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Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2023-10-26 · 633 added, 983 removed, 936 unchanged (63% of the section changed)

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Description of Our Company

We are a leading international tobacco company working to deliver a smoke-free future and 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.

We are 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.

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 over $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 devices and consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products ("MRTPs").

We describe the MRTP orders in more detail in the "Business Environment" section of this Item 2.

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

To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and deployment, in January 2023, we began managing our business in four geographical segments, down from six previously, in addition to our continuing Swedish Match and Wellness and Healthcare segments.

The four geographical segments are as follows:

Following the combination and the progress in 2023 toward the integration of the Swedish Match business into PMI's existing regional structure, PMI updated in January 2024 its segment reporting by including the former Swedish Match segment results into the four existing geographical segments.

Our four geographical segments are as follows:

• Europe Region;

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

and Americas Region.

• Americas Region.

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

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

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Our portfolio comprises both international and local brands.

Smoke-free products (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.

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

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

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

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

Smoke-Free Business ("SFB”) is the term PMI uses to refer to all of its smoke-free products.

SFB also includes wellness and healthcare products, as well as consumer accessories, such as lighters and matches.

Smoke-free products (also referred to herein as "SFPs") is the term PMI uses to refer to all of its products that provide nicotine without combusting tobacco, such as heat-not-burn, e-vapor, and oral smokeless, and that therefore generate far lower levels of harmful chemicals.

As such, these products have the potential to present less risk of harm versus continued smoking.

IQOS is the leading brand in our SFPs portfolio.

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.

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.

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

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

Now, with a strong foundation and significant expertise in life sciences, we aim to expand into wellness and healthcare in areas such as inhalable drugs, nicotine-replacement therapy, consumer wellness products, medical and pharmaceutical cannabinoids, and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements.

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

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

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

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

under the ZYN brand name.

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

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

For further details, see Note 2.

Acquisitions.

By joining forces with Swedish Match, we expect to accelerate the achievement of our joint

smoke-free ambitions, switching more adults who would otherwise continue to smoke cigarettes to better alternatives faster than either company could achieve separately.

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

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

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

rates and the mix of products we sell.

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

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

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

War in Ukraine

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.

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

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

As of 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.

For further details, see Note 14.

Related Parties – Equity Investments and Other .

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

For further details, see Note 3.

War in Ukraine to our condensed consolidated financial statements, as well as the " Trade Policy " and " Cautionary Factors That May Affect Future Results" sections of this MD&A.

Consolidated Operating Results for the 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 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 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:

Impairment and Exit Costs

On February 2, 2024, PMI announced that it reached a global settlement with British American Tobacco p.l.c.

The settlement led to the rescission of International Trade Commission orders prohibiting the importation of IQOS products to the U.S.

As a result, PMI has restructured the sourcing of IQOS products to be commercialized in the U.S., and recorded pre-tax asset impairment and exit costs of $121 million related to this restructuring during the first quarter of 2024.

In the first quarter of 2024, PMI ceased its operations in Venezuela and as a result, recorded pre-tax asset impairment and exit costs of $47 million.

Consolidated Operating Results for the Three Months Ended March 31, 2024

• Net Revenues - Net revenues of $8.8 billion for the three months ended March 31, 2024 increased by $0.8 billion, or 9.7%, from the comparable 2023 amount.

The change in our net revenues from the comparable 2023 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues increased by 9.7%.

Net revenues, excluding currency, increased by 12.1%, mainly reflecting:

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

and favorable volume/mix, mainly driven by higher HTU and ZYN volume, partially offset by lower cigarette volume, as well as a favorable comparison to 2023 reflecting a charge in the first quarter of 2023 of $80 million following the termination of a distribution arrangement in the Middle East, 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 three months ended March 31, 2024 and 2023, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the three months ended March 31, 2024, from the comparable 2023 amounts, were as follows:

Diluted EPS % Change

For the nine months ended September 30, 2022 $ 4.27

2022 Charges related to the war in Ukraine 0.07

2022 Fair value adjustment for equity security investments 0.03

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

2022 Tax items (0.03)

Subtotal of 2022 items 0.32

2023 Charges related to the war in Ukraine (0.01)

For the three months ended March 31, 2023 $ 1.28

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

2023 Amortization of intangibles 0.04

2023 Impairment of goodwill and other intangibles (0.44)

2023 Termination of distribution arrangement in the Middle East 0.04

2023 Swedish Match AB acquisition accounting related item (0.01)

2023 Swedish Match AB acquisition accounting related items 0.01

2023 Income tax impact associated with Swedish Match AB financing (0.05)

2023 Tax items (0.11)

Subtotal of 2023 items 0.10

Currency (0.43)

Interest (0.18)

Change in tax rate 0.02

Operations 0.65

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 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).

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 nine months ended September 30, 2022.

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 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.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

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.

2024 Asset impairment and exit costs (0.09)

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.

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

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

For further details, see Note 10.

Contingencies .

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 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 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, Russian ruble and Swiss franc.

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

Interest – The unfavorable impact of $0.18 per share from interest in the table above was due primarily to higher interest expense in connection with the Swedish Match acquisition, partially offset by higher net interest income driven by higher interest rates.

Operations – The increase in diluted EPS of $0.65 from our operations in the table above was due primarily to the following segments:

• Swedish Match:

Reflecting the 2023 impact following the fourth quarter 2022 acquisition;

• EA, AU & PMI DF:

Favorable volume/mix, 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;

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 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;

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 September 30, 2022 $ 1.34

2024 Amortization of intangibles (0.06)

2022 Impairment of goodwill and other intangibles 0.06

2022 Costs associated with Swedish Match AB offer 0.11

2022 Tax items —

Subtotal of 2022 items 0.19

2023 Charges related to the war in Ukraine (0.01)

2024 Impairment of other intangibles (0.01)

2024 Fair value adjustment for equity security investments 0.08

2023 Amortization of intangibles (0.10)

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

2024 Income tax impact associated with Swedish Match AB financing (0.07)

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Operations 0.37

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 the three months ended March 31, 2024 $ 1.38 7.8 %

Asset impairment and exit costs – During the three months ended March 31, 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.

During the three months ended March 31, 2024, we recorded pre-tax asset impairment and exit costs of $168 million, representing $141 million net of income tax and a diluted EPS charge of $0.09 per share, related to the restructuring of the sourcing of IQOS products to be commercialized in the U.S., and the cessation of our operations in Venezuela.

For further details, see Note 15.

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.

Asset Impairment and Exit Costs .

Amortization of intangibles – During the first quarter of 2023 and 2024, we recorded amortization of intangible expense of $81 million (representing $64 million net of income tax or $0.04 per share decrease in diluted EPS) and $120 million (representing $95 million net of income tax or $0.06 per share decrease in diluted EPS), respectively.

For further details, see Note 4.

Goodwill and Other Intangible Assets, net .

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

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

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.

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

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

Impairment of other intangibles – During the first quarter of 2024, we recorded an impairment charge of $27 million (representing $20 million net of income tax or $0.01 per share decrease in diluted EPS), primarily reflecting the impairment of non-amortizable intangible assets related to an in-process research and development project in the Wellness and Healthcare segment.

For further details, see Note 4.

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.

Goodwill and Other Intangible Assets, net .

Fair value adjustment for equity security investments – During the first quarter of 2024, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.08 per share increase in diluted EPS).

For further details, see Note 12.

Related Parties - Equity Investments and Other .

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.

Income taxes – The Income tax impact associated with Swedish Match financing that increased our 2023 diluted EPS by $0.05 per share and decreased our 2024 diluted EPS by $0.07 per share in the table above was due to a deferred tax impact for unrealized foreign currency gains and 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.

The 2024 tax items that increased our 2024 diluted EPS by $0.03 per share in the table above were due to a U.S.

tax benefit for a worthless stock deduction under section 165(g) of the Internal Revenue Code related to PMI’s investment in C.A.

Tabacalera Nacional, a wholly owned foreign corporation incorporated in Venezuela.

The change in the tax rate that decreased our diluted EPS by $0.02 per share in the table above was primarily due to increases in U.S.

state tax expense and repatriation cost differences, partially offset by changes in earnings mix by taxing jurisdiction.

As of March 31, 2024, many countries have enacted the OECD’s framework on a global minimum tax (referred to as “Pillar Two”).

PMI has determined that Pillar Two should not have a material impact on its 2024 consolidated financial statements.

For further details, see Note 9.

Income Taxes .

Currency – The unfavorable impact of $0.20 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 Russian ruble.

dollar, especially against the 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.

Interest – The unfavorable impact of $0.06 per share from interest in the table above was due primarily to higher interest expense in connection with the Swedish Match acquisition, partially offset by higher net interest income driven by higher interest rates.

The unfavorable currency impact in the first quarter of 2024 included a $0.09 impact from the devaluation of the Egyptian pound, including a transactional impact of approximately $0.06 primarily related to the balance sheet remeasurement of foreign currency payables.

Interest – The unfavorable impact of $0.03 per share from interest in the table above was due primarily to higher average debt levels and higher average interest rates on debt.

Operations – The increase in diluted EPS of $0.37 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;

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

Favorable pricing, favorable volume/mix and lower shipping costs;

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

• SSEA, CIS & MEA:

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.

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

Favorable volume/mix, partly offset by higher marketing and administration costs.

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

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For information on our critical accounting estimates, see " Critical Accounting Estimates " in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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

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

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

Consolidated Operating Results

See pages 82 - 94 for a discussion of our " Cautionary Factors That May Affect Future Results ." Our net revenues and operating income by segment are shown in the table below:

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

2023 2022 2023 2022

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

Net revenues:

1 unchanged sentence

SSEA, CIS & MEA

7,922 7,781 2,777 2,822

EA, AU & PMI DF

4,771 4,458 1,571 1,407

Americas 996 868

Swedish Match 1,814 — 568 —

Wellness and Healthcare 90 86

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SSEA, CIS & MEA

2,371 3,009 801 1,086

EA, AU & PMI DF

1,920 1,746 753 533

Americas 99 183

Swedish Match 597 — 140 —

Wellness and Healthcare (45) (38)

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PMI Net Revenues by Product Category

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

2023 2022 Change 2023 2022 Change

Combustible tobacco products

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

2024 2023 Change

Combustible tobacco:

Europe $ 1,931 $ 1,815 6.4 %

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Americas 534 566 (5.6) %

Swedish Match 333 — — % 49 — — %

Total combustible tobacco products 16,845 16,358 3.0 % 5,832 5,591 4.3 %

Smoke-free products:

Smoke-free products excluding Wellness and Healthcare:

Total combustible tobacco 5,407 5,223 3.5 %

Smoke-free excluding Wellness and Healthcare:

Europe 1,434 1,253 14.4 %

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Americas 462 302 52.9 %

Swedish Match 1,481 — — % 519 — — %

Total smoke-free products excluding Wellness and Healthcare 9,045 7,053 28.2 % 3,234 2,384 35.7 %

Total Smoke-free excluding Wellness and Healthcare 3,296 2,710 21.6 %

Wellness and Healthcare 90 86 4.7 %

Total smoke-free products 9,282 7,252 28.0 % 3,309 2,441 35.6 %

Total Smoke-free 3,386 2,796 21.1 %

Total PMI net revenues $ 8,793 $ 8,019 9.7 %

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

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

Goodwill and Other Intangible Assets, 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 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 nine months ended September 30, 2023.

