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Dynamic quotes 
OFFON

PHILIP MORRIS INTERNATIONAL, INC.

(PM)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

10/27/2021 | 04:49pm EST

Description of Our Company


We are leading a transformation in the tobacco industry to create a smoke-free
future and ultimately replace cigarettes with smoke-free products to the benefit
of adults who would otherwise continue to smoke, society, the company, its
shareholders and its other stakeholders. We are a leading international tobacco
company engaged in the manufacture and sale of cigarettes, as well as smoke-free
products, associated electronic devices and accessories, and other
nicotine-containing products in markets outside the United States. In addition,
versions of our Platform 1 device and consumables have received marketing
authorizations from the U.S. Food and Drug Administration ("FDA") under the
premarket tobacco product application ("PMTA") pathway; the FDA has also
authorized the marketing of a version of our Platform 1 device and its
consumables as a Modified Risk Tobacco Product ("MRTP"), finding that an
exposure modification order for these products is appropriate to promote the
public health. We are building a future on a new category of smoke-free products
that, while not risk-free, are a much better choice than continuing to smoke. We
describe the PMTA and MRTP orders in more detail in the "Business Environment"
section of this Item 2. Through multidisciplinary capabilities in product
development, state-of-the-art facilities and scientific substantiation, we aim
to ensure that our smoke-free products meet adult consumer preferences and
rigorous regulatory requirements. Our smoke-free product portfolio includes
heat-not-burn products, nicotine-containing vapor products and oral nicotine
products.

In the third quarter of 2021, our former Latin America & Canada segment was renamed as the Americas segment.

We currently manage our business in six geographical segments and an Other category:


•European Union ("EU");
•Eastern Europe ("EE");
•Middle East & Africa ("ME&A"), which includes our international duty free
business;
•South & Southeast Asia ("S&SA");
•East Asia & Australia ("EA&A");
•Americas ("AMCS"); and
•Other, which includes our third quarter 2021 acquisitions of Fertin Pharma A/S,
Vectura Group plc. and OtiTopic, Inc. For further details, see Note 7. Segment
Reporting and Note 17. Acquisitions.

Our cigarettes are sold in more than 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.

In addition to the manufacture and sale of cigarettes, we are engaged in the
development and commercialization of reduced-risk products ("RRPs"). RRPs is the
term we use to refer to products that present, are likely to present, or have
the potential to present less risk of harm to smokers who switch to these
products versus continuing smoking.  IQOS is the leading brand in our smoke-free
product portfolio. As of September 30, 2021, our smoke-free products are
available for sale in 70 markets in key cities or nationwide.

We use the term net revenues to refer to our operating revenues from the sale of
our products, including shipping and handling charges billed to customers, net
of sales and promotion incentives, and excise taxes. Our net revenues and
operating income are affected by various factors, including the volume of
products we sell, the price of our products, changes in currency exchange rates
and the mix of products we sell. Mix is a term used to refer to the
proportionate value of premium-price brands to mid-price or low-price brands in
any given market (product mix). Mix can also refer to the proportion of shipment
volume in more profitable markets versus shipment volume in less profitable
markets (geographic mix).

Our cost of sales consists principally of: tobacco leaf, non-tobacco raw
materials, labor and manufacturing costs; shipping and handling costs; and the
cost of devices produced by third-party electronics manufacturing service
providers. Estimated costs associated with device warranty programs are
generally provided for in cost of sales in the period the related revenues are
recognized.
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Our marketing, administration and research costs include the costs of marketing
and selling our products, other costs generally not related to the manufacture
of our products (including general corporate expenses), and costs incurred to
develop new products. The most significant components of our marketing,
administration and research costs are marketing and sales expenses and general
and administrative expenses.
Philip Morris International Inc. is a legal entity separate and distinct from
its 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.

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

Consolidated Operating Results for the Nine Months Ended September 30, 2021

•Net Revenues - Net revenues of $23.3 billion for the nine months ended September 30, 2021 increased by $2.1 billion, or 9.7%, from the comparable 2020 amount. The change in our net revenues from the comparable 2020 amount was driven by the following (variances not to scale with year-to-date results):


[[Image Removed: pm-20210930_g1.jpg]]
For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 6.1%, mainly reflecting: favorable volume/mix, primarily
driven by higher heated tobacco unit volume (notably in the EU, particularly
Germany, Hungary, Italy and Poland, as well as Japan and Russia), partly offset
by lower cigarette volume (mainly in the EU Region, notably the Czech Republic,
France and Germany, as well as Japan, Kuwait, North Africa, the Philippines,
Russia and Ukraine, partially offset by Indonesia, PMI Duty Free, and Turkey);
and a favorable pricing variance (notably driven by the Czech Republic, Germany,
Japan, Kazakhstan, North Africa, the Philippines, Russia and Turkey, partly
offset by Indonesia, Poland and Ukraine); partially offset by the unfavorable
impact of the Saudi Arabia customs assessments of $246 million, included in
"Other" and further described in the following "Diluted Earnings Per Share"
discussion.

This net revenue growth reflects the continued strength of IQOS, and the recovery of the combustible business in many markets from the low base in 2020 due to the impact of COVID-19.

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Net revenues by product category for the nine months ended September 30, 2021 and 2020 are shown below:

[[Image Removed: pm-20210930_g2.jpg]] [[Image Removed: pm-20210930_g3.jpg]]


•Diluted Earnings Per Share - The changes in our reported diluted earnings per
share ("diluted EPS") for the nine months ended September 30, 2021, from the
comparable 2020 amounts, were as follows:
                                                                        Diluted EPS              % Growth
For the nine months ended September 30, 2020                          $     

3.90

2020 Asset impairment and exit costs                                        

0.04

2020 Fair value adjustment for equity security investments                    0.04

2020 Tax items                                                               (0.06)
    Subtotal of 2020 items                                                    0.02
2021 Asset impairment and exit costs                                        

(0.09)


2021 Saudi Arabia customs assessments                                       

(0.14)

2021 Asset acquisition cost                                                 

(0.03)

2021 Equity investee ownership dilution                                       0.02
2021 Tax items                                                                   -
    Subtotal of 2021 items                                                   (0.24)
Currency                                                                      0.18
Interest                                                                     (0.01)
Change in tax rate                                                            0.07

Operations                                                                    0.56
For the nine months ended September 30, 2021                          $       4.48                     14.9  %



Asset impairment and exit costs - During the nine months ended September 30,
2021, we recorded pre-tax asset impairment and exit costs of $170 million,
representing $143 million net of income tax and a diluted EPS charge of $0.09
per share, related to the organizational design optimization plan, primarily in
Switzerland, and the product distribution restructuring in South Korea. During
the nine months ended September 30, 2020, we recorded pre-tax asset impairment
and exit costs of $71 million, representing $57 million net of income tax and a
diluted EPS charge of $0.04, related to the organizational design optimization
plan, primarily in Switzerland. The total pre-tax charges were included in
marketing, administration and research costs on the condensed consolidated
statements of earnings. For further details, see Note 16. Asset Impairment and
Exit Costs.

Fair Value adjustment for equity security investments - During the nine months
ended September 30, 2020, we recorded an unfavorable fair value adjustment for
our equity security investments of $62 million after tax (or $0.04 per share
decrease in diluted EPS). The fair value adjustment for our equity security
investments was included in equity investments and securities
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(income)/loss, net ($78 million loss) and provision for income taxes ($16 million benefit) on the condensed consolidated statements of earnings.


Income taxes - The 2020 Tax items that increased our 2020 diluted EPS by $0.06
per share in the table above were due to final U.S. tax regulations under the
Global Intangible Low-Taxed Income ("GILTI") provisions of the Internal Revenue
Code for years 2018 and 2019 ($93 million). The change in the tax rate that
increased our diluted EPS by $0.07 per share in the table above was primarily
due to the corporate income tax rate reduction in the Philippines (enacted in
the first quarter of 2021), as well as changes in earnings mix by taxing
jurisdiction.

Saudi Arabia customs assessments - In June 2021, the Customs Appeal Committee in
Riyadh notified our distributors in Saudi Arabia of its decisions to largely
reject their challenges of the Saudi Arabia Customs General Authority
assessments as described in Note 8. Contingencies. On the basis of these
decisions and in line with arrangements with the distributors, we recorded a
pre-tax charge of $246 million in the second quarter of 2021 (representing $215
million net of income tax and a diluted EPS charge of $0.14 per share). The
pre-tax charge was recorded as a reduction of net revenues on the condensed
consolidated statement of earnings for the nine months ended September 30, 2021
and was included in the Middle East & Africa segment results.

Asset acquisition cost - In August 2021, we acquired 100% of OtiTopic, Inc., a
U.S. respiratory drug development company with a late-stage dry powder
inhalation aspirin treatment for acute myocardial infarction. We accounted for
this transaction as an asset acquisition since the acquired in-process research
and development ("IPR&D") of the dry powder inhalation aspirin treatment
represented substantially all of the fair value of the gross assets acquired. At
the date of acquisition, we determined that the acquired IPR&D had no
alternative future use. As a result, we recorded a pre-tax charge of $51 million
(representing a $0.03 charge to diluted EPS) to research and development costs
within marketing, administration and research costs in the condensed
consolidated statements of earnings for the nine months ended September 30,
2021. For further details, see Note 17. Acquisitions.

Equity investee ownership dilution - In July 2021, our equity method investee,
Medicago Inc, initiated an additional round of equity funding in which we did
not participate. As a result, our share of holdings in Medicago Inc. was reduced
to approximately 25% as of September 30, 2021. The ownership dilution resulted
in a $0.02 favorable impact to diluted EPS and income of $38 million to Equity
investments and securities (income)/loss, net in the condensed consolidated
statements of earnings for the nine months ended September 30, 2021. For further
details, see Note 8. Contingencies.

Currency - The favorable impact of $0.18 per share during the reporting period
primarily results from the fluctuations of the U.S. dollar, especially against
the Euro. This favorable currency movement has impacted our profitability across
our primary revenue markets and local currency cost bases.

Operations - The increase in diluted EPS of $0.56 from our operations in the table above was due primarily to the following segments:


•European Union: Favorable volume/mix, lower manufacturing costs and favorable
pricing, partially offset by higher marketing, administration and research
costs;
•East Asia & Australia: Favorable pricing, lower manufacturing costs and
favorable volume/mix, partially offset by higher marketing, administration and
research costs;
•Eastern Europe: Favorable volume/mix, lower manufacturing costs, and favorable
pricing;
•Middle East & Africa: Favorable pricing, favorable volume/mix and lower
manufacturing costs, partially offset by lower fees for certain distribution
rights and higher marketing, administration and research costs; and
•Americas: Favorable pricing and lower marketing, administration and research
costs, partially offset by higher manufacturing costs;
partially offset by
•South & Southeast Asia: Unfavorable volume/mix and higher marketing,
administration and research costs.

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Consolidated Operating Results for the Three Months Ended September 30, 2021

•Net Revenues - Net revenues of $8.1 billion for the three months ended September 30, 2021 increased by $0.7 billion, or 9.1%, from the comparable 2020 amount. The change in our net revenues from the comparable 2020 amount was driven by the following (variances not to scale with quarterly results):

                     [[Image Removed: pm-20210930_g4.jpg]]
During the quarter, net revenues, excluding favorable currency, increased by
7.6%, mainly reflecting: favorable volume/mix, primarily driven by higher heated
tobacco unit volume (notably in the EU, particularly Germany, Italy and Poland,
as well as Japan, PMI Duty Free and Russia) and higher device volume (primarily
in Japan, driven by the launch of IQOS ILUMA), partly offset by lower cigarette
volume (mainly in Australia, France, Germany, Italy and the Philippines, partly
offset by Indonesia, Japan, PMI Duty Free and Turkey) and unfavorable cigarette
mix (mainly in Germany, Japan and Russia); and a favorable pricing variance
(notably driven by Japan, the Philippines, Russia and Turkey, partly offset by
Indonesia, Poland and Ukraine).

This net revenue growth reflects the continued strength of IQOS, and the recovery of the combustible business in many markets from the low base in 2020 due to the impact of COVID-19.

Net revenues by product category for the three months ended September 30, 2021 and 2020, are shown below:

[[Image Removed: pm-20210930_g5.jpg]] [[Image Removed: pm-20210930_g6.jpg]]

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•Diluted Earnings Per Share - The changes in our reported diluted EPS for the
three months ended September 30, 2021, from the comparable 2020 amounts, were as
follows:
                                                                       Diluted EPS        % Growth
For the three months ended September 30, 2020                        $      

1.48

2020 Asset impairment and exit costs                                        

-

2020 Fair value adjustment for equity security investments                      -

2020 Tax items                                                              (0.06)
    Subtotal of 2020 items                                                  (0.06)
2021 Asset impairment and exit costs                                        

(0.02)

2021 Asset acquisition cost                                                 

(0.03)

2021 Equity investee ownership dilution                                      0.02
2021 Tax items                                                                  -
    Subtotal of 2021 items                                                  (0.03)
Currency                                                                     0.04
Interest                                                                     0.01
Change in tax rate                                                           0.04

Operations                                                                   0.07
For the three months ended September 30, 2021                        $       1.55                 4.7  %



Income Taxes - The 2020 Tax items that increased our 2020 diluted EPS by $0.06
per share in the table above were due to final U.S. tax regulations under the
GILTI provisions of the Internal Revenue Code for years 2018 and 2019 ($93
million). The change in the tax rate that increased our diluted EPS by $0.04 per
share in the table above was primarily due to the corporate income tax rate
reduction in the Philippines (enacted in the first quarter of 2021), as well as
changes in earnings mix by taxing jurisdiction.

Asset impairment and exit costs - In the third quarter of 2021, we recorded
pre-tax asset impairment and exit costs of $43 million, representing $38 million
net of income tax and a diluted EPS charge of $0.02 per share, related to the
organizational design optimization plan, primarily in Switzerland, and the
product distribution restructuring in South Korea. The total pre-tax charge was
included in marketing, administration and research costs on the condensed
consolidated statements of earnings. For further details, see Note 16. Asset
Impairment and Exit Costs.

Asset acquisition cost - In August 2021, we acquired 100% of OtiTopic, Inc., a
U.S. respiratory drug development company with a late-stage dry powder
inhalation aspirin treatment for acute myocardial infarction. We accounted for
this transaction as an asset acquisition since the acquired in-process research
and development ("IPR&D") of the dry powder inhalation aspirin treatment
represented substantially all of the fair value of the gross assets acquired. At
the date of acquisition, we determined that the acquired IPR&D had no
alternative future use. As a result, we recorded a pre-tax charge of $51 million
(representing a $0.03 charge to diluted EPS) to research and development costs
within marketing, administration and research costs in the condensed
consolidated statements of earnings for the three months ended September 30,
2021. For further details, see Note 17. Acquisitions.

Equity investee ownership dilution - In July 2021, our equity method investee,
Medicago Inc, initiated an additional round of equity funding in which we did
not participate. As a result, our share of holdings in Medicago Inc. was reduced
to approximately 25% as of September 30, 2021. The ownership dilution resulted
in a $0.02 favorable impact to diluted EPS and income of $38 million to Equity
investments and securities (income)/loss, net in the condensed consolidated
statements of earnings for the three months ended September 30, 2021. For
further details, see Note 8. Contingencies.

Currency - The favorable impact of $0.04 per share during the reporting period
primarily results from the fluctuations of the U.S. dollar, especially against
the Euro. This favorable currency movement has impacted our profitability across
our primary revenue markets and local currency cost bases.



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Operations - The increase in diluted EPS of $0.07 from our operations in the table above was due primarily to the following segments:


•Middle East & Africa: Favorable volume/mix, favorable pricing and lower
manufacturing costs, partially offset by lower fees for certain distribution
rights and higher marketing, administration and research costs;
•Eastern Europe: Favorable volume/mix, favorable pricing and lower manufacturing
costs;
•East Asia & Australia: Favorable pricing, favorable volume/mix and lower
manufacturing costs, partially offset by higher marketing, administration and
research costs;
•European Union: Favorable volume/mix and lower manufacturing costs, partially
offset by higher marketing, administration and research costs; and
•Americas: Favorable pricing, partially offset by higher manufacturing costs and
higher marketing, administration and research costs;
partially offset by
•South & Southeast Asia: Unfavorable volume/mix and higher manufacturing costs,
partially offset by favorable pricing.

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



IQOS Device Supply

The current global semiconductor shortage is resulting in a tightness in IQOS
device supply. This is affecting the availability and assortment of IQOS devices
in certain markets, which is hampering the company's ability to operate at full
commercial and competitive capacity to fully meet demand. This has been
reflected in lower IQOS user growth rates in the third quarter of 2021.

At this stage, supply forecasting remains volatile. PMI therefore assumes that
the tight supply situation will persist into the first half of 2022 and, where
necessary, the company will prioritize device replacements for existing IQOS
users over device sales targeting user acquisition. PMI is also adjusting its
launch timeline for IQOS ILUMA outside Japan, with additional major launches now
assumed for the second half of 2022.

PMI views this as a temporary phenomenon and expects IQOS user growth to re-accelerate once shortages ease, as consumer demand remains.

Acquisitions

During the third quarter of 2021, PMI acquired the following companies:

•Fertin Pharma A/S, a Danish company that is a leading developer and manufacturer of innovative pharmaceutical and well-being products based on oral and intra-oral delivery systems;

•Vectura Group plc, an inhaled therapeutics company based in the United Kingdom; and

•OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction.

For further details on these acquisitions, see Note 17. Acquisitions.

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Discussion and Analysis
Consolidated Operating Results
See pages 95-104 for a discussion of our "Cautionary Factors That May Affect
Future Results." Our net revenues and operating income by segment are shown in
the table below:
                                                   For the Nine Months Ended    For the Three Months Ended
(in millions)                                            September 30,                 September 30,
                                                      2021           2020           2021           2020
Net revenues:
European Union                                   $      9,250$    7,960$      3,192$    2,950
Eastern Europe                                          2,632         2,470             941           899
Middle East & Africa                                    2,306         2,348             945           768
South & Southeast Asia                                  3,284         3,211           1,065         1,071
East Asia & Australia                                   4,509         4,045           1,523         1,358
Americas                                                1,320         1,216             456           400
Net revenues                                     $     23,301$   21,250$      8,122$    7,446
Operating income (loss):
European Union                                   $      4,811$    3,924$      1,680$    1,588
Eastern Europe                                            913           610             338           245
Middle East & Africa                                      739           819             388           261
South & Southeast Asia                                  1,208         1,290             348           402
East Asia & Australia                                   2,041         1,792             631           637
Americas                                                  367           328             121           110
                                                       10,079         8,763           3,506         3,243
Other                                                     (51)            -             (51)            -
Operating income                                 $     10,028$    8,763$      3,455$    3,243





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Our net revenues by product category are shown in the table below:

                                           PMI Net Revenues by Product 

Category

                                                                                     For the Three Months Ended September
(in millions)                              For the Nine Months Ended September 30,                   30,
                                               2021         2020         Change         2021        2020        Change
Combustible Products
European Union                             $    6,283$  6,099            3.0  % $   2,170$ 2,244           (3.3) %
Eastern Europe                                  1,681       1,681              -  %       635        636           (0.2) %
Middle East & Africa                            2,208       2,296           (3.9) %       901        768           17.3  %
South & Southeast Asia                          3,277       3,211            2.1  %     1,061      1,071           (0.9) %
East Asia & Australia                           1,850       1,876           (1.4) %       591        605           (2.2) %
Americas                                        1,278       1,196            6.9  %       438        393           11.4  %
Total Combustible Products                 $   16,577$ 16,360            1.3  % $   5,796$ 5,716            1.4  %
Reduced-Risk Products
European Union                             $    2,967$  1,861           59.5  % $   1,022$   706           44.7  %
Eastern Europe                                    951         789           20.5  %       306        263           16.4  %
Middle East & Africa                               98          52           90.2  %        44          -              -  %
South & Southeast Asia                              7           -              -  %         4          -              -  %
East Asia & Australia                           2,659       2,169           22.6  %       932        753           23.7  %
Americas                                           42          20             +100%        18          7             +100%
Total Reduced-Risk Products                $    6,724$  4,890           37.5  % $   2,326$ 1,730           34.5  %

Total PMI Net Revenues                     $   23,301$ 21,250            9.7  % $   8,122$ 7,446            9.1  %

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

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


•Asset impairment and exit costs - See Note 16. Asset Impairment and Exit Costs
for a breakdown of these costs by segment for the nine months and three months
ended September 30, 2021 and 2020.
•Saudi Arabia customs assessments - See Note 8. Contingencies for the details of
the $246 million reduction in net revenues of combustible products included in
the Middle East & Africa segment for the nine months ended September 30, 2021.
•Asset acquisition cost - See Note 17. Acquisitions for the details of the $51
million pre-tax charge associated with the asset acquisition of OtiTopic, Inc.
included in Other within the operating income table above for the nine months
and three months ended September 30, 2021.

Net revenues related to combustible 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 combined. Other tobacco products primarily include
roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos
and do not include reduced-risk products.

Net revenues related to reduced-risk 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 heated tobacco
units, heat-not-burn devices and related accessories, and other
nicotine-containing products, which primarily include our e-vapor and oral
nicotine products.

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

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Revenues from shipments of Platform 1 devices, heated tobacco units and
accessories to Altria Group, Inc., commencing in the third quarter of 2019, for
sale under license in the United States, are included in Net Revenues of the
Americas segment.

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 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 is shown
in the table below:
                                                    PMI Shipment Volume (Million Units)
                                                 For the Nine Months Ended September 30,        For the Three Months Ended September 30,
                                                    2021            2020          Change           2021            2020          Change
Cigarettes
European Union                                       120,238       126,142           (4.7) %         41,965        45,179           (7.1) %
Eastern Europe                                        67,771        70,737           (4.2) %         25,020        25,661           (2.5) %
Middle East & Africa                                  93,155        88,087            5.8  %         35,166        30,903           13.8  %
South & Southeast Asia                               105,787       108,179           (2.2) %         35,578        37,238           (4.5) %
East Asia & Australia                                 33,450        35,154           (4.8) %         11,120        10,784            3.1  %
Americas                                              46,092        45,542            1.2  %         15,994        15,699            1.9  %
Total Cigarettes                                     466,493       473,841           (1.6) %        164,843       165,464           (0.4) %
Heated Tobacco Units
European Union                                        20,405        14,069           45.0  %          7,058         5,181           36.2  %
Eastern Europe                                        18,594        14,374           29.4  %          6,119         4,882           25.3  %
Middle East & Africa                                   1,485           834           78.1  %            577           179             +100%
South & Southeast Asia                                   151            10             +100%             79            10             +100%
East Asia & Australia                                 28,478        24,799           14.8  %          9,435         8,601            9.7  %
Americas                                                 466           316           47.5  %            221           114           93.9  %
Total Heated Tobacco Units                            69,579        54,402           27.9  %         23,489        18,967           23.8  %
Cigarettes and Heated Tobacco Units
European Union                                       140,643       140,211            0.3  %         49,023        50,360           (2.7) %
Eastern Europe                                        86,365        85,111            1.5  %         31,139        30,543            2.0  %
Middle East & Africa                                  94,640        88,921            6.4  %         35,743        31,082           15.0  %
South & Southeast Asia                               105,938       108,189           (2.1) %         35,657        37,248           (4.3) %
East Asia & Australia                                 61,928        59,953            3.3  %         20,555        19,385            6.0  %
Americas                                              46,558        45,858            1.5  %         16,215        15,813            2.5  %
Total Cigarettes and Heated Tobacco Units            536,072       528,243            1.5  %        188,332       184,431            2.1  %



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

Market share for HTUs is defined as the total sales volume for HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs.

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Shipment volume of heated tobacco units to the United States is included in the heated tobacco unit shipment volume of the Americas segment.


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 the
People's Republic of China and/or our duty free business.

2020 and 2021 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.

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.


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

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.

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

                                                                                                 For the Nine Months Ended September 30,
                                                                                     PMI Shipments (billion units)                                                PMI Market Share (%)(1)
                                    Total Market
       Market                     (billion units)                  Total                    Cigarette               Heated Tobacco Unit                    Total                   Heated Tobacco Unit
                                  2021        2020             2021      2020            2021      2020               2021         2020               2021        2020               2021         2020
Total                            1,946.1    1,897.3           536.1      528.2           466.5     473.8              69.6         54.4               27.3        27.9               3.5           2.9

European Union
France                            26.3        28.0             11.6      12.7            11.4      12.5               0.2           0.1               43.7        44.9               0.6           0.5
Germany                           56.5        56.4             21.6      22.0            20.0      20.8               1.7           1.2               38.3        38.9               3.0           2.1
Italy                             53.0        50.8             28.9      26.7            22.4      22.8               6.5           4.0               52.9        52.0               11.1          7.6
Poland                            37.2        35.0             13.9      13.6            11.7      12.1               2.2           1.6               37.4        38.9               5.9           4.5
Spain                             32.2        31.7             10.2      10.1             9.8       9.8               0.4           0.3               31.5        31.5               1.2           1.0

Eastern Europe
Russia                            163.7      163.4             52.0      51.6            40.4      42.3               11.7          9.3               31.5        32.3               7.2           6.1

Middle East & Africa
Saudi Arabia                      16.2        15.8             6.6        6.2             6.4       6.2               0.2            -                41.5        38.5               0.9           0.2
Turkey                            92.1        86.4             40.4      35.3            40.4      35.3                -             -                43.9        40.8                -             -

South & Southeast Asia
Indonesia                         217.4      201.4             60.8      58.3            60.8      58.3                -             -                28.0        28.9                -             -
Philippines                       41.2        47.0             25.6      32.1            25.5      32.1               0.1            -                62.2        68.4               0.3            -

East Asia & Australia
Australia                          7.1        8.3              2.3        2.5             2.3       2.5                -             -                32.4        29.6                -             -
Japan                             107.3      111.4             41.6      38.8            16.8      17.7               24.7         21.1               38.6        36.7               23.0         20.0
South Korea                       54.1        54.8             10.7      11.3             7.2       7.8               3.5           3.5               19.7        20.7               6.4           6.4

Americas
Argentina                         26.1        24.3             14.6      14.9            14.6      14.9                -             -                55.8        61.5                -             -

Mexico                            22.6        21.9             14.1      13.6            14.1      13.6               0.1            -                62.5        62.0               0.3           0.2

(1) Market share estimates are calculated using IMS data Note: % change for Total Market and PMI shipments is computed based on millions of units. "-" indicates volume below 50 million units and market share below 0.1%

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                                                                                                      For the Three Months Ended September 30,
                                                                                     PMI Shipments (billion units)                                                      PMI Market Share (%)(1)
                                    Total Market
       Market                      (billion units)                 Total                    Cigarette               Heated Tobacco Unit                         Total                         Heated Tobacco Unit
                                   2021       2020             2021      2020            2021      2020               2021         2020                   2021             2020                 2021         2020
Total                              679.6      674.3           188.3      184.4           164.8     165.5              23.5         19.0                   28.0             28.0                 3.6           3.0

European Union
France                              9.0        9.8             3.7        4.2             3.6       4.1               0.1            -                    44.0             45.3                 0.6           0.5

Germany                            20.5       20.4             7.3        7.4             6.8       7.0               0.6           0.4                   35.8             36.4                 2.8           1.9

Italy                              19.2       18.8             9.4        9.7             7.3       8.2               2.1           1.5                   52.9             52.1                 10.8          7.8

Poland                             14.0       13.5             5.3        5.1             4.5       4.5               0.8           0.6                   38.0             37.8                 6.0           4.7

Spain                              12.1       11.7             3.4        3.7             3.2       3.6               0.1           0.1                   32.1             32.2                 1.1           0.9

Eastern Europe
Russia                             59.3       59.8             18.8      18.6            15.0      15.5               3.8           3.1                   32.0             31.8                 6.9           5.8

Middle East & AfricaSaudi Arabia                        5.4        5.5             2.3        2.4             2.3       2.4                -             -                    40.8             36.9                 1.1           0.4

Turkey                             36.1       32.1             16.0      13.5            16.0      13.5                -             -                    44.2             42.0                  -             -

South & Southeast AsiaIndonesia                          74.3       70.1             20.8      19.8            20.8      19.8                -             -                    28.0             28.2                  -             -

Philippines                        14.4       17.5             8.9       11.7             8.9      11.7                -             -                    61.9             66.8                 0.3            -

East Asia & AustraliaAustralia                           2.3        3.2             0.8        1.0             0.8       1.0                -             -                    33.7             29.8                  -             -

Japan                              39.7       40.8             13.6      11.9             5.4       4.6               8.2           7.3                   38.3             36.9                 22.9         20.4

South Korea                        19.2       20.2             3.7        3.9             2.5       2.7               1.2           1.2                   19.2             19.5                 6.1           6.0

Americas
Argentina                           8.4        8.6             4.8        4.9             4.8       4.9                -             -                    56.6             56.8                  -             -

Mexico                              7.8        7.7             5.0        4.8             5.0       4.8                -             -                    64.6             62.7                 0.3           0.2

(1) Market share estimates are calculated using IMS data Note: % change for Total Market and PMI shipments is computed based on millions of units. "-" indicates volume below 50 million units and market share below 0.1%

Consolidated Operating Results for the Nine Months Ended September 30, 2021


The following discussion compares our consolidated operating results for the
nine months ended September 30, 2021, with the nine months ended September 30,
2020.

Our total shipment volume increased by 1.5%, driven by:
•the EU, reflecting higher heated tobacco unit shipment volume across the
Region, particularly in Germany, Hungary, Italy and Poland, partly offset by
lower cigarette shipment volume, notably in the Czech Republic, France, Germany
and Hungary;
•Eastern Europe, reflecting higher heated tobacco unit shipment volume,
primarily in Russia and Ukraine, partly offset by lower cigarette shipment
volume, mainly in Russia and Ukraine;
•Middle East & Africa, reflecting higher cigarette shipment volume (primarily in
PMI Duty Free and Turkey, partly offset by North Africa), as well as higher
heated tobacco unit shipment volume across the Region;
•East Asia & Australia, reflecting higher heated tobacco unit shipment volume
driven by Japan, partly offset by lower cigarette shipment volume, predominantly
in Japan and South Korea; and
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•Americas, mainly reflecting higher cigarette shipment volume, primarily in
Brazil and Mexico, partially offset by Argentina;
partly offset by
•South & Southeast Asia, primarily reflecting lower cigarette shipment volume,
mainly in the Philippines, partially offset by Indonesia and Pakistan.

Impact of Inventory Movements


Excluding the net favorable impact of estimated distributor inventory movements
of approximately 5.0 billion units, our total in-market sales increased by 0.5%,
driven by a 23.3% increase in heated tobacco units, partly offset by a 2.1%
decrease in cigarettes.
The net favorable impact of approximately 5.0 billion units reflected:
•A net favorable impact of 2.8 billion cigarettes, mainly driven by 2020
movements in Japan, PMI Duty Free and Russia; and
•A net favorable impact of 2.2 billion heated tobacco units, primarily driven by
2020 movements in Japan.

Our total heated tobacco unit in-market sales volume in the nine months year-to-date was 68.8 billion units.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

                                      PMI Shipment Volume by Brand (Million 

Units)

Nine Months Year-to-Date

                                                                       2021                 2020             Change
Cigarettes
Marlboro                                                                   177,287          175,638                0.9  %
L&M                                                                         64,028           69,215               (7.5) %
Chesterfield                                                                43,021           39,274                9.5  %
Philip Morris                                                               31,881           34,823               (8.4) %
Parliament                                                                  30,535           25,575               19.4  %
Sampoerna A                                                                 27,601           23,801               16.0  %
Dji Sam Soe                                                                 16,644           18,344               (9.3) %
Bond Street                                                                 12,200           18,481              (34.0) %
Lark                                                                        11,851           12,059               (1.7) %
Next                                                                         6,556            6,703               (2.2) %
Others                                                                      44,889           49,928              (10.1) %
Total Cigarettes                                                           466,493          473,841               (1.6) %
Heated Tobacco Units                                                        69,579           54,402               27.9  %
Total Cigarettes and Heated Tobacco Units                                  536,072          528,243                1.5  %


Note: Lark includes Lark Harmony; Next includes Next Dubliss; Philip Morris includes Philip Morris/Dubliss; and Sampoerna A includes Sampoerna.

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia and Ukraine) and Japan.


Our cigarette shipment volume of the following brands increased:
•Marlboro, mainly driven by Mexico, PMI Duty Free, Russia and Turkey, partly
offset by France, the GCC, Japan and the Philippines;
•Chesterfield, primarily driven by Brazil, the Philippines and Russia, partly
offset by Saudi Arabia;
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•Parliament, mainly driven by Russia, Saudi Arabia and Turkey, partly offset by
Japan and South Korea; and
•Sampoerna A in Indonesia, primarily driven by premium A Mild.

Our cigarette shipment volume of the following brands decreased:
•L&M, mainly due to Egypt, Germany, Poland, Russia and Turkey;
•Philip Morris, primarily due to Indonesia, Italy and Russia, partly offset by
Japan;
•Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild;
•Bond Street, primarily due to Kazakhstan, Russia and Ukraine;
•Lark, mainly due to Japan;
•Next, primarily due to Canada and Ukraine, partly offset by Russia; and
•"Others," notably due to: mid-price Fortune (Philippines) and Sampoerna U
(Indonesia); and low-price Jackpot (Philippines) and More (Philippines); partly
offset by mid-price Sampoerna Hijau (Indonesia) and low-price Morven (Pakistan).

International Share of Market (excluding China and the United States)
Our total international market share (excluding China and the United States),
defined as our cigarette and heated tobacco unit sales volume as a percentage of
total industry cigarette and heated tobacco unit sales volume, decreased by 0.6
points to 27.3%, reflecting:
•Total international market share for cigarettes of 23.8%, down by 1.1 points;
and
•Total international market share for heated tobacco units of 3.5%, up by 0.6
points.
Our total international cigarette sales volume as a percentage of total industry
cigarette sales volume was down by 0.9 points to 24.9%, mainly reflecting lower
cigarette market share and/or an unfavorable geographic mix impact, notably in
Japan, the Philippines, Russia and Ukraine, partly offset by Indonesia and
Turkey.

                                                                              Financial Summary
Financial Summary -                                                               Change                                                Variance
Nine Months Ended September 30,                                                Fav./(Unfav.)                                          Fav./(Unfav.)
                                          2021         2020                 Total           Excl.             Total      Cur-     Acqui-sitions    Price     Vol/     Cost/
(in millions)                                                                               Curr.                       rency                                Mix      Other
Net Revenues (1)                      $  23,301$  21,250                      9.7  %       6.1  %       $ 2,051$ 752    $            2    $ 590$ 983$ (276)
Cost of Sales                            (7,223)      (6,997)                    (3.2) %       0.5  %          (226)    (260)               (1)       -     (329)      364
Marketing, Administration and
Research Costs (2)                       (5,995)      (5,435)                   (10.3) %      (8.2) %          (560)    (112)               (1)       -        -      (447)
Amortization of Intangibles                 (55)         (55)                       -  %       1.8  %             -       (1)                -        -        -         1
Operating Income                      $  10,028$   8,763                     14.4  %      10.1  %       $ 1,265$ 379    $            -    $ 590$ 654$ (358)


(1) Cost/Other variance includes a $246 million reduction in net revenues in
2021 related to the Saudi Arabia customs assessments. For more details, see Note
8. Contingencies.
(2) Cost/Other variance includes charges in 2021 and 2020 of $170 million and
$71 million, respectively, for asset impairment and exit costs. Cost/Other
variance in 2021 also includes the pre-tax charge of $51 million associated with
the asset acquisition cost of OtiTopic, Inc. For more details, see Note 16.
Asset Impairment and Exit Costs and Note 17. Acquisitions.

