Net revenues from smoke-free products increased from $3.386 billion in Q1 2024 to $3.895 billion in Q1 2025, indicating a shift in consumer preference and PMI's strategic focus. The increase in smoke-free volume was 14.4%.

PMI is progressing with plans to build manufacturing capacity for smoke-free products and optimize its manufacturing infrastructure. This supports the company's strategy to transition away from combustible tobacco products.

PMI and KT&G will collaborate on commercializing KT&G's smoke-free devices and consumables on an exclusive, worldwide basis (excluding South Korea). This will enhance PMI's existing portfolio of smoke-free products.

While not explicitly quantified, the report mentions cost optimization efforts in the context of operating income and restructuring activities. The company is actively managing costs to improve profitability.

Management is focused on developing and commercializing less harmful products, advocating for science-based regulatory frameworks, and ensuring effective consumer engagement. These efforts are aligned with the company's long-term vision.

PMI has demonstrated an ability to obtain regulatory authorizations for its smoke-free products, including IQOS and ZYN, in key markets such as the U.S. This indicates effective engagement with regulatory bodies and a commitment to scientific substantiation.

The report discusses pending legal proceedings covering a wide range of matters. An unfavorable outcome or settlement of pending tobacco or nicotine-related litigation could encourage the commencement of additional litigation.

Regulatory restrictions on products, including restrictions on packaging, marketing, registration, and sale of tobacco or other nicotine-containing products, could reduce competitiveness and eliminate the ability to communicate with adult consumers.

The war in Ukraine has and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in further impairment charges.

PMI competes primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price. 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; adult smoker willingness to convert to our SFPs; higher product taxes; higher absolute prices and larger gaps between retail price categories; unfair competition; and product regulation that diminishes the ability to differentiate tobacco products, restricts adult consumer access to truthful and non-misleading information about our SFPs, or disproportionately impacts the commercialization of our products in relation to our competitors.

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

The agreement gives PMI continued exclusive access to KT&G's smoke-free brands and product-innovation pipeline, including offerings for low- and middle-income markets, that will enhance PMI's existing portfolio of smoke-free products.

PMI is undertaking restructuring activities in Germany to optimize its manufacturing footprint due to declining demand for cigarettes. This includes ending production in Berlin and Dresden, which will result in future pre-tax charges.

PMI sells trade receivables to unaffiliated financial institutions to mitigate risk and enhance cash and liquidity management. This allows PMI to improve cash flow.

PMI has invested over $14 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

PMI is developing and commercializing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences and achieve population harm reduction, including heat-not-burn products, oral tobacco and nicotine products, and e-Vapor products.

PMI has developed e-liquids for our e-Vapor products designed to deliver an authentic tobacco taste. Using patented technology, flavors and nicotine are extracted directly from the tobacco leaves and captured in a tobacco-free liquid solution, without having to add flavoring ingredients.

Capital expenditures of $404 million during the first three months of 2025 decreased by $13 million as compared with the first three months of 2024. The 2025 capital expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

PMI expects total capital expenditures in 2025 to be around $1.5 billion, including further investments in ZYN capacity in the U.S.

At March 31, 2025, 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.

The performance metrics for such PSU's granted during the three months ended March 31, 2025 consisted of PMI's Total Shareholder Return and a Sustainability Index, which consists of two drivers.

Product Sustainability (20% weight): aggregates key performance indicators pertaining to social and environmental impacts generated by PMI's products; measuring progress primarily on PMI's efforts to maximize the benefits of smoke-free products, purposefully phase out cigarettes, and reduce post-consumer waste; and

Operational Sustainability (10% weight): aggregates key performance indicators pertaining to social and environmental impacts generated by PMI's business activities; measuring progress on PMI's efforts to benefit PMI and its stakeholders by tackling climate change, preserving nature, improving the quality of life of people in its supply chain, and fostering an empowered, and inclusive workplace.

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs decreased by 0.6% during the quarter.

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

Regulatory restrictions on products, including restrictions on packaging, marketing, registration, and sale of tobacco or other nicotine-containing products, could reduce competitiveness and eliminate the ability to communicate with adult consumers.