• 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 nine months ended September 30, 2023.

• Asset impairment and exit costs – See Note 15.

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.

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

For further details, see Note 9.

Segment Reporting .

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

Asset Impairment and Exit Costs for a breakdown of these costs by segment for the three months ended March 31, 2024 and 2023.

• Swedish Match AB acquisition accounting related items – In the first quarter of 2023, PMI recorded $18 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Americas segment.

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

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

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

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

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

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

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

These net revenue amounts consist of the sale of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral products, as well as consumer accessories.

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

Wellness and Healthcare business, Vectura Fertin Pharma.

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

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

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

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

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Consolidated Shipment Volume

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

For the Three Months Ended March 31,

Cigarettes and Heated Tobacco Units (million units) 2024 2023 Change

Cigarettes 143,191 143,708 (0.4) %

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Total Cigarettes and Heated Tobacco Units 176,325 171,104 3.1 %

Oral Product Shipment Volume (million cans) (1)

Oral SFP Volume (million cans) (1)

Nicotine Pouches 145.7 81.3 79.3 %

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Moist Snuff 34.4 35.2 (2.3) %

Other 3.3 — — % 0.9 — — %

Other Oral SFP 1.0 1.3 (16.6) %

Total Oral Products 242.6 173.3 40.0 %

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

Sum may not foot to total due to roundings

Sum may not foot due to roundings

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

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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 , 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).

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 (defined collectively as HEETS ), SENTIA , TEREA, TEREA CRAFTED and TEREA Dimensions, 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.

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

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

Total industry volume, PMI in-market sales volume and PMI market share for the following geographies include the cigarillo category in Japan:

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

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

2022 estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

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

References 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 throughout this "Discussion and Analysis" are our estimates for tax-

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

From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements (or wholesaler inventory movements in certain markets where PMI does not sell to distributors), and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures.

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

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 Nine Months Ended September 30,

Key market data regarding total market size, our shipments and market share of cigarettes and heated tobacco units are shown in the table below:

For the Three Months Ended March 31,

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

Market Total Market

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

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

2024 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023

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16.1 15.9 6.3 6.0 5.3 5.5 1.0 0.5 39.9 39.4 6.3 5.4

Italy 55.1 55.0 29.1 30.7 20.8 22.2 8.4 8.5 53.7 54.0 16.8 14.3

Poland 43.7 42.9 18.1 16.6 14.3 13.0 3.8 3.6 41.4 38.7 8.7 8.3

Spain 33.0 34.0 9.9 10.6 9.2 9.9 0.8 0.7 29.4 30.3 2.2 1.6

SSEA, CIS & MEA

Egypt 54.8 69.0 18.1 15.2 17.4 14.6 0.7 0.5 33.3 22.2 1.6 0.8

Indonesia 219.1 230.6 63.1 65.6 63.1 65.6 — — 28.8 28.5 — —

Philippines 32.2 40.4 18.0 24.5 17.8 24.3 0.2 0.2 56.0 60.6 0.5 0.4

Russia 152.0 156.7 48.3 48.6 36.5 37.3 11.8 11.3 31.7 30.9 7.9 7.6

Turkey 101.1 85.6 50.3 40.4 50.3 40.4 — — 49.8 47.2 — —

EA, AU & PMI DF

Australia 5.6 6.6 2.0 2.2 2.0 2.2 — — 35.4 33.6 — —

17.5 17.2 8.0 8.9 5.7 6.9 2.2 2.0 52.5 53.8 17.7 16.8

South Korea 54.3 55.0 10.6 10.6 6.8 7.2 3.8 3.4 19.5 19.2 7.0 6.1

Argentina 21.6 22.5 13.4 14.4 13.4 14.4 — — 61.9 63.9 — —

Mexico 21.2 22.6 13.2 14.5 13.1 14.4 0.1 0.1 62.2 64.3 0.5 0.4

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

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

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

For the Three Months Ended September 30,

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

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

14.1 13.4 6.1 5.5 4.8 4.3 1.3 1.2 42.9 40.9 9.0 9.4

Total (1) (2)

668.3 684.2 193.6 189.5 161.1 162.0 32.5 27.5 28.9 28.0 4.6 4.1

France 7.6 8.5 2.7 3.5 2.6 3.4 — 0.1 42.2 43.3 0.7 0.7

19.3 20.2 6.9 7.3 6.0 6.6 0.9 0.7 38.4 38.3 4.9 3.7

Italy 19.5 19.4 10.4 10.0 6.8 7.2 3.6 2.8 53.4 53.9 16.0 13.7

Poland 15.2 15.4 6.5 6.2 5.2 4.7 1.3 1.5 42.7 40.4 8.7 9.7

Spain 9.7 9.9 2.8 2.9 2.6 2.7 0.2 0.2 28.9 29.1 2.7 2.1

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

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

Historical HTU adjusted in-market sales volume share:

Q4, 2022 (4.7%);

Q1, 2023 (5.4%);

Q2, 2023 (5.4%).

Historical total adjusted in-market sales volume share:

Q4, 2022 (39.7%);

Q1, 2023 (39.4%);

Q2, 2023 (39.2%)

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%.

(3) PMI market share reflects estimated adjusted IMS volume share, with historical total/HTU results:

Italy Q2 53.6%/17.1%, Q3 53.4%/16.0%, Q4 53.7%/17.2%;

Poland Q2 41.1%/8.6%, Q3 42.0%/8.4%, Q4 43.8%/9.9%

Consolidated Operating Results for the Three Months Ended March 31, 2024

The following discussion compares our consolidated operating results for the three months ended March 31, 2024, with the three months ended March 31, 2023.

During the quarter, estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 0.3%, reflecting increases in the SSEA, CIS & MEA Region and the EA, AU & PMI DF Region, partly offset by a decrease in the Americas Region and the Europe Region, as described in the Regional sections of this MD&A.

For the full year 2024, we currently expect an estimated total international industry volume decline for cigarettes and HTUs, excluding China and the U.S., of -2% to flat.

Shipment Volume

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 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

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%.

Our total cigarette and HTU shipment volume increased by 3.1%, reflecting a 20.9% increase in HTU shipments across all regions, partly offset by a 0.4% decline in cigarette shipments, with declines across all regions except the SSEA, CIS & MEA Region.

Cigarette shipment volume for Marlboro increased by 1.7% to 56.9 billion units.

Our total oral product shipment volume in cans increased by 40.0%, primarily reflecting growth in nicotine pouches (primarily in the U.S.) and snus (mainly in Scandinavia).

For the full year 2024, we currently expect the total cigarette, HTU and oral smoke-free product shipment volume growth for PMI of flat to +1% driven by smoke-free products.

For the full year 2024, we also expect nicotine pouch shipment volume in the U.S.

of approximately 560 million cans.

Nicotine pouch products reflect 15 pouches per can in the U.S.

and 21 pouches per can outside the U.S.

Oral smoke-free product volume excludes snuff, snuff leaf and U.S.

chew and is measured in cans or, for the purposes of total shipment volumes, in pouches or pouch equivalents.

Adjusted in-market sales for HTUs increased by 12.5%, including growth in Japan of 13.3% and Europe of 9.4%.

A net favorable impact of estimated distributor inventory movements for HTUs shipments was driven most significantly by additional shipments to Japan in light of disruption to Red Sea shipping routes.

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

Nine Months Year-to-Date

First-Quarter

2024 2023 Change (pp)

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

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

Financial Summary

Nine Months Ended September 30, Change

Financial Summary -

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

8 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 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 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.

(2) Cost/Other variance includes charges in 2023 of $18 million related to a Swedish Match AB acquisition accounting related items.

(3) Cost/Other variance includes charges in 2024 and 2023 of $168 million and $109 million related to asset impairment and exit costs, respectively, as well as the 2024 impairment of other intangibles of $27 million.

For more details, see Note 4.

War in Ukraine , Note 6.

Goodwill and Other Intangible Assets, net, Note 10.

Contingencies and Note 17 .

Goodwill and Other Intangible Assets, net and Note 15.

Asset Impairment and Exit Costs .

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 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.

Operating income decreased by 7.0%.

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, 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:

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

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

and 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.

Interest expense, net, of $788 million increased by $370 million or 88.5%, 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 5.1 percentage points to 25.7%.

For further details, see Note 11.

Income Taxes .

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, 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 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 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 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 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)

Third-Quarter

2023 2022 Change (pp)

Total International Market Share (1)

28.9 % 28.0 % 0.9

Cigarettes 24.3 % 23.9 % 0.4

HTU 4.6 % 4.1 % 0.5

Cigarette over Cigarette Market Share (2)

25.9 % 25.3 % 0.6

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

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

Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

$ 9,141 $ 8,032 13.8 % 9.3 % $ 1,109 $ (209) $ 568 $ 513 $ 265 $ (28)

Cost of Sales (1)

(3,165) (2,935) (7.8) % (3.6) % (230) 5 (129) — (199) 93

Marketing, Administration and Research Costs (2)

(2,606) (2,129) (22.4) % (4.5) % (477) (83) (299) — — (95)

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

(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 and Note 6.

Goodwill and Other Intangible Assets, net .

(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:

During the quarter, net revenues increased by 9.7%.

Net revenues, excluding currency, increased by 12.1%, mainly reflecting:

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.

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

Net revenues include $3.4 billion in 2024 and $2.8 billion in 2023 related to smoke-free.

Operating income increased by 11.5%.

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 and unfavorable cigarette mix;

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

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.

Operating income, excluding currency, increased by 23.5%, primarily reflecting:

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU and ZYN volume, partly offset by lower cigarette volume and unfavorable cigarette mix, as well as a favorable comparison to 2023 reflecting a charge in 2023 of $80 million following the termination of a distribution arrangement in the Middle East and charges in 2023 of $18 million related to a Swedish Match AB acquisition accounting related item.

