What changed in this filing

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Item 1. Financial Statements

2021-10-27 compared with 2021-07-27 · 288 added, 217 removed, 1158 unchanged (30% of the section changed)

4 unchanged sentences

(in millions of dollars, except per share data)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Revenues including excise taxes $ 61,393 $ 56,516

3 unchanged sentences

Gross profit 16,078 14,253

Marketing, administration and research costs (Note 16) 3,942 3,666

Marketing, administration and research costs (Notes 16 & 17) 5,995 5,435

Amortization of intangibles 55 55

16 unchanged sentences

(in millions of dollars, except per share data)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Revenues including excise taxes $ 21,617 $ 20,444

Excise taxes on products 13,495 12,998

Net revenues (Note 8) 7,594 6,651

Net revenues 8,122 7,446

Cost of sales 2,596 2,416

Gross profit 5,526 5,030

Marketing, administration and research costs (Note 16) 2,093 1,722

Marketing, administration and research costs (Notes 16 & 17) 2,053 1,769

Amortization of intangibles 18 18

16 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net earnings $ 7,481 $ 6,473

2 unchanged sentences

Unrealized gains (losses), net of income taxes of $( 34 ) in 2021 and $ 38 in 2020

245 ( 1,373 )

Change in net loss and prior service cost:

14 unchanged sentences

(in millions of dollars)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Net earnings $ 2,588 $ 2,437

18 unchanged sentences

(in millions of dollars)

September 30,

2021 December 31,

20 unchanged sentences

(in millions of dollars, except share data)

September 30,

2021 December 31,

35 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

4 unchanged sentences

Asset impairment and exit costs, net of cash paid (Note 16) ( 34 ) ( 44 )

Cash effects of changes in:

Cash effects of changes, net of the effects from acquired companies:

Receivables, net ( 354 ) ( 141 )

8 unchanged sentences

Capital expenditures ( 459 ) ( 462 )

Purchases of businesses, net of acquired cash (Note 17) ( 27 ) —

Acquisitions, net of acquired cash (Note 17) ( 1,869 ) —

Equity investments ( 26 ) ( 3 )

6 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

2 unchanged sentences

Issuances - maturities longer than 90 days — 45

Repayments - maturities longer than 90 days — ( 45 )

Long-term debt proceeds — 2,230

Long-term debt repaid ( 1,979 ) ( 3,999 )

Repurchases of common stock ( 94 ) —

Dividends paid ( 5,628 ) ( 5,485 )

7 unchanged sentences

Balance at end of period $ 4,800 $ 4,827

(1) The amounts for cash and cash equivalents shown above include restricted cash of $ 5 million and $ 7 million as of June 30, 2021 and 2020, respectively, and $ 5 million and $ 4 million as of December 31, 2020 and 2019, respectively, which were included in other current assets in the condensed consolidated balance sheets.

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 309 million and $ 6 million as of September 30, 2021 and 2020, respectively, and $ 5 million and $ 4 million as of December 31, 2020 and 2019, respectively, which were included in other current assets in the condensed consolidated balance sheets.

As of September 30, 2021, the restricted cash was primarily related to the remaining funding of PMI’s acquisition of Vectura Group plc (“Vectura").

For further details, see Note 17.

Acquisitions .

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Six Months Ended June 30, 2021 and 2020

For the Nine Months Ended September 30, 2021 and 2020

(in millions of dollars, except per share amounts)

15 unchanged sentences

Other 17 ( 14 ) 3

Balances, June 30, 2020 $ — $ 2,044 $ 31,103 $ ( 10,009 ) $ ( 35,135 ) $ 1,877 $ ( 10,120 )

Balances, September 30, 2020 $ — $ 2,071 $ 31,537 $ ( 10,567 ) $ ( 35,133 ) $ 1,847 $ ( 10,245 )

Balances, January 1, 2021 $ — $ 2,105 $ 31,638 $ ( 11,181 ) $ ( 35,129 ) $ 1,936 $ ( 10,631 )

5 unchanged sentences

Payments to noncontrolling interests ( 459 ) ( 459 )

Balances, June 30, 2021 $ — $ 2,143 $ 32,465 $ ( 10,665 ) $ ( 35,056 ) $ 1,913 $ ( 9,200 )

Common stock repurchased ( 94 ) ( 94 )

Balances, September 30, 2021 $ — $ 2,181 $ 32,935 $ ( 10,520 ) $ ( 35,147 ) $ 1,919 $ ( 8,632 )

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2021 and 2020

For the Three Months Ended September 30, 2021 and 2020

(in millions of dollars, except per share amounts)

7 unchanged sentences

Interests Total

Balances, April 1, 2020 $ — $ 1,992 $ 30,984 $ ( 10,774 ) $ ( 35,146 ) $ 1,881 $ ( 11,063 )

Balances, July 1, 2020 $ — $ 2,044 $ 31,103 $ ( 10,009 ) $ ( 35,135 ) $ 1,877 $ ( 10,120 )

Net earnings 2,307 130 2,437

4 unchanged sentences

Payments to noncontrolling interests ( 171 ) ( 171 )

Other 18 ( 18 ) —

Balances, June 30, 2020 $ — $ 2,044 $ 31,103 $ ( 10,009 ) $ ( 35,135 ) $ 1,877 $ ( 10,120 )

Balances, April 1, 2021 $ — $ 2,080 $ 32,178 $ ( 10,746 ) $ ( 35,060 ) $ 1,974 $ ( 9,574 )

Balances, September 30, 2020 $ — $ 2,071 $ 31,537 $ ( 10,567 ) $ ( 35,133 ) $ 1,847 $ ( 10,245 )

Balances, July 1, 2021 $ — $ 2,143 $ 32,465 $ ( 10,665 ) $ ( 35,056 ) $ 1,913 $ ( 9,200 )

Net earnings 2,426 162 2,588

4 unchanged sentences

Payments to noncontrolling interests ( 161 ) ( 161 )

Balances, June 30, 2021 $ — $ 2,143 $ 32,465 $ ( 10,665 ) $ ( 35,056 ) $ 1,913 $ ( 9,200 )

Common stock repurchased ( 94 ) ( 94 )

Acquisitions 44 44

Balances, September 30, 2021 $ — $ 2,181 $ 32,935 $ ( 10,520 ) $ ( 35,147 ) $ 1,919 $ ( 8,632 )

See notes to condensed consolidated financial statements.

8 unchanged sentences

Food and Drug Administration ("FDA") to Altria Group, Inc., for sale in the United States under license.

For further developments related to the sale of these products in the U.S., see Note 8.

Contingencies .

Throughout these financial statements, the term "PMI" refers to Philip Morris International Inc.

10 unchanged sentences

Net revenues and net earnings attributable to PMI for any interim period are not necessarily indicative of results that may be expected for the entire year.

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

Additionally, during the third quarter of 2021, due to the recent acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc., PMI added an Other category.

For further details, see Note 7.

Segment Reporting and Note 17.

Acquisitions .

Certain prior years' amounts have been reclassified to conform with the current year's presentation.

8 unchanged sentences

Up to 25 million shares of PMI’s common stock may be issued under the 2017 Plan.

At June 30, 2021, shares available for grant under the 2017 Plan were 14,867,021 .

At September 30, 2021, shares available for grant under the 2017 Plan were 14,833,501 .

