Please fill in this table using the annual report attached.

2015 Annual Report Dear Shareholder, PMI delivered a very strong performance in 2015, despite an increasingly complex business environment, as well as the sharp appreciation of the U.S. dollar, which acted as a significant drag on our reported results. This performance underscores the resilience of our business, our broad and balanced geographic footprint, the strength of our worldclass brand portfolio and, above all, the motivation and focus of our organization. Against a backdrop of improving industry volume trends in many key geographies, our cigarette brand portfolio performed superbly, driven by the Marlboro 2.0 Architecture, our enhanced commercial approach and the investments that we made in 2014 to address key market challenges. Last year also marked an important milestone for our Reduced-Risk Products(1) portfolio, with the geographic expansion of iQOS in Japan and Italy; city launches in Portugal, Romania, Russia and Switzerland; increased investments in preparation for further launches in 2016; and significant progress on our risk assessment and evidence package. 2015 Results Cigarette volume of 847.3 billion units in 2015 declined by 1.0% versus the prior year. The decrease primarily reflected the impact of lower industry volume, partly offset by market share growth in Reduced-Risk Products (RRPs) is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. (1) $4.08 Robust EPS +121.7%Growth Adjusted Diluted, Excluding Currency $1.84 2008 2015 1 $5.62 +12.0% $5.02 2014 2015 Andr Calantzopoulos Chief Executive Officer Louis C. Camilleri Chairman of the Board the European Union (EU), Eastern Europe, Middle East & Africa (EEMA) and Latin America & Canada (LA&C) Regions. This was our best cigarette volume performance, excluding acquisitions, since 2012, driven mainly by a moderation in the cigarette industry volume decline, notably in the EU Region. Our market share performance in 2015 was strong. Total PMI share, excluding China and the U.S., increased by 0.2 percentage points to 28.7%, with growth in the EU, EEMA and LA&C Regions of 0.1, 0.3 and 0.5 percentage points, respectively, and stable share in Asia. Importantly, we registered a growing or essentially flat share in 20 of our top-30 operating companies income (OCI)(2) markets. Marlboro, the number one cigarette brand worldwide, enjoyed a very robust performance, driven by the continued roll-out of the 2.0 Architecture, which is now available in approximately 100 markets. The brand recorded a 0.9% increase in cigarette shipment volume, reflecting growing or stable share in all Regions. Our Be Marlboro global marketing campaign significantly enhanced the brand's key image dimensions and appeal among adult smokers. The performance of Marlboro was further supported by a pipeline of innovative product offerings. We were also pleased with the performance of our other key international brands. Cigarette shipment volume for L&M, our second-largest brand, increased by 3.9%. The brand's market share grew by 0.2 percentage points to 3.3%, excluding China and the Operating companies income (OCI) is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. (2) Eight Consecutive Dividend Increases Since the Company's Spin-Off $4.08 +121.7% $5.0 $1.84 2008 2015 2014 Marlboro Market Share Momentum 9.6% 9.3% 9.4% Marlboro 2.0 Note: Total Marlboro share, excluding China and the U.S. Source: PMI Financials or estimates 2013 2014 2015 U.S., driven by particularly strong growth in the EEMA Region. Chesterfield recorded a solid performance in the EU Region, where it ranks as the third-largest cigarette industry brand by volume, behind Marlboro and L&M, and grew share by 0.2 percentage points to 5.8%. Reported net revenues, excluding excise taxes, of $26.8 billion declined by 10.0% versus 2014. Excluding currency and acquisitions, net revenues grew by 5.8%. Favorable pricing of $2.1 billion was the key driver of this growth, led mainly by Argentina, Canada, Germany, Indonesia, Korea and Russia. Although unfavorable volume/mix weighed on net revenues, the adverse impact of $325 million was considerably lower than the $1.3 billion impact in 2014. Adjusted OCI of $11.0 billion declined by 12.4% versus 2014. Excluding currency and acquisitions, adjusted OCI grew by 6.6%. Adjusted OCI margin increased by 0.3 percentage points to 42.6%, on the same basis, driven by the EEMA and LA&C Regions. This adjusted OCI margin expansion is noteworthy considering our decision to deploy additional investments to support the strong momentum of our cigarette brand portfolio and accelerate the geographic expansion of iQOS. The investments resulted in a constant currency cost base increase of 3.6% excluding RRPs, or 5.3% including RRPs. In 2016 we expect our total cost base, including RRPs, to increase by approximately 1%, excluding currency, reflecting certain non-recurring expenses, productivity and cost savings programs, and moderating prices for key inputs such as tobacco leaf, cloves and direct materials. Our mid-term targeted annual cost base increase is 1% to 3%, excluding RRPs and currency. Adjusted diluted EPS of $4.42 declined by 12.0% versus 2014, with currency representing an unprecedented headwind of $1.20 per share. Excluding currency, adjusted diluted EPS increased by a strong 12.0%. Free cash flow increased by $319 million, or 4.8%, to reach $6.9 billion in 2015. This was a remarkable achievement considering the adverse currency impact of $2.0 billion and was driven by higher net earnings and a range of important working capital initiatives implemented during the year. Last September the Board of Directors approved an increase in our quarterly dividend to an annualized rate of $4.08 per share, reflecting its strong confidence in our business fundamentals and future prospects. This marked the eighth consecutive dividend increase since the company's spin-off and represents a total increase of 121.7%, or a compound annual growth rate of 12.0%. We continued to access the capital markets at very favorable rates in 2015, raising $1.25 billion over the course of the year and Marlboro continues to benefit from the roll-out of the 2.0 Architecture - now available in approximately 100 markets - driving its global market share in 2015, excluding China and the U.S., to its highest level since the company's spin-off in 2008 and further reinforcing its position as the number one cigarette brand worldwide. reducing the weighted-average all-in financing cost of our total debt by 0.2 percentage