# EDGAR Filing Document

**Accession Number:** 0001413329
**File Stem:** 0001104659-23-036076
**Filing Date:** 2023-3
**Character Count:** 164622
**Document Hash:** ffb1a818e28ad10ce4b998f7dc473595
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001104659-23-036076.hdr.sgml**: 20230323

**ACCESSION NUMBER**: 0001104659-23-036076

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230323

**DATE AS OF CHANGE**: 20230323

**EFFECTIVENESS DATE**: 20230323

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Philip Morris International Inc.
- **CENTRAL INDEX KEY:** 0001413329
- **STANDARD INDUSTRIAL CLASSIFICATION:** CIGARETTES [2111]
- **IRS NUMBER:** 133435103
- **STATE OF INCORPORATION:** VA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-33708
- **FILM NUMBER:** 23756456

**BUSINESS ADDRESS:**
- **STREET 1:** 677 WASHINGTON BLVD, STE. 1100
- **CITY:** STAMFORD
- **STATE:** CT
- **ZIP:** 06901
- **BUSINESS PHONE:** 203-905-2410

**MAIL ADDRESS:**
- **STREET 1:** 677 WASHINGTON BLVD, STE. 1100
- **CITY:** STAMFORD
- **STATE:** CT
- **ZIP:** 06901

### Attached PDF Documents

**Attachment 1:** `tm2310007d1_ars.pdf`

![img-0.jpeg](img-0.jpeg)

# PHILIP MORRIS INTERNATIONAL  
2022 ANNUAL REPORT

# 2022 Financial Highlights

Adjusted
Net Revenues

+7.7%

vs. 202112

Adjusted
Operating
Income

+6.2%

vs. 202112

Adjusted
Operating
Income Margin

-0.6pp

vs. 202112

Adjusted
Diluted EPS

+11.9%

vs. 202113

Operating
Cash Flow

$10.8

Billion

Annualized
Dividend

$5.08

Per Share4

Since becoming a
public company in 2008,
PMI has increased its regular
quarterly dividend by

176.1%

representing a compound
annual growth rate of

7.5%

# 2022 Smoke-Free Highlights

Total
IQOS Users5

24.9

Million

Market Share
of PMI HTUs5
in IQOS Markets6

8.0%

PMI HTUs

#2

Tobacco "Brand"
in IQOS Markets6

HTU
Shipment Volume

109.2

Billion Units

Smoke-Free Product5

Net Revenues

32.1%

of Total

"We continue to make exciting progress on our smoke-free transformation, with smoke-free products accounting for almost one-third of PMI's total net revenues in 2022."

- Jacek Olczak, Chief Executive Officer

# Smoke-Free Product Portfolio7

![img-1.jpeg](img-1.jpeg)

IQOS 3

![img-2.jpeg](img-2.jpeg)

IQOS ILUMA

![img-3.jpeg](img-3.jpeg)

BONDS

VEEV

![img-4.jpeg](img-4.jpeg)

General
(Snus)

![img-5.jpeg](img-5.jpeg)

ZYN
(Nicotine Pouch)

(1) Excluding Russia and Ukraine. See page G-1 for further discussion.

(2) On an organic basis. See page G-1 for definition.

(3) On a currency-neutral basis.

(4) Annualized rate based on a quarterly dividend of $1.27 per common share, declared September 14, 2022.

(5) See page G-1 for definition.

(6) Excluding the U.S.

(7) Select smoke-free products.

# Dear Shareholder,

In 2022, PMI delivered an excellent performance despite a challenging operating environment linked to the war in Ukraine, significant supply chain disruptions and global inflationary pressures. This performance reflected the continued strong growth of *IQOS* - enhanced by the roll-out of *ILUMA* in initial launch markets - and positive momentum for the combustible business.

We also reached two critical strategic milestones last year: the finalization of an agreement to take full control of *IQOS* in the U.S. as of April 30, 2024, and the successful completion of the Swedish Match acquisition. These developments will accelerate our smoke-free journey and further position PMI to lead the transformation of the wider industry, including in the U.S.

The company's achievements in 2022 were the product of the collective skills, drive, and innovative thinking of the entire organization. We salute our nearly 80,000 employees globally and thank them for another year of their dedication and hard work.

## 2022 vs. 2021 Results

Total international industry$^{1}$ volume for cigarettes and heated tobacco units (HTUs) increased by 0.2%. Excluding Russia and Ukraine, total international industry volume increased by 0.9%, driven by volume recoveries in many markets as the lingering effects of the pandemic dissipated.

Total cigarette and HTU shipment volume increased by 1.6%, to 731.1 billion units, representing a second consecutive year of volume growth for PMI. Excluding Russia and Ukraine, total shipment volume increased by 3.2%, driven by a 21.5% increase in HTUs and a 0.8% increase in cigarettes.

Total cigarette and HTU market share increased by 0.4 percentage points, to 27.6% of the international market. Excluding Russia and Ukraine, total international share increased by 0.6 percentage points, to 27.3%, driven by the strong performance of our HTU brands (also up by 0.6 percentage points) and stable share for cigarettes.

Net revenues of \$31.8 billion increased by 1.1%. Excluding Russia and Ukraine, adjusted net revenues increased by 7.7% on an organic basis, driven primarily by HTU shipment volume growth and a corresponding positive product mix impact, as well as favorable combustible tobacco pricing.

Operating income (OI) of \$12.2 billion decreased by 5.6%. Excluding Russia and Ukraine, adjusted OI increased by 6.2% on an organic basis, driven by adjusted net revenue growth, partly offset by a contraction in adjusted operating margin of 0.6 percentage points on the same basis. The margin decline was mainly due to inflationary pressures on cost of sales, transitory cost impacts related to the roll-out of *ILUMA*, and higher air freight costs due to supply chain disruptions, less the favorable impact of productivities and cost efficiencies.

Diluted EPS of \$5.81 decreased by 0.3%. Excluding Russia and Ukraine, adjusted diluted EPS of \$5.34 increased by 11.9% excluding currency.

Operating cash flow of \$10.8 billion decreased by 9.7%. On a currency-neutral basis, operating cash flow increased by 3.0%, driven primarily by higher net earnings.

In September, the Board of Directors approved a 1.6% increase in the quarterly dividend, to an annualized rate of \$5.08 per share. This represented the fifteenth consecutive year in which we increased our dividend since becoming a public company in 2008.

## War in Ukraine

The war in Ukraine has presented a number of unprecedented challenges for the company, and our focus has naturally been on supporting our employees and their families who are impacted.

Our business in Ukraine was heavily disrupted last year. We suspended production at our manufacturing facility in Kharkiv, which was supplying both the domestic market and a number of important export markets. Following an initial suspension of our broader commercial activities in the market, we subsequently resumed some retail activities, where safety allowed, and began to supply the market from production centers outside Ukraine, as well as through a local contract manufacturing arrangement.

![img-6.jpeg](img-6.jpeg)

Chief Executive Officer

![img-7.jpeg](img-7.jpeg)

Executive Chairman of the Board

In Russia, we took a range of concrete steps in 2022 to suspend planned investments and scale down manufacturing operations. PMI is continuously assessing the evolving situation in Russia, including: recent regulatory constraints in the market that entail 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.

## Delivering a Smoke-Free Future

In 2022, our smoke-free portfolio accounted for 32.1% of total net revenues, with 17 markets generating more than 50% of their total net revenues from smoke-free products. As of year-end, our smoke-free products were available in 73 markets, of which 30 are classified as low- and middle-income markets.

*IQOS* continues to drive the strong growth of our smoke-free product portfolio. The estimated number of total *IQOS* users increased by 3.2 million in 2022 to reach 24.9 million as of year-end, with an estimated 17.8 million of these users - or around 71% - having switched to *IQOS* and stopped smoking. This performance reflected *IQOS* user growth across key geographies, including the EU Region, Japan, and low- and middle-income markets broadly.

*ILUMA* generated excellent growth in its initial launch markets in 2022, with upgrades from existing *IQOS* users and new-user acquisition outperforming our expectations. The acceleration in heat-not-burn category growth in the diverse launch geographies highlights its exciting future growth opportunity across the world. While the speed of *ILUMA* market launches was impacted by supply constraints for its HTU consumables, the product was available in 16 markets as of year-end, including Italy and Korea.

To complement *IQOS*, PMI continues to invest in a broader range of innovative and high-quality heat-not-burn alternatives across multiple price tiers. This includes licensed *I/I* products, which were available in over 30 markets as of year-end and are delivering high levels of adult smoker conversion while successfully competing in lower price segments. In January 2023, we extended our successful commercial relationship with KT&G through a long-term agreement.

Additionally, in the fourth quarter, PMI introduced *BONDS* by *IQOS* - our new proprietary heat-not-burn device with external heating technology - through pilot launches in Colombia and the Philippines. The product, with its *BLENDS* consumables, is tailored to low- and middle-income markets, and offers a simple, convenient, and affordable heat-not-burn proposition, which can cater to local taste preferences without compromising on harm reduction.

In e-vapor, we complemented our *VEEV* closed-system products with a range of disposable products under the *VEEBA* brand, based on licensed technology. As of year-end, *VEEBA* was available in four markets, including Canada and the U.K. The launches were supported by responsible marketing practices, a rigorous focus on preventing unintended use, and a sustainability take-back program.

Last year will be remembered for the achievement of two major milestones in our smoke-free journey that unlock significant

$^{1}$ References to 'international industry' and the 'international market' exclude China and the U.S.

1

new growth opportunities. First, following an agreement with our existing U.S. partner for heat-not-burn products, PMI will have the full rights to commercialize IQOS in the U.S. - the world's largest total nicotine market (and largest smoke-free market) by value, with an estimated industry profit pool of around $20 billion - as of April 30, 2024.

Second, the acquisition of Swedish Match positions us as the clear multicategory leader globally for smoke-free products, with IQOS and ZYN the leading brands in their respective categories. Swedish Match also provides a substantial operating platform in the U.S., which we intend to leverage for the commercialization of IQOS, while we harness PMI's international capabilities for the expansion of Swedish Match's oral nicotine brands. Please see the inside back cover of this report for additional information related to the acquisition.

### Smoke-Free Product Regulation

The regulatory environment for smoke-free products remains complex, as many tobacco-control advocates, non-governmental organizations and the World Health Organization continue to radicalize the discourse around such products. Nevertheless, we remain at the forefront of the debate, aiming to increase category understanding and advance Tobacco Harm Reduction (THR) among regulators and consumers.

Importantly, there have been a number of encouraging international developments related to smoke-free product regulation over the past year. Most notably, the government in the Philippines passed a new law clearly differentiating combustible and non-combustible tobacco products.

There were also a few negative regulatory developments, most notably the European Union's ban on the use of characterizing flavors in heated tobacco products (effective later this year), which was formulaic under existing regulation resulting from HTU sales reaching a predefined threshold.

### Combustible Tobacco Product Portfolio

Maintaining our competitive position in the combustible tobacco category as we transition to a smoke-free future is critical, as it best positions us to significantly accelerate our smoke-free journey.

Our combustible tobacco business delivered a very robust performance in 2022, with 0.8% growth in our cigarette shipment volume, a 0.3 percentage point increase in cigarette category share and 3.7% growth in organic net revenues (all metrics exclude Russia and Ukraine).

In 2022, we celebrated Marlboro's 50th anniversary as the world's leading cigarette brand. Marlboro remains extremely resilient despite the recent pressure on disposable income in many markets, as well as its over-indexing to IQOS cannibalization. The brand's share of the international cigarette category in 2022 reached 10.3%, up by 0.2 percentage points, excluding Russia and Ukraine.