In May 2017, PMI’s shareholders also approved the Philip Morris International Inc.

2 unchanged sentences

Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan.

At June 30, 2021, shares available for grant under the plan were 914,413 .

At September 30, 2021, shares available for grant under the plan were 914,413 .

Restricted share unit (RSU) awards

During the six months ended June 30, 2021 and 2020, shares granted to eligible employees and the weighted-average grant date fair value per share related to RSU awards were as follows:

During the nine months ended September 30, 2021 and 2020, shares granted to eligible employees and the weighted-average grant date fair value per share related to RSU awards were as follows:

Granted Weighted-Average Grant Date Fair Value Per RSU Award Granted

3 unchanged sentences

Compensation Expense Related to RSU Awards

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 $ 106 $ 33

2020 $ 98 $ 30

As of June 30, 2021, PMI had $ 211 million of total unrecognized compensation cost related to non-vested RSU awards.

As of September 30, 2021, PMI had $ 177 million of total unrecognized compensation cost related to non-vested RSU awards.

The cost is recognized over the original restriction period of the awards, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58 .

During the six months ended June 30, 2021, 1,106,129 RSU awards vested.

During the nine months ended September 30, 2021, 1,213,882 RSU awards vested.

The grant date fair value of all the vested awards was approximately $ 117 million.

The total fair value of RSU awards that vested during the six months ended June 30, 2021 was approximately $ 96 million.

The total fair value of RSU awards that vested during the nine months ended September 30, 2021 was approximately $ 107 million.

Performance share unit (PSU) awards

During the six months ended June 30, 2021 and 2020, PMI granted PSU awards to certain executives.

During the nine months ended September 30, 2021 and 2020, PMI granted PSU awards to certain executives.

The PSU awards require the achievement of certain performance factors, which are predetermined at the time of grant, typically over a three-year performance cycle.

The performance metrics for such PSU's granted during the six months ended June 30, 2021 and 2020 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis ( 40 % weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate ( 30 % weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's RRPs and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle ( 30 % weight).

The performance metrics for such PSU's granted during the nine months ended September 30, 2021 and 2020 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis ( 40 % weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate ( 30 % weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's RRPs and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle ( 30 % weight).

The aggregate of the weighted performance factors for the three metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the three-year performance cycle.

7 unchanged sentences

At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned.

During the six months ended June 30, 2021 and 2020, shares granted to eligible employee and the grant date fair value per share related to PSU awards were as follows:

During the nine months ended September 30, 2021 and 2020, shares granted to eligible employee and the grant date fair value per share related to PSU awards were as follows:

Number of Shares Granted Grant Date

15 unchanged sentences

Compensation Expense Related to PSU Awards

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 $ 58 $ 12

2020 $ 30 ($ 2 )

As of June 30, 2021, PMI had $ 71 million of total unrecognized compensation cost related to non-vested PSU awards.

As of September 30, 2021, PMI had $ 59 million of total unrecognized compensation cost related to non-vested PSU awards.

The cost is recognized over the performance cycle of the awards, or upon death, disability or reaching the age of 58 .

During the six months ended June 30, 2021, 189,839 PSU awards vested.

During the nine months ended September 30, 2021, 189,839 PSU awards vested.

The grant date fair value of all the vested awards was approximately $ 21 million.

The total fair value of PSU awards that vested during the six months ended June 30, 2021 was approximately $ 16 million.

The total fair value of PSU awards that vested during the nine months ended September 30, 2021 was approximately $ 16 million.

Benefit Plans:

9 unchanged sentences

Pension and other employee benefit costs per the condensed consolidated statements of earnings consisted of the following:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2021 2020 2021 2020

6 unchanged sentences

Net periodic pension cost consisted of the following:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2021 2020 2021 2020

10 unchanged sentences

PMI makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded pension plans.

Employer contributions of $ 197 million were made to the pension plans during the six months ended June 30, 2021.

Employer contributions of $ 219 million were made to the pension plans during the nine months ended September 30, 2021.

Currently, PMI anticipates making additional contributions during the remainder of 2021 of approximately $ 40 million to its pension plans, based on current tax and benefit laws.

2 unchanged sentences

The movements in goodwill were as follows:

(in millions) European Union Eastern Europe Middle East & Africa South & Southeast Asia East Asia & Australia Latin America & Canada Total

(in millions) European Union Eastern Europe Middle East & Africa South & Southeast Asia East Asia & Australia Americas Other Total

Balances, December 31, 2020 $ 1,434 $ 317 $ 86 $ 2,915 $ 559 $ 653 $ — $ 5,964

2 unchanged sentences

Currency ( 63 ) ( 13 ) ( 2 ) ( 85 ) ( 18 ) ( 28 ) ( 13 ) ( 222 )

Balances, June 30, 2021 $ 1,433 $ 309 $ 88 $ 2,829 $ 542 $ 641 $ 5,842

At June 30, 2021, goodwill primarily reflects PMI’s acquisitions in Colombia, Greece, Indonesia, Mexico, Pakistan and Serbia, as well as the business combination in the Philippines.

Balances, September 30, 2021 $ 1,401 $ 304 $ 84 $ 2,830 $ 541 $ 625 $ 1,029 $ 6,814

The increase in goodwill was due primarily to the preliminary purchase price allocation of PMI's business combinations in 2021.

For further details on these business combinations, see Note 17.

Acquisitions .

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

The increase in goodwill from acquisitions was due to the preliminary purchase price allocation of AG Snus Aktieselskab ("AG Snus"), a Danish based company, and it's Swedish subsidiary Tobacco House of Sweden AB, fully owned by AG Snus.

For further details, see Note 17.

Acquisitions .

At September 30, 2021, goodwill primarily reflects PMI’s business combinations in Colombia, Greece, Indonesia, Mexico, Pakistan, the Philippines and Serbia, as well as the preliminary purchase price allocation of Fertin Pharma A/S and Vectura Group plc., which were acquired in September 2021.

Details of other intangible assets were as follows:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions) Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

2 unchanged sentences

Trademarks 12 years 1,211 $ 625 586 1,233 $ 594 639

Distribution networks 7 years 113 79 34 115 78 37

Developed technology, including patents 14 years 850 46 804 93 41 52

Other* 10 years 296 88 208 126 87 39

Total other intangible assets $ 3,652 $ 759 $ 2,893 $ 2,741 $ 722 $ 2,019

* Primarily includes intellectual property rights

* Primarily includes distribution networks and customer relationships.

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico.

The decrease since December 31, 2020 was due to currency movements of ($ 28 million).

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2020, was mainly due to currency movements of ($ 8 million), partially offset by the preliminary purchase price allocation of AG Snus trademarks in the amount of $ 7 million.

The increase since December 31, 2020 was due to the preliminary purchase price allocation associated with PMI's business combinations in 2021 (primarily in process research and development ("IPR&D")) in the amount of $ 30 million, partially offset by currency movements of ($ 24 million).

For further details, see Note 17.

Acquisitions .

The increase in the gross carrying amount of amortizable intangible assets from December 31, 2020, was due to the preliminary purchase price allocation associated with PMI's business combinations in 2021 (primarily developed technology and customer relationships) in the amount of $ 950 million, partially offset by currency movements of ($ 45 million).

For further details, see Note 17.

Acquisitions .