The increase was partly offset by higher amortization of intangibles in 2024, higher asset impairment and exit costs in 2024, higher marketing, administration and research costs (primarily due to inflationary impacts, notably related to wages) and higher manufacturing costs.

Amortization expense on a pre-tax basis for each of the next five years is estimated to be approximately $479 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

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 18.

Acquisitions and the "Business Environment" section of this MD&A), the accounting for which will depend on the facts and circumstances effective May 1, 2024, when PMI will hold the full rights.

We currently estimate that the incremental increase in amortization expense in 2024, as a result of the reacquisition of IQOS commercialization rights in the U.S., will be approximately $370 million on a pre-tax basis for the remaining 8 months of the year.

For full year 2025 through 2028, we currently estimate that this incremental increase will be approximately $555 million on a pre-tax basis.

Interest expense, net, of $299 million increased by $69 million or 30.0%, primarily due to higher average debt levels and higher average interest rates on debt.

Our effective tax rate increased by 7.5 percentage points to 24.8%.

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Income Taxes .

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

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.

PMI estimates that its full-year 2024 effective tax rate will be approximately 21% to 22%, excluding discrete tax events.

Changes in currency exchange rates, earnings mix by taxing jurisdiction or future legislative or regulatory developments may have an impact on the effective tax rates, which PMI monitors each quarter.

Significant judgment is required in determining income tax provisions and in evaluating tax positions.

Income from equity investments and securities increased by $140 million or over 100%, primarily driven by a favorable fair value adjustment for our equity security investments in India and Sri Lanka.

Net earnings attributable to PMI of $2.1 billion increased by $153 million or 7.7%.

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

Basic and diluted EPS of $1.38 increased by 7.8%.

Excluding an unfavorable currency impact of $0.20, diluted EPS increased by 23.4%.

Overall, our results of operations in the first quarter of 2024 were favorably impacted by three main factors.

The first is the net revenue and profit impact of better volumes following the industry-leading performance of ZYN , the strong shipment growth of IQOS HTUs, and a resilient combustible delivery.

Second is the benefit of our pricing actions to mitigate currency headwinds and third is on cost including a stepped-up focus on manufacturing and back-office efficiencies to prioritize growth investments.

These factors are expected to continue to impact performance for the remainder of the year.

Operating Results by Business Segment

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

Prior to 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.

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.

The Tenth Session of the CoP to the FCTC took place in February 2024.

According to reports and decisions published, neither new decisions nor new policy recommendations on novel and emerging tobacco products were adopted.

Specific Guidelines were adopted to address cross-border Tobacco Advertising, Promotion, and Sponsorship (“TAPS”) and the depiction of tobacco in entertainment media.

The Eleventh session of the CoP is currently scheduled to take place in 2025.

The WHO’s reports and other FCTC guidelines or recommendations are not binding on the WHO Member States or 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.

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We also support regulatory measures that help reduce illicit trade.

Certain measures are discussed in more detail below and in the Reduced-Risk Products (RRPs) section.

Certain measures are discussed in more detail below and in the Smoke-Free Products (SFPs) section.

Fiscal Challenges:

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The amendments became effective as of January 1, 2022.

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"):

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

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

EU Tobacco Products Directive:

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

All EU Member States have adopted laws transposing the TPD.

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The report also concludes that there is scope for improvement in certain areas, such as enforcement at national level, assessment of ingredients, and a better consideration for novel and emerging products.

In November 2021, the European Commission published the implementation roadmap to Europe's Beating Cancer Plan (the "Plan").

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

In February 2024, the European Commission published an updated implementation roadmap to Europe's Beating Cancer Plan (the "Plan").

According to the updated Plan, the evaluation of the current TPD is expected to be finalized in 2024.

EU Tobacco Excise Directive ("TED"):

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

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.

including heated tobacco products, e-cigarettes and nicotine pouches.

The proposal, after several delays, could be adopted by the new College of Commissioners after the 2024 EU elections.

The timeline for the revision has not been announced.

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

A potential enforcement date for any changes to TED, after the transposition in Member States' national legislation, could be 2027.

Plain Packaging and Other Packaging Restrictions:

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

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

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

Other countries are also considering plain packaging legislation.

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However, on November 23, 2022, the EU Commission published a delegated directive that will eliminate this exemption.

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

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

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.

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

Based on high consumer switching to non-flavored products in reaction to past bans on flavors in other categories and markets, we anticipate that, while short-term volatility is possible, including in year-end trade inventories, the ban’s impact on our shipment volumes in the EU will be relatively limited in the near term.

Our fundamental view remains that we do not expect a meaningful change in the structural growth of the category with consumers switching to non-flavored products partially mitigating the effect of the ban.

A majority of EU Member States have transposed this directive, or are in the final stages of transposing it, 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.

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Restrictions on Product Design:

Some members of the public health community are calling for the further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would amount to a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs.

Some members of the public health community are calling for the further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would result in a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs.

In addition, at its meeting in November 2016, the CoP adopted non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco products, such as the diameter of cigarettes and the use of flavor capsules.

In March 2024, the EU Commission approved a draft national decree submitted by Belgium banning disposable e-cigarettes in Belgium as required by TPD.

This ban will be limited to the jurisdiction of Belgium.

Restrictions on Public Smoking and Use of Nicotine-Containing Products in Public:

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

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

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

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

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

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

On February 28, 2024, the New Zealand parliament passed a law repealing the three above-mentioned measures.

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

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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.

It regulates heated tobacco products but bans e-cigarettes.

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

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

On 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.

In Belgium, a Royal Decree banning nicotine pouches entered into force on July 1, 2023, with a sell-off period from retail to consumer as of October 1, 2023.

On March 22, 2023, a bill amending the Tobacco Hazards Prevention and Control Act in Taiwan went into effect.

It regulates heated tobacco products and bans e-cigarettes.

The amendment particularly specifies that designated tobacco products (including heated tobacco products) that are not cigarettes, cut tobacco, cigars, snuff nor chewing tobacco, must undergo a health risk assessment as part of an authorization system.

On March 28, 2023, the Argentinian Ministry of Health prohibited the import, distribution, commercialization and advertisement of heated tobacco products, including related devices.

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.

The EU Single-Use Plastics Directive, which will require tobacco manufacturers and importers to cover the costs of public collection systems for tobacco product filters, under Extended Producer Responsibility ("EPR") schemes, entered into force on July 2, 2019.

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

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

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

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

We currently expect further adoption of similar laws in other jurisdictions, and we are monitoring developments in this area.

We do not estimate a material impact to our business in the EU as a result of compliance with these mandatory EPR schemes.

On March 14th, 2024 the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law.

Fiscal Court in Dusseldorf (the "FCD") had previously referred that question to the CJEU.

The decision on the matter lies with the FCD and we expect a judgement in the coming months.

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

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

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

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

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.

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

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

The case is currently pending before the Trade and Industry Appeals Tribunal in the Netherlands.

In February 2024, the Dutch court submitted preliminary questions to the Court of Justice of the European Union.

While we cannot predict the outcome, a decision to enforce the existing TNCO ceilings using the alternative test method could impact a

significant portion of the manufactured cigarettes available on the market in the Netherlands and could lead to similar actions in other EU countries.

Illicit Trade:

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Since then, implementation in national legislations has been ongoing.

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

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

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

In February 2024, the third Meeting of the Parties to the Protocol took place.

No additional restrictive measures were adopted, and a mandate to conduct further work will be considered at the next session, currently scheduled to take place in 2025.

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

For example, we engage with governments, our business partners and other stakeholders to implement effective measures to combat illicit trade and, in some instances, pursue legal remedies to protect our intellectual property rights.

The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU became effective on May 20, 2019.

The effective date for other tobacco-containing products, including some of our RRPs such as heated tobacco units, is May 20, 2024.

The effective date for other tobacco-containing products, including some of our SFPs such as heated tobacco units, is May 20, 2024.

While we expect that this regulation will increase our operating expenses, we do not expect this increase to be significant.

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

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

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

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

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

Reduced-Risk Products (RRPs)

Our Approach to RRPs:

Smoke-Free Products (SFPs)

Our Approach to SFPs:

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

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As a result of the combustion process, the smoker inhales various toxic substances.

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

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

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

Our SFPs 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 to our products from non-smokers and youth.

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

Accordingly, our key strategic priorities are to:

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

(i) continue developing and commercializing products that have the potential to present less risk of harm to adult smokers who switch to such products versus continued cigarette smoking;

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

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

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

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

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

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

As long as a significant number of adult smokers continue to smoke cigarettes, responsible leadership of

the category is critical.

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

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

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

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 are judiciously reallocating resources from cigarettes to SFPs and are streamlining our cigarette portfolio.

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

We are committed to conducting rigorous scientific assessments of our SFP 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 SFPs.

Our efforts are guided by the following key objectives:

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

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

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

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

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

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

Our RRP Platforms:

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

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

Our SFP Platforms:

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

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

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

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

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

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

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

Food and Drug Administration (“FDA”).

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

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

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

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

Most of the studies referenced above were conducted with the blade version of Platform 1 and additional research was conducted with the induction technology.

We believe that there is full comparability between the subsequent Platform 1 versions, and that the data from the studies conducted with the blade version of Platform 1 remain valid and applicable to the newer and adjacent versions of Platform 1.

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

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Once a consumable is inserted into the mechanical device, the nicotine salt powder is aerosolized upon inhalation.

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

The results of our pharmacokinetic and pharmacodynamic studies related to this version indicate that, subject to a period of adaptation to the product, the product has potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction.

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

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They contain primarily nicotine, flavors, and cellulose substrate.

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

In 2021, PMI acquired AG Snus Aktieselskab ("AG Snus"), as well as Fertin Pharma A/S, two companies manufacturing and/or marketing nicotine pouches.

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

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

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

The acquisition also represents an expansion of our SFP presence in the U.S.

market, where Swedish Match's ZYN brand is the leading nicotine pouch franchise.

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

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

Commercialization of RRPs:

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

Commercialization of SFPs:

We are continuing to develop a multiplatform approach and tailoring our commercialization strategy to the characteristics of each specific market.

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

In order to accelerate switching to our Platform 1 products, our initial market introductions typically entail one-to-one consumer engagement (in person or by digital means) and device discounts.

In order to accelerate switching to our Platform 1 products, our initial market introductions typically entail one-on-one consumer engagement (in person or by digital means) and device discounts.

These initial commercialization efforts require substantial investment, which we believe will moderate over time and further benefit from the increased use of digital engagement capabilities.

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

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

PMI has, and continues to, accelerate its investments in digital consumer engagement.

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

Since then, we have continuously expanded our commercialization activities.

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

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

We have integrated the production of our heated tobacco units into several of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms, 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 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 SFP 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 SFP portfolio in “ Cautionary Factors That May Affect Future Results ”.

We discuss product warranties in more detail in Note 14.

Product Warranty .

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

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc., to end the companies' commercial relationship covering Platform 1 in the U.S.

as of April 30, 2024.

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.

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

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

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc., ("Altria") to end the companies' commercial relationship with respect to Platform 1 in the U.S.

as of April 30, 2024 (the “2022 Agreement”).

Thereafter, under the 2022 Agreement, PMI will hold the full rights to commercialize Platform 1 in the United States - the world’s largest smoke-free market.

The 2022 Agreement provides a clear path to expanding Platform 1's international success in a market where approximately 30 million adults continue to smoke cigarettes.

government contacted Altria and its affiliate, Philip Morris USA, Inc.

(“PM USA”) in connection with the 2022 Agreement.

Altria and its subsidiary PM USA are parties to a 2006 order (“2006 Order”) in the United States District Court for the District of Columbia holding that they violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”).

The 2006 Order imposes restrictions on defendants from selling or transferring their cigarette brands, brand names, cigarette product formulas or cigarette businesses without the transferee submitting to the jurisdiction of the court and subjecting itself to the 2006 Order as of the date of sale or transfer.

government informed Altria that it believed the transaction contemplated by the 2022 Agreement (the “Transaction”) falls within the scope of this provision and that before the Transaction could be effectuated, PMI must submit to the 2006 Order.

To date, the U.S.

government has not pursued the matter with or sought any relief from the court.

We believe that there are strong arguments as to why the provision cited by the U.S.

government is inapplicable to the Transaction and we also believe that there would be paths available to minimize or eliminate potential impact on the timing or effectuation of the Transaction were the U.S.

government to pursue the matter in court.

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

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

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• 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 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.

RRP Regulation and Taxation:

RRPs contain nicotine and are not risk-free.

As we describe in more detail above, we support science-based regulation and taxation of RRPs, and believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking, and should recognize a continuum of risk for tobacco and other nicotine-containing products.

Nicotine pouches are currently available in 27 markets.

SFP Regulation and Taxation:

SFPs contain nicotine and are not risk-free.

As we describe in more detail above, we support science-based regulation and taxation of SFPs, and believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products.

Regulation, as well as industry practices, should reflect the fact that youth should not consume nicotine in any form.

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

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

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

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

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

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

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

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

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

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

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

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

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• 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 before the order expires in four years from the date of the orders.

The FDA may issue two types of MRTP orders:

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The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2022 and February 28, 2023.

The report concluded that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while Heated Tobacco Products (“HTPs”) are not risk-free, the use of HTPs are likely to present less risk of harm for both users and non-users against the well-proven risks of continued cigarette smoking, and therefore continues to support the APPH status of IQOS THS.

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.

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

This renewal request was received by the FDA 360 days prior to the stated July 2024 expiration date of the original modified exposure claim orders.

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

We do not believe the FDA will issue a decision on our MRTP renewal application prior to the stated July 2024 expiration date of the original modified exposure claim orders.

In the event that the FDA does not act on our MRTP renewal application before July 2024, we believe that we should be permitted to continue to use the modified exposure claim with respect to those products that received modified exposure orders until the FDA decides on our MRTP renewal application.

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.

In March 2024, the FDA formally accepted our bundled PMTAs and MRTPAs.

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

On January 19, 2024, the FDA completed its review of our Requests for Exemption from Substantial Equivalence (the “EX REQs”) for the five submitted IQOS consumables and determined that these tobacco products were exempt from the requirements outlined for substantial equivalence (a regulatory pathway that can be used to introduce new tobacco products which have the same characteristics as a product previously authorized by the FDA).

These submissions were made in November 2022 (for the three initial IQOS consumables) and February 2023 (for the two new IQOS consumables) to enable domestic manufacturing of IQOS consumables utilizing materials purchased from vendors operating in the United States.

Some states and municipalities in the U.S.

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

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

have introduced stringent restrictions on the sale of certain e-cigarettes and other smoke-free products, including those authorized by the FDA.

We believe that such restrictions on FDA-authorized products

will not advance public health and will unreasonably limit adult consumer access to products that are shown to be a better alternative to continued cigarette smoking.

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

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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.

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

and was previously vacated nationwide by a federal court in December 2022.

In March 2024, the decision to vacate was reversed and a lower court was directed to consider additional issues.

Proceedings remain ongoing.

Philip Morris Products S.A.

was not a party to this litigation.

is not a party to this litigation.

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

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The FDA held a public hearing on April 12, 2023, to gather additional comments from stakeholders, including the industry, the scientific community, advocacy groups, and the public.

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

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

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

PMI welcomes the FDA’s rule under section 906(e) of the Federal Food, Drug, and Cosmetic Act and plans to share its views with the FDA on this important foundational rule.

In April 2022, the FDA issued a proposed product standard that would prohibit menthol as a characterizing flavor in cigarettes.

In doing so, the FDA specifically requested comments as to whether the rule should contain an exemption process for certain tobacco products, including heated tobacco products, that meet the definition of cigarette and thus fall within the scope of the proposed rule.

We submitted comments to the FDA in August 2022, explained why we believe any prohibition should not extend to FDA-authorized smoke-free products, and otherwise advocated for an automatic exemption for smoke-free products authorized through the PMTA or MRTP review pathways.

The FDA has not completed rulemaking with respect to this proposed product standard.

In October 2023, the FDA submitted the proposed product standard to the White House Office of Management and Budget for review.

It is possible that the FDA will not accept our comments to the proposed product standard and that the menthol product standard, if finalized, will encompass menthol heated tobacco consumables.

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

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

These standards are

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

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

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

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

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

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

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

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

These standards are voluntary.

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

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

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

The decision authorized the following claim:

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

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

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

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

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

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

products, including our Platform 1 product.

The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to cigarette smoke.

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We make our scientific findings publicly available for scrutiny and peer review through several channels, including our websites.

From time to time, adult consumers, competitors, members of the scientific community, and others inquire into our scientific methodologies, challenge our scientific conclusions or request further study of certain aspects of our RRPs and their health effects.

We are committed to a robust and open scientific debate and believe that such debate should be based on accurate and reliable scientific information.

We seek to provide accurate and reliable scientific information about our RRPs;

We seek to provide accurate and reliable scientific information about our SFPs;

nonetheless, we may not be able to prevent third-party dissemination of false, misleading or unsubstantiated information about these products.

The dissemination of scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult smokers and affect their decision to switch to better alternatives to continued smoking, such as our RRPs.

To date, we have been largely successful in demonstrating to regulators that our heated tobacco units are not cigarettes due to the absence of combustion, and as such, they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Although we believe that this is sensible from the public health perspective, we cannot guarantee that regulators will continue this approach.

There can be no assurance that we will succeed in our efforts to replace cigarettes with RRPs or that regulation will allow us to commercialize RRPs in all markets, to communicate about our RRPs, including making scientifically substantiated risk-reduction claims, or to treat RRPs differently from cigarettes.

Legal Challenges to RRPs:

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

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

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

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

There can be no assurance that we will succeed in our efforts to replace cigarettes with SFPs or that regulation will allow us to commercialize SFPs in all markets, to communicate about our SFPs, including making scientifically substantiated risk-reduction claims, or to treat SFPs differently from cigarettes.

Legal Challenges to SFPs:

We face various administrative and legal challenges related to certain SFP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.

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

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

In April 2020, affiliates of British American Tobacco p.l.c.

("BAT") filed a complaint against PMI, Philip Morris Products S.A., Altria Group, Inc., and its subsidiaries b efore the International Trade Commission ("ITC").

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

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The ITC issued a LEO against Philip Morris Products S.A., prohibiting the importation of infringing tobacco heating articles and components thereof, and CDOs against Altria Client Services, LLC, and certain of its affiliates, which went into effect at the end of the 60-day Presidential review period on November 28, 2021.

We have appealed the patent issues.

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

We appealed the patent issues.

Furthermore, lawsuits based on the same patent families were

repeatedly and universally rejected in European courts and the European Patent Office.

The decision has no bearing outside the United States.

On February 1, 2024 we entered into a global settlement with BAT that resolves all ongoing patent infringement litigation between the parties related to heated tobacco and vapor products.

Among other matters, under the settlement PMI and BAT requested rescission of the LEO and CDO, which was granted on March 11, 2024.

For further details, see Note 8.

Contingencies to our condensed consolidated financial statements.

Our RRP Business Development Initiatives:

Our SFP Business Development Initiatives:

In December 2013, we established a strategic framework with Altria Group, Inc.

(“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize two of our RRPs in the U.S.

(“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize two of our SFPs in the U.S.

In late 2018, Altria announced that it will participate in the e-vapor category only through another e-vapor company in which Altria acquired a minority interest.

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For more details, see Note 8.

Acquisitions and Note 10.

Contingencies to our condensed consolidated financial statements.

Contingencies and Note 18.

Acquisitions to our condensed consolidated financial statements.

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

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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.

In 2023, the Foundation and PMI 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

From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising, and labor practices.

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

Contingencies to our condensed consolidated financial statements.

In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by Philip Morris (Thailand) Limited ("PM Thailand") into Thailand (see Note 10.

Contingencies for additional information).

We describe certain matters pending in Thailand in Note 8.

Contingencies .

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

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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 Agreements, as well as the recommendations and rulings of the WTO Dispute Settlement Body.

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.

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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.

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.

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.

The court proceeded with the examination of witnesses beginning in September 2023.

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

War in Ukraine

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

Production at our factory in Kharkiv remains suspended.

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

Preparatory work for the facility began in July 2023.

The new production facility was completed at the end of the first quarter of 2024 and local production commenced in April 2024.

As of March 31, 2024, 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.

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 March 31, 2024, our Russian operations had approximately $2.6 billion in total assets, excluding intercompany balances, of which approximately $0.6 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).

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

For further details, see Note 12.

Related Parties – Equity Investments and Other .

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

For further details, see " Trade Policy " and " Cautionary Factors That May Affect Future Results" sections of this MD&A.

Impact of Inflation on Our Business and Mitigation Efforts

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

Like many other global companies, we have experienced inflationary pressures in 2022, 2023 and the first quarter of 2024, 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.

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.