points to 3.0%. The weighted-average time to maturity of our total long-term debt stood at 10.5 years at the end of 2015, broadly in line with the prior year. Fiscal, Regulatory and Illicit Trade Environment Our strong pricing performance last year was supported by a largely rational international excise tax environment. Encouragingly, we continued to see improvements in fiscal structures in a range of markets, such as Germany and Italy. Unfortunately, there were some exceptions, the most notable being South Korea's 120% excise tax increase in January 2015, which resulted in a cigarette industry volume decline for the full year of approximately 17% after adjusting for inventory movements. Looking forward, we see a number of opportunities to further improve the fiscal structures in certain key markets and are actively working on this front. This includes seeking a further reduction in tax yield gaps between cigarettes and fine cut products. Strict regulation of cigarettes is necessary given the health effects of the product. From a business perspective, we have proven that we can compete successfully in highly restrictive environments. Currently, plain packaging is a focus of regulation in certain countries. There are two distinct aspects to plain packaging. One is the question of principle regarding the protection of intellectual property, including trademark rights, and the related deprivation that has been at the center of our arguments both with regulators and in various legal proceedings. The second aspect relates to the actual impact of plain packaging on market dynamics. Regarding the question of principle, we are disappointed that in our case against Australia under the bilateral investment treaty with Hong Kong we will not have the opportunity to debate the merits due to a jurisdictional issue. However, there are still important cases pending with the World Trade Organization and the U.K. High Court. We will know their outcomes in the course of this year. Regarding the effect of plain packaging on market dynamics, we do not anticipate any material impact on total consumption, as confirmed by the evidence from Australia. Therefore, the question is the impact on illicit trade and, over time, on brand equity, potential downtrading and pricing power, if any. There is no simple general answer, as the outcome will depend on specific market structures and dynamics. Overall, given the depth of our brand portfolio and excise tax structures that exist or can be adopted, we believe that the commercial impact of plain packaging should be manageable. 2 We are working to ensure that member states transpose the EU Tobacco Products Directive into national legislation by the May 2016 deadline without additional unreasonable restrictions and with the appropriate regulatory frameworks for RRPs. While illicit trade continues to be a significant issue for the industry and governments, we witnessed important progress in 2015. The most notable improvement was in Turkey, where better enforcement led to a significant reduction in illicit prevalence. We also saw progress in the EU Region, driven by Germany and Spain. We remain determined to further combat illicit products through ongoing coordination with the relevant authorities. Reduced-Risk Products and Research & Development We continue to make significant progress on the development, scientific assessment and commercialization of our Reduced-Risk Product portfolio. Our goal is to lead a full-scale effort to ensure that RRPs ultimately replace cigarettes to the benefit of adult smokers, society, our company and our shareholders. Important milestones in 2015 included the geographic expansion of iQOS in Japan and Italy, as well as the further deployment of iQOS in cities in Portugal, Romania, Russia and Switzerland. Last month, we launched iQOS in Kiev, Ukraine, as part of our plan to be present in key cities in approximately 20 markets by the end of this year. Japan is by far our most advanced iQOS launch market in terms of geographic coverage. In the last week of January of this year, we achieved an estimated offtake share for Marlboro HeatSticks of 1.6% in the geographic expansion area and 2.4% in Tokyo, with steady weekly offtake share growth since the first wave of expansion began in September 2015. While the commercialization of RRPs has been a complex undertaking, compounded by a landscape lacking clear, categoryspecific fiscal and regulatory frameworks, we are very pleased with our progress to date. We have gained vital knowledge from our pilot launches relating to route-to-market, consumer engagement and required organizational know-how, which we are leveraging as we launch iQOS in new geographies. Importantly, our supply chain and after-sales service processes are working very well. We remain extremely optimistic about the potential of the product, particularly since our core selling messages for the product have so far focused on convenience benefits only, such as no ash and less smell. We proceeded as planned in 2015 with the scientific substantiation of risk reduction for iQOS. The pre-clinical assessment has been completed, and non-clinical studies have demonstrated promising results. Furthermore, our three-month ad libitum exposure study data showed that using iQOS results in a reduction in exposure biomarkers approaching the levels measured in smokers who quit for the duration of the study. In addition, we commenced our longer-term (6 to 12 months) exposure response and cessation studies, which will finish in 2016 and 2017, respectively. Based on the totality of our evidence thus far - non-clinical, clinical, and perception and behavioral assessment studies - we expect to proceed with our modified-risk tobacco product (MRTP) application to the U.S. Food & Drug Administration (FDA) toward the end of this year. In 2015 we published over 30 RRP-related book chapters and scientific articles in peer-reviewed journals describing our methods and results in both non-clinical and clinical sciences. We also made important advances across our broader RRP portfolio in 2015. Platform 2, our second heat-not-burn product, remains on track for both non-clinical and clinical assessment as well as an initial city test later this year. We further progressed with the development and pre-clinical testing of our Platform 3, a nicotinecontaining aerosol product based on acquired technology, and aim 3 iQOS The commercialization of iQOS continued in 2015, with the first wave of expansion in Japan, further city launches in Italy beyond Milan, and city launches in Bucharest, Lisbon and Moscow, as well as six cities in Switzerland. In many launch cities we have opened iQOS flagship stores, such as the one pictured here in the Shibuya district of Tokyo. to begin commercialization in early 2017 with a city test. We are represented in the e-vapor category via Platform 4, reflecting our acquisition of Nicocigs in the U.K. in 2014 and the 2015 launch in Spain of products based on our cross-licensing agreement with Altria Group, Inc. Our next generation of e-cigarette products is also under development and should be ready for commercialization in the last quarter of 2016. Pre-clinical and non-clinical assessments of this platform are under way. From a fiscal perspective, we witnessed a number of significant positive developments for iQOS HeatSticks in 2015. Several countries have established dedicated excise tax categories for non-combustible heated tobacco products. Additionally, in a range of other markets, HeatSticks have been classified in existing tobacco excise tax categories other than cigarettes. We continue to engage governments, as well as relevant scientific institutions and experts, on RRP regulation and are increasing our presentations of PMI's science in both scientific and public policy forums. Russia Guided trials are an integral part of our iQOS launch strategy and play an important role in educating adult smokers about the product's attributes and benefits. In Russia, where Parliament is the benchmark of quality, prestige and elegance, Parliament HeatSticks have been introduced with the brand's distinctive Recessed Filter. Business Development and Manufacturing Footprint Optimization We continued to focus on a number of important business development initiatives during the year, most notably in North Africa, the Middle East and sub-Saharan Africa. In the U.K., we successfully completed the takeover of our distribution from a competitor. Having control over our own commercial resources in this profitable market will significantly enhance our brand support, portfolio expansion and RRP roll-out capabilities going forward. Our Indonesian affiliate, Sampoerna, completed a rights issue last November to comply with a national stock exchange regulation. The transaction resulted in an implied valuation of approximately $26.4 billion for Sampoerna, slightly above 29 times analyst consensus projections for 2016 net earnings. Our manufacturing footprint was further optimized in 2015 across a number of areas. This included the outsourcing of our leaf business in the U.S., the right-sizing of our factory in the Philippines and a hand-rolling production center in Indonesia, and the closure of facilities in Pakistan and Poland. Environment, Health and Safety In 2015 we continued to demonstrate our strong commitment to the environment and again were awarded CDP \"Climate 'A' List\" status. This placed PMI in the top 5% of the world's largest 2,000 companies which are assessed on data that measure actions to reduce their carbon footprint, as published in the CDP Global Climate Leaders Report. We also received a 100% Carbon Disclosure rating - for comprehensive and transparent reporting on climate change - placing us in a very small group of leaders in this area. Furthermore, we surpassed our manufacturing targets to reduce carbon emissions and water consumption by 20% compared to 2010. Additional information on our climate change key performance indicators and results is available at www.pmi.com/carbon. Our safety performance has been outstanding, as we further reduced injury rates in our factories and our fleet of vehicles by more than 50% over the last three years. We also continued the implementation of our Agricultural Labor Practices Program to eliminate child labor and other labor and human rights abuses in our tobacco-growing supply chain. Implemented in partnership with Verit, the leading notfor-profit organization in supply-chain responsibility, the program currently reaches over 450,000 farms in approximately 30 tobacco-growing countries. External stakeholders continue to recognize PMI's leadership, with the U.S. Department of Labor recently highlighting the enforcement of our \"rigorous child labor policy on all U.S. farms.\" The Organization We continue to invest in the advancement of gender balance as well as diversity and inclusion within the company - key organizational development priorities - and made tangible progress in 2015. Last year the Compensation and Leadership Development Committee of our Board of Directors substantially revamped our executive compensation program to strengthen the link between pay and performance, to better reflect current market practices, and to even more strongly align the longer-term interests of executives and shareholders. Details of the new program can be found in our 2016 Proxy Statement. Finally, we believe that the relationship between management and the Board continues to be governed by total transparency, trust and a very positive atmosphere. We look forward to another fruitful year with such a formidable group. The Year Ahead Our business fundamentals are robust, and the strategic initiatives that we have in place will serve to enhance them further, enabling us to continue to grow our business and to generously reward our shareholders over the mid to long term. While currencies undeniably play a pivotal role in our shareholder value creation potential, we anticipate that the related headwind impacting our reported results will moderate this year compared to 2015. iQOS and our other RRPs constitute our single-largest growth opportunity. We will maintain our uncompromising commitment to secure their success and continue leading the way forward for the industry. Most importantly, we are blessed with a highly focused, motivated and increasingly agile organization that consistently demonstrates the ability to successfully adapt to the varied challenges that we face. Our confidence in PMI's future growth prospects is based on the recognition that our employees are our most valuable asset. Their passion and talent deserve our sincerest gratitude. Andr Calantzopoulos, Chief Executive Officer Louis C. Camilleri, Chairman of the Board March 4, 2016 4 Board of Directors H. Brown A. Calantzopoulos L.C. Camilleri S. Marchionne K. Morparia L.A. Noto Harold Brown 2,3,5 Counselor, Center for Strategic and International Studies Director since 2008 Werner Geissler 1,2,3,5 Operating Partner, Advent International Director since 2015 Andr Calantzopoulos Chief Executive Officer Director since 2013 Jennifer Li 1,3,4 Chief Financial Officer, Baidu, Inc. Director since 2010 Louis C. Camilleri Chairman of the Board Director since 2008 Jun Makihara 1,3,5 Retired Businessman Director since 2014 W. Geissler F. Paulsen Sergio Marchionne 3,5 Chief Executive Officer, Fiat Chrysler Automobiles N.V. Chairman, Ferrari N.V. Chairman, CNH Industrial N.V. Director since 2008 J. Li J. Makihara R.B. Polet S.M. Wolf Kalpana Morparia 3,4,5 Chief Executive Officer, J.P. Morgan India Private Ltd. Director since 2011 Lucio A. Noto 1,2,3,4 Managing Partner, Midstream Partners, LLC Director since 2008 Committees Presiding Director, Lucio A. Noto 1 Member of Audit Committee, Lucio A. Noto, Chair 2 Member of Compensation and Leadership Development Committee, Stephen M. Wolf, Chair 3 Member of Finance Committee, Jennifer Li, Chair 4 Member of Nominating and Corporate Governance Committee, Kalpana Morparia, Chair 5 Member of Product Innovation and Regulatory Affairs Committee, Harold Brown, Chair Frederik Paulsen 3,5 Chairman, Ferring Group Director since 2014 Robert B. Polet 2,3,4,5 Chairman, Safilo Group S.p.A. Chairman, Rituals BV Chairman, NSG Apparel BV Director since 2011 Stephen M. Wolf 1,2,3,4,5 Managing Partner, Alpilles, LLC Director since 2008 Company Management Front Row (left to right): Frederic de Wilde President, European Union Region Back Row (left to right): Andreas Kurali Vice President and Controller 5 Drago Azinovic President, Eastern Europe, Middle East & Africa Region and PMI Duty Free Jacek Olczak Chief Financial Officer Patrick Brunel Senior Vice President and Chief Information Officer Miroslaw Zielinski President, Reduced-Risk Products Marco Mariotti Senior Vice President, Corporate Affairs Werner Barth Senior Vice President, Marketing & Sales Peter J. Luongo Vice President, Treasury & Planning James R. Mortensen Senior Vice President, Human Resources Antonio Marques Senior Vice President, Operations Jerry Whitson Deputy General Counsel and Corporate Secretary Andr Calantzopoulos Chief Executive Officer Marc S. Firestone Senior Vice President and General Counsel Jeanne Polls President, Latin America & Canada Region Martin King President, Asia Region UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-33708 PHILIP MORRIS INTERNATIONAL INC. (Exact name of registrant as specified in its charter) Virginia 13-3435103 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 120 Park Avenue, New York, New York 10017 (Address of principal executive offices) (Zip Code) 917-663-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, no par value 2.500% Notes due 2016 1.625% Notes due 2017 1.250% Notes due 2017 1.125% Notes due 2017 1.250% Notes due 2017 5.650% Notes due 2018 1.875% Notes due 2019 2.125% Notes due 2019 1.750% Notes due 2020 4.500% Notes due 2020 1.875% Notes due 2021 4.125% Notes due 2021 2.900% Notes due 2021 2.500% Notes due 2022 2.625% Notes due 2023 3.600% Notes due 2023 2.875% Notes due 2024 3.250% Notes due 2024 2.750% Notes due 2025 3.375% Notes due 2025 2.875% Notes due 2026 Name of each exchange on which registered New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Title of each class 2.875% Notes due 2029 3.125% Notes due 2033 6.375% Notes due 2038 4.375% Notes due 2041 4.500% Notes due 2042 3.875% Notes due 2042 4.125% Notes due 2043 4.875% Notes due 2043 4.250% Notes due 2044 Name of each exchange on which registered New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of June 30, 2015, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $124 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange. Class Common Stock, no par value Outstanding at January 29, 2016 1,549,347,456 shares DOCUMENTS INCORPORATED BY REFERENCE Document Portions of the registrant's definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May 4, 2016, to be filed with the Securities and Exchange Commission (\"SEC\") on or about March 24, 2016. Parts Into Which Incorporated Part III TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 11 Item 2. Properties 12 Item 3. Legal Proceedings 12 Item 4. Mine Safety Disclosures 22 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. Selected Financial Data 25 Item 7. 26 Item 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data 81 Item 9. 135 Item 9A. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Item 9B. Other Information 135 Item 10. Directors, Executive Officers and Corporate Governance 135 Item 11. Executive Compensation 136 Item 12. 136 Item 13. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services 136 Exhibits and Financial Statement Schedules 137 PART II Item 5. 80 135 PART III 136 PART IV Item 15. Signatures In this report, \"PMI,\" \"we,\" \"us\" and \"our\" refers to Philip Morris International Inc. and its subsidiaries. 142 PART I Item 1. Business. (a) General Development of Business General Philip Morris International Inc. is a Virginia holding company incorporated in 1987. Our subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside of the United States of America. Our products are sold in more than 180 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. Our portfolio of international and local brands is led by Marlboro, the world's best-selling international cigarette, which accounted for approximately 34% of our total 2015 shipment volume. Marlboro is complemented in the premium-price category by Merit, Parliament and Virginia S. Our leading mid-price brands are L&M and Philip Morris. Other leading international brands include Bond Street, Chesterfield, Lark, Muratti, Next and Red & White. We also own a number of important local cigarette brands, such as Dji Sam Soe, Sampoerna and U Mild in Indonesia; Champion, Fortune and Hope in the Philippines; Apollo-Soyuz and Optima in Russia; Morven Gold in Pakistan; Boston in Colombia, Belmont, Canadian Classics and Number 7 in Canada; Best in Serbia; f6 in Germany; Delicados in Mexico; Assos in Greece, and Petra in the Czech Republic and Slovakia. While there are a number of markets where local brands remain important, international brands are expanding their share in numerous markets. With international brands contributing approximately 73% of our shipment volume in 2015, we are well positioned to continue to benefit from this trend. Separation from Altria Group, Inc. We were a wholly owned subsidiary of Altria Group, Inc. ("Altria") until the distribution of all of our shares owned by Altria (the \"Spinoff\") was made on March 28, 2008 (the "Distribution Date"). Acquisitions and Other Business Arrangements We enhanced our business with the following transactions: In July 2015, we dissolved our exclusive joint venture agreement with Swedish Match AB ("SWMA") to commercialize Swedish snus and other smoke-free tobacco products worldwide, outside of Scandinavia and the United States. The dissolution, mutually agreed with SWMA, means that both companies will now focus on independent strategies for the commercialization of these products, and the trademarks and intellectual property licensed to the joint venture by the companies will revert to their original owners. The dissolution of this agreement was not material to our consolidated financial position, results of operations or cash flows in any of the periods presented. On January 30, 2014, the Indonesian Stock Exchange (\"IDX\") adopted a regulation requiring all listed public companies to have at least a 7.5% public shareholding by January 30, 2016. In order to comply with this requirement, our subsidiary PT HM Sampoerna Tbk. (\"Sampoerna\"), of which we held a 98.18% interest, conducted a rights issue. The exercise price for the rights was set at Rp. 77,000 per share, a 1.349% premium to the closing price on the IDX as of September 30, 2015. In connection with the rights issue, PT Philip Morris Indonesia (\"PMID\"), a fully consolidated subsidiary of PMI, sold 264,209,711 of the rights to third-party investors. Delivery of the rights sold took place on October 26, 2015. The total net proceeds from the rights issue were $1.5 billion at prevailing exchange rates on the closing date. The sale of the rights resulted in an increase to our additional paid-in capital of $1.1 billion. In June 2014, we acquired 100% of Nicocigs Limited, a leading U.K.-based e-vapor company, for the final purchase price of $103 million, net of cash acquired. For additional information, see Note 6. Acquisitions and Other Business Arrangements to our consolidated financial statements in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K ("Item 8"). In the fourth quarter of 2013, as part of our initiative to enhance profitability and growth in North African and Middle Eastern markets, we decided to restructure our business in Egypt. The new business model entails a new contract manufacturing agreement with our longstanding, strategic business partner, Eastern Company S.A.E., the creation of a new PMI affiliate in Egypt and a new distribution agreement with Trans Business for Trading and Distribution LLC. To accomplish this restructuring and to ensure a smooth transition to the new model, we recorded, in the fourth quarter of 2013, a charge to our 2013 full-year reported diluted EPS of approximately $0.10 to reflect the discontinuation of existing contractual arrangements. 1 On December 20, 2013, we established a strategic framework with Altria under which Altria will make available its e-cigarette products exclusively to us for commercialization outside the United States, and we will make available two of our candidate reduced-risk tobacco products exclusively to Altria for commercialization in the United States. The agreements also provide for cooperation on the scientific assessment of these products and for the sharing of improvements to the existing generation of reduced-risk products. On December 12, 2013, we acquired from Megapolis Investment BV a 20% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis ("Megapolis"), PMI's distributor in Russia. The purchase price of $760 million excludes an additional payment of up to $100 million, which is contingent on Megapolis's operational performance over the four fiscal years following the closing of the transaction. On September 30, 2013, we acquired a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) ("EITA"), formerly Arab Investors-TA (FZC), for approximately $625 million. As a result of this transaction, we hold an approximate 25% economic interest in Socit des Tabacs Algro-Emiratie ("STAEM"), an Algerian joint venture which is 51% owned by EITA and 49% by the Algerian state-owned enterprise Socit Nationale des Tabacs et Allumettes SpA. STAEM manufactures and distributes under license some of PMI's brands. In September 2013, Grupo Carso, S.A.B. de C.V. ("Grupo Carso") sold to us its remaining 20% interest in our Mexican tobacco business for $703 million. As a result, we now own 100% of our Mexican tobacco business. A former director of PMI, whose term expired at the Annual Meeting of Shareholders in May 2015, had an affiliation with Grupo Carso. The final purchase price was subject to an adjustment based on the actual performance of the Mexican tobacco business over the three-year period ending two fiscal years after the closing of the purchase. In May 2015, we received a payment of $113 million from Grupo Carso as the final purchase price adjustment. This resulted in a total net purchase price of $590 million. Source of Funds Dividends We are a legal entity separate and distinct from our direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions with respect to their common stock. (b) Financial Information About Segments We divide our markets into four geographic regions, which constitute our segments for financial reporting purposes: The European Union (\"EU\") Region is headquartered in Lausanne, Switzerland, and covers all the EU countries and also comprises Switzerland, Norway and Iceland, which are linked to the EU through trade agreements; The Eastern Europe, Middle East & Africa (\"EEMA\") Region is also headquartered in Lausanne and includes Eastern Europe, certain Balkan countries, Turkey, the Middle East and Africa and our international duty free business; The Asia Region is headquartered in Hong Kong and covers all other Asian markets as well as Australia, New Zealand and the Pacific Islands; and The Latin America & Canada Region is headquartered in New York and covers the South American continent, Central America, Mexico, the Caribbean and Canada. In the fourth quarter of 2015, to further align with the Member State composition of the European Union, PMI transferred the management of its operations in Bulgaria, Croatia, Romania and Slovenia from its EEMA Region to its European Union Region, resulting in the reclassification of prior year amounts between the two segments. The changes did not have an impact on our consolidated financial position, results of operations or cash flows in any of the periods presented. Net revenues and operating companies income* (together with a reconciliation to operating income) attributable to each segment for each of the last three years are set forth in Note 12. Segment Reporting to the consolidated financial statements in Item 8. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K ("Item 7") for a discussion of our operating results by business segment. 2 The relative percentages of operating companies income attributable to each reportable segment were as follows: 2015 32.6% 31.2 26.3 9.9 100.0% European Union Eastern Europe, Middle East & Africa Asia Latin America & Canada 2014 31.6% 33.5 26.4 8.5 100.0% 2013 31.3% 26.9 33.6 8.2 100.0% ______________________________ * Our management evaluates segment performance and allocates resources based on operating companies income, which we define as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements in Item 8. We use the term net revenues to refer to our operating revenues from the sale of our products, net of sales and promotion incentives. 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 premiumprice 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). We often collect excise taxes from our customers and then remit them to local governments, and, in those circumstances, we include excise taxes in our net revenues and excise taxes on products. Our cost of sales consists principally of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs. 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. (c) Narrative Description of Business Our subsidiaries and affiliates and their licensees are engaged in the manufacture, market and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside the United States of America. Our total cigarette shipments decreased by 1.0% in 2015 to 847.3 billion units. We estimate that international cigarette market shipments were approximately 5.4 trillion units in 2015, a 2.6% decrease over 2014. We estimate that our reported share of the international cigarette market (which is defined as worldwide cigarette volume, excluding the United States of America) was approximately 15.6% in 2015, 15.5% in 2014 and 15.7% in 2013. Excluding the People's Republic of China (\"PRC\"), we estimate that our reported share of the international cigarette market was approximately 28.7%, 28.5%, and 28.3% in 2015, 2014 and 2013, respectively. Shipments of our principal cigarette brand, Marlboro, increased by 0.9% in 2015 and represented approximately 9.6% of the international cigarette market, excluding the PRC, in 2015, 9.4% in 2014 and 9.3% in 2013. We have a cigarette market share of at least 15% and, in a number of instances, substantially more than 15%, in 103 markets, including Algeria, Argentina, Australia, Austria, Belgium, Brazil, Canada, Colombia, the Czech Republic, Egypt, Finland, France, Germany, Greece, Hungary, Indonesia, Italy, Japan, Kazakhstan, Korea, Mexico, the Netherlands, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Spain, Sweden, Switzerland, Thailand, Turkey and Ukraine. References to total international cigarette market, total cigarette market, total market and market shares in this Form 10-K reflect our best estimates of tax-paid volumes based on a number of internal and external sources. 3 Consumer Focused Marketing & Sales In 2015, we continued to deploy our new strategic framework that combines our marketing and sales expertise with our in-depth knowledge of various sales territories. This framework allows us not only to engage more effectively with our adult smokers but also to enhance the success of our direct and indirect trade partners. The main benefits are: Improved effectiveness of direct adult smoker engagement activities; More effective communication with our retailers about our brands; Increased speed, efficiency and widespread availability of our products; and Distribution and Sales Strategies and Trade Engagement Programs tailored to the individual characteristics of each market (namely, according to the needs and capabilities of trade layers like retailers, wholesalers and distributors and, depending on our competitive position, operating costs and the regulatory framework). The four main types of distribution that we use globally, often simultaneously in a given market, are: Direct Sales and Distribution, where we have set up our own distribution selling directly to the retailers; Distribution through Independent Distributors who also are distributing other fast-moving consumer goods and are responsible for distribution in a single market; Exclusive Zonified Distribution, where the distributors are dedicated to us in tobacco products distribution and assigned to exclusive territories within a market, enabling them to get an appropriate return on their investment; and Distribution through national or regional wholesalers that then supply the retail trade. In many markets we also directly supply key accounts, including gas stations, retail chains and supermarkets. Our distribution and sales systems are supported by sales forces that total approximately 19,900 employees worldwide. Our sales forces are well trained and recognized by trade surveys for their professionalism. Our products are marketed and promoted through various media and channels, including, where permitted by law, point of sale communications, brand events, access-restricted Websites and printed and direct communication to verified adult smokers. Our direct communication with verified adult smokers utilizes mail, e-mail and other electronic communication tools. Promotional activities include, where permitted by law, competitions, invitations to the events, interactive programs, consumer premiums and price promotions. To support advertising and promotional activities in the markets, we have a dedicated consumer engagement group that develops innovative engagement tools for adult smokers based on the latest technologies and adult smoker trends. Competition We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising and retail price. Our competitors include three large international tobacco companies and 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 stateowned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit and volume objectives, and some international competitors are susceptible to changes in different currency exchange rates. We compete predominantly with American blend cigarette brands, such as Marlboro, L&M, Parliament and Chesterfield, which are the most popular across many of our markets. We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category. Procurement and Raw Materials We purchase tobacco leaf of various types, grades and styles throughout the world, the majority through independent tobacco suppliers. We also contract directly with farmers in several countries, including Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Italy, Kazakhstan, Mexico, Pakistan, the Philippines and Poland. Direct sourcing from farmers represents approximately 29% of PMI's global leaf requirements. The largest supplies of tobacco leaf are sourced from Brazil, the United States, China, Malawi, Indonesia (mostly for domestic use in kretek products), Argentina, Mozambique, India, Tanzania, Philippines and Turkey. We believe that there is an adequate supply of tobacco leaf in the world markets to satisfy our current and anticipated production requirements. 4 In addition to tobacco leaf, we purchase a wide variety of direct materials from a total of approximately 420 suppliers. Our top ten suppliers of direct materials combined represent approximately 57% of our total direct materials purchases. The three most significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making and fine paper used in cigarette manufacturing. In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business. Business Environment Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, Management's Discussion and Analysis of Financial Condition and Results of OperationsOperating Results by Business SegmentBusiness Environment. Other Matters Customers None of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on our consolidated results of operations. Employees At December 31, 2015, we employed approximately 80,200 people worldwide, including employees under temporary contracts and hourly paid part-time staff. Our businesses are subject to a number of laws and regulations relating to our relationship with our employees. Generally, these laws and regulations are specific to the location of each business. In addition, in accordance with European Union requirements, we have established a European Works Council composed of management and elected members of our workforce. We believe that our relations with our employees and their representative organizations are excellent. Executive Officers of the Registrant The disclosure regarding executive officers is set forth under the heading \"Executive Officers as of February 17, 2016\" in Item 10. Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K ("Item 10"). Research and Development Reduced-Risk Products. One of our strategic priorities is to develop, assess and commercialize a portfolio of innovative products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. We refer to these as reduced-risk products, or RRPs. The use of this term applies to tobacco-containing products and other nicotine-containing products that have the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Our RRPs are in various stages of development, and we already launched iQOS in Japan, Switzerland and in various pilot cities including Milan, Moscow, Lisbon and Bucharest; and Solaris, an e-vapor product licensed from Altria, in Spain and Israel. We are conducting extensive and rigorous scientific studies to determine whether we can support claims for such products of reduced exposure to harmful and potentially harmful constituents in smoke, and ultimately claims of reduced disease risk, when compared to smoking cigarettes. Before making any such claims, we will need to rigorously evaluate the full set of data from the relevant scientific studies to determine whether they substantiate reduced risk. Any such claims may also be subject to government review and approval, as is the case in the U.S. today. We draw upon a team of world-class scientists from a broad spectrum of scientific disciplines, whose efforts are guided by the following three key objectives: to develop RRPs that provide adult smokers the taste, sensory experience, nicotine delivery profile and ritual characteristics that are similar to those currently provided by cigarettes; to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on robust scientific evidence derived from well-established assessment processes; and to advocate for the development of science-based regulatory frameworks for the approval and commercialization of RRPs, including the communication of substantiated health benefits to adult smokers. In addition to iQOS, we are developing three RRP platforms that are in various stages of commercialization readiness. We are commercializing an e-vapor product under the Nicolites and Vivid brand names in the U.K., are also developing other potential platforms and are working on developing the next generation of e-vapor technology. 5 Further information about our RRPs is set forth in Item 7, Business Environment - Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products - Reduced-Risk Products. Cigarette Products. We conduct research to support and reinforce our cigarette product business. We seek to be at the forefront of innovation for product enhancements and launches of innovative new products. We have also increased support for the cigarette business because compliance with applicable laws and regulations is requiring additional capacity for analysis and testing. Other. Finally, working through biotechnology partners, we conduct research and development activities on technology platforms that can potentially lead to the development of alternative uses of tobacco, such as for the production of therapeutic molecules. The research and development expense for the years ended December 31, 2015, 2014 and 2013, is set forth in Item 8, Note 14. Additional Information to the consolidated financial statements. Intellectual Property Our trademarks are valuable assets, and their protection and reputation are essential to us. We own the trademark rights to all of our principal brands, including Marlboro, or have the right to use them in all countries where we use them. In addition, we have more than 5,500 granted patents worldwide and approximately 5,400 pending patent applications. Our patent portfolio, as a whole, is material to our business. However, no one patent, or group of related patents, is material to us. We also have registered industrial designs and proprietary secrets, technology, know-how, processes and other intellectual property rights that are not registered. Effective January 1, 2008, PMI entered into an Intellectual Property Agreement with Philip Morris USA Inc. (\"PM USA\"). The Intellectual Property Agreement governs the ownership of intellectual property between PMI and PM USA. Ownership of the jointly funded intellectual property has been allocated as follows: PMI owns all rights to the jointly funded intellectual property outside the United States, its territories and possessions; and PM USA owns all rights to the jointly funded intellectual property in the United States, its territories and possessions. Ownership of intellectual property related to patent applications and resulting patents based solely on the jointly funded intellectual property, regardless of when filed or issued, will be exclusive to PM USA in the United States, its territories and possessions and exclusive to PMI everywhere else. The Intellectual Property Agreement contains provisions concerning intellectual property that is independently developed by us or PM USA following the Distribution Date. For ten years following the Distribution Date, independently developed intellectual property may be subject to rights under certain circumstances that would allow either us or PM USA a priority position to obtain the rights to the new intellectual property from the other party, with the price and other commercial terms to be negotiated. In the event of a dispute between us and PM USA under the Intellectual Property Agreement, we have agreed with PM USA to submit the dispute first to negotiation between our and PM USA's senior executives and then to binding arbitration. Seasonality Our business segments are not significantly affected by seasonality, although in certain markets cigarette consumption trends rise during the summer months due to longer daylight time and tourism. Environmental Regulation We are subject to applicable international, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements and reduce our carbon footprint and wastage as well as water and energy consumption. We report externally about our climate change mitigation strategy, together with associated targets and results in reducing our carbon footprint, through CDP (formerly, the Carbon Disclosure Project), the leading international non-governmental organization assessing the work of thousands of companies worldwide in the area of climate change. We have developed and implemented a consistent environmental and occupational health, safety and security management system ("EHSS"), which involves policies, standard practices and procedures at all our manufacturing centers. We also conduct regular safety assessments at our offices, warehouses and car fleet organizations. Furthermore, we have engaged an external certification body to validate the effectiveness of our EHSS management system at our manufacturing centers around the world, in 6 accordance with internationally recognized standards for safety and environmental management. The environmental performance data we report externally is also verified by a qualified third party. Our subsidiaries expect to continue to make investments in order to drive improved performance and maintain compliance with environmental laws and regulations. We assess and report the compliance status of all our legal entities on a regular basis. Based on the management and controls we have in place and our review of climate change risks (both physical and regulatory), environmental expenditures have not had, and are not expected to have, a material adverse effect on our consolidated results of operations, capital expenditures, financial position, earnings or competitive position. (d) Financial Information About Geographic Areas The amounts of net revenues and long-lived assets attributable to each of our geographic segments for each of the last three fiscal years are set forth in Item 8, Note 12. Segment Reporting to the consolidated financial statements. (e) Available Information We are required to file with the SEC annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the \"Exchange Act\"). Investors may read and copy any document that we file, including this Annual Report on Form 10-K, at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet Web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access our SEC filings. We make available free of charge on, or through, our Web site at www.pmi.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Investors can access our filings with the SEC by visiting www.pmi.com. The information on our Web site is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC. Item 1A. Risk Factors. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K. Forward-Looking and Cautionary Statements We may from time to time make written or oral forward-looking statements, including statements contained in this Annual Report on Form 10-K and other filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets" 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. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the \"safe harbor\" provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 7, Business Environment. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations. 7 Risks Related to Our Business and Industry 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, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products. These factors and their potential consequences are discussed more fully below and in Item 7, Business Environment. 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 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 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." 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 volume 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 take place over the next few years in most of our markets, driven principally by the World Health Organization's Framework Convention on Tobacco Control (\"FCTC\"). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation. The FCTC has led to increased efforts by tobacco control advocates and public health organizations to reduce the palatability and attractiveness 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 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 cigarette 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; increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; restrictions on the sale of potentially reduced-risk tobacco products and other nicotine-containing products; elimination of duty free sales and duty free allowances for travelers; and encouraging litigation against tobacco companies. Our operating income could be significantly affected by regulatory initiatives resulting in a significant decrease in demand for our brands, in particular requirements that lead to a commoditization of tobacco products, as well as any significant increase in the cost of complying with new regulatory requirements. 8 Litigation related to tobacco use and exposure t