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Item 7. Management’s Discussion and Analysis

2025-02-06 compared with 2024-02-08 · 907 added, 1039 removed, 640 unchanged (75% of the section changed)

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Our current product portfolio primarily consists of cigarettes and smoke-free products.

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

Since 2008, we have invested over $14 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 (the "FDA") has authorized versions of our IQOS Platform 1 devices and consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products ("MRTPs").

Following a robust science-based review, the U.S.

Food and Drug Administration (the "FDA") has authorized the marketing of Swedish Match’s General snus and ZYN nicotine pouches and versions of PMI’s IQOS devices and consumables - the first-ever such authorizations in their respective categories.

Versions of IQOS devices and consumables and General snus also obtained the first-ever Modified Risk Tobacco Product ("MRTP") authorizations from the FDA.

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

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:

As of December 31, 2023, our operating segments were 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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• Americas Region.

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

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

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

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

Our Wellness and Healthcare segment ("W&H") remained unchanged in 2024.

Following the sale of Vectura Group Ltd.

on December 31, 2024, we will update our segment reporting by including the remaining Wellness & Healthcare results in the Europe segment.

In addition, we will be renaming our “PMI Duty Free” business to “PMI Global Travel Retail” effective in the first quarter of 2025.

As a result of this change, PMI's segment that includes our duty free business will be renamed East Asia, Australia & PMI Global Travel Retail (“EA, AU & PMI GTR”).

As of the first quarter of 2025, our reporting will reflect these changes.

Our cigarettes are sold in approximately 170 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.

IQOS is the leading brand in our SFPs portfolio.

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 and ZYN are the leading brands in our SFPs portfolio.

As of December 31, 2024, our smoke-free products were available for sale in 95 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 ("Vectura") and Fertin Pharma A/S ("Fertin Pharma"), 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.

Our Wellness and Healthcare business strategy focuses on developing and commercializing oral and inhaled consumer health and wellness offerings and inhaled prescription products for therapy areas that include pain management and cardiovascular emergencies.

This includes medical and pharmaceutical cannabinoids, and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements, though any revenue related to cannabinoids is expected to be negligible in the near to medium term.

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 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.

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

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

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

In 2022, we reached an agreement with Altria Group, Inc.

to end our commercial relationship in the U.S.

covering IQOS as of April 30, 2024.

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

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

For further details of our 2021 and 2022 acquisitions, as well as the agreement with Altria Group, Inc., see Item 8, Note 3.

Acquisitions and the "Business Environment" section of this Item 7

PMI now holds the full rights to commercialize IQOS in the U.S.

For further details of our 2022 acquisition of Swedish Match, as well as the agreement with Altria Group, Inc.

discussed above, see Item 8, Note 3.

Acquisitions and Divestitures and the "Business Environment" section of this Item 7.

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.

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As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries.

Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions that are otherwise compliant with law.

Executive Summary

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

Global Patent Settlement

On February 1, 2024, we entered into a global settlement agreement with British American Tobacco p.l.c.

("BAT") that resolves all ongoing patent infringement litigation between the parties related to heated tobacco and vapor products.

The settlement includes non-monetary provisions between PMI and BAT that resolve all ongoing global patent infringement litigation, encompassing all related injunctions and exclusion orders, and prevents patent infringement and certain other future claims against current heated tobacco and vapor products.

Under the settlement PMI and BAT also agreed to request rescission of the Limited Exclusion Order and Cease and Desist Order issued by the International Trade Commission prohibiting the importation of certain heat-not-burn products by PMI and

its affiliates into the U.S.

The settlement also allows each party to innovate and introduce product iterations.

For further details, see Item 8, Note 18.

Impairment Related to the Rothmans, Benson & Hedges Equity Investment

On October 17, 2024, the court-appointed mediator and monitor in the CCAA proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation.

Under the resolution contemplated by the Proposed Plan, RBH, Imperial Tobacco Canada Limited ("ITL") and JTI Macdonald Corp ("JTIM") would pay an aggregate global settlement amount of CAD 32.5 billion (approximately $22.3 billion).

A significant determinative factor in the analysis of impairment indicators was the issue of allocation of CAD 32.5 billion aggregate settlement amount among RBH, ITL, and JTIM which remained unresolved at the time of filing.

On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court (for further details, see Item 8, Note 18.

Contingencies ).

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 supply 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 December 31, 2023, our Ukrainian operations had approximately $0.4 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 December 31, 2023, our Russian operations had approximately $2.7 billion in total assets, excluding intercompany balances, of which approximately $0.8 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.

Developments, including the positions taken by RBH in this objection and the positions taken by other parties in related filings narrowed the range of possible outcomes with respect to the allocation of the aggregate settlement amount of CAD 32.5 billion among RBH, ITL, and JTIM, which was determined to be an indicator that PMI’s investment in RBH may be impaired.

Although there remains some uncertainty as to the final terms of the Proposed plan, PMI evaluated its investment in RBH for potential impairment and concluded that the estimated fair value of its investment in RBH was lower than its carrying value.

As a result, PMI performed a quantitative valuation of its investment in RBH as of December 31, 2024, and recorded a non-cash impairment charge of $2,316 million (representing a diluted EPS charge of $1.49 per share) in the consolidated statement of earnings for the year ended December 31, 2024, as a recognized subsequent event.

For further details, see Item 8, Note 6.

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 Item 8, Note 4.

War in Ukraine to our consolidated financial statements, as well as Item 1A.

Risk Factors and the " Trade Policy " section of this Item 7.

Consolidated Operating Results

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

Net revenues increased by 10.7%, including the impact of the Swedish Match acquisition and currency.

Net revenues increased by 7.7%.

Net revenues, excluding currency and acquisitions, increased by 10.1%, mainly reflecting:

a favorable pricing variance, primarily driven by higher combustible tobacco pricing, and favorable volume/mix, mainly driven by higher HTU volume, partially offset by lower cigarette volume.

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.

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

and favorable volume/mix, driven by higher smoke-free products volume, partly offset by unfavorable cigarette mix, 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 years ended December 31, 2024 and 2023, are shown below:

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2023 Charges related to the war in Ukraine 0.03

2023 Restructuring charges 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)

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2023 Impairment of goodwill and other intangibles 0.44

2022 Costs associated with Swedish Match AB offer 0.06

2022 Swedish Match AB acquisition accounting related item 0.06

2023 Termination of distribution arrangement in the Middle East 0.04

2023 Swedish Match AB acquisition accounting related items 0.01

2023 Income tax impact associated with Swedish Match AB financing (0.11)

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Subtotal of 2023 items 0.99

2023 Charges related to the war in Ukraine (0.03)

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)

2024 Restructuring charges (0.10)

2024 Impairment of other intangibles (0.01)

2024 Fair value adjustment for equity security investments 0.27

2024 Impairment related to RBH equity investment (1.49)

2024 Amortization of intangibles (0.40)

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)

2024 Loss on sale of Vectura Group (0.13)

2024 Egypt sales tax charge (0.03)

2024 Megapolis localization tax impact (0.05)

2024 Income tax impact associated with Swedish Match AB financing (0.14)

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For the year ended December 31, 2024 $ 4.52 (10.0) %

Charges related to the war in Ukraine – During 2022, we recorded a pre-tax charge of $151 million (representing $128 million net of income tax and a diluted EPS charge of $0.08 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 2023, we recorded a pre-tax charge of $53 million (representing $43 million net of income tax and a diluted EPS charge of $0.03 per share), related to circumstances driven by the war, including the cost of PMI’s humanitarian efforts, severance payments, as well as an impairment of certain long-lived assets.

Charges related to the war in Ukraine – During 2023, we recorded a pre-tax charge of $53 million (representing $43 million net of income tax and a diluted EPS charge of $0.03 per share), related to circumstances driven by the war, including the cost of PMI’s humanitarian efforts, severance payments, as well as an impairment of certain long-lived assets.

For further details, see Item 8, Note 4.

War in Ukraine .

Fair value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS).

During 2023, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS).

Restructuring charges – During 2023, we recorded pre-tax restructuring charges 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 2024, we recorded pre-tax restructuring charges of $180 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 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 Item 8, Note 20.

Restructuring Activities .

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 was 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.

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 consolidated statements of earnings during the year ended December 31, 2023.

For further details, see "Other Developments" within the Business Environment section of this Item 7.

Fair value adjustment for equity security investments – During 2023, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $38 million after tax (or $0.02 per share increase in diluted EPS).

During 2024, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $418 million after tax (or $0.27 per share increase in diluted EPS).

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Amortization of intangibles – During 2022, we recorded amortization of intangibles expense of $159 million (representing $129 million net of income tax or $0.09 per share decrease in diluted EPS).

During 2023, we recorded amortization of intangibles expense of $497 million (representing $389 million net of income tax or $0.25 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.

Amortization of intangibles – During 2023 and 2024, we recorded amortization of intangible expense of $497 million (representing $389 million net of income tax or $0.25 per share decrease in diluted EPS) and $835 million (representing $629 million net of income tax or $0.40 per share decrease in diluted EPS), respectively.

The higher amortization expense in 2024 included the reacquired rights recorded as other intangible assets, net following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc.

For further details, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

Impairment of goodwill and other intangibles – During 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 consolidated statements of earnings for the year ended December 31, 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.

Impairment of goodwill and other intangibles – During the second quarter of 2023, as a result of the completion of our annual review of goodwill and non-amortizable intangible assets for potential impairment, 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 impairment of goodwill ($665 million) and marketing, administration and research costs ($15 million) within the consolidated statements of earnings during the year ended December 31, 2023, and was included in the Wellness and Healthcare segment results.

The impairment charge was recorded in impairment of goodwill ($665 million) and marketing, administration and research costs ($15 million) in the consolidated statements of earnings during the year ended December 31, 2023 and was included in the Wellness and Healthcare segment results.

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.

The impairment charge of $27 million was recorded in marketing, administration and research costs in the consolidated statements of earnings during the year ended December 31, 2024.

For further details, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match offer of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily related to financing costs, derivative financial instruments and certain transaction related costs.

These pre-tax costs of $116 million were recorded in marketing, administration and research costs ($115 million expense) and interest expense, net ($1 million expense) on our consolidated statement of earnings for the year ended December 31, 2022.

Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded in 2022 pre-tax purchase accounting adjustments of $125 million related to the sale of acquired inventories stepped up to fair value (representing $94 million net of income tax and a diluted EPS charge of $0.06 per share).

During 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 consolidated statements of earnings for the years ended December 31, 2023 and 2022.

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 consolidated statements of earnings for the year ended December 31, 2023 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 consolidated statements of earnings for the year ended December 31, 2023.

For further details, see Item 8, Note 3.

Acquisitions .

Asset impairment and exit costs – During 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.

Acquisitions and Divestitures .

Loss on sale of Vectura Group – In September 2024, we announced the execution of a definitive agreement to sell Vectura to Molex Asia Holdings Ltd.

On December 31, 2024, we completed the sale.

The sale resulted in a pre-tax loss of $199 million (representing $206 million including the tax costs or a diluted EPS charge of $0.13 per share).

This pre-tax loss was recorded in marketing, administration and research costs in PMI’s consolidated statements of earnings for the year ended December 31, 2024,

and was included in the Wellness and Healthcare segment results.

For further details, see Item 8, Note 3.

Asset Impairment and Exit Costs .

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.

Acquisitions and Divestitures .

Egypt sales tax charge – In the third quarter of 2024, following a ruling issued by the Higher Administrative Court in Egypt and subsequent evaluation of available remedies, we concluded that an adverse outcome was probable and recorded a pre-tax charge of $45 million (representing $39 million net of income tax and a diluted EPS charge of $0.03 per share) in relation to tax assessments for general sales tax deducted on imported cutfiller for the years 2014 to 2016.

This pre-tax charge was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the SSEA, CIS & MEA segment results.

Megapolis localization tax impact – PMI holds a 23% equity interest in Megapolis Distribution B.V.

("MDBV"), which was the holding company of JSC TK Megapolis (formerly CJSC TK Megapolis), pursuant to Dutch law, PMI's distributor in Russia.

In June 2024, the Russian government included JSC TK Megapolis in the list of economically significant organizations that may be subject to forced localization under applicable Russian law, which refers to the mandatory removal of a foreign holding company from the shareholding structure.

On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of MDBV as requested by the Ministry of Industry and Trade on July 18, 2024.

As a result, MDBV’s shares in JSC TK Megapolis were transferred to JSC TK Megapolis and subsequently transferred to the Russian subsidiary of its indirect shareholders during the fourth quarter of 2024.

As a result of the transfer of shares, PMI recorded a tax charge of $77 million (representing a diluted EPS charge of $0.05 per share).

This charge primarily reflected additional deferred withholding taxes related to the JSC TK Megapolis pre-localization earnings and other adjustments of accumulated earnings of the Russian subsidiary.

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Impairment related to the RBH equity investment – On October 17, 2024, the court-appointed mediator and monitor in the CCAA proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation.

On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court (for further details, see Item 8, Note 18.

Contingencies ).

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 consolidated statements of earnings during the year ended December 31, 2023.

For further details, see "Other Developments" within the Business Environment section of this Item 7.

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

Income taxes – The Income tax impact associated with Swedish Match AB financing that increased our 2022 diluted EPS by $0.13 per share and increased our 2023 diluted EPS by $0.11 per share in the table above was due to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity.

The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million.

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Income taxes – The Income tax impact associated with Swedish Match AB financing that increased our 2023 diluted EPS by $0.11 per share and decreased our 2024 diluted EPS by $0.14 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 consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity.

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 $0.03 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

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 $0.07 per share in the table above was primarily due to increases in U.S.

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

Currency – The unfavorable impact of $0.38 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, partly offset by the Euro.

dollar, especially against the Egyptian pound, Euro, 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 $0.21 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.

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, partially offset by higher interest income.