The change in the accumulated amortization from December 31, 2020, was mainly due to the 2021 amortization of $ 55 million, partially offset by currency movements of ($ 18 million).

Amortization expense for each of the next five years is estimated to be $ 75 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

Amortization expense for each of the next five years (including PMI's recent acquisitions of Fertin Pharma A/S and Vectura Group plc.) is estimated to be $ 143 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

During the second quarter of 2021, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment, and no impairment charges were required as a result of this review.

17 unchanged sentences

The primary currencies to which PMI is exposed include the Euro, Indonesian rupiah, Japanese yen, Mexican peso, Philippine peso, Russian ruble and Swiss franc.

At June 30, 2021, PMI had contracts with aggregate notional amounts of $ 22.7 billion of which $ 3.5 billion related to cash flow hedges, $ 7.6 billion related to hedges of net investments in foreign operations and $ 11.6 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

At September 30, 2021, PMI had contracts with aggregate notional amounts of $ 23.1 billion of which $ 4.0 billion related to cash flow hedges, $ 7.4 billion related to hedges of net investments in foreign operations and $ 11.7 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, were as follows:

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, were as follows:

Derivative Assets Derivative Liabilities

Fair Value Fair Value

(in millions) Balance Sheet Classification June 30, 2021 December 31, 2020 Balance Sheet Classification June 30, 2021 December 31, 2020

(in millions) Balance Sheet Classification September 30, 2021 December 31, 2020 Balance Sheet Classification September 30, 2021 December 31, 2020

Derivative contracts designated as hedging instruments Other current assets $ 182 $ 130 Other accrued liabilities $ 83 $ 241

11 unchanged sentences

The fair value of PMI’s currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates.

PMI’s derivative contracts have been classified within Level 2 at June 30, 2021 and December 31, 2020.

PMI’s derivative contracts have been classified within Level 2 at September 30, 2021 and December 31, 2020.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2021 and 2020, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Six Months Ended June 30,

For the nine months ended September 30, 2021 and 2020, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Nine Months Ended September 30,

Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives Statement of Earnings

20 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2021 and 2020, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Three Months Ended June 30,

For the three months ended September 30, 2021 and 2020, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Three Months Ended September 30,

Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives Statement of Earnings

13 unchanged sentences

Marketing, administration and research costs (c)

( 91 ) ( 92 )

Total $ 144 $ ( 359 ) $ 9 $ 1 $ 151 $ ( 25 )

5 unchanged sentences

Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings.

As of June 30, 2021, PMI has hedged forecasted transactions for periods not exceeding the next twelve months with the exception of one derivative contract that expires in May 2024.

As of September 30, 2021, PMI has hedged forecasted transactions for periods not exceeding the next fifteen months with the exception of one derivative contract that expires in May 2024.

The impact of these hedges is primarily included in operating cash flows on PMI’s condensed consolidated statements of cash flows.

1 unchanged sentence

PMI designates derivative contracts and certain foreign currency denominated debt instruments as net investment hedges, primarily of its Euro net assets.

For the six months ended June 30, 2021 and 2020, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 110 million and $( 103 ) million, respectively.

For the three months ended June 30, 2021 and 2020, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $( 71 ) million and $( 98 ) million, respectively.

For the nine months ended September 30, 2021 and 2020, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 181 million and $( 290 ) million, respectively.

For the three months ended September 30, 2021 and 2020, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 71 million and $( 187 ) million, respectively.

The premiums paid for, and settlements of, net investment hedges are included in investing cash flows on PMI’s condensed consolidated statements of cash flows.

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Hedging activity affected accumulated other comprehensive losses, net of income taxes, as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

2 unchanged sentences

Change in fair value 85 ( 37 ) 8 ( 31 )

Gain/(loss) as of June 30, $ ( 6 ) $ ( 18 ) $ ( 6 ) $ ( 18 )

At June 30, 2021, PMI expects $ 26 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

Gain/(loss) as of September 30, $ ( 4 ) $ ( 51 ) $ ( 4 ) $ ( 51 )

At September 30, 2021, PMI expects $ 18 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

These gains are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.

7 unchanged sentences

Basic and diluted earnings per share (“EPS”) were calculated using the following:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

14 unchanged sentences

for sale in the United States under license.

Operating segments for PMI are organized by geographic region and managed by segment managers who are responsible for the operating and financial results of the regions inclusive of all product categories sold in the region.

PMI’s operating segments are the European Union;

For further developments related to the sale of these products in the U.S., see Note 8.

Contingencies .

PMI's segments are generally organized by geographic region and managed by segment managers who are responsible for the operating and financial results of the regions inclusive of all product categories sold in the region.

PMI currently has six geographical segments:

the European Union;

Eastern Europe;

2 unchanged sentences

East Asia & Australia;

and Latin America & Canada.

PMI records net revenues and operating income to its segments based upon the geographic area in which the customer resides.

and Americas;

as well as an Other category.

Other consists of the third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

For further details on these acquisitions, see Note 17.

Acquisitions .

PMI records net revenues and operating income to its geographical segments based upon the geographic area in which the customer resides.

Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc.

for sale under license in the United States are included in net revenues of the Latin America & Canada segment.

In July 2021, the Latin America & Canada operating segment was renamed as the Americas operating segment.

PMI’s chief operating decision maker evaluates segment performance and allocates resources based on regional operating income, which includes results from all product categories sold in each region.

PMI disaggregates its net revenue from contracts with customers by both geographic location and product category for each of PMI's six operating segments, as PMI believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

for sale under license in the United States are included in net revenues of the Americas segment.

PMI’s chief operating decision maker evaluates geographical segment performance and allocates resources based on regional operating income, which includes results from all product categories sold in each region.

Business operations in the Other category are evaluated separately.

PMI disaggregates its net revenue from contracts with customers by both geographic location and product category for each of PMI's six geographical segments, as PMI believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Segment data were as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

5 unchanged sentences

East Asia & Australia 4,509 4,045 1,523 1,358

Latin America & Canada 864 816 430 368

Americas 1,320 1,216 456 400

Net revenues $ 23,301 $ 21,250 $ 8,122 $ 7,446

Operating income:

Operating income (loss):

European Union $ 4,811 $ 3,924 $ 1,680 $ 1,588

3 unchanged sentences

East Asia & Australia 2,041 1,792 631 637

Latin America & Canada 246 218 112 92

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

3 unchanged sentences

PMI's net revenues by product category were as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

6 unchanged sentences

East Asia & Australia 1,850 1,876 591 605

Latin America & Canada 840 803 418 363

Americas 1,278 1,196 438 393

Total combustible products $ 16,577 $ 16,360 $ 5,796 $ 5,716

5 unchanged sentences

East Asia & Australia 2,659 2,169 932 753

Latin America & Canada 24 13 12 5

Americas 42 20 18 7

Total reduced-risk products $ 6,724 $ 4,890 $ 2,326 $ 1,730

3 unchanged sentences

• Asset impairment and exit costs - See Note 16.

Asset Impairment and Exit Costs for a breakdown of these costs by segment for the six months and three months ended June 30, 2021 and 2020.

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 six months and three months ended June 30, 2021.

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.

2 unchanged sentences

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 PMI's heated tobacco units, heat-not-burn devices and related accessories, and other nicotine-containing products, which primarily include PMI's e-vapor products.

Philip Morris International Inc.

32 unchanged sentences

Deconsolidation of RBH of PMI's Annual Report on Form 10-K for the year ended December 31, 2020, RBH's financial results have been deconsolidated from our consolidated financial statements since March 22, 2019.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including September 30, 2021, of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including March 31, 2022, of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions.

These proceedings are presented below under the caption “ Stayed Litigation — Canada .” Ernst & Young Inc.

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In accordance with the CCAA process, as the parties work towards a plan of arrangement or compromise in a confidential mediation, it is anticipated that the court will set additional hearings and further extend the stay of proceedings.

On April 17, 2019, the Ontario Superior Court ruled that RBH and the other defendants will not be allowed to file an application to the Supreme Court of Canada for leave to appeal the Court of Appeal’s decision in the Létourneau and the Blais cases so long as the comprehensive stay of all tobacco-related litigation in Canada remains in effect and that the time period to file the application would be extended by the stay period.

While RBH believes that the findings of liability and damages in both Létourneau and the Blais cases were incorrect, the CCAA proceedings will provide a forum for

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

RBH to seek resolution through a plan of arrangement or compromise of all tobacco-related litigation pending in Canada.

and that the time period to file the application would be extended by the stay period.

While RBH believes that the findings of liability and damages in both Létourneau and the Blais cases were incorrect, the CCAA proceedings will provide a forum for RBH to seek resolution through a plan of arrangement or compromise of all tobacco-related litigation pending in Canada.

It is not possible to predict the resolution of the underlying legal proceedings or the length of the CCAA process.

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See the Blais description above and Item 8, Note 20.

Deconsolidation of RBH in PMI's Annual Report on Form 10-K for the year ended December 31, 2020 for further detail concerning the security order pertaining to both Létourneau and Blais cases and the impact of the decision on PMI’s financial statements.

Deconsolidation of RBH in PMI's Annual Report on Form 10-K for the year ended December 31, 2020 for further detail

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

concerning the security order pertaining to both Létourneau and Blais cases and the impact of the decision on PMI’s financial statements.

RBH and PMI believe the findings of liability and damages in both Létourneau and the Blais cases were incorrect and in contravention of applicable law on several grounds including the following:

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In the ninth class action pending in Canada, Suzanne Jacklin v.

Canadian Tobacco Manufacturers' Council, et al., Ontario Superior Court of Justice, filed June 20, 2012, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants.

The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised

Canadian Tobacco Manufacturers' Council, et al., Ontario Superior Court of Justice, filed June 20, 2012, we, RBH, and our indemnitees (PM USA and Altria), and other members of the

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, heart disease, or cancer, as well as restitution of profits.

industry are defendants.

The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, heart disease, or cancer, as well as restitution of profits.

Health Care Cost Recovery Litigation — Canada

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In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v.

Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada , filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants.

The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian

Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada , filed June 8, 2012, we, RBH, our indemnitees (PM USA

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

and Altria), and other members of the industry are defendants.

The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces.

The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”

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The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of July 23, 2021, July 24, 2020 and July 23, 2019:¹

Type of Case Number of Cases Pending as of July 23, 2021 Number of Cases Pending as of July 24, 2020 Number of Cases Pending as of July 23, 2019

The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of October 22, 2021, October 23, 2020 and October 22, 2019:¹

Type of Case Number of Cases Pending as of October 22, 2021 Number of Cases Pending as of October 23, 2020 Number of Cases Pending as of October 22, 2019

Individual Smoking and Health Cases 40 43 49

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In addition, plaintiff filed an appeal challenging the dismissal of the claim for psychological damages.

As required by local law, our subsidiary will have to deposit the damages awarded, plus interest and costs, in total ARS 6,114,428 (approximately $ 63,438 ), into a court escrow account.

Our subsidiary plans to challenge the amount determined by the court.

As required by local law, our subsidiary deposited the damages awarded, plus interest and costs, in total ARS 6,114,428 (approximately $ 61,536 ), into a court escrow account.

Our subsidiary challenged the amount determined by the court.

If our subsidiary ultimately prevails on appeal, the deposited amounts will be returned to our subsidiary.

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Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.

As of July 23, 2021, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 44 cases brought by individual plaintiffs in Argentina ( 31 ), Brazil ( 3 ), Canada ( 2 ), Chile ( 2 ), China ( 1 ), Italy ( 1 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), as well as 1 case brought by an individual plaintiff in the United States District Court for the District of Oregon in May 2021.

The provisions of the 2008 Share Distribution Agreement between PMI and Altria provide for indemnities to PMI for certain liabilities concerning tobacco products as described above under the caption " Tobacco-Related Litigation, " compared with 44 such cases on July 24, 2020, and 52 cases on July 23, 2019;

• 9 cases brought on behalf of classes of individual plaintiffs in Canada, compared with 10 such cases on July 24, 2020 and 10 such cases on July 23, 2019.

As of October 22, 2021, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 40 cases brought by individual plaintiffs in Argentina ( 30 ), Brazil ( 2 ), Canada ( 2 ), Chile ( 1 ), Italy ( 1 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), as well as 1 case brought by an individual plaintiff in the United States District Court for the District of Oregon in May 2021.

The provisions of the 2008 Share Distribution Agreement between PMI and Altria provide for indemnities to PMI for certain liabilities concerning tobacco products as described above under the caption " Tobacco-Related Litigation, " compared with 43 such cases on October 23, 2020, and 49 cases on October 22, 2019;

• 9 cases brought on behalf of classes of individual plaintiffs in Canada, compared with 9 such cases on October 23, 2020 and 10 such cases on October 22, 2019.

The class actions pending in Canada are described above under the caption “ Smoking and Health Litigation — Canada.

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Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.

As of July 23, 2021, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil ( 1 ), Canada ( 10 ), Korea ( 1 ) and Nigeria ( 5 ), compared with 17 such cases on July 24, 2020 and 17 such cases on July 23, 2019.

As of October 22, 2021, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil ( 1 ), Canada ( 10 ), Korea ( 1 ) and Nigeria ( 5 ), compared with 17 such cases on October 23, 2020 and 17 such cases on October 22, 2019.

The health care cost recovery actions pending in Canada are described above under the caption “ Health Care Cost Recovery Litigation — Canada.

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al., filed April 14, 2014, our subsidiary and other Korean manufacturers are defendants.

Plaintiff alleges that defendants concealed the health hazards of smoking, marketed to youth, added ingredients to make their products more harmful and addictive, and misled consumers into believing that Lights cigarettes are safer than regular cigarettes.

The National Health Insurance Service seeks to recover

Plaintiff alleges that defendants concealed the health hazards of smoking, marketed to youth, added ingredients to make their products more harmful and addictive, and misled consumers into

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

damages allegedly incurred in treating 3,484 patients with small cell lung cancer, squamous cell lung cancer, and squamous cell laryngeal cancer from 2003 to 2012.

believing that Lights cigarettes are safer than regular cigarettes.

The National Health Insurance Service seeks to recover damages allegedly incurred in treating 3,484 patients with small cell lung cancer, squamous cell lung cancer, and squamous cell laryngeal cancer from 2003 to 2012.

The trial court dismissed the case in its entirety on November 20, 2020.

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Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of July 23, 2021, there were 4 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 3 ) pending against our subsidiaries, compared with 5 such cases on July 24, 2020, and 6 such cases on July 23, 2019.

As of October 22, 2021, there were 3 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 2 ) pending against our subsidiaries, compared with 5 such cases on October 23, 2020, and 5 such cases on October 22, 2019.

Public Civil Actions:

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Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.

As of July 23, 2021, there were 2 public civil actions pending against our subsidiaries in Argentina ( 1 ) and Venezuela ( 1 ), compared with 2 such cases on July 24, 2020, and 2 such cases on July 23, 2019.

As of October 22, 2021, there were 1 public civil actions pending against our subsidiaries in Venezuela ( 1 ), compared with 2 such cases on October 23, 2020, and 2 such cases on October 22, 2019.

In the public civil action in Argentina, Asociación Argentina de Derecho de Danos v.

Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina , filed February 26, 2007, our subsidiary and another member of the industry are defendants.

The plaintiff, a consumer association, seeks the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking.

Our subsidiary filed its answer in September 2007.

In March 2010, the case file was transferred to the Federal Court on Administrative Matters after the Civil Court granted plaintiff's request to add the national government as a co-plaintiff in the case.

Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina , filed February 26, 2007, our subsidiary and another member of the industry were defendants.

The plaintiff, a consumer association, sought the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking.

The trial court dismissed the case on May 14, 2021.

In the public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al.

No appeal was filed and the trial court's dismissal is now final.

In a public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al.

National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court , filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case.

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If our subsidiary ultimately prevails on appeal, then Thailand will be required to return this payment to our subsidiary.

The appellate court is scheduled to issue its decision on the appeals on February 1, 2022.

The DSI also conducted an investigation into alleged underpayment by PM Thailand of customs duties and excise taxes relating to imports from Indonesia covering the period 2000-2003.

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In January 2021, the appellate court upheld the trial court's decision.

The government agencies appealed

The government agencies appealed to the Supreme Court of South Korea.

If the tax authorities and government agencies ultimately lose, then they would be required to return the paid amounts to PM Korea.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

to the Supreme Court of South Korea.

If the tax authorities and government agencies ultimately lose, then they would be required to return the paid amounts to PM Korea.

The Moscow Tax Inspectorate for Major Taxpayers (“MTI”) conducted an audit of AO Philip Morris Izhora (“PM Izhora”), our Russian subsidiary, for the 2015-2017 financial years.

On July 26, 2019, MTI issued its initial assessment, claiming that intercompany sales of cigarettes between PM Izhora and another Russian subsidiary prior to excise tax increases and submission by PM Izhora of the maximum retail sales price notifications for cigarettes to the tax authorities were improper under Russian tax laws and resulted in underpayment of excise taxes and VAT.

In August 2019, PM Izhora submitted its objections disagreeing with MTI’s allegations set forth in the initial assessment and MTI’s methodology for calculating the alleged underpayments.

MTI accepted some of PM Izhora’s arguments, and in September 2019, issued the final tax assessment claiming an underpayment of RUB 24.3 billion (approximately $ 374 million), including penalties and interest.

In accordance with Russian tax laws, PM Izhora paid the entire amount of MTI’s final assessment.

This amount was neither imposed on, nor concurrent with, the specific revenue-producing transaction, nor was it collected from customers of our Russian subsidiaries.

In the third quarter of 2019, PMI recorded a pre-tax charge of $ 374 million, in marketing, administration and research costs in the condensed consolidated statements of earnings, representing $ 315 million net of an associated income tax benefit of $ 59 million.

The Saudi Arabia Customs General Authority issued its assessments requiring our distributors to pay additional customs duties in the amount of approximately 1.5 billion Saudi Riyal, or approximately $ 396 million, in relation to the fees paid by these distributors under their agreements with our subsidiary for exclusive rights to distribute our products in Saudi Arabia.

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On September 28, 2020, plaintiffs filed an amended complaint seeking to replead allegations relating to four non-clinical studies of PMI's Platform 1 product.

On September 10, 2021, the court granted defendant's motion to dismiss plaintiffs' amended complaint in its entirety.

On October 8, 2021, the plaintiffs filed a Notice of Appeal to the U.S.

Court of Appeal for the Second Circuit.

We believe that this lawsuit is without merit and will continue to defend it vigorously.

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Plaintiffs seek an order to prevent the importation of Platform 1 products into the United States.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

The ITC evidentiary hearing closed on February 1, 2021.

On May 14, 2021, the administrative law judge issued an Initial and Recommended Determination ("ID/RD") finding that the Platform 1 product infringes two of the three patents asserted by Plaintiffs, recommending that the ITC issue a Limited Exclusion order against infringing products, and recommending against a cease-and-desist, as well as recommending against a bond pending Presidential review of the ITC's Final Determination.

Defendants and Plaintiffs filed separate Petitions for Review with the ITC of the ID on May 28, 2021;

a decision on those petitions is expected on July 27, 2021.

on July 27, 2021, the ITC granted each of the petitions in part, deciding to review certain issues in the ID.

Plaintiffs and Defendants also submitted brief statements of the public interest factors in issue to the ITC on June 15, 2021.

The ITC's Final Determination is expected in mid-September 2021.

In June 2020, defendants filed their responses in both proceedings.

On September 29, 2021, the ITC issued its FD finding a violation of section 337 of the U.S.

Tariff Act and issuing (a) a limited exclusion order against Philip Morris Products S.A., prohibiting, inter alia, the importation of Platform 1 product and infringing components;

and (b) a cease-and-desist order against Altria Client Services, LLC and its affiliate prohibiting, inter alia, sales of imported Platform 1 products.

The ITC predicated the orders on its finding that Platform 1 products infringe two patents owned by a BAT affiliate.

The ITC also found that Platform 1 products do not infringe a third patent owned by a BAT affiliate.

The ITC further held that there were insufficient concerns over public interest to prevent the issuance of remedial orders.

The orders are not effective pending the result of the 60-day Presidential Review period (“PRP”).

Following the PRP, each party will be able to appeal patent and statutory findings to the U.S.

Court of Appeals for the Federal Circuit but there is no stay of the orders.

We estimate that an adverse ruling is probable due to our inability to import the products and components impacted by the ITC's FD with immaterial

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

financial impact.

In the Eastern District of Virginia case, the defendants also counterclaimed that BAT infringed their patents relating to certain e-vapor products, seeking damages for, and injunctive relief against, the commercialization of these products by BAT;

defendants' claims against BAT are set for trial on April 4, 2022.

Upon petition of Philip Morris Products S.A., the Patent Trial and Appeal Board of the United States Patent and Trademark Office has instituted review of certain claims pertaining to four of the six patents asserted by BAT affiliates in both proceedings.

Upon petition of Philip Morris Products S.A., the Patent Trial and Appeal Board ("PTAB") of the United States Patent and Trademark Office has instituted review of certain claims pertaining to four of the six patents asserted by BAT affiliates in both proceedings.

We expect PTAB's final decision on the two BAT patents underlying the ITC's FD to arrive on January 25, 2022 and April 2, 2022, respectively;

the parties may then appeal the PTAB result to the U.S.

Court of Appeals for the Federal Circuit.

In April 2020, BAT’s affiliate commenced patent infringement proceedings, Nicoventures Trading Limited v.

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Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 products in Germany.

In July 2020, in response to a challenge in the United Kingdom by PMI’s subsidiary to patents related to the BAT patents in the German proceedings, BAT affiliates brought a patent infringement action, Nicoventures Trading Limited, et al.

Philip Morris Products S.A., et al., against Philip Morris Products S.A.

and PMI’s U.K.

subsidiary, Philip Morris Limited, in the English High Court, seeking damages and injunctive relief against the commercialization of the Platform 1 products in the United Kingdom.

On March 9, 2021, the court revoked the BAT patents and found that, had the BAT patents not been revoked as invalid, they would have been infringed.

BAT affiliates sought to appeal the court’s judgment and the U.K.

Court of Appeal refused BAT's request to appeal.

In September 2020, BAT’s affiliates commenced patent infringement and unfair competition proceedings, RAI Strategic Holdings, Inc., et al.

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Plaintiffs' proceeding requesting damages and a permanent injunction remains pending before the Court of Law of Bucharest, Civil Registry.

In February 2021, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

Papastratos SA, et al., against PMI’s Greek subsidiary, Papastratos Cigarettes Manufacturing Company S.A., and Philip Morris Products S.A., in the First Instance Court of Athens.

Plaintiff seeks preliminary injunctive relief against the commercialization of the Platform 1 products in Greece.

In July 2021, the court dismissed plaintiffs' request in its entirety.

In an October 14, 2021 hearing, the court stayed the proceeding.

In March 2021, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

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We believe that the foregoing proceedings by the affiliates of BAT are without merit and will defend them vigorously.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

We are also involved in additional litigation arising in the ordinary course of our business.

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The maximum amount of these obligations is currently non-estimable.

As of June 30, 2021, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

As of September 30, 2021, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

In connection with the Contribution Agreement, PMIBV and the majority shareholder of Medicago Inc.

entered into a guarantors’ agreement that apportions Co-Guarantors’ obligations and limits those of PMIBV to its then share of holdings in Medicago Inc., which as of June 30, 2021 was approximately 32 %.

In July 2021, Medicago Inc.

initiated an additional round of equity funding in which PMIBV did not participate.

entered into a guarantors’ agreement that apportions Co-Guarantors’ obligations and limits those of PMIBV to its share of holdings in Medicago Inc.

In July 2021 and October 2021, Medicago Inc.

initiated additional rounds of equity funding in which PMIBV did not participate.

As a result, PMIBV’s share of holdings in Medicago Inc.

was reduced to approximately 25 %.

was reduced from approximately 32 % to approximately 25 % as of September 30, 2021, and approximately 24 % as of October 27, 2021.

The guarantees are in effect through March 31, 2026.

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to provide certain relief as a result of the COVID-19 pandemic.

As of June 30, 2021, PMI has determined that the Act had no significant impact on PMI's effective tax rate.

PMI’s effective tax rates for the six months and three months ended June 30, 2021 were 21.7 % and 22.0 %, respectively.

PMI’s effective tax rates for the six months and three months ended June 30, 2020 were 21.7 % and 20.7 %, respectively.

The effective tax rate for the six months ended June 30, 2021 was favorably impacted by the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021).

The effective tax rate for the six months ended June 30, 2020 was favorably impacted by the corporate income tax rate reduction in Indonesia (enacted in the second quarter of 2020).

As of September 30, 2021, PMI has determined that the Act had no significant impact on PMI's effective tax rate.

PMI’s effective tax rates for the nine months and three months ended September 30, 2021 were 22.0 % and 22.4 %, respectively.

PMI’s effective tax rates for the nine months and three months ended September 30, 2020 were 21.4 % and 20.9 %, respectively.

The effective tax rate for the nine months ended September 30, 2021 was favorably impacted by the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021).

The effective tax rate for the nine 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 the Global Low-Taxed Income regulations ($ 93 million), a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI and a decrease in deferred tax liabilities related to the corporate income tax rate reduction in Indonesia, partially offset by a decrease in deductions related to foreign-derived intangible income for the years 2018 and 2019.

PMI estimates that its full-year 2021 effective tax rate will be around 22 %, excluding discrete tax events.

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state jurisdictions have statutes of limitations generally ranging from three to five years.

In October 2021, a subsidiary of PMI in Indonesia, PT Hanjaya Mandala Sampoerna Tbk ("HMS"), received a tax assessment in the amount of 3.8 trillion Indonesian rupiah (approximately $ 260 million) primarily relating to corporate income taxes on domestic and other intercompany transactions for the years 2017 to 2019.

HMS expects to pay the assessment in the fourth quarter of 2021 in order to avoid potential penalties and will file an objection letter with the tax office.

Upon payment, this amount will be included in other assets in PMI’s consolidated balance sheets and will negatively impact net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties.

An estimate of any possible change cannot be made at this time.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Indebtedness:

Short-term Borrowings:

PMI's short-term borrowings, consisting of bank loans to certain PMI subsidiaries at June 30, 2021 and December 31, 2020, had a carrying value of $ 136 million and $ 244 million, respectively.

PMI's short-term borrowings, consisting of bank loans to certain PMI subsidiaries at September 30, 2021 and December 31, 2020, had a carrying value of $ 223 million and $ 244 million, respectively.

The fair values of PMI’s short-term borrowings, based on current market interest rates, approximate carrying value.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Long-term Debt:

At June 30, 2021 and December 31, 2020, PMI’s long-term debt consisted of the following:

(in millions) June 30, 2021 December 31, 2020

At September 30, 2021 and December 31, 2020, PMI’s long-term debt consisted of the following:

(in millions) September 30, 2021 December 31, 2020

dollar notes, 0.875 % to 6.375 % (average interest rate 3.232 %), due through 2044

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$ 25,768 $ 28,168

(a) Includes mortgage debt in Switzerland as well as $ 56 million and $ 37 million in finance leases at June 30, 2021 and December 31, 2020, respectively.

(a) Includes mortgage debt in Switzerland as well as $ 81 million and $ 37 million in finance leases at September 30, 2021 and December 31, 2020, respectively.

The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities.

At June 30, 2021, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

At September 30, 2021, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

(in millions)

June 30, 2021

September 30, 2021

Level 1 $ 31,338

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

On January 29, 2021, PMI 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, PMI entered into a new $ 2.5 billion multi-year revolving credit facility, expiring on September 29, 2026.

This new credit facility includes 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.

The new credit facility replaced the $ 3.5 billion multi-year revolving credit facility, which was terminated effective September 29, 2021.

PMI had no borrowings outstanding under the terminated facility, which was due to expire on October 1, 2022.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

At June 30, 2021, PMI's total committed credit facilities were as follows:

At September 30, 2021, PMI's total committed credit facilities were as follows:

(in billions)

364-day revolving credit, expiring February 1, 2022

Multi-year revolving credit, expiring October 1, 2022

Multi-year revolving credit, expiring February 10, 2025 (a)

Multi-year revolving credit, expiring February 10, 2026

Multi-year revolving credit, expiring September 29, 2026

Total facilities

(a) On January 29, 2021, PMI 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, in the amount of $ 1.86 billion .

Effective July 2, 2021, the total facility amount for this additional year is $ 1.95 billion.

At June 30, 2021, there were no borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.

At September 30, 2021, there were no borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.

Accumulated Other Comprehensive Losses:

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(Losses) Earnings At At At

(in millions) June 30, 2021 December 31, 2020 June 30, 2020

(in millions) September 30, 2021 December 31, 2020 September 30, 2020

Currency translation adjustments $ ( 6,529 ) $ ( 6,843 ) $ ( 6,910 )

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Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the six months and three months ended June 30, 2021 and 2020.

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the nine months and three months ended September 30, 2021 and 2020.

For additional information, see Note 3.

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Equity Method Investments:

At June 30, 2021 and December 31, 2020, PMI had total equity method investments of $ 907 million and $ 966 million, respectively.

At September 30, 2021 and December 31, 2020, PMI had total equity method investments of $ 968 million and $ 966 million, respectively.

Equity method investments are initially recorded at cost.

Under the equity method of accounting, the investment is adjusted for PMI's proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency translation adjustments.

The carrying value of our equity method investments at June 30, 2021 and December 31, 2020 exceeded our share of the investees' book value by $ 773 million and $ 773 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 742 million and $ 745 million attributable to goodwill as of June 30, 2021 and December 31, 2020, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years.

At June 30, 2021 and December 31, 2020, PMI received year-to-date dividends from equity method investees of $ 73 million and $ 79 million, respectively.

The carrying value of our equity method investments at September 30, 2021 and December 31, 2020 exceeded our share of the investees' book value by $ 786 million and $ 773 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 748 million and $ 745 million attributable to goodwill as of September 30, 2021 and December 31, 2020, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years.

At September 30, 2021 and December 31, 2020, PMI received year-to-date dividends from equity method investees of $ 73 million and $ 79 million, respectively.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment).

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Transactions between PMI and RBH are considered to be related party transactions from the date of deconsolidation and are included in the tables below.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 242 million at June 30, 2021.

Unrealized pre-tax gain (loss) was not material for the six months and three months ended June 30, 2021.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 253 million at September 30, 2021.

Unrealized pre-tax gain (loss) was not material for the nine months and three months ended September 30, 2021.

Other related parties:

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PMI’s net revenues and expenses with the above related parties were as follows:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2021 2020 2021 2020

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PMI’s balance sheet activity with the above related parties was as follows:

(in millions) At June 30, 2021 At December 31, 2020

(in millions) At September 30, 2021 At December 31, 2020

Megapolis Group $ 472 $ 209

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When applicable, a servicing liability is recorded for the estimated fair value of the servicing.

The amounts associated with the servicing liability were no t material as of June 30, 2021 and June 30, 2020.

The amounts associated with the servicing liability were no t material as of September 30, 2021 and September 30, 2020.

Under the non-servicing arrangements, PMI does not provide any administrative support or servicing after the trade receivables have been sold to the unaffiliated financial institutions.

Cumulative trade receivables sold, including excise taxes, for the six months ended June 30, 2021 and 2020, were $ 5.5 billion.

Cumulative trade receivables sold, including excise taxes, for the nine months ended September 30, 2021 and 2020, were $ 8.6 billion and $ 8.4 billion, respectively.

PMI’s 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 June 30, 2021 and June 30, 2020, were $ 0.7 billion, and $ 0.6 billion, respectively.

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.

The difference between the carrying amount of the trade receivables sold and the sum of

The difference

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

the cash received is recorded as a loss on sale of trade receivables within marketing, administration and research costs in the condensed consolidated statements of earnings.

For the six months and three months ended June 30, 2021 and 2020, the loss on sale of trade receivables was no t material.

between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of trade receivables within marketing, administration and research costs in the condensed consolidated statements of earnings.

For the nine months and three months ended September 30, 2021 and 2020, the loss on sale of trade receivables was no t material.

Product Warranty:

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PMI accounts for its product warranties within other accrued liabilities.

At June 30, 2021 and December 31, 2020, these amounts were as follows:

(in millions) At June 30, 2021 At December 31, 2020

At September 30, 2021 and December 31, 2020, these amounts were as follows:

(in millions) At September 30, 2021 At December 31, 2020

Balance at beginning of period $ 137 $ 140

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Balance at end of period $ 114 $ 137

The components of PMI’s lease cost were as follows for the six months and three months ended June 30, 2021 and 2020:

For the Six Months Ended June 30, For the Three Months Ended June 30,

The components of PMI’s lease cost were as follows for the nine months and three months ended September 30, 2021 and 2020:

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2021 2020 2021 2020

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Asset Impairment and Exit Costs:

For the six months and three months ended June 30, 2021, PMI recorded total pre-tax asset impairment and exit costs of $ 127 million and $ 79 million, respectively.

For the six months and three months ended June 30, 2020, PMI recorded total pre-tax asset impairment and exit costs of $ 71 million.

For the nine months and three months ended September 30, 2021, PMI recorded total pre-tax asset impairment and exit costs of $ 170 million and $ 43 million, respectively.

For the nine months ended September 30, 2020, PMI recorded total pre-tax asset impairment and exit costs of $ 71 million.

During the three months ended September 30, 2020, PMI did no t record any pre-tax asset impairment and exit costs.

The total pre-tax asset impairment and exit costs were included in marketing, administration and research costs on the condensed consolidated statements of earnings.

In the first quarter of 2021, PM Korea commenced the implementation of a new business operating model, which requires the restructuring of its current distribution agreements.

As a result, PMI recorded exit costs of $ 26 million in the first quarter of 2021 related to contract terminations with certain distributors;

As a result, PMI recorded exit costs of $ 42 million and $ 16 million in the nine months and three months ended September 30, 2021, respectively, related to contract terminations with certain distributors;

exit costs will continue to be recorded as the agreements are executed.

There were no exit costs incurred in the second quarter of 2021 related to this restructuring of distribution agreements in South Korea.

The implementation of the new business operating model is expected to be completed in the second half of 2021.

The implementation of the new business operating model is expected to be completed in the fourth quarter of 2021.

Philip Morris International Inc.

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Additional phases commenced during the first quarter of 2021.

The consultation procedures for these phases were completed in June 2021, impacting approximately 130 positions.

The consultation procedures for these phases were completed by September 30, 2021, impacting approximately 150 positions.

Additionally, since the commencement of this multi-phase restructuring project in 2020, PMI launched a voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in Argentina, Indonesia, Poland and the United States.

This multi-phase restructuring project is expected to be completed in the second half of 2021 upon finalization of the voluntary separation program in Switzerland.

For the six months and three months ended June 30, 2021, PMI recorded pre-tax charges of $ 101 million and $ 79 million, respectively, and for the six months and three months ended June 30, 2020, PMI recorded pre-tax charges of $ 71 million, related to the organizational design optimization.

Since inception of this multi-phase restructuring project in 2020 through June 30, 2021, approximately 950 positions in total were impacted, resulting in cumulative pre-tax charges of $ 250 million related to the organizational design optimization program.

This multi-phase restructuring project, is expected to be completed in the fourth quarter of 2021 upon finalization of the voluntary separation program in Switzerland.

For the nine months and three months ended September 30, 2021, PMI recorded pre-tax charges of $ 128 million and $ 27 million, respectively, and for the nine months ended September 30, 2020, PMI recorded pre-tax charges of $ 71 million, related to the organizational design optimization.

During the three months ended September 30, 2020, PMI did no t record any pre-tax charges related to organizational design optimization.