For the year ended December 31, 2023, the impact on cost of sales was approximately $580 million and while tobacco leaf costs remain a headwind we expect certain inflationary elements to ease, with a more moderate overall increase in 2024.

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.

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

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

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

In addition, our cash flow from operating activities in 2023 was impacted by the net working capital investment related to the procurement of tobacco leaf inventory and higher cost of direct materials.

We expect certain of these inflationary elements to ease in 2024 as noted above.

We have taken several actions to mitigate these inflationary pressures.

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

additional volumes at favorable prices, (v) optimizing the mix of tobacco leaf origins and suppliers, (vi) continuous evaluation of shipping routes and methods of shipment, (vii) supplier negotiations, (viii) variable contract durations for energy costs, (ix) hedging strategies, and (x) other pricing, productivity and procurement initiatives.

Asset Impairment and Exit Costs

1 unchanged sentence

Asset Impairment and Exit Costs to our condensed consolidated financial statements.

GAAP Treatment of Highly Inflationary Economies

We apply highly inflationary accounting to the results of operations of our subsidiaries in Argentina, Turkey and Lebanon as the cumulative inflation rate in these economies for a three-year period meets or exceeds 100%, in accordance with U.S.

As a result, monetary assets and liabilities denominated in local currencies are remeasured to the U.S.

Dollar at each balance sheet date, with remeasurement gains and losses recognized in consolidated statement of earnings.

This impact of currency fluctuations could negatively impact our financial condition and results of operations.

For the three months ended March 31, 2024 and 2023, we recognized exchange gains (losses) of $15 million and $(14) million, respectively, resulting from remeasurement adjustments related to highly inflationary accounting.

Climate Change Laws and Regulations

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

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

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

Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement, recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s proposed rules regarding climate-related disclosures, the Task Force on Nature-related Financial Disclosures, the EU Corporate Sustainability Reporting Directive, the EU Taxonomy Regulation, the EU Deforestation Regulation, the EU Proposal for a Corporate Sustainability Due Diligence Directive, the International Sustainability Standards Board proposed standards, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement, the work of the International Financial Reporting Standards Foundation, including the International Sustainability Standards Board proposed climate standard and the recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s rules regarding climate-related disclosures, the California Climate Corporate Accountability Act, the California Greenhouse Gases:

Climate-Related Financial Risk Act, the Task Force on Nature-related Financial Disclosures, the EU Corporate Sustainability Reporting Directive, the EU Taxonomy Regulation, the EU Deforestation Regulation, the EU Proposal for a Corporate Sustainability Due Diligence Directive, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Acquisitions and Other Business Arrangements

25 unchanged sentences

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

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

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

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

3 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 2021-2023, 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.

From 2021 to 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.

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

The restrictions are primarily targeted at the Russian financial, banking, oil, military, aviation and marine sectors.

The restrictions target, among others, the Russian financial, banking, oil, military, aviation and marine sectors.

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

person, wherever located, 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.

6 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.

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 imposed sanctions on Mr.

Igor Kesaev, a non-majority shareholder of Megapolis Distribution B.V.

The U.S., the U.K., Switzerland and the EU banned the export of electric accumulators and static converters to Russia.

In addition, the U.S.

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

Certain countries also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, most with exceptions for subsidiaries of U.S., E.U., or Swiss owned companies.

Certain countries also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, or required licenses to continue delivering these services to Russian persons or entities after June 20, 2024.

We are working to mitigate any potential impacts from these restrictions.

Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions.

Countermeasures include restrictions on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

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

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.

Segment Operating Results – Three Months Ended March 31, 2024

The following discussion compares operating results within each of our segments for the three months ended March 31, 2024, with the three months ended March 31, 2023.

Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,672 $ 3,272 12.2 % 6.1 % $ 400 $ 202 $ — $ 176 $ 22 $ —

Operating Income $ 1,708 $ 1,415 20.7 % 11.9 % $ 293 $ 124 $ — $ 176 $ 11 $ (18)

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;

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 $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 -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

2 unchanged sentences

Operating Income $ 1,456 $ 1,215 19.8 % 18.7 % $ 241 $ 14 $ — $ 163 $ 64 $ —

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.

During the quarter, net revenues increased by 9.7%.

Net revenues, excluding currency, increased by 7.1%, reflecting:

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 cigarettes volume.

The pricing variance for the full year 2023 and the first three months of 2024 was negatively impacted by the supplemental tax surcharge on heated tobacco units in Germany, which went into effect in 2022.

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

It is currently being assessed in court and the obligation to pay the surcharge is temporarily suspended.

On March 14, 2024 the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law.

Fiscal Court in Dusseldorf (the "FCD") had previously referred that question to the CJEU.

The decision on the matter lies with the FCD and we expect a judgement in the coming months.

PMI currently accounts for the surcharge as a reduction in net revenues and in accrued liabilities in its results.

1 unchanged sentence

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

Operating income, excluding currency and acquisitions, decreased by 1.5%, primarily reflecting:

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

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);

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).

Operating income increased by 19.8%.

Operating income, excluding currency, increased by 18.7%, primarily reflecting:

a favorable comparison to 2023 of $47 million related to asset impairment and exit costs, a favorable pricing variance, mainly driven by higher combustible tobacco pricing;

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

partly offset by higher manufacturing costs, including the impact of the EU single-use plastics directive.

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

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

2023 2022 % / pp 2023 2022 % / pp

In the first quarter, the estimated total market for cigarettes and HTUs in the Region decreased by 0.4% to 124.5 billion units, reflecting a 2.1% decline for cigarettes, largely offset by an increase for HTUs.

The decrease in the estimated total market was predominantly due to France (down by 16.1%) and the UK (down by 11.1%), largely offset by Poland (up by 4.7%) and Bulgaria (up by 9.7%).

Europe Key Data First-Quarter

2024 2023 % / pp

PMI Market Share

2 unchanged sentences

Total Europe 40.0 % 39.3 % 0.7

Sum may not foot to total due to roundings

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.

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.

Sum may not foot due to roundings.

In the first quarter, our total cigarette and HTU shipment volume in the Region decreased by 1.7% to 48.4 billion units.

Total cigarette and HTU shipment volume decreased notably in France (down by 31.7%) and Italy (down by 10.4%) driven by cigarettes, and increased notably in Poland (up by 10.0%) and Germany (up by 4.8%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 9.4% in the quarter, reflecting continued growth momentum for IQOS , partly offset by the impact from the EU characterizing flavor ban.

Our HTU share of the total cigarette and HTU market in the Region increased by 1.1 points, or by 0.9 points on an adjusted basis.

Other Oral SFP includes chew bags and tobacco bits

Sum may not foot due to roundings.

Oral SFP shipments increased by 16.5% with growth of snus (up by 11.6%) and nicotine pouches (up by 55.9%), benefiting from timing of shipments and underlying category growth in the Nordics.

SSEA, CIS & MEA:

Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,777 $ 2,822 (1.6) % 12.6 % $ (45) $ (401) $ — $ 265 $ 118 $ (27)

Operating Income $ 801 $ 1,086 (26.2) % 1.9 % $ (285) $ (306) $ — $ 265 $ (74) $ (170)

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;

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);

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 -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

2 unchanged sentences

Operating Income $ 772 $ 734 5.2 % 38.0 % $ 38 $ (241) $ — $ 155 $ 46 $ 78

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 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 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;

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.

During the quarter, net revenues increased by 7.3%.

Net revenues, excluding currency, increased by 15.1%, primarily reflecting:

a favorable comparison to 2023 reflecting a 2023 charge of $80 million following the termination of a distribution arrangement in the Middle East, a favorable pricing variance, mainly driven by higher combustible tobacco pricing;

and favorable volume/mix, driven by higher HTU and cigarettes volume and favorable HTU and cigarettes mix.

Operating income increased by 5.2%.

Operating income, excluding currency, increased by 38.0%, primarily reflecting:

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

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

partly offset by higher manufacturing costs (primarily due to inflationary impacts).

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

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%).

In the first quarter, the estimated total market for cigarettes and HTUs in the Region increased by approximately 1% to 371.0 billion units.

The increase in the estimated total market was mainly due to Indonesia (up by 6.4%) and Turkey (up by 14.8%), partly offset by Egypt (down by 14.2%) and Pakistan (down by 20.7%).

In the first quarter, our total cigarette and HTU shipment volume in the Region increased by 5.2% to 86.3 billion units, mainly driven by Turkey (up by 25.0%), partly offset by the Philippines (down by 18.1%).

PMI's estimated HTU adjusted in-market sales volume increased by 14.6%, with 11.6% HTU shipment volume growth.

EA, AU & PMI DF:

Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,571 $ 1,407 11.7 % 15.3 % $ 164 $ (51) $ — $ 36 $ 179 $ —

Operating Income $ 753 $ 533 41.3 % 54.0 % $ 220 $ (68) $ — $ 36 $ 170 $ 82

During the quarter, net revenues, excluding currency and acquisitions, increased by 15.3%, reflecting:

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

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;

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

Nine Months Ended September 30, Change

Financial Summary - Quarters Ended March 31, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

2 unchanged sentences

Operating Income $ 763 $ 637 19.8 % 39.4 % $ 126 $ (125) $ — $ 130 $ 72 $ 49

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).

During the quarter, net revenues increased by 10.8%.

Net revenues, excluding currency, increased by 18.0%, reflecting:

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume.

Operating income increased by 19.8%.

Operating income, excluding currency, increased by 39.4%, mainly reflecting:

the same factors as for net revenues, as well as lower shipping costs and a favorable comparison to 2023 of $19 million related to asset impairment and exit costs.

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

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%.

In the first quarter, the estimated total market for cigarettes and HTUs in the Region, excluding China, increased by around 1% to 75.9 billion units, with 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 17.6%) and Taiwan (up by 15.0%).

In the first quarter, our total cigarette and HTU shipment volume in the Region increased by 9.3% to 27.2 billion units, driven by Japan (up by 21.1%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 14.6% in the quarter, including growth in Japan of 13.3%.

Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 478 $ 474 0.8 % (7.2) % $ 4 $ 38 $ — $ 21 $ (54) $ (1)

Operating Income $ 5 $ 85 (94.1) % (49.4) % $ (80) $ (38) $ — $ 21 $ (41) $ (22)

During the quarter, net revenues, excluding currency and acquisitions, decreased by 7.2%, 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 49.4%, mainly reflecting:

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

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 -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

2 unchanged sentences

Operating Income $ 99 $ 183 (45.9) % (57.9) % $ (84) $ 22 $ — $ (1) $ 113 $ (218)

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 (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.

During the quarter, net revenues increased by 14.7%.

