What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-11 compared with 2021-02-09 · 369 added, 286 removed, 1769 unchanged (27% of the section changed)

47 unchanged sentences

1,055 ( 726 ) ( 454 )

Amortization of net losses, prior service costs and net transition costs, net of income taxes of $( 67 ) in 2020, $( 69 ) in 2019 and $( 43 ) in 2018

(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $ 0 in 2020, $( 15 ) in 2019 and $ 0 in 2018 (Note 20)

Amortization of net losses, prior service costs and net transition costs, net of income taxes of $( 72 ) in 2021, $( 67 ) in 2020

and $( 69 ) in 2019

(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $ 0 in 2021, $ 0 in 2020 and

$( 15 ) in 2019 (Note 20)

Change in fair value of derivatives accounted for as hedges:

Gains (losses) recognized, net of income taxes of $ 13 in 2020, $ 2 in 2019 and $( 4 ) in 2018

Gains (losses) recognized, net of income taxes of $( 20 ) in 2021,

$ 13 in 2020 and $ 2 in 2019

124 ( 68 ) ( 18 )

(Gains) losses transferred to earnings, net of income taxes of $ 0 in 2020, $ 3 in 2019 and $ 5 in 2018

(Gains) losses transferred to earnings, net of income taxes of

$ 7 in 2021, $ 0 in 2020 and $ 3 in 2019

( 35 ) ( 20 ) ( 14 )

82 unchanged sentences

( 22 ) ( 14 ) 371

Cash effects of changes in:

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

Receivables, net

2 unchanged sentences

Accounts payable

406 451 ( 51 )

Accrued liabilities and other current assets

3 unchanged sentences

( 269 ) ( 102 ) ( 200 )

200 370 613 (1)

Net cash provided by operating activities

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( 748 ) ( 602 ) ( 852 )

Acquisitions, net of acquired cash (Note 6) ( 2,111 ) — —

Equity investments

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Net issuances (repayments) - maturities of 90 days or less $ — $ ( 70 ) $ ( 364 )

$ ( 70 ) $ ( 364 ) $ 255

Issuances - maturities longer than 90 days — 45 989

2 unchanged sentences

Long-term debt repaid ( 3,042 ) ( 3,999 ) ( 3,998 )

Repurchases of common stock ( 775 ) — —

Dividends paid ( 7,580 ) ( 7,364 ) ( 7,161 )

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(2) Includes deconsolidation of RBH cash and cash equivalents of $ 1,323 million and restricted cash of $ 23 million.

(3) The amounts for cash and cash equivalents shown above include restricted cash of $ 5 million, $ 4 million and $ 27 million as of December 31, 2020, 2019 and 2018, respectively, which were included in other current assets in the consolidated balance sheets.

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

See notes to consolidated financial statements.

12 unchanged sentences

Other comprehensive earnings (losses), net of income taxes

( 1,572 ) ( 75 ) ( 1,647 )

Issuance of stock awards

2 unchanged sentences

Payments to noncontrolling interests ( 378 ) ( 378 )

Adoption of new accounting standards (1)

Other (Note 6) ( 80 ) ( 4 ) ( 1 ) ( 85 )

Deconsolidation of RBH (Note 20) 529 529

Other 1 50 51

Balances, December 31, 2019 — 2,019 30,987 ( 9,363 ) ( 35,220 ) 1,978 ( 9,599 )

1 unchanged sentence

Other comprehensive earnings (losses), net of income taxes

( 1,818 ) 38 ( 1,780 )

Issuance of stock awards

2 unchanged sentences

Payments to noncontrolling interests ( 602 ) ( 602 )

Deconsolidation of RBH (Note 20) 529 529

Other 17 ( 14 ) 3

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Payments to noncontrolling interests ( 560 ) ( 560 )

Other 17 — ( 14 ) 3

Common stock repurchased ( 785 ) ( 785 )

Balances, December 31, 2021 $ — $ 2,225 $ 33,082 $ ( 9,577 ) $ ( 35,836 ) $ 1,898 $ ( 8,208 )

(1) Financial Accounting Standard Update ASU 2016-01 , “Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities”

See notes to consolidated financial statements.

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Philip Morris International Inc.

is a holding company incorporated in Virginia, U.S.A., whose subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other nicotine-containing products, including reduced-risk products, in markets outside of the United States of America.

In additio n, PMI ships versions o f its Platform 1 device and its consumables authorized by the U.S.

is a holding company incorporated in Virginia, U.S.A.

(also referred to herein as the U.S., the United States or the United States of America), whose subsidiaries and affiliates and their licensees are primarily engaged in the manufacture and sale of cigarettes and reduced-risk products including heat-not-burn, vapor and oral nicotine products, in markets outside of the United States of America.

In addition, during 2021, 2020 and 2019, PMI shipped versions of its Platform 1 device and its consumables authorized by the U.S.

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 17.

Contingencies .

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

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PMI has a range of RRPs in various stages of development, scientific assessment and commercialization.

"Platform 1" is the term PMI uses to refer to PMI’s reduced-risk product that uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.

"Platform 1" is the term PMI uses to refer to PMI’s reduced-risk product that uses a precisely controlled heating device into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.

Basis of presentation

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All intercompany transactions and balances have been eliminated.

PMI has analyzed the impact of the Coronavirus pandemic ("COVID-19") on its financial statements as of December 31, 2020.

PMI has determined that the changes to its significant judgments and estimates did not have a material impact with respect to goodwill, intangible assets, long-lived assets or its hedge accounting activities.

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

Additionally, due to the acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

in the third quarter of 2021, PMI added an Other category.

For further details, see Note 6.

Acquisitions and Note 12.