For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 6.1%, mainly reflecting: favorable volume/mix, primarily
driven by higher heated tobacco unit volume (notably in the EU, particularly
Germany, Hungary, Italy and Poland, as well as Japan and Russia), partly offset
by lower cigarette volume (mainly in the EU Region, notably the Czech Republic,
France and Germany, as well as Japan, Kuwait, North Africa, the Philippines,
Russia and Ukraine, partially offset by Indonesia, PMI Duty Free, and Turkey);
and a favorable pricing variance (notably driven by the
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Czech Republic, Germany, Japan, Kazakhstan, North Africa, the Philippines,
Russia and Turkey, partly offset by Indonesia, Poland and Ukraine); partially
offset by the unfavorable impact of the Saudi Arabia customs assessments of $246
million, shown in "Cost/Other". Excluding the unfavorable impact of the Saudi
Arabia customs assessments of $246 million, net revenues increased by 10.8%, or
7.3% excluding favorable currency of $752 million.

The favorable currency in net revenues was due primarily to the Euro, Indonesian
rupiah, Japanese yen, Mexican peso and Philippine peso, partially offset by the
Russian ruble and Turkish lira.

Net revenues include $6.7 billion in 2021 and $4.9 billion in 2020 related to
the sale of RRPs. For the nine months ended September 30, 2021, IQOS devices
accounted for over 6% of RRP net revenues, with a step-up in the third quarter
reflecting the IQOS ILUMA launch.

Operating income, excluding favorable currency, increased by 10.1%, primarily
reflecting: favorable volume/mix, mainly driven by the same factors as for net
revenues noted above; a favorable pricing variance; and lower manufacturing
costs (driven by productivity gains related to reduced-risk and combustible
products); partly offset by the unfavorable impact of the Saudi Arabia customs
assessments (as noted above for net revenues); and higher marketing,
administration and research costs, including higher asset impairment and exit
costs (mainly related to organizational design optimization, as well as product
distribution restructuring in South Korea) and asset acquisition costs related
to OtiTopic, Inc.

Interest expense, net, of $482 million increased by $28 million (6.2%).

Our effective tax rate increased by 0.6 percentage points to 22.0%. We estimate that our full-year 2021 effective tax rate will be around 22%, excluding discrete tax events. For further details, see Note 9. Income Taxes.


Net earnings attributable to PMI of $7.0 billion increased by $936 million or
15.4%. This increase was due primarily to higher operating income as discussed
above, partially offset by a higher effective income tax rate. Basic EPS of
$4.49 increased by 15.1%. Diluted EPS of $4.48 increased by 14.9%. Excluding a
favorable currency impact of $0.18, diluted EPS increased by 10.3%.

Consolidated Operating Results for the Three Months Ended September 30, 2021
The following discussion compares our consolidated operating results for the
three months ended September 30, 2021, with the three months ended September 30,
2020.

Our total shipment volume increased by 2.1%, driven by:


•Eastern Europe, reflecting higher heated tobacco unit shipment volume across
the Region, primarily in Russia and Ukraine, partly offset by lower cigarette
shipment volume, mainly in Russia and Ukraine;
•Middle East & Africa, mainly reflecting higher cigarette shipment volume,
primarily in PMI Duty Free and Turkey, partly offset by North Africa
(particularly Egypt);
•East Asia & Australia, reflecting higher heated tobacco unit shipment volume,
primarily in Japan, and higher cigarette shipment volume, mainly in Japan,
partly offset by Australia and South Korea; and
•Americas, mainly reflecting higher cigarette shipment volume, notably in
Mexico;
partly offset by
•the EU, reflecting lower cigarette shipment volume, mainly in France, Italy and
Spain, partly offset by higher heated tobacco unit shipment volume across the
Region, notably in Italy; and
•South & Southeast Asia, primarily reflecting lower cigarette shipment volume,
mainly in the Philippines, partly offset by Indonesia.

Impact of Inventory Movements


Excluding the net favorable impact of estimated distributor inventory movements
of approximately 2.8 billion units, our total in-market sales increased by 0.6%,
driven by a 20.2% increase in heated tobacco units, partly offset by a 1.8%
decrease in cigarettes.
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The net favorable impact of approximately 2.8 billion units reflected:
•A net favorable impact of 2.4 billion cigarettes, mainly driven by 2020
movements in Japan and PMI Duty Free; and
•A net favorable impact of 0.4 billion heated tobacco units, notably reflecting
2020 movements in PMI Duty Free.

Our total heated tobacco unit in-market sales volume in the quarter was 24.6 billion units, reflecting sequential growth of 7.2% compared to the second quarter of 2021.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

                       PMI Shipment Volume by Brand (Million Units)
                                                              Third-Quarter
                                                        2021         2020     Change
     Cigarettes
     Marlboro                                            65,139     61,581      5.8  %
     L&M                                                 21,564     24,189    (10.9) %
     Chesterfield                                        15,994     13,768     16.2  %
     Philip Morris                                       11,107     12,254     (9.4) %
     Parliament                                          11,556      9,540     21.1  %
     Sampoerna A                                          9,717      7,999     21.5  %
     Dji Sam Soe                                          5,518      6,372    (13.4) %
     Bond Street                                          3,042      6,441    (52.8) %
     Lark                                                 4,070      3,846      5.8  %
     Next                                                 2,388      2,327      2.7  %
     Others                                              14,748     17,147    (14.0) %
     Total Cigarettes                                   164,843    165,464     (0.4) %
     Heated Tobacco Units                                23,489     18,967     23.8  %
     Total Cigarettes and Heated Tobacco Units          188,332    184,431      2.1  %


Note: Lark includes Lark Harmony; Next includes Next Dubliss; Philip Morris
includes Philip Morris/Dubliss; and Sampoerna A includes Sampoerna.
The increase in our heated tobacco unit shipment volume was mainly driven by the
EU (notably Italy), Eastern Europe (notably Russia) and Japan.
Our cigarette shipment volume of the following brands increased:
•Marlboro, mainly driven by PMI Duty Free, Russia and Turkey, partly offset by
Italy and the Philippines;
•Chesterfield, primarily driven by Russia;
•Parliament, mainly driven by Saudi Arabia and Turkey;
•Sampoerna A in Indonesia, primarily driven by premium A Mild;
•Lark, mainly driven by Japan; and
•Next, primarily driven by Russia.

Our cigarette shipment volume of the following brands decreased: •L&M, primarily due to Egypt, Poland, Russia, Spain, Thailand and Turkey; •Philip Morris, mainly due to Russia, partly offset by Japan; •Dji Sam Soe in Indonesia, primarily due to Dji Sam Soe Magnum Mild; •Bond Street, mainly due to Russia; and

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•"Others," primarily due to: mid-price Fortune (Philippines) and Sampoerna U (Indonesia).


International Share of Market (excluding China and the United States)
Our total international market share (excluding China and the United States) was
flat at 28.0%, reflecting:
•Total international market share for heated tobacco units of 3.6%, up by 0.6
points; and
•Total international market share for cigarettes of 24.4%, down by 0.6 points.
Our total international cigarette sales volume as a percentage of total industry
cigarette sales volume was down by 0.4 points to 25.6%, mainly reflecting lower
cigarette market share and/or an unfavorable geographic mix impact, notably in
Egypt, France, Japan, the Philippines, Russia and Ukraine, partly offset by
Indonesia, PMI Duty-Free and Turkey.
                                                                            Financial Summary
Financial Summary -                                                             Change                                               Variance
Quarters Ended September 30,                                                Fav./(Unfav.)                                          Fav./(Unfav.)
                                        2021        2020                 Total            Excl.            Total     Cur-     Acqui-sitions    Price     Vol/     Cost/
(in millions)                                                                             Curr.                     rency                                Mix      Other
Net Revenues                         $  8,122$  7,446                      9.1  %        7.6  %       $ 676$ 107    $            2    $ 158$ 439$  (30)
Cost of Sales                          (2,596)     (2,416)                    (7.5) %       (5.8) %        (180)     (40)               (1)       -     (211)       72
Marketing, Administration and
Research Costs (1)                     (2,053)     (1,769)                   (16.1) %      (15.9) %        (284)      (2)               (1)       -        -      (281)
Amortization of Intangibles               (18)        (18)                       -  %          -  %           -        -                 -        -        -         -
Operating Income                     $  3,455$  3,243                      6.5  %        4.5  %       $ 212$  65    $            -    $ 158$ 228$ (239)


(1) Cost/Other variance includes charges in 2021 of $43 million for asset
impairment and exit costs. Cost/Other variance in 2021 also includes the pre-tax
charge of $51 million associated with the asset acquisition cost of OtiTopic,
Inc. For more details, see Note 16. Asset Impairment and Exit Costs and Note 17.
Acquisitions.

During the quarter, net revenues, excluding favorable currency, increased by
7.6%, mainly reflecting: favorable volume/mix, primarily driven by higher heated
tobacco unit volume (notably in the EU, particularly Germany, Italy and Poland,
as well as Japan, PMI Duty Free and Russia) and higher device volume (primarily
in Japan, driven by the launch of IQOS ILUMA), partly offset by lower cigarette
volume (mainly in Australia, France, Germany, Italy and the Philippines, partly
offset by Indonesia, Japan, PMI Duty Free and Turkey) and unfavorable cigarette
mix (mainly in Germany, Japan and Russia); and a favorable pricing variance
(notably driven by Japan, the Philippines, Russia and Turkey, partly offset by
Indonesia, Poland and Ukraine).

The favorable currency in net revenues was due primarily to the Euro and Mexican pesos, partially offset by the Japanese yen and Turkish lira.

Net revenues include $2.3 billion in 2021 and $1.7 billion in 2020 related to the sale of RRPs.


Operating income, excluding favorable currency, increased by 4.5%, primarily
reflecting: favorable volume/mix, primarily driven by higher heated tobacco unit
volume, partly offset by lower cigarette volume and unfavorable cigarette mix
(each mainly reflecting the same geographies as for net revenues noted above); a
favorable pricing variance; and lower manufacturing costs (driven by
productivity gains related to reduced-risk products); partly offset by higher
marketing, administration and research costs (due mainly to investments behind
reduced-risk products, asset acquisition costs related to OtiTopic, Inc. and
higher asset impairment and exit costs due to organizational design optimization
and product distribution restructuring in South Korea).

Interest expense, net, of $154 million decreased by $9 million (5.5)%.


Our effective tax rate increased by 1.5 percentage points to 22.4%. The
effective tax rate for the three months ended September 30, 2020 was favorably
impacted by a reduction of estimated U.S. federal and state income tax
liabilities for years 2018 and 2019 mostly due to final regulations under the
GILTI provisions of the Internal Revenue Code ($93 million), partially offset by
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a decrease in deductions related to foreign-derived intangible income for the years 2018 and 2019. For further details, see Note 9. Income Taxes.


Net earnings attributable to PMI of $2.4 billion increased by $119 million or
5.2%. This increase was due primarily to higher operating income as discussed
above, partially offset by a higher effective tax rate. Diluted and basic EPS of
$1.55 increased by 4.7%. Excluding a favorable currency impact of $0.04, diluted
EPS increased by 2.0%.


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
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 Note 8. 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 World Health Organization's (the "WHO") Framework Convention on
Tobacco Control (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.

In May 2021, the WHO study group on tobacco product regulation issued its Eighth
Report addressing novel and emerging nicotine and tobacco products, such as
electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery
systems ("ENNDS") and heated tobacco products ("HTPs"). Although the Report
presents some industry and independent research showing that heated tobacco
products have the potential to reduce harm for smokers, WHO's overall assessment
is that these products are not risk-free and should be regulated in the same
manner as tobacco products and in line with the FCTC provisions. The Report also
recommends governments both to rely on independent research and data on the
public health impact of use of heated tobacco products, and to analyze tobacco
industry funded data. In August 2021, the WHO FCTC Secretariat published two
reports on novel and emerging tobacco products to the ninth session of the CoP
of the FCTC, one on the research and evidence on novel and emerging tobacco
products, and the other on their recommended classification. According to the
provisional agenda, these reports should be presented for information and that
related substantive discussions should be deferred to COP10, in 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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We believe that when better alternatives to cigarettes exist, the discussion
should not be whether these alternatives should be made available to the more
than one billion people who smoke today, but how fast, and within what
regulatory framework to maximize their adoption while minimizing unintended use.
Therefore, we advocate for regulatory frameworks that recognize a significant
difference on a risk continuum between combustible tobacco on the one hand and
non-combustible tobacco and other nicotine-containing products on the other.
Regulation should include measures that will accelerate switching to
non-combustible products, for example, by allowing adult consumers who would not
otherwise quit to receive truthful and non-misleading information about such
products to enable them to make informed decisions and by applying uniform
product standards to enable manufacturers to demonstrate the safety of these
products, as well as the absence of combustion. Regulation should also include
specific rules for ingredients, labeling and consumer communication, and should
ensure that the public is informed about the health risks of all combustible and
non-combustible tobacco and nicotine-containing products. Importantly,
regulation must include measures designed to prevent initiation by youth and
non-smokers. We support mandated health warnings, minimum age laws, restrictions
on advertising, and public place smoking restrictions. We also support
regulatory measures that help reduce illicit trade.

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


Fiscal Challenges: Excessive and disruptive excise, sales and other tax
increases and discriminatory tax structures are expected to continue to have an
adverse impact on our profitability, due to lower consumption and consumer
down-trading to non-premium, discount, other low-price or low-taxed combustible
tobacco products such as fine cut tobacco and illicit cigarettes. In addition,
in certain jurisdictions, some of our combustible products are subject to tax
structures that discriminate against premium-price products and manufactured
cigarettes. We believe that such tax policies undermine public health by
encouraging consumers to turn to illicit trade, and ultimately undercut
government revenue objectives, disrupt the competitive environment, and
encourage criminal activity. Other jurisdictions have imposed, or are seeking to
impose, levies or other taxes specifically on tobacco companies, such as taxes
on revenues and/or profits.

World Customs Organization Developments: In 2020, the World Customs Organization
(the "WCO") amended the harmonized system nomenclature to introduce dedicated
custom codes for novel tobacco and nicotine products, including heated tobacco
products, e-cigarettes and other nicotine-containing products. The amendments
will be effective as of January 1, 2022. These amendments require WCO member
states to transfer products from customs codes in the current nomenclature to
the new one. These amendments are not expected to significantly impact current
customs duty rates.

EU Tobacco Products Directive: In April 2014, the EU adopted a significantly
revised EU Tobacco Products Directive (the "TPD"), which entered into force in
May 2016. All member states have adopted laws transposing the TPD.  The TPD sets
forth a comprehensive set of regulatory requirements for tobacco products,
including:

•health warnings covering 65% of the front and back panels of cigarette packs,
with an option for member states to further standardize tobacco packaging,
including the introduction of plain packaging;
•a ban on characterizing flavors in some tobacco products, with a transition
period for menthol that expired in May 2020;
•security features and tracking and tracing measures that became effective in
May 2019; and
•a framework for the regulation of novel tobacco products and e-cigarettes,
including requirements for health warnings and information leaflets, a
prohibition on product packaging text related to reduced risk, and the
introduction of notification requirements or authorization procedures in advance
of commercialization.

In May 2021, the European Commission published its first report on the
application of the TPD. The report identifies significant progress made due to
the implementation of the TPD and where there is still room for improvement.
Most notably, it finds that the EU legislation has enhanced tobacco control,
contributed to protecting the health of EU citizens by providing Member States
with strong rules to address the use of tobacco products in the EU. The TPD
reportedly achieved the 2% reduction target of the impact assessment with
decreased smoking prevalence among youth. The report also concludes that there
is scope for improvement in certain areas, such as enforcement at national
level, assessment of ingredients, and a better consideration for novel and
emerging products.

EU Tobacco Excise Directive: The EU Commission is preparing a legislative
proposal for the revision of the 2011 EU Tobacco Excise Directive that may
include definitions and tax treatment for novel tobacco and nicotine-containing
products, including heated tobacco products and e-cigarettes. The proposal is
expected to be finalized by the end of 2021. The adoption of the proposal will
require unanimous agreement by all EU member states.

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Plain Packaging and Other Packaging Restrictions: Plain packaging legislation
bans the use of branding, logos and colors on packaging other than the brand
name and variant that may be printed only in specified locations and in a
uniform font. To date, plain packaging laws have been adopted in certain markets
in all of our operating segments, including the key markets of Australia,
France, Saudi Arabia and Turkey. Some countries, such as Canada, Denmark, Israel
and New Zealand, adopted plain packaging regulations that apply to all tobacco
products, including RRPs. Other countries are also considering plain packaging
legislation.

Some countries have adopted, or are considering adopting, packaging restrictions
that could have an impact similar to plain packaging. Examples of such
restrictions include standardizing the shape and size of packages, prohibiting
certain colors or the use of certain descriptive phrases on packaging, and
requiring very large graphic health warnings that leave little space for
branding.

Restrictions and Bans on the Use of Ingredients: The WHO and others in the
public health community have recommended restrictions or total bans on the use
of some or all ingredients in tobacco products, including menthol. Broad
restrictions and ingredient bans would require us to reformulate our American
blend tobacco products and could reduce our ability to differentiate these
products in the market in the long term. In many countries, menthol bans would
eliminate the entire category of mentholated tobacco products. The European
Union banned cigarettes and roll-your-own tobacco products with characterizing
flavors. Other tobacco products, including heated tobacco products, are exempted
from this flavor ban. The EU Commission is required to withdraw this exemption
for a particular product category if it determines that there is a substantial
change of circumstances, such as a significant increase of EU-wide sales volumes
in such product category. Other countries may follow the EU's approach. Turkey
banned menthol as of May 2020. Broader ingredient bans have been adopted by
Brazil and Canada.

Bans on Display of Tobacco Products at Retail: In a number of our markets, including, but not limited to, Australia and Russia, governments have banned the display of tobacco products at the point of sale. Other countries are considering similar bans.


Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships:
For many years, the FCTC has called for, and countries have imposed, partial or
total bans on tobacco advertising, marketing, promotions and sponsorships,
including bans and restrictions on advertising on radio and television, in print
and on the Internet. The FCTC's non-binding guidelines recommend that
governments prohibit all forms of communication with adult smokers.

Restrictions on Product Design: Some members of the public health community are
calling for the further standardization of tobacco products by requiring, for
example, that cigarettes have a certain minimum diameter, which would amount to
a ban on slim cigarettes, or requiring the use of standardized filter and
cigarette paper designs. In addition, at its meeting in November 2016, the CoP
adopted non-binding guidelines recommending that countries regulate product
design features that increase the attractiveness of tobacco products, such as
the diameter of cigarettes and the use of flavor capsules.

Restrictions on Public Smoking and Use of Nicotine-Containing Products in
Public: The pace and scope of restrictions on the use of our products have
increased significantly in most of our markets. Many countries around the world
have adopted, or are likely to adopt, regulations that restrict or ban smoking
and use of nicotine-containing products in public and/or work places,
restaurants, bars and nightclubs. Some public health groups have called for, and
some countries, regional governments and municipalities have adopted or
proposed, bans on smoking in outdoor places, as well as bans on smoking in cars
(typically, when minors are present) and private homes.

Other Regulatory Issues: Some regulators are considering, or in some cases have
adopted, regulatory measures designed to reduce the supply of tobacco products.
These include regulations intended to reduce the number of retailers selling
tobacco products by, for example, reducing the overall number of tobacco retail
licenses available or banning the sale of tobacco products within specified
distances of certain public facilities. In addition, South Africa banned the
sale of tobacco products, e-cigarettes, and electronic devices that heat tobacco
for several months during the COVID-19 pandemic. The ban, which was lifted on
August 17, 2020, resulted in a significant increase of illicit trade of tobacco
products.

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


The EU Single-Use Plastics Directive, which will require tobacco manufacturers
and importers to cover the costs of public collection systems for tobacco
product filters, under Extended Producer Responsibility ("EPR") schemes, entered
into force on July 2, 2019. To date, some member states transposed the Directive
into national legislation. We expect remaining member states to transpose the EU
Single-Use Plastics Directive into national legislation including EPR schemes by
January 2023. While we cannot predict the impact of this initiative on our
business at this time, we are monitoring developments in this area.
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Illicit Trade: Illicit tobacco trade creates a cheap and unregulated supply of
tobacco products, undermines efforts to reduce smoking prevalence, especially
among youth, damages legitimate businesses and intellectual property rights,
stimulates organized crime, increases corruption and reduces government tax
revenue. We generally estimate that, excluding China and the U.S., illicit trade
may account for as much as 12% of global cigarette consumption; this includes
counterfeit, contraband and the persistent problem of "illicit whites," which
are cigarettes legally produced in one jurisdiction for the sole purpose of
being exported and illegally sold in another jurisdiction where they have no
legitimate market. Currently, we estimate that illicit trade in the European
Union accounted for approximately 8% of total cigarette consumption in 2020.

A number of jurisdictions are considering actions to prevent illicit trade. In
November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in
Tobacco Products (the "Protocol"), which includes supply chain control measures,
such as licensing of manufacturers and distributors, enforcement of these
control measures in free trade zones, controls on duty free and Internet
channels and the implementation of tracking and tracing technologies. To date,
63 Parties, including the European Union, have ratified it. The Protocol came
into force in September 2018. Parties must start implementing its provisions in
their national legislation. In October 2018, the first Meeting of the Parties to
the Protocol decided to produce a comprehensive report on good practices for the
implementation of tracking and tracing systems and to prepare a conceptual
framework for global information sharing to combat illicit tobacco trade. We
welcome this decision and expect that other Parties will ratify the Protocol.

We devote substantial resources to help prevent illicit trade in combustible
tobacco products and RRPs. For example, we engage with governments, our business
partners and other stakeholders to implement effective measures to combat
illicit trade and, in some instances, pursue legal remedies to protect our
intellectual property rights.

The tracking and tracing regulations for cigarettes and roll-your-own products
manufactured or destined for the EU became effective on May 20, 2019. The
effective date for other tobacco-containing products, including some of our RRPs
such as heated tobacco units, is May 20, 2024. While we expect that this
regulation will increase our operating expenses, we do not expect this increase
to be significant.

In 2009, our Colombian subsidiaries entered into an Investment and Cooperation
Agreement with the national and regional governments of Colombia to promote
investment in, and cooperation on, anti-contraband and anti-counterfeit efforts.
The agreement provides $200 million in funding over a 20-year period to address
issues such as combating illegal cigarette trade and increasing the quality and
quantity of locally-grown tobacco.

In May 2016, PMI launched PMI IMPACT, a global initiative that supports
third-party projects dedicated to fighting illegal trade and related crimes such
as corruption, organized criminal networks and money laundering. The centerpiece
of PMI IMPACT is a council of external independent experts in the fields of law,
anti-corruption and law enforcement. The experts are responsible for evaluating
and approving funding proposals for PMI IMPACT grants. PMI has pledged $100
million to fund projects within PMI IMPACT over three funding rounds.

Reduced-Risk Products (RRPs)


Our Approach to RRPs: We recognize that smoking cigarettes causes serious
diseases and that the best way to avoid the harms of smoking is never to start
or to quit. Nevertheless, it is predicted that by 2025 the number of smokers
will remain largely unchanged from the current estimate of 1.1 billion, despite
the considerable efforts to discourage smoking.

Cigarettes burn tobacco, which produces smoke. As a result of the combustion
process, the smoker inhales various toxic substances. In contrast, RRPs do not
burn tobacco and therefore contain significantly lower levels of harmful and
potentially harmful constituents ("HPHCs") than found in cigarette smoke.

For adult smokers who would otherwise continue to smoke, we believe that RRPs,
while not risk-free, offer a much better consumer choice. Accordingly, our key
strategic priorities are: to develop and commercialize products that present
less risk of harm to adult smokers who switch to those products versus continued
smoking; and to convince current adult smokers who would otherwise continue to
smoke to switch to those products.

We recognize that this transformation from cigarettes to RRPs will take time and
that the speed of transformation will depend in part upon factors beyond our
control, such as the willingness of governments, regulators and other policy
groups to embrace RRPs as a desired alternative to continued cigarette smoking.
For as long as a significant number of adult smokers continues to smoke,
responsible leadership of the category is critical. We aim to maintain our
competitive position in the cigarette market through selective investment. As a
leading international cigarette manufacturer, we will continue to accelerate
this
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transformation by using our regulatory and commercial expertise and extensive
commercial and distribution infrastructure as an effective platform for the
commercialization of our RRPs and communication with adult smokers and trade
partners about the benefits of switching to our RRPs.

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


We have a range of RRPs in various stages of development, scientific assessment
and commercialization. We conduct rigorous scientific assessments of our RRP
platforms to substantiate that they reduce exposure to HPHCs and, ultimately,
that these products present, are likely to present, or have the potential to
present less risk of harm to adult smokers who switch to them versus continued
smoking. We draw upon a team of expert scientists and engineers from a broad
spectrum of scientific disciplines and our extensive learnings of adult consumer
preferences to develop and assess our RRPs. Our efforts are guided by the
following key objectives:

•to develop RRPs that adult smokers who would otherwise continue to smoke find
to be satisfying alternatives to smoking;
•for those adult smokers, our goal is to offer RRPs with a scientifically
substantiated risk-reduction profile that approaches as closely as possible that
associated with smoking cessation;
•to substantiate the reduction of risk for the individual adult smoker and the
reduction of harm to the population as a whole, based on scientific evidence of
the highest standard that is made available for scrutiny and review by external
independent scientists and relevant regulatory bodies; and
•to advocate for the development of science-based regulatory frameworks for the
development and commercialization of RRPs, including the communication of
scientifically substantiated information to enable adult smokers to make better
consumer choices.

Our RRP Platforms: Our product development is based on the elimination of
combustion via tobacco heating and other innovative systems, which we believe
are the most promising path to providing a better consumer choice for those who
would otherwise continue to smoke. We recognize that no single product will
appeal to all adult smokers. Therefore, we are developing a portfolio of
products intended to appeal to a variety of distinct adult consumer preferences.

Four PMI-developed RRP platforms are in various stages of development and commercialization readiness:

    Platform 1 uses a precisely controlled heating device incorporating our IQOS
HeatControl technology, into which a specially designed and proprietary tobacco
unit is inserted and heated to generate an aerosol. We have conducted a series
of clinical studies for this platform, the results of which were included in our
submission to the U.S. Food and Drug Administration ("FDA") described below. We
completed a 6+6 month exposure response study and shared the results with the
FDA in April 2020. The study showed that for the group that switched to our
Platform 1 product, the eight clinical risk endpoints that were tested as
co-primary endpoints in the first six-month term moved in the same direction as
observed for smoking cessation after 12 months of use of this product. In
addition, we completed an 18-month combined chronic toxicity and carcinogenicity
study in mice, which was on-going at the time of our FDA submission. We shared
the results with the FDA in August 2018. In addition to the original version of
Platform 1 which relies on a heating technology using a blade, a new version of
Platform 1 is now available using induction. All studies referenced above were
conducted with the blade version of Platform 1. There is full comparability
between the versions, therefore the data from these studies remain valid.

  Platform 2 uses a pressed carbon heat source which, when ignited, generates a
nicotine-containing aerosol by heating tobacco. The results of our
pharmacokinetic study (that measured the nicotine pharmacokinetic profile as
well as subjective effects) and of our five-day reduced exposure study indicate
that this platform could be an acceptable substitute for adult smokers who seek
an alternative to cigarettes. The reduced exposure study results showed a
substantial reduction in relevant biomarkers of exposure to the measured HPHCs
in those who switched to Platform 2 compared to those who continued to smoke
cigarettes over a five-day period. The sustainability of this reduction as well
as changes in clinical risk markers were assessed in a three-month reduced
exposure study, which was completed in 2018.

  Platform 3 provides an aerosol of nicotine salt. We have explored two routes
for this platform, one with electronics and one without, and conducted nicotine
pharmacokinetic studies with both versions. The results of our pharmacokinetic
study related to the version without electronics indicate this product's
potential as an acceptable alternative to continued cigarette smoking in terms
of product satisfaction. In February 2020, we completed a one-month product use
and adaptation study in adult smokers for the product variant without
electronics. The results of the study indicated that while during the study
period,
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the adult smokers did not fully switch from smoking cigarettes to this Platform
3 product, on average, they used this product on a daily basis and significantly
reduced their daily consumption of cigarettes. We are working on product
modifications to enable switching by those adult smokers who are looking for
better alternatives to cigarettes.

  Platform 4 covers e-vapor products, which are battery-powered devices that
produce an aerosol by vaporizing a nicotine-containing liquid solution. In 2020,
our e-vapor products comprised devices with the "coil and wick" technology as
well as our e-vapor mesh technology designed to ensure the consistency and
quality of the generated aerosol compared to the products with the "coil and
wick" technology. Recently, we discontinued the commercialization of devices
with the "coil and wick" technology. We conducted a nicotine pharmacokinetic
study with respect to products with our e-vapor mesh technology in 2017. The
results of this study indicate that these products are an effective means of
nicotine delivery while being a satisfying alternative for e-cigarette users. In
March 2019, a six-month pre-clinical study in mice evaluating the impact of
e-cigarette vapor on the risks of pulmonary and cardiovascular disease compared
to cigarette smoke was completed; this study did not pertain to a specific
product. The study demonstrated that e-cigarette vapors induce significantly
lower biological responses associated with cardiovascular and pulmonary diseases
compared with cigarette smoke.

We aim to expand our brand portfolio and market positions with additional RRPs.
In addition, we are continuing to use our expertise, technology and capabilities
to explore new growth opportunities beyond our current business, including
products that do not contain nicotine or tobacco.

After we receive the results of our scientific studies, including those
mentioned above, in accordance with standard scientific practices, we share the
conclusions in scientific forums and submit them for inclusion in peer-reviewed
publications.

Commercialization of RRPs: We are building a new product category and tailor our
commercialization strategy to the characteristics of each specific market. We
focus our commercialization efforts on consumer retail experience, guided
consumer trials and customer care, and increasingly, digital communication
programs and e-commerce.  In order to accelerate switching to our Platform 1
products, our initial market introductions typically entail one-to-one consumer
engagement (in person or by digital means) and device discounts.  These initial
commercialization efforts require substantial investment, which we believe will
moderate over time and further benefit from the increased use of digital
engagement capabilities. During the COVID-19 pandemic, we accelerated our
investments in, and pivot to, digital consumer engagement.

As of September 30, 2021, PMI's smoke-free products are available for sale in 70 markets in key cities or nationwide.

In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since then, we have continuously expanded our commercialization activities.

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


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

An adequate supply chain for our RRP portfolio, including the supply of
electronic devices, is important to our business. We work with four electronics
manufacturing service providers for the supply of our Platform 1 and Platform 4
devices and a small number of other providers for other products in our RRP
portfolio and related accessories. Due to the COVID-19 pandemic, the operations
of our two main electronic manufacturing service providers were temporarily
suspended at different times. Even though these suspensions did not materially
affect our operations, if one or more of these service providers were
significantly constrained at the same time, the supply of the devices could be
disrupted. Although we work closely with these service providers on monitoring
their production capability and financial health, we cannot guarantee that they
will remain capable of meeting their commitments, particularly during the
COVID-19 pandemic; if they will not, the commercialization of our RRPs could be
adversely affected. The production of our RRP portfolio requires various metals,
and we believe that there is an adequate supply of such metals 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 were successful in maintaining adequate supply of such components and
materials so far, we may not be able to secure such supply going forward,
particularly during the COVID-19 pandemic; this could negatively impact the
commercialization of our RRPs. For details on the impact of COVID-19 on our
production and supply chain, see the "Executive Summary" section of this MD&A.

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In addition, we are also exposed to a world-wide shortage of semiconductors,
which continues to put constraints on our device supplies for RRPs. The overall
impact of this shortage remains manageable, and we have adjusted our device
assortments to limit the effect on consumer availability of our RRPs.

We discuss product warranties in more detail in Note 14. Product Warranty. The
significance of warranty claims is dependent on a number of factors, including
device version mix, product failure rates, logistics and service delivery costs,
and warranty policies, and may increase with the number of devices sold.

Product quality may affect consumer acceptance of our RRPs.

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


•We started commercializing an improved version of our IQOS MESH product in New
Zealand, Italy, Finland, the Czech Republic, Croatia and Canada under the IQOS
VEEV or VEEV brand names. We currently plan to launch this product in additional
markets.

•With respect to TEEPS, our Platform 2 product, we finalized our improvements to this product and will conduct a consumer test in the last quarter of 2021.


•Following the consumer test conducted in 2020 and the results of the product
use and adaptation study described above, we are incorporating our learnings
into our plans to improve our Platform 3 product.

Due to the COVID-19 pandemic, these plans may be delayed.


RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. As we
describe in more detail above, we support science-based regulation and taxation
of RRPs and believe that regulation and taxation should differentiate between
cigarettes and products that present, are likely to present, or have the
potential to present less risk of harm to adult smokers who switch to these
products versus continued smoking and should recognize a continuum of risk for
tobacco and other nicotine-containing products. Regulation, as well as industry
practices, should reflect the fact that youth should not consume nicotine in any
form.

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

These regulations might foreclose or unreasonably restrict adult consumer access
even to products that might be shown to be a better consumer choice than
continuing to smoke. During the COVID-19 pandemic, some governments have been
and may continue to be temporarily unable to focus on the development of
science-based regulatory frameworks for the development and commercialization of
RRPs or on the enforcement or implementation of regulations that are significant
to our business.

We oppose blanket bans and unreasonable restrictions of products that have the
potential to present less risk of harm compared to continued smoking. By
contrast, we support regulation that sets clear standards for all RRP categories
and propels innovation to benefit adult smokers who would otherwise continue to
smoke.

In the United States, an established regulatory framework for assessing
"Modified Risk Tobacco Products" and "New Tobacco Products" exists under the
jurisdiction of the FDA. We submitted to the FDA a Modified Risk Tobacco Product
Application ("MRTPA") for our Platform 1 product in December 2016, and a
Premarket Tobacco Product Application ("PMTA") for our Platform 1 product in
March 2017.

On April 30, 2019, the FDA determined that a version of our Platform 1 product,
namely, IQOS 2.4 and three related consumables, is appropriate for the
protection of public health and authorized it for sale in the United States. The
FDA's decision followed its comprehensive assessment of our PMTA. On December 7,
2020, the FDA reached the same determination for the IQOS 3 device and
authorized that version of our Platform 1 product for sale in the United States.

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, as a "modified risk tobacco product." The FDA authorized the marketing of this product in the U.S. with the following information:

"AVAILABLE EVIDENCE TO DATE:

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•the IQOS system heats tobacco but does not burn it.
•this significantly reduces the production of harmful and potentially harmful
chemicals.
•scientific studies have shown that switching completely from conventional
cigarettes to the IQOS system significantly reduces your body's exposure to
harmful or potentially harmful chemicals."

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


On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for
IQOS 3 requesting authorization to market this version of the device as a
Modified Risk Tobacco Product with reduced exposure information like IQOS 2.4.
In June 2021, the FDA formally accepted and filed our sMRTPA for substantive
scientific review and, already in May 2021, the FDA opened the period for the
public to provide comments on our application. The public comment period, which
was initially scheduled to be closed on August 2, 2021, was extended on July 20,
2021 to provide time for the public to review application materials that were
not previously posted by FDA. At this time there is no deadline for public
comments.

There are two types of MRTP orders the FDA may issue: a "risk modification"
order or an "exposure modification" order. We had requested both types of orders
for IQOS 2.4 and an initial selection of 3 consumables' variants. After review,
the FDA determined that the evidence did not support issuing a "risk
modification" order at this time but that it did support issuing an "exposure
modification" order for the product. This determination included a finding that
issuance of the exposure modification order is expected to benefit the health of
the population as a whole.

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


The FDA's PMTA and MRTP orders do not mean that the agency "approved" our
Platform 1 product.  These authorizations are subject to strict marketing,
reporting and other requirements and are not a guarantee that the product will
remain authorized, particularly if there is a significant uptake in youth or
non-smoker initiation.  The FDA will monitor the marketing of the product.

Some states and municipalities in the U.S. have introduced severe restrictions for the sale of certain e-cigarettes and tobacco products, including those authorized by the FDA. We believe that such restrictions on FDA-authorized products will not advance public health and will unreasonably limit adult consumer access to products that are shown to be a better alternative to continued smoking.


In March 2020, we requested a clarification from the FDA regarding the
applicability of its new health warning requirements to our heated tobacco units
sold in the United States. In June 2021, the FDA responded to our letter and
requested additional information regarding the applicability of the cigarette
health warnings rule to the IQOS System and HeatSticks. Philip Morris Products
S.A. is committed to providing adult consumers of tobacco products with
complete, accurate and non-misleading information regarding the health risks
associated with the use of the IQOS System and HeatSticks. We are currently
working on a submission to share our views on the applicability of new health
warnings to our products.

In the U.S., tobacco and nicotine-containing products that were not commercially
marketed as of February 15, 2007 are subject to review and authorization by the
FDA. Manufacturers of all non-authorized products currently on the market were
required to file a PMTA with the FDA by September 9, 2020. The FDA announced on
September 9, 2020 that it will prioritize enforcement against any tobacco and
nicotine-containing product sold without a PMTA. On October 5, 2021, FDA
published its final PMTA rule in the Federal Register, which is effective
November 4, 2021. All future applications will have to comply with the
requirements in the PMTA rule, which is substantially similar to the version of
the final PMTA rule which was posted on Advanced Federal Register on January 19,
2021.

FDA actions may influence the regulatory approach of other governments.


On September 29, 2021, the International Trade Commission ("ITC") issued its
Final Determination ("FD"), Limited Exclusion Order ("LEO") and Cease and Desist
Order ("CDO"). The ITC upheld the finding of infringement in the ID and found a
subsequent violation. The ITC issued a LEO prohibiting the importation of
infringing tobacco heating articles and components thereof and cease and desist
orders against Philip Morris USA, Inc. and Altria Client Services, LLC. The case
now moves to a 60-day Presidential review period. We will appeal the patent
issues at the appropriate time. Furthermore, lawsuits based on the
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same patent families have been repeatedly and universally rejected in European
courts and the European Patent Office. The decision has no bearing outside the
United States.

Until recently, there were no countries with specific product standards for
heat-not-burn products. Currently, national standards setting minimum quality
and safety requirements for such products have been adopted in several countries
with technical heat-not-burn specifications and/or methods for demonstrating the
absence of combustion. They are mandatory in Egypt, Jordan, Saudi Arabia,
Tunisia, the UAE and Uzbekistan, and voluntary in the Armenia, Costa Rica,
Indonesia, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Vietnam, the U.K. and
Ukraine. In Japan, a voluntary standard sets minimum safety requirements for
tobacco heating devices. We expect other governments to consider similar product
standards and encourage making them mandatory.

All EU member states have transposed the EU Tobacco Products Directive,
including the provisions on novel tobacco products, such as heated tobacco
units, and e-cigarettes. Most of the EU member states require a notification
submitted six months before the intended placing on the market of such products,
while some require pre-market authorizations for the introduction of such
products. To date, we have filed a comprehensive dossier summarizing our
scientific assessment of our Platform 1 product in over 20 member states.

In addition, in Italy, in April 2018, we submitted an application for HEETS,
used with the IQOS device, requesting regulatory recognition of the reduction of
toxic substances and potential risk reduction resulting from switching to this
product compared to continued cigarette smoking. In January 2019, our
application was not granted primarily on the grounds of insufficient data and
questions of methodology.  Due to the constraints of the review process, we had
been unable to supplement the application with all the data we subsequently
filed with the FDA and to address methodological questions during the review. We
plan to submit a new application where we will clarify the concerns raised by
the decision and further strengthen our application by submitting additional
evidence that became available since we submitted our first application,
consistent with our FDA filings. We are confident that our evidence supports our
application.

On October 31, 2019, our Australian subsidiary, Philip Morris Limited ("PML"),
submitted an application to the Scheduling Committee of the Therapeutic Goods
Administration of Australia ("TGA") seeking to exempt heated tobacco products
from being prohibited in Australia. In August 2020, the TGA issued its decision
denying the application and stating that it did not present compelling evidence
to establish a public health benefit from greater access to nicotine in heated
tobacco products.

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


In December 2017, at the request of the U.K. Department of Health and Public
Health England, the U.K. Committee on Toxicity published its assessment of the
risk of heat-not-burn products relative to cigarette smoking. This assessment
included analysis of scientific data for two heat-not-burn products, one of
which was our Platform 1 product. The assessment concluded that, while still
harmful to health, compared with the known risks from cigarettes, heat-not-burn
products are probably less harmful. Subsequently, in February 2018, Public
Health England published a report stating that the available evidence suggests
that heat-not-burn products may be considerably less harmful than cigarettes and
more harmful than e-cigarettes.

In May 2018, the German Federal Institute for Risk Assessment ("BfR") published
a study on the Platform 1 aerosol relative to cigarette smoke using the Health
Canada Intense Smoking Regimen. BfR found reductions in selected HPHCs in a
range of 80-99%. This publication indicates that significant reductions in the
levels of selected toxicants are likely to reduce toxicant exposure, which BfR
stated might be regarded as a discrete benefit compared to combustible
cigarettes.

In May 2018, the Dutch National Institute for Public Health and Environment
("RIVM") published a factsheet on novel tobacco products that heat rather than
burn tobacco, focusing on our Platform 1 product. RIVM analyzed the aerosol
generated by our Platform 1 product and concluded that the use of this product,
while still harmful to health, is probably less harmful than continued smoking.

In June 2018, the Korean Food and Drug Administration ("KFDA") issued a
statement on products that heat rather than burn tobacco. The KFDA tested three
heat-not-burn products, one of which was our Platform 1 product. The KFDA
confirmed that the levels of the nine HPHCs tested in the aerosol of these
products were on average approximately 90% lower compared to those measured in
the cigarette smoke of the top five cigarette brands in South Korea. However,
the KFDA stated that it could not establish that the tested heat-not-burn
products are less harmful than cigarettes. In October 2018, our Korean
subsidiary filed a request with a local court seeking information underlying
KFDA's analysis, conclusions and public statements. In May 2020, the court
ordered KFDA to produce certain records.
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In August 2018, the Science & Technology Committee of the U.K. House of Commons
published a report of its inquiry into e-cigarettes and heat-not-burn products.
The report concluded that e-cigarettes are significantly less harmful to health
than smoking tobacco. The report also observed that for those smokers who do not
accept e-cigarettes, heat-not-burn products may offer a public health benefit
despite their relative risk. The report called for a risk-proportionate
regulatory environment for both e-cigarettes and heat-not-burn products and
noted that e-cigarettes should remain the least taxed, cigarettes the most
taxed, with heat-not-burn products falling between the two. The U.K. Committee
on Advertising Practice announced the removal of a prohibition of health claims
in the advertising of e-cigarettes in the U.K. effective November 2018.

In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including our Platform 1 product. The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to cigarette smoke.


In January 2019, scientific media published the results of the study of the
China National Tobacco Quality Supervision and Test Centre ("CNTQST") comparing
the aerosol generated by our Platform 1 product with cigarette smoke. The CNTQST
found that the former contained fewer, and lower levels of, harmful constituents
than the latter and concluded that the lower temperature of heating tobacco in
our Platform 1 product contributed to the difference. The CNTQST stated that the
reduction in emissions of harmful constituents cannot be interpreted as a
harm/risk reduction for smokers in the same proportion.

In 2020, the Superior Health Council of Belgium ("SHC") published results of its
inquiry into heat-not-burn products. The SHC concluded that heat-not-burn
products, while not safe, have a more favorable toxicity profile than
cigarettes. However, in light of the uncertainty of such products' short and
long-term impacts, the toxic effects of the dual use with cigarettes, and the
existence of approved smoking cessation tools, the SHC recommended that current
regulations for cigarettes should apply to heat-not-burn products.

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


We make our scientific findings publicly available for scrutiny and peer review
through several channels, including our websites. From time to time, adult
consumers, competitors, members of the scientific community, and others inquire
into our scientific methodologies, challenge our scientific conclusions or
request further study of certain aspects of our RRPs and their health effects.
We are committed to a robust and open scientific debate and believe that such
debate should be based on accurate and reliable scientific information. We seek
to provide accurate and reliable scientific information about our RRPs;
nonetheless, we may not be able to prevent third-party dissemination of false,
misleading or unsubstantiated information about these products. The
dissemination of scientifically unsubstantiated information or studies with a
strong confirmation bias by third parties may cause confusion among adult
smokers and affect their decision to switch to better alternatives to continued
smoking, such as our RRPs.

To date, we have been largely successful in demonstrating to regulators that our
heated tobacco units are not cigarettes due to the absence of combustion, and as
such they are generally taxed either as a separate category or as other tobacco
products, which typically yields more favorable tax rates than cigarettes.
Although we believe that this is sensible from the public health perspective, we
cannot guarantee that regulators will continue this approach.

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


Legal Challenges to RRPs: We face various administrative and legal challenges
related to certain RRP activities, including allegations concerning product
classification, advertising restrictions, corporate communications, product
coach activities, scientific substantiation, product liability, and unfair
competition.  While we design our programs to comply with relevant regulations,
we expect these or similar challenges to continue as we expand our efforts to
commercialize RRPs and to communicate publicly. The outcomes of these matters
may affect our RRP commercialization and public communication activities and
performance in one or more markets.

Our RRP Business Development Initiatives: In December 2013, we established a
strategic framework with Altria Group, Inc. ("Altria") setting out terms on how
the parties would collaborate to develop and commercialize e-vapor products and
commercialize two of our RRPs in the U.S. In late 2018, Altria announced that it
will participate in the e-vapor category only
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through another e-vapor company in which Altria acquired a minority interest. In
September 2019, Altria's subsidiary, Philip Morris USA Inc. ("PM USA"), began
commercialization of a version of our Platform 1 product in the U.S.PM USA is
responsible for the marketing of this product in the U.S. and communication of
the reduced exposure information authorized by the FDA in its MRTP marketing
order described above.

In January 2020, we announced an agreement with KT&G, a leading tobacco and
nicotine company in South Korea, for the commercialization of KT&G's smoke-free
products outside of South Korea on an exclusive basis.  For more information,
see Acquisitions and Other Business Arrangements below.

Other Developments: In September 2017, we announced our support of the
Foundation for a Smoke-Free World. In September 2020, our pledge agreement with
the Foundation was amended. We contributed $45 million in 2020, $40 million in
2021, and expect to contribute $35 million annually from 2022 through 2029, as
specified in the amended pledge agreement. To date, we contributed a total of
$249.5 million. The Foundation is an independent body and is governed by its
independent Board of Directors. The Foundation's role, as set out in its
corporate charter, includes funding research in the field of tobacco harm
reduction, encouraging measures that reduce the harm caused by smoking, and
assessing the effect of reduced cigarette consumption on the industry value
chain.


Governmental Investigations

From time to time, we are subject to governmental investigations on a range of
matters, including tax, customs, antitrust, advertising, and labor practices. We
describe certain matters pending in South Korea and Thailand in Note 8.
Contingencies.

In November 2010, a WTO panel issued its decision in a dispute relating to facts
that arose from August 2006 between the Philippines and Thailand concerning a
series of Thai customs and tax measures affecting cigarettes imported by PM
Thailand into Thailand (see Note 8. Contingencies for additional information).
The WTO panel decision, which was upheld by the WTO Appellate Body, concluded
that Thailand had no basis to find that PM Thailand's declared customs values
and taxes paid were too low, as alleged by the Department of Special
Investigations of the government of Thailand ("DSI") in 2009. The decision also
created obligations for Thailand to revise its laws, regulations, or practices
affecting the customs valuation and tax treatment of future cigarette imports.
Thailand agreed in September 2011 to fully comply with the decision by October
2012. The Philippines asserts that to date Thailand has not fully complied with
the WTO panel decision and commenced challenges at the WTO Appellate Body. The
WTO Appellate Body is not operational, and the appeals by Thailand are suspended
indefinitely. In December 2020, the Philippines and Thailand agreed to pursue
facilitator-assisted discussions aimed at progressing and resolving outstanding
issues. It is not possible to predict any future developments in these
proceedings or the outcome of these discussions.

The Public Prosecutor's office of Rome, Italy, notified our Italian subsidiary,
Philip Morris Italia S.r.l. ("PM Italia"), as well as three former or current
employees and a former external consultant of PM Italia in July 2020 and March
2020, respectively, that it concluded a preliminary investigation against them
for alleged contravention of anti-corruption laws and related disruption of
trade freedom. The Public Prosecutor alleges that the individuals involved
promised certain personal favors to government officials from January to July of
2018 in exchange for favorable treatment for PM Italia, and that PM Italia
lacked appropriate organizational controls to prevent the alleged actions by the
individuals. At the first trial hearing held on September 22, 2021, BAT filed a
civil claim against PM Italia claiming vicarious liability for any wrongdoing of
its former or current employees. BAT claims EUR 50 million in damages. The court
admitted the claim as a matter of course and issued summons for PM Italia to
appear as civil party in the case. The next trial hearing is scheduled for
December 15, 2021. PM Italia believes the charges brought against it by the
Public Prosecutor are without merit and will defend them vigorously.


Asset Impairment and Exit Costs

We discuss asset impairment and exit costs in Note 16. Asset Impairment and Exit Costs to our condensed consolidated financial statements.

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Acquisitions and Other Business Arrangements

We discuss our acquisitions in Note 17. Acquisitions to our condensed consolidated financial statements.

KT&G


In January 2020, PMI announced a global collaboration agreement with the leading
tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G's
smoke-free products outside of the country. The agreement will run for an
initial period of three years. The two companies plan for global collaboration
with the intention to actively expand to cover many markets, based on commercial
success. The agreement allows PMI to distribute current KT&G smoke-free
products, and their evolutions, on an exclusive basis, and does not restrict PMI
from distributing its own or third-party products. KT&G's smoke-free product
brand portfolio includes heat-not-burn tobacco products (e.g., LIL Mini and LIL
Plus), hybrid technologies that combine heat-not-burn tobacco and e-vapor
technologies (e.g., LIL HYBRID), and e-vapor products (e.g., LIL Vapor). PMI
will be responsible for the commercialization of smoke-free products supplied
under the agreement.

Products sold under the agreement are subject to careful assessment to ensure
they meet the regulatory requirements in the markets where they are launched, as
well as our standards of quality and scientific substantiation to confirm the
absence of combustion and significant reductions of emissions of harmful
chemicals compared to cigarettes. PMI and KT&G will seek any necessary
regulatory approvals that may be required on a market-by-market basis. There are
no current plans to commercialize KT&G products in the United States.

In the third quarter of 2020, we launched commercial initiatives for licensed KT&G products in select markets.

Equity Investments

We discuss our equity investments in Note 12. Related Parties - Equity Investments and Other to our condensed consolidated financial statements.

Trade Policy


We are subject to various trade restrictions imposed by the United States of
America and countries in which we do business ("Trade Sanctions"), including the
trade and economic sanctions administered by the U.S. Department of the
Treasury'sOffice of Foreign Assets Control and the U.S. Department of State. It
is our policy to comply fully with these Trade Sanctions.

Tobacco products are agricultural products under U.S. law and are not technological or strategic in nature. From time to time we make sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or licenses.


From time to time, a subsidiary sells products to distributors that, in turn,
sell those products to duty free customers that supply U.N. peacekeeping forces
around the world, including those in the U.N. peacekeeping mission located in
Abyei, a special administrative territory in Sudan. We do not believe that these
sales, which are not subject to Trade Sanctions, and are de minimis in volume
and value, present a material risk to our shareholders, our reputation or the
value of our shares. We have no employees, operations or assets in Sudan.

We do not sell products in Iran, North Korea and Syria. From time to time, we
explore opportunities to sell our products in one or more of these countries, as
permitted by law.

We sell cigarettes in Cuba under a distribution agreement. These sales are permitted by U.S. law under a License Exception for Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), granted to our distributor.


Certain states within the U.S. have enacted legislation permitting or requiring
state pension funds to divest or abstain from future investment in stocks of
companies that do business with certain countries that are sanctioned by the
U.S. Because we do business in certain of these countries, these state pension
funds may have divested of our stock or may not invest in our stock. We do not
believe such legislation has had a material effect on the price of our shares.

PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions ("Trade Sanctions"). We comply

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fully with these Trade Sanctions.


The EU imposed new sanctions regarding the Republic of Belarus ("Belarus") on
June 21, 2021, including the designation of additional EU sanctions targets
(individuals and legal entities) in Belarus. On June 24, 2021, the EU council
introduced additional sectoral economic sanctions aimed at specific sectors of
the Belarus economy, including restrictions on the trade of goods used for the
production or manufacture of tobacco products. Subsequently, six non-EU
countries (Norway, Iceland, Liechtenstein, North Macedonia, Montenegro, and
Albania) announced that they "aligned themselves" with the EU sanctions of June
21. On July 6, 2021, Switzerland imposed sanctions on Belarusian individuals and
legal entities effective July 7, 2021. The Swiss sanctions are similar in scope
to the EU sanctions of June 21, 2021.

Further, on August 9, 2021, the U.K. introduced sectoral economic sanctions
similar in scope to the EU sectoral sanctions of June 24, 2021. Also on August
9, 2021, the U.S. imposed blocking sanctions on certain individuals and entities
pursuant to an Executive Order adding them to OFAC's List of Specially
Designated Nationals and Blocked Persons (the "SDN List"). The Executive Order
expanded the bases for the imposition of sanctions, including, among others, by
authorizing the imposition by OFAC of blocking sanctions on persons operating in
the tobacco sector of the Belarus economy, as well as for providing material
support or assistance to any SDN.

PMI complies with all applicable laws and regulations, including sanctions, in
the markets where it operates. We have taken appropriate actions in response to
the latest sanctions to ensure full compliance with the relevant restrictions.


Operating Results - Three Months and Nine Months Ended September 30, 2021


The following discussion compares operating results within each of our
geographical segments and Other category for the three months and nine months
ended September 30, 2021, with the three months and nine months ended September
30, 2020.

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.