Net revenues, excluding currency, increased by 11.4%, primarily reflecting:

favorable volume/mix, mainly due to growth of ZYN nicotine pouches in the U.S., partly offset by lower cigarette volume and unfavorable cigarette mix outside of the U.S.

Operating income decreased by 45.9%.

Operating income, excluding currency, decreased by 57.9%, mainly reflecting:

higher asset impairment and exit costs, higher amortization of intangibles and higher marketing and administration costs, including incremental investment in the U.S.

The decrease was partly offset by a favorable volume/mix, mainly due to the same factors as for net revenues, and a favorable comparison to 2023 of $18 million related to Swedish Match AB acquisition accounting related items.

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

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:

As of November 11, 2022, PMI became the owner of a majority position in Swedish Match and started consolidating Swedish Match operating results.

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

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 September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 568 $ — — % — % $ 568 $ — $ 568 $ — $ — $ —

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

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

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,814 $ — — % — % $ 1,814 $ — $ 1,814 $ — $ — $ —

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

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.

Swedish Match - PMI Shipment Volume Commentary

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

Third-Quarter Nine Months Year-to-Date

Nicotine Pouches 2023 2022 Change 2023 2022 Change

105.4 — — % 268.5 — — %

Scandinavia 7.5 — — % 21.6 — — %

Other 1.3 — — % 3.6 — — %

Total Nicotine Pouches 114.2 — — % 293.8 — — %

Scandinavia 55.2 — — % 162.6 — — %

Other 1.4 — — % 5.2 — — %

Total Snus 56.6 — — % 167.8 — — %

Moist Snuff 33.2 — — % 102.5 — — %

Other 0.9 — — % 3.3 — — %

Total Oral Products 204.9 — — % 567.4 — — %

In the first quarter, the estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by around 3% to 44.7 billion units, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Argentina (down by 7.8%) and Canada (down by 13.1%), partly offset by Brazil (up by 3.5%) and Mexico (up by 1.8%).

In the first quarter, our total cigarette and HTU shipment volume in the Region decreased by 3.7% to 14.5 billion units, mainly due to Argentina (down by 9.8%).

Cigar shipment volume declined by 23%, versus a difficult comparison due to prior year trade inventory movements.

(1) Excluding U.S.

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 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.

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 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 12.4% 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.

Sum may not foot due to roundings.

Oral products shipments increased by 52.1%, driven by ZYN nicotine pouches (up by 79.7%) in the U.S., partly offset by moist snuff (down by 2.3%) driven by a declining category and pricing.

Wellness and Healthcare:

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Financial Summary

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 75 $ 57 31.6 % 26.3 % $ 18 $ 3 $ — $ 15 $ — $ —

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

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 -

Nine Months Ended September 30, Change

Quarters Ended March 31, Change

Fav./(Unfav.) Variance

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2024 2023 Total Excl.

Cur-rency Total Cur-

rency Acqui-sitions Price Vol/

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Operating Income / (Loss) $ (45) $ (38) (18.4) % (23.7) % $ (7) $ 2 $ — $ 2 $ — $ (11)

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.

During the quarter, net revenues increased by 4.7%.

Net revenues, excluding currency, increased by 2.3%.

The operating loss of $45 million in 2024 was primarily due to investments in research and development, and administration costs, as well as a charge for impairment of other intangible assets of $26 million and the amortization of acquired intangibles.

Financial Review

Cash Flow Highlights

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in millions) 2024 2023

Net cash provided by operating activities $ 5,902 $ 7,710

Net cash used in investing activities (3,030) (151)

Net cash used in financing activities (2,685) (6,071)

Net Cash Provided by Operating Activities

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 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 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 $1.0 billion during the first nine months of 2023 increased by $280 million as compared with the first nine months of 2022.

Net cash provided by (used in) operating activities $ 241 $ (955)

Net cash provided by (used in) investing activities (193) (591)

Net cash provided by (used in) financing activities 1,135 864

Net Cash Provided by (Used in) Operating Activities

During the first three months of 2024, net cash provided by operating activities was $241 million as compared to $955 million of net cash used in the first three months of 2023.

Excluding unfavorable currency movements of $364 million, the favorable variance of $1.6 billion was due primarily to lower working capital requirements of $1.0 billion and higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense and other intangible impairment charges.

The unfavorable currency movements primarily related to the currency impact on net earnings and represented the fluctuations of the U.S.

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

The lower working capital requirements in 2024 as compared with 2023 were primarily due to less cash used in accrued liabilities and other current assets, net of more cash provided by inventories, mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and the timing of the corresponding excise tax payments, as well as tactical stock increases for certain direct materials in 2023.

These changes in the working capital requirements were partly offset by more cash used in accounts receivable mainly reflecting lower usage of our factoring arrangements to sell trade receivables, as well as the timing of sales and cash collections.

For further detail on our factoring arrangements, see Note 13.

Sale of Accounts Receivable.

For the full year 2024, we currently expect net cash provided by operating activities of $10 billion to $11 billion at prevailing exchange rates, subject to year-end working capital requirements.

Net Cash Provided by (Used in) Investing Activities

During the first three months of 2024, net cash used in investing activities was $193 million as compared to $591 million in the first three months of 2023.

This decrease in net cash used was primarily due to changes in the cash collateral posted for derivative instruments, partially offset by higher capital expenditures.

Capital expenditures of $417 million during the first three months of 2024 increased by $138 million as compared with the first

three months of 2023.

The 2024 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.

Net Cash Used in Financing Activities

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.

The decrease was partially offset by payments to acquire remaining issued and outstanding shares in Swedish Match.

For further details on the transactions with noncontrolling interests in our Turkish subsidiaries and our purchase of remaining Swedish Match shares, see Note 2.

Acquisitions .

We expect total capital expenditures in 2024 to be approximately $1.2 billion, partly reflecting investments in ZYN capacity in the U.S.

Net Cash Provided by (Used in) Financing Activities

During the first three months of 2024, net cash provided by financing activities was $1.1 billion as compared to $0.9 billion in the first three months of 2023.

The increase in net cash provided was primarily due to favorable comparisons to 2023 reflecting:

repayment on the bridge facility in 2023 related to the Swedish Match acquisition;

payments in 2023 to acquire the remaining issued and outstanding shares in Swedish Match;

and the 2023 repayments of long-term debt.

These increases in net cash provided was partly offset by lower net borrowings in 2024 reflecting lower long-term debt proceeds and lower net short-term borrowings (primarily commercial paper).

Debt and Liquidity

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Our cash and cash equivalents are predominantly held with institutions that have investment-grade long-term credit rating.

As part of our cash management strategy and in order to manage counterparty exposure, we also enter into reverse repurchase agreements.

Such agreements are collateralized with government or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank.

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

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.

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Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings.

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

At March 31, 2024, our credit ratings and outlook by major credit rating agencies were as follows:

Short-term Long-term Outlook

1 unchanged sentence

Standard & Poor’s A-2 A- Stable

Fitch F1 A Stable

Fitch F1 A Negative

Revolving Credit Facilities

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

At March 31, 2024, our committed revolving credit facilities were as follows:

Type (in billions) Committed

8 unchanged sentences

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.

At March 31, 2024, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

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 $2.6 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.

These credit arrangements amounted to approximately $2.1 billion at March 31, 2024, and approximately $2.7 billion at December 31, 2023.

Borrowings under these arrangements and other bank loans amounted to $130 million at March 31, 2024, and $283 million at December 31, 2023.

Credit Facilities related to the Financing of the Swedish Match Acquisition

6 unchanged sentences

PMI borrowed $8.4 billion under the bridge facility by delivering notices of borrowing for advances of $7.9 billion and $0.5 billion on November 7, 2022 and November 10, 2022, respectively.

All amounts borrowed under the bridge facility would become due on November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility.

On November 7, 2022, PMI also delivered notices of borrowing for advances totaling €5.5 billion under the term loan facility, of which €3.0 billion will become due on November 9, 2025 and €2.5 billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit agreement.

On November 21, 2022 and February 17, 2023, PMI repaid $4.0 billion and $4.4 billion, respectively, under the bridge facility.

Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.

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

As of March 31, 2024 and December 31, 2023, 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.

For further details on this acquisition, see Note 2.

Acquisitions .

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S.

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

At September 30, 2023, we had $1.9 billion of commercial paper outstanding.

At March 31, 2024, we had $149 million of commercial paper outstanding.

At December 31, 2023, we had $1.7 billion commercial paper outstanding.

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

The average commercial paper balance outstanding during the first three months of 2024 was $2.9 billion.

The average commercial paper balance outstanding during 2023 was $3.6 billion.

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Supply Chain Financing to our condensed consolidated financial statements.

Debt – Our total debt was $47.7 billion at September 30, 2023 and $43.1 billion at December 31, 2022.

Debt – Our total debt was $50.4 billion at March 31, 2024 and $47.9 billion at December 31, 2023.

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 nine months of 2023 were as follows:

PMI's debt issuances in the first three months of 2024 were as follows:

(in millions)

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dollar notes (a) $1,750 5.250% February 2024 February 2034

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

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

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

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

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 2024

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

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

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

(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.

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

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

Acquisitions .

The remaining net proceeds of the February and May 2023 offerings, 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.

The net proceeds from the sale of the securities listed in the table above have been or will be used for general corporate purposes, including working capital requirements, repayment of commercial paper and to refinance certain of our outstanding notes due in 2024.

Guarantees – At March 31, 2024, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

There is no liability in the condensed consolidated financial statements associated with these guarantees.

These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.

In October 2020, we guaranteed an obligation for a then equity method investee that was subsequently divested in 2022.

For further details, see Note 10.

Contingencies to our condensed consolidated financial statements.

Swedish Match Notes Consent Solicitation and PMI Guarantee

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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.

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 September 30, 2023 in Note 4.

We discuss our stock awards as of March 31, 2024 in Note 2.

Stock Plans to our condensed consolidated financial statements.

On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period.

On July 22, 2021, we began repurchasing shares under this new share repurchase program.

From July 22, 2021 through March 31, 2022, we repurchased 10.5 million shares of our common stock at a cost of approximately $1.0 billion.

During the first three months of 2022, we repurchased 2.0 million shares of our common stock at a cost of $199 million.

On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders.

Prior to the suspension of the program, we made no share repurchases during the second quarter of 2022.

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

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

We did not make any share repurchases in 2023 and we do not currently anticipate restarting our share repurchase program during 2024.

Dividends paid in the first three months of 2024 were $2.0 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.

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We continuously monitor and assess the credit worthiness of all our counterparties.