Segment Reporting .

As of March 22, 2019, PMI deconsolidated the financial results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc.

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Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.

Property, plant and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets.

Machinery and equipment are depreciated over periods ranging from 3 to 15 years, and buildings and building improvements over periods up to 40 years.

Property, plant and equipment are stated at historical cost and depreciated primarily using the straight-line method over the estimated useful lives of the assets.

Machinery and equipment are depreciated primarily over periods ranging from 3 to 15 years, and buildings and building improvements primarily over periods up to 40 years.

Employee benefit plans

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PMI determines that a contract contains a lease if the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration.

Lease expense is recognized on a straight-line basis over the lease ter m with the expense recorded in cost of sales or marketing, administration and research costs depending on the nature of the leased item.

At l ease commencement, PMI recognizes lease liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its operating leases.

Operating lease expense is recognized on a straight-line basis over the lease ter m.

Finance lease expense is amortized based on production activity or the lease term.

Lease expense is recorded in cost of sales or marketing, administration and research costs depending on the nature of the leased item.

At lease commencement, PMI recognizes lease liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its leases.

The recognition of the right-of-use asset and lease liability includes renewal options when it is reasonably certain that they will be exercised.

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Revenue recognition

PMI recognizes revenue primarily through the manufacture and sale of cigarettes and other nicotine-containing products, including reduced-risk products.

PMI recognizes revenue primarily through the manufacture and sale of cigarettes and reduced-risk products, including heat-not-burn, vapor and oral nicotine products.

The majority of PMI revenues are generated by sales through direct and indirect distribution networks with short-term payment conditions and where control is typically transferred to the customer either upon shipment or delivery of goods.

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Estimated costs associated with warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.

Research and Development and Acquired In-Process Research and Development ("IPR&D")

Research and development costs are expensed as incurred.

In a business combination, the fair value of IPR&D acquired is initially capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the projects.

Upon completion, a determination as to the useful life is performed and the intangible asset is accounted for as a definite-lived intangible asset.

Both the indefinite and definite-lived intangible assets are subject to impairment testing annually or more frequently if indicators exist.

In an asset acquisition, the initial cost to acquire the IPR&D is expensed in the consolidated statements of earnings when the project has no alternative future use.

PMI records these costs within marketing, administration and research costs in its consolidated statements of earnings.

Stock-based compensation

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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

Balance at January 1, 2019 $ 1,357 $ 303 $ 87 $ 2,795 $ 536 $ 2,111 $ 7,189

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

Balances at January 1, 2020 $ 1,338 $ 300 $ 89 $ 2,898 $ 551 $ 682 $ — $ 5,858

Changes due to:

Currency 96 17 ( 3 ) 17 8 ( 29 ) — 106

Deconsolidation of RBH ( 1,463 ) ( 1,463 )

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

Changes due to:

Acquisitions 30 — — — — — 968 998

Currency ( 91 ) ( 22 ) ( 7 ) ( 87 ) ( 20 ) ( 42 ) ( 13 ) ( 282 )

Balances, December 31, 2021 $ 1,373 $ 295 $ 79 $ 2,828 $ 539 $ 611 $ 955 $ 6,680

At December 31, 2020, goodwill primarily reflects PMI’s acquisitions in Colombia, Greece, Indonesia, Mexico, Pakistan and Serbia, as well as the business combination in the Philippines.

For details on the deconsolidation of RBH, see Note 20.

Deconsolidation of RBH .

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

For further details on these business combinations, see Note 6.

Acquisitions .

At December 31, 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:

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Trademarks 12 years 1,201 $ 639 562 1,233 $ 594 639

Distribution networks 7 years 115 78 37 113 72 41

Other* 8 years 104 50 54 106 44 62

Developed technology, including patents 12 years 859 63 796 93 41 52

12 years 238 90 148 126 87 39

Total other intangible assets $ 3,610 $ 792 $ 2,818 $ 2,741 $ 722 $ 2,019

* Primarily includes intellectual property rights

(1) 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, 2019, was due to currency movements of $( 30 ) million.

The increase in the gross carrying amount of amortizable intangible assets from December 31, 2019, was mainly due to currency movements of $ 15 million.

The change in the accumulated amortization from December 31, 2019 was mainly due to the 2020 amortization of $ 73 million, combined with currency movements of $ 7 million.

Amortization expense for each of the next five years is estimated to be $ 72 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

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 $ 53 million, partially offset by currency movements of ($ 30 million).

For further details, see Note 6.

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 $ 917 million, partially offset by currency movements of ($ 71 million).

The change in the accumulated amortization from December 31, 2020 was mainly due to the 2021 amortization of $ 96 million, partially offset by currency movements of ($ 26 million).

Amortization expense for each of the next five years (including PMI's 2021 acquisitions of Fertin Pharma A/S and Vectura Group plc.) is estimated to be $ 152 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.

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The carrying value of our equity method investments at December 31, 2021 and 2020, exceeded our share of the investees' book value by $ 764 million and $ 773 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 745 million and $ 863 million attributable to goodwill as of December 31, 2020 and 2019, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 728 million and $ 745 million attributable to goodwill as of December 31, 2021 and 2020, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis.

At December 31, 2021 and 2020, PMI received year-to-date dividends from equity method investees of $ 176 million and $ 79 million, respectively.

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PMI holds a 49 % equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”).

PMI holds an approximate 25 % economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51 % owned by EITA and 49 % by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), which is part of the Middle East & Africa segment, manufactures and distributes under license some of PMI’s brands.

PMI holds an approximate 25 % economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51 % owned by EITA and 49 % by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), which manufactures and distributes under license some of PMI’s brands (Middle East & Africa segment).