European Union:

Financial Summary -                                                   Change                                              Variance
Quarters Ended                                                     Fav./(Unfav.)                                       Fav./(Unfav.)
September 30,                                                                   Excl.                     Cur-                                Vol/    Cost/
(in millions)                   2021        2020                 Total          Curr.           Total    rency     Acqui-sitions    Price     Mix     Other
Net Revenues                 $  3,192$  2,950                     8.2  %      3.9  %       $ 242$ 128    $            2    $  (5)$ 117    $   -
Operating Income             $  1,680$  1,588                     5.8  %      0.8  %       $  92$  79    $            -    $  (5)$ 102$ (84)



For the three months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 3.9%, reflecting: favorable volume/mix, mainly driven by
higher heated tobacco unit volume (notably in Germany, Hungary, Italy and
Poland), partly offset by lower cigarette volume (notably in France, Germany and
Italy) and unfavorable cigarette mix (primarily in Germany). Pricing variance
was slightly unfavorable, reflecting lower pricing for reduced-risk products
(notably for heated tobacco units in Poland and devices in Germany and Italy),
partly offset by higher combustible pricing (notably in Germany, partially
offset by Poland).

Operating income, excluding favorable currency, increased by 0.8%, primarily
reflecting: favorable volume/mix, driven by the same factors as for net revenues
noted above; and lower manufacturing costs; partly offset by higher marketing,
administration and research costs.
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Financial Summary -                                                      Change                                               Variance
Nine Months Ended                                                    Fav./(Unfav.)                                          Fav./(Unfav.)
September 30,                                                                     Excl.                        Cur-                                Vol/     Cost/
(in millions)                     2021        2020                 Total          Curr.             Total     rency     Acqui-sitions    Price     Mix      Other
Net Revenues                   $  9,250$  7,960                    16.2  %       8.0  %       $ 1,290$ 651    $            2    $  67$ 570    $    -
Operating Income               $  4,811$  3,924                    22.6  %      12.1  %       $   887$ 413    $            -    $  67$ 507$ (100)



For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 8.0%, reflecting: favorable volume/mix, mainly driven by
higher heated tobacco unit volume (notably in Germany, Hungary, Italy and
Poland), partly offset by lower cigarette volume (notably in the Czech Republic,
France and Germany) and unfavorable cigarette mix (primarily in Germany and
Poland); and a favorable pricing variance, driven by higher combustible pricing
(mainly in Germany and Portugal, partly offset by France and Poland) and higher
heated tobacco unit pricing (notably in the Czech Republic, partially offset by
Poland), partly offset by lower device pricing (notably in Germany and Italy).

Operating income, excluding favorable currency, increased by 12.1%, primarily
reflecting: favorable volume/mix, driven by the same factors as for net revenues
noted above; lower manufacturing costs (driven by combustible and reduced-risk
products); and a favorable pricing variance; partly offset by higher marketing,
administration and research costs (including higher asset impairment and exit
costs, mainly related to organizational design optimization).

European Union - Total Market, PMI Shipment Volume and Market Share Commentaries


Total market and market share performance are shown in the table below:
European Union Key Data                                       Third-Quarter                                     Nine Months Year-to-Date
                                                                                       Change                                                 Change
                                                           2021           2020         % / pp                     2021           2020         % / pp
Total Market (billion units)                              132.4          132.6        (0.1) %                    360.5          358.1         0.7  %

PMI Market Share
Marlboro                                                16.5  %        17.5  %        (1.0)                    16.7  %        17.6  %        (0.9)
L&M                                                      5.6  %         6.0  %        (0.4)                     5.7  %         6.3  %        (0.6)
Chesterfield                                             5.5  %         5.5  %           -                      5.5  %         5.6  %        (0.1)
Philip Morris                                            2.2  %         2.5  %        (0.3)                     2.2  %         2.5  %        (0.3)
HEETS                                                    5.3  %         3.9  %         1.4                      5.5  %         3.9  %         1.6
Others                                                   3.1  %         3.0  %         0.1                      3.0  %         3.0  %           -
Total European Union                                    38.2  %        38.4  %        (0.2)                    38.6  %        38.9  %        (0.3)

Note: HEETS includes HEETS Dimensions.


In the third quarter, the estimated total market in the EU decreased by 0.1% to
132.4 billion units, mainly due to:
•Czech Republic, down by 9.0%, primarily reflecting the impact of excise
tax-driven price increases; and
•France, down by 8.0%, mainly reflecting the impact of excise tax-driven price
increases and higher cross-border (non-domestic) purchases due to the easing of
pandemic-related measures;
partly offset by
•Poland, up by 3.4%, primarily reflecting the impact on adult smoker average
daily consumption and border sales of the easing of pandemic-related measures;
and
•Romania, up by 7.1%, mainly reflecting the impact on adult smoker average daily
consumption of the easing of pandemic-related measures, as well as increased
in-bound travel.

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For the nine months year-to-date, the estimated total market in the EU increased
by 0.7% to 360.5 billion units, primarily driven by:
•Italy, up by 4.2%, notably reflecting the impact on adult smoker average daily
consumption of the easing of pandemic-related measures; and
•Poland, up by 6.4%, primarily reflecting the impact on adult smoker average
daily consumption and border sales of the easing of pandemic-related measures,
as well as a lower prevalence of illicit trade;
partly offset by
•Czech Republic, down by 10.1%, mainly reflecting the impact of excise
tax-driven price increases and the impact, in the first quarter of 2021, of
lower border sales due to pandemic-related lockdown measures; and
•France, down by 6.1%, primarily reflecting the same factors as in the quarter.
                     [[Image Removed: pm-20210930_g7.jpg]]
In the third quarter, our total shipment volume decreased by 2.7% to 49.0
billion units, primarily due to:
•Czech Republic, down by 9.5%, mainly reflecting the lower total market;
•France, down by 10.8%, primarily reflecting the lower total market and a lower
market share of cigarettes;
•Italy, down by 3.1%. Excluding the net unfavorable impact of estimated
distributor inventory movements, total in-market sales volume increased by 3.6%,
reflecting a higher total market and a higher market share driven by heated
tobacco units; and
•Spain, down by 9.1%. Excluding the net unfavorable impact of estimated
distributor inventory movements, total in-market sales volume increased by 3.0%,
mainly reflecting a higher total market;
partly offset by
•Poland, up by 3.8%, mainly reflecting the higher total market.
Excluding the net unfavorable impact of estimated distributor inventory
movements, our total in-market sales volume decreased by 0.5%.
For the nine months year-to-date, our total shipment volume increased by 0.3% to
140.6 billion units, primarily driven by:
•Italy, up by 8.1%, mainly reflecting the higher total market and a higher
market share driven by heated tobacco units;
partly offset by
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•Czech Republic, down by 12.2%, mainly reflecting the same factor as in the
quarter; and
•France, down by 8.3%, mainly reflecting the same factors as in the quarter.
Excluding the net favorable impact of estimated distributor inventory movements,
our total in-market sales volume was essentially stable.

Eastern Europe:
Financial Summary -                                                Change                                               Variance
Quarters Ended                                                 Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                             Excl.                      Cur-                               Vol/     Cost/
(in millions)                 2021      2020                 Total           Curr.            Total    rency     Acqui-sitions    Price     Mix     Other
Net Revenues                $  941$  899                       4.7  %       6.1  %       $  42$ (13)   $            -    $  22$ 33    $    -
Operating Income            $  338$  245                      38.0  %      25.7  %       $  93$  30    $            -    $  22$ 27$   14



For the three months ended September 30, 2021, net revenues, excluding
unfavorable currency, increased by 6.1%, reflecting: favorable volume/mix,
driven by higher heated tobacco unit volume (primarily in Russia and Ukraine),
partly offset by unfavorable cigarette volume/mix (primarily in Russia); and a
favorable pricing variance, mainly driven by higher combustible pricing (notably
in Russia), partly offset by lower heated tobacco unit pricing (primarily in
Ukraine, partly offset by Russia).

Operating income, excluding favorable currency, increased by 25.7%, primarily
reflecting: favorable volume/mix, driven by the same factors as for net revenues
noted above; a favorable pricing variance; and lower manufacturing costs
(primarily related to reduced-risk products, mainly in Russia).

Financial Summary -                                                     Change                                               Variance
Nine Months Ended                                                    Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                                  Excl.                      Cur-                                Vol/     Cost/
(in millions)                    2021        2020                 Total           Curr.            Total    rency     Acqui-sitions    Price     Mix      Other
Net Revenues                  $  2,632$  2,470                      6.6  %       9.6  %       $ 162$ (74)   $            -    $  68$ 168    $    -
Operating Income              $    913$    610                     49.7  %      50.0  %       $ 303$  (2)   $            -    $  68$ 140$   97



For the nine months ended September 30, 2021, net revenues, excluding
unfavorable currency, increased by 9.6%, reflecting: favorable volume/mix,
driven by higher heated tobacco unit volume (mainly in Russia and Ukraine),
partly offset by unfavorable cigarette volume (primarily in Russia and Ukraine)
and unfavorable cigarette mix (mainly in Russia); and a favorable pricing
variance, mainly driven by higher combustible pricing (primarily in Kazakhstan,
Russia and Ukraine), partially offset by lower device pricing (mainly in Russia)
and lower heated tobacco unit pricing (primarily in Ukraine, partly offset by
Russia).

Operating income, excluding unfavorable currency, increased by 50.0%, primarily
reflecting: favorable volume/mix, driven by the same factors as for net revenues
noted above; lower manufacturing costs (mainly related to reduced-risk products,
primarily in Russia); and a favorable pricing variance.

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


In the third quarter, the estimated total market in Eastern Europe decreased,
mainly due to:
•Russia, down by 0.9%, or by 2.5% excluding the net favorable impact of
estimated trade inventory movements, primarily reflecting the impact of excise
tax-driven price increases and a higher prevalence of illicit trade; and
•Ukraine, down by 9.6%, mainly reflecting the impact of excise tax-driven price
increases and a higher prevalence of illicit trade.
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For the nine months year-to-date, the estimated total market in Eastern Europe
decreased, primarily due to:
•Ukraine, down by 9.6%, mainly reflecting the impact of excise tax-driven price
increases and a higher prevalence of illicit trade.
                     [[Image Removed: pm-20210930_g8.jpg]]
In the third quarter, our total shipment volume increased by 2.0% to 31.1
billion units, notably driven by:
•Russia, up by 0.7%. Excluding the net favorable impact of estimated distributor
inventory movements, our in-market sales decreased by 0.3%, reflecting the lower
total market, partly offset by a higher market share driven by heated tobacco
units; and
•Southeast Europe, up by 15.5%, primarily reflecting a higher total market and a
higher market share, driven by heated tobacco units and cigarettes,
partly offset by
•Ukraine, down by 3.2%, mainly reflecting the lower total market, partly offset
by a higher market share driven by heated tobacco units.

For the nine months year-to-date, our total shipment volume increased by 1.5% to
86.4 billion units, notably driven by:
•Russia, up by 0.9%. Excluding the net favorable impact of estimated distributor
inventory movements, PMI's total in-market sales volume was down by 2.1%, mainly
reflecting a lower market share (due to cigarettes, partly offset by heated
tobacco units); and
•Southeast Europe, up by 8.0%, primarily reflecting a higher market share
(driven by heated tobacco units and cigarettes) and a higher total market;
partly offset by
•Ukraine, down by 2.0%, mainly reflecting the lower total market, partly offset
by a higher market share driven by heated tobacco units.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 0.5%.

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Middle East & Africa:
Financial Summary -                                              Change                                               Variance
Quarters Ended                                                Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                           Excl.                      Cur-                                 Vol/    Cost/
(in millions)                2021      2020                Total           Curr.            Total    rency     Acqui-sitions     Price     Mix     Other
Net Revenues               $  945$  768                     23.0  %      26.6  %       $ 177$ (27)   $            -    $   64$ 169$ (29)
Operating Income           $  388$  261                     48.7  %      59.8  %       $ 127$ (29)$   64$ 135$ (43)



For the three months ended September 30, 2021, net revenues, excluding
unfavorable currency, increased by 26.6%, primarily reflecting: favorable
volume/mix, mainly driven by higher cigarette volume (primarily in PMI Duty Free
and Turkey, partly offset by North Africa), higher heated tobacco unit volume
(mainly in PMI Duty Free) and favorable cigarette mix (notably in PMI Duty
Free); and a favorable pricing variance, driven by combustible pricing (mainly
in Turkey); partly offset by lower fees for certain distribution rights billed
to customers in certain markets, shown in "Cost/Other".

Operating income, excluding unfavorable currency, increased by 59.8%, mainly
reflecting: favorable volume/mix, mainly driven by the same factors as for net
revenues noted above; a favorable pricing variance; and lower manufacturing
costs; partly offset by lower fees for certain distribution rights, as noted
above for net revenues; and higher marketing, administration and research costs.

Financial Summary -                                                     Change                                               Variance
Nine Months Ended                                                    Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                                  Excl.                      Cur-                                Vol/     Cost/
(in millions)                    2021        2020                 Total           Curr.            Total    rency     Acqui-sitions    Price     Mix      Other
Net Revenues                  $  2,306$  2,348                     (1.8) %       1.0  %       $ (42)$ (66)   $            -    $ 191$ 110$ (277)
Operating Income              $    739$    819                     (9.8) %      (0.7) %       $ (80)$ (74)   $            -    $ 191$  70$ (267)



For the nine months ended September 30, 2021, net revenues, excluding
unfavorable currency, increased by 1.0%, despite the unfavorable impact of the
Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".
Excluding the unfavorable impact of the Saudi Arabia customs assessments and
unfavorable currency, net revenues increased by 11.5%, primarily reflecting: a
favorable pricing variance, mainly driven by combustible pricing (mainly in
Egypt and Turkey); and favorable volume/mix, primarily driven by favorable
cigarette mix (mainly in PMI Duty Free, Saudi Arabia and Turkey), higher heated
tobacco unit volume (mainly in Egypt, Jordan and PMI Duty Free) and higher
cigarette volume (primarily in PMI Duty Free and Turkey, partly offset by Kuwait
and North Africa); partially offset by lower fees for certain distribution
rights billed to customers in certain markets, shown in "Cost/Other".

Operating income, excluding unfavorable currency, decreased by 0.7%,
predominantly due to the unfavorable impact of the Saudi Arabia customs
assessments, as noted above for net revenues. Excluding the unfavorable impact
of the Saudi Arabia customs assessments and unfavorable currency, operating
income increased by 29.5%, mainly reflecting: a favorable pricing variance;
favorable volume/mix, driven by the same factors as for net revenues noted
above; and lower manufacturing costs (primarily related to combustible
products); partly offset by lower fees for certain distribution rights, as noted
above for net revenues; and higher marketing, administration and research costs.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries


In the third quarter, the estimated total market in the Middle East & Africa
increased, mainly driven by:
•International Duty Free, up by 15.4%, reflecting the impact of reduced
government travel restrictions and increased passenger traffic in certain
geographies; and
•Turkey, up by 12.5%, mainly reflecting the impact on adult smoker average daily
consumption of the easing of pandemic-related measures, coupled with increased
in-bound tourism (particularly by Turkish expatriates);
partly offset by
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•Tunisia, down by 30.1%, primarily reflecting an increased estimated prevalence of illicit trade (mainly due to market disruptions impacting product availability and the impact of price increases in July 2021).


For the nine months year-to-date, the estimated total market in the Middle East
& Africa increased, mainly driven by:
•Egypt, up by 14.3%, primarily reflecting a favorable comparison due to
pandemic-related supply chain shortages for competitors' products in 2020, as
well as the favorable impact of adult smoker in-switching to cigarettes (mainly
in the low-tax tier) from other combustible tobacco products;
•South Africa, up by 26.9%, mainly reflecting a favorable comparison versus the
second and third quarters of 2020, in which the total market was impacted by the
pandemic-related ban on all tobacco sales from March 27th through August 17th,
partly offset by a higher estimated prevalence of illicit trade stemming from
the ban; and
•Turkey, up by 6.6%, primarily reflecting the same factors as for the quarter,
partly offset by a higher estimated prevalence of illicit trade;
partly offset by
•International Duty Free, down by 17.2%, primarily reflecting the impact of
government travel restrictions and reduced passenger traffic since the start of
the pandemic in March 2020.
                     [[Image Removed: pm-20210930_g9.jpg]]
In the third quarter, our total shipment volume increased by 15.0% to 35.7
billion units, notably driven by:
•PMI Duty Free, up by +100%, or by 43.8% excluding the net favorable impact of
estimated distributor inventory movements, reflecting a higher market share and
the higher total market; and
•Turkey, up by 18.4%, primarily reflecting the higher total market and a higher
market share, driven by adult smoker up-trading (mainly benefiting Marlboro and
Parliament);
partly offset by
•Egypt, down by 12.4%, primarily reflecting a lower market share mainly due to
adult smoker down-trading to products in the low-tax tier.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 8.5%.

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For the nine months year-to-date, our total shipment volume increased by 6.4% to
94.6 billion units, notably driven by:
•PMI Duty Free, up by 25.1%. Excluding the net favorable impact of estimated
distributor inventory movements (principally due to cigarettes), our in-market
sales volume was down by 3.6%, primarily reflecting the lower total market,
partly offset by a higher market share driven by Marlboro; and
•Turkey, up by 14.6%, mainly reflecting the same factors as in the quarter;
partly offset by
•Egypt, down by 6.5%, mainly reflecting a lower market share (due primarily to
the same factor as in the quarter), partly offset by the higher total market.

South & Southeast Asia:

Financial Summary -                                                      Change                                               Variance
Quarters Ended                                                       Fav./(Unfav.)                                          Fav./(Unfav.)
September 30,
                                                                                   Excl.                      Cur-                                 Vol/    Cost/
(in millions)                    2021        2020                 Total            Curr.            Total     rency     Acqui-sitions    Price     Mix     Other
Net Revenues                  $  1,065$  1,071                     (0.6) %       (1.1) %       $  (6)$    6    $            -    $  14$ (26)   $   -
Operating Income              $    348$    402                    (13.4) %      (14.4) %       $ (54)$    4    $            -    $  14$ (42)$ (30)



For the three months ended September 30, 2021, net revenues, excluding favorable
currency, decreased by 1.1%, reflecting: unfavorable volume/mix, due to lower
cigarette volume (primarily in the Philippines, partly offset by Indonesia);
partially offset by a favorable pricing variance, driven by combustible pricing
(mainly in the Philippines, partly offset by Indonesia).