Derivative Financial Instruments - We operate in markets primarily outside of the United States of America, with manufacturing and sales facilities in various locations around the world.

Derivative Financial Instruments - We operate in markets globally with manufacturing and sales facilities in various locations around the world.

Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure.

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

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

Our SFPs 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.

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Overall Business Risks

We may be unsuccessful in our attempts to introduce reduced-risk products, and regulators may not permit the commercialization of these products or the communication of scientifically substantiated information and claims.

We may be unsuccessful in our attempts to introduce, commercialize, and grow smoke-free products in existing and new markets, and regulators may prohibit or significantly restrict the commercialization of these products or the communication of scientifically substantiated information and claims.

Our key strategic priorities are to:

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

(i) continue developing and commercializing products that present less risk of harm to adult smokers who switch to smoke-free products versus continued cigarette smoking;

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

For our efforts to be successful, we must:

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

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

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

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

We might not succeed in our efforts.

If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may be at a competitive disadvantage.

In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the totality of scientific evidence available for specific products.

This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs.

We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated information and claims.

Such restrictions could limit the success of our RRPs.

The WHO study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation in May 2021.

The report is based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and HTPs on a number of scientific topics.

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

We might not succeed in our effort to introduce, commercialize, and grow our SFPs in existing and new markets.

If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated compared to other SFP categories without regard to the totality of the scientific evidence available for such products, we may be at a competitive disadvantage.

In addition, actions of some market participants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize the health consequences of all e-vapor products or other SFPs to consumers, regulators and policy makers without regard to the totality of scientific evidence available for specific products.

This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of SFPs.

We cannot predict the extent to which regulators will permit the sale and/or marketing of SFPs.

Regulatory restrictions could limit the success of our SFPs.

The World Health Organization (the "WHO") study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation in May 2021.

The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products and the access to accurate information about them.

In August 2021, the FCTC Secretariat published two reports on novel and emerging tobacco products to the Ninth Session of the CoP of the FCTC, which are not materially different from the WHO study group report.

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

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

The full report from this meeting is not yet published.

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

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.

Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development of science-based regulatory frameworks for the commercialization of the RRP category and the commercialization of the RRP category in general.

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products, and not for non-smokers or youth.

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

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

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

of RRPs may be significantly impacted.

Substantive decisions based on these reports were deferred to the Tenth Session of the CoP ("CoP 10").

CoP 10 to the FCTC took place in February 2024.

According to reports and decisions published, neither new decisions nor new policy recommendations on novel and emerging tobacco products were adopted.

Specific Guidelines were adopted to address cross-border Tobacco Advertising,

Promotion, and Sponsorship ("TAPS") and the depiction of tobacco in entertainment media.

The Eleventh session of the CoP is currently scheduled to take place in 2025.

The WHO’s reports and other FCTC guidelines or recommendations are not binding on the WHO Member States or on parties to the FCTC, and so it is not possible to predict the extent to which any proposals it adopts will be implemented.

However, the WHO proposals could lead to restrictions on the availability of certain of our SFPs and access to accurate information about them in one or more of our markets, which could have a material adverse effect on our results of operations.

Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development of science-based regulatory frameworks for the commercialization of the SFP category and the commercialization of the SFP category in general.

Our SFPs 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.

Despite our efforts, technological, operational, regulatory and/or commercial developments might impact the implementation or effectiveness of youth access prevention mechanisms and surrounding infrastructure.

If there is significant usage, whether actual or perceived, 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 SFPs 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.

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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.

The FDA has not completed its review of such applications but, consistent with its practice concerning products with respect to which applications were filed prior to a September 9, 2020 deadline, the FDA has not taken enforcement action to prevent these ZYN products from being marketed or indicated that it intends to do so.

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.

Our RRPs are novel products in a new category, and the pace at which adult smokers adopt them may vary, depending on the competitive, regulatory, fiscal and cultural environment, and other factors in a specific market.

The commercialization of our products in the United States is dependent on successfully managing compliance with federal, state, and local laws, regulations, legal agreements, and related interpretations.

Failure to successfully manage compliance and to resolve any disputes that may arise regarding the application of legal and administrative requirements to our products could negatively impact the timing, manner, or success of our SFP commercialization in the United States.

The financial and business performance of our smoke-free products is less predictable than our cigarette business.

Our SFPs are novel products in a relatively new category, and the pace at which adult smokers adopt them may vary, depending on the competitive, regulatory, fiscal and cultural environment, and other factors in a specific market.

There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business.

The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category, due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption, which in turn may have a material adverse effect on our results of operation.

We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and accordingly they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Nevertheless, we are unable to predict whether regulators will be issuing new regulations under which RRPs will be equally taxed in line with other tobacco products such as ordinary cigarettes.

However, if we cease to be successful in these efforts, RRP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operation.

The impact of this lower predictability on our projected results for a specific period may be significant, due to geopolitical or macroeconomic events that negatively impact SFP availability or adoption, which in turn may have a material adverse effect on our results of operations.

We may be unsuccessful in our efforts to differentiate smoke-free products and cigarettes with respect to taxation.

To date, we have been largely successful in demonstrating to regulators that our SFPs are not cigarettes due to the absence of combustion, and accordingly they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Nevertheless, we are unable to predict whether regulators will be issuing new regulations under which SFPs will be equally taxed in line with other tobacco products such as conventional cigarettes.

If we cease to be successful in these efforts, SFP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operations, revenues, cash flows, and profitability.

Consumption of tax-paid cigarettes continues to decline in many of our markets.

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These factors and their potential consequences are discussed more fully below and in the "Business Environment" section in this Form 10-Q .

A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability, which in turn may have a material adverse effect on our ability to fund our smoke-free transformation.

A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue, cash flow and profitability, which in turn may have a material adverse effect on our ability to fund our smoke-free transformation.

Cigarettes are subject to substantial taxes.

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Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volumes for our products in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase down-trading and the risk of counterfeiting, contraband, "illicit whites" and cross-border purchases.

Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the FCTC.

Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to adult smokers.

Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the Framework Convention on Tobacco Control (the "FCTC").

Regulatory initiatives that have been proposed, introduced or enacted by governmental authorities in various jurisdictions include:

• restrictions on or licensing of outlets permitted to sell cigarettes;

• restrictions on or licensing of outlets permitted to sell tobacco or nicotine-containing products;

• the levying of substantial and increasing tax and duty charges;

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• restrictions on packaging and cigarette formats and dimensions;

• restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending machines;

• generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited;

• requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;

• disclosure, restrictions, or bans of tobacco product ingredients, including bans on the flavors of certain tobacco products;

• restrictions or bans on the display of product packaging at the point of sale and restrictions or bans on vending machines;

• generation sales bans, under which the sale of certain tobacco or nicotine-containing products to people born after a certain year would be prohibited;

• requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and/or other smoke or product constituents;

• disclosure, restrictions, or bans of tobacco product ingredients, including bans on the flavors of certain tobacco and nicotine-containing products;

• increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in some instances, in private places and outdoors;

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Our financial results could be materially affected by regulatory initiatives resulting in a significant decrease in demand for our brands.

More specifically, 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.

More specifically, requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our SFPs, 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.

Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates.

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Such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings.

Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles.

If implemented, such changes, as well as changes in taxing jurisdictions’ administrative

interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings.

As of March 31, 2024, many countries have enacted the OECD’s framework on a global minimum tax (referred to as “Pillar Two”), effective for taxable years beginning after December 31, 2023.

While we have determined that Pillar Two should not have a material impact on our 2024 consolidated financial statements, we will continue to evaluate and monitor as additional guidance and clarification becomes available.

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.

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

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

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

Our financial performance, credit ratings, interest rates, the stability of

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

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

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

We could decide, or be required to, recall products, which could have a material adverse effect on our business, reputation, results of operations, cash flows or financial position.

We could decide, or laws or regulations could require us, to recall products due to the failure, or alleged failure, to meet quality standards or specifications, suspected or confirmed and deliberate or unintentional product contamination, manufacturing defects, or other product adulteration, misbranding or tampering.

A product recall or a product liability or other claim (even if unsuccessful or without merit) could generate negative publicity about us and our products, and our Company’s reputation or that of our brands may be adversely affected.

In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, adult nicotine consumers might reduce their overall consumption of products in that product category.

Any of these events could have a material adverse effect on our business, reputation, results of operations, cash flows or financial position.

We may be required to write down assets due to impairment, which could have a material adverse effect on our results of operations or financial position.

We continuously monitor the values of our long-lived assets, reporting units, intangible assets, as well as investments in equity securities, including our continuing investment in Rothmans, Benson & Hedges ("RBH"), to determine whether events or changes in circumstances indicate that an impairment exists.

Additionally, we test goodwill and non-amortizable intangible assets for impairment annually.

The values of these assets may be affected by several factors, including general macroeconomic and geopolitical conditions;

regulatory and legal developments;

changes in product volume growth rates;

changes in pricing strategies and costs bases;

discount rates;

success of planned new product expansions;

competitive activity;

and income and excise taxes.

If an impairment is determined to exist, we will incur impairment losses, which could have a material adverse effect on our results of operations or financial position.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for additional information concerning impairment determination and calculation.

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

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In 2022, as a result of Russia’s invasion of Ukraine, we suspended planned investments and scaled down our manufacturing operations in Russia.

The short and long-term implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict at this time.

The full implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict at this time.

The likelihood of retaliatory action by the Russian government against companies, including PMI, as a result of actions and statements made in response to the Russian invasion or otherwise, including the possibility of legal action against us or our employees;

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In Ukraine, there is no way to know when and to what extent we will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact.

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

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

The conflict also continues to elevate the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products.

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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.

Given the nature of our business and global operations, such geopolitical instability and uncertainty could increase the costs of our materials and operations;

Given the nature of our business and global operations, such geo-political instability and uncertainty could increase the costs of our materials and operations;

reduce demand for our products;

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While we will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop, the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.

The conflict may also have the effect of heightening many other risks disclosed in this Form 10-Q, any of which could adversely affect our business, results of operations, cash flows or financial position.

Such risks could affect, without limitation, the achievement of our strategic priorities, including achievement of our RRP growth targets;

The conflict may also heighten many other risks disclosed in this Form 10-Q, any of which could adversely affect our business, results of operations, cash flows or financial position.

Such risks could affect, without limitation, the achievement of our strategic priorities, including achievement of our smoke-free business growth targets;

the availability of third-party manufacturing resources;

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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.

While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted.

Among other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including tobacco, due to a number of factors beyond our control, including more frequent variations in weather patterns, extreme weather events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade, all of which may lead to disruption of operations at factories, warehouses and other premises.