### Organization

There were a number of important organizational developments at PMI in 2022. Following our establishment of a new category management structure in 2021, we designed and implemented accountabilities and decision-rights, overall governance, and change management. This has positioned our organization to become more focused - seamlessly delivering on what matters, at the right speed, quality, and cost - and ensures greater end-to-end accountability from development to deployment.

In addition, as announced late last year, we are realigning our regional structure and operations with existing and emerging business opportunities, resulting in a reduction to four regions (from six). This will further position the company for success, with regions organized by similarity of consumer needs, opportunities for growth, and geographic proximity.

The new structure will better position us to further grow and build our leadership in smoke-free products across the globe. Additionally, it will boost our speed of innovation and deployment as we become a multicategory business. It will also enhance our ability to identify and grow talent, deepening the bench of leaders who will spearhead PMI's smoke-free future for years to come.

In 2022 we also continued to build the development engine of our new wellness and healthcare business with the creation

of Vectura Fertin Pharma. The new company combines the capabilities of Vectura, Fertin Pharma and PMI with the aim of delivering innovative, best- or first-in-class inhalable and oral products that can have a net positive impact on society.

### Sustainability

Progress against our sustainability strategies continues apace as we seek to tackle the impacts of both (i) our products (what we produce) and (ii) our operations (how we produce). Below are some of our 2022 sustainability highlights.

From a product perspective, we continued to: make progress towards our transformation, focus on ensuring that our products do not reach unintended audiences, and put in place youth access prevention safeguards in our direct and indirect retail channels. We also made progress in implementing end-of-life take-back programs for our smoke-free devices and consumables, while also increasing our repair capabilities.

With regard to our operations, we published a strengthened Commitment to Human Rights and completed our sixth and seventh human rights impact assessments, in Brazil and Malaysia. In addition, we were recognized by CDP with a Triple A score for climate, forest, and water security for the third consecutive year and had 13 PMI factories certified as carbon neutral. We will continue to focus on areas where we faced challenges in 2022, including reducing our scope 3 greenhouse gas emissions and improving our gender balance in senior roles.

To further strengthen our commitment to sustainability, last year we introduced a new bespoke Sustainability Index comprised of 19 KPIs across our most material sustainability issues, weighted toward product health impact. The index, which provides additional transparency on how we define success and measure ESG performance, has been integrated into our long-term executive compensation to further align management incentives with our smoke-free transformation.

For more information on PMI's sustainability progress and ambitions, we invite you to read our 2022 Integrated Report, which we plan to publish in the coming weeks.

### Board of Directors

In January 2023, Lucio A. Noto informed the Board that he would not stand for re-election this year. On behalf of the entire organization, we would like to thank Lou for his invaluable contributions to the company throughout his 15 years as a Director of PMI since the company's spin-off in 2008, including his service as Interim Chairman, Lead Independent Director and Chair of the Audit Committee. We also sincerely thank Frederik Paulsen, who joined the Board in 2014 and will also not stand for re-election this year, for his valued contributions to the company as a Director and Chair of the Product Innovation and Regulatory Affairs Committee.

### Looking Ahead

Last year brought new and unexpected challenges for the world and PMI, including those related to the war in Ukraine. In response, we believe the organization demonstrated enormous solidarity, agility, resilience and learning ability. Our people spared no effort to deliver excellent business performance, while achieving major milestones in the company's smoke-free transformation.

We are confident in our strong position as the global smoke-free champion and our ability to lead the industry's transformation. Our smoke-free portfolio now includes the world's leading heat-not-burn brand, IQOS, and the world's leading nicotine pouch franchise, ZYN. We have a rich pipeline of smoke-free innovation, as well as the foundation in place to drive further growth in wellness and healthcare over the long term. We are excited to continue our journey toward a smoke-free future and firmly believe that we are well positioned to achieve our bold smoke-free ambitions.

Jacek Olczak,
Chief Executive Officer

André Calantzopoulos,
Executive Chairman of the Board

March 10, 2023

2

# Board of Directors

**André Calantzopoulos** 3,4,6
Executive Chairman
of the Board
Director since 2013

**Bonin Bough** 3,6
Founder & Chief
Growth Officer,
Digilience LLC dba
Bonin Ventures
Director since 2021

**Michel Combes** 1,3,4
Executive Vice President,
Claure Group LLP
Director since 2020

**Dr. Juan José Daboub** 2,4,5,6
Chairman, President
and CEO, Daboub
Partnership of Arcis, LLC
Director since 2021

**Werner Geissler** 1,2,3
Operating Partner,
Advent International
Director since 2015

**Lisa A. Hook** 1,2,3,6
Managing Partner,
Two Island Partners LLC
Director since 2018

**Jun Makihara** 1,2,3,4
Retired Businessman
Director since 2014

**Kalpana Morparia** 4,5,6
Founder & Managing
Partner, KalMor
Advisors LLP
Director since 2011

**Lucio A. Noto** 1,2,3,4,5,6
Lead Independent
Director of the Board
Managing Partner,
Midstream Partners, LLC
Director since 2008

**Jacek Olczak** 3,4,6
Chief Executive Officer
Director since 2021

**Frederik Paulsen** 7,6
Chairman,
Ferring Group
Director since 2014

**Robert B. Polet** 2,3,5
Chairman,
Rituals Cosmetics
Enterprise B.V.
Chairman, Arica
Holding B.V.
Chairman, SFMS B.V.
Director since 2011

**Dessislava Temperley** 1,3,4
Former Group CFO and
Executive Board Member
of Beiersdorf AG
Director since 2021

**Shlomo Yanai** 3,6
Chairman,
Lumenis Ltd.
Director since 2021

## Board and Committee Leadership

1 Member of Audit Committee,
Lucio A. Noto, Chair
2 Member of Compensation and
Leadership Development
Committee,
Werner Geissler, Chair
3 Member of Consumer
Relationships and Regulation
Committee,
Lisa A. Hook, Chair
4 Member of Finance
Committee,
Jun Makihara, Chair
5 Member of Nominating and
Corporate Governance
Committee,
Kalpana Morparia, Chair
6 Member of Product Innovation
and Regulatory Affairs
Committee,
Frederik Paulsen, Chair

# Company Management

**Jacek Olczak** 1,1
Chief Executive Officer

**Massimo Andolina** 1,1
President,
Europe Region

**Emmanuel Babeau** 1,1
Chief Financial Officer

**Werner Barth** 1,1
President, Combustibles
Category & Global
Combustibles Marketing

**Charles Bendotti**
Global Head,
People & Culture

**Badrul Chowdhury**
Chief Life Sciences Officer

**Scott Coutts**
Senior Vice President,
Operations

**Lars Dahlgren** 1,1
President, Smoke-Free
Oral Products &
CEO Swedish Match

**Frank de Rooij**
Vice President,
Treasury & Corporate Finance

**Frederic de Wilde** 1,1
President, SSEA, CIS &
MEA Region

**Reginaldo Dobrowolski** 1,1
Vice President & Controller

**Suzanne R. Folsom** 1,1
Senior Vice President &
General Counsel

**Jorge Insuasty**
President,
Vectura Fertin Pharma

**Stacey Kennedy** 1,1
President, Americas Region &
CEO of PMI's U.S. Business

**Michael Kunst**
Chief Strategy Officer,
Vectura Fertin Pharma

**Andreas Kurali**
Deputy CFO & Head of
Finance Transformation

**Bin Li**
Chief Product Officer

**Marco Mariotti**
President, CIS,
Central Asia & Israel

**Mario Masseroli**
President,
Latin America Region

**Silke Muenster**
Chief Diversity Officer

**Paul Riley** 1,1
President, East Asia, Australia,
and PMI Duty Free Region

**Marian Salzman**
Senior Vice President,
Global Communications

**Grégoire Verdeaux**
Senior Vice President,
External Affairs

**Michael Voegele**
Chief Digital &
Information Officer

**Stefano Volpetti** 1,1
President, Smoke-Free
Inhaled Products &
Chief Consumer Officer

1 Not standing for re-election at the Annual Meeting of Shareholders on May 3, 2023.

1,1 Executive Officer

Note: SSEA, CIS & MEA are acronyms for South and South East Asia, Commonwealth of Independent States & Middle East and Africa.

3

# Shareholder Information

## Mailing Addresses

### Headquarters

Philip Morris International Inc.
677 Washington Blvd.
Ste. 1100
Stamford, CT 06901
USA
www.pmi.com

### Operations Center

Philip Morris Products S.A.
Avenue de Rhodanie 50
1007 Lausanne
Switzerland
www.pmi.com

### Independent Auditors

PricewaterhouseCoopers SA
Avenue C.F. Ramuz 45
1001 Lausanne
Switzerland

### Transfer Agent and Registrar

Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
USA

### 2023 Virtual Annual Meeting of Shareholders

The Philip Morris International Inc.
Annual Meeting of Shareholders
will be held solely online via a live
webcast on Wednesday, May 3, 2023,
at 9:00 a.m. Eastern Daylight Time.
For further information, call toll-free:
1-866-713-8075

## Shareholder Publications

Philip Morris International Inc. makes
a variety of publications and reports
publicly available. These include the
Annual Report, news releases and other
publications. For copies, please visit:
www.pmi.com/investors

Philip Morris International Inc. makes
available free of charge its filings
(including proxy statements and Reports
on Forms 10-K, 10-Q and 8-K) with the
U.S. Securities and Exchange Commission.
For copies, please visit:
www.pmi.com/SECfilings

If you do not have Internet access, you
may call our Shareholder Publications
Center toll-free: 1-866-713-8075

## Shareholder Response Center

Computershare Trust Company, N.A.,
our transfer agent, will answer questions
about your accounts, certificates,
dividends or the Direct Stock Purchase
and Dividend Reinvestment Plan. U.S. and
Canadian shareholders may call toll-free:
1-877-745-9350
From outside the U.S. or Canada,
shareholders may call:
1-781-575-4310
Postal address:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
USA
E-mail address:
pmi@computershare.com

## Direct Stock Purchase and Dividend Reinvestment Plan

Philip Morris International Inc. offers
a Direct Stock Purchase and Dividend
Reinvestment Plan, administered by
Computershare. For more information, or
to purchase shares directly through the
Plan, please contact Computershare.

## Trademarks

Trademarks and service marks in this
report are the registered property of, or
licensed by, the subsidiaries of Philip Morris
International Inc. and are italicized or
shown in their logo form.

## Stock Exchange Listings

Philip Morris International Inc. is listed
on the New York Stock Exchange (ticker
symbol "PMI") and on the SIX Swiss
Exchange (ticker symbol "PMI").

## Internet Access Helps Reduce Costs

As a convenience to shareholders and an
important cost-reduction measure, you
can register to receive future shareholder
materials (e.g., Annual Report and proxy
statement) via the Internet. Shareholders
also can vote their proxies via the Internet.
For complete instructions, please visit:
www.pmi.com/investors

To eliminate duplicate mailings, please
contact Computershare (if you are a
registered shareholder) or your broker
(if you hold your stock through a
brokerage firm).

## Additional Information

Information on our website is not, and shall
not be deemed to be, a part of this report
or incorporated into any filings we make
with the SEC.

## PMI Investor Relations Mobile App

Our Investor Relations mobile application provides users with easy, dynamic and
comprehensive access to the company's Investor Relations information, such as stock
quotes, press releases, SEC filings, investor materials, and live and archived webcast
playback of earnings calls and investor presentations. The free mobile application is
available to download from the Apple App Store for iOS devices and Google Play for
Android devices.

iOS

![img-8.jpeg](img-8.jpeg)

Android

![img-9.jpeg](img-9.jpeg)

## Philip Morris International: Delivering a Smoke-Free Future

Philip Morris International (PMI) is a leading international tobacco company working to deliver a smoke-free future and evolving its
portfolio for the long term to include products outside of the tobacco and nicotine sector. The company's current product portfolio
primarily consists of cigarettes and smoke-free products. Since 2008, PMI has invested more than USD 10.5 billion to develop,
scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with
the goal of completely ending the sale of cigarettes. This 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, PMI
acquired Swedish Match - a leader in oral nicotine delivery - creating a global smoke-free champion led by the companies' IQOS and
ZYN brands. The U.S. Food and Drug Administration (FDA) has authorized versions of PMI's IQOS Platform 1 devices and consumables
and Swedish Match's General snus as Modified Risk Tobacco Products (MRTPs). As of December 31, 2022, PMI's smoke-free products
were available for sale in 73 markets, and PMI estimates that approximately 17.8 million adults around the world had already switched
to IQOS and stopped smoking. Smoke-free products accounted for approximately 32% of PMI's total full-year 2022 net revenues. With
a strong foundation and significant expertise in life sciences, PMI announced in February 2021 its ambition to expand into wellness
and healthcare areas and, through its Vectura Fertin Pharma subsidiary, aims to enhance life through the delivery of seamless health
experiences. For more information, please visit www.pmi.com and www.pmiscience.com.

![img-10.jpeg](img-10.jpeg)

4

# **UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**

☑ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended December 31, 2022

**OR**

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from ______ to ______

Commission File Number: 001-33708

# **PHILIP MORRIS INTERNATIONAL INC.**

(Exact name of registrant as specified in its charter)

**Virginia**

(State or other jurisdiction of
incorporation or organization)

**677 Washington Blvd, Suite 1100**

**Stamford**

**Connecticut**

(Address of principal executive offices)

**13-3435103**

(I.R.S. Employer
Identification No.)

**06901**

(Zip Code)

**203-905-2410**

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| --- | --- | --- |
| Common Stock, no par value | PM | New York Stock Exchange |
| 2.625% Notes due 2023 | PM23 | New York Stock Exchange |
| 2.125% Notes due 2023 | PM23B | New York Stock Exchange |
| 3.600% Notes due 2023 | PM23A | New York Stock Exchange |
| 2.875% Notes due 2024 | PM24 | New York Stock Exchange |
| 2.875% Notes due 2024 | PM24C | New York Stock Exchange |
| 0.625% Notes due 2024 | PM24B | New York Stock Exchange |
| 3.250% Notes due 2024 | PM24A | New York Stock Exchange |
| 2.750% Notes due 2025 | PM25 | New York Stock Exchange |
| 3.375% Notes due 2025 | PM25A | New York Stock Exchange |
| 2.750% Notes due 2026 | PM26A | New York Stock Exchange |
| 2.875% Notes due 2026 | PM26 | New York Stock Exchange |
| 0.125% Notes due 2026 | PM26B | New York Stock Exchange |
| 3.125% Notes due 2027 | PM27 | New York Stock Exchange |
| 3.125% Notes due 2028 | PM28 | New York Stock Exchange |

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| --- | --- | --- |
| 2.875% Notes due 2029 | PM29 | New York Stock Exchange |
| 3.375% Notes due 2029 | PM29A | New York Stock Exchange |
| 0.800% Notes due 2031 | PM31 | New York Stock Exchange |
| 3.125% Notes due 2033 | PM33 | New York Stock Exchange |
| 2.000% Notes due 2036 | PM36 | New York Stock Exchange |
| 1.875% Notes due 2037 | PM37A | New York Stock Exchange |
| 6.375% Notes due 2038 | PM38 | New York Stock Exchange |
| 1.450% Notes due 2039 | PM39 | New York Stock Exchange |
| 4.375% Notes due 2041 | PM41 | New York Stock Exchange |
| 4.500% Notes due 2042 | PM42 | New York Stock Exchange |
| 3.875% Notes due 2042 | PM42A | New York Stock Exchange |
| 4.125% Notes due 2043 | PM43 | New York Stock Exchange |
| 4.875% Notes due 2043 | PM43A | New York Stock Exchange |
| 4.250% Notes due 2044 | PM44 | New York Stock Exchange |

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | ☑ | Accelerated filer | ☐ |
| --- | --- | --- | --- |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
|  |  | Emerging growth company | ☐ |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐

As of June 30, 2022, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $153 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.

| Class | Outstanding at January 31, 2023 |
| --- | --- |
| Common Stock, no par value | 1,550,232,895 shares |

# **DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the registrant's definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May 3, 2023, to be filed with the Securities and Exchange Commission on or about March 23, 2023.

| Parts Into Which Incorporated |
| --- |
| Part III |

# TABLE OF CONTENTS

|  | Page |
| --- | --- |
| PART I |  |
| Item 1. Business | 1 |
| Item 1A. Risk Factors | 8 |
| Item 1B. Unresolved Staff Comments | 18 |
| Item 2. Properties | 18 |
| Item 3. Legal Proceedings | 19 |
| Item 4. Mine Safety Disclosures | 19 |
| PART II |  |
| Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 19 |
| Item 6. [Reserved] | 22 |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 69 |
| Item 8. Financial Statements and Supplementary Data | 70 |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 138 |
| Item 9A. Controls and Procedures | 138 |
| Item 9B. Other Information | 138 |
| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 138 |
| PART III |  |
| Item 10. Directors, Executive Officers and Corporate Governance | 138 |
| Item 11. Executive Compensation | 140 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 141 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 141 |
| Item 14. Principal Accounting Fees and Services | 141 |
| PART IV |  |
| Item 15. Exhibits and Financial Statement Schedules | 142 |
| Signatures | 148 |

In this report, "PMI," "we," "us" and "our" refers to Philip Morris International Inc. and its subsidiaries.

Trademarks and service marks in this report are the registered property of, or licensed by, the subsidiaries of Philip Morris International Inc. and are italicized.

# PART I

## Item 1. *Business.*

### *General Development of Business*

#### General

Philip Morris International Inc. is a Virginia holding company incorporated in 1987. We are a leading international tobacco company working to deliver a smoke-free future and to evolve our portfolio for the long term to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes and smoke-free products, which include heat-not-burn, vapor, and oral nicotine products. Since 2008, we have invested more than $10.5 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. 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. The U.S. Food and Drug Administration ('FDA') has authorized versions of our *IQOS* Platform 1 devices and consumables, and Swedish Match's *General* snus, as Modified Risk Tobacco Products ('MRTPs'). We describe the MRTP orders in more detail in the 'Business Environment' section of Item 7. *Management's Discussion and Analysis of Financial Condition and Results of Operations*.

In March 2008, we became a U.S. public company listed on the New York Stock Exchange and subject to the rules of the Securities and Exchange Commission (the 'SEC').

In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group PLC and Fertin Pharma A/S, which provide essential capabilities for future product development. Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life sciences, we aim to expand into wellness and healthcare areas.

In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Match acquisition is a key milestone in PMI's transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022. The operating results of Swedish Match are included in a separate segment.

In the fourth quarter of 2022, we also completed 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 have the full rights to commercialize *IQOS* in the U.S.

For further details of our 2021 and 2022 acquisitions, see Item 8, Note 3. *Acquisitions* and Note 13. *Segment Reporting*.

Smoke-free products ('SFPs') is the term we primarily use to refer to all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

Reduced-risk products ('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 to smoke. We have a range of RRPs in various stages of development, scientific assessment and commercialization. Our RRPs are smoke-free products that contain and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.

Our *IQOS* smoke-free product brand portfolio includes heated tobacco and nicotine-containing vapor products. Our leading smoke-free platform ('Platform 1') uses a precisely controlled heating device into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol. Heated tobacco units ('HTU') is the term we use to refer to heated tobacco consumables, which include our *BLENDS*, *HEETS*, *HEETS Creations*, *HEETS Dimensions*, *HEETS Marlboro* and *HEETS FROM MARLBORO* (defined collectively as '*HEETS*'), *Marlboro Dimensions*, *Marlboro HeatSticks*, *Parliament HeatSticks*, *SENTIA* and *TEREA*, as well as the KT&G-licensed brands, *Fiit* and *Mix* (outside of South Korea). Platform 1 was first introduced in Nagoya, Japan, in 2014. As of December 31, 2022, our smoke-free products were available for sale in 73 markets.

Swedish Match already 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

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heat-not-burn product. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve separately.

Our cigarettes are sold in approximately 175 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and local brands and is led by Marlboro, the world's best-selling international cigarette, which accounted for approximately 39% of our total 2022 cigarette shipment volume. Marlboro is complemented in the premium-price category by Parliament. Our other leading international cigarette brands are Chesterfield, L&M, and Philip Morris. These five international cigarette brands contributed approximately 77% of our cigarette shipment volume in 2022. We also own a number of important local cigarette brands, such as Dji Sam Soe and Sampoerna A in Indonesia, and Fortune and Jackpot in the Philippines.

### **Source of Funds - Dividends**

We are a legal entity separate and distinct from our direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. 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.

### **Description of Business**

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

- The European Union Region ("EU") is headquartered in Lausanne, Switzerland, and covers all the European Union countries and also Switzerland, Norway, Iceland and the United Kingdom;
- The Eastern Europe Region ("EE") is also headquartered in Lausanne, and includes Southeast Europe, Central Asia, Ukraine, Israel and Russia;
- The Middle East & Africa Region ("ME&A") is also headquartered in Lausanne, and covers the African continent, the Middle East, Turkey and our international duty free business;
- The South & Southeast Asia Region ("S&SA") is headquartered in Hong Kong, and includes Indonesia, the Philippines and other markets in this region;
- The East Asia & Australia Region ("EA&A") is also headquartered in Hong Kong, and includes Australia, Japan, South Korea, the People's Republic of China ("China") and other markets in this region, as well as Malaysia and Singapore;
- The Americas Region ("AMCS") is headquartered in Stamford, Connecticut, and covers the South American continent, Central America, Mexico, the Caribbean and Canada;
- Swedish Match, which reflects our fourth quarter 2022 acquisition of the company; and
- Wellness and Healthcare ("W&H"), which includes the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma. In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. (also known as Vectura Group Ltd.) and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma. The operating results of this new business are reported in the Wellness and Healthcare segment.

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

- Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the United Kingdom, and also Ukraine, Moldova and Southeast Europe;
- South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai, United Arab Emirates. It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel, Central Asia, Caucasus and Russia;

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- East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our international duty free business with East Asia & Australia; and
- Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.

The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged. We will report our financial results based on the new geographical segments as of the first quarter of 2023.

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

Our total shipment volume, including cigarettes and heated tobacco units, increased by 1.6% in 2022 to 731.1 billion units, with shipment volume of heated tobacco units reaching 109.2 billion units in 2022, up from 95.0 billion units in 2021. Shipment volume of our principal cigarette brand, Marlboro, increased by 2.0% in 2022.

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

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

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

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Total Market, billion units (excluding China and the U.S.) | 2,626 | 2,620 | 2,561 |
| Total International Market Share (1) | 27.6% | 27.2% | 27.6% |
| Cigarettes | 23.6% | 23.7% | 24.6% |
| HTU | 4.1% | 3.5% | 3.0% |
| PMI Cigarette over Cigarette Market Share (2) | 24.9% | 24.8% | 25.6% |
| Marlboro Cigarette over Cigarette Market Share (3) | 9.8% | 9.5% | 9.4% |

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

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

(3) Defined as Marlboro'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

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

We have a market share of at least 15% in approximately 100 markets, including Algeria, Argentina, Australia, Austria, Belgium, Brazil, the Czech Republic, Egypt, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Israel, Italy, Japan, Kazakhstan, Kuwait, Mexico, the Netherlands, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, the Slovak Republic, South Korea, Spain, Switzerland, Turkey and Ukraine.

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# Distribution & Sales

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

- Direct sales and distribution, where we have set up our own distribution selling directly to the retailers;
- Distribution through independent distributors that often distribute other fast-moving consumer goods and are responsible for distribution in a particular market;
- Exclusive zonified distribution, where the dedicated multicategory product distributors are assigned to exclusive territories within a market;
- Distribution through national or regional wholesalers that then supply the retail trade;
- Our own e-commerce infrastructure for product sales to trade partners and to consumers; and
- Our own brand retail infrastructure for our RRP products and accessories for sales to consumers.

# Competition

We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. In the combustible product category, we predominantly sell American blend cigarette brands, such as Marlboro, L&M, Parliament, Philip Morris and Chesterfield, which are the most popular across many of our markets. In the RRP product category, we primarily sell Platform 1 devices and heated tobacco units under the IQOS brand. We also sell other smoke-free products, including those commercialized through Swedish Match. We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category.

The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence; competitors' introduction of lower-price products or innovative products; novel products which given their taste characteristics may be more commercially successful; higher tobacco product taxes; higher absolute prices and larger gaps between retail price categories; and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam. Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our profitability and results of operations.

# Procurement and Raw Materials

We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent tobacco suppliers. In 2022, we also contracted directly with farmers in several countries, including Argentina, Brazil, Italy, Pakistan and Poland. In 2022, direct sourcing from farmers represented approximately 16% of PMI's global leaf requirements. The largest supplies of tobacco leaf are sourced from Argentina, Brazil, China, Italy, Indonesia (mostly for domestic use in kretek products), Malawi, Mozambique, the Philippines, Turkey and the United States. We believe that there is an adequate supply of tobacco leaf in the world markets to satisfy our current and anticipated production requirements.

Given the global reach of our value chain, properly managing land and water resources and utilizing a geographically diversified sourcing strategy for agricultural products are priorities as we seek to increase the resilience of our production systems and minimize operational risks. We conduct a global water risk assessment annually in tobacco-growing regions to identify potential hotspots for physical water risks that require adaptation measures. Our water stewardship strategy includes guidance for applying a landscape approach to water optimization projects, protecting natural resources and recharge areas, and improving the efficiency of irrigation systems to integrate better farm water management. These business practices are intended to mitigate the risk that climate change could influence weather patterns in ways that negatively impact the quality or cost of the agricultural products used to manufacture our products.

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In addition to tobacco leaf, we purchase a wide variety of direct materials from a total of approximately 360 suppliers. In 2022, our top ten suppliers of direct materials combined represented approximately 60% of our total direct materials purchases. The four most significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making and fine paper used in the manufacturing of cigarettes and heated tobacco units, as well as susceptors used for the *TEREA* heated tobacco units. In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business.

We discuss the details of our supply chain for our RRPs in Item 7. *Management's Discussion and Analysis of Financial Condition and Results of Operations* of this Annual Report on Form 10-K ('Item 7') in *Business Environment-Reduced-Risk Products*.

### *Business Environment*

Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, *Business Environment* to this Annual Report on Form 10-K.

## Other Matters

### *Customers*

As described in more detail in '*Distribution & Sales*' above, in many of our markets we sell our products to distributors. In 2022, sales to a distributor in the European Union Region and a distributor in the East Asia & Australia Region each amounted to 10 percent or more of our consolidated net revenues. See Item 8, Note 13. *Segment Reporting* for more information. We believe that none of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on our consolidated results of operations. In some of our markets, particularly in the European Union, Eastern Europe, the Middle East and Africa, and in the East Asia & Australia Regions, a loss of a distributor may result in a temporary market disruption.

### *Human Capital*

**Our Workforce.** At December 31, 2022, including Swedish Match's employees, we employed approximately 79,800 people worldwide of more than 130 different nationalities, including full-time, temporary and part-time staff. Our businesses are subject to a number of laws and regulations relating to our relationship with our employees. Generally, these laws and regulations are specific to the location of each business. We engage with legally recognized employee representative bodies and we have collective bargaining agreements in several of the countries in which we operate. In addition, in accordance with European Union requirements, we have established a European Works Council composed of management and elected members of our workforce. We believe we maintain good relations with our employees and their representative organizations.

**Our Internal Transformation.** To be successful in our transformation to a smoke-free future, we must continue transforming our culture and ways of working, align our talent with our business needs, successfully integrate acquired businesses and innovate to become a truly consumer-centric business. To achieve our strategic goals, we need to attract, retain and motivate the best global talent with the right degree of diversity, experience, competencies and skills. Therefore, we strive to ensure the development of our existing talent while increasingly recruiting those with the expertise in areas that are relatively new to us such as digital and technical solutions. Our compensation and benefit programs are set at the levels that we believe are necessary to attract the best talent and remain competitive with other consumer product companies.

**Oversight and Management.** Our Board of Directors (the 'Board') provides oversight of various matters pertaining to our workforce. The Compensation and Leadership Development Committee of the Board is responsible for executive compensation matters and oversight of the risks and programs related to talent management. Our Code of Conduct highlights our commitment to ethical business conduct and honesty, respect, fairness in our ways of working.

**Inclusion & Diversity.** At PMI, we believe that a diverse workforce and an inclusive culture are strategic priorities which help fuel innovation and business success. As part of our commitment to workplace diversity, in 2020, our Chief Executive Officer appointed a Chief Diversity Officer. Improving gender balance, especially in management positions, continues to be one of our priorities:

- • In 2022, we achieved the global target of 40% female representation in management positions;
- • In 2021, we started our Women in Leadership program to support our female talents; and
- • We were the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY Foundation in 2019. In 2022, we were re-certified as a global EQUAL-SALARY organization for the second time, verifying that PMI continues to pay female and male employees equally for equal work everywhere where we operate. This achievement is an important milestone toward the creation of a more inclusive gender-balanced workplace and the continuation of our reputation as a top employer.

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

Creation of employee resource groups ('ERGs') was another important milestone to drive further inclusion at PMI. We believe these groups serve as a platform for building an enhanced sense of belonging, visibility, and greater understanding of different experiences and dimensions of diversity in our company. Currently, we have established global ERGs for race and ethnicity, LGBTQ+, gender and disability matters concerning our employees. Each global ERG is sponsored by a member of the PMI senior leadership team, to reinforce the fact that our strong commitment to Inclusion & Diversity comes from the top. In 2022, we continued to focus on the growth of our global ERGs and to expand them locally, to be able to meet the specific needs of different markets and regions.

By the end of 2022, our global parental leave principles were implemented in every market in which we operate, with the exception of Russia. PMI's minimum leave principles provide primary caregivers with a minimum of 18 weeks fully paid parental leave and secondary caregivers with a minimum of 8 weeks fully paid parental leave. These global and gender-neutral guidelines demonstrate how PMI is creating a more inclusive, diverse work environment to meet the challenges and expectations of our people for the 21st century workplace.

To further strengthen our commitment to drive inclusion and equality, we also commissioned an independent academic study exploring the methods organizations can adopt to drive lasting cultural change. Findings of this study informed the development of practices and programs focused on employee inclusion at PMI.

Our Initiatives in Response to COVID-19. Since the outbreak of the global COVID-19 pandemic, we have focused on business continuity, health and safety of our employees, and have adapted our ways of working to a new environment. We have implemented additional safety measures for essential employees in our facilities and offices. We have also enhanced remote and flexible work arrangements and digital collaboration, and related risk management, and to date, many of our employees continue to have the ability work remotely for up to 60% of their working time, where applicable.

#### *Government Regulation*

As a company with global operations in a heavily regulated industry, we are subject to multiple laws and regulations of jurisdictions in which we operate. We discuss our regulatory environment in Item 7, *Business Environment*.

The regulatory landscape related to environmental, social, and governance ('ESG') matters is rapidly evolving. We closely monitor these developments and implement initiatives addressing PMI's priority ESG areas in line with our sustainability strategy. In particular, we are subject to international, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements and reduce our carbon footprint, wastage, as well as water and energy consumption. We report externally about our climate change mitigation strategy, together with associated targets and results in reducing our carbon footprint, through CDP (formerly known as the Carbon Disclosure Project), the leading international non-governmental organization assessing the work of thousands of companies worldwide in the area of environmental impact, including climate change.

Our environmental and occupational health and safety management program includes policies, standard practices and procedures at all our manufacturing centers. Furthermore, we have engaged an external certification body to validate the effectiveness of this management program at our manufacturing centers around the world, in accordance with internationally recognized standards for safety and environmental management. Our subsidiaries expect to continue to make investments in order to drive improved performance and maintain compliance with environmental laws and regulations. We assess and report to our management the compliance status of all our legal entities on a regular basis. Based on current regulations, the management and controls we have in place and our review of climate change risks (both physical and regulatory), environmental expenditures have not had, and are not expected to have, a material adverse effect on our consolidated results of operations, capital expenditures, financial position, earnings or competitive position.

Based on current regulations, compliance with government regulations, including environmental regulations, has not had, and is not expected to have a material adverse effect on our results of operations, capital expenditures, financial position, earnings, or competitive position.

As discussed in more detail in Item 1A. *Risk Factors*, our financial results could be significantly affected by regulatory initiatives that could result in a significant decrease in demand for our brands or by climate-related regulations that increase our cost of operation. More specifically, any regulatory requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a

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material adverse effect on our financial results. Further, tightened climate-related regulation may lead to additional carbon taxation or energy price increases impacting our cost of operation. These shifts in regulation and other market trends could, amongst others, impact current deforestation rates. Availability of deforestation-free materials, could be impacted by increased demand for alternative energy sources and low-carbon fuels, such as biomass, which could result in increased sourcing costs.

We discuss additional information regarding regulatory matters relating to climate change in Item 7, Climate Change Laws and Regulations.

# Information About Our Executive Officers

The disclosure regarding executive officers is hereby incorporated by reference to the discussion under the heading “Information about our Executive Officers as of February 10, 2023” in Part III, Item 10. Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K (“Item 10”).

# Intellectual Property

Our trademarks are valuable assets, and their protection and reputation are essential to us. We own the trademark rights to all of our principal brands, including Marlboro, HEETS, IQOS, IQOS ILUMA, TEREA, and ZYN or have the right to use them in all countries in which these brands are advertised or sold.

In addition, we have a large number of granted patents and pending patent applications worldwide. Our patent portfolio, as a whole, is material to our business. However, no one patent, or group of related patents, is material to us. We also have registered industrial designs, as well as unregistered proprietary trade secrets, technology, know-how, processes and other unregistered intellectual property rights.

Effective January 1, 2008, PMI entered into an Intellectual Property Agreement with Philip Morris USA Inc., a wholly owned subsidiary of Altria Group, Inc. (“PM USA”). The Intellectual Property Agreement allocates ownership of jointly funded intellectual property as follows:

- PMI owns all rights to jointly funded intellectual property outside the United States, its territories and possessions; and
- PM USA owns all rights to jointly funded intellectual property in the United States, its territories and possessions.

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

An agreement reached with PM USA in 2022 relating to IQOS commercialization rights in the U.S. includes, among other things, an agreement relating to intellectual property rights consistent with the commercialization rights for relevant IQOS products.

# Seasonality

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

# Available Information

We are required to file with the SEC annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access our SEC filings.

We make available free of charge on, or through, our website at www.pmi.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Investors can access our filings with the SEC by visiting www.pmi.com.

The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.

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# **Item 1A. Risk Factors.**

*The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K.*

# *Forward-Looking and Cautionary Statements*

We may from time to time make written or oral forward-looking statements, including statements contained in this Annual Report on Form 10-K and other filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects," "aims," "goals," "targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Our RRPs constitute a new product category that is less predictable than our mature cigarette business. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. 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. We elaborate on these and other risks we face throughout this document, particularly in Item 7, *Business Environment*. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.

# *Overall Business Risks*

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

Our key strategic priorities are to: (i) develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking; and (ii) encourage and educate current adult smokers who would otherwise continue to smoke to switch to those RRPs. For our efforts to be successful, we must:

- develop RRPs that adult smokers find acceptable alternatives to smoking;
- conduct rigorous scientific studies to substantiate that RRPs reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking; and
- effectively advocate for a timely development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

We might not succeed in our efforts. If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may be at a competitive disadvantage. In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the totality of scientific evidence available for specific products. This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs. We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated information and claims. Such restrictions could limit the success of our RRPs.

The WHO study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation in May 2021. The report is based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such

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as electronic nicotine delivery systems ('ENDS'), electronic non-nicotine delivery systems and heated tobacco products ('HTPs') on a number of scientific topics. The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products, and the access to accurate information about them. In August 2021, the World Health Organization's Framework Convention on Tobacco Control (the 'FCTC') Secretariat published two reports on novel and emerging tobacco products to the ninth session of the Conference of the Parties ('CoP') of the FCTC, which are not materially different from the WHO study group report. Substantive decisions based on these reports were deferred to CoP 10, currently scheduled to take place in the fourth quarter of 2023. It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

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

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products, and not for non-smokers or youth. We put significant effort to restrict access of our products from non-smokers or youth. Nevertheless, technological, operational, regulatory and/or commercial setbacks might impact the implementation or effectiveness of youth access prevention mechanisms and surrounding infrastructure. If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our reputation and credibility may suffer, the regulatory approach to our products may become more restrictive, and our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly impacted.

Moreover, the FDA's premarket tobacco product and modified risk tobacco product authorizations of two versions of our Platform 1 product are subject to strict marketing, reporting and other requirements. Although we have received these authorizations from the FDA, there is no guarantee that the product will remain authorized for sale in the U.S., or whether new versions of the products (Platform 1 or other smoke-free platforms) will receive necessary authorizations, particularly if there is a significant uptake in youth or non-smoker initiation.

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

Our RRPs are novel products in a new category, and the pace at which adult smokers adopt them may vary, depending on the competitive, regulatory, fiscal and cultural environment, and other factors in a specific market. There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business. The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category, during the COVID-19 pandemic as a result of unpredictability due to shortage of key components in our supply chain, or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption, which in turn may have a material adverse effect on our results of operation.

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

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. Nevertheless, we are unable to predict whether regulators will be issuing new regulations where RRP will be equally taxed in line with other tobacco products such as ordinary cigarettes. However, if we cease to be successful in these efforts, RRP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operation.

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

This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products. These factors and their potential consequences are discussed more fully below and in Item 7, *Business Environment*. A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability, which in turn may have a material adverse effect on our ability to fund our smoke-free transformation.

#### **Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may disproportionately affect our profitability and make us less competitive versus certain of our competitors.**

Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of cigarettes versus other combustible tobacco products, or disproportionately affect the relative retail price of our cigarette brands versus cigarette brands manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price cigarette category, tax

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regimes based on sales price can place us at a competitive disadvantage in certain markets. Furthermore, our volume and profitability may be adversely affected in these markets.

In addition, increases in cigarette taxes are expected to continue to have an adverse impact on our sales of cigarettes, due to resulting lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border purchases of lower price products, or to illicit products such as contraband, counterfeit and 'illicit whites.'

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

# **Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or preventing the use of tobacco products.**

Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volumes for our products in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase down-trading and the risk of counterfeiting, contraband, 'illicit whites' and legal cross-border purchases. Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the FCTC. Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to adult smokers. Regulatory initiatives that have been proposed, introduced or enacted by governmental authorities in various jurisdictions include:

- • restrictions on or licensing of outlets permitted to sell cigarettes;
- • the levying of substantial and increasing tax and duty charges;
- • restrictions or bans on advertising, marketing and sponsorship;
- • the display of larger health warnings, graphic health warnings and other labeling requirements;
- • restrictions on packaging design, including the use of colors, and mandating plain packaging;
- • restrictions on packaging and cigarette formats and dimensions;
- • restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending machines;
- • generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited;
- • requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;
- • disclosure, restrictions, or bans of tobacco product ingredients, including bans on the flavors of certain tobacco products;
- • increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in some instances, in private places and outdoors;
- • restrictions or prohibitions of novel tobacco or nicotine-containing products or related devices;
- • elimination of duty free sales and duty free allowances for travelers;
- • restrictions in terms of importing or exporting our products impacting our logistics activities and ability to ship our products;
- • encouraging litigation against tobacco companies; and
- • excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.

Our financial results could be materially affected by regulatory initiatives resulting in a significant decrease in demand for our brands. More specifically, requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a material adverse effect on our financial results.

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# **Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local country currency exchange controls and other regulations.**

We are subject to income tax laws in the United States and numerous foreign jurisdictions. Changes in the U.S. tax system, including significant increases in the U.S. corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries could be enacted. Such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles. If implemented, such changes, as well as changes in taxing jurisdictions' administrative interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings. In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.

As a result of Russia's invasion of Ukraine, certain taxing jurisdictions, including the U.S., have proposed punitive tax legislation applicable to companies doing business in Russia, which could also have a material adverse impact on our effective tax rate if enacted thereby reducing our net earnings.

Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.

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

# **Our business, results of operations, cash flows and financial position may be adversely impacted by the continuation and consequences of the war in Ukraine.**

In 2022, Russia accounted for around 9% of our total cigarette and heated tobacco unit shipment volume, and around 7% of our total net revenues. Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume, and around 1% of our total net revenues. Historically, we also produced finished goods in Ukraine for export and manufactured products in Russia. In 2022, as a result of Russia's invasion of Ukraine, we suspended planned investments and scaled down our manufacturing operations in Russia. In Ukraine, we have temporarily reduced operations, including closing our factory in the country.

The short and long-term implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict at this time. The likelihood of retaliatory action by the Russian government against companies, including us, as a result of actions and statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or nationalization of foreign businesses or assets, including cash reserves held in Russia and intangible assets such as trademarks, is impossible to predict. We are continuously assessing the evolving situation in Russia, including: recent regulatory constraints in the market that entail 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 Ukraine, there is no way to know when and to what extent we will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact. These developments have and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.

The conflict also continues to elevate the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products. For example, historically we sourced certain finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials. These disruptions, to the extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and may result in impairment charges. Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions, the ban on exports of various products, and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts as well as adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets. Given the nature of our business and global operations, such geo-political instability and uncertainty could increase the costs of our materials and operations; reduce demand for our products; have a negative impact on our supply chains, manufacturing capabilities, or distribution capabilities; increase our exposure to currency fluctuations; constrain our liquidity or our ability to access capital markets; create staffing or operations difficulties; or subject us to increased cyber-attacks. While we will continue to monitor this fluid situation and

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develop contingency plans as necessary to address any disruptions to our business operations as they develop, the extent of the conflict's effect on our business and results of operations as well as the global economy, cannot be predicted.

The conflict may also have the effect of heightening many other risks disclosed in this Form 10-K, any of which could adversely affect our business, results of operations, cash flows or financial position. Such risks could affect, without limitation, the achievement of our strategic priorities, including achievement of our RRP growth targets; the availability of third-party manufacturing resources; the availability of attractive acquisition and strategic business opportunities and our ability to fully realize the benefits of these transactions; our ability to attract, motivate, and retain the best global talent; and our loss of revenue from counterfeiting and similar illicit activities.

#### *Risks Related to Sourcing and Distribution of Products, Services and Materials*

##### **Use of third-parties may negatively impact the distribution, quality, and availability of our products and services, and we may be required to replace third-party contract distributors, manufacturers or service providers.**

We increasingly rely on third-parties and their subcontractors/suppliers, sometimes concentrated in a specific geographic area, for product distribution and to manufacture some of our products and product parts (particularly, the electronic devices and accessories), as well as to provide services, including to support our finance, commercialization and information technology processes. While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control. Such diminished control may lead to disruption in the distribution of our products and may have a material adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage. In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with other partners or our own resources.

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

While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted. Among other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including tobacco, due to a number of factors beyond our control, including more frequent variations in weather patterns, extreme weather events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade, all of which may lead to disruption of operations at factories, warehouses and other premises.

Furthermore, risks related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world, biodiversity loss, water resource depletion and deforestation, which are partially driven or exacerbated by climate change, may disrupt our business operations or those of our suppliers and business partners.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change. New climate-related legal or regulatory requirements may lead to additional carbon taxation, energy price increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operation. Even if we make changes to align ourselves with legal or regulatory requirements, we may still be subject to significant penalties if such laws or regulations are interpreted and applied in a manner inconsistent with our practices.

##### **Government mandated prices, production control programs, and shifts in crops driven by economic conditions may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.**

As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand and the impacts of natural disasters and pandemics such as COVID-19. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.

#### *Risks Related to our International Operations*

##### **Because we have operations in numerous countries, our results may be adversely impacted by economic, regulatory and political developments, natural disasters, pandemics or conflicts.**

Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others, nationalization, terrorism, conflict and the threats of war or acts of war may have a significant impact on the business environment. Natural disasters, extreme weather events, pandemics, economic, political, regulatory, acts of war or threats of war, or other

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developments could disrupt or increase the expenses related to our supply chain, manufacturing capabilities, distribution capabilities, or the energy and other utility services required to operate our factories, warehouses, and other premises. Our business continuity plans and other safeguards might not always be effective to fully mitigate their impact. In addition, such developments - including the impact on energy prices and availability in the EU and elsewhere resulting from the invasion of Ukraine by Russia - could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could have a material adverse effect on our operations, volumes, revenue, net earnings and profitability. We discuss additional risks associated with Russia's invasion of Ukraine and climate change above and with the COVID-19 pandemic below.

In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such approvals could impair growth of our profitability.

In addition, despite our high ethical standards and rigorous controls and compliance policies aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners. Such improper or unlawful conduct (actual or alleged) could lead to litigation and regulatory action, cause damage to our reputation and that of our brands, and result in substantial costs.

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

We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. Foreign currencies may fluctuate significantly against the U.S. dollar reducing our net revenues, operating income and EPS. Our primary local currency cost bases may be different from our primary currency revenue markets, and U.S. dollar fluctuations against various currencies may have disproportionate negative impact on net revenues as compared to our gross profit and operating income margins.

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

Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs. While we take actions, wherever possible, to reduce the impact of the effects of inflation, in cases of sustained and elevated inflation across several of our major markets, it may be difficult to effectively control the increases to our costs. Increased inflation also has and may continue to lead to interest rate increases, thereby increasing our interest expense. Increasing inflationary pressures may also negatively impact consumer purchasing power, which could result in reduced demand for our products. If we are unable to increase our prices or take other actions to mitigate the effect of increasing inflationary pressures, our profitability and financial position could be negatively impacted.

# *Risks Related to Legal Challenges and Investigations*

# **Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.**

There is litigation related to tobacco products pending in certain jurisdictions in which we operate. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, antitrust, and unfair competition. While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly. The outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more markets. Also see Item 8, Note 18. *Contingencies* to our consolidated financial statements for a discussion of pending litigation.

# **From time to time, we are subject to governmental investigations on a range of matters.**

Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices. We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially adversely affected by an unfavorable outcome of pending or future investigations. See Item 8, Note 18. *Contingencies-Other Litigation* and 'Item 7. *Management's Discussion and Analysis of Financial Condition and Results of Operations-Operating Results*

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by *Business Segment-Business Environment-Governmental Investigations*” for a description of certain governmental investigations to which we are subject.

# **We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights could harm our business.**

Our intellectual property rights are valuable assets, their protection is important to our business, and that protection may not be equally available in every country in which we operate or in which our products are sold. If the steps we take to protect our intellectual property rights globally, including through applying for, prosecuting, maintaining and enforcing, where relevant, a combination of trademark, design, copyright, patent, trade secrets and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business, financial condition, and results of operations could be adversely impacted. Moreover, failing to manage our existing and/or future intellectual property may place us at a competitive disadvantage. Intellectual property rights of third parties may limit our ability to develop, manufacture and/or commercialize our products in one or more markets. Competitors or other third parties may claim that we infringe their intellectual property rights. Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages, and may impede our ability to develop, manufacture and/or commercialize new RRPs and improve our products, and thus have a material adverse effect on our revenue and our profitability. In addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected. See Item 8, Note 18. *Contingencies-Other Litigation* to our consolidated financial statements for a description of certain intellectual property proceedings.

# *Risks Related to our Competitive Environment*

# **We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.**

We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of lower-price products or innovative products, novel products which given their taste characteristics may be more commercially successful, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam. Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our profitability and results of operations.

# **We may be unable to anticipate changes in adult consumer preferences.**

Our business is subject to changes in adult consumer preferences, which may be influenced by local economic conditions, accessibility to our products and availability of accurate information related to our products.

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To be successful, we must:

- promote brand equity successfully;
- anticipate and respond to new adult consumer trends;
- ensure that our products meet our quality standards;
- develop new products and markets and broaden brand portfolios;
- improve productivity;
- educate and encourage adult smokers to convert to our RRPs;
- ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;
- provide excellent customer care;
- ensure adequate production capacity to meet demand for our products; and
- be able to protect or enhance margins through price increases.

In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result. Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

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

Our profit growth may be materially adversely impacted if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

**We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships, and the intended benefits from our investments may not materialize.**

One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings. There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position. In addition, we may not have a controlling position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.

**Our ability to achieve our strategic goals may be impaired if we fail to attract, motivate and retain the best global talent and effectively align our organizational design with the goals of our transformation.**

To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business. We compete for talent, including in areas that are new to us, such as digital, information technology, life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

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Risks Related to the Impact of a Pandemic on our Business

**Our business, results of operations, cash flows and financial position may be materially adversely impacted by an epidemic, endemic or pandemic, such as COVID-19.**

The outbreak of the global COVID-19 pandemic in 2020 has created significant societal and economic disruption, and resulted in the closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and may continue to adversely impact our business, results of operations, cash flows and financial position. Our business continuity plans and other safeguards may not be effective to mitigate the ongoing or potential impact of COVID-19 or other epidemics, endemics, or pandemics.

The production of our RRP portfolio requires various components and materials, and we believe that there is an adequate supply of such components and materials in the world markets to satisfy our current and anticipated production requirements. However, some components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations. While we have been successful in maintaining adequate supply of such components and materials during the ongoing COVID-19 pandemic so far, the COVID-19 pandemic, or another epidemic, endemic or pandemic, may disrupt that supply, whether through regulatory enforced actions taken to contain its spread, or through other supply chain disruptions caused by such epidemic, endemic or pandemic. This could negatively impact the commercialization of our RRPs.

Significant risks to our business during an epidemic, endemic or pandemic, such as the ongoing consequences of the COVID-19 outbreak, also include:

- our diminished ability to convert adult smokers to our RRPs;
- significant volume declines in our duty-free business and certain other key markets;
- disruptions or delays in our manufacturing and supply chain, including delays and increased costs in the shipment of parts to manufacture our products or for the products themselves;
- increased currency volatility; and
- delays in certain cost saving, transformation and restructuring initiatives.

The significant adverse effect of an epidemic, endemic or pandemic on the economic or political conditions in markets in which we operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

Risks Related to Illicit Trade

**We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.**

Large quantities of counterfeit cigarettes are sold in the international market. We believe that *Marlboro* is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers. Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be materially adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

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*Risks Related to Cybersecurity and Data Governance*

**The failure or disruption of our information technology networks and systems, or those managed by third-party service providers or owned by our business partners and used in furtherance of PMI's business, due to cybersecurity attacks; unauthorized attempts to corrupt or extract data; security vulnerabilities; misconfigurations; human error; or failure or inability by us, third-parties, or our business partners to adhere to cybersecurity industry best practices, could place us at a competitive disadvantage, cause reputational damage, impact our operations, result in data breaches, significant business disruption, litigation, regulatory action including significant fines or penalties, financial impact, loss of revenue or assets, including our intellectual property, personal, confidential, or sensitive data.**

We and our business partners heavily rely on information technology networks and systems, including those connected to the Internet, to help manage business processes and operations, including the collection, storage, interpretation, and processing of confidential, sensitive, personal and other data; internal and external communications; marketing and e-commerce activities; the manufacture, sale, and distribution of our products; management of third-party business relationships; engagement with governmental authorities; innovation through research and development; and other activities necessary for business operations. Some of these information systems and networks are developed, supplied, or managed by third-party service providers that may make us vulnerable to 'supply chain' style cyberattacks.

Cyberattacks, security incidents and vulnerabilities impacting PMI, newly acquired companies, our business partners, or our third-party providers, continue to dynamically evolve in sophistication and volume, making it difficult for us to predict probability, frequency, and impact severity of security incidents. Further, it may be inherently difficult to detect vulnerabilities during due diligence, for long periods of time, or soon enough to mitigate exploitation. There can be no assurance that such security incidents or vulnerabilities will not have a material adverse effect on us in the future.

We continue to make investments in administrative, technical, and physical safeguards to maintain information security protections in line with industry standards and best practices. We evaluate the adequacy of preventative actions to reduce security incidents on an ongoing basis.

Our safeguards may not, however, be effective in mitigating the impact of service disruptions or other failures of these information technology networks and systems. Failure to timely respond and mitigate security incidents, could result in wide-ranging business interruptions. Such security incidents could place us at a competitive disadvantage; result in financial impacts, a loss of revenue, assets, including our intellectual property, personal or other sensitive data; result in litigation and regulatory action including significant fines or penalties; impact our operations; cause damage to our reputation and that of our brands; and result in significant remediation and other costs.

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

An actual or alleged failure to comply with complex and changing privacy, data, artificial intelligence and information security laws and regulations under the EU General Data Protection Regulation, various United States state and federal laws, and other similar privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data; implement appropriate technological and reasonable security measures; respect the privacy rights of data subjects; provide sufficient detailed notices of personal data processing; retrieve consent and provide opt-outs; meet stringent timeframe requirements for incident reporting to regulatory authorities; comply with artificial intelligence regulations; and others, could have a material adverse effect on us, subject us to substantial fines and/or legal challenges, and/or harm our business, reputation, financial condition, or operating results. Such laws and regulations across the jurisdictions in which PMI operates may vary, resulting in inconsistent or conflicting legal obligations.

*Risks Related to the Acquisitions of Swedish Match, OtiTopic, Inc. ('OtiTopic'), Fertin Pharma A/G ('Fertin Pharma') and Vectura Group Ltd. ('Vectura') (collectively, the 'Acquisitions')*

As previously disclosed in this Form 10-K, since 2021, we have acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and have launched a new Wellness and Healthcare business consolidating OtiTopic, Fertin Pharma and Vectura: Vectura Fertin Pharma.

**We may be unable to successfully integrate and realize the expected benefits from the Acquisitions.**

The successful integration of the acquired businesses and their operations into those of our own and our ability to realize the benefits of the Acquisitions, are subject to a number of risks and uncertainties, many of which are not in our control. The risks and uncertainties relating to integrating the businesses acquired include, among other things: (i) the challenge of integrating complex organizations, systems, operating procedures, industry specific compliance programs, technology, networks and other assets of the businesses that we acquire, and the costs related to such integration efforts; (ii) the possibility that we are unable to gain access to

17

differentiated intellectual property, proprietary technology, and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms; (iii) the challenge of integrating the cultures and business practices of each of Swedish Match, Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees; and (iv) the challenge of achieving a successful integration as a result of our affiliation to our combustible product portfolio. In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected. Furthermore, the success of the Acquisitions also depends on Swedish Match's continued growth in highly competitive markets and on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them. Moreover, our combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness, therapeutic, and healthcare categories.

# **The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.**

The businesses that we have acquired in the Acquisitions may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the Acquisitions thereof. We cannot assure you that the indemnification available to us under the respective acquisition agreements, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each acquisition. Furthermore, the acquisition of Swedish Match was structured as a direct purchase of shares from Swedish Match shareholders and therefore did not include an acquisition agreement or indemnification rights. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

# **Accounting adjustments related to the Acquisitions could adversely affect our financial results.**

We have accounted for the completion of the Acquisitions using the acquisition method of accounting. Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses acquired. Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

# **PMI, Swedish Match and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.**

Our success following these Acquisitions will depend in part upon our ability and the ability of each of Swedish Match and Vectura Fertin Pharma to maintain business relationships. Uncertainty about the effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired through the Acquisitions. Customers, suppliers and others who do business with Swedish Match or Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired. Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Swedish Match or Vectura Fertin Pharma value chains, as well as our revenues, earnings and cash flow. If we are unable to maintain the business and operational relationships of Swedish Match, or of Vectura Fertin Pharma, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

# ***Item 1B. Unresolved Staff Comments.***

None.

# **Item 2. Properties.**

We own or lease various manufacturing, office and research and development facilities in locations around the world. We own properties in Switzerland where our operations center and state-of-the-art research and development facility are located.

At December 31, 2022, we operated and owned a total of 53 manufacturing facilities across our segments. Among them, 8 factories produced heated tobacco units. The Swedish Match acquisition expanded our manufacturing footprint with the addition of 14 owned manufacturing facilities, which are included in the total above. The manufacturing facilities acquired from Swedish Match are primarily engaged in the production of smoke-free products.

In 2022, certain facilities each manufactured over 30 billion units (cigarettes and heated tobacco units combined). The largest manufacturing facilities, in terms of volume, are located in Turkey (ME&A), Indonesia (S&SA), Poland (EU), Russia (EE), Italy (EU), the Philippines (S&SA), Lithuania (EU), Czech Republic (EU) and Portugal (EU). As part of our global operating model,

18

products manufactured in a particular manufacturing facility are not necessarily distributed in the operating segment where the facility is located.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, and we are progressing with our plans to build manufacturing capacity for our other RRP and smoke-free platforms. We will continue to optimize our manufacturing infrastructure.

We believe the properties owned or leased by our subsidiaries are maintained in good condition and are believed to be suitable and adequate for our present needs.

# ***Item 3. Legal Proceedings.***

The information called for by this Item is incorporated herein by reference to Item 8, Note 18. *Contingencies.*

# **Item 4. *Mine Safety Disclosures.***

Not applicable.

## PART II

# **Item 5. *Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.***

The principal stock exchange on which our common stock (no par value) is listed is the New York Stock Exchange (ticker symbol 'PM'). At January 31, 2023, there were approximately 43,700 holders of record of our common stock.

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## Performance Graph

The graph below compares the cumulative total shareholder return on PMI's common stock with the cumulative total return for the same period of PMI's Peer Group and the S&P 500 Index. The graph assumes the investment of $100 as of December 31, 2017, in PMI common stock (at prices quoted on the New York Stock Exchange), and each of the indices as of the market close and reinvestment of dividends on a quarterly basis.

![img-0.jpeg](img-0.jpeg)

| Date | PMI | PMI Peer Group (1) | S&P 500 Index |
| --- | --- | --- | --- |
| December 31, 2017 | $100.00 | $100.00 | $100.00 |
| December 31, 2018 | $66.80 | $89.40 | $93.80 |
| December 31, 2019 | $90.10 | $110.80 | $120.80 |
| December 31, 2020 | $93.60 | $118.50 | $140.50 |
| December 31, 2021 | $113.10 | $137.10 | $178.30 |
| December 31, 2022 | $127.00 | $132.90 | $143.60 |

$^{(1)}$ The PMI Peer Group presented in this graph is the same as that used in the prior year. The PMI Peer Group was established based on a review of four characteristics: global presence; a focus on consumer products; and net revenues and a market capitalization of a similar size to those of PMI. The review also considered the primary international tobacco companies. As a result of this review, the following companies constitute the PMI Peer Group: Altria Group, Inc., Anheuser-Busch InBev SA/NV, British American Tobacco p.l.c., The Coca-Cola Company, Colgate-Palmolive Co., Diageo plc, Heineken N.V., Imperial Brands PLC, Japan Tobacco Inc., Johnson & Johnson, Kimberly-Clark Corporation, The Kraft-Heinz Company, McDonald's Corp., Mondelēz International, Inc., Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company, Roche Holding AG, and Unilever NV and PLC.

Note: Figures are rounded to the nearest $0.10.

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We anticipate that assumption changes will decrease 2023 pre-tax pension and postretirement expense to approximately $91 million as compared with approximately $152 million in 2022, excluding amounts related to employee severance and early retirement programs. The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $168 million, coupled with lower service cost of $74 million, partially offset by higher interest cost of $167 million and other movements of $14 million.

Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans. A fifty-basis-point decrease in our discount rate would increase our 2023 pension and postretirement expense by approximately $40 million, and a fifty-basis-point increase in our discount rate would increase our 2023 pension and postretirement expense by approximately $1 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would increase (decrease) our 2023 pension expense by approximately $37 million.

**Income Taxes** - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.

The extent of our operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. In accordance with the authoritative guidance for income taxes, we evaluate potential tax exposures and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would generally result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

We are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income. If we determine, using all available evidence, that we do not reach the more likely than not threshold for recovery, a valuation allowance is recorded. Significant judgment is required in determining the need for and amount of valuation allowances for deferred tax assets including estimates of future taxable income in the applicable jurisdictions and the feasibility of on-going tax planning strategies, as applicable.

The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections. Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

For further details, see Item 8, Note 12. *Income Taxes* to our consolidated financial statements.

**Hedging** - As discussed below in 'Market Risk,' we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. 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. If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders' (deficit) equity would have been recorded in our net earnings for these derivatives.

**Contingencies** - As discussed in Item 8, Note 18. *Contingencies*, to our consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. At the present time, except as stated otherwise in Item 8, Note 18. *Contingencies*, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it: (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.

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## Consolidated Operating Results

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

| (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net Revenues |  |  |  |
| European Union | $12,119 | $12,275 | $10,702 |
| Eastern Europe | 3,725 | 3,544 | 3,378 |
| Middle East & Africa | 3,901 | 3,293 | 3,088 |
| South & Southeast Asia | 4,395 | 4,396 | 4,396 |
| East Asia & Australia | 5,132 | 5,953 | 5,429 |
| Americas | 1,903 | 1,843 | 1,701 |
| Swedish Match | 316 | - | - |
| Wellness and Healthcare | 271 | 101 | - |
| Net revenues | $31,762 | $31,405 | $28,694 |
| Operating Income (Loss) |  |  |  |
| European Union | $5,788 | $6,119 | $5,098 |
| Eastern Europe | 1,166 | 1,213 | 871 |
| Middle East & Africa | 1,758 | 1,146 | 1,026 |
| South & Southeast Asia | 1,459 | 1,506 | 1,709 |
| East Asia & Australia | 1,919 | 2,556 | 2,400 |
| Americas | 436 | 487 | 564 |
| Swedish Match | (22) | - | - |
| Wellness and Healthcare | (258) | (52) | - |
| Operating income | $12,246 | $12,975 | $11,668 |

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

- • **Charges related to the war in Ukraine** - See Item 8, Note 4. *War in Ukraine* for details of the \$151 million pre-tax charges in the Eastern Europe segment for the year ended December 31, 2022.
- • **Swedish Match AB acquisition accounting related item** - See Item 8, Note 3. *Acquisitions* for details of the \$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 year ended December 31, 2022.
- • **Impairment of intangibles** - See Item 8, Note 5. *Goodwill and Other Intangible Assets, net* for the details of the \$112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2022.
- • **Asset impairment and exit costs** - See Item 8, Note 20. *Asset Impairment and Exit Costs* for details of the \$216 million and \$149 million pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by segment.
- • **Saudi Arabia customs assessments** - See Item 8, Note 18. *Contingencies* for the details of the \$246 million reduction in net revenues of combustible tobacco products included in the Middle East & Africa 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.
- • **Brazil indirect tax credit** - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of \$119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019; these tax credits were applied to tax liabilities in Brazil during 2021. This amount was included as a

32

reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Americas segment. An additional amount of overpaid indirect taxes of approximately $90 million is dependent on the outcome of a challenge by the local tax authority.

Our net revenues by product category were as follows:

# **PMI Net Revenues by Product Category**

| (in millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Combustible tobacco products |  |  |  |
| European Union | $7,212 | $8,211 | $8,052 |
| Eastern Europe | 2,410 | 2,240 | 2,250 |
| Middle East & Africa | 3,567 | 3,110 | 3,005 |
| South & Southeast Asia | 4,372 | 4,385 | 4,395 |
| East Asia & Australia | 2,138 | 2,414 | 2,468 |
| Americas | 1,804 | 1,706 | 1,577 |
| Swedish Match | 70 | - | - |
| Total combustible tobacco products | 21,572 | 22,067 | 21,747 |
| Smoke-free products |  |  |  |
| Smoke-free products excluding Wellness and Healthcare: |  |  |  |
| European Union | 4,907 | 4,064 | 2,650 |
| Eastern Europe | 1,315 | 1,304 | 1,128 |
| Middle East & Africa | 334 | 183 | 83 |
| South & Southeast Asia | 23 | 11 | 1 |
| East Asia & Australia | 2,994 | 3,539 | 2,961 |
| Americas | 99 | 137 | 124 |
| Swedish Match | 246 | - | - |
| Total smoke-free products excluding Wellness and Healthcare | 9,919 | 9,237 | 6,947 |
| Wellness and Healthcare | 271 | 101 | - |
| Total smoke-free products | 10,190 | 9,338 | 6,947 |
| Total PMI net revenues | $31,762 | $31,405 | $28,694 |

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

Following the Swedish Match acquisition and a review of PMI and Swedish Match's combined product portfolio, PMI reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products. This reclassification did not impact PMI's segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented. For further details, see Item 8, Note 13. *Segment Reporting*.

Net revenues related to combustible tobacco products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of our cigarettes and other tobacco products that are combusted. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.

Net revenues related to smoke-free products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable. These net revenue amounts consist of the sale of all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine, 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 new

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Wellness and Healthcare business, Vectura Fertin Pharma.

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

References to 'Cost/Other' in the Consolidated Financial Summary table of total PMI and the six geographical segments throughout this '*Discussion and Analysis*' reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs (including asset impairment and exit costs); 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 ME&A Region, and the Saudi Arabia customs assessment net revenue adjustment.

Our shipment volume by segment for cigarettes and heated tobacco units was as follows:

# **PMI Shipment Volume (Million Units)**

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cigarettes |  |  |  |
| European Union | 153,890 | 157,843 | 163,420 |
| Eastern Europe | 81,460 | 88,698 | 93,462 |
| Middle East & Africa | 134,110 | 127,911 | 117,999 |
| South & Southeast Asia | 143,982 | 141,923 | 144,788 |
| East Asia & Australia | 42,493 | 43,913 | 45,100 |
| Americas | 65,973 | 64,587 | 63,749 |
| Total Cigarettes | 621,908 | 624,875 | 628,518 |
| Heated Tobacco Units |  |  |  |
| European Union | 39,515 | 28,208 | 19,842 |
| Eastern Europe | 24,806 | 25,650 | 20,898 |
| Middle East & Africa | 4,456 | 2,140 | 1,022 |
| South & Southeast Asia | 469 | 240 | 36 |
| East Asia & Australia | 39,391 | 38,162 | 33,862 |
| Americas | 532 | 576 | 451 |
| Total Heated Tobacco Units | 109,169 | 94,976 | 76,111 |
| Cigarettes and Heated Tobacco Units |  |  |  |
| European Union | 193,405 | 186,051 | 183,262 |
| Eastern Europe | 106,266 | 114,348 | 114,360 |
| Middle East & Africa | 138,566 | 130,051 | 119,021 |
| South & Southeast Asia | 144,451 | 142,163 | 144,824 |
| East Asia & Australia | 81,884 | 82,075 | 78,962 |
| Americas | 66,505 | 65,163 | 64,200 |
| Total Cigarettes and Heated Tobacco Units | 731,077 | 719,851 | 704,629 |

Following the deconsolidation of our Canadian subsidiary, we continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include *HEETS*, *Next*, *Philip Morris* and *Rooftop*.

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

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

As of 2022 and on a comparative basis, total industry volume, PMI in-market sales volume and PMI market share for the following geographies include the cigarillo category in Japan: the total international market, East Asia & Australia Region, and Japanese domestic market.

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

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

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

Central Asia is defined as Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.

North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

The Gulf Cooperation Council ('GCC') is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Southeast Europe is defined as Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia.

From time to time, PMI's shipment volumes are subject to the impact of distributor inventory movements, 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.

## **2022 compared with 2021**

The following discussion compares our consolidated operating results for the year ended December 31, 2022, with the year ended December 31, 2021.

Estimated international industry cigarette and heated tobacco unit volume (excluding China and the U.S.) of 2.6 trillion, increased by 0.2%, driven by the EU, South & Southeast Asia and Americas Regions, partly offset by the Eastern Europe, Middle East & Africa and East Asia & Australia Regions, as described in the Regional sections.

Excluding Russia and Ukraine, estimated international industry volume increased by 0.9%.

Our total shipment volume increased by 1.6%, driven by an increase of 14.9% for HTUs, partly offset by a 0.5% decline for cigarettes.

Excluding Russia and Ukraine, our total shipment volume increased by 3.2%, reflecting increases of 21.5% and 0.8% for HTUs and cigarettes, respectively. Our total shipment volume in the Eastern Europe Region increased by 2.7%, on the same basis.

For additional detail on PMI's shipment volume performance by Region, please refer to the 'Total Market, PMI Shipment & Market Share Commentaries' sections for PMI's regional operating segments.

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# Impact of Inventory Movements

The net unfavorable impact of estimated distributor inventory movements was immaterial in the year, with PMI's total in-market sales increasing by 1.7%, or by 3.2% excluding Russia and Ukraine, both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume for the year was 106.9 billion units, or 86.4 billion units excluding Russia and Ukraine, representing growth of 15.6% and 21.4%, respectively.

Our cigarette shipment volume by brand and heated tobacco unit shipment volume was as follows:

PMI Shipment Volume by Brand (Million Units)

|  | 2022 | 2021 | Change |
| --- | --- | --- | --- |
| Cigarettes |  |  |  |
| Marlboro | 244,649 | 239,905 | 2.0% |
| L&M | 82,588 | 84,342 | (2.1)% |
| Chesterfield | 67,054 | 58,800 | 14.0% |
| Parliament | 43,999 | 41,621 | 5.7% |
| Philip Morris | 39,620 | 42,395 | (6.5)% |
| Others | 143,998 | 157,812 | (8.8)% |
| Total Cigarettes | 621,908 | 624,875 | (0.5)% |
| Heated Tobacco Units | 109,169 | 94,976 | 14.9% |
| Total Cigarettes and Heated Tobacco Units | 731,077 | 719,851 | 1.6% |

Note: Philip Morris includes Philip Morris/Dubliss.

Shipment volume for our HTU brands increased, primarily driven by the EU, Middle East & Africa and East Asia & Australia Regions, partly offset by the Eastern Europe Region.

Our cigarette shipment volume of the following international brands increased:

- Marlboro, mainly driven by the Eastern Europe, Middle East & Africa and Americas Regions, partly offset by the EU Region;
- Chesterfield, primarily driven by the Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa Region; and
- Parliament, mainly driven by the Middle East & Africa Region.

Our cigarette shipment volume of the following international brands decreased:

- L&M, primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa and Americas Regions; and
- Philip Morris, mainly due to the Eastern Europe and Americas Regions, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to: Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 1.8% for Marlboro, 5.6% for Chesterfield, 10.3% for Parliament and 6.3% for Philip Morris, and decreased by 0.3% for L&M.

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# *International Share of Market (Excluding China and the United States)*

|  | 2022 | 2021 | Change (pp) |
| --- | --- | --- | --- |
| Total International Market Share (1) | 27.6% | 27.2% | 0.4 |
| Cigarettes | 23.6% | 23.7% | (0.1) |
| HTU | 4.1% | 3.5% | 0.6 |
| Cigarette over Cigarette Market Share (2) | 24.9% | 24.8% | 0.1 |

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

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

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

# *International Share of Market (Excluding China and the United States, as well as Russia and Ukraine)*

|  | 2022 | 2021 | Change (pp) |
| --- | --- | --- | --- |
| Total International Market Share (1) | 27.3% | 26.7% | 0.6 |
| Cigarettes | 23.7% | 23.7% | - |
| HTU | 3.6% | 3.0% | 0.6 |
| Cigarette over Cigarette Market Share (2) | 24.9% | 24.6% | 0.3 |

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

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

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

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# *Key Market Data*

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

| Market | Total Market (billion units) |  | PMI Shipments (billion units) |  |  |  |  |  | PMI Market Share (%) (1) |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | Total |  | Cigarette |  | Heated Tobacco Unit |  | Total |  | Heated Tobacco Unit |  |
|  | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 |
| Total (2) | 2,626.4 | 2,620.5 | 731.1 | 719.9 | 621.9 | 624.9 | 109.2 | 95.0 | 27.6 | 27.2 | 4.1 | 3.5 |
| European Union |  |  |  |  |  |  |  |  |  |  |  |  |
| France | 32.5 | 34.3 | 14.0 | 15.2 | 13.7 | 15.0 | 0.2 | 0.2 | 43.6 | 43.9 | 0.7 | 0.7 |
| Germany | 70.3 | 74.1 | 28.2 | 28.6 | 24.8 | 26.3 | 3.4 | 2.3 | 40.1 | 38.6 | 4.8 | 3.1 |
| Italy | 72.8 | 70.4 | 40.8 | 38.6 | 28.6 | 29.7 | 12.3 | 8.9 | 54.1 | 53.0 | 14.6 | 11.5 |
| Poland | 55.7 | 49.3 | 21.7 | 18.4 | 17.1 | 15.3 | 4.5 | 3.1 | 38.9 | 37.3 | 8.2 | 6.3 |
| Spain | 44.6 | 42.7 | 13.6 | 13.2 | 12.7 | 12.6 | 0.9 | 0.5 | 30.0 | 31.1 | 1.7 | 1.2 |
| Eastern Europe |  |  |  |  |  |  |  |  |  |  |  |  |
| Russia | 208.9 | 216.8 | 64.7 | 68.8 | 49.3 | 52.5 | 15.4 | 16.3 | 31.1 | 31.7 | 7.6 | 7.4 |
| Middle East & Africa |  |  |  |  |  |  |  |  |  |  |  |  |
| Egypt | 93.6 | 93.4 | 21.0 | 19.5 | 20.0 | 19.2 | 1.0 | 0.2 | 22.2 | 20.7 | 0.8 | 0.2 |
| Turkey | 117.2 | 125.1 | 56.1 | 55.7 | 56.1 | 55.7 | - | - | 47.9 | 44.5 | - | - |
| South & Southeast Asia |  |  |  |  |  |  |  |  |  |  |  |  |
| Indonesia | 309.6 | 296.2 | 86.8 | 82.8 | 86.8 | 82.8 | - | - | 28.0 | 28.0 | - | - |
| Philippines | 51.8 | 55.2 | 32.2 | 34.4 | 32.0 | 34.2 | 0.2 | 0.2 | 62.1 | 62.3 | 0.4 | 0.3 |
| East Asia & Australia |  |  |  |  |  |  |  |  |  |  |  |  |
| Australia | 8.9 | 9.7 | 3.0 | 3.1 | 3.0 | 3.1 | - | - | 33.4 | 32.3 | - | - |
| Japan (2) | 148.3 | 150.5 | 55.5 | 55.2 | 21.1 | 22.1 | 34.4 | 33.1 | 37.6 | 35.7 | 23.6 | 21.3 |
| South Korea | 72.6 | 71.7 | 13.9 | 14.1 | 9.4 | 9.4 | 4.5 | 4.7 | 19.2 | 19.7 | 6.2 | 6.5 |
| Americas |  |  |  |  |  |  |  |  |  |  |  |  |
| Argentina | 30.3 | 30.0 | 19.3 | 19.9 | 19.3 | 19.9 | - | - | 63.8 | 66.3 | - | - |
| Mexico | 32.2 | 31.9 | 21.0 | 20.5 | 20.8 | 20.4 | 0.1 | 0.1 | 65.1 | 64.1 | 0.4 | 0.3 |

(1) Market share estimates are calculated using IMS data

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

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# **Financial Summary**

| Financial Summary - Years Ended December 31, (in millions) | 2022 | 2021 | Change Fav./(Unfav.) |  | Variance Fav./(Unfav.) |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | Total | Excl. Curr. & Acquis. | Total | Cur- rency | Acqui- sitions | Price | Vol/ Mix | Cost/ Other |
| Net Revenues (1) | $31,762 | $31,405 | 1.1% | 8.0% | $357 | $(2,656) | $515 | $528 | $1,719 | $251 |
| Cost of Sales (2) | (11,402) | (10,030) | (13.7)% | (16.5)% | (1,372) | 695 | (414) | - | (1,089) | (564) |
| Marketing, Administration and Research Costs (3) | (8,114) | (8,400) | 3.4% | 0.3% | 286 | 454 | (197) | - | - | 29 |
| Operating Income | $12,246 | $12,975 | (5.6)% | 6.7% | $(729) | $(1,507) | $(96) | $528 | $630 | $(284) |

$^{(1)}$ Favorable Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the Saudi Arabia customs assessments. For more details, see Item 8, Note 18. *Contingencies*.

$^{(2)}$ Cost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets, $62 million related to the war in Ukraine and $125 million of Swedish Match AB acquisition accounting related item. For more details, Item 8, see Note 3. *Acquisitions*, Note 4. *War in Ukraine* and Note 5. *Goodwill and Other Intangible Assets, net*.

$^{(3)}$ Cost/Other variance includes charges in 2022 of $89 million related to the war in Ukraine and $115 million in 2022 related to costs associated with the Swedish Match AB offer, offset by charges in 2021 of $216 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of OtiTopic, Inc. For more details, see Item 8, Note 3. *Acquisitions*, Note 4. *War in Ukraine* and Note 20. *Asset Impairment and Exit Costs*.

Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting: favorable volume/mix, primarily driven by higher HTU volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix; a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in 'Cost/Other'.

In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

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

Net revenues include $10.2 billion in 2022 and $9.3 billion in 2021 related to the sale of smoke-free products. In 2022, *IQOS* devices accounted for approximately 5% of our full year smoke-free net revenues both including and excluding Russia and Ukraine.

Operating income decreased by 5.6%. Operating income, excluding currency and acquisitions, increased by 6.7%, which included: favorable comparisons versus the prior year period related to the 2021 Saudi Arabia customs assessments of $246 million (as noted above for net revenues), 2021 asset impairment and exit costs of $216 million and 2021 asset acquisition cost of $51 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $115 million, higher amortization and impairment of intangibles (primarily $112 million related to impairment charges in 2022), 2022 charges related to the war in Ukraine of $151 million and $125 million of Swedish Match AB acquisition accounting related item in 2022. In addition to these items, operating income was impacted by: a favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable cigarette mix, HTU mix and device mix, and the unfavorable impact on profitability of higher device volume; and a favorable pricing variance; partially offset by higher manufacturing costs (primarily due to higher logistics costs and other inflationary impacts, partly offset by productivity); and higher marketing, administration and research costs.

As reduced-risk products grow as a proportion of our business, notably for *IQOS ILUMA* where unit costs of devices and both the unit costs and weight of consumables are not yet fully optimized, a temporary dilutive margin impact is likely to continue in the coming quarters.

Like many other global companies, we are facing significant inflationary forces in the world economy. Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs. These inflationary pressures, including margin pressure from inflation as well as the cost of capital, could continue to grow in the upcoming quarters.

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Interest expense, net, of $588 million decreased by $40 million (6.4%) primarily driven by the repayment of long-term debt maturing in 2021 and 2022 and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Our effective tax rate decreased by 2.5 percentage points to 19.3%. We estimate that our 2023 effective tax rate will be approximately 20.5% to 21.5%, excluding discrete tax events. For further details, see Item 8, Note 12. *Income Taxes*.

Net earnings attributable to PMI of $9.0 billion decreased by $0.1 billion or 0.7%. This decrease was due primarily to lower operating income as discussed above, partially offset by a lower effective income tax rate. Basic EPS of $5.82 and diluted EPS of $5.81 decreased by 0.2% and 0.3%, respectively. Excluding an unfavorable currency impact of $0.77, diluted EPS increased by 12.9%.

## **2021 compared with 2020**

For a discussion comparing our consolidated operating results for the year ended December 31, 2021, with the year ended December 31, 2020, refer to Part II, Item 7. *Management's Discussion and Analysis of Financial Condition and Results of Operation - Discussion and Analysis - Consolidated Operating Results* in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission on February 11, 2022. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.

## **Operating Results by Business Segment**

### **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;
- 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*; and
- governmental investigations.

*Regulatory Restrictions*: 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.

Much of the regulation that shapes the business environment in which we operate is driven by the FCTC, which entered into force in 2005. The FCTC has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use. To date, 182 countries and the European Union are Parties to the FCTC. The treaty requires Parties to have in place various tobacco control measures and recommends others. The FCTC governing body, the Conference of the Parties ("CoP"), has also adopted non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty. In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco products. 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 CoP 9 that took place in November 2021, the WHO and the WHO FCTC Secretariat published two reports on novel and emerging tobacco products. The reports were noted by CoP 9 and related substantive discussions and decisions were deferred to CoP 10, currently scheduled for 2023. It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

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