Operations – The increase in diluted EPS of $1.04 per share 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 and higher marketing, administration and research 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 commercial investments and higher administration costs;

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

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

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

• EA, AU & PMI DF:

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

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

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

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See Item 8, Note 3.

Acquisitions to our consolidated financial statements for details of the critical accounting estimates relevant to the business combinations in the periods presented in this Form 10-K.

Acquisitions and Divestitures to our consolidated financial statements for details of the critical accounting estimates relevant to the business combinations in the periods presented in this Form 10-K.

Revenue Recognition - We recognize revenue as performance obligations are satisfied.

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We performed a quantitative impairment assessment for all of our reporting units and non-amortizable intangible assets with the exception of the three reporting units and non-amortizable intangible asset related to the Swedish Match segment for which we have performed a qualitative assessment.

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.

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, PMI recorded a goodwill impairment charge of $665 million.

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Goodwill and Other Intangible Assets, net .

At December 31, 2023, the carrying value of our goodwill was $16.8 billion, which is related to ten geographical reporting units, each of which consists of a group of markets with similar operating and economic characteristics, three reporting units related to the Swedish Match segment and the Wellness and Healthcare business.

The estimated fair value of each of our fourteen reporting units and non-amortizable intangible assets exceeded the carrying value as of December 31, 2023.

Investment in non-marketable equity securities – We perform a sensitivity analysis to estimate the value of our continuing investment in RBH on an ongoing basis.

The analysis includes estimating a range of fair values to determine whether any indicators of impairment exist.

The estimated range of fair values of the underlying business and of the contingent liability is determined based on an income approach using a discounted cash flow analysis.

The information used in the estimate includes observable inputs, such as discount rates, terminal growth rates, previous court rulings, total tobacco market size in Canada, RBH’s share of the market and tobacco-litigation related expense, as well as unobservable inputs such as operating budgets and strategic plans, various inflation scenarios, estimated shipment volumes, and expected product pricing and projected margins.

For further details, see Item 8, Note 6.

During the second quarter of 2024, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment using a quantitative assessment for all of its reporting units and non-amortizable intangible assets.

As a result of this review, no impairment charges were required.

At December 31, 2024, the carrying value of our goodwill was $16.6 billion, which is related to eleven geographical reporting units, each consisting of a group of markets with similar operating and economic characteristics, and the Wellness and Healthcare business.

The estimated fair value of each of our twelve reporting units and non-amortizable intangible assets exceeded the carrying value as of December 31, 2024.

Investment in non-marketable equity securities – For further details, see Item 8, Note 6.

Related Parties – Equity Investments and Other to our consolidated financial statements

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For derivative contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in the consolidated statement of earnings.

For our other derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results.

For our other derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other

comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results.

Gain (losses) related to derivatives contracts for which hedge accounting provisions have not been elected are recognized in the consolidated statement of earnings.

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Consolidated Operating Results

Our net revenues and operating income by segment were as follows:

(in millions) 2023 2022 2021

Europe $ 13,598 $ 12,869 $ 13,155

SSEA, CIS & MEA

10,629 10,467 9,858

EA, AU & PMI DF

6,201 5,936 6,448

Americas 1,944 1,903 1,843

Swedish Match 2,496 316 —

Wellness and Healthcare 306 271 101

Net revenues, significant expenses, and operating income (loss) by segment were as follows:

(in millions) Europe SSEA, CIS & MEA EA, AU & PMI DF Americas Wellness & Healthcare Total

For the Year Ended December 31, 2024

Net revenues $ 15,357 $ 11,261 $ 6,393 $ 4,534 $ 333 $ 37,878

Cost of sales 4,206 5,313 2,011 1,531 268 13,329

Marketing, administration and research costs 4,213 2,519 1,504 2,455 456 11,147

Operating income (loss) $ 6,938 $ 3,429 $ 2,878 $ 548 $ (391) $ 13,402

Europe $ 6,012 $ 5,802 $ 6,409

SSEA, CIS & MEA

3,047 3,864 3,295

EA, AU & PMI DF

2,481 2,424 2,836

Americas 62 436 487

Swedish Match 824 (22) —

Wellness and Healthcare (870) (258) (52)

Operating income $ 11,556 $ 12,246 $ 12,975

For the Year Ended December 31, 2023

Net revenues $ 14,231 $ 10,629 $ 6,201 $ 3,807 $ 306 $ 35,174

Cost of sales 4,045 5,109 1,978 1,485 276 12,893

Marketing, administration and research costs 4,017 2,384 1,684 1,740 235 10,060

Impairment of goodwill — — — — 665 665

Operating income (loss) $ 6,169 $ 3,136 $ 2,539 $ 582 $ (870) $ 11,556

For the Year Ended December 31, 2022

Net revenues $ 12,972 $ 10,467 $ 5,936 $ 2,116 $ 271 $ 31,762

Cost of sales 3,656 4,343 2,026 1,036 341 11,402

Marketing, administration and research costs 3,540 2,260 1,486 640 188 8,114

Operating income (loss) $ 5,776 $ 3,864 $ 2,424 $ 440 $ (258) $ 12,246

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

• Egypt sales tax charge – In the third quarter of 2024, following a ruling issued by the Higher Administrative Court in Egypt and subsequent evaluation of available remedies, PMI concluded that an adverse outcome was probable and recorded a pre-tax charge of $45 million in relation to tax assessments for general sales tax deducted on imported cutfiller for the years 2014 to 2016.

• Loss on sale of Vectura Group – In September 2024, PMI announced the execution of a definitive agreement to sell Vectura to Molex Asia Holdings Ltd.

On December 31, 2024, we completed the sale.

The sale resulted in a pre-tax loss of $199 million.

This pre-tax loss was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the Wellness and Healthcare segment results.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures .

• Restructuring charges – See Item 8, Note 20.

Restructuring Activities for details of the $180 million and $109 million pre-tax charges for the year ended December 31, 2024 and 2023, respectively, as well as a breakdown of these costs by segment.

• 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 consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the year ended December 31, 2023.

• Impairment of goodwill and other intangibles – For the year ended December 31, 2023, PMI recorded $680 million of goodwill and non-amortizable intangible assets impairment charges that was included in the Wellness and Healthcare segment.

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Goodwill and Other Intangible Assets, net .

• South Korea indirect tax charge – See Item 8, Note 18.

Contingencies for details of the $204 million pre-tax charge included in the EA, AU & PMI DF segment results for the year ended December 31, 2023.

• Charges related to the war in Ukraine - See Item 8, Note 4.

War in Ukraine for details of the $53 million and $151 million pre-tax charges in the Europe segment for the years ended December 31, 2023 and 2022, respectively.

• Swedish Match AB acquisition accounting related item - See Item 8, Note 3.

Acquisitions for details of the $18 million and $125 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 years ended December 31, 2023 and 2022, respectively.

• Asset impairment and exit costs - See Item 8, Note 20.

Asset Impairment and Exit Costs for details of the $109 million and $216 million pre-tax charges for the year ended December 31, 2023 and 2021, respectively, as well as a breakdown of these costs by segment.

• South Korea indirect tax charge – On July 13, 2023, PMI's 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 was probable.

Consequently, we recorded a non-cash pre-tax charge of $204 million in marketing, administration and research costs in the consolidated statements of earning, reflecting the full amount previously paid by PM Korea, which was included in the EA, AU & PMI DF segment for the year ended December 31, 2023.

• 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").

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and Americas ($15 million).

• Saudi Arabia customs assessments - In June 2021, PMI recorded a pre-tax charge of $246 million in relation to additional customs duties in Saudi Arabia assessed for the periods of 2014 through 2020 in line with existing and contemplated arrangements with our distributors.

In accordance with U.S.

GAAP, the charge was recorded as a reduction in net revenues of combustible tobacco products included in the SSEA, CIS & MEA segment for the year ended December 31, 2021.

• Asset acquisition cost - See Item 8, Note 3.

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

included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2021.

• Charges related to the war in Ukraine – See Item 8, Note 4.

War in Ukraine for details of the $53 million and $151 million pre-tax charges in the Europe segment for the years ended December 31, 2023 and 2022, respectively.

• Swedish Match AB acquisition accounting related items – See Item 8, Note 3.

Acquisitions and Divestitures for details of the $18 million and $125 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value.

These pre-tax purchase accounting adjustments were included in the Americas segment ($18 million in 2023 and $77 million in 2022) and the Europe segment ($48 million in 2022).

Our net revenues by product category were as follows:

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Americas 2,255 2,299 1,874

Swedish Match 431 70 —

Total combustible tobacco products 23,218 22,334 21,572

Smoke-free products

Smoke-free products excluding Wellness and Healthcare:

Smoke-free excluding Wellness and Healthcare:

Europe 6,758 6,194 5,278

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Americas 2,279 1,508 242

Swedish Match 2,065 246 —

Total smoke-free products excluding Wellness and Healthcare 12,534 9,919 9,237

Total Smoke-free excluding Wellness and Healthcare 14,327 12,534 9,919

Wellness and Healthcare 333 306 271

Total smoke-free products 12,840 10,190 9,338

Total Smoke-free 14,660 12,840 10,190

Total PMI net revenues $ 37,878 $ 35,174 $ 31,762

Sum of product categories or Regions might not foot to total PMI due to rounding.

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

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

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 PMI's products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine, 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 PMI's 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 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.

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 and acquisition-neutral variances of:

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

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

marketing, administration and research costs (including restructuring charges);

and amortization and impairment of intangibles.

“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to:

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

“Cost/Other” also includes the currency and acquisition-neutral net revenue variance, unrelated to volume/mix and price components, attributable to:

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

Our consolidated shipment volume is shown in the table below:

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Total Cigarettes and Heated Tobacco Units 756,570 738,212 731,077

Oral Product Shipment Volume (million cans) (1)

Oral SFP Volume (million cans) (1)

Nicotine Pouches 644.0 421.1 42.5

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Moist Snuff 134.6 133.7 16.0

Other 4.2 — —

Other Oral SFP (2)

Total Oral Products 1,021.6 799.3 113.2

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

Sum may not foot to total due to roundings

(2) Includes chew bags and tobacco bits

Sum may not foot due to rounding

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

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

Heated tobacco units ("HTUs") is the term we use to refer to heated tobacco consumables, which include our BLENDS , DELIA , HEETS , HEETS Creations (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 ).

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.

Oral smoke-free products conversion:

(i) nicotine pouches:

15 pouches per can in the U.S.

and approximately 20 pouches per can outside the U.S.;

(ii) snus products:

weighted average 21 pouches equivalent per can;

(iii) moist snuff products:

weighted average 17 pouches equivalent per can;

(iv) tobacco bits products:

weighted average 30 pouches equivalent per can;

(v) chew bags products:

weighted average 20 pouches per can.

Unless otherwise stated, market share for HTUs is defined as the in-market sales volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.

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

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.

In-market sales ("IMS") is defined as sales to the trade channels, which serve the end legal age nicotine users.

Depending on the market and distribution model, IMS may represent an estimate.

Consequently, past reported periods may be updated to ensure comparability and to incorporate the most current information.

Adjusted market share for HTUs is defined as the total in-market sales volume for PMI HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs, excluding the impact of estimated distributor and wholesaler inventory movements.

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 data from a number of internal and external sources and may, in defined instances, exclude China.

Past reported periods may be updated to ensure comparability and to incorporate the most current information for industry and market share reporting.

From time to time, PMI’s shipment volumes and IMS 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.

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.

In such instances, in addition to reviewing PMI shipment volumes, IMS, certain estimated total industry/market volumes and estimated market shares 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's shipment volumes, IMS, estimated total industry/market volumes and estimated market shares 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.

2024 compared with 2023

The following discussion compares our consolidated operating results for the year ended December 31, 2024, with the year ended December 31, 2023.

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs of 2.6 trillion, decreased by 1.6%, 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 Item 7.

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.

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.5% to 2.6 trillion units.

For the full year 2025, we currently expect an estimated total international industry volume decline of around 1% for cigarettes and HTUs, excluding China and the U.S.

Shipment Volume

Our total cigarette and HTU shipment volume increased by 1.0%, reflecting an 14.7% increase in HTU shipments across all regions, partly offset by a 1.4% decline in cigarette shipments due to declines in the Europe, EA, AU & PMI DF, and Americas Regions, partly offset by the SSEA, CIS & MEA Region.

Cigarette shipment volume for Marlboro decreased by 1.9% to 240.0 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 2022 shipment volume prior to our acquisition, total oral product shipment volume increased by 16.8%, primarily reflecting growth in nicotine pouches (particularly in the U.S.), partly offset by a decline for snus (mainly in Scandinavia).

Swedish Match's total oral product shipment volume increased by 17.1% versus its corresponding shipments in 2022.

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

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.

Our total cigarette and HTU shipment volume increased by 2.5% (HTU shipments increased by 11.6%, while cigarette shipments increased by 0.6%) with increases across all regions except the Americas.

Our total oral product shipment volume in cans increased by 27.8%, primarily reflecting growth in nicotine pouches.

For the full year 2025, we currently expect total cigarette and smoke-free product shipment volume growth for PMI of up to 2% driven by smoke-free products volume growth of 12% to 14%.

For the full year 2025, we also expect nicotine pouch shipment volume in the U.S.

of approximately 520 million cans.

Adjusted in-market sales for HTUs increased by 14.8% (in line with full-year HTUs shipment volume growth of 14.7%), including growth in Europe of 17.6% and Japan of 14.5%.

Excluding Russia and Ukraine, adjusted in market sales for HTUs increased by 17.1%.

of 780 to 820 million cans.

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

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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 product categories might not foot to total due to roundings

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

Key Market Data

Key market data regarding total market size, our shipments and market share were as follows:

Key market data regarding total market size, our shipments and market share of cigarettes and heated tobacco units were as follows:

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

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69.2 69.0 26.7 26.5 22.4 23.3 4.3 3.1 38.7 39.0 6.2 5.3

Italy 73.3 72.8 39.7 40.8 27.3 28.6 12.4 12.3 53.9 54.1 17.3 14.6

Poland 56.7 55.7 23.7 21.7 18.7 17.1 5.0 4.5 41.8 38.9 8.9 8.2

73.6 73.3 39.1 39.7 27.3 27.3 11.8 12.4 53.6 53.6 16.9 16.8

58.0 56.7 25.6 23.7 20.1 18.7 5.4 5.0 43.9 41.9 9.1 9.0

Spain 44.3 43.6 12.7 12.9 11.4 11.8 1.3 1.1 29.4 29.3 2.9 2.3

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Indonesia (4)

295.5 292.2 80.8 84.0 79.6 83.4 1.2 0.6 27.4 28.7 0.4 0.2

Philippines 41.0 42.9 21.1 23.8 20.8 23.5 0.3 0.2 51.3 55.4 0.7 0.5

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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

(3) PMI market share reflects estimated adjusted IMS volume share;

Total Market is based on reported IMS

(4) 2024 includes 0.6 billion units of cigarettes shipment volume under an arrangement where PMI acts as brand management and fulfillment services agent

Financial Summary

Financial Summary - Years Ended December 31, Change

Financial Summary -

Years Ended December 31, Change

Fav./(Unfav.) Variance

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

(2) Cost/Other variance includes charges in 2023 of $15 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, $62 million related to the war in Ukraine and $125 million of Swedish Match AB acquisition accounting related item.

For more details, see Item 8, Note 3.

Acquisitions , Note 4.

War in Ukraine and Note 5.

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 other intangibles of $15 million, the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million, and $38 million related to the war in Ukraine, partially offset by charges in 2022 of $89 million related to the war in Ukraine and $115 million related to costs associated with the Swedish Match AB offer.

(2) Cost/Other variance includes charges in 2024 of $51 million related to amortization of intangibles and in 2023 of $15 million related to the war in Ukraine, $58 million related to amortization of intangibles and $18 million related to the Swedish Match AB acquisition accounting related items.

(3) Cost/Other variance includes charges in 2024 of $180 million related to restructuring charges, $27 million related to impairment of other intangibles, $784 million related to amortization of intangibles, $199 million related to the loss on sale of Vectura Group, and $45 million related to the Egypt sales tax charge, partly offset by charges in 2023 of $109 million related to restructuring charges, $204 million related to the South Korea indirect tax charge, $140 million related to the termination of a pledge agreement with the Foundation for a Smoke-Free World, $439 million related to amortization of intangibles, $38 million related to the war in Ukraine and $15 million related to the impairment of other intangibles.

For more details, see Item 8, Note 3.

Acquisitions and Divestitures , Note 4.

War in Ukraine , Note 5.

Goodwill and Other Intangible Assets, net ., Note 13.

Contingencies and Note 20 .

Asset Impairment and Exit Costs.

Segment Reporting and Note 20.

Restructuring Activities .

(4) For details on the impairment of goodwill recorded in the second quarter of 2023, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

Net revenues increased by 10.7%, including the impact of the Swedish Match acquisition and currency.

Net revenues increased by 7.7%.

Net revenues, excluding currency and acquisitions, increased by 10.1%, mainly reflecting:

a favorable pricing variance, primarily driven by higher combustible tobacco pricing, and favorable volume/mix, mainly driven by higher HTU volume, partially offset by lower cigarette volume.

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

Net revenues include $12.8 billion in 2023 and $10.2 billion in 2022 related to smoke-free products.

Cost of sales increased by 13.1%, including the impact of the Swedish Match acquisition and currency.

Cost of sales, excluding currency and acquisitions, increased by 8.4%, primarily related to higher manufacturing costs (primarily due to inflationary impacts, notably related to direct materials, tobacco leaf and energy, partly offset by productivity) and unfavorable volume/mix, mainly reflecting unfavorable category mix (notably due to lower cigarette volume and higher HTU volume), as well as the technical impact of third-party manufacturing in Indonesia.

This increase was partially offset by the Swedish Match AB acquisition accounting related item in 2022, the impairment charge of other intangible assets in 2022 and lower charges related to the War in Ukraine.

Operating income decreased by 5.6%, including the impact of the Swedish Match acquisition and currency.

Operating income, excluding currency and acquisitions, decreased by 2.5%, 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 in 2023, the South Korea indirect tax charge of $204 million in 2023 and the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million in 2023, partly offset by the 2022 charges of $125 million related to the Swedish Match AB acquisition accounting related item, lower charges of $98 million related to the war in Ukraine compared to 2022, the 2022 costs associated with the Swedish Match AB offer of $115 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, as noted for cost of sales;

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

Amortization expense on a pre-tax basis for each of the next five years is estimated to be approximately $470 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.

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

favorable volume/mix, driven by higher smoke-free products volume, partly offset by unfavorable cigarette mix;

and a favorable comparison to 2023 reflecting a charge in the first quarter of 2023 of $80 million (recognized as a reduction of net revenues in 2023) following the termination of a distribution arrangement in the Middle East, shown in "Other."

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

Net revenues include $14.7 billion in 2024 and $12.8 billion in 2023 related to smoke-free.

Operating income increased by 16.0%.

Operating income, excluding currency and acquisitions, increased by 21.5%, mainly reflecting:

the same factors as for net revenues, as well as a favorable comparison to 2023 reflecting the impairment of goodwill of $665 million recorded in the second quarter of 2023, the South Korea indirect tax charge of $204 million in 2023, the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million and $53 million related to the war in Ukraine.

The increase was partly offset by higher amortization of intangibles in 2024, higher restructuring charges in 2024, a charge of $199 million related to the loss on sale of Vectura Group and the Egypt sales tax charge of $45 million in 2024, as well as higher marketing, administration and research costs (primarily due to inflationary impacts, notably related to wages, and higher commercial investments), as well as higher manufacturing costs, notably related to tobacco leaf and the impact of the EU single-use plastics directive, partly offset by productivity.

Amortization expense on a pre-tax basis for each of the next five years is estimated to be approximately $1.0 billion or less, assuming no additional transactions occur that require the amortization of intangible assets.

This amount includes the reacquired rights recorded as other intangible assets, net, in May 2024 following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc.

(see Item 8, Note 3, Acquisitions and the "Business Environment" section of this Item 7), 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.

Like many other global companies, we have faced 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).

For the year ended December 31, 2023, this impact on cost of sales was approximately $580 million.

We expect certain inflationary elements to ease, with a moderate increase in 2024.

For further details, see "Impact of Inflation on Our Business and Mitigation Efforts" within the Business Environment section of this Item 7.

Interest expense, net, of $1.1 billion increased by $473 million (80.4%), primarily due to higher interest expense in connection with the Swedish Match acquisition, partially offset by higher net interest income driven by higher interest rates.

(See Item 8, Note 3.

Acquisitions and Divestitures, Note 5.

Goodwill and Other Intangible Assets, net .

and the "Business Environment" section of this MD&A for details).

Interest expense, net, of $1.1 billion increased by $82 million (7.7%), primarily due to higher average debt levels and higher average interest rates on debt, partially offset by higher interest income.

Our effective tax rate increased by 2.3 percentage points to 24.7%.

2 unchanged sentences

Income Taxes .

Net earnings attributable to PMI of $7.8 billion decreased by $1.2 billion or 13.6%.

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 $5.02 decreased by 13.7% and 13.6%, respectively.

We recorded an impairment charge of $2,316 million related to our RBH equity investment in the consolidated statement of earnings for the year ended December 31, 2024.

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other and Item 8, Note 18.

Contingencies.

Income from equity investments and securities, net, increased by $480 million or over 100%, primarily driven by a favorable fair value adjustment for our equity security investments in India and Sri Lanka.

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Net earnings attributable to PMI of $7.1 billion decreased by $756 million or 9.7%.

This decrease was due primarily to the impairment related to the RBH equity investment and a higher effective tax rate, partly offset by higher operating income and higher income from equity investments and securities.

Basic earnings per share of $4.53 decreased by 9.8%.

Diluted EPS of $4.52 decreased by 10.0%.

Excluding an unfavorable currency impact of $0.38, diluted EPS decreased by 2.4%.

5 unchanged sentences

Operating Results by Business Segment

2024 compared with 2023

The following discussion compares operating results within each of our segments for 2024 with 2023.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 15,357 $ 14,231 7.9 % 7.1 % $ 1,126 $ 116 $ — $ 798 $ 212 $ —

Operating Income $ 6,938 $ 6,169 12.5 % 12.4 % $ 769 $ 6 $ — $ 798 $ 90 $ (125)

Net revenues increased by 7.9%.

Net revenues, excluding currency and acquisitions, 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 cigarette volume and adverse cigarette mix.

The pricing variance for 2023 and 2024 was negatively impacted by the supplemental tax surcharge on heated tobacco products ("HTPs") in Germany, which went into effect in 2022.

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.

On May 15, 2024, following the decision issued by CJEU, the Fiscal Court in Dusseldorf (the "FCD") also ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law.

The FCD admitted an appeal to the Federal Tax Court.

On June 19, 2024, PMI submitted an appeal.

The negative impact will continue, at least until the appeal ruling on the legality of the surcharge is concluded.

PMI currently accounts for the surcharge as a reduction in net revenues, with amounts withdrawn before May 15, 2024, currently under a payment suspension.

Despite this payment suspension and, in order to avoid the future addition of interest, PMI elected, on January 14, 2025, to pay the amount outstanding of EUR 721 million (approximately $751 million), excluding accrued interest.

An unfavorable outcome to the appeal would negatively impact PMI’s future cash provided by operating activities for the amounts of unpaid interest.

A favorable outcome to the appeal would positively impact future PMI’s operating results and future cash provided by operating activities for the amounts paid in January 2025.

Operating income increased by 12.5%.

Operating income, excluding currency and acquisitions, increased by 12.4%, primarily reflecting:

the same factors as for net revenues, as well as a favorable comparison to 2023 reflecting the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $60 million, $53 million charge related to the war in Ukraine in 2023 and $47 million related to restructuring charges in 2023.

The positive impact of this favorable comparison was partly offset by higher marketing, administration and research costs.

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

The estimated total market for cigarettes and HTUs in the Region was broadly stable (541.9 billion units), reflecting a 1.4% decrease for cigarettes and continued HTU growth.

Notable decreases in the estimated total market in France (down by 12.5%), and the United Kingdom (down by 12.6%) were largely offset by Ukraine (up by 4.3%), Bulgaria (up by 7.3%), and Poland (up by 2.3%).

Europe Key Data

2024 2023 % / pp

PMI Market Share

Cigarettes 30.0 % 30.3 % (0.3)

Heated Tobacco Units 10.0 % 9.1 % 0.9

Total Europe 40.0 % 39.4 % 0.6

Sum may not foot due to rounding.

Our total cigarette and HTU shipment volume in the Region increased by 0.7% to 216.3 billion units.

Total cigarette and HTU shipment volume increased notably in Poland (up by 7.9%) and Ukraine (up by 9.4%), and decreased notably in France (down by 17.3%), as well as the Netherlands (down by 20.9%).

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

HTU shipments increased by 8.9%.

Our HTU share of the total cigarette and HTU market in the Region increased by 0.9 pp on an adjusted basis.

Other Oral SFP includes chew bags and tobacco bits

Sum may not foot due to rounding.

Our oral SFP shipments increased by 4.9%, driven by growth of nicotine pouches (up by 40.2%).

SSEA, CIS & MEA:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 11,261 $ 10,629 5.9 % 11.7 % $ 632 $ (610) $ — $ 821 $ 343 $ 78

Operating Income $ 3,429 $ 3,136 9.3 % 26.8 % $ 293 $ (592) $ 46 $ 821 $ 145 $ (127)

Net revenues increased by 5.9%.

Net revenues, excluding currency and acquisitions, increased by 11.7%, primarily reflecting:

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

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

and a favorable comparison to 2023 due to the charge of $80 million following the termination of a distribution arrangement in the Middle East (recognized as a reduction of net revenues in 2023).

Operating income increased by 9.3%.

Operating income, excluding currency and acquisitions, increased by 26.8%, primarily reflecting:

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

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

a favorable comparison to 2023 reflecting a 2023 charge of $80 million following the termination of a distribution arrangement in the Middle East, a 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $41 million and $32 million related to restructuring charges in 2023.

These increases were partly offset by higher manufacturing costs (primarily due to higher cost of tobacco leaf), higher marketing, administration and research costs, and the Egypt sales tax charge of $45 million in 2024.

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

The estimated total market for cigarettes and HTUs in the Region increased by 2.8% to 1,571.9 billion units.

The increase in the estimated total market was mainly due to Turkey (up by 9.5%), and Egypt (up by 11.3%), partly offset by Bangladesh (down by 5.0%), and Thailand (down by 13.7%).

Our Regional market share increased by 0.4 points to 23.8%.

Our total cigarette and HTU shipment volume in the Region increased by 4.2% to 373.4 billion units, mainly driven by Turkey (up by 13.4%), partly offset by Indonesia (down by 3.7%).

Our estimated HTU adjusted in-market sales volume increased by approximately 15.6%, with about 15% HTU shipment volume growth.

EA, AU & PMI DF:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,393 $ 6,201 3.1 % 8.6 % $ 192 $ (341) $ — $ 325 $ 208 $ —

Operating Income $ 2,878 $ 2,539 13.4 % 25.1 % $ 339 $ (298) $ — $ 325 $ 59 $ 253

Net revenues increased by 3.1%.

Net revenues, excluding currency and acquisitions, increased by 8.6%, reflecting:

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume.

Operating income increased by 13.4%.

Operating income, excluding currency and acquisitions, increased by 25.1%, mainly reflecting

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, while lower manufacturing costs were largely offset by higher marketing, administration and research costs, as well as a favorable comparison to 2023 reflecting the South Korea indirect tax charge of $204 million in 2023.

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

The estimated total market for cigarettes and HTUs in the Region, excluding China, was broadly stable (318.9 billion units), with a decrease in cigarettes, largely offset by HTU growth.

The decrease in the estimated total market in Australia (down by 28.5%) and Korea (down by 2.2%) was offset by International Duty Free (up by 11.3%) and Japan (up by 1.4%).

Our Regional market share increased by 1.3 points to 31.3%.

Our total cigarette and HTU shipment volume in the Region increased by 3.3% to 104.6 billion units, driven by Japan (up by 6.4%), partly offset by Australia (down by 28.5%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 14.5%.

HTU shipments increased by 12.6%.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 4,534 $ 3,807 19.1 % 19.3 % $ 727 $ (9) $ — $ 233 $ 505 $ (2)

Operating Income $ 548 $ 582 (5.8) % (41.1) % $ (34) $ 205 $ — $ 233 $ 470 $ (942)

Net revenues increased by 19.1%.

Net revenues, excluding currency and acquisitions, increased by 19.3%, primarily reflecting:

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

and favorable cigarette and ZYN pricing.

Operating income decreased by 5.8%.

Operating income, excluding currency and acquisitions, decreased by 41.1%, mainly reflecting:

higher marketing, administration and research costs (including incremental investment in the U.S.), higher restructuring charges of $169 million and higher amortization of intangibles of $355 million.

These decreases were partly offset by favorable volume/mix and a favorable price variance, mainly due to the same factors as for net revenues.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 1.9% to 185.1 billion units, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Argentina (down by 8.4%) and Canada (down by 12.3%), partly offset by Brazil (up by 6.8%).

Our Regional market share, excluding the U.S., was flat at 33.7%.

Our total cigarette and HTU shipment volume in the Region decreased by 2.6% to 62.3 billion units, mainly due to Argentina (down by 8.1%), partly offset by Brazil (up by 8.5%).

(1) Excluding U.S.

Volumes of other oral SFP introduced in Q3 2024 are not material.

Sum may not foot due to rounding.

Oral products shipments increased by 37.6%, predominantly driven by ZYN nicotine pouches in the U.S.

Cigar shipment volume decreased by 11%, while gross profit grew mid-single digits.

Wellness and Healthcare:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 333 $ 306 8.8 % 7.8 % $ 27 $ 3 $ — $ 26 $ — $ (2)

Operating Income / (Loss) $ (391) $ (870) 55.1 % 55.4 % $ 479 $ (3) $ — $ 26 $ — $ 456

Net revenues increased by 8.8%.

Net revenues, excluding currency and acquisitions, increased by 7.8%.

The operating loss of $391 million in 2024 was primarily due to a charge of $199 million related to the loss on sale of Vectura Group and amortization of acquired intangibles, as well as research and development, and administration costs.

The operating loss of $870 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 commercial investments and higher administration costs and the amortization of acquired intangibles.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures and Note 5.

Goodwill and Other Intangible Assets, net.

2023 compared with 2022

As previously disclosed in the Description of Our Company section of this Item 7, in January 2024, we updated our segment reporting by including the former Swedish Match segment results into the four existing geographical segments.

The following discussion compares operating results within each of our segments for 2023 with 2022 under this operating segment structure.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 14,231 $ 12,972 9.7 % 3.6 % $ 1,259 $ 249 $ 546 $ 535 $ (71) $ —

Operating Income $ 6,169 $ 5,776 6.8 % 2.3 % $ 393 $ 191 $ 67 $ 535 $ (87) $ (313)

Net revenues increased by 9.7%.

Net revenues, excluding currency and acquisitions, increased by 3.6%, reflecting:

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

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

Operating income increased by 6.8%.

Operating income, excluding currency and acquisitions, increased by 2.3%, primarily reflecting:

lower charges in 2023 related to the war in Ukraine ($98 million), a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer ($53 million) and a favorable pricing variance.

The increase was partly offset by the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($60 million), the 2023 charges for restructuring charges ($47 million), higher marketing, administration and research costs (mainly due to inflationary impacts and lower commercial investments in the prior year period);

higher manufacturing costs (primarily due to inflationary impacts);

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

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

The estimated total market for cigarettes and HTUs in the Region decreased by 1.3% to 542.6 billion units, reflecting a 3.0% decline for cigarettes, partly offset by a 15.4% increase for HTUs.

The decrease in the estimated total market was predominantly due to the

United Kingdom (down by 15.4%), France (down by 8.1%), Germany (down by 1.8%) and Spain (down by 2.4%), partly offset by Poland (up by 1.8%).

Europe Key Data Full-Year

2023 2022 % / pp

PMI Market Share

Cigarettes 30.3 % 31.1 % (0.8)

Heated Tobacco Units 9.1 % 7.8 % 1.3

Total Europe 39.4 % 38.9 % 0.5

Sum may not foot due to rounding

Our total cigarette and HTU shipment volume in the Region decreased by 0.6% to 214.9 billion units, mainly due to Germany (down by 6.0%), Italy (down by 2.8%;

or up by 0.4% excluding the net unfavorable impact of estimated distributor inventory movements) and France (down by 7.3%), partly offset by Poland (up by 9.4%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 17.8%, including growth in Germany and Italy of 29.7% and 16.8%, respectively.

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

In 2023, our oral SFP shipments reached 275.4 million cans in the Region.

SSEA, CIS & MEA:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 10,629 $ 10,467 1.5 % 11.7 % $ 162 $ (1,060) $ — $ 1,008 $ 400 $ (186)

Operating Income $ 3,136 $ 3,864 (18.8) % (2.0) % $ (728) $ (649) $ — $ 1,008 $ (237) $ (850)

Net revenues increased by 1.5%.

Net revenues, excluding currency and acquisitions, increased by 11.7%, 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, partly offset by an unfavorable cigarette volume impact.

This increase was 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 decreased by 18.8%.

Operating income, excluding currency and acquisitions, decreased by 2.0%, primarily reflecting:

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 termination of a distribution arrangement, coupled with 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 $41 million and the 2023 charges for restructuring charges of $32 million.

The decrease was partially offset by the favorable pricing variance and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer of $33 million.

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

The estimated total market for cigarettes and HTUs in the Region decreased by approximately 2% to 1,528.6 billion units, due to a decline for cigarettes.

The decrease in the estimated total market was predominantly due to Egypt (down by 20.8%) and Pakistan (down by 35.1%), partly offset by Turkey (up by 17.7%).

Our Regional market share increased by 0.8 points to 23.4%.

Our total cigarette and HTU shipment volume in the Region increased by 1.3% to 358.2 billion units, mainly driven by Turkey (up by 23.0%), partly offset by the Philippines (down by 26.2%).

Our estimated HTU adjusted in-market sales volume increased by 8.2% including limited growth in Russia.

EA, AU & PMI DF:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,201 $ 5,936 4.5 % 11.2 % $ 265 $ (400) $ — $ 206 $ 459 $ —

Operating Income $ 2,539 $ 2,424 4.7 % 21.0 % $ 115 $ (394) $ — $ 206 $ 326 $ (23)

Net revenues increased by 4.5%.

Net revenues, excluding currency and acquisitions, increased by 11.2%, reflecting:

favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable smoke-free 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 increased by 4.7%.

Operating income, excluding currency and acquisitions, increased by 21.0%, mainly reflecting favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable HTU mix;

the favorable pricing variance;

lower supply chain costs (primarily related to Japan);

and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer ($24 million).

The increase was 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 ($24 million) and the 2023 charges for restructuring charges ($19 million).

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

The estimated total market for cigarettes and HTUs in the Region, excluding China, increased by 1% to 319.4 billion units, 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 34.4%), partly offset by Taiwan (down by 7.4%) and Australia (down by 19.4%).

Our Regional market share increased by 1.3 points to 30.0%.

Our total cigarette and HTU shipment volume in the Region increased by 6.7% to 101.2 billion units, mainly driven by Japan (up by 9.7%) and International Duty Free (up by 14.5%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 15.8%, including growth in Japan of 14.5%.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,807 $ 2,116 79.9 % 1.3 % $ 1,691 $ 96 $ 1,567 $ 158 $ (124) $ (6)

Operating Income $ 582 $ 440 32.3 % (61.4) % $ 142 $ (215) $ 627 $ 158 $ (93) $ (335)

Net revenues increased by 79.9%.

Net revenues, excluding currency and the impact of the Swedish Match acquisition, increased by 1.3%, primarily reflecting:

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by unfavorable volume/mix was mainly due to lower cigarette volume and unfavorable cigarette mix outside of the U.S.

Operating income increased by 32.3%.

Operating income, excluding currency and the impact of the Swedish Match acquisition, decreased by 61.4%, mainly reflecting:

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

in preparation for smoke-free commercialization);

higher amortization of intangibles;

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

partly offset by the favorable pricing variance and a favorable comparison to 2022 related to the Swedish Match AB acquisition related items.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 1% to 188.8 billion units, driven by a decline for cigarettes.

The decrease in the estimated total market was mainly due to Mexico (down by 6.9%), Canada (down by 12.6%) and Argentina (down by 5.0%), partly offset by Brazil (up by 10.1%).

Our Regional market share, excluding the U.S., decreased by 1.2 points to 33.7%.

Our total cigarette and HTU shipment volume in the Region decreased by 3.9% to 63.9 billion units, mainly due to Mexico (down by 9.8%) and Argentina (down by 7.9%), partly offset by Brazil (up by 12.8%).

In 2023, our oral SFP shipments reached 522.5 million cans in the Region, driven by ZYN nicotine pouches in the U.S.

Wellness and Healthcare:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 306 $ 271 12.9 % 11.8 % $ 35 $ 3 $ — $ 33 $ — $ (1)

Operating Income / (Loss) $ (870) $ (258) -(100)% -(100)% $ (612) $ (6) $ — $ 33 $ — $ (639)

Net revenues increased by 12.9%.

Net revenues, excluding currency and acquisitions, increased by 11.8%, notably reflecting the higher net revenues for smoking cessation products and select inhalation products.

The operating loss of $258 million in 2022 included a charge for impairment of other intangible assets of $112 million and the amortization of acquired intangibles.

Business Environment

Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products

The tobacco industry and our company face a number of challenges that may adversely affect our business, volume, results of operations, cash flows and financial position.

These challenges, which are discussed below and in “ Cautionary Factors That May Affect Future Results ,” include:

• regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;

The tobacco industry and our company face a number of challenges that may adversely affect our business, product sales volume, results of operations, cash flows, and financial position.

These challenges, which are discussed below and in Part II, Item 1A.

Risk Factors — Cautionary Factors That May Affect Future Results in this report, include:

• fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;

• illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and so-called "illicit whites";

• intense competition, including from non-tax paid volume by certain local manufacturers;

• pending and threatened litigation as discussed in Item 8, Note 18.

Contingencies ;

• governmental investigations.

Regulatory Restrictions:

• illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and other non-compliant or otherwise illicit products;

• intense competition, including unfair competition from non-tax paid volume by certain manufacturers;

• legal challenges, including the pending and threatened litigation discussed in Part II, Item 8, Note 18.

Contingencies in this report.

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.

Nevertheless, according to WHO estimates, there are approximately 1 billion smokers globally.

This number has not meaningfully changed in decades and, based on current trends, is not expected to significantly change in the near future.

Cigarettes burn tobacco, which produces smoke.

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

In contrast, while SFPs contain nicotine, which is addictive and not risk-free, 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 adult users of nicotine-containing products.

We put in 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) 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 SFPs will take time and that the rate 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 desirable 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.

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 SFPs 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 SFPs 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 SFPs as satisfying alternatives to smoking for adult smokers who would otherwise continue to smoke cigarettes;

• for those adult smokers, our goal is to develop and 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 SFPs, including the communication of scientifically substantiated information to enable adult smokers to make better choices.

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 paths 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 and commercializing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences and achieve population harm reduction, including:

• Heat-not-burn products, which use a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted in a holder and heated to generate an aerosol.

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

Food and Drug Administration (“FDA”).

In addition to the original version of IQOS , which relies on a heating technology using a blade, a newer version of IQOS uses induction heating.

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

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

In 2022, we also began the initial launch of a heat-not-burn product that utilizes external resistive heating technology and is commercialized under the BONDS by IQOS brand.

• Oral tobacco and nicotine products, which include snus and modern oral nicotine pouches.

Snus refers to (a) dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose;

(b) moist loose tobacco which is put in the mouth between the lower or upper lip and gum;

and (c) snus pouches which contain ground tobacco, water, salt and flavors.

Modern oral nicotine pouches consist of white pre-conditioned pouches containing nicotine derived from tobacco, and they primarily contain nicotine, flavors, and cellulose substrate.

Users place a pouch between the upper lip and gum and leave it there while the nicotine and flavor are being released.

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

The pouches contain pharmaceutical-grade tobacco-derived nicotine like the nicotine used in medicinal products, such as nicotine-containing gums and inhalers, and flavors approved for use in food in accordance with the product quality standards for nicotine pouches developed by the Swedish Institute for Standards and the British Standards Institute.

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

Swedish Match's ZYN is the leading nicotine pouch brand in the U.S.

• e-Vapor products, which are battery-powered devices that produce an aerosol by vaporizing a tobacco-free liquid solution.

We have developed e-liquids for our e-Vapor products designed to deliver an authentic tobacco taste.

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

Data show that, in a stable regulatory environment, only a very small percentage of adult smokers who convert to IQOS switch back to cigarettes.

We aim to continue to develop and expand our SFP brand portfolio and market positions.

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 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 SFPs, 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.

PMI has, and continues to, invest in digital consumer engagement.

In 2014, we introduced IQOS in pilot city launches in Nagoya, Japan, and in Milan, Italy.

Since then, we have continuously expanded our commercialization activities.

As of December 31, 2024, PMI's smoke-free products were available for sale in 95 markets.

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 SFPs, 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 Part I, Item 1A.

Risk Factors—Cautionary Factors That May Affect Future Results in this report .

We discuss product warranties in more detail in Part II, Item 8, Financial Statements—Note 7.

Product Warranty in this report.

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 as of April 30, 2024, with respect to IQOS in the U.S.

(the “Altria Agreement”).

Under the Altria Agreement, PMI now holds the full rights to commercialize IQOS in the United States - the world’s largest smoke-free market.

The Altria Agreement provides a clear path to expanding IQOS ’s international success in a market where over 28 million adults continue to smoke cigarettes.

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

On January 30, 2023, we announced a renewal and extension of this arrangement.

For more information, see Acquisitions, Divestitures and Other Business Arrangements below.

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

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

• Since August 2020, we have launched and expanded our portfolio of vaping products (branded VEEV ) in 40 markets.

• Following our acquisition of Swedish Match, we have access to a strong portfolio of Swedish Match brands in both the snus and nicotine pouch categories.

Nicotine pouches are currently available in 38 markets.

Legislation, Regulation, Taxation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco and Other Nicotine-Containing Products

Fiscal Challenges

Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed products such as fine cut tobacco, illicit cigarettes or illicit SFPs.

In addition, in certain jurisdictions, some of our products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes.

We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity.

Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.

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.

On May 21, 2024, the FCD delivered its judgement and dismissed our local affiliate's, f6 Cigarettenfabrik GmbH & Co.KG, ("PM Germany") claim.

PM Germany filed a notice of appeal to the Federal Fiscal Court on June 19, 2024.

Legislative and Regulatory Environment

The tobacco industry operates in a highly regulated environment.

The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes.

The regulatory landscape for novel nicotine-containing products is inconsistent and evolving but is, in some instances, even more restrictive.

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

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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"), which was scheduled for November 2023 but postponed to February 2024.

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.

In December 2023, the WHO issued a white paper on e-cigarettes.

While acknowledging that long-term health effects of using e-cigarettes are not fully understood, the Organization calls on countries to ban or strictly regulate these products, in order to prevent youth uptake and counter nicotine addiction.

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.

The WHO study group on tobacco product regulation published their ninth report on the scientific basis of tobacco product regulation in August 2023.

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.

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.

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

No new decisions or 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 November 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.

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.

And we 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.

Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would otherwise continue smoking cigarettes to receive truthful and non-misleading information about such alternatives to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the reduction in harmful and potentially harmful constituents, as well as the absence of combustion.

Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products.

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

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

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

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.

Fiscal Challenges:

Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed combustible tobacco products such as fine cut tobacco and illicit cigarettes.

In addition, in certain jurisdictions, some of our combustible tobacco products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes.

Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.

World Customs Organization Developments :

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

The amendments became effective as of January 1, 2022.

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:

At the same time, we oppose excessive or prohibitive regulations that may prevent adult smokers, who would otherwise continue smoking, from accessing and switching to SFPs or trigger unintended consequences such as illicit trade.

Regulatory Restrictions

SFP Sales Prohibitions :

Some governments have banned, 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.

Significant markets that have prohibited or severely restricted the sale of one or more category of SFP include Argentina, Brazil, Canada, India, Mexico, Turkey, Australia, Thailand, and Vietnam.

In the U.S., some states and municipalities have introduced stringent restrictions on the sale of certain SFPs, including those authorized by the FDA.

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

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 SFP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke cigarettes.

EU Tobacco Products Directive ("TPD") :

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

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• health warnings covering 65% of the front and back panels of cigarette packs, with an option for Member States to further standardize tobacco packaging, including the introduction of plain packaging;

• a ban on characterizing flavors in some tobacco products, with a transition period for menthol that expired in May 2020;

• security features and tracking and tracing measures that became effective in May 2019;

• a ban on characterizing flavors in some tobacco products;

• security features and tracking and tracing measures;

• a framework for the regulation of novel tobacco products and e-cigarettes, including requirements for health warnings and information leaflets, a prohibition on product packaging text related to reduced risk, and the introduction of notification requirements or authorization procedures in advance of commercialization.

In May 2021, the European Commission published its first report on the application of the TPD.

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

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

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

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").

Further developments concerning a revision of TPD are expected during the mandate of the European Commission that took office in December 2024.

In May 2024, the EU-wide systems of traceability and security features for tobacco products were extended to include tobacco products other than cigarettes and roll-your-own tobacco products.

As such, all tobacco products are covered by the traceability system.

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 still be adopted by the College of Commissioners during 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.

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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Restrictions and Bans on the Use of Ingredients :

The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in tobacco products, including menthol.

Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products and could reduce our ability to differentiate these products in the market in the long term.

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

The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in both combustible and SFPs, including menthol.

Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products, which could reduce our ability to differentiate these products in the market in the long term.

In many countries, menthol or flavor bans would eliminate entire product categories.

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

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

However, 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, impacting a significant proportion of our RRP 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.

Other tobacco products are currently exempted under EU TPD from this characterizing flavor ban.

This was also the case for heated tobacco products until November 23, 2022, when the EU Commission published a delegated directive that eliminated this exemption.

All EU Member States were 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.

Currently, all but six EU Member States have transposed this directive, withdrawing the heated tobacco product exemption from the characterizing flavor ban into national law.

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

To date, our experience is consistent with this expectation.

There has been some short-term disruption in countries that have implemented the ban, but the impact has generally been limited in time and magnitude.

Nevertheless, it remains possible that the impact in countries that have yet to implement the ban could be more significant in duration or magnitude.

But our fundamental view remains that we do not expect a meaningful long-term change in the structural growth of the category.

We will continue to actively monitor relevant developments in the EU market, including from an illicit trade standpoint.

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

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Broader ingredient bans have been adopted by Brazil and Canada.

In the U.S., certain states and localities have adopted flavor bans that apply to SFPs, including certain ZYN varieties.

Bans on Display of Tobacco Products at Retail :

In a number of our markets, including, but not limited to, Australia and Russia, governments have banned the display of tobacco products at the point of sale.

In a number of our markets, including, but not limited to, Australia, Canada and Russia, governments have banned the display of tobacco products at the point of sale.

Other countries are considering similar bans.

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The FCTC's non-binding guidelines recommend that governments prohibit all forms of communication with adult smokers.

Restrictions on Product Design:

Product Standards and Restrictions on Product Design :

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.

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.

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

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

For e-Vapor products, 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, the Philippines, Russia, United Arab Emirates, and Saudi Arabia and Tajikistan, and voluntary in Azerbaijan, Costa Rica, Dominican Republic, France, Indonesia, Kazakhstan, the Philippines, Russia, the U.K., and Ukraine.

Currently, industry standards setting minimum quality and safety requirements for modern oral nicotine pouches have been adopted in Armenia, Bahrain, Costa Rica, Pakistan, Sweden, the U.K., and Ukraine.

These standards are voluntary.

We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and encourage making them mandatory.

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

The pace and scope of restrictions on the use of our products have increased significantly in most of our markets.

Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of nicotine-containing products in public and/or work places, restaurants, bars and nightclubs.

Some public health groups have called for, and some countries, regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and private homes.

Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of certain nicotine-containing products in public and/or workplaces, restaurants, bars and nightclubs.

private homes.

On December 3, 2024, the EU Council adopted its legally non-binding recommendation on smoke- and aerosol-free environments.

While the recommendations recognize scientifically proven differences between smoke-free and combustible products, they nevertheless encourage EU member states to restrict usage of both conventional and novel tobacco products in indoor public spaces and some outdoor areas.

Each member state is to decide whether or not to implement these recommendations.

Generation Bans :

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

In December 2022, New Zealand adopted regulatory measures restricting the sale and supply of smoked tobacco products, including prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009.

These measures were limited to smoked tobacco products and did not apply to heated tobacco products and e-cigarettes.

The New Zealand parliament repealed the measures in February 2024, before they were implemented.

On November 5, 2024, the UK government introduced a bill to the parliament, which if adopted, would ban the sale of tobacco products, including HTPs, herbal smoking products and cigarette papers to those born on or after January 1, 2009.

Other Regulatory Issues :

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

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

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

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

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, came into force on July 2, 2019.

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

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.

While we cannot predict the impact of this initiative on our business at this time, we currently expect further adoption of similar laws in other jurisdictions, and we are monitoring developments in this area.

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.

The case is currently pending before the Trade and Industry Appeals Tribunal in the Netherlands A decision was expected in the fourth quarter of 2023, but the Court recently announced that it intends to submit 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:

Illicit tobacco trade creates a cheap and unregulated supply of tobacco products, undermines efforts to reduce smoking prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime, increases corruption and reduces government tax revenue.

We generally estimate that, excluding China and the U.S., illicit trade may account for as much as 14% of global cigarette consumption;

this includes counterfeit, contraband and the persistent problem of “illicit whites,” which are cigarettes legally purchased in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market.

Currently, we estimate that illicit trade in the EU accounted for approximately 8% of total cigarette consumption in 2023.

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

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

To date, 68 Parties, including the EU, have ratified it.

The Protocol came into force in September 2018.

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.

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.

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

In 2009, our Colombian subsidiaries entered into an Investment and Cooperation Agreement with the national and regional governments of Colombia to promote investment in, and cooperation on, anti-contraband and anti-counterfeit efforts.

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:

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

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

Cigarettes burn tobacco, which produces smoke.

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.

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

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

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

Accordingly, our key strategic priorities are to:

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

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

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

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

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 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.

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.

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.

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 version 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.

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

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

We are assessing alternative designs for this consumer segment.

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

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

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

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

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

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

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

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

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

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

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

We also entered into a licensing agreement with Kaival Brands International, LLC, in June 2022 to distribute an e-vapor product, known in the U.S.

as the BIDI® Stick.

The agreement grants PMI certain intellectual property rights relating to the premium e-vapor devices and, potentially, other newly developed devices, to permit PMI to manufacture, promote, sell, and distribute the e-vapor device and, to the extent included, other newly developed devices in international markets outside of the U.S.

Platform 5 covers snus and modern oral nicotine pouches.

Snus refers to dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose, moist loose tobacco which is put in the mouth between the lower or upper lip and gum, and snus pouches which contain ground tobacco, water, salt and flavors.

Modern oral nicotine pouches consist of white pre-conditioned pouches containing nicotine derived from tobacco.

Users place a pouch between the upper lip and gum and leave it there while the nicotine and flavor are being released.

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

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

They contain primarily nicotine, flavors, and 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 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 RRPs.

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.

The research and development expense for our smoke-free portfolio accounted for 99% of our total research and development expense for each of the three years ended December 31, 2023, 2022 and 2021.

The research and development expense for the years ended December 31, 2023, 2022 and 2021, is set forth in Item 8, Note 15.

Additional Information to the consolidated financial statements.

Commercialization of RRPs:

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

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

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.

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 Item 1.A.

Risk Factors .

We discuss product warranties in more detail in Item 8, Note 7.

Product Warranty .

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

While we do not know the specific relief the U.S.

government may seek 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 are paths available to minimize or eliminate potential impact on the timing or effectuation of the Transaction.

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

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

• Since August 2020, we have launched and expanded our portfolio of vaping products (branded VEEV ) in 26 markets.

• Following our acquisition of Swedish Match, we have access to a strong portfolio of Swedish Match brands in both the snus and nicotine pouch categories.

Swedish Match nicotine pouches are currently available in 23 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.

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.

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.

As of December 31, 2024, the majority of EU Member States transposed the directive into national legislation and brought into force 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.

SFP Commercialization and Risk Statement Authorizations

Certain markets have instituted regulatory authorization processes that govern the commercialization of SFPs or the use of statements addressing SFP harm-reduction.

FDA Approval Process and Status of PMI SFPs :

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 and authorized it for sale in the United States.

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

FDA Review of IQOS :

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

On April 30, 2019, the FDA determined that a version of IQOS , 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.

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

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

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

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of IQOS , namely IQOS 2.4 and three related consumables, as an MRTP with reduced exposure claims.

On March 11, 2022, the FDA reached the same determination for the IQOS 3 device.

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

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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 four years from the date of the orders.

The FDA may issue two types of MRTP orders:

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

We had requested both types of orders for IQOS 2.4 and an initial selection of 3 consumables' variants.

After review, the FDA determined that the evidence did not support issuing a "risk modification" order at this time but that it did support issuing an "exposure modification" order for the product.

We had requested both types of orders for IQOS 2.4 and an initial selection of three related consumables' variants.

After review, the FDA determined that the evidence did not support issuing a "risk modification" order at that time, but that it did support issuing an "exposure modification" order for the product.

This determination included a finding that issuance of the exposure modification order is expected to benefit the health of the population as a whole.

We also received an exposure modification order for IQOS 3.

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

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

We also received an exposure modification order for IQOS 3 in March 2022.

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

The FDA’s PMTA and MRTP orders do not mean that the agency “approved” IQOS .

These authorizations are subject to strict marketing, reporting, and other requirements, and are not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation.

The FDA will monitor the marketing of the product.

On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for IQOS 3 requesting authorization to market this version of the device as a MRTP with reduced exposure information like IQOS 2.4.

In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review, following a period for the public to provide comments on our application.

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

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

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

On July 5, 2023, we submitted renewal applications to the FDA requesting re-authorization to continue to market those IQOS products that previously received an exposure modification order with a modified exposure claim in the United States.

These renewal requests were received by the FDA 360 days prior to the stated July 2024 expiration date of the original exposure modification orders, as requested by the FDA in the original orders.

On May 9, 2024, the FDA filed for scientific review of our MRTP renewal applications for IQOS products and posted materials from these applications.

As our applications proceed through the review process, we have responded to FDA requests for additional information.