Furthermore, risks related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world, biodiversity loss, water resource depletion and deforestation, which are partially driven or exacerbated by climate change, may disrupt our business operations or those of our suppliers and business partners.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change.

New climate-related legal or regulatory requirements may lead to additional carbon taxation, energy price increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operation.

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

While we seek to mitigate our business risks associated with environmental issues, such as climate change, by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent environmental-related risks, including climate change-related risks, wherever business is conducted.

Among other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including tobacco, due to several factors beyond our control, including more frequent variations in weather patterns, extreme weather events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade, all of which may lead to disruption of operations at factories, warehouses and other premises.

Furthermore, nature-related risks, including those related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world, biodiversity loss, water resource depletion and deforestation, which are partially driven or

exacerbated by climate change, may negatively impact the resilience of, or otherwise disrupt, our business operations or those of our suppliers and business partners.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies on environmental policies, including those relating to climate change.

New environmental-related legal or regulatory requirements may lead to additional carbon taxation, raw or other materials taxation, energy price increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operations.

Moreover, given that the regulatory framework in this regard is highly dynamic, additional uncertainties may be driven by further upcoming regulatory changes on which we might have limited visibility or limited time to implement, which could have an impact on several elements of our business, including elevating the cost or complexity of our operations.

Even if we make changes to align ourselves with legal or regulatory requirements, we may still be subject to significant penalties if such laws or regulations are interpreted and applied in a manner inconsistent with our practices.

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Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.

A prolonged disruption of our production facilities could have a material adverse effect on our business, financial condition and results of operations.

A prolonged disruption at or shut-down of one or more of our production facilities, especially our ZYN production facility in Kentucky, which currently supplies substantially all of our capacity for ZYN sales in the U.S., due to natural- or man-made disasters or other events outside of our control, such as equipment malfunction or widespread outbreaks of acute illness, including COVID-19, or for any other reason, could limit our capacity to meet customer demands.

Such an event could disrupt our operations;

delay production, shipments and revenue;

and result in significant expense to repair or replace our affected facilities.

As a result, we could forgo revenue opportunities and potentially lose market share, which could materially and adversely affect our business, financial condition and results of operations.

Risks Related to our International Operations

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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;

Such developments – including the impact of geopolitical disruptions resulting from the conflict in the Middle East and 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 distribution, manufacturing or supply chain;

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Our primary local currency cost bases may be different from our primary currency revenue markets, and U.S.

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.

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

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.

All of which could have a material adverse effect on our financial condition, including our leverage ratios, 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.

Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs.

Increasing inflationary pressures has and may continue to result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs.

While we take actions, wherever possible, to reduce the impact of the effects of inflation, in cases of sustained and elevated inflation across several of our major markets, it may be difficult to effectively control the increases to our costs.

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

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

We expect inflation to remain elevated through 2023.

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.

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

We expect certain inflationary elements to ease, with a moderate increase in 2024.

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

Risks Related to Legal Challenges and Investigations

Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.

There is litigation related to tobacco products pending in certain jurisdictions in which we operate.

Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S.

Litigation related to tobacco products and nicotine products could substantially reduce our profitability and could severely impair our liquidity.

There is litigation related to tobacco products and/or nicotine products pending in certain jurisdictions in which we operate.

Damages claimed in some tobacco-related litigation are significant and, in certain cases in Canada and Nigeria, range into the billions of U.S.

As of March 2024, we also face litigation related to our oral nicotine products before certain courts in the United States.

We anticipate that new cases will continue to be filed.

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It is possible that our consolidated results of operations, cash flows or financial position could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation.

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

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

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

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

Also, see Note 8.

Contingencies to our condensed consolidated financial statements for a discussion of pending litigation.

Contingencies to our consolidated financial statements for a discussion of pending litigation.

From time to time, we are subject to governmental investigations on a range of matters.

Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices.

We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially adversely affected by an unfavorable outcome of pending or future investigations.

We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business

could be materially adversely affected by an unfavorable outcome of pending or future investigations.

Contingencies—Other Litigation to our condensed consolidated financial statements and the “Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Business Environment—Governmental Investigations” in this Form 10-Q for a description of certain governmental investigations to which we are subject.

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Intellectual property rights of third parties may limit our ability to develop, manufacture and/or commercialize our products in one or more markets.

Competitors or other third parties may claim that we infringe on their intellectual property rights.

Any such claims, regardless of merit, could divert management’s attention;

be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages;

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

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

in such markets would be adversely affected.

Competitors or other third parties may claim that we infringe their intellectual property rights.

Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages, and may impede our ability to develop, manufacture and/or commercialize new or existing SFPs 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 SFPs or improve their quality in one or more markets, our ability to convert adult smokers to our SFPs in such markets would be adversely affected.

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

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

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

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.

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 product taxes;

higher absolute prices and larger gaps between retail price categories;

and product regulation that diminishes the ability to differentiate tobacco products, restricts adult consumer access to truthful and non-misleading information about our SFPs, 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 than PMI to changes in currency exchange rates.

Some competitors have different profit, volume and regulatory objectives, some international competitors may be less susceptible than PMI to changes in currency exchange rates, and some competitors may sell products in circumvention of applicable regulations that compete directly with our products.

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.

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

See Item 1, Business—Competition of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a description of the competitive environment in which we operate.

We may be unable to anticipate changes in adult consumer preferences.

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• improve productivity;

• educate and encourage adult smokers to convert to our RRPs;

• ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;

• educate and encourage adult smokers to convert to our SFPs;

• ensure effective adult consumer engagement, including communication about product characteristics and usage of SFPs;

• mitigate the impact of developments that cause damage to our reputation and that of our brands;

• provide excellent customer care;

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

In addition to economic uncertainty (including recessions and inflation) unusual weather events and global or local epidemics, endemics or pandemics (such as COVID-19) could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

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

Our profit growth may be materially adversely impacted if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships, and the intended benefits from our investments may not materialize.

In addition to economic uncertainty (including recessions and inflation) unusual weather events and global or local epidemics, endemics or pandemics (such as COVID-19) has and may change the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

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

Our profit growth may be materially adversely impacted if we are unable to introduce new products or enter new markets successfully, to meet the demand for our products with increased production capacity, to raise prices, or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through acquisitions or the development of strategic business relationships, and the intended benefits from our investments may not materialize.

One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships.

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To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business.

We compete for talent, including in areas that are new to us such as digital, information technology, and life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance.

We compete for talent, including in areas that are relatively new to us such as digital, information technology, and life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance.

As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

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There can be no assurance that such security incidents or vulnerabilities will not have a material adverse effect on us in the future.

While PMI works to mitigate these risks by implementing a cybersecurity risk program and a third-party cybersecurity risk management program, there can be no assurance that these programs are comprehensive or accurately identify and sufficiently mitigate all cybersecurity risks.

We continue to make investments in administrative, technical, and physical safeguards to maintain information security protections in line with industry standards and best practices.

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and result in significant remediation and other costs.

Cybersecurity of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a description of our cybersecurity risk management and strategy and governance.

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 U.S.

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

implement appropriate technological and reasonable security measures;

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Such laws and regulations across the jurisdictions in which PMI operates may vary, resulting in inconsistent or conflicting legal obligations.

Risks Related to the Acquisitions of Swedish Match, OtiTopic, Inc.

("OtiTopic"), Fertin Pharma A/G ("Fertin Pharma") and Vectura Group Ltd.

("Vectura") (collectively, the "Acquisitions")

As previously disclosed in this Form 10-Q, since 2021, we acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and subsequently launched Vectura Fertin Pharma, our new Wellness and Healthcare business consolidating OtiTopic, Fertin Pharma and Vectura.

We may be unable to successfully integrate and realize the expected benefits from the Acquisitions.

The successful integration of the acquired businesses and their operations into those of our own and our ability to realize the benefits of the Acquisitions are subject to a number of risks and uncertainties, many of which are not in our control.

The risks and uncertainties relating to integrating the businesses acquired include, among other things:

(i) the challenge of integrating complex organizations, systems, operating procedures, industry specific compliance programs, technology, networks and other assets of the businesses that we acquire, and the costs related to such integration efforts;

(ii) the possibility that we are unable to gain access to differentiated intellectual property, proprietary technology, and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms;

(iii) the challenge of integrating the cultures and business practices of each of Swedish Match, Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees;

and (iv) the challenge of achieving a successful integration as a result of our affiliation to our combustible product portfolio.

In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

Furthermore, the success of the Acquisitions also depends on Swedish Match's continued growth in highly competitive markets and on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, our combustible product portfolio may stand in the way of introducing and growing new product categories and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness, therapeutic, and healthcare categories.

The businesses that we acquired in the Acquisitions may have liabilities that are not known to us.

Risks Related to Swedish Match and Vectura Fertin Pharma

We may be unable to fully realize the expected benefits from the acquisitions of Swedish Match or Vectura Fertin Pharma.

Since 2021, we have acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura (collectively, the "Acquisitions"), and subsequently launched Vectura Fertin Pharma, our new Wellness and Healthcare business, consolidating OtiTopic, Fertin Pharma and Vectura.

The anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

Furthermore, the success of the Acquisitions also depends on the continued successful commercialization and growth of Swedish Match's products in highly competitive markets and on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, our combustible product portfolio may stand in the way of introducing and growing new Wellness and Healthcare product categories and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness, therapeutic, and healthcare categories.

Swedish Match and Vectura Fertin Pharma may have liabilities that are not known to us.

The businesses that we have acquired may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the acquisitions thereof.

There is no assurance that the indemnification available to us under the respective acquisition agreements, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each Acquisition.

Furthermore, the acquisition of Swedish Match was structured as a direct purchase of shares from Swedish Match shareholders and therefore did not include an acquisition agreement or indemnification rights.

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Accounting adjustments related to the Acquisitions could adversely affect our financial results.

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

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

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

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

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

PMI, Swedish Match and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.

Our success following these Acquisitions will depend in part upon our ability and the ability of each of Swedish Match and Vectura Fertin Pharma to maintain business relationships.

Uncertainty about the effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired through the Acquisitions.

Customers, suppliers and others who do business with Swedish Match or Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired.

Our success following these Acquisitions depends in part upon our ability and the ability of each of Swedish Match and Vectura Fertin Pharma to maintain business relationships.

The effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired through the Acquisitions.

Customers, suppliers and others who do business with Swedish Match or Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired.

Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Swedish Match or Vectura Fertin Pharma value chains, as well as our revenues, earnings and cash flow.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis