What changed in this filing

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Item 1. Business

2024-02-08 compared with 2023-02-10 · 65 added, 84 removed, 149 unchanged (50% of the section changed)

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is a Virginia holding company incorporated in 1987.

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

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

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

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

Since 2008, we have invested $12.5 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

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

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

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

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

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

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In March 2008, we became a U.S.

public company listed on the New York Stock Exchange and subject to the rules of the Securities and Exchange Commission (the "SEC").

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

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

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

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

PMI consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022.

public company listed on the New York Stock Exchange and subject to the rules of the U.S.

Securities and Exchange Commission (the "SEC").

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

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

Through our acquisition of Swedish Match, we acquired a market leader in oral nicotine delivery with a significant presence in the United States market.

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

Our consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022.

The operating results of Swedish Match are included in a separate segment.

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Acquisitions and Note 13.

Segment Reporting.

Segment Reporting , and for additional details concerning the agreement with Altria, see Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation - Operating Results by Business Segment - Business Environment.

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.

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

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products.

We put significant effort to restrict access of our products from non-smokers and youth.

We believe regulation must include measures designed to prevent youth initiation;

and we also support and engage with relevant authorities to seek sensible regulation of flavors, mandated health warnings and minimum age laws.

Our IQOS smoke-free product brand portfolio includes heated tobacco and nicotine-containing vapor products.

Our leading smoke-free platform ("Platform 1") uses a precisely controlled heating device into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.

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

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables,

which include our BLENDS , DELIA , HEETS , HEETS Creations, HEETS Dimensions (defined collectively as " HEETS") , Marlboro HeatSticks, SENTIA, TEREA, TEREA CRAFTED, and TEREA Dimensions, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

HTU's also include zero tobacco heat-not-burn consumables ( LEVIA ).

Platform 1 was first introduced in Nagoya, Japan, in 2014.

As of December 31, 2023, our smoke-free products were available for sale in 84 markets.

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

At the time of our acquisition of Swedish Match, it already had a leading nicotine pouch franchise in the U.S.

under the ZYN brand name .

The Swedish Match product portfolio is complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading

heat-not-burn product.

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

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

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Description of Business

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

• The European Union Region (“EU”) is headquartered in Lausanne, Switzerland, and covers all the European Union countries and also Switzerland, Norway, Iceland and the United Kingdom;

• The Eastern Europe Region (“EE”) is also headquartered in Lausanne, and includes Southeast Europe, Central Asia, Ukraine, Israel and Russia;

• The Middle East & Africa Region (“ME&A”) is also headquartered in Lausanne, and covers the African continent, the Middle East, Turkey and our international duty free business;

• The South & Southeast Asia Region (“S&SA”) is headquartered in Hong Kong, and includes Indonesia, the Philippines and other markets in this region;

• The East Asia & Australia Region (“EA&A”) is also headquartered in Hong Kong, and includes Australia, Japan, South Korea, the People's Republic of China ("China") and other markets in this region, as well as Malaysia and Singapore;

• The Americas Region (“AMCS”) is headquartered in Stamford, Connecticut, and covers the South American continent, Central America, Mexico, the Caribbean and Canada;

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

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

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

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

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

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

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

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

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

• South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region ("SSEA, CIS & MEA") is headquartered in Dubai, United Arab Emirates.

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

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

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

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

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

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

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

The operations of Swedish Match, which reflects our fourth quarter 2022 acquisition of the company, and our Wellness and Healthcare segment remained unchanged.

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

Following the combination and the progress in 2023 toward the integration of the Swedish Match business into the existing PMI regional segment structure, we will update our segment reporting by including Swedish Match results in the four existing geographical segments.

As of the first quarter of 2024, we will report on this basis.

Our total shipment volume, including cigarettes and heated tobacco units, increased by 1.0% in 2023 to 738.2 billion units, with shipment volume of heated tobacco units reaching 125.3 billion units in 2023, up from 109.2 billion units in 2022.

Shipment volume of our principal cigarette brand, Marlboro , increased by 2.0% in 2022.

References in this Form 10-K to total international market, defined as worldwide cigarette and heated tobacco unit volume, excluding the United States, total industry, total market and market shares, are our estimates for tax-paid products based on the latest available data from a number of internal and external sources, and may, in defined instances, exclude China and/or our duty free business.

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

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

Shipment volume of our principal cigarette brand, Marlboro , decreased by 1.9% in 2023.

References in this Form 10-K to total international market, defined as worldwide cigarette and heated tobacco unit volume, excluding the United States, total industry (or total market) and market shares, are our estimates for tax-paid products based on the latest

available data from a number of internal and external sources, and may, in defined instances, exclude China and/or our duty free business.

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

Key data regarding total market and market share were as follows:

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Our main types of distribution and sales are tailored to the characteristics of each market and are often used simultaneously:

• Direct sales and distribution, where we have set up our own distribution selling directly to the retailers;

• Direct sales and distribution, where we sell directly to the retailers;

• Distribution through independent distributors that often distribute other fast-moving consumer goods and are responsible for distribution in a particular market;

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• Our own e-commerce infrastructure for product sales to trade partners and to consumers;

• Our own brand retail infrastructure for our RRP products and accessories for sales to consumers.

• Our own brand retail infrastructure for our RRPs and accessories for sales to consumers.

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.

In the combustible product category, we predominantly sell American blend cigarette brands, such as Marlboro , L&M , Parliament, Philip Morris and Chesterfield , which are the most popular across many of our markets.

In the RRP product category, we primarily sell Platform 1 devices and heated tobacco units under the IQOS brand.

We also sell other smoke-free products, including those commercialized through Swedish Match.

We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category.

The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence;

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 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.

and product regulation that diminishes the ability to differentiate tobacco products, restricts adult consumer access to truthful and non-misleading information about our RRPs, or disproportionately impacts the commercialization of our products in relation to our competitors.

Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam.

Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates than we are.

Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards.

Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible than PMI to changes in currency exchange rates.

Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, and without scientific substantiation based on appropriate R&D protocols and standards.

The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our profitability and results of operations.

Procurement and Raw Materials

We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent tobacco suppliers.

We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent international tobacco suppliers.

In 2023, we also contracted directly with farmers in several countries, including Argentina, Brazil, Italy, Pakistan and Poland.

In 2023, direct sourcing from farmers represented approximately 18% of PMI’s global leaf requirements.

The largest supplies of tobacco leaf are sourced from Argentina, Brazil, China, Italy, Indonesia (mostly for domestic use in kretek products), Malawi, Mozambique, the Philippines, Turkey and the United States.

The largest supplies of tobacco leaf are sourced from Argentina, Brazil, China, India, Italy, Indonesia (mostly for domestic use in kretek products), Malawi, Mozambique, the Philippines, Turkey and the United States.

We believe that there is an adequate supply of tobacco leaf in the world markets to satisfy our current and anticipated production requirements.

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In 2023, our top ten suppliers of direct materials combined represented approximately 60% of our total direct materials purchases.

The four most significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making and fine paper used in the manufacturing of cigarettes and heated tobacco units, as well as susceptors used for the TEREA heated tobacco units.

The four most significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making, fine paper used in the manufacturing of cigarettes and heated tobacco units, and susceptors used for the TEREA heated tobacco units.

In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business.

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As described in more detail in “ Distribution & Sales ” above, in many of our markets we sell our products to distributors.

In 2022, sales to a distributor in the European Union Region and a distributor in the East Asia & Australia Region each amounted to 10 percent or more of our consolidated net revenues.

In 2023, sales to a distributor in the Europe Region and a distributor in the EA, AU & PMI DF Region each amounted to 10 percent or more of our consolidated net revenues.

See Item 8, Note 13.

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We believe that none of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on our consolidated results of operations.

In some of our markets, particularly in the European Union, Eastern Europe, the Middle East and Africa, and in the East Asia & Australia Regions, a loss of a distributor may result in a temporary market disruption.

In some of our markets, particularly in the Europe, SSEA, CIS & MEA, and EA, AU & PMI DF Regions, a loss of a distributor may result in a temporary market disruption.

Human Capital

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To be successful in our transformation to a smoke-free future, we must continue transforming our culture and ways of working, align our talent with our business needs, successfully integrate acquired businesses and innovate to become a truly consumer-centric business.

To achieve our strategic goals, we need to attract, retain and motivate the best global talent with the right degree of diversity, experience, competencies and skills.

Therefore, we strive to ensure the development of our existing talent while increasingly recruiting those with the expertise in areas that are relatively new to us such as digital and technical solutions.

To achieve our strategic goals, we need to attract, retain and motivate the best global talent, talent that is diverse and has the right degree of experience, competencies and skills.

Therefore, we strive to ensure the development of our existing talent while recruiting those with expertise in areas that are relatively new to us such as digital and technical solutions.

Our compensation and benefit programs are set at the levels that we believe are necessary to attract the best talent and remain competitive with other consumer product companies.

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The Compensation and Leadership Development Committee of the Board is responsible for executive compensation matters and oversight of the risks and programs related to talent management.

Our Code of Conduct highlights our commitment to ethical business conduct and honesty, respect, fairness in our ways of working.

Inclusion & Diversity .

At PMI, we believe that a diverse workforce and an inclusive culture are strategic priorities which help fuel innovation and business success.

As part of our commitment to workplace diversity, in 2020, our Chief Executive Officer appointed a Chief Diversity Officer.

Improving gender balance, especially in management positions, continues to be one of our priorities:

• In 2022, we achieved the global target of 40% female representation in management positions;

• In 2021, we started our Women in Leadership program to support our female talents;

Our Code of Conduct highlights our commitment to ethical business conduct and honesty, respect, and fairness.

Diversity, Equity, and Inclusion .

At PMI, we believe that a diverse workforce and an inclusive culture are strategic priorities that help fuel innovation and business success.

We aspire to maintain a minimum of 40% female representation globally in management positions in most of our business functions and regions, and to have at least 35% of senior positions held by women globally by 2025.

Given the size and continued growth of our business in Asia, it is also our aspiration to have at least 20% of senior roles held by Asian talent globally and at least 60% representation of local talent in our market management teams by 2025.

We were the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY Foundation in 2019.

In 2022, we were re-certified as a global EQUAL-SALARY organization for the second time, verifying that PMI continues to pay female and male employees equally for equal work everywhere where we operate.

This achievement is an important milestone toward the creation of a more inclusive gender-balanced workplace and the continuation of our reputation as a top employer.

In recognition of our efforts, we were again added to the 2022 Bloomberg Gender-Equality Index for transparency in gender reporting and advancing women’s equity (among the 414 companies from 11 different sectors in 45 countries, who scored at or above the global threshold established by Bloomberg L.P.).

Creation of employee resource groups ("ERGs") was another important milestone to drive further inclusion at PMI.

We believe these groups serve as a platform for building an enhanced sense of belonging, visibility, and greater understanding of different experiences and dimensions of diversity in our company.

Currently, we have established global ERGs for race and ethnicity, LGBTQ+, gender and disability matters concerning our employees.

Each global ERG is sponsored by a member of the PMI senior leadership team, to reinforce the fact that our strong commitment to Inclusion & Diversity comes from the top.

This achievement is an important milestone toward the creation of a more diverse and inclusive workplace and the continuation of our reputation as a top employer.

In 2023, we completed another year of market level reviews with success and maintained our global certification.

Creation of employee resource groups ("ERGs") was another important priority to drive further inclusion at PMI.

Our ERGs are open to participation by all employees and we believe they help build an enhanced sense of belonging, visibility, and greater understanding of different experiences and dimensions of diversity in our company.

Currently, we have established global ERGs for race, ethnicity and cultural diversity, LGBTQ+, gender, parents and caregivers, and disability dimensions concerning our employees.

Each global ERG is sponsored by a member of the PMI senior leadership team to reinforce the fact that our strong commitment to diversity, equity and inclusion comes from the top.

In 2023, we continued to focus on the growth of our global ERGs, and to expand them locally, to be able to meet the specific needs of different markets and regions.

By the end of 2022, our global parental leave principles were implemented in every market in which we operate, with the exception of Russia.

PMI’s minimum leave principles provide primary caregivers with a minimum of 18 weeks fully paid parental leave and secondary caregivers with a minimum of 8 weeks fully paid parental leave.

These global and gender-neutral guidelines demonstrate how PMI is creating a more inclusive, diverse work environment to meet the challenges and expectations of our people for the 21st century workplace.

To further strengthen our commitment to drive inclusion and equality, we also commissioned an independent academic study exploring the methods organizations can adopt to drive lasting cultural change.

Findings of this study informed the development of practices and programs focused on employee inclusion at PMI.

Our Initiatives in Response to COVID-19 .

Since the outbreak of the global COVID-19 pandemic, we have focused on business continuity, health and safety of our employees, and have adapted our ways of working to a new environment.

We have implemented additional safety measures for essential employees in our facilities and offices.

We have also enhanced remote and flexible work arrangements and digital collaboration, and related risk management, and to date, many of our employees continue to have the ability work remotely for up to 60% of their working time, where applicable.

Government Regulation

As a company with global operations in a heavily regulated industry, we are subject to multiple laws and regulations of jurisdictions in which we operate.

As a company with global operations in a heavily regulated industry, we are subject to multiple laws and regulations of the jurisdictions in which we operate.

We discuss our regulatory environment in Item 7, Business Environment .

The regulatory landscape related to environmental, social, and governance ("ESG”) matters is rapidly evolving.

We closely monitor these developments and implement initiatives addressing PMI’s priority ESG areas in line with our sustainability strategy.

The regulatory landscape related to sustainability matters is rapidly evolving.

We closely monitor these developments and implement initiatives addressing PMI’s priorities in line with our sustainability strategy.

In particular, we are subject to international, national and local environmental laws and regulations in the countries in which we do business.

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Risk Factors , our financial results could be significantly affected by regulatory initiatives that could result in a significant decrease in demand for our brands or by climate-related regulations that increase our cost of operation.

More specifically, any regulatory requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a

material adverse effect on our financial results.

Further, tightened climate-related regulation may lead to additional carbon taxation or energy price increases impacting our cost of operation.

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The parties agreed to submit disputes under the Intellectual Property Agreement first to negotiation between senior executives and then to binding arbitration.

An agreement reached with PM USA in 2022 relating to IQOS commercialization rights in the U.S.

includes, among other things, an agreement relating to intellectual property rights consistent with the commercialization rights for relevant IQOS products.

An agreement was reached with PM USA in 2022 relating to IQOS commercialization rights in the U.S.

including, among other things, an agreement relating to intellectual property rights consistent with the commercialization rights for relevant IQOS products.

Our business segments are not significantly affected by seasonality, although in certain markets cigarette consumption may be lower during the winter months due to the cold weather and may rise during the summer months due to outdoor use, longer daylight, and tourism.

However, we typically experience slower RRP adult user growth in the third quarter and an acceleration in the fourth quarter of each year due to seasonal influences.

Available Information

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

What changed 10-K

Item 1. Business