Operating income, excluding favorable currency, decreased by 14.4%, primarily
reflecting: unfavorable volume/mix, due to the same factors as for net revenues
noted above; and higher manufacturing costs; partly offset by a favorable
pricing variance.

Financial Summary -                                                     Change                                              Variance
Nine Months Ended                                                   Fav./(Unfav.)                                        Fav./(Unfav.)
September 30,
                                                                                 Excl.                      Cur-                                Vol/    Cost/
(in millions)                    2021        2020                 Total          Curr.            Total    rency     Acqui-sitions    Price     Mix     Other
Net Revenues                  $  3,284$  3,211                     2.3  %      (0.9) %       $  73$ 102    $            -    $  (4)$ (25)   $   -
Operating Income              $  1,208$  1,290                    (6.4) %      (9.1) %       $ (82)$  36    $            -    $  (4)$ (81)$ (33)



For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, decreased by 0.9%, reflecting: unfavorable volume/mix, mainly due to
lower cigarette volume (primarily the Philippines, partly offset by India and
Indonesia), partially offset by favorable cigarette mix (mainly in Indonesia and
the Philippines). Pricing variance was slightly unfavorable, reflecting lower
pricing for combustible products (notably in Indonesia, largely offset by the
Philippines).

Operating income, excluding favorable currency, decreased by 9.1%, primarily
reflecting: unfavorable volume/mix, due to the same factors as for net revenues
noted above; and higher marketing, administration and research costs.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries


In the third quarter, the estimated total market in South & Southeast Asia
increased, mainly driven by:
•Bangladesh, up by 29.9%, primarily reflecting a favorable comparison versus the
third quarter of 2020, during which pandemic-related restrictions impacted
tobacco product availability;
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•India, up by 8.3%, mainly reflecting a favorable comparison versus the third
quarter of 2020, during which pandemic-related restrictions impacted the
movement of certain products, including tobacco;
•Indonesia, up by 6.0%, primarily reflecting the growth of the tax-advantaged
'below tier one' segment and the impact on adult smoker consumption of the
easing of pandemic-related measures compared to the prior year period; and
•Pakistan, up by 29.3%, or by 14.1% excluding the net favorable impact of
estimated trade inventory movements, notably reflecting a lower prevalence of
illicit trade (partly due to pandemic-related supply disruptions for illicit
products);
partly offset by:
•the Philippines, down by 17.7%, or by 8.7% excluding the net unfavorable impact
of estimated trade inventory movements, primarily reflecting the impact of
industry-wide price increases in the fourth quarter of 2020.

For the nine months year-to-date, the estimated total market in South &
Southeast Asia increased, mainly driven by:
•Bangladesh, up by 13.6%, primarily reflecting the same factor as in the
quarter;
•India, up by 13.8%, mainly reflecting the same factor as in the quarter;
•Indonesia, up by 7.9%, primarily reflecting the same factors as in the quarter;
•Pakistan, up by 18.9%, notably reflecting the same factor as in the quarter;
and
•Vietnam, up by 7.2%, mainly reflecting a lower prevalence of illicit trade due
to pandemic-related supply disruptions for illicit products;
partly offset by:
•the Philippines, down by 12.3%, primarily reflecting the same factor as in the
quarter.
                     [[Image Removed: pm-20210930_g10.jpg]]
In the third quarter, our total shipment volume decreased by 4.3% to 35.7
billion units, mainly due to:
•the Philippines, down by 23.8%, primarily reflecting the lower total market and
a lower market share (mainly due to mid-price Fortune, reflecting the impact of
price increases in the fourth quarter of 2020, partly offset by Marlboro);
partly offset by:
•Indonesia, up by 5.1%, primarily reflecting the higher total market.
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For the nine months year-to-date, our total shipment volume decreased by 2.1% to
105.9 billion units, notably due to:
•the Philippines, down by 20.3%, mainly reflecting the same factors as in the
quarter;
partly offset by:
•Indonesia, up by 4.3%, primarily reflecting the higher total market, partly
offset by a lower market share (mainly due to adult smoker down-trading to the
'below tier one' segment as a result of significantly lower retail prices,
partly offset by share growth for PMI's premium and hand-rolled portfolio); and
•Pakistan, up by 14.2%, mainly reflecting the higher total market, partly offset
by a lower market share.


East Asia & Australia:
Financial Summary -                                                   Change                                               Variance
Quarters Ended                                                     Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                                Excl.                      Cur-                                 Vol/    Cost/
(in millions)                  2021        2020                 Total           Curr.            Total    rency     Acqui-sitions     Price     Mix     Other
Net Revenues                    $ 1,523$ 1,358                  12.2  %      12.7  %       $ 165$  (7)   $            -    $   47$ 125    $   -
Operating Income                  $ 631$ 637                  (0.9) %       2.7  %       $  (6)$ (23)   $            -    $   47$   3$ (33)



For the three months ended September 30, 2021, net revenues, excluding
unfavorable currency, increased by 12.7%, reflecting: favorable volume/mix,
mainly driven by higher heated tobacco unit volume and favorable device
volume/mix (predominantly in Japan, driven by the launch of IQOS ILUMA), partly
offset by unfavorable cigarette mix (primarily in Japan) and lower cigarette
volume (particularly in Australia, partly offset by Japan); and a favorable
pricing variance, primarily driven by higher heated tobacco, combustible and
device pricing in Japan.

Operating income, excluding unfavorable currency, increased by 2.7%, mainly
reflecting: a favorable pricing variance; and lower manufacturing costs
(primarily related to reduced-risk products in Japan); partly offset by higher
marketing, administration and research costs (notably due to the launch of IQOS
ILUMA in Japan and higher asset impairment and exit costs, mainly related to
product distribution restructuring in South Korea). Volume/mix was slightly
favorable, notably reflecting higher heated tobacco unit and cigarette volume in
Japan, largely offset by lower cigarette volume in Australia and unfavorable
cigarette mix in Japan.

Financial Summary -                                                     Change                                               Variance
Nine Months Ended                                                    Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                                  Excl.                      Cur-                                Vol/     Cost/
(in millions)                    2021        2020                 Total           Curr.            Total    rency     Acqui-sitions    Price     Mix      Other
Net Revenues                  $  4,509$  4,045                     11.5  %       9.0  %       $ 464$ 101    $            -    $ 240$ 123    $    -
Operating Income              $  2,041$  1,792                     13.9  %      14.2  %       $ 249$  (6)   $            -    $ 240$  21$   (6)



For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 9.0%, mainly reflecting: a favorable pricing variance,
primarily driven by higher heated tobacco and combustible pricing in Japan,
partly offset by lower combustible pricing in Australia; and favorable
volume/mix, mainly driven by higher heated tobacco unit volume and favorable
device volume/mix in Japan (driven by the launch of IQOS ILUMA), partly offset
by lower cigarette volume (primarily in Australia, Japan and South Korea) and
unfavorable cigarette mix (mainly in Australia and Japan).

Operating income, excluding unfavorable currency, increased by 14.2%, mainly
reflecting: a favorable pricing variance; lower manufacturing costs (primarily
related to reduced-risk products in Japan); and favorable volume/mix, driven by
higher heated tobacco unit volume in Japan, partly offset by lower cigarette
volume (primarily in Australia, Japan and South Korea), unfavorable cigarette
mix (mainly in Australia and Japan) and unfavorable heated tobacco unit mix in
Japan; partially offset by higher marketing, administration and research costs
(notably reflecting the same factors as in the quarter).
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East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries


In the third quarter, the estimated total market in East Asia & Australia,
excluding China, decreased, primarily due to:
•Australia, down by 28.0%, or by 18.3% excluding the net unfavorable impact of
estimated trade inventory movements, mainly reflecting the impact of the ending
of the pandemic-related wage subsidy by the government, coupled with the impact
of pandemic-related restrictions in the quarter;
•Japan, down by 2.8%, primarily reflecting the impact of the October 2020 excise
tax-driven price increases;
•South Korea, down by 5.2%, or by 0.9% excluding the net unfavorable impact of
estimated trade inventory movements, mainly reflecting the structural market
trend; and
•Taiwan, down by 10.8%, primarily reflecting impact of pandemic-related
restrictions in the quarter.

For the nine months year-to-date, the estimated total market in East Asia &
Australia, excluding China, decreased, mainly due to:
•Australia, down by 14.5%, primarily reflecting the same factors as in the
quarter;
•Japan, down by 3.7%, mainly reflecting the same factor as in the quarter; and
•South Korea, down by 1.4%, primarily reflecting the same factor as in the
quarter, partly offset by the impact of pandemic-related subsidies on adult
smoker average daily consumption.
                     [[Image Removed: pm-20210930_g11.jpg]]
In the third quarter, our total shipment volume increased by 6.0% to 20.6
billion units, mainly driven by:
•Japan, up by 14.6%, or by 1.0% excluding the net favorable impact of estimated
distributor inventory movements, primarily reflecting a higher market share
(driven by heated tobacco units), partly offset by the lower total market;
partly offset by
•South Korea, down by 5.9%, mainly reflecting the lower total market and a lower
market share (due to cigarettes).
Excluding the net favorable impact of estimated distributor inventory movements,
our total in-market sales volume declined by 1.7%.
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For the nine months year-to-date, our total shipment volume increased by 3.3% to
61.9 billion units, mainly driven by:
•Japan, up by 7.2%, or by 1.3% excluding the net favorable impact of estimated
distributor inventory movements, primarily reflecting the same factors as in the
quarter;
partly offset by
•South Korea, down by 5.3%, mainly reflecting the same factors as in the
quarter.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume declined by 0.6%.


Americas:
Financial Summary -                                               Change                                               Variance
Quarters Ended                                                Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                            Excl.                      Cur-                                Vol/     Cost/
(in millions)                 2021      2020                Total           Curr.            Total     rency     Acqui-sitions    Price     Mix     Other
Net Revenues                $  456$  400                     14.0  %      9.0  %       $   56$   20    $            -    $  16$ 21$   (1)
Operating Income            $  121$  110                     10.0  %      6.4  %       $   11$    4    $            -    $  16$  3$  (12)



For the three months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 9.0%, reflecting: favorable volume/mix, mainly driven by
higher cigarette volume (primarily in Colombia and Mexico) and higher device
volume (notably in Canada); and a favorable pricing variance driven by
combustible products (notably in Argentina and Mexico).

Operating income, excluding favorable currency, increased by 6.4%, primarily
reflecting: a favorable pricing variance; partly offset by higher manufacturing
costs; and higher marketing, administration and research costs.

Financial Summary -                                                      Change                                              Variance
Nine Months Ended                                                    Fav./(Unfav.)                                         Fav./(Unfav.)
September 30,
                                                                                   Excl.                     Cur-                                Vol/     Cost/
(in millions)                     2021        2020                 Total           Curr.           Total     rency     Acqui-sitions    Price     Mix     Other
Net Revenues                   $  1,320$  1,216                      8.6  %      5.4  %       $ 104$   38    $            -    $  28$ 37$    1
Operating Income               $    367$    328                     11.9  %      8.2  %       $  39$   12    $            -    $  28$ (3)$    2




For the nine months ended September 30, 2021, net revenues, excluding favorable
currency, increased by 5.4%, mainly reflecting: favorable volume/mix, primarily
driven by higher cigarette volume (mainly in Brazil and Mexico) and higher
device volume (notably in Canada); and a favorable pricing variance, driven by
higher combustible pricing (notably in Argentina and Colombia).

Operating income, excluding favorable currency, increased by 8.2%, primarily
reflecting: a favorable pricing variance; and lower marketing, administration
and research costs; partly offset by higher manufacturing costs.

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


In the third quarter, the estimated total market in Americas decreased, notably
due to:
•Argentina, down by 2.1%, primarily reflecting the impact of price increases;
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•Canada, down by 12.7%, notably reflecting the impact of price increases and
out-switching from cigarettes to e-vapor products;
partly offset by
•Colombia, up by 13.4%, primarily reflecting the impact on adult smoker average
daily consumption of the easing of pandemic-related measures.

For the nine months year-to-date, the estimated total market in Americas
increased, notably driven by:
•Argentina, up by 7.5%, primarily reflecting a lower estimated prevalence of
illicit trade and a favorable comparison related to retail out-of-stock in the
second quarter of 2020 (due to temporary factory shutdowns related to the
pandemic), partly offset by the impact of price increases;
•Brazil, up by 5.4%, mainly reflecting a lower estimated prevalence of illicit
trade due to: reduced price gaps with legal products and the impact of border
restrictions imposed as a result of the pandemic; and
•Mexico, up by 3.0%, primarily reflecting the impact on adult smoker average
daily consumption of the easing of pandemic-related measures coupled with the
impact of increased in-bound tourism;
partly offset by
•Canada, down by 8.5%, mainly reflecting the same factors as in the quarter.
                     [[Image Removed: pm-20210930_g12.jpg]]
In the third quarter, our total shipment volume increased by 2.5% to 16.2
billion units, notably driven by:
•Colombia, up by 11.0%, primarily reflecting the higher total market; and
•Mexico, up by 3.9%, mainly reflecting a higher market share driven by Marlboro.
partly offset by
•Argentina, down by 2.5%, primarily reflecting the lower total market.

For the nine months year-to-date, our total shipment volume increased by 1.5% to
46.6 billion units, primarily driven by:
•Brazil, up by 6.4%, mainly reflecting the higher total market and a higher
market share driven by Chesterfield; and
•Mexico, up by 3.9%, primarily reflecting the higher total market and a higher
market share driven by Marlboro;
partly offset by
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•Argentina, down by 2.4%, mainly reflecting a lower market share (primarily due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers).



Other:

As previously discussed in the Description of Our Company section of this MD&A,
Other includes our third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura
Group plc. and OtiTopic, Inc. Business operations for the Other category are
evaluated separately from the geographical segments.

Due to the timing of the Fertin Pharma and Vectura acquisitions, we did not
record the immaterial results of operations from these two acquisitions in our
condensed consolidated statements of earnings from the acquisition date through
September 30, 2021.

For the three months and nine months ended September 30, 2021, we accounted for
the OtiTopic, Inc. transaction as an asset acquisition. As a result, PMI
recorded a pre-tax charge of $51 million to research and development costs
within marketing, administration and research costs of the Other category. For
further details, see Note 7. Segment Reporting and Note 17. Acquisitions.






Financial Review

Cash Flow Highlights [[Image Removed: pm-20210930_g13.jpg]][[Image Removed: pm-20210930_g14.jpg]][[Image Removed: pm-20210930_g15.jpg]]

                                                         For the Nine Months Ended September 30,
(in millions)                                                    2021                  2020
Net cash provided by operating activities               $              7,935    $         6,650
Net cash used in investing activities                                 (2,018)              (568)
Net cash used in financing activities                                 (8,176)            (8,031)





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Net Cash Provided by Operating Activities


During the first nine months of 2021, net cash provided by operating activities
increased by $1.3 billion compared with the first nine months of 2020. Excluding
favorable currency movements of $0.8 billion, net cash provided by operating
activities increased by $0.5 billion, due primarily to higher net earnings,
partially offset by higher working capital requirements of $0.2 billion and
higher pension plan contributions.

The higher working capital requirements in the first nine months of 2021 as
compared with the first nine months of 2020 were primarily due to the timing of
excise tax-paid inventory movements and excise tax payments, as well as lower
usage of our factoring arrangements to sell trade receivables, partially offset
by more cash provided by inventories primarily due to COVID-19 pandemic related
build-up of inventory levels across our supply chain in 2020. For further
details on our factoring arrangements to sell trade receivables, see Note 13.
Sale of Accounts Receivable.

Net Cash Used in Investing Activities


During the first nine months of 2021, net cash used in investing activities
increased by $1.5 billion as compared to the first nine months of 2020. This
increase was due to $1.9 billion of cash used in 2021 for our acquisitions, net
of acquired cash, partially offset by favorable movements of $0.4 billion in
cash collateral exchanged with financial institutions to secure derivatives
designated as net investment hedges of Euro assets principally related to
changes in exchange rates between the Euro and the U.S. dollar. For further
detail on our 2021 acquisitions and derivatives designated as net investment
hedges, see Note 17. Acquisitions and Note 5. Financial Instruments.

Capital expenditures of $0.5 billion during the first nine months of 2021 were
essentially flat as compared with the first nine months of 2020. The 2021
capital expenditures were primarily related to our ongoing investments in RRPs.
We expect total capital expenditures in 2021 to be approximately $0.6 billion.

Net Cash Used in Financing Activities

During the first nine months of 2021, net cash used in financing activities increased by $0.1 billion compared to the first nine months of 2020. Higher cash usage primarily reflected a dividend increase in the third quarter of 2020, share purchases under the new share repurchase program and net movements in debt, partially offset by other items.

Debt and Liquidity


We define cash and cash equivalents as short-term, highly liquid investments,
readily convertible to known amounts of cash that mature within a maximum of
three months and have an insignificant risk of change in value due to interest
rate or credit risk changes. As a policy, we do not hold any investments in
structured or equity-linked products. Our cash and cash equivalents are
predominantly held with institutions that have investment-grade long-term credit
rating. As part of our cash management strategy and in order to manage
counterparty exposure, we also enter into reverse repurchase agreements. Such
agreements are collateralized with government or corporate securities held by a
custodial bank and, at maturity, cash is paid back to PMI, and the collateral is
returned to the bank. For the nine months ended September 30, 2021 and the
full-year 2020, the activities for such reverse repurchase agreements were not
material.

We utilize long-term and short-term debt financing, including a commercial paper
program that is regularly used to finance ongoing liquidity requirements, as
part of our overall cash management strategy. Our ability to access the capital
and credit markets as well as overall dynamics of these markets may impact
borrowing costs. We expect that the combination of our long-term and short-term
debt financing, the commercial paper program and the committed credit
facilities, coupled with our operating cash flows, will enable us to meet our
liquidity requirements.

In August 2021, we published a business transformation-linked financing
framework ("Framework"), which integrates the company's smoke-free
transformation into its financing strategy. The Framework outlines the
guidelines that we will follow in issuing business transformation-linked
financing instruments in the debt capital and loan markets, which may include
public notes offerings, private placements, loans, and other relevant financing
instruments.

Credit Ratings - The cost and terms of our financing arrangements as well as our
access to commercial paper markets may be affected by applicable credit ratings.
At September 30, 2021, our credit ratings and outlook by major credit rating
agencies were as follows:
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                          Short-term        Long-term        Outlook
Moody's                      P-1               A2            Stable
Standard & Poor's            A-1                A            Stable
Fitch                         F1                A            Stable



Credit Facilities - On January 29, 2021, we entered into an agreement to amend
and extend the term of our 364-day revolving credit facility from February 2,
2021, to February 1, 2022 in the amount of $1.8 billion.

On January 29, 2021, we entered into an agreement, effective February 10, 2021,
to amend and extend the term of its $2.0 billion multi-year revolving credit
facility, for an additional year covering the period February 11, 2025 to
February 10, 2026.

On September 29, 2021, we entered into a new $2.5 billion multi-year revolving
credit facility, expiring on September 29, 2026. This credit facility is our
first financing instrument following the issuance of our Framework, and contains
business transformation-linked pricing adjustments that may result in the
reduction or increase in both the interest rate and commitment fee under the
credit agreement if PMI achieves, or fails to achieve, certain specified targets
based on its business transformation goals. The new credit facility replaced the
$3.5 billion multi-year revolving credit facility, which was terminated
effective September 29, 2021. We had no borrowings outstanding under the
terminated facility, which was due to expire on October 1, 2022.

At September 30, 2021, our committed credit facilities were as follows: (in billions)

                                                               Committed
                                                                 Credit
Type                                                           Facilities
364-day revolving credit, expiring February 1, 2022           $      1.8
Multi-year revolving credit, expiring February 10, 2026              2.0
Multi-year revolving credit, expiring September 29, 2026             2.5

Total facilities                                              $      6.3



At September 30, 2021, there were no borrowings under the committed credit
facilities, and the entire committed amounts were available for borrowing.
Subject to market conditions, PMI currently expects to request a further
extension of the terms of its 364-day revolving credit facility and its $2.0
billion multi-year revolving credit facility for an additional one-year period,
in accordance with and subject to the terms and conditions of the relevant
revolving credit facility agreement.

All banks participating in our committed credit facilities have an
investment-grade long-term credit rating from the credit rating agencies. We
continuously monitor the credit quality of our banking group, and at this time
we are not aware of any potential non-performing credit provider.

These facilities do not include any credit rating triggers, material adverse
change clauses or any provisions that could require us to post collateral. We
expect to continue to meet our covenants.
In addition to the committed credit facilities discussed above, certain of our
subsidiaries maintain short-term credit arrangements to meet their respective
working capital needs. These credit arrangements, which amounted to
approximately $2.4 billion at September 30, 2021 and $2.7 billion at
December 31, 2020, are for the sole use of our subsidiaries. Borrowings under
these arrangements and other bank loans amounted to $223 million at
September 30, 2021, and $244 million at December 31, 2020.

Commercial Paper Program - We continue to have access to liquidity in the
commercial paper market through programs in place in the U.S. and in Europe
having an aggregate issuance capacity of $8.0 billion. At September 30, 2021 and
December 31, 2020, we had no commercial paper outstanding. The average
commercial paper balance outstanding during the first nine months of 2021 was
$1.1 billion. The average commercial paper balance outstanding during 2020 was
$1.2 billion.

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Sale of Accounts Receivable - To mitigate credit risk and enhance cash and
liquidity management, we sell trade receivables to unaffiliated financial
institutions. These arrangements allow us to sell, on an ongoing basis, certain
trade receivables without recourse. The trade receivables sold are generally
short-term in nature and are removed from the condensed consolidated balance
sheets. We sell trade receivables under two types of arrangements, servicing and
nonservicing.

Our operating cash flows were positively impacted by the amount of the trade
receivables sold and derecognized from the condensed consolidated balance
sheets, which remained outstanding with the unaffiliated financial institutions.
The trade receivables sold that remained outstanding under these arrangements as
of September 30, 2021, and September 30, 2020 were $0.7 billion and $0.6
billion, respectively. The net proceeds received are included in cash provided
by operating activities in the condensed consolidated statements of cash flows.

For further details, see Note 13. Sale of Accounts Receivable to our condensed consolidated financial statements.

Debt - Our total debt was $29.1 billion at September 30, 2021 and $31.5 billion at December 31, 2020.


On February 11, 2020, we filed a shelf registration statement with the U.S.
Securities and Exchange Commission, under which we may from time to time sell
debt securities and/or warrants to purchase debt securities over a three-year
period.


Guarantees - At September 30, 2021, we have guarantees of our own performance,
which are primarily related to excise taxes on the shipment of our products.
There is no liability in the condensed consolidated financial statements
associated with these guarantees. These guarantees have not had, and are not
expected to have, a significant impact on PMI's liquidity. In October 2020, we
guaranteed an obligation for an equity method investee. For further details, see
Note 8. Contingencies to our condensed consolidated financial statements."

Equity and Dividends

We discuss our stock awards as of September 30, 2021 in Note 2. Stock Plans to our condensed consolidated financial statements.


During 2020 and the first six months of 2021, we did not repurchase any shares
under a share repurchase program. On June 11, 2021, our Board of Directors
authorized a new share repurchase program of up to $7 billion, with target
spending of $5 billion to $7 billion over a three-year period. On July 22, 2021,
we began repurchasing shares under this new share repurchase program. From July
22, 2021 through September 30, 2021, we repurchased 0.9 million shares of our
common stock at a cost of $94 million.

Dividends paid in the first nine months of 2021 were $5.6 billion. During the
third quarter of 2021, our Board of Directors approved a 4.2% increase in the
quarterly dividend to $1.25 per common share. As a result, the present
annualized dividend rate is $5.00 per common share.

Market Risk
Counterparty Risk - We predominantly work with financial institutions with
strong short- and long-term credit ratings as assigned by Standard & Poor's and
Moody's. These banks are also part of a defined group of relationship banks.
Non-investment grade institutions are only used in certain emerging markets to
the extent required by local business needs. We have a conservative approach
when it comes to choosing financial counterparties and financial instruments. As
such, we do not invest or hold investments in any structured or equity-linked
products. The majority of our cash and cash equivalents is currently invested
with maturities of less than 30 days.
We continuously monitor and assess the credit worthiness of all our
counterparties.
Derivative Financial Instruments - We operate in markets outside of the United
States of America, with manufacturing and sales facilities in various locations
throughout the world. Consequently, we use certain financial instruments to
manage our foreign currency and interest rate exposure. We use derivative
financial instruments principally to reduce our exposure to market risks
resulting from fluctuations in foreign exchange and interest rates by creating
offsetting exposures. We are not a party to leveraged derivatives and, by
policy, do not use derivative financial instruments for speculative purposes.
See Note 5. Financial Instruments to our condensed consolidated financial
statements for further details on our derivative financial instruments and the
related collateral arrangements.
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Contingencies

See Note 8. Contingencies to our condensed consolidated financial statements for a discussion of contingencies.

Cautionary Factors That May Affect Future Results


Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements,
including statements contained in 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 in its early stages 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 the "Business Environment" section. 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
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 the "Business Environment"
section.
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 regimes based on sales price can place us at a
competitive disadvantage in certain markets. As a result, our volume and
profitability may be adversely affected in these markets.
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."
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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 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 World Health
Organization'sFramework Convention on Tobacco Control (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 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; • 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;
•         elimination of duty free sales and duty free allowances for travelers;


•   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.

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. The results of the 2020 U.S. presidential and congressional
elections could lead to 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. If ultimately enacted into law, 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.

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
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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 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 threat of war may have a significant impact on the business
environment. Natural disasters, pandemics, economic, political, regulatory or
other developments could disrupt our supply chain, manufacturing capabilities or
distribution capabilities, and our business continuity plans and other
safeguards might not always be effective to fully mitigate their impact. In
addition, such developments 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 reduce our volumes, revenues and net earnings. We discuss risks
associated 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 control and
compliance procedures 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 devaluations 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. During
times of a strengthening U.S. dollar, our reported net revenues, operating
income and EPS will be reduced because the local currency translates into fewer
U.S. dollars. During periods of economic crises, such as during the ongoing
COVID-19 pandemic, foreign currencies may be devalued significantly against the
U.S. dollar, reducing our margins. Actions to recover margins may result in
lower volume and a weaker competitive position.
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 affected in a particular fiscal quarter or fiscal
year by an unfavorable outcome or settlement of certain pending litigation. See
Note 8. Contingencies to our condensed consolidated financial statements for a
discussion of pending litigation and "Business Environment-Reduced-Risk Products
(RRPs)-Legal Challenges to RRPs."
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 affected by
an unfavorable outcome of pending or future investigations. See Note 8.
Contingencies-Other Litigation and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Operating Results by Business
Segment-Business Environment-Governmental Investigations" for a description of
certain governmental investigations to which we are subject.
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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, and their protection is
important to our business.  If the steps we take to protect our intellectual
property rights globally, including through a combination of trademark, design,
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 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 commercialize our products or improve product
quality 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 litigation costs and damages,
and impede our ability to manufacture, commercialize and improve our products.
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 Note 8. Contingencies- Other
Litigation to our condensed 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, 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 include
three large international tobacco companies, 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, the PRC, Taiwan, Thailand and Vietnam. Industry consolidation
and privatizations of state-owned enterprises have led to an overall increase in
competitive pressures. Some competitors have different profit, volume and
regulatory objectives, and some international competitors are susceptible to
changes in different currency exchange rates. Certain new market entrants 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.
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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.
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;
•        convince 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 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 science and pharmaceutical, with companies in the
consumer products, technology 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 COVID-19 on our Business
Our business, results of operations, cash flows and financial position will be
adversely impacted during the continuation of the COVID-19 pandemic.
The COVID-19 pandemic has created significant societal and economic disruption,
and resulted in closures of stores, factories and offices, and restrictions on
manufacturing, distribution and travel, all of which have and will continue to
adversely impact our business, results of operations, cash flows and financial
position while the pandemic continues. Our business continuity plans and other
safeguards may not be effective to mitigate the impact of the pandemic.
Currently, significant risks 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, increased currency volatility, and delays in certain cost saving,
transformation and restructuring initiatives. Our business could also be
adversely impacted if key personnel or a significant number of employees or
business partners become unavailable due to the COVID-19 outbreak. The
significant adverse impact of COVID-19 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. Continuation of the pandemic could disrupt
our access to the credit markets or increase our borrowing costs. Governments
may temporarily be unable to focus on the development of science-based
regulatory frameworks for the development and commercialization of RRPs or on
the enforcement or implementation of regulations that are significant to our
business. In addition, messaging about the potential negative impacts of the use
of our products on COVID-19 risks may lead to increasingly restrictive
regulatory measures on the sale and use of our products, negatively impact
demand for our products and the willingness of adult consumers to switch to our
RRPs, and adversely impact our efforts to advocate for the development of
science-based regulatory frameworks for the development and commercialization of
RRPs.
The impact of these risks also depends on factors beyond our knowledge or
control, including the duration and severity of the COVID-19 pandemic in general
and specifically in the jurisdictions in which we operate, its recurrence in our
key markets, actions taken to contain its spread and to mitigate its public
health effects, and the ultimate economic consequences thereof.
Risks Related to Sourcing of Materials, Products and Services
Use of third-party resources may negatively impact quality and availability of
our products and services, and we may be required to replace third-party
contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources and their subcontractors/
suppliers to manufacture some of our products and product parts (particularly,
the electronic devices and accessories) and 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 have
an 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 our own resources.
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Government mandated prices, production control programs, shifts in crops driven
by economic conditions and the impact of climate change 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. Furthermore, crop quality may be
influenced by variations in weather patterns, including those caused by climate
change. 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 the Success of our Reduced-Risk Products
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 and
as a result of unpredictability due to shortage of key components in our supply
chain.
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 develop and commercialize products that
present less risk of harm to adult smokers who switch to those products versus
continued smoking; and to convince 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 such adult smokers find acceptable alternatives to smoking;
•        conduct rigorous scientific studies to substantiate that they 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 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 ("TobReg") published their
eighth report on the scientific basis of tobacco product regulation in May 2021.
The report is based on a review of scientific evidence related to novel and
emerging nicotine and tobacco products, such as electronic nicotine delivery
systems ("ENDS"), electronic non-nicotine delivery systems ("ENNDS") 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 WHO FCTC
Secretariat published two reports to the ninth session of the CoP of the FCTC,
which are not materially different from the WHO study group report.

In August 2021, the WHO Framework Convention on Tobacco Control ("WHO FCTC")
published two reports related to HTPs ahead of the ninth Conference of the Party
(COP9) meeting in November 2021. The reports respond to a COP8 decision
("FCTC/COP8(22")), which requested the WHO to work with scientists, experts, and
national authorities to prepare a comprehensive overview of the research and
evidence on HTPs, and the FCTC Secretariat to examine the challenges posed by
classification of HTPs. The first report ("FCTC/COP/9/9") summarizes TobReg's
eighth report on the scientific basis of tobacco product regulation from May
2021, for HTPs in particular, and the second report (FCTC/COP/9/10) focuses on
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challenges posed by classification of HTPs. Based on the FCTC Secretariat's
postulated definitions and terminology of smoke, and the interpretation of the
TobReg report, the reports conclude that all FCTC provisions are applicable for
HTPs and that HTPs should be classified for regulatory and taxation purposes in
the same way as cigarettes, which, if implemented by the Parties, could
significantly impact the commercialization of HTPs.

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 in place
to restrict access of our products to non-smokers or youth. Nevertheless,
technological, regulatory and/or commercial setbacks might prevent us in
succeeding the delivery of the necessary infrastructure required to fulfill our
commitment of having 100% of our RRP device portfolio equipped with "Age
Verification"-technology and device activation features by 2023.

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 credibility may suffer, and our efforts to advocate for the
development of science-based regulatory frameworks for the commercialization of
RRPs may be significantly impacted.

Moreover, the FDA's premarket tobacco product and modified risk tobacco product
authorizations of a version of our Platform 1 product are subject to strict
marketing, reporting and other requirements. Although we have received these
product authorizations from the FDA, there is no guarantee that the product will
remain authorized, particularly if there is a significant uptake in youth or
non-smoker initiation.
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. If we cease to
be successful in these efforts, RRP unit margins may be adversely affected.
Nevertheless, it is unpredictable whether regulators will be issuing new
regulations where RRP will be equally taxed in line with other tobacco products
such as ordinary cigarettes.
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 adversely affected by counterfeit
products that do not meet our product quality standards and scientific
validation procedures.

Risks Related to Cybersecurity and Data Governance
The failure of our information systems and systems owned and operated by our
business partners to function as intended or their penetration with the intent
to corrupt them or our and our business partners failure to adhere to strict
data governance and cybersecurity protocols and to comply with privacy laws and
regulations could result in business disruption, loss of reputation, litigation
and regulatory action, and loss of revenue, assets or personal or other
confidential data.
We as well as our business partners use information systems to help manage
business processes, collect and interpret data and communicate internally and
externally with employees, suppliers, consumers, customers and others. Some of
these information systems are managed by third-party service providers. We are
continuously evolving our approach to business continuity planning and backups
to provide appropriate business resilience, particularly in light of the
increasing cyber threat landscape. Nevertheless, failure of these systems to
function as intended, or penetration of these systems and systems owned and
operated by our business partners by parties intent on extracting or corrupting
information or otherwise disrupting business processes, could place us at a
competitive disadvantage, result in a loss of revenue, assets, including our
intellectual property, personal or other sensitive data, result in litigation
and regulatory action, cause damage to our reputation and that of our brands and
result in significant remediation and other costs. Failure to protect personal
data, respect the rights of data subjects, and adhere to strict
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data governance and cybersecurity protocols could subject us to substantial
fines and other legal challenges under regulations such as the EU General Data
Protection Regulation. As we are increasingly relying on digital platforms in
our business, and as privacy laws in the jurisdictions in which we do business
become more stringent, the magnitude of these risks is likely to increase.

Risks Related to the Acquisitions of Fertin Pharma and Vectura


As previously disclosed in this Form 10-Q, we have acquired Fertin Pharma and
Vectura (with the Fertin Pharma acquisition and the Vectura acquisition being
collectively referred to in these Risk Factors as the "Acquisitions").


We may be unable to successfully integrate the businesses that we acquire and unable to realize the anticipated benefits from such 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, compliance programs, technology,
networks and other assets of the businesses that we acquire, and the costs
related to such integration efforts; (ii) the possibility that we are unable to
gain access to differentiated proprietary technology and pharmaceutical
development expertise as anticipated by these Acquisitions, and thus fail to
realize our desired entry into additional smoke-free and beyond nicotine
platforms; (iii) the challenge of integrating the cultures and business
practices of each of 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 PMI's affiliation to its
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 Acquisition also depends on the success of the research and
development efforts of Fertin Pharma and Vectura, including the ability to
obtain regulatory approval for new products, and the ability to commercialize or
license these new products developed by them. Moreover, PMI's affiliation to its
combustible product portfolio may stand in the way of introducing and growing
new product categories, and may prevent PMI in being successful in developing a
long-term sustainable ecosystem of products in the "Beyond Nicotine" 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 that we have negotiated or will negotiate, as applicable,
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. Any such liabilities, individually
or in the aggregate, could have a material adverse effect on our business,
financial condition and results of operations.

Acquisition 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, Fertin Pharma and Vectura may be subject to business 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 Fertin Pharma and Vectura, respectively, to maintain
respective business relationships. Uncertainty about the effect of the Fertin
Pharma Acquisition and the Vectura acquisition on customers, suppliers,
employees and other constituencies of each of Fertin Pharma and Vectura, may
have a material adverse effect on us and/or the businesses that we have acquired
with the proposed Acquisitions. Customers, suppliers and others who do business
with Fertin Pharma or Vectura may delay or defer business decisions, decide to
terminate, modify or renegotiate their relationships, or take other actions as a
result of our acquisitions of Fertin Pharma and Vectura, respectively, which
could negatively affect the revenues, earnings and cash flows of our company or
the businesses that we have acquired with these Acquisitions. If we are unable
to maintain the business and operational relationships of Fertin Pharma
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and/or Vectura, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

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