Since inception of this multi-phase restructuring project in 2020 through September 30, 2021, approximately 1,010 positions in total were impacted, resulting in cumulative pre-tax charges of $ 277 million related to the organizational design optimization program.

Of this cumulative pre-tax amount, $ 269 million related to separation program charges and $ 8 million related to asset impairment charges.

The amounts related to the potential pension settlement accounting impact of the restructuring, which could be significant, have not been reflected in 2021 as the full-year thresholds for accounting were not expected to be exceeded as of June 30, 2021.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Asset Impairment and Exit Costs by Segment

PMI recorded the following pre-tax asset impairment and exit costs by segment:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

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East Asia & Australia 25 12 5 —

Latin America & Canada 5 4 4 4

Americas 6 4 1 —

Total separation programs 128 64 27 —

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East Asia & Australia — 1 — —

Latin America & Canada — — — —

Americas — — — —

Total asset impairment charges — 7 — —

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(1) Organizational design optimization pre-tax charges in 2021 and 2020 were allocated across all operating segments.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the six months ended June 30, 2021 was as follows:

The movement in exit cost liabilities for the nine months ended September 30, 2021 was as follows:

(in millions)

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Currency/other ( 8 )

Liability balance, June 30, 2021 $ 148

Liability balance, September 30, 2021 $ 138

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2022, with approximately $ 38 million expected to be paid in the remainder of 2021.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Acquisitions:

In May 2021, PMI acquired 100 % of AG Snus Aktieselskab ("AG Snus"), a Danish based company, and its Swedish subsidiary Tobacco House of Sweden AB fully owned by AG Snus, which operates in the oral tobacco (i.e.

Business Combinations

AG Snus - On May 6, 2021, PMI acquired 100 % of AG Snus Aktieselskab ("AG Snus"), a company based in Denmark, and its Swedish subsidiary Tobacco House of Sweden AB fully owned by AG Snus, which operates in the oral tobacco (i.e.

snus) and modern oral (i.e.

1 unchanged sentence

The purchase price was $ 28 million in cash, net of cash acquired, with additional contingent payments of up to $ 10 million, primarily relating to product development and performance targets over a less than two-year period.

Subsequent Event:

In July 2021, PMI deposited $ 1.5 billion of existing cash to a designated account.

The account is operated solely for the purpose of funding the anticipated transaction of Vectura Group plc (“Vectura”), a U.K.

based company.

On July 9, 2021, PMI announced that it agreed with the board of Vectura on the terms of an all-cash, recommended offer to acquire Vectura for an enterprise value of GBP 852 million (approximately $ 1.2 billion, at the then-prevailing exchange rate).

PMI will fund the transaction with existing cash and expects it to close in the second half of 2021, subject to a shareholder vote and approval by the appropriate regulatory authorities.

This restricted cash of $ 1.5 billion (including a reserve for foreign exchange volatility) will be included in other current assets in our consolidated balance sheets starting in July 2021 until the closing.

The operating results of AG Snus are included in the European Union segment.

Fertin Pharma – On September 15, 2021, PMI acquired 100 % of Fertin Pharma A/S (“Fertin Pharma”), a company based in Denmark.

Fertin Pharma is a developer and manufacturer of pharmaceutical and well-being products based on oral and intra-oral delivery systems.

The acquisition was funded with existing cash.

The total consideration of $ 821 million (DKK 5.2 billion) included cash of $ 580 million and the payment of $ 241 million related to the settlement of Fertin Pharma’s indebtedness.

As of September 30, 2021, $ 821 million of the purchase price was preliminarily allocated to cash ($ 24 million), current assets including receivables and inventories ($ 64 million), property, plant and equipment ($ 205 million), goodwill ($ 337 million), and other intangible assets ($ 327 million, which primarily consisted of customer relationships, developed technology, and in process research and development ("IPR&D")), partially offset by current liabilities ($ 43 million, which primarily consisted of accrued liabilities and accounts payable) and deferred income tax ($ 93 million).

The amortizable intangible assets are being amortized over their estimated useful lives of 10 to 20 years.

Due to the timing of the Fertin Pharma acquisition, the purchase price allocation is preliminary and is subject to refinement.

PMI is evaluating the deductibility of goodwill for income tax purposes.

Also due to the timing of the acquisition, PMI did not record the immaterial results of operations from Fertin Pharma in its condensed consolidated statements of earnings from the acquisition date through September 30, 2021.

Vectura – During the third quarter and up to September 15, 2021, PMI acquired a controlling interest of 74.77 % of the total issued shares in Vectura Group plc (“Vectura”), an inhaled therapeutics company based in the United Kingdom.

The shares were acquired through a series of open market purchases and acceptances of the tender offer at a price of 165 pence per share.

As a result of additional acceptances of the offer, PMI held 96.86 % of the total issued shares as of September 30, 2021 in Vectura.

On October 1, 2021, PMI extended the tender offer and maintained the offer open for acceptance until further notice.

On October 21, 2021, PMI exercised its right to acquire compulsorily the Vectura shares in respect of which acceptances have not been received, in accordance with applicable English law, which is expected to be completed in the fourth quarter of 2021.

The total purchase price of $ 1,383 million (GBP 1.0 billion) for 100 % of the Vectura shares (including $ 44 million of non-controlling interest) was preliminarily allocated as of September 30, 2021 to cash ($ 134 million), current assets including receivables and inventories ($ 81 million), non-current assets including property, plant and equipment ($ 65 million), goodwill ($ 705 million), and other intangible assets ($ 646 million, which primarily consisted of developed technology, and IPR&D), partially offset by current liabilities ($ 110 million, primarily accrued liabilities), and non-current liabilities ($ 138 million, primarily deferred income tax).

The amortizable intangible assets are being amortized over their estimated useful lives of 10 to 14 years.

Due to the timing of the Vectura acquisition, the purchase price allocation is preliminary and is subject to refinement.

PMI is evaluating the deductibility of goodwill for income tax purposes.

Also due to the timing of the acquisition, PMI did not record the immaterial results of operations from Vectura in its condensed consolidated statements of earnings from the acquisition date through September 30, 2021.

The acquisition was funded with existing cash from a designated account operated solely for the purpose of funding this acquisition.

As of September 30, 2021, $ 1,140 million of the total purchase price of Vectura was paid in cash with the remaining balance of $ 304 million (including a reserve for foreign exchange volatility) being included as restricted cash in other current assets in our consolidated balance sheets.

The final cash settlement of shares tendered plus the purchase of the non-controlling interest shares is expected in the fourth quarter of 2021.

Pro forma results of operations for the above business combinations have not been presented as the impact is not material to PMI's consolidated statements of earnings.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Asset Acquisition

On August 9, 2021, PMI 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.

The transaction price was $ 38 million in cash, plus transaction costs, with additional contingent payment of $ 13 million, primarily related to certain key milestones that PMI deemed probable.

Additionally, PMI may owe up to $ 25 million in future additional contingent payments dependent upon the achievement of certain milestones.

PMI accounted for this transaction as an asset acquisition since the 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, PMI determined that the acquired IPR&D had no alternative future use.

As a result, PMI recorded a charge of $ 51 million to research and development costs within marketing, administration and research costs in the condensed consolidated statements of earnings for the nine months and three months ended September 30, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements