts.

During the nine months ended September 30, 2023, we recorded a pre-tax charge of $19 million (representing $15 million net of income tax and a diluted EPS charge of $0.01 per share), related to circumstances driven by the war, including the cost of PMI’s humanitarian efforts.

For further details, see Note 3.

War in Ukraine .

Fair value adjustment for equity security investments – During the 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).

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 six months ended June 30, 2022.

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.

Fair value adjustment for equity security investments – During the nine months ended September 30, 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $47 million after tax (or $0.03 per share decrease in diluted EPS).

During the nine months ended September 30, 2023, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $41 million after tax (or $0.02 per share increase in diluted EPS).

The fair value adjustment for our equity security investments was included in equity investments and securities (income)/loss, net ($52 million gain) and provision for income taxes ($11 million provision) on the condensed consolidated statements of earnings for the nine months ended September 30, 2023.

For further details, see Note 14.

Related Parties - Equity Investments and Other .

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.

Amortization of intangibles – During the nine months ended September 30, 2022, we recorded amortization of intangibles expense of $101 million (representing $84 million net of income tax or $0.06 per share decrease in diluted EPS).

During the nine months ended September 30, 2023, we recorded amortization of intangible expense of $368 million (representing $285

million net of income tax or $0.18 per share decrease in diluted EPS).

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

1 unchanged sentence

Goodwill and Other Intangible Assets, net .

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.

Impairment of goodwill and other intangibles – During the nine months ended September 30, 2022, we recorded an impairment charge related to definite-lived intangible assets of $112 million (representing $98 million net of income tax and a diluted EPS charge of $0.06 per share) reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

This impairment charge was recorded within cost of sales in the condensed consolidated statements of earnings for the nine months ended September 30, 2022.

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 during the nine months ended September 30, 2023 and was included in the Wellness and Healthcare segment results.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

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

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

Asset impairment and exit costs – During the nine months ended September 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 .

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.

South Korea indirect tax charge – 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.

3 unchanged sentences

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.

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 agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement").

Under the terms of the Agreement, PMI paid $140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties.

As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $140 million (representing $111 million net of income tax or $0.07 per share decrease in diluted EPS) commensurate with the early termination of the pledge agreement.

The pre-tax charge was recorded in marketing, administration and research costs in the condensed consolidated statements of earnings during the nine months ended September 30, 2023.

For further details, see "Other Developments" within the Business Environment section of this MD&A.

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 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.

Swedish Match AB acquisition accounting related item – During the nine months ended September 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 nine months ended September 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 $0.06 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.

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

The 2023 Income tax impact associated with Swedish Match financing that decreased our 2023 diluted EPS by $0.03 per share in the table above was due to a deferred tax cost for unrealized foreign currency gains 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 September 30, 2023.

The 2023 tax items that decreased our 2023 diluted EPS by $0.11 per share in the table above were due to an increase in deferred tax liabilities related to the unremitted earnings of PMI's Russian subsidiaries due to the unilateral suspension of certain Russian double tax treaties by the Russian authorities on August 8, 2023, with respect to certain payments including dividends.

The change in the tax rate that increased our diluted EPS by $0.02 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.43 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.

dollar, especially against the Argentine peso, Egyptian pound, Japanese yen, Russian ruble and Swiss franc.

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

4 unchanged sentences

• EA, AU & PMI DF:

Favorable volume/mix and lower supply chain costs;

Favorable volume/mix, favorable pricing 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 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;

• SSEA, CIS & MEA:

Higher marketing, administration and research costs, higher manufacturing 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;

• Wellness and Healthcare:

Primarily reflecting investments in research and development.

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.

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

• Net Revenues - Net revenues of $9.1 billion for the three months ended September 30, 2023 increased by $1.1 billion, or 13.8%, 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 9.3%, 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 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:

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

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

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

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended September 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

For the three months ended September 30, 2022 $ 1.34

2022 Amortization of intangibles 0.02

2022 Impairment of goodwill and other intangibles 0.06

2022 Costs associated with Swedish Match AB offer 0.11

1 unchanged sentence

Subtotal of 2022 items 0.19

2023 South Korea indirect tax charge (0.11)

2023 Charges related to the war in Ukraine (0.01)

2023 Fair value adjustment for equity security investments 0.03

2023 Amortization of intangibles (0.10)

2023 Impairment of goodwill and other intangibles (0.44)

2023 Tax benefit associated with Swedish Match AB financing 0.01

2023 Termination of agreement with Foundation for a Smoke-Free World (0.07)

2023 Income tax impact associated with Swedish Match AB financing (0.09)

2023 Tax items (0.11)

4 unchanged sentences

Operations 0.39

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 the three months ended September 30, 2023 $ 1.32 (1.5) %

Amortization of intangibles – During the third quarter of 2022, we recorded amortization of intangible expense of $27 million (representing $21 million net of income tax or $0.02 per share decrease in diluted EPS).

During the third quarter of 2023, we recorded amortization of intangibles expense of $205 million (representing $157 million net of income tax or $0.10 per share decrease in diluted EPS).

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.

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.

Goodwill and Other Intangible Assets, net .

Impairment of goodwill and other intangibles – During the third quarter of 2022, we recorded an impairment charge related to definite-lived intangible assets of $112 million (representing $98 million net of income tax and a diluted EPS charge of $0.06 per share) reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

This impairment charge was recorded within cost of sales in the condensed consolidated statements of earnings.

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.

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.

Costs associated with Swedish Match AB offer – During the third quarter of 2022, we incurred pre-tax costs associated with the Swedish Match offer of $227 million (representing $173 million net of income tax and a diluted EPS charge of $0.11 per share) primarily related to financing costs, derivative financial instruments and certain transaction related costs.

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

Charges related to the war in Ukraine – During the third quarter of 2023, we recorded a pre-tax charge of $19 million (representing $15 million net of income tax and a diluted EPS charge of $0.01 per share), related to circumstances driven by the war, including the cost of PMI’s humanitarian efforts.

For further details, see Note 3.

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.

War in Ukraine .

Fair value adjustment for equity security investments – During the third quarter of 2023, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $51 million after tax (or $0.03 per share increase in diluted EPS).

The fair value adjustment for our equity security investments was included in equity investments and securities (income)/loss, net ($65 million gain) and provision for income taxes ($14 million provision) on the condensed consolidated statements of earnings for the three months ended September 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.

Under the terms of the Agreement, PMI paid $140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties.

The pre-tax charge was recorded in marketing, administration and research costs in the condensed consolidated statements of earnings during the three months ended September 30, 2023.

For further details, see "Other Developments" within the Business Environment section of this MD&A.

Income taxes – The 2023 Income tax impact associated with Swedish Match financing that decreased our 2023 diluted EPS by $0.09 per share in the table above was due to a deferred tax cost for unrealized foreign currency gains 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 September 30, 2023.

The change in the tax rate that decreased our diluted EPS by $0.02 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.17 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.

dollar, especially against the Argentine peso, Egyptian pound, Japanese yen and Russian ruble.

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

1 unchanged sentence

Operations – The increase in diluted EPS of $0.39 from our operations in the table above was due primarily to the following segments:

• Swedish Match:

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

• EA, AU & PMI DF:

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;

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

• SSEA, CIS & MEA:

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

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

partially offset by

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

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

7 unchanged sentences

See pages 106 - 117 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 Six Months Ended June 30, For the Three Months Ended June 30,

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

2023 2022 2023 2022

21 unchanged sentences

PMI Net Revenues by Product Category

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

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

2023 2022 Change 2023 2022 Change

24 unchanged sentences

• 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.

Goodwill and Other Intangible Assets, net for the details of the $680 million goodwill and non-amortizable intangible assets impairment charges included in the Wellness and Healthcare segment for the nine months ended September 30, 2023.

For the nine months and three months ended September 30, 2022, PMI recorded an impairment charge related to definite-lived intangible assets of $112 million.

This charge was included in the Wellness and Healthcare segment.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

• 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.

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

• 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.

• Charges related to the war in Ukraine – In the third quarter of 2023, PMI recorded a pre-tax charge of $19 million related to the war in Ukraine.

This charge was included in the condensed consolidated statements of earnings and was included in the Europe segment for the nine months and three months ended September 30, 2023.

For the nine months and three months ended September 30, 2022, PMI recorded a pre-tax charge of $128 million and $6 million, respectively.

These charges were included in the condensed consolidated statements of earnings and were included in the Europe segment for the nine months and three months ended September 30, 2022.

For further details, see Note 3.

War in Ukraine.

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

Acquisitions for details of the $18 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish Match segment for the six months ended June 30, 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 six months ended June 30, 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 nine months ended September 30, 2023, as well as a breakdown of these costs by segment.

• Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement").

Under the terms of the agreement, PMI paid $140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties.

As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $140 million commensurate with the early termination of the pledge agreement.

The pre-tax charge was recorded in marketing, administration and research costs in the condensed consolidated statements of earnings during the nine months and three months ended September 30, 2023 and was included in the operating results of the following segments for both of these periods:

Europe ($62 million);

SSEA, CIS & MEA ($44 million);

EA, AU & PMI DF ($27 million);

and Americas ($7 million).

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.

17 unchanged sentences

Consolidated Shipment Volume

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

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

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

13 unchanged sentences

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).

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

HTUs also include zero tobacco heat-not-burn consumables ( LEVIA ).

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.

7 unchanged sentences

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

In such instances, in addition to reviewing PMI shipment volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements.

In such instances, in addition to reviewing PMI shipment

volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements.

Management also believes that disclosing PMI shipment volumes and estimated total industry/market volumes in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

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

24 unchanged sentences

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

For the Three Months Ended June 30,

For the Three Months Ended September 30,

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

31 unchanged sentences

Q2, 2023 (39.2%)

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.

Consolidated Operating Results for the Nine Months Ended September 30, 2023

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

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs decreased by 1.6% in the first nine months, reflecting declines in the SSEA, CIS & MEA Region, the Europe Region and the Americas Region, partly offset by an increase in the EA, AU & PMI DF Region, as described in the Regional sections of this MD&A.

For the full year 2023, we currently expect an estimated total international industry volume decline for cigarettes and HTUs, excluding China and the U.S., of 1.5% to 2.0%.

Shipment Volume

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).

Our total cigarette and HTU shipment volume increased by 1.5%, reflecting an 18.3% increase in HTU shipments across all regions, partly offset by a 1.3% decline in cigarette shipments (due to the Europe, EA, AU & PMI DF, and Americas Regions, partly offset by the SSEA, CIS & MEA Region).

Cigarette shipment volume for Marlboro decreased by 2.3% to 179.8 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 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;

For comparison purposes, assuming the inclusion of Swedish Match's first nine months 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 14.4%, 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 15.4% versus its corresponding shipments in the first nine months of 2022.

Volume comparisons versus Swedish Match's first nine 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 1.0% to 1.5%.

• HTU shipment volume within the lower half of PMI's previous 125-to-130-billion-unit range, reflecting the impact of a further delayed market launch in Taiwan, very limited growth in Russia and Ukraine, as well as some uncertainty related to inventory levels in the Europe Region, as trade partners adjust to the upcoming HTU flavor ban in the EU;

• A cigarette shipment volume decline of approximately 1.0% to 2.0%;

For the full year 2023, we also expect nicotine pouch shipment volume of 390 to 410 million cans, reflecting the continued outstanding growth of ZYN in the U.S.

Impact of Inventory Movements

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

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 0.9%, reflecting 12.8% growth for HTUs, partly offset by a decline of 1.1% for cigarettes.

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

Adjusted in-market sales for HTUs increased by 15.2%, including growth in Europe of 19.3% and Japan of 14.9%.

Excluding Russia and Ukraine, adjusted in market sales for HTUs increased by 17.9%.

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

Six Months Year-to-Date

Nine Months Year-to-Date

2023 2022 Change (pp)

8 unchanged sentences

Financial Summary

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

11 unchanged sentences

(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 2022 of $46 million related to the war in Ukraine.

(2) Cost/Other variance includes charges in 2023 of $11 million related to the war in Ukraine, more than offset by charges in 2022 of $112 million related to an impairment charge of other intangible assets and $46 million related to the war in Ukraine.

For more details, see Note 3.

War in Ukraine .

(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 and Note 6.

Goodwill and Other Intangible Assets, net .

(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, an impairment charge for goodwill and other intangibles of $680 million, the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million, and $8 million related to the war in Ukraine, partially offset by charges in 2022 of $82 million related to the war in Ukraine and $269 million related to costs associated with the Swedish Match AB offer.

For more details, see Note 3.

War in Ukraine , Note 6.

2 unchanged sentences

Asset Impairment and Exit Costs.

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

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 7.4%, 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.

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, partially offset by the Mexican peso.

Net revenues include $9.3 billion in 2023 and $7.3 billion in 2022 related to smoke-free products.

1 unchanged sentence

Operating income, excluding currency and acquisitions, decreased by 5.1%, primarily reflecting:

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.

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, the South Korea indirect tax charge of $204 million and the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million, partly offset by the 2022 charges of $128 million related to the war in Ukraine, the 2022 costs associated with the Swedish Match AB offer of $269 million and $112 million related to an impairment charge of other intangible assets in 2022.

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

1 unchanged sentence

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.

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.

and the impact of lower fees for certain distribution rights, as noted for net revenues, partially offset by a favorable pricing variance.

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

Amortization expense for each of the next five years is estimated to be approximately $460 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

This estimate is subject to change based on the finalization of the preliminary purchase price allocation of the Swedish Match acquisition.

Additionally, the estimated future amortization expense could significantly increase following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc (see Note 2, Acquisitions ), the accounting for which will depend on the facts and circumstances effective May 1, 2024, when PMI will hold the full rights.

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 the nine months ended September 30, 2023, this impact was approximately $500 million.

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

4 unchanged sentences

Net earnings attributable to PMI of $5.6 billion decreased by $1.0 billion or 15.5%.

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

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

Basic and diluted EPS of $3.61 decreased by 15.7% and 15.5%, respectively.

Excluding an unfavorable currency impact of $0.43, diluted EPS decreased by 5.4%.

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.

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

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

During the quarter, estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs decreased by 2.3% in the third quarter, reflecting declines in the South & Southeast Asia, Commonwealth of Independent States, and Middle East & Africa (SSEA, CIS & MEA) Region, the Europe Region and the Americas Region, partly offset by an increase in the East Asia, Australia & PMI Duty Free (EA, AU & PMI DF) Region, as described in the Regional sections of this MD&A.

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).

Our total cigarette and HTU shipment volume increased by 2.2%, reflecting an 18.0% increase in HTU shipments across all regions, partly offset by a 0.5% 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 1.6% to 63.0 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.

For comparison purposes, assuming the inclusion of Swedish Match's third quarter 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 19.4%, 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 20.5% versus its corresponding shipments in the third quarter of 2022.

Volume comparisons versus Swedish Match's third 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.

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 0.8%, reflecting 10.2% growth for HTUs, partly offset by a decline of 0.7% for cigarettes.

The net favorable impact of estimated distributor inventory movements for HTUs was driven primarily by Japan (primarily reflecting the shift from air to sea freight).

Adjusted in-market sales for HTUs increased by 14.4%, including growth in Europe of 16.1%, Japan of 11.7% and limited growth in Russia and Ukraine;

excluding these two markets, adjusted in-market sales for HTUs increased by 15.7%.

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

Second-Quarter

Third-Quarter

2023 2022 Change (pp)

8 unchanged sentences

Financial Summary

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

9 unchanged sentences

Operating Income $ 3,370 $ 2,968 13.5 % 18.5 % $ 402 $ (287) $ 140 $ 513 $ 66 $ (30)

(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.

(1) Cost/Other variance includes charges in 2023 of $11 million related to the war in Ukraine, partially offset by charges in 2022 of $112 million related to an impairment charge of other intangible assets.

For more details, see Note 3.

War in Ukraine, Note 6.

War in Ukraine and Note 6.

Goodwill and Other Intangible Assets, net .

Contingencies.

(2) Cost/Other variance includes charges in 2023 related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million, as well as $8 million of charges related to the war in Ukraine, more than offset by charges in 2022 of $6 million related to the war in Ukraine and $217 million in 2022 related to costs associated with the Swedish Match AB offer.

For more details, see Note 3.

War in Ukraine.

During the quarter, net revenues, excluding currency and acquisitions, increased by 9.3%, 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 HTU mix.

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

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

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

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

Net revenues include $3.3 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:

Operating income increased by 13.5%.

Operating income, excluding currency and acquisitions, increased by 18.5%, primarily reflecting:

the absence of the third quarter 2022 charges of $112 million related to an impairment charge of other intangible assets and the 2022 costs associated with the Swedish Match AB offer of $217 million, partly offset by the 2023 charges related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million.

In addition to these items, operating income was also favorably 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;

and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume 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 $261 million increased by $123 million or 89.1%, 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.

Our effective tax rate increased by 11.2 percentage points to 33.2%.

For further details, see Note 11.

1 unchanged sentence

Net earnings attributable to PMI of $2.1 billion decreased by $33 million or 1.6%.

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

This decrease was due primarily to a higher effective tax rate and higher interest expense, net, partly offset by higher operating income, as discussed above.

Basic and diluted EPS of $1.32 decreased by 1.5% and 1.5%, respectively.

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

Excluding an unfavorable currency impact of $0.17, diluted EPS increased by 11.2%.

Operating Results by Business Segment

21 unchanged sentences

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.

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).

Discussions on these reports have been postponed to the Tenth Session of the CoP ("CoP 10") to be held in November 2023.

In August 2023, the WHO Study Group on Tobacco Products Regulation issued its ninth report, including recommendations on nicotine pouches, in line with previous policy recommendations on regulating flavors in tobacco and nicotine products.

It is not possible to predict whether or to what extent these developments will be reflected in decisions adopted at CoP 10 following deliberations.

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.

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 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.

10 unchanged sentences

World Customs Organization Developments :

In 2020, the World Customs Organization (the “WCO”) amended the Harmonized System nomenclature to introduce dedicated custom codes for novel tobacco and nicotine products, including heated tobacco products, e-cigarettes and other nicotine-containing products.

In 2020, the World Customs Organization (the “WCO”) amended the Harmonized System ("HS") nomenclature to introduce dedicated custom codes for novel tobacco and nicotine products, including heated tobacco products, e-cigarettes and other nicotine-containing products.

The amendments became effective as of January 1, 2022.

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

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.

The vast majority of countries where our RRPs are commercialized have adopted the amended HS, creating new dedicated customs codes for novel tobacco and nicotine products.

EU Tobacco Products Directive ("TPD"):

15 unchanged sentences

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 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 proposal, after several delays, could be adopted by the College of Commissioners at the end of 2023 or beginning of 2024.

Depending on the adoption date by the College of Commissioners, the proposal will be discussed 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 potential effective date for any changes to TED, after the transposition in Member States' national legislation, is 2026.

15 unchanged sentences

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.

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.

Therefore, while we believe that short-term volatility is possible, including in year-end trade inventories, 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.

A majority of member states have transposed this directive, withdrawing the heated tobacco product exemption from the characterizing flavor ban into national law.

The remaining markets are expected to adopt this directive in 2024, and we will continue to actively monitor relevant developments in the EU market.

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

23 unchanged sentences

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

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

The resolution entered into force on March 28, 2023.

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

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

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.

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.

2 unchanged sentences

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 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.

The resolution entered into force on March 28, 2023.

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

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

7 unchanged sentences

The Dutch enforcement body declined the request, and the applicants have challenged such decision in pending legal proceedings in the Netherlands.

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

The case is currently pending before the Trade and Industry Appeals Tribunal in the Netherlands, and a decision is expected in the fourth quarter of 2023.

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

Illicit Trade:

20 unchanged sentences

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

The third funding round is ongoing.

The implementation of the grants assigned under the third funding round is ongoing.

Reduced-Risk Products (RRPs)

16 unchanged sentences

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.

We draw upon a team of expert scientists and engineers from a broad

spectrum of scientific disciplines and our extensive learnings of adult consumer preferences to further develop and assess our RRPs.

Our efforts are guided by the following key objectives:

51 unchanged sentences

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

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

As of September 30, 2023, PMI's smoke-free products were available for sale in 82 markets.

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

2 unchanged sentences

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 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.

3 unchanged sentences

as of April 30, 2024.

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.

Under this agreement, effective May 1, 2024, PMI will hold 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 30 million adults continue to smoke cigarettes.

1 unchanged sentence

• 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, 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.

• Since August 2020, we have launched and expanded our portfolio of vaping products (branded VEEV ) in 23 markets.

• 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.

Swedish Match nicotine pouches are currently available in 25 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.

13 unchanged sentences

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 an MRTP.

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

4 unchanged sentences

• scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals."

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

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

The FDA may issue two types of MRTP orders:

17 unchanged sentences

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.

On July 5, 2023, we submitted a renewal application to the FDA requesting re-authorization to market the IQOS products with a modified exposure order in the U.S.

This renewal request was received by the FDA 360 days prior to the expiration date of the original marketing orders, and in early September 2023, the FDA formally accepted our renewal MRTPAs for review.

As our application proceeds through the review process, the FDA may request additional information or conduct subsequent inspections to verify the information we submitted.

On October 20, 2023, we submitted bundled PMTAs for our IQOS ILUMA THS products together with MRTPAs requesting authorization of the exposure reduction marketing order previously granted for IQOS blade versions.

We submitted these applications at the same time in order to allow the FDA to evaluate the PMTAs and MRTPAs concurrently.

Some states and municipalities in the U.S.

4 unchanged sentences

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

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

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

Philip Morris Products S.A.

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

We have shared our views with the FDA on the application of the new warnings to our HTPs.

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

We shared our views with the FDA on the application of the new warnings to our HTPs.

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

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

Philip Morris Products S.A.

is not a party to this litigation.

was not a party to this litigation.

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

6 unchanged sentences

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 Algeria, 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.

54 unchanged sentences

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.

29 unchanged sentences

On October 20, 2022, PMI announced that it had reached an agreement with Altria to terminate the companies' commercial relationship covering IQOS in the U.S., as of April 30, 2024.

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

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

For more details, see Note 2.

6 unchanged sentences

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

The Foundation is an independent, nonprofit organization dedicated to reducing the health impacts of smoking as set out in its Articles of Incorporation and its Bylaws.

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 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.

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

The Foundation and PMI have now agreed to terminate the existing pledge agreement and PMI has made final grant payments totaling $140 million, commensurate with the early termination of the pledge agreement.

Governmental Investigations

7 unchanged sentences

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

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

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

(“PM Italia”), as well as three former or current employees and a former external consultant of PM Italia in July 2020 and March 2020, respectively, that it concluded a preliminary investigation against them for alleged contravention of anti-corruption laws and related disruption of trade freedom.

In December 2020, the

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

In July 2020, the Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l.

(“PM Italia”), as well as three former or current employees and a former external consultant of PM Italia in March 2020, that it concluded a preliminary investigation against them for alleged contravention of anti-corruption laws and related disruption of trade freedom.

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.

In September 2020, the Prosecutor issued his indictment and referred the matter to the court.

At the preliminary hearing held on May 11, 2021, the judge decided to refer all charges/defendants (including our affiliate) to trial.

The first trial hearing took place on September 22, 2021.

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.

After a series of postponements, on September 25, 2023, the court proceeded with the examination of the first witness, i.e., the former external consultant of PM Italia.

The court also set the calendar for the next hearings (11 in total), that began in October 2023 and will continue until May 2024, for the examination of the defendants, all remaining witnesses and experts.

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:

Like many other global companies, we have experienced inflationary pressures in 2022 and the first nine 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.

For the nine months ended September 30, 2023, this impact was approximately $500 million and we expect it to continue at least through the fourth quarter of 2023.

This impact has been, and we expect it to continue to be, significantly offset by the positive elements of pricing, productivities and the mitigating factors as we progress through the year.

The net result of the inflationary impacts and our efforts to mitigate these impacts were not material to PMI during these periods.

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.

3 unchanged sentences

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.

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.

40 unchanged sentences

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

In 2021 and 2022, the U.S., the EU, the U.K., Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions targets.

In 2021-2023, 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 U.K., Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls regarding Russia.

3 unchanged sentences

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

The potential application of the latter for goods other than military goods remains unclear.

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

1 unchanged sentence

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 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 U.S., the EU, Switzerland and Japan 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.

2 unchanged sentences

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.

The EU and Switzerland prohibited transfer and licensing of intellectual property rights in relation to restricted goods.

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.

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.

3 unchanged sentences

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

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.

Segment Operating Results – Three Months and Nine Months Ended September 30, 2023

The following discussion compares operating results within each of our segments for the three months and nine months ended September 30, 2023, with the three months and nine months ended September 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 June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

6 unchanged sentences

During the quarter, net revenues, excluding currency and acquisitions, increased by 6.1%, 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.

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

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

Operating income, excluding currency and acquisitions, increased by 11.9%, 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.

a favorable comparison to 2022 of $100 million related to costs associated with the Swedish Match AB offer, and a favorable pricing variance;

partly offset by higher marketing, administration and research costs (primarily due to inflationary impacts), as well as the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $62 million.

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

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 4,446 $ 4,447 — % (1.5) % $ (1) $ 64 $ — $ 353 $ (225) $ (193)

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.

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 1.9%, reflecting:

a favorable pricing variance, mainly driven by higher combustible tobacco pricing, partly offset by lower HTU (net) pricing (primarily in the first-half of 2023 related to the supplemental tax surcharge in Germany) and lower device pricing;

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

The pricing variance for the full year 2022 and the first nine 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.

6 unchanged sentences

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.

higher manufacturing costs (primarily due to inflationary impacts);

the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($62 million) and the 2023 charges for asset impairment and exit costs ($49 million), partly offset by the favorable pricing variance, lower charges in 2023 related to the war in Ukraine ($109 million) and a favorable comparison to 2022 costs associated with the Swedish Match AB offer ($124 million).

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

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

In the third quarter, the estimated total market for cigarettes and HTUs in the Region decreased by 2.9% to 146.3 billion units, reflecting a 4.5% decline for cigarettes, partly offset by a 13.9% increase for HTUs.

The decrease in the estimated total market was notably due to France (down by 10.6%), Germany (down by 4.7%) and the UK (down by 17.6%).

For the nine months year-to-date, the estimated total market for cigarettes and HTUs in the Region decreased by 1.4% to 411.6 billion units, reflecting a 3.2% decline for cigarettes, partly offset by a 16.6% increase for HTUs.

The decrease in the estimated total market was notably due to the Czech Republic (down by 9.0%), France (down by 8.4%), Germany (down by 2.3%) and the UK (down by 15.1%).

Europe Key Data Third-Quarter Nine Months Year-to-Date

Change Change

5 unchanged sentences

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.

In the third quarter, our total cigarette and HTU shipment volume in the Region decreased by 0.8% to 56.5 billion units, mainly due to France (down by 22.5%;

or by 12.9% excluding the net unfavorable impact of estimated distributor inventory movements) and Germany (down by 5.4%), partly offset by Italy (up by 4.0%;

or down by 0.5% excluding the net favorable impact of estimated distributor inventory movements) and Ukraine (up by 16.4%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 16.1% in the quarter, reflecting the strong continued growth momentum for IQOS (including in Poland, where adjusted in-market sales volume for HTUs increased by 11.7%).

Our HTU share of the total cigarette and HTU market in the Region increased by 1.1 points, or by 1.3 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.

For the nine months year-to-date, our total cigarette and HTU shipment volume in the Region decreased by 1.6% to 161.2 billion units, mainly due to Germany (down by 6.0%, or by 1.5% excluding the net unfavorable impact of estimated wholesaler inventory movements) and Italy (down by 5.1%;

or by 0.5% excluding the net unfavorable impact of estimated distributor inventory movements), partly offset by Poland (up by 9.0%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 19.3% in the first nine months, including growth in Germany and Italy of 33.6% and 16.3%, respectively.

Our HTU share of the total cigarette and HTU market in the Region increased by 1.3 points, or by 1.5 points on an adjusted basis.

1 unchanged sentence

Financial Summary

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

6 unchanged sentences

During the quarter, net revenues, excluding currency and acquisitions, increased by 12.6%, primarily reflecting:

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

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

Operating income, excluding currency and acquisitions, decreased by 0.2%, primarily reflecting:

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

and favorable volume/mix, primarily driven by favorable cigarette mix.

Operating income, excluding currency and acquisitions, increased by 1.9%, primarily reflecting:

the favorable pricing variance and a favorable comparison to 2022 costs associated with the Swedish Match AB offer of $61 million, largely offset by higher marketing, administration and research costs;

higher manufacturing costs (primarily due to inflationary impacts);

higher marketing, administration and research costs;

and unfavorable volume/mix, mainly due to cigarettes;

partly offset by the favorable pricing variance.

and unfavorable volume/mix, mainly due to an unfavorable cigarette volume impact and unfavorable cigarette mix;

as well as the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $44 million.

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 2,371 $ 3,009 (21.2) % (6.3) % $ (638) $ (448) $ — $ 751 $ (188) $ (753)

For the six months ended June 30, 2023, net revenues, excluding currency and acquisitions, increased by 10.4%, primarily reflecting:

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 11.2%, 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.

and favorable volume/mix, primarily driven by favorable cigarette mix, as well as higher volume for HTUs and devices, partly offset by an unfavorable cigarette volume impact;

partially offset by the 2023 termination of a distribution arrangement in the Middle East of $80 million 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 6.3%, 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;

the termination of a distribution arrangement, as noted for net revenues, higher marketing, administration and research costs;

higher manufacturing costs (primarily due to inflationary impacts);

unfavorable volume/mix, mainly due to an unfavorable cigarette volume impact

and unfavorable cigarette mix, 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.

as well as the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $44 million and the 2023 charges for asset impairment and exit costs ($34 million);

partially offset by the favorable pricing variance and a favorable comparison to 2022 costs associated with the Swedish Match AB offer of $76 million.

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

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%).

In the third 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 Bangladesh (down by 7.3%), Egypt (down by 29.3%), Indonesia (down by 3.9%), Pakistan (down by 28.5%) and the Philippines (down by 19.4%), partly offset by Turkey (up by 24.3%).

For the nine 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 20.6%), Indonesia (down by 5.0%), Pakistan (down by 37.8%) and the Philippines (down by 20.4%), partly offset by Turkey (up by 18.0%).

In the third quarter, our total cigarette and HTU shipment volume in the Region increased by 3.4% to 95.5 billion units, mainly driven by Egypt (up by 28.0%) and Turkey (up by 27.6%), partly offset by the Philippines (down by 26.6%).

For the nine months year-to-date, our total cigarette and HTU shipment volume in the Region increased by 1.6% to 267.7 billion units, mainly driven by Algeria (up by 24.1%), Egypt (up by 19.3%) and Turkey (up by 24.5%), partly offset by Indonesia (down by 3.9%), Pakistan (down by 44.3%) and the Philippines (down by 26.4%).

EA, AU & PMI DF:

Financial Summary

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

7 unchanged sentences

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).

and a favorable pricing variance, driven by higher combustible tobacco pricing.

Operating income, excluding currency and acquisitions, increased by 54.0%, 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.

lower supply chain costs (primarily related to Japan);

and a favorable comparison to 2022 costs associated with the Swedish Match AB offer ($45 million);

partly offset by the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($27 million).

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 1,920 $ 1,746 10.0 % 27.9 % $ 174 $ (313) $ — $ 73 $ 459 $ (45)

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.

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 15.0%, 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);

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

Operating income, excluding currency and acquisitions, increased by 27.9%, mainly reflecting favorable volume/mix, primarily driven by higher HTU volume and the favorable impact on profitability of lower device volume, partly offset by lower cigarette volume and unfavorable HTU mix;

the favorable pricing variance;

lower supply chain costs (primarily related to Japan);

a favorable comparison to 2022 costs associated with the Swedish Match AB offer ($56 million);

partly offset by the 2023 charge related to the South Korea indirect tax ($204 million), the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($27 million) and the 2023 charges for asset impairment and exit costs ($21 million).

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

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.

In the third quarter, the estimated total market for cigarettes and HTUs in the Region, excluding China, increased by around 1%, reflecting growth for HTUs, largely offset by a decline for cigarettes.

The increase in the estimated total market was mainly driven by International Duty Free (up by 35.7%), partly offset by Japan (down by 1.0%) and South Korea (down by 3.0%).

For the nine 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 International Duty Free (up by 40.0%), partly offset by Australia (down by 14.9%), South Korea (down by 1.3%) and Taiwan (down by 4.2%).

In the third quarter, our total cigarette and HTU shipment volume in the Region increased by 11.4% to 26.0 billion units, mainly driven by Japan (up by 17.6%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 14.1% in the quarter, including growth in Japan of 11.7%.

For the nine months year-to-date, our total cigarette and HTU shipment volume in the Region increased by 11.8% to 78.0 billion units, mainly driven by Japan (up by 19.0%) and International Duty Free (up by 12.0%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 16.0% in the first nine months, including growth in Japan of 14.9%.

Financial Summary

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

9 unchanged sentences

Operating income, excluding currency and acquisitions, decreased by 49.4%, 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;

and higher marketing, administration and research costs (including incremental investments in the U.S.

in preparation for smoke-free product commercialization);

partly offset by the favorable pricing variance.

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 141 $ 336 (58.0) % (36.0) % $ (195) $ (74) $ — $ 94 $ (84) $ (131)

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.

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, decreased by 2.1%, 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 36.0%, 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;

higher marketing, administration and research costs (notably reflecting the same factors as in the quarter);

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 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 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%).

In the third 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 Argentina (down by 13.1%), Canada (down by 13.9%) and Mexico (down by 4.7%), partly offset by Brazil (up by 11.3%).

For the nine months year-to-date, the estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by around 1%, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Argentina (down by 3.9%), Canada (down by 12.9%) and Mexico (down by 6.0%), partly offset by Brazil (up by 9.6%).

In the third quarter, our total cigarette and HTU shipment volume in the Region decreased by 7.3% to 15.6 billion units, mainly due to Argentina (down by 15.8%) and Mexico (down by 7.8%), partly offset by Brazil (up by 7.5%).

For the nine months year-to-date, our total cigarette and HTU shipment volume in the Region decreased by 3.4% to 46.2 billion units, mainly due to Argentina (down by 6.9%) and Mexico (down by 9.1%), partly offset by Brazil (up by 12.7%).

Swedish Match:

1 unchanged sentence

The business operations of our Swedish Match segment are evaluated separately from the geographical segments.

The third quarter 2023 results of PMI's Swedish Match segment include the impact of financial statement presentation reclassifications recorded on a year-to-date basis primarily associated with the alignment of accounting policies related to the company's post-acquisition evaluation of sales incentives, excise taxes and acquired contracts.

Net revenues were unfavorably impacted by these reclassifications, some of which are associated with the first and second quarter of 2023.

These reclassifications were not material to the condensed consolidated results of the current period or the period in which they relate.

Financial Summary

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 140 $ — — % — % $ 140 $ — $ 140 $ — $ — $ —

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 $264 million in the second quarter.

We recorded net revenues of $568 million in the Swedish Match segment for the quarter.

We recorded operating income of $140 million in the third quarter.

This included $175 million related to the amortization of acquired intangibles.

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 597 $ — — % — % $ 597 $ — $ 597 $ — $ — $ —

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.

For the nine months ended September 30, 2023, we recorded net revenues of $1.8 billion in the Swedish Match segment, with smoke-free products accounting for over 80% of the segment's total net revenues.

We recorded operating income of $597 million for the nine months ended September 30, 2023.

This included $274 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)

Second-Quarter Six Months Year-to-Date

Third-Quarter Nine Months Year-to-Date

Nicotine Pouches 2023 2022 Change 2023 2022 Change

10 unchanged sentences

(1) Excluding U.S.

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

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

2023 2022 Change 2023 2022 Change

Cigars 334.3 — — % 1,241.4 — — %

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.

For comparison purposes, the following commentaries assumed the inclusion of Swedish Match's third quarter and first nine 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.

Third-Quarter

Swedish Match's total shipment volume for oral products increased by 20.5% versus its corresponding shipments of 170.0 million cans in the third quarter of 2022.

Nicotine pouch shipment volume increased by 58.8% compared to Swedish Match's third-quarter 2022 shipment volume of 71.9 million cans, mainly driven by 65.7% growth for ZYN in the U.S.

In Scandinavia, shipment volume for nicotine pouches grew by 2.8%.

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.

Shipment volume for snus declined by 11.6% compared to Swedish Match's third-quarter 2022 shipment volume of 64.0 million cans.

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

Cigar shipment volume declined by 21.3% compared to Swedish Match's third-quarter 2022 cigar shipment volume of 424.6 million units, primarily due to the impact of industry pricing effects.

Nine Months Year-to-Date

Swedish Match's total shipment volume for oral products increased by 15.4% versus its corresponding shipments of 491.9 million cans in the first nine months of 2022.

Nicotine pouch shipment volume increased by 50.3% compared to Swedish Match's September year-to-date 2022 shipment volume of 195.4 million cans, reflecting 55.9% growth for ZYN in the U.S.

In Scandinavia, shipment volume for nicotine pouches grew by 7.1%.

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.

Shipment volume for snus declined by 12.4% compared to Swedish Match's September year-to-date 2022 shipment volume of 191.7 million cans.

Swedish Match's performance in the September year-to-date period 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 7.3% compared to Swedish Match's September year-to-date 2022 cigar shipment volume of 1,339.7 million units, mainly due to the same factor as in the quarter.

Wellness and Healthcare:

2 unchanged sentences

Financial Summary

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (37) $ (151) 75.5 % 74.8 % $ 114 $ 1 $ — $ 15 $ — $ 98

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.

During the quarter, net revenues, excluding currency and acquisitions, increased by 26.3%, notably reflecting higher net revenues for smoking cessation products and select inhalation products.

The operating loss of $37 million in 2023 was primarily due to investments in research and development, as well as the amortization of acquired intangibles.

The operating loss of $151 million in 2022 included a charge for impairment of other intangible assets of $112 million.

Financial Summary

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (808) $ (216) -(100)% -(100)% $ (592) $ (1) $ — $ 38 $ — $ (629)

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).

For the nine months ended September 30, 2023, net revenues, excluding currency and acquisitions, increased by 20.1%, notably reflecting the same factors as in the quarter.

The operating loss of $808 million in 2023 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 and the amortization of acquired intangibles.

The operating loss of $216 million in 2022 included a charge for impairment of other intangible assets of $112 million.

Financial Review

Cash Flow Highlights

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in millions) 2023 2022

3 unchanged sentences

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.

During the first nine months of 2023, net cash provided by operating activities was $5.9 billion as compared to $7.7 billion in the first nine months of 2022.

Excluding unfavorable currency movements of $0.7 billion, the unfavorable variance of $1.1 billion was due primarily to higher 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.

The higher working capital requirements in the first nine months of 2023 as compared with the first nine months of 2022 were primarily due to more cash used in accrued liabilities and other current assets and more cash used for inventories mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and timing of the corresponding excise tax payments.

Higher cash used for inventories is also impacted by the higher cost of tobacco leaf and other direct materials due to inflationary pressures (for further details, see “ Impact of Inflation on Our Business and Mitigation Efforts ” section of this MD&A), as well as tactical stock increases for certain direct materials.

More cash used in accounts payable primarily reflects the 2023 payment for higher IQOS ILUMA device purchases in the fourth quarter of 2022 to meet the needs of ILUMA launches.

These increases in the working capital requirements were 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 around $10 billion at prevailing exchange rates, subject to year-end working capital requirements.

Net Cash Used in Investing Activities

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.

For further detail on our derivatives designated as net investment hedges and other investments, see Note 7.

During the first nine months of 2023, net cash used in investing activities increased by $2.9 billion as compared with the first nine months of 2022.

This increase in cash used was primarily due to the remaining cash payment (including interest) to Altria Group, Inc.

in July 2023 of $1.8 billion for PMI to reacquire the IQOS commercialization rights in the U.S., the unfavorable movements of $744 million in net investment hedges of Euro assets, which was principally related to changes in exchange rates between the Euro and the U.S.

dollar, and higher capital expenditures.

For further detail on our cash payment to Altria Group, Inc.

and derivatives designated as net investment hedges, see Note 2.

Acquisitions and Note 7.

Financial Instruments.

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.

Capital expenditures of $1.0 billion during the first nine months of 2023 increased by $280 million as compared with the first nine 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 consumables and Swedish Match's portfolio.

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 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.

During the first nine months of 2023, net cash used in financing activities was $2.7 billion as compared to $6.1 billion in the first nine 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 $10.0 billion, partly offset by repayment on the bridge facility related to the Swedish Match acquisition and lower net short-term borrowings (primarily commercial paper).

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.

9 unchanged sentences

For the full-year 2022, the activities for such reverse repurchase agreements were not material.

For the six months ended June 30, 2023, we did not enter into such reverse repurchase agreements.

For the nine months ended September 30, 2023, we did not enter into such reverse repurchase agreements.

In a number of jurisdictions, including Argentina, Egypt and Russia, we are impacted by various capital controls and/or foreign currency exchange constraints that affect the ability of our subsidiaries in these jurisdictions to settle foreign currency denominated imports of goods and services and/or to pay dividends.

These factors increase foreign currency devaluation risks, which may have a negative impact on our financial condition, net assets and results of operations in these jurisdictions.

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.

4 unchanged sentences

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

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

Short-term Long-term Outlook

3 unchanged sentences

Revolving Credit Facilities

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

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

Type (in billions) Committed

7 unchanged sentences

(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 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.

On September 20, 2023, we entered into an agreement, effective September 29, 2023, to amend and further extend the term to September 29, 2028.

At September 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 364-day revolving credit facility for an additional one-year period, in accordance with and subject to the terms and conditions of the relevant revolving credit facility agreement.

All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

3 unchanged sentences

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 $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.

These credit arrangements amounted to approximately $2.6 billion at September 30, 2023, and approximately $1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $221 million at September 30, 2023, and $295 million at December 31, 2022.

Credit Facilities related to the Financing of the Swedish Match Acquisition

10 unchanged sentences

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 June 30, 2023 and December 31, 2022, the €5.5 billion (approximately $6 billion) term loan facility was fully drawn and remained outstanding.

As of September 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.

3 unchanged sentences

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

At June 30, 2023, we had $4.0 billion of commercial paper outstanding.

At September 30, 2023, we had $1.9 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 six months of 2023 was $3.9 billion.

The average commercial paper balance outstanding during the first nine months of 2023 was $3.8 billion.

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

5 unchanged sentences

Supply Chain Financing to our condensed consolidated financial statements.

Debt – Our total debt was $47.9 billion at June 30, 2023 and $43.1 billion at December 31, 2022.

Debt – Our total debt was $47.7 billion at September 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 six months of 2023 were as follows:

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

(in millions)

8 unchanged sentences

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

dollar notes (f) $650 5.250% September 2023 September 2028

dollar notes (f) $700 5.500% September 2023 September 2030

dollar notes (f) $1,000 5.625% September 2023 September 2033

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

3 unchanged sentences

(e) These notes are a further issuance of the 5.375% notes issued in February 2023

(f) Interest is payable semi-annually, commencing in March 2024

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.

2 unchanged sentences

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.

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

Guarantees – At September 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.

5 unchanged sentences

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.

The eligible noteholders provided the requisite irrevocable consent instructions voting in favor of the amendments, which were subsequently passed by way of extraordinary resolution at the noteholders’ meeting held on July 28, 2023.

As a result of the passage of the extraordinary resolution, Philip Morris International Inc.

entered into a guarantee, which guarantees unconditionally and irrevocably to the noteholders the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the principal, premium, if any, and interest on the notes.

Equity and Dividends

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

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

Stock Plans to our condensed consolidated financial statements.

6 unchanged sentences

We do not currently anticipate restarting our share repurchase program during 2023.

Dividends paid in the first six months of 2023 were $4.0 billion.

Dividends paid in the first nine months of 2023 were $5.9 billion.

During the third quarter of 2023, our Board of Directors approved a 2.4% increase in the quarterly dividend to $1.30 per common share.

20 unchanged sentences

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions.

Our RRPs constitute a new product category that is less predictable than our mature cigarette business.

Our RRPs constitute a relatively new product category that is less predictable than our mature cigarette business.

Achievement of future results is subject to risks, uncertainties and inaccurate assumptions.

31 unchanged sentences

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).

In August 2023, TobReg issued its ninth report, including recommendations on nicotine pouches, which were in line with previous policy recommendations on regulating flavors in tobacco and nicotine products.

It is not possible to predict whether or to what extent these developments will be reflected in decisions adopted at CoP 10, following deliberations.

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

3 unchanged sentences

Nevertheless, technological, operational, regulatory and/or commercial setbacks might impact the implementation or effectiveness of youth access prevention mechanisms and surrounding infrastructure.

If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our reputation and credibility may suffer, the regulatory approach to our products may become more restrictive, and our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly impacted.

of RRPs may be significantly impacted.

Moreover, the FDA’s premarket tobacco product and modified risk tobacco product authorizations of two versions of our Platform 1 product are subject to strict marketing, reporting and other requirements.

Although we have received these authorizations from the FDA, there is no guarantee that the product will remain authorized for sale in the U.S., or that new versions of the product (Platform 1 or other smoke-free platforms) will receive necessary authorizations, particularly if there is a significant uptake in youth or non-smoker initiation.

Premarket tobacco applications for certain ZYN products, which are currently marketed in the U.S., were submitted in March 2020.

The FDA has not completed its review of such applications but concluded that such ZYN products can continue to be marketed in the U.S., subject to the FDA’s enforcement discretion, because the applications were submitted prior to a September 9, 2020 deadline.

We also submitted additional premarket tobacco applications for other ZYN products after the deadline, and we are unable to market these products until the FDA authorizes such applications.

There is no guarantee that the ZYN products will receive the necessary authorizations from the FDA or that the FDA will allow us to continue to sell the ZYN products currently in the market, pending its review of the applications.

The financial and business performance of our reduced-risk products is less predictable than our cigarette business.

49 unchanged sentences

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.

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.

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

3 unchanged sentences

subsidiaries.

Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S.

Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations or policies that limit or prohibit our local subsidiaries' ability to convert local currency into U.S.

dollars or to make payments outside the country.

15 unchanged sentences

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.

We are continuously assessing the evolving situation in Russia, including regulatory constraints in the market entailing very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities, and restrictions resulting from international regulations.

In the event of a divestment, our ability to fully realize the value of the business would likely be subject to material impairment.

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.

3 unchanged sentences

These disruptions, to the extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and may result in impairment charges.

Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions, the ban on exports of various products, and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions, the ban on exports of various products, and other

economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts, as well as adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets.

18 unchanged sentences

Such diminished control may lead to disruption in the distribution of our products and may have a material adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage.

In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with other partners or our own resources.

In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and the distribution of our products may be disrupted in certain markets or our costs may increase significantly if we must replace such third parties with other partners or our own resources.

The effects of climate change and legal or regulatory responses related to climate change may have a negative impact on our business and results of operations.

17 unchanged sentences

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.

disrupt or delay our distribution, manufacturing or supply chain;

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.

3 unchanged sentences

Our reported results could be adversely affected by unfavorable currency exchange rates and currency fluctuations could impair our competitiveness.

Our results could also be adversely affected by capital controls or by foreign currency exchange constraints or devaluations.

We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated into U.S.

4 unchanged sentences

dollar fluctuations against various currencies may have disproportionate negative impact on net revenues as compared to our gross profit and operating income margins.

Capital controls and/or foreign currency exchange constraints may affect the ability of our subsidiaries in impacted jurisdictions to settle foreign currency denominated imports of goods and services and/or to pay dividends.

These factors may also increase foreign currency devaluation risks, which may have a negative impact on our net assets and results of operations in these jurisdictions.

All of which could have a material adverse effect on our financial condition, cash flows, net earnings, and profitability.

A sustained period of elevated inflation across the markets in which we operate could result in higher operating and financing costs and lead to reduced demand for our products.

4 unchanged sentences

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.

If we are 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

23 unchanged sentences

and may impede our ability to develop, manufacture and/or commercialize new RRPs and improve our products, and thus have a material adverse effect on our revenue and our profitability.

In addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected.

In addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs

in such markets would be adversely affected.

Contingencies— Other Litigation to our condensed consolidated financial statements for a description of certain intellectual property proceedings.

2 unchanged sentences

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.

24 unchanged sentences

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.

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.

34 unchanged sentences

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;

2 unchanged sentences

Our or our business partners’ failure or inability to adhere to privacy, data, artificial intelligence and information security laws could result in business disruption, loss of reputation and consumer trust, litigation, regulatory action including significant fines or penalties, financial impact, and loss of revenue, assets or personal, confidential, or sensitive data.

An actual or alleged failure to comply with complex and changing privacy, data, artificial intelligence and information security laws and regulations under the EU General Data Protection Regulation, various United States state and federal laws, and other similar privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data;

state and federal laws, and other similar privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data;

implement appropriate technological and reasonable security measures;

28 unchanged sentences

We have accounted for the completion of the Acquisitions using the acquisition method of accounting.

Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses

Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

6 unchanged sentences

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