The initial investments in Megapolis Distribution BV and EITA were recorded at cost and are included in equity investments on the consolidated balance sheets.

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The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 283 million and $ 256 million for the years ending December 31, 2021 and 2020, respectively.

Unrealized pre-tax gain (loss) of $( 76 ) million and $ 44 million ($( 60 ) million and $ 35 million net of tax) on these equity securities was recorded in the consolidated statement of earnings for the years ended December 31, 2020 and 2019, respectively.

Unrealized pre-tax gains (losses) of $ 19 million and $( 76 ) million ($ 15 million and $( 60 ) million net of tax) on these equity securities were recorded in the consolidated statements of earnings for the years ended December 31, 2021 and 2020, respectively.

For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Note 2 .

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Product Warranty:

PMI's IQOS devices are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law.

PMI's heat-not-burn devices and e-vapor products are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law.

PMI generally provides in cost of sales for the estimated cost of warranty in the period the related revenue is recognized.

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Acquisitions:

On March 21, 2018, PMI acquired the remaining 49 % interest in Tabacalera Costarricense, S.A.

and Mendiola y Compañía, S.A.

for a net purchase price of $ 95 million, which included $ 2 million of contingent consideration.

As a result, PMI now owns 100 % of these Costa Rican affiliates.

The purchase of the remaining 49 % interest resulted in a decrease to PMI’s additional paid-in capital of $ 86 million.

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.

nicotine pouches) product categories.

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.

The operating results of AG Snus are included in the European Union segment, and were not material.

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.

The purchase price of $ 821 million was preliminarily allocated to cash ($ 24 million), current assets including receivables and inventories ($ 69 million), non-current assets including property, plant and equipment ($ 228 million), goodwill ($ 378 million), and other intangible assets ($ 245 million, which primarily consisted of customer relationships, developed technology, and in-process research and development ("IPR&D")), partially offset by current liabilities ($ 44 million, which primarily consisted of accrued liabilities and accounts payable) and non-current liabilities ($ 79 million, primarily deferred income tax).

Goodwill is primarily attributable to future growth opportunities provided by acquired R&D capabilities and any intangibles that did not qualify for separate recognition.

The amortizable intangible assets are being amortized over their estimated useful lives of 8 to 19 years.

Subsequent to the acquisition date, PMI made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in an increase to goodwill of $ 41 million.

The increase was primarily due to a decrease in other intangible assets ($ 82 million), partially offset by a decrease in deferred income tax liabilities ($ 21 million), and an increase in property, plant and equipment ($ 19 million).

The purchase price allocation is preliminary and continues to be subject to refinement.

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

Fertin Pharma's results of operations from the acquisition date through December 31, 2021 were included in PMI's consolidated statements of earnings, and were not material.

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 and the exercise of the right to acquire compulsorily the Vectura shares, in accordance with the applicable English law, PMI completed the acquisition of 100 % of Vectura in the fourth quarter of 2021.

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

The total purchase price of $ 1,384 million (GBP 1.0 billion) for 100 % of the Vectura shares was preliminarily allocated to cash ($ 136 million), current assets including receivables and inventories ($ 89 million), non-current assets including property, plant and equipment ($ 67 million), goodwill ($ 590 million), and other intangible assets ($ 719 million, which primarily consisted of developed technology, and IPR&D), partially offset by current liabilities ($ 100 million, primarily accrued liabilities), and non-current liabilities ($ 117 million, primarily deferred income tax).

Goodwill is primarily attributable to future growth opportunities provided by acquired R&D capabilities and any intangibles that did not qualify for separate recognition.

The amortizable intangible assets are being amortized over their estimated useful lives of 3 to 15 years.

Subsequent to the acquisition date, PMI made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in a decrease to goodwill of $ 115 million.

The decrease was primarily due to increase in other intangible assets ($ 73 million), and a decrease in deferred income tax liabilities ($ 22 million).

The purchase price allocation is preliminary and continues to be subject to refinement.

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

Vectura's results of operations from September 15, 2021 through December 31, 2021 were included in PMI's consolidated statements of earnings, and were not material.

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

PMI elected to early adopt ASU No.

2021-08 “Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which did not have a material impact on PMI’s consolidated operating results, statement of financial position or cash flows.

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 consolidated statements of earnings for the year ended December 31, 2021.

While PMI builds and organizes its future capabilities in wellness and healthcare, Fertin Pharma, Vectura and OtiTopic are considered separate operating segments with their operating results included in the Other category.

For additional information see Note 12.

Segment Reporting .

Indebtedness:

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Euro notes, 0.125 % to 3.125 % (average interest rate 1.995 %), due through 2039

Swiss franc notes, 1.625 % to 2.000 % (average interest rate 1.830 %), due through 2024

Swiss franc notes, 1.625 %, due 2024

Other (average interest rate 3.329 %), due through 2029 (a)

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$ 500 2.625 % February 2017 February 2022

$ 350 4.125 % May 2011 May 2021

$ 750 2.900 % November 2011 November 2021

$ 500 2.625 % February 2017 February 2022

$ 750 2.375 % August 2017 August 2022

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€ 600 (approximately $ 761 )

1.875 % March 2014 March 2021

€ 600 (approximately $ 761 )

2.875 % May 2012 May 2024

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CHF 250 (approximately $ 283 )

2.000 % December 2011 December 2021

Swiss franc notes

CHF 250 (approximately $ 283 )

1.625 % May 2014 May 2024

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(b) USD equivalents for foreign currency notes were calculated based on exchange rates on the date of issuance.

The net proceeds from the sale of the securities listed in the table above were used for general corporate purposes, including working capital requirements and repurchase of PMI's common stock until 2015.

The net proceeds from the sale of the securities listed in the table above were used for general corporate purposes, including working capital requirements and repurchase of PMI's common stock.

On January 18, 2022, PMI redeemed all of its outstanding 2.625 % U.S.

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At December 31, 2021, PMI’s total committed credit facilities were as follows:

(in billions of dollars) Committed

(in billions) Committed

364-day revolving credit, expiring February 1, 2022 $ 1.8

Multi-year revolving credit, expiring October 1, 2022

Multi-year revolving credit, expiring February 10, 2026 2.0

Multi-year revolving credit, expiring September 29, 2026 (1)

Total facilities

(1) 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.

At December 31, 2021, there were no borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.

These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require PMI to post collateral.

The $ 3.5 billion multi-year revolving credit facility in the table above requires us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis.

At December 31, 2020, PMI’s ratio calculated in accordance with the agreement was 12.6 to 1.0.

PMI expects to continue to meet PMI's covenants.

The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreements previously filed with the U.S.

Securities and Exchange Commission.

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 o f $ 1.75 billion.

On January 28, 2022, PMI entered into an agreement to amend and extend the term of its $ 1.8 billion 364 -day revolving credit facility from February 1, 2022, to January 31, 2023.

On January 28, 2022, PMI also entered into an agreement, effective February 10, 2022, 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, 2026 to February 10, 2027, in the amount of $ 1.9 billion.

In addition to the committed credit facilities discussed above, certain subsidiaries maintain short-term credit arrangements to meet their respective working capital needs.

These credit arrangements, which amounted to approximately $ 2.7 billion at December 31, 2020 and December 31, 2019, respectively, are for the sole use of the subsidiaries.

These credit arrangements, which amounted to approximately $ 2.3 billion at December 31,

2021, and approximately $ 2.7 billion at December 31, 2020, are for the sole use of the subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $ 225 million at December 31, 2021, and $ 244 million at December 31, 2020.

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Balances, December 31, 2020 2,109,316,331 ( 551,942,600 ) 1,557,373,731

Repurchase of shares ( 8,514,629 ) ( 8,514,629 )

Issuance of stock awards 1,310,891 1,310,891

Balances, December 31, 2021 2,109,316,331 ( 559,146,338 ) 1,550,169,993

On June 11, 2021, PMI's Board of Directors authorized a new share repurchase program of up to $ 7 billion, with target spending of $ 5 billion to $ 7 billion over a three-year period.

On July 22, 2021, PMI began repurchasing shares under this new share repurchase program.

From July 22, 2021 through December 31, 2021, PMI repurchased 8.5 million shares of its common stock at a cost of $ 785 million.

At December 31, 2021, 23,461,358 shares of common stock were reserved for stock awards under PMI’s stock plans, and 250 million shares of preferred stock, without par value, were authorized but unissued.

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As of December 31, 2021, PMI had $ 144 million of total unrecognized compensation costs related to non-vested RSU awards.

These costs are expected to be recognized over a weighted-average period of approximately two years , or upon death, disability or reaching the age of 58 .

These costs are expected to be recognized over a weighted-average period of approximately seventeen months , or upon death, disability or reaching the age of 58 .

During the years ended December 31, 2021, 2020 and 2019, share and fair value information for PMI RSU awards that vested were as follows:

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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 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 PSUs granted during the years ended 2019 and 2018 consisted of PMI’s TSR relative to a predetermined peer group and on an absolute basis ( 50 % weight), PMI’s currency-neutral compound annual adjusted operating income growth rate, excluding acquisitions ( 30 % weight), and PMI’s performance against specific measures of PMI’s transformation ( 20 % weight).

The performance metrics for such PSU's granted during 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 PSUs granted during 2019 consisted of PMI’s TSR relative to a predetermined peer group and on an absolute basis ( 50 % weight), PMI’s currency-neutral compound annual adjusted operating income growth rate, excluding acquisitions ( 30 % weight), and PMI’s performance against specific measures of PMI’s transformation ( 20 % 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.

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Expected volatility (b)

31.7 % 23.5 % 21.4 %

(a) Based on the U.S.

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(b) Determined using the observed historical volatility.

The fair value of the PSU award at the date of grant is amortized to expense over the performance period, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58 .

As of December 31, 2021, PMI had $ 48 million of total unrecognized compensation cost related to non-vested PSU awards.

This cost is recognized over a weighted-average performance cycle period of approximately two years , or upon death, disability or reaching the age of 58 .

This cost is recognized over a weighted-average performance cycle period of approximately seventeen months , or upon death, disability or reaching the age of 58 .

During the years ended December 31, 2021, 2020 and 2019, share and fair value information for PMI PSU awards that vested were as follows:

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2020 343,806 $ 35 $ 30

During the year ended December 31, 2018, there were no PSU awards that vested.

2019 330,616 $ 32 $ 28

Earnings per Share:

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Weighted-average shares for diluted EPS 1,559 1,558 1,556

For the 2020, 2019 and 2018 computations, there were no antidilutive stock options.

For the 2021, 2020 and 2019 computations, there were no antidilutive stock awards.

Income Taxes:

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$ 73 $ ( 80 ) $ 17

53 24 ( 113 )

Total United States

100 ( 27 ) 41

Outside United States:

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$ 2,671 $ 2,377 $ 2,293

On March 11, 2021, the American Rescue Plan Act of 2021 ("the Act") was signed into law in the U.S.

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

As of December 31, 2021, PMI has determined that the Act had no significant impact on PMI's effective tax rate.

On July 20, 2020, the U.S.

Department of the Treasury and the Internal Revenue Service released final and proposed regulations under the Global Intangible Low-Taxed Income (“GILTI”) and other provisions of the Internal Revenue Code.

PMI has analyzed these elective regulations and recorded the impact in its consolidated financial statements, as described below.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act and, on December 27, 2020, the Consolidated Appropriations Act, 2021 (“U.S.

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In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19.

As of December 31, 2020, PMI has determined that neither the U.S.

PMI has determined that neither the U.S.

COVID-19 Acts nor changes to income tax laws or regulations in other jurisdictions had a significant impact on PMI’s effective tax rate, with the exception of the 2020 corporate income tax rate reduction in Indonesia.

On July 20, 2020, the U.S.

PMI has analyzed these elective regulations and recorded the impact in its consolidated financial statements, as described below.

At December 31, 2017, PMI recorded a one-time transition tax liability on its accumulated foreign earnings, which is payable over an eight-year period beginning in 2018.

At December 31, 2020 and December 31, 2019, $ 1.1 billion and $ 1.2 billion of PMI's remaining transition tax liability, respectively, was recorded in "income taxes and other liabilities" on PMI's consolidated balance sheets.

At December 31, 2020 and December 31, 2019, U.S.

At December 31, 2021 and December 31, 2020, $ 0.9 billion and $ 1.1 billion of PMI's remaining long-term portion of transition tax liability, respectively, was recorded in "income taxes and other liabilities" on PMI's consolidated balance sheets.

At December 31, 2021 and 2020, U.S.

federal and foreign deferred income taxes have been provided on all accumulated earnings of PMI's foreign subsidiaries.

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

Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2015 onward), Indonesia (2014 onward), Russia (2018 onward), Switzerland (2017 onward), and Turkey (2015 onward).

Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2015 onward), Indonesia (2014 onward), Russia (2019 onward) and Switzerland (2017 onward).

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 paid the assessment in the fourth quarter of 2021 in order to avoid potential penalties and filed an objection letter with the tax office in January 2022.

The amount paid was included in other assets in PMI’s consolidated balance sheets at December 31, 2021 and negatively impacted 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.

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( 3 ) ( 1 ) ( 1 )

( 6 ) 2 ( 1 )

Balance at December 31, $ 89 $ 72 $ 63

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Effective tax rate 21.8 % 21.7 % 23.2 %

The 2021 effective tax rate increased 0.1 percentage point to 21.8 %.

The change in the effective tax rate for 2021, as compared to 2020, was unfavorably impacted by repatriation cost differences and foreign tax credit limitations related to GILTI, partially offset by the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021) and changes in earnings mix by taxing jurisdiction.

The 2020 effective tax rate decreased 1.5 percentage points to 21.7 %.

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state tax expense, a reduction of estimated U.S.

income tax liabilities for years 2018 and 2019 due to the GILTI regulations mentioned above ($ 93 million) and 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 and repatriation cost differences.

The 2019 effective tax rate increased 0.3 percentage points to 23.2 %.

The change in the effective tax rate for 2019, as compared to 2018, was unfavorably impacted by changes in earnings mix by taxing jurisdiction and U.S.

state deferred income tax expense, partially offset by the reversal of a deferred tax liability on the unremitted earnings of PMI's Canadian subsidiary, RBH ($ 49 million), a reduction in estimated U.S.

federal income tax on dividend repatriation for the years 2015-2018 ($ 67 million), and other repatriation cost differences.

income tax liabilities for years 2018 and 2019 due to the GILTI regulations mentioned above ($ 93 million) and 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 and repatriation cost differences.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:

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Net deferred income tax assets $ 169 $ 726

(1) Includes deferred tax charges of $ 153 million and $ 209 million in 2021 and 2020, respectively, related to intercompany transactions.

At December 31, 2021, PMI recorded deferred tax assets for net operating loss carryforwards and tax credits of $ 408 million, with varying dates of expiration, primarily after 2026, including $ 183 million with an unlimited carryforward period.

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Segment Reporting:

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other nicotine-containing products, including RRPs, in markets outside of the United States of America.

In addition, PMI ships versions of its Platform 1 device and its consumables authorized by the FDA to Altria Group, Inc.

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;

PMI’s subsidiaries and affiliates are primarily engaged in the manufacture and sale of cigarettes and RRPs, including heat-not-burn, vapor and oral nicotine products, in markets outside of the United States of America.

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 combustible and reduced-risk product categories sold in the region.

PMI currently has six geographical segments:

the European Union;

Eastern Europe;

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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 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

For further details on these acquisitions, see Note 6.

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.

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.

Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management.

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 managed and evaluated separately.

Interest expense, net, and provision for income taxes are centrally managed and, accordingly,

such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management.

Information about total assets by segment is not disclosed because such information is not reported to or used by PMI’s chief operating decision maker.

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Summary of Significant Accounting Policies.

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.

Net revenues by segment were as follows:

PMI disaggregates its net revenue from contracts with customers by both geographic location and product category for each of PMI's six geographical segments.

For the 2021 acquisitions discussed above, net revenues from contracts with customers are included in the Other category.

PMI believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Net revenues by geographic segment and Other category were as follows:

For the Years Ended December 31,

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East Asia & Australia 5,953 5,429 5,364

Latin America & Canada 1,701 2,206 3,056

Americas 1,843 1,701 2,206

Other 101 — —

Net revenues $ 31,405 $ 28,694 $ 29,805

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East Asia & Australia 2,414 2,468 2,693

Latin America & Canada 1,670 2,179 3,037

Americas 1,790 1,670 2,179

Total combustible products $ 22,190 $ 21,867 $ 24,218

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East Asia & Australia 3,539 2,961 2,671

Latin America & Canada 31 27 19

Americas 53 31 27

Total reduced-risk products $ 9,115 $ 6,827 $ 5,587

Other $ 101 $ — $ —

Total PMI net revenues $ 31,405 $ 28,694 $ 29,805

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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.

Operating income by segment were as follows:

Net revenues in the Other category primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems resulting from the third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

Operating income (loss) by geographic segment and Other category were as follows:

For the Years Ended December 31,

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2021 2020 2019

Operating income:

Operating income (loss):

European Union $ 6,119 $ 5,098 $ 3,970

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East Asia & Australia 2,556 2,400 1,932

Latin America & Canada 564 235 1,145

Americas 487 564 235

Other ( 52 ) — —

Operating income

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• Asset impairment and exit costs - See Note 19.

Asset Impairment and Exit Costs for details of the $ 149 million and $ 422 million pre-tax charges for the years ended December 31, 2020 and 2019, respectively, as well as a breakdown of these costs by segment.

Asset Impairment and Exit Costs for details of the $ 216 million, $ 149 million and $ 422 million pre-tax charges for the year ended December 31, 2021, 2020 and 2019, respectively, as well as a breakdown of these costs by segment.

• Saudi Arabia customs assessments - See Note 17.

Contingencies for the details of the $ 246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the year ended December 31, 2021.

• Asset acquisition cost - See Note 6.

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 year ended December 31, 2021.

• Russia excise and VAT audit charge - See Note 17.

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Contingencies and Note 20.

Deconsolidation of RBH for details of the $ 194 million pre-tax charge included in the Latin America & Canada segment for the year ended December 31, 2019.

Deconsolidation of RBH for details of the $ 194 million pre-tax charge included in the Americas segment for the year ended December 31, 2019.

• Loss on deconsolidation of RBH - See Note 20.

Deconsolidation of RBH for details of the $ 239 million loss included in the Latin America & Canada segment for the year ended December 31, 2019.

Deconsolidation of RBH for details of the $ 239 million loss included in the Americas segment for the year ended December 31, 2019.

• Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $ 119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019;

these tax credits will be applied to future tax liabilities in Brazil.

This amount was included as a reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Latin America & Canada segment.

A decision regarding an additional amount of overpaid indirect taxes of approximately $ 90 million is still pending before this court.

these tax credits were applied to tax liabilities in Brazil during 2021.

An additional amount of overpaid indirect taxes of approximately $ 90 million is dependent on a potential tax authority challenge.

Other segment data were as follows:

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East Asia & Australia 154 188 185

Latin America & Canada 58 69 94

Other 11 11 11

Americas 62 69 80

Total depreciation expense

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East Asia & Australia 36 13 67

Latin America & Canada 36 52 74

600 852 1,432

Americas 54 38 52

Total capital expenditures

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East Asia & Australia 740 807 829

Latin America & Canada 433 478 779

Total long-lived assets 8,131 8,086 7,982

Americas 661 784 680

Other 292 — —

Total long-lived assets 8,507 8,482 8,288

Financial instruments 210 650 314

Total property, plant and equipment, net and Other assets

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Settlement, curtailment and plan amendment

( 194 ) ( 117 )

Actuarial losses (gains)

( 559 ) 653 5 5

Deconsolidation of RBH — ( 166 ) — ( 42 )

( 587 ) 992 ( 4 ) 3

26 ( 7 ) — ( 1 )

Benefit obligation at December 31,

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( 417 ) ( 356 )

Deconsolidation of RBH — ( 172 )

( 37 ) ( 16 )

Fair value of plan assets at December 31,

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based defined benefit retirement plans.

(2) Certain prior years' amounts pertaining to PMI’s pension plans have been reclassified in the table above to conform with the current year's presentation.

For the years ended December 31, 2020 and 2019, actuarial losses (gains) consisted primarily of losses for assumption changes related to lower discount rates year-over-year for Swiss, German and Dutch plans.

At December 31, 2021, actuarial losses (gains) consisted primarily of gains for assumption changes related to higher discount rates year-over-year for Swiss, German and Dutch plans.

At December 31, 2020, actuarial losses (gains) consisted primarily of losses for assumption changes related to lower discount rates year-over-year for Swiss, German and Dutch plans.

At December 31, 2021 and 2020, the Swiss pension plan represented 65 % and 63 % of the benefit obligation, respectively, and approximately 60 % and 59 % of the fair value of plan assets at December 31, 2021 and 2020, respectively.

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and international government bonds;

12 % are invested in real estate, and 9 % are invested in corporate bonds.

14 % are invested in corporate bonds and 12 % are invested in real estate.

(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy.

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Russell 3000;

S&P 500 for equities, and Citigroup EMU and Barclays Capital U.S.

for bonds), primarily consist of mutual funds, common trust funds and commingled funds.

S&P 500 for equities, and Citigroup EMU and JP Morgan EMBI for bonds), primarily consist of mutual funds, common trust funds and commingled funds.

Of these funds, 63 % were invested in U.S.

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and international government bonds;

12 % were invested in real estate and other money markets, and 9 % were invested in corporate bonds.

12 % were invested in real estate, and 9 % were invested in corporate bonds.

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The amounts recognized in accrued postemployment costs net of plan assets on PMI's consolidated balance sheets at December 31, 2021 and 2020, were $ 925 million and $ 923 million, respectively.

The change in the liability is primarily due to actuarial losses of $ 142 million in 2020 resulting from increased employee severance payout primarily in countries in the European Union and Latin America & Canada segments, coupled with the periodic expense, partially offset by cash payments.

The accrued postemployment costs were determined using a weighted-average discount rate of 3.1 % and 3.0 % in 2021 and 2020, respectively;

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Prior service cost

22 2 ( 22 ) 2

Net transition obligation

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Prior service cost

( 27 ) 3 — ( 24 )

Net transition obligation

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Prior service cost

( 12 ) — ( 22 ) ( 34 )

Deferred income taxes

( 241 ) 1 30 ( 210 )

1,154 ( 4 ) ( 100 ) 1,050

Total movements in other comprehensive earnings (losses)

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Prior service cost

32 ( 1 ) — 31

Net transition obligation

Other income/expense:

Prior service cost

Deferred income taxes

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( 12 ) — ( 22 ) ( 34 )

Deconsolidation of RBH (net of deferred income taxes) 26 1 — 27

Deferred income taxes 99 1 39 139

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32 ( 1 ) — 31

Net transition obligation

Other income/expense:

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Prior service cost

( 2 ) — — ( 2 )

Deconsolidation of RBH (net of deferred income taxes) 26 1 — 27

Deferred income taxes 206 6 35 247

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$ 628 $ 618 $ 570

Total lease cost

(1) For additional information on total lease costs, see Note 21.

Financial Instruments:

PMI operates in markets outside of the United States of America, with manufacturing and sales facilities in various locations around the world.

PMI utilizes certain financial instruments to manage foreign currency and interest rate exposure.

PMI utilizes certain financial instruments to manage foreign currency and interest rate exposures.

Derivative financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures.

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At December 31, 2021 and 2020, PMI had contracts with aggregate notional amounts of $ 20.7 billion and $ 26.5 billion, respectively.

Of the $ 26.5 billion aggregate notional amount at December 31, 2020, $ 5.0 billion related to cash flow hedges, $ 8.9 billion related to hedges of net investments in foreign operations and $ 12.6 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

Of the $ 20.7 billion aggregate notional amount at December 31, 2021, $ 3.8 billion related to cash flow hedges, $ 6.2 billion related to hedges of net investments in foreign operations, $ 0.4 billion related to fair value hedges and $ 10.3 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

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Interest expense, net ( 7 ) ( 11 ) ( 8 )

Fair value hedges Interest expense, net $ 1 $ — $ —

Net investment hedges (a)

484 ( 514 ) 369 Interest expense, net (b)

$ 194 $ 230 $ 260

Derivative contracts not designated as hedging instruments Interest expense, net 55 71 94

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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 consolidated statements of earnings.

As of December 31, 2020, PMI has hedged forecasted transactions for periods not exceeding the next eighteen months , with the exception of one derivative contract that expires in May 2024.

As of December 31, 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.

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

Fair Value Hedges

PMI has entered into fixed-to-floating interest rate contracts, designated as fair value hedges to minimize exposure to changes in the fair value of fixed rate U.S.

dollar-denominated debt that results from fluctuations in benchmark interest rates.

For derivative contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in current earnings.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of December 31, 2021 was $ 398 million, and is recorded in long-term debt in the consolidated balance sheets.

Hedges of Net Investments in Foreign Operations

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2021 2020 2019

Gain as of January 1,

Gain/(loss) as of January 1,

$ ( 85 ) $ 3 $ 35

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$ 4 $ ( 85 ) $ 3

At December 31, 2020, PMI expects $( 49 ) million of derivative losses that are included in accumulated other comprehensive losses to be reclassified to the consolidated statement of earnings within the next 12 months.

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

At December 31, 2021, PMI expects $ 27 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the 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.

Contingent Features

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As further described in Note 20.

Deconsolidation of RBH , RBH is now deconsolidated from our consolidated financial statements.

Deconsolidation of RBH , 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 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.

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Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc.

and JTI-Macdonald Corp., Quebec Superior Court, Canada , filed in November 1998, RBH and other Canadian manufacturers (Imperial Tobacco Canada Ltd.

and JTI-Macdonald Corp., Quebec Superior Court, Canada , filed in November 1998, RBH and other Canadian cigarette manufacturers (Imperial Tobacco Canada Ltd.

and JTI-Macdonald Corp.) are defendants.

The plaintiffs, an anti-smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who allegedly suffers from certain smoking-related diseases.

The plaintiffs, an anti-smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who suffers allegedly from certain smoking-related diseases.

The class was certified in 2005.

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The Court of Appeal further held that the plaintiffs either need not prove, or had adequately proven, that these faults were a cause of the class members’ injuries.

In accordance with the judgment, defendants are required to deposit their respective portions of the damages awarded in both the Létourneau case described below and the Blais case, approximately CAD 1.1 billion (approximately $ 859 million), into trust accounts within 60 days.

RBH’s share of the deposit is approximately CAD 257 million (approximately $ 194 million).

In accordance with the judgment, defendants were required to deposit their respective portions of the damages awarded in both the Létourneau case described below and the Blais case, approximately CAD 1.1 billion (approximately $ 862 million), into trust accounts within 60 days.

RBH’s share of the deposit was approximately CAD 257 million (approximately $ 194 million).

PMI recorded a pre-tax charge of $ 194 million in its consolidated results, representing $ 142 million net of tax, as tobacco litigation-related expense, in the first quarter of 2019.

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Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc.

and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, RBH and other Canadian manufacturers (Imperial Tobacco Canada Ltd.

and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, RBH and other Canadian cigarette manufacturers (Imperial Tobacco Canada Ltd.

and JTI-Macdonald Corp.) are defendants.

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The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (“COPD”), severe asthma, and mild reversible lung disease resulting from the use of tobacco products.

She is seeking compensatory

and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.

In the fourth class action pending in Canada, Adams v.

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The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.

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

comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.

To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint.

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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.”

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 February 5, 2021, February 3, 2020 and February 4, 2019:¹

Type of Case Number of Cases Pending as of February 5, 2021 Number of Cases Pending as of February 3, 2020 Number of Cases Pending as of February 4, 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 December 31, 2021, December 31, 2020 and December 31, 2019:¹

Type of Case Number of Cases Pending as of December 31, 2021 Number of Cases Pending as of December 31, 2020 Number of Cases Pending as of December 31, 2019

Individual Smoking and Health Cases 40 43 50

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Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 523 Smoking and Health, Label-Related, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor.

Thirteen cases have had decisions in favor of plaintiffs.

Ten of these cases have subsequently reached final resolution in our favor and three remain on appeal.

The table below lists the verdict and significant post-trial developments in the three pending cases where a verdict was returned in favor of the plaintiff:

Fourteen cases have had decisions in favor of plaintiffs.

Ten of these cases have subsequently reached final resolution in our favor and four remain on appeal.

¹ Includes cases pending in Canada.

The table below lists the verdict and significant post-trial developments in the four pending cases where a verdict was returned in favor of the plaintiff:

Date Location of

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On October 31, 2017, the Civil and Commercial Court of Appeals of Mar del Plata ruled that plaintiff's claim was barred by the statute of limitations and it reversed the trial court's decision.

On November 28, 2017, plaintiff filed an extraordinary appeal of the reversal of the trial court's decision to the Supreme Court of the Province of Buenos Aires.

On May 17, 2021 plaintiff filed a federal extraordinary appeal.

On November 1, 2021, the Supreme Court of the Province of Buenos Aires dismissed plaintiff's federal extraordinary appeal.

On November 10, 2021, plaintiff filed a direct appeal before the Federal Supreme Court.

Date Location of

Court/Name of

Plaintiff Type of

Case Verdict Post-Trial

June 17, 2021 Argentina/Claudia Milano Individual Action On June 17, 2021, the Civil Court No.

9 - Mar del Plata, issued a verdict in favor of plaintiff, an individual smoker, and awarded her smoking cessation treatments, ARS 150,000 (approximately $ 1,423 ), in compensatory and moral damages, and ARS 4,000,000 (approximately $ 37,958 ) in punitive damages, plus interest and costs.

The trial court found that our subsidiary failed to warn plaintiff of the risk of becoming addicted to cigarettes.

On July 2, 2021, our subsidiary filed its notice of appeal.

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

As required by local law, our subsidiary deposited the damages awarded, plus interest and costs, in total ARS 6,114,428 (approximately $ 58,024 ), into a court escrow account.

Our subsidiary challenged the amount determined by the court.

The Mar del Plata Court of Appeals granted our subsidiary's challenge to the escrow amount determined by the trial court.

As a result, on December 16, 2021, ARS 893,428 (approximately $ 8,478 ) was returned to our subsidiary.

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

Pending claims related to tobacco products generally fall within the following categories:

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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 February 5, 2021, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 43 cases brought by individual plaintiffs in Argentina ( 31 ), Brazil ( 3 ), Canada ( 2 ), Chile ( 2 ), China ( 1 ), It aly ( 1 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), compared with 50 such cases on February 3, 2020, and 55 cases on February 4, 2019;

• 9 cases brought on behalf of classes of individual plaintiffs in Canada, compared with 10 such cases on February 3, 2020 and 10 such cases on February 4, 2019.

As of December 31, 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 ( 31 ), Brazil ( 2 ), Canada ( 2 ), Chile ( 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 December 31, 2020, and 50 cases on December 31, 2019;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on December 31, 2020 and 10 such cases on December 31, 2019.

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

In a class action in Brazil, The Smoker Health Defense Association (ADESF) v.

Souza Cruz, S.A.

and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil , filed July 25, 1995, our subsidiary and another member of the industry are defendants.

The plaintiff, a consumer organization, sought damages for all addicted smokers and former smokers, and injunctive relief.

In 2004, the trial court found defendants liable without hearing evidence and awarded “moral damages” of R$ 1,000 (approximately $ 186 ) per smoker per full year of smoking plus interest at the rate of 1 % per month, as of the date of the ruling.

The court did not award actual damages, which were to be assessed in the second phase of the case.

The size of the class was not estimated.

Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings.

In May 2011, the trial court dismissed the claim.

In February 2015, the appellate court unanimously dismissed plaintiff's appeal.

In September 2015, plaintiff appealed to the Superior Court of Justice.

In February 2017, the Chief Justice of the Superior Court of Justice denied plaintiff's appeal.

Plaintiff filed a further appeal.

In August 2020, the Superior Court of Justice confirmed the denial of plaintiff's appeal finally dismissing the plaintiff's claim.

Health Care Cost Recovery Litigation:

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Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief.

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 February 5, 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 February 3, 2020 and 16 such cases on February 4, 2019.

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 December 31, 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 December 31, 2020 and 17 such cases on December 31, 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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Souza Cruz Ltda., et al., Federal Trial Court, Porto Alegre, Rio Grande do Sul, Brazil , filed May 21, 2019, we, our subsidiaries, and other members of the industry are defendants.

Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past six years , payment of anticipated costs of treating future alleged smoking-related diseases, and moral damages.

Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases in certain prior years, payment of anticipated costs of treating future alleged smoking-related diseases, and moral damages.

Defendants filed answers to the complaint in May 2020.

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Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages.

We are in the process of making challenges to service and the court's jurisdiction.

We are in the process of challenging the court's jurisdiction.

Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.

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In May 2010, the trial court rejected our service objections.

In May 2010, the trial court rejected our objections to the court's jurisdiction.

We have appealed.

Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.

In the health care cost recovery case in Korea, the National Health Insurance Service v.

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

As of February 5, 2021, there were 5 