The FDA may make further information requests or conduct subsequent inspections to verify the information we submitted.

The FDA did not issue a decision on our MRTP renewal applications prior to the stated July 7, 2024, expiration date of the original exposure modification orders.

The MRTP renewal applications were timely filed in accordance with FDA direction, and we believe that we should be permitted to continue to use the modified exposure claim with respect to those products that received exposure modification orders until the FDA decides on our MRTP renewal applications.

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 for 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.

On April 29, 2024, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the FDA.

The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2023, and February 29, 2024.

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 "appropriate for the promotion of public health" 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.

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

Some states and municipalities in the U.S.

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.

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

HTPs are technically covered by this rule, however the FDA stated that it would make product-specific decisions about health warnings when issuing or revising individual product or marketing orders.

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

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

Philip Morris Products S.A.

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

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

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

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

Philip Morris Products S.A.

was not a party to this litigation.

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

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

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

The proposed rule 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.

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

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 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.

These standards are voluntary.

We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and encourage making them mandatory.

All EU member states have transposed the EU TPD, including the provisions on novel tobacco products, such as heated tobacco units, and e-cigarettes.

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

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

The report included publications in various scientific fields including aerosol chemistry and physics, standard and systems toxicology, clinical studies on exposure reduction to HPHCs, and observational studies.

Overall, the review continues to support the finding that IQOS THS is "appropriate for the promotion of public health."

FDA Review of Swedish Match Products :

Premarket tobacco applications for 20 varieties of ZYN nicotine pouches were submitted in March 2020.

In the same month, these applications were filed for scientific review and in July 2020 the FDA issued a deficiency letter, which Swedish Match USA, Inc.

addressed in September 2020.

On January 16, 2025, the FDA determined that all 20 ZYN nicotine pouch varieties currently marketed in the U.S.

met the applicable public health standard and were appropriate for the protection of public health, and therefore authorized them for sale in the United States.

In their assessment, the FDA concluded that “among several key considerations, the agency’s evaluation showed that, due to substantially lower amounts of harmful constituents than cigarettes and most smokeless tobacco products, such as moist snuff and snus, the authorized products pose lower risk of cancer and other serious health conditions than such products.” Prior to the authorization these 20 varieties of ZYN pouches were marketed in the U.S.

consistent with the FDA's practice not to take enforcement action to prevent products with respect to which applications were filed

prior to a September 9, 2020 deadline from being marketed.

After the September 9, 2020 deadline, we also submitted additional applications for authorization to market other ZYN products.

We are unable to market these products until the FDA authorizes such applications.

In April 2024, we submitted MRTPAs for ZYN products currently marketed in the U.S.

and requested authorization of the modified risk claim.

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

On July 17, 2023, Swedish Match USA, Inc.

submitted a renewal application to the FDA requesting re-authorization to continue to market its eight snus smokeless tobacco products (sold under the General snus brand name) with a modified risk claim.

General snus products received modified risk orders on October 22, 2019.

Swedish Match USA, Inc.

was authorized to market these products with the claim, “Using General snus instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.” On November 7, 2024, the FDA renewed the General snus modified risk orders, with a stated expiration date in November 2032.

Other Commercialization and Risk Statement Authorization Frameworks :

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.

We have filed an authorization request to commercialize IQOS in Taiwan pursuant to this Act, but this authorization is currently still pending authorization by the Ministry of Health of Taiwan.

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.

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

On September 12, 2022, Norway rejected a submission for authorization of HEETS as a novel tobacco product.

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

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

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

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:

SFP Scientific Findings

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 SFPs 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 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 from continued smoking to better alternatives, such as our SFPs.

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, there is no guarantee regulators will continue this approach.

Further, 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.

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 Toxicity published its assessment of the risk of heat-not-burn products relative to cigarette smoking.

This assessment included analysis of scientific data for two heat-not-burn products, one of which was our Platform 1 product.

This assessment included analysis of scientific data for two heat-not-burn products, one of which was IQOS .

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

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

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

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

BfR found reductions in selected HPHCs in a range of 80-99%.

This publication indicates that significant reductions in the levels of selected toxicants are likely to reduce toxicant exposure, which BfR stated might be regarded as a discrete benefit compared to combustible cigarettes.

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

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

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

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

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

The KFDA tested three heat-not-burn products, one of which was our Platform 1 product.

The KFDA tested three heat-not-burn products, one of which was IQOS .

The KFDA confirmed that the levels of the nine HPHCs tested in the aerosol of these products were on average approximately 90% lower compared to those measured in the cigarette smoke of the top five cigarette brands in South Korea.

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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.

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

In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in our Platform 1 product contributed to the difference.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in IQOS contributed to the difference.

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

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The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.

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

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;

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.

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 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").

The ITC upheld the finding of infringement in the FD and found a subsequent violation.

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

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 agreed to request rescission of the LEO and CDO.

For further details, see Item 8, Note 18.

Contingencies to our consolidated financial statements.

Our RRP 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.

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.

In September 2019, Altria's subsidiary, Philip Morris USA Inc.

(“PM USA”), began commercialization of a version of our Platform 1 product in the U.S.

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

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

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

For more details, see Item 8, Note 3.

Acquisitions and Note 18.

Contingencies to our consolidated financial statements.

On January 30, 2023, we announced a renewal and extension of this arrangement.

For more information, see Acquisitions and Other Business Arrangements below.

Legal Challenges to SFPs

We face various administrative and legal challenges related to certain SFP activities, including allegations concerning product classification;

advertising, distribution and sales 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.

On June 11, 2024, Swedish Match North America LLC ("SMNA") received a subpoena from the office of the Attorney General of the District of Columbia (“D.C.”).

The subpoena requested, among other things, information concerning SMNA’s compliance with D.C.’s licensing regulations, age-verification requirements, and prohibition on the sale of flavored tobacco products, including with respect to ZYN nicotine pouches.

SMNA cooperated with this investigation, and on December 12, 2024, reached an agreement to resolve the D.C.

Attorney General’s investigation without admitting liability or wrongdoing.

Pursuant to the agreement, SMNA paid $1.2 million to D.C.

and agreed to conduct certain sales monitoring activities in D.C.

As part of a previously announced sales and supply chain review, SMNA has discontinued sales through the e-commerce shop associated with ZYN.com and direct sales to dedicated online retailers in the United States indefinitely.

e-commerce has represented a small fraction of sales of SMNA in the United States, and the current network of approximately 170,000 brick-and-mortar retailers will remain SMNA’s focus.

Illicit Trade

Illicit trade creates a cheap and unregulated supply of tobacco and nicotine-containing products, undermines efforts to reduce smoking prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime, increases corruption and reduces government tax revenue.

We generally estimate that, excluding China and the U.S., illicit trade may account for as much as 14% of global cigarette consumption;

Currently, we estimate that illicit trade in the EU accounted for approximately 8% of total cigarette consumption in 2023.

Illicit trade also increasingly targets SFPs.

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

We engage with governments, our business partners and other stakeholders to implement effective measures to combat illicit trade.

Where effective and appropriate, we pursue legal remedies to protect our intellectual property rights from counterfeiting or to counter the illicit diversion of our products.

We also cooperate with governmental authorities to combat fraudulent imports of non-compliant or unauthorized tobacco and nicotine-containing products.

As an example, the recent commercial success of the nicotine pouch category makes it more prone to be affected by illicit trade.

Our ongoing anti-illicit initiatives for nicotine pouches include PMI’s ‘know-your-customer’ and ‘anti-diversion’ governance and other measures, such as volume monitoring, tracking and tracing, product security, as well as internal and external awareness training and communications.

We are also expanding our market monitoring -both online and offline- and illicit trade research program to nicotine pouches.

PMI affiliates and Swedish Match affiliates, are taking appropriate actions to address the illicit resale of certain of our oral products including nicotine pouches outside their initial intended market of retail, such as Scandinavia, the U.S.

and other markets.

Such actions include awareness communications to trade partners, cease-and-desist letters to those involved in illicit trade of products bearing our brands and limiting and/or terminating sales to certain customers in both the online and traditional trade.

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

To date, 69 Parties, including the EU, have ratified it.

The Protocol came into force in September 2018.

Since then, implementation in national legislations has been ongoing.

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 November 2025.

The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU were extended to include tobacco products other than cigarettes, including some of our SFPs, as of May 20, 2024.

Other Developments

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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 South Korea and Thailand in Item 8, Note 18.

We describe certain pending matters in Item 8, Note 18.

Contingencies .

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

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

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

The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from January to July

of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational controls to prevent the alleged actions by the individuals.

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

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

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

BAT has filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees and seeking EUR 50 million (approximately $55.2 million) in damages.

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

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.

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.

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

As of December 31, 2024, our Ukrainian operations had approximately $0.6 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 December 31, 2024, our Russian operations had approximately $2.7 billion in total assets, excluding intercompany balances, of which approximately $1.0 billion consisted of cash and cash equivalents held mostly in local currency (Russian rubles).

Additionally, we hold a 23% equity interest in Megapolis Distribution B.V., which was the holding company of JSC TK Megapolis (formerly CJSC TK Megapolis), pursuant to Dutch law, PMI's distributor in Russia.

On July 18, 2024, the Ministry of Industry and Trade filed a petition before the Arbitrazh Court of Moscow seeking the forced localization of JSC TK Megapolis.

On December 5, 2024, JSC TK Megapolis registered the transfer of this equity interest to PMI affiliate ZAO Philip Morris Izhora.

For further details, see Item 8, Note 6.

Related Parties – Equity Investments and Other and Item 8, Note 18.

Contingencies.

These developments above have or may 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 Item 1A.

Risk Factors , Item 8, Note 4.

War in Ukraine and the "Trade Policy " section of this Item 7.

Impact of Inflation on Our Business and Mitigation Efforts

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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 year ended December 31, 2023, the impact on cost of sales was approximately $580 million and we expect certain inflationary elements to ease, with a moderate 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.

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

For the year ended December 31, 2023, the impact on cost of sales was approximately $580 million.

In 2024, the impact on cost of sales was approximately 30% of the 2023 level, benefiting from lower prices for direct materials and utilities, despite continued pressure on tobacco leaf costs.

In 2025, we expect certain inflationary elements such as direct materials and utilities to stabilize, with a moderate overall increase in inflationary pressures driven by tobacco leaf costs.

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

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

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

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

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

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

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

however tobacco leaf purchases in 2022, 2023 and 2024 were 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 in 2023, 2024 and 2025.

In addition, our cash flow from operating activities, particularly 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 have taken several actions to mitigate these inflationary pressures.

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

Asset Impairment and Exit Costs

We discuss asset impairment and exit costs related to restructuring activities in Item 8, Note 20.

Asset Impairment and Exit Costs to our consolidated financial statements.

Research and Development Expense

The research and development expense for our smoke-free portfolio accounted for approximately 100% of our total research and development expense for the year ended December 31, 2024 and approximately 99% for each of the two years ended December 31, 2023 and 2022.

The research and development expense for the years ended December 31, 2024, 2023 and 2022, is set forth in Item 8, Note 15.

Additional Information to the consolidated financial statements.

Restructuring Activities

We discuss restructuring activities in Item 8, Note 20.

Restructuring Activities to our 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, Lebanon and Venezuela as the cumulative inflation rate in these economies for a three-year period meets or exceeds 100%, in accordance with U.S.

We apply highly inflationary accounting to the results of operations of our subsidiaries in Argentina, Egypt, 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.

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

Following the categorization of Egypt by the International Practices Task Force of the Center for Audit Quality as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S.

Consequently, PMI has begun to account for the operations of its Egyptian subsidiaries as highly inflationary, and treat the U.S.

dollar as the functional currency of the subsidiaries, effective October 1, 2024.

For the years ended December 31, 2024, 2023 and 2022, we recognized exchange gains (losses) of $(46) million, $(194) million, and $11 million, respectively, resulting from remeasurement adjustments related to highly inflationary accounting.

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

Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement, 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 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, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Acquisitions and Other Business Arrangements

We discuss our acquisitions in Item 8, Note 3.

Acquisitions to our consolidated financial statements.

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 Corporate Sustainability Due Diligence Directive, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Acquisitions, Divestitures and Other Business Arrangements

We discuss our acquisitions and divestitures in Item 8, Note 3.

Acquisitions and Divestitures to our consolidated financial statements.

On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide basis (excluding South Korea).

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PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis.

On July 30, 2024, PMI announced a memorandum of understanding with KT&G.

This non-binding memorandum establishes the parties’ intent to collaborate on regulatory submissions for those new KT&G heat-not-burn products that PMI selects to commercialize in the U.S.

KT&G’s new platform products are expected to be launched first outside the U.S.

Thereafter, the partners plan to work on a PMTA submission for review by the U.S.

FDA, in accordance with the memorandum.

Equity Investments

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Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject to Trade Sanctions.

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

We do not do business or sell products in Belarus, Iran, North Korea or Syria.

We sell cigarettes in Cuba under a distribution agreement.

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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 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.

Switzerland and the U.K.

have also imposed sanctions similar in scope to the EU sanctions.

On August 9, 2021, the U.S.

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

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.

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 in relation to Russia.

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.

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

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.

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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.

The U.S., the U.K., Switzerland and the EU banned the export of electric accumulators, static converters and electronic cigarettes and similar personal electric vaporizing devices, including IQOS devices, to Russia.

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

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

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

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

2023 compared with 2022

The following discussion compares operating results within each of our segments for 2023 with 2022.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 13,598 $ 12,869 5.7 % 3.7 % $ 729 $ 249 $ — $ 540 $ (60) $ —

Operating Income $ 6,012 $ 5,802 3.6 % 0.4 % $ 210 $ 186 $ — $ 540 $ (79) $ (437)

Net revenues increased by 5.7%.

Net revenues, excluding currency and acquisitions, increased by 3.7%, reflecting:

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

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

The pricing variance for the years 2023 and 2022 was negatively impacted by the supplemental tax surcharge on heated tobacco units in Germany, which went into effect in 2022.

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

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

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

The accrued liability balance will continue to increase with the continuation of the HTU selling activities and in the case of an unfavorable ruling would negatively impact PMI’s future cash provided by operating activities.

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

Operating income increased by 3.6%.

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

The increase was partly offset by the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($62 million), the 2023 charges for asset impairment and exit costs ($49 million), higher marketing, administration and research costs (mainly due to inflationary impacts and lower commercial investments in the prior year period);

higher manufacturing costs (primarily due to inflationary impacts);

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

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

The estimated total market for cigarettes and HTUs in the Region decreased by 1.3% to 542.3 billion units, reflecting a 3.0% decline for cigarettes, partly offset by a 15.6% increase for HTUs.

The decrease in the estimated total market was predominantly due to the United Kingdom (down by 15.4%), France (down by 8.2%), Germany (down by 1.8%) and Spain (down by 2.4%), partly offset by Poland (up by 1.8%).

Europe Key Data

2023 2022 % / pp

PMI Market Share

Cigarettes 30.3 % 31.1 % (0.8)

Heated Tobacco Units 9.1 % 7.8 % 1.3

Total Europe 39.4 % 39.0 % 0.4

Sum may not foot due to roundings.

Our total cigarette and HTU shipment volume in the Region decreased by 0.6% to 214.9 billion units, mainly due to Germany (down by 6.0%), Italy (down by 2.8%;

or up by 0.4% excluding the net unfavorable impact of estimated distributor inventory movements) and France (down by 7.3%), partly offset by Poland (up by 9.4%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 17.6%, including growth in Germany and Italy of 29.7% and 16.6%, respectively.

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

SSEA, CIS & MEA:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 10,629 $ 10,467 1.5 % 11.7 % $ 162 $ (1,060) $ — $ 1,008 $ 400 $ (186)

Operating Income $ 3,047 $ 3,864 (21.1) % (4.2) % $ (817) $ (653) $ — $ 1,008 $ (237) $ (935)

Net revenues increased by 1.5%.

Net revenues, excluding currency and acquisitions, increased by 11.7%, 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, partly offset by an unfavorable cigarette volume impact.

Operating income decreased by 21.1%.

Operating income, excluding currency and acquisitions, decreased by 4.2%, primarily reflecting:

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 termination of a distribution arrangement, coupled with 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 of $34 million.

The decrease was partially offset by the favorable pricing variance and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer of $33 million.

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

The estimated total market for cigarettes and HTUs in the Region decreased by approximately 2% to 1,528.6 billion units, due to a decline for cigarettes.

The decrease in the estimated total market was predominantly due to Egypt (down by 20.9%) and Pakistan (down by 35.1%), partly offset by Turkey (up by 16.9%).

Our Regional market share increased by 0.8 points to 23.4%.

Our total cigarette and HTU shipment volume in the Region increased by 1.3% to 358.2 billion units, mainly driven by Turkey (up by 23.0%), partly offset by the Philippines (down by 26.2%).

Our estimated HTU adjusted in-market sales volume increased by 8.2% including limited growth in Russia.

EA, AU & PMI DF:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,201 $ 5,936 4.5 % 11.2 % $ 265 $ (400) $ — $ 206 $ 459 $ —

Operating Income $ 2,481 $ 2,424 2.4 % 18.6 % $ 57 $ (395) $ — $ 206 $ 326 $ (80)

Net revenues increased by 4.5%.

Net revenues, excluding currency and acquisitions, increased by 11.2%, 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 increased by 2.4%.

Operating income, excluding currency and acquisitions, increased by 18.6%, mainly reflecting favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable HTU mix;

the favorable pricing variance;

lower supply chain costs (primarily related to Japan);

and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer ($24 million).

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

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

The estimated total market for cigarettes and HTUs in the Region, excluding China, increased by 1% to 319.8 billion units, 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 35.7%), partly offset by Taiwan (down by 7.4%) and Australia (down by 19.4%).

Our Regional market share increased by 1.3 points to 30.0%.

Our total cigarette and HTU shipment volume in the Region increased by 6.7% to 101.2 billion units, mainly driven by Japan (up by 9.7%) and International Duty Free (up by 14.5%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 15.8%, including growth in Japan of 14.5%.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,944 $ 1,903 2.2 % (2.9) % $ 41 $ 96 $ — $ 128 $ (177) $ (6)

Operating Income $ 62 $ 436 (85.8) % (40.6) % $ (374) $ (197) $ — $ 128 $ (139) $ (166)

Net revenues increased by 2.2%.

Net revenues, excluding currency and acquisitions, decreased by 2.9%, 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 decreased by 85.8%.

Operating income, excluding currency and acquisitions, decreased by 40.6%, mainly reflecting:

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

in preparation for smoke-free product commercialization);

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

partly offset by the favorable pricing variance.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by around 1% to 189.2 billion units, driven by a decline for cigarettes.

The decrease in the estimated total market was mainly due to Mexico (down by 6.8%), Canada (down by 12.6%) and Argentina (down by 5.0%), partly offset by Brazil (up by 10.1%).

Our Regional market share, excluding the U.S., decreased by 1.1 points to 33.7%.

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.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,496 $ 316 +100% 21.2 % $ 2,180 $ — $ 2,113 $ 25 $ 42 $ —

Operating Income / (Loss) $ 824 $ (22) +100% +100% $ 846 $ (8) $ 694 $ 25 $ 38 $ 97

We recorded net revenues of $2.5 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 $824 million for the year ended December 31, 2023.

Operating income included $372 million related to the amortization of acquired intangibles and $18 million of charges related to an acquisition accounting-related item recorded in 2023.

Swedish Match - PMI Shipment Volume Commentary

Swedish Match Oral Product Shipment Volume (1)

(million cans)

Nicotine Pouches 2023 2022 Change

384.8 34.5 +100%

Scandinavia 28.7 3.7 +100%

Other 4.6 1.2 +100%

Total Nicotine Pouches 418.2 39.4 +100%

Scandinavia 218.2 39.3 +100%

Other 6.8 1.1 +100%

Total Snus 224.9 40.4 +100%

Moist Snuff 133.7 16.0 +100%

Other 4.2 — — %

Total Oral Products 781.0 95.8 +100%

(1) Excluding U.S.

Swedish Match Combustible Tobacco Shipment Volume

(million units) Full-Year

2023 2022 Change

Cigars 1,578.6 259.6 +100%

For comparison purposes, the following commentaries assumed the inclusion of Swedish Match's 2022 shipment volume for the full year, 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.

Swedish Match's total shipment volume for oral products increased by 17.1% versus its corresponding shipments of 667.1 million cans in 2022.

Nicotine pouch shipment volume increased by 55.3% compared to Swedish Match's 2022 shipment volume of 269.2 million cans, reflecting 62.0% growth for ZYN in the U.S.

In Scandinavia, shipment volume for nicotine pouches grew by 6.1%.

Shipment volume for snus declined by 13.8% compared to Swedish Match's 2022 shipment volume of 261.0 million cans.

Cigar shipment volume declined by 12.2% compared to Swedish Match's 2022 cigar shipment volume of 1,798.0 million units, primarily due to the impact of industry pricing effects.

Wellness and Healthcare:

The operating results of PMI’s Vectura Fertin Pharma business are reported in the Wellness and Healthcare segment.

The business operations of our Wellness and Healthcare segment are evaluated separately from the geographical segments.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 306 $ 271 12.9 % 11.8 % $ 35 $ 3 $ — $ 33 $ — $ (1)

Operating Income / (Loss) $ (870) $ (258) -(100)% -(100)% $ (612) $ (6) $ — $ 33 $ — $ (639)

Net revenues increased by 12.9%.

Net revenues, excluding currency and acquisitions, increased by 11.8%, notably reflecting the higher net revenues for smoking cessation products and select inhalation products.

The operating loss of $258 million in 2022 included a charge for impairment of other intangible assets of $112 million and the amortization of acquired intangibles.

2022 compared with 2021

As previously disclosed in the Description of Our Company section of this Item 7, 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 following discussion compares operating results within each of our segments for 2022 with 2021 under this new operating segment structure.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 12,869 $ 13,155 (2.2) % 9.7 % $ (286) $ (1,576) $ 10 $ (122) $ 1,402 $ —

Operating Income $ 5,802 $ 6,409 (9.5) % 6.6 % $ (607) $ (1,029) $ (2) $ (122) $ 918 $ (372)

Net revenues decreased by 2.2%.

Net revenues, excluding currency and acquisitions, increased by 9.7%, reflecting:

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

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

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

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

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

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

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

Operating income decreased by 9.5%.

Operating income, excluding currency and acquisitions, increased by 6.6%, primarily reflecting favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix,

unfavorable cigarette mix and the unfavorable impact on profitability of higher device volume;

partially offset by an unfavorable pricing variance;

higher manufacturing costs;

and higher marketing, administration and research costs (including the unfavorable impact of 2022 charges related to the war in Ukraine of $151 million, 2022 costs associated with the Swedish Match AB offer of $53 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $72 million).

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

The estimated total market for cigarettes and HTUs in the Region decreased by 0.4% to 549.6 billion units, primarily driven by:

• Germany, down by 5.1%, primarily reflecting the impact of excise tax-driven price increases and higher cross-border (non-domestic) purchases due to the easing of pandemic-related measures;

• the U.K., down by 13.6%, notably reflecting the impact of increased out-bound tourism compared to the pandemic-affected prior year period;

• Ukraine, down by 18.3%, due to cigarettes and HTUs;

partly offset by

• Italy, up by 3.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures (particularly in the first half of the year);

• Poland, up by 13.0%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);

• Romania, up by 4.2%, mainly reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures).

Europe Key Data Full-Year

2022 2021 % / pp

PMI Market Share

Cigarettes 31.1 % 32.2 % (1.1)

Heated Tobacco Units 7.8 % 6.1 % 1.7

Total Europe 39.0 % 38.3 % 0.7

Sum may not foot to total due to roundings

Our Regional market share increased by 0.7 points to 39.0%, with gains in Germany, Italy and Poland, partly offset by declines in France, Spain and Ukraine.

Our total cigarette and HTU shipment volume increased by 1.7% to 216.1 billion units, mainly driven by:

• Italy, up by 5.8%, primarily reflecting a higher market share driven by HTUs, as well as a higher total market;

• Poland, up by 17.6%, mainly reflecting the higher total market and a higher market share driven by HTUs;

• Romania, up by 36.1%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 27.3%, primarily reflecting a higher market share driven by HTUs, as well as the higher total market;

partly offset by

• France, down by 8.1%, primarily reflecting a lower total market and a lower market share;

• Ukraine, down by 30.1%, due to cigarettes and HTUs.

SSEA, CIS & MEA:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 10,467 $ 9,858 6.2 % 10.4 % $ 609 $ (419) $ — $ 582 $ 193 $ 253

Operating Income $ 3,864 $ 3,295 17.3 % 20.3 % $ 569 $ (99) $ — $ 582 $ (112) $ 198

Net revenues increased by 6.2%.

Net revenues, excluding currency and acquisitions, increased by 10.4%, notably reflecting;

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

a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other," and a favorable volume/mix, primarily driven by higher cigarette volume and higher HTU volume.

Operating income increased by 17.3%.

Operating income, excluding currency and acquisitions, increased by 20.3%, notably reflecting:

a favorable pricing variance;

a favorable comparison related to the Saudi Arabia customs assessments in 2021 (as noted above for net revenues);

and lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $45 million, partially offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $33 million);

partly offset by higher manufacturing costs;

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

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

The estimated total market for cigarettes and HTUs in the Region decreased by 0.2% to 1,564.4 billion units, primarily due to:

• Algeria, down by 16.1%, or by 6.8% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting industry supply chain disruptions, as well as the impact of excise tax-driven price increases in the first quarter of 2021;

• Bangladesh, down by 6.2%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022, as well as the impact of second-quarter 2022 excise tax-driven price increases;

• the Philippines, down by 4.9%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases;

• Russia, down by 3.7%, mainly due to the impact of price increases;

• Turkey, down by 6.7%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism;

partly offset by

• India, up by 16.8%, primarily reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 3.6%, mainly reflecting the impact on adult smoker consumption of the easing of pandemic-related measures, which drove growth in the tax-advantaged 'below tier one' segment.

Our Regional market share increased by 0.2 points to 22.6%.

Our total cigarette and HTU shipment volume in the Region increased by 0.4% to 353.6 billion units, mainly driven by:

• Egypt, up by 8.2%, primarily reflecting a higher market share driven by cigarettes and HTUs;

• India, up by 73.9%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market;

• Indonesia, up by 4.8%, mainly reflecting the higher total market;

partly offset by

• the Philippines, down by 6.3%, mainly reflecting the lower total market;

• Russia, down by 6.0%, due to cigarettes and HTUs.

EA, AU & PMI DF:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 5,936 $ 6,448 (7.9) % 1.9 % $ (512) $ (635) $ — $ (24) $ 147 $ —

Operating Income $ 2,424 $ 2,836 (14.5) % (1.3) % $ (412) $ (376) $ — $ (24) $ (170) $ 158

Net revenues decreased by 7.9%.

Net revenues, excluding currency and acquisitions, increased by 1.9%, reflecting:

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

partially offset by an unfavorable pricing comparison.

Operating income decreased by 14.5%.

Operating income, excluding currency and acquisitions, decreased by 1.3%, mainly reflecting:

unfavorable volume/mix, primarily due to unfavorable HTU mix, unfavorable cigarette mix and unfavorable device mix, partly offset by higher cigarette volume;

higher manufacturing costs;

and an unfavorable pricing comparison;

partially offset by lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $91 million, partly offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $24 million).

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

The estimated total market for cigarettes and HTUs in the Region, excluding China, increased by 1.3% to 316.4 billion units, mainly driven by:

• International Duty Free, up by 41.0%, primarily reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies;

partly offset by

• Japan, down by 1.5%, primarily reflecting the impact of the October 2021 excise tax-driven price increases.

Our Regional market share, excluding China, increased by 1.1 points to 28.7%.

Our total cigarette and HTU shipment volume increased by 5.3% to 94.9 billion units, mainly driven by:

• PMI Duty Free, up by 61.3%, or by 43.5% excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes), reflecting the higher total market and a higher market share;

• Japan, up by 0.6%, or by 3.9% excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to HTUs), reflecting a higher market share, partly offset by the lower total market;

partly offset by

• Australia, down by 5.1%, mainly reflecting a lower total market, partly offset by a higher market share;

• South Korea, down by 1.6%, primarily reflecting a lower market share.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,903 $ 1,843 3.3 % 4.1 % $ 60 $ (15) $ — $ 102 $ (23) $ (4)

Operating Income $ 436 $ 487 (10.5) % (8.2) % $ (51) $ (11) $ — $ 102 $ (6) $ (136)

Net revenues increased by 3.3%.

Net revenues, excluding currency and acquisitions, increased by 4.1%, primarily reflecting:

a favorable pricing variance, driven by combustible tobacco pricing;

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

Operating income decreased by 10.5%.

Operating income, excluding currency and acquisitions, decreased by 8.2%, mainly reflecting:

higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $5 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $8 million);

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Volume/mix was slightly unfavorable, mainly due to unfavorable cigarette mix, largely offset by higher cigarette volume.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., increased by 1.8% to 191.1 billion units, primarily driven by:

• Brazil, up by 7.6%, primarily reflecting a lower estimated prevalence of illicit trade;

partly offset by

• Canada, down by 12.8%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

Our Regional market share, excluding the U.S., increased by 0.3 points to 34.8%.

Our total cigarette and HTU shipment volume increased by 2.1% to 66.5 billion units, mainly driven by:

• Brazil, up by 13.3%, primarily reflecting the higher total market and a higher market share;

• Mexico, up by 2.5%, mainly reflecting a higher total market and a higher market share for cigarettes;

partly offset by

• Argentina, down by 2.8%, primarily reflecting a lower market share due to adult smoker downtrading to ultra-low-price brands produced by local manufacturers, partly offset by a higher total market.

Swedish Match:

Our results for the Swedish Match operating segment for the full-year include Swedish Match's results beginning on November 11, 2022, when PMI became the owner of a majority position in Swedish Match, through December 31, 2022.

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

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 316 $ — — % — % $ 316 $ — $ 316 $ — $ — $ —

Operating Income / (Loss) $ (22) $ — — % — % $ (22) $ — $ (22) $ — $ — $ —

We recorded net revenues of $316 million in the Swedish Match segment, with an operating loss of $22 million, primarily reflecting $125 million in an acquisition accounting-related item and $26 million related to the amortization of acquired intangibles.

Wellness and Healthcare:

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

and OtiTopic, Inc.

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

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

The business operations of our Wellness and Healthcare segment are managed and evaluated separately from the geographical segments.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 271 $ 101 +100% (7.9) % $ 170 $ (11) $ 189 $ (10) $ — $ 2

Operating Income / (Loss) $ (258) $ (52) -(100)% -(100)% $ (206) $ 8 $ (72) $ (10) $ — $ (132)

Net revenues increased over 100%.

Net revenues, excluding currency and acquisitions, decreased by 7.9%, primarily reflecting lower product supply revenues and lower royalties.

The operating loss of $258 million in 2022 included $171 million of amortization and impairment of intangibles.

The remaining operating loss in 2022 of $87 million mainly reflected investments in research and development, as well as expenses related to employee retention programs.

Financial Review

1 unchanged sentence

(in millions) 2024 2023 2022

Net cash provided by operating activities $ 9,204 $ 10,803 $ 11,967

Net cash used in investing activities (3,598) (15,679) (2,358)

Net cash provided by (used in) operating activities $ 12,217 $ 9,204 $ 10,803

Net cash provided by (used in) investing activities (1,092) (3,598) (15,679)

Net cash provided by (used in) financing activities (9,481) (5,582) 3,806

1 unchanged sentence

• Net Cash Provided by Operating Activities

Net cash provided by operating activities of $9.2 billion for the year ended December 31, 2023 decreased by $1.6 billion from the comparable 2022 period.

Excluding unfavorable currency movements of $1.3 billion, the unfavorable variance of $0.3 billion was due primarily to higher working capital requirements of $1.2 billion, partly offset by higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense and goodwill and other intangible impairment charges.

Net cash provided by operating activities of $12.2 billion for the year ended December 31, 2024 increased by $3.0 billion from the comparable 2023 period.

Excluding unfavorable currency movements of $0.4 billion, the favorable variance of $3.4 billion was due primarily to lower working capital requirements of $1.5 billion and higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense, impairment charges of goodwill and other intangibles, the loss on the sale of Vectura Group and the impairment charge related to the RBH equity investment.

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 Argentine peso, Egyptian pound, Japanese yen, Russian ruble and Swiss franc, partly offset by the Euro.

The higher working capital requirements in 2023 as compared with 2022 were primarily due to less cash provided by accrued liabilities and other current assets, net of positive cash movements in 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, and more cash used in accounts payable, which primarily reflects the 2023 payment for higher IQOS ILUMA device purchases in the fourth quarter of 2022 to meet the needs of ILUMA launches.

Working capital requirements were also negatively 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 Item 7), as well as tactical stock increases for certain direct materials.

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

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

The lower working capital requirements in 2024 as compared with 2023 were primarily due to more cash provided by inventories, coupled with more cash provided by accrued liabilities and other current assets, 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 and less cash used in accounts payable in 2024 primarily due to comparison with 2023 payment for higher IQOS ILUMA device purchases in the fourth quarter of 2022 to meet the needs of ILUMA launches.

The favorable 2024 working capital comparison to 2023 is also impacted by higher 2023 working capital requirements following 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.

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 Item 8, Note 19.

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.

For the full year 2025, we currently expect net cash provided by operating activities of around $11 billion at prevailing exchange rates, subject to year-end working capital requirements.

This takes into account non-recurring payments relating to the German tax surcharge and the U.S.

Tax Cuts and Jobs Act, which amount to approximately $1 billion.

• Net Cash Used in Investing Activities

Net cash used in investing activities of $1.1 billion for the year ended December 31, 2024 decreased by $2.5 billion from the comparable 2023 period.

This decrease in cash used was primarily due to the $14.0 billion of cash used in 2022 for the Swedish Match acquisition, net of acquired cash.

This was partially offset by the higher second installment of $1,775 million (including interest) paid to Altria Group, Inc.

($773 million) for PMI to reacquire the IQOS commercialization rights in the U.S., and the unfavorable movements of $944 million in net investment hedges, 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 payments to Altria Group, Inc.

and derivatives designated as net investment hedges, see Item 8, Note 3.

Acquisitions and Note 16.

Financial Instruments, and the "Business Environment" section of this Item 7.

This decrease in net 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., and higher cash collateral received for derivative instruments, partially offset by higher capital expenditures.

Our capital expenditures were $1.4 billion in 2024 and $1.3 billion in 2023.

The 2024 expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

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

We expect total capital expenditures in 2025 of approximately $1.5 billion, including further investments in ZYN capacity in the U.S.

• Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities of $5.6 billion for the year ended December 31, 2023, increased by $9.4 billion compared with net cash provided by financing activities of $3.8 billion for the year ended December 31, 2022.

The change was primarily due to net borrowings of $9.9 billion under credit facilities related to the Swedish Match acquisition in 2022, coupled with the repayment on the related bridge facility in 2023.

This was partly offset by higher long-term debt issuances in 2023, 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 lower payments in 2023 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 Item 8, Note 3.

Acquisitions .

Net cash used in financing activities of $9.5 billion for the year ended December 31, 2024 increased by $3.9 billion from the comparable 2023 period.

The increase in net cash used was primarily due to lower net borrowings in 2024, reflecting higher repayments on long-term debt, lower long-term debt proceeds and higher repayments on short-term borrowings (primarily commercial paper).

The increase was partly offset by favorable comparisons to 2023 mainly reflecting repayment on a credit facility in 2023 related to the Swedish Match acquisition, and payments in 2023 to acquire the remaining issued and outstanding shares in Swedish Match, as well as higher cash collateral received for derivative instruments.

Dividends paid in 2024 and 2023 were $8.2 billion and $8.0 billion, respectively.

7 unchanged sentences

As a policy, we do not hold any investments in structured or equity-linked products.

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 2022, the activities for such reverse repurchase agreements were not material.

For 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.

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

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

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

2 unchanged sentences

We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates PMI's smoke-free transformation into its financing strategy.

The Framework outlines the guidelines that we will follow in issuing business transformation-linked financing instruments in the debt capital and loan markets, which may include public notes offerings, private placements, loans, and other relevant financing instruments.

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

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Fitch F1 A Negative

Revolving Credit Facilities – On January 24, 2024, we entered into an agreement to extend the term of our 364-day committed revolving credit facility in the amount of $1.7 billion from January 30, 2024, to January 28, 2025.

Revolving Credit Facilities

On December 17, 2024, we entered into a credit agreement, effective as of January 29, 2025, relating to a senior unsecured revolving credit facility with borrowings up to an aggregate principal amount of €1.5 billion, (approximately $1.6 billion) expiring on January 29, 2028.

Concurrently, we did not request an extension of the maturity date of the existing 364-day revolving credit facility and the facility matured on January 28, 2025.

At February 6, 2025, our committed revolving credit facilities were as follows:

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Committed Revolving Credit Facilities

364-day revolving credit, expiring January 28, 2025 $ 1.7

Multi-year revolving credit, expiring February 10, 2026 (1)

Multi-year revolving credit, expiring September 29, 2026 (2) (3)

Multi-year $2.0 billion revolving credit, expiring February 10, 2026 (1)

Multi-year $2.5 billion revolving credit, expiring September 29, 2026 (2) (3)

Multi-year €1.5 billion revolving credit, expiring January 29, 2028

Total facilities

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Borrowings under these arrangements and other bank loans amounted to $137 million at December 31, 2024, and $283 million at December 31, 2023.

Credit Facilities related to the Financing of the Swedish Match Acquisition – In connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility.

The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended.

On June 23, 2022, PMI entered into a €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027.

In connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion.

On November 11, 2022, PMI acquired a controlling interest of 85.87% of the total issued shares in Swedish Match and acquired 94.81% of its outstanding shares as of December 31, 2022.

In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100% of the shares in Swedish Match on February 17, 2023.

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

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.

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.

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

The proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the payment of related fees and expenses.

For further details, see Item 8, Note 3.

Acquisitions to our consolidated financial statements.

Term Loan Facility related to the Financing of the Swedish Match Acquisition – On June 23, 2022, PMI entered into a €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027.

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

On November 21, 2024, PMI prepaid approximately €3 billion (approximately $3.2 billion), including outstanding principal and accrued interest, representing all borrowings outstanding under the 3-year tranche of the senior unsecured term loan facility.

As of December 31, 2024, borrowings in the amount of €2.5 billion (approximately $2.6 billion) under the 5-year tranche of the term loan facility remained outstanding.

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

At December 31, 2024, we had no commercial paper

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

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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

Euro notes (b) (c) €500 (approximately $543)

3.750% June 2024 January 2031

dollar notes (d) $750 4.375% November 2024 November 2027

dollar notes (d) $750 4.625% November 2024 November 2029

dollar notes (d) $750 4.750% November 2024 November 2031

dollar notes (d) $750 4.900% November 2024 November 2034

(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 PMI's agreement with Altria, see Item 8, Note 3.

Acquisitions and the "Business Environment" section of this Item 7.

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

The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2023 and 8 years at the end of 2022.

(b) Interest is payable annually, commencing in January 2025

(d) Interest is payable semi-annually, commencing in May 2025

The net proceeds from the sale of the securities listed in the table above were primarily used for general corporate purposes, including working capital requirements, repayment of commercial paper and to refinance certain of our outstanding notes.

On November 21, 2024, PMI financed the prepayment of the 3-year tranche of the senior unsecured term loan facility with the proceeds of the November 2024 bond issuances and cash on hand.

The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2024 and 2023.

Cash Requirements – At December 31, 2024, our material short-term and long-term cash requirements for various contractual obligations and commitments primarily consisted of the following:

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Leases to our consolidated financial statements.

• other long-term liabilities mainly related to transition tax.

For further details, see Item 8, Note 12.

Income Taxes to our consolidated financial statements.

• Off-Balance Sheet Arrangements

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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.

In August 2024, PMI entered into a guarantee agreement for an equity investee.

For further details, see Item 8, Note 6.

Contingencies to our consolidated financial statements.

Related Parties – Equity Investments and Other .

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

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Stock Plans to our 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 June 11, 2021, our Board of Directors authorized a 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 share repurchase program.

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

We did not make any share repurchases in 2023 and 2024.

Our three-year share repurchase program expired on July 21, 2024.

Dividends paid in 2024 were $8.2 billion.

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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 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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$297 $332 $505 $219

The significant year-over-year increase in "average" and "high" impact on the value at risk computation above was primarily due to trends in foreign currency and interest rate exposures.

Year-over-year increases of the impact of foreign currency rates and decreases of the impact of interest rates on the value at risk computation above was primarily due to higher foreign currency volatility and lower interest rate volatility in 2024 compared to 2023.

The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in interest and foreign currency rates under normal market conditions.

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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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In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us;

any such statement is qualified by

reference to the following cautionary statements.

any such statement is qualified by reference to the following cautionary statements.

We elaborate on these and other risks we face throughout this document, particularly in Item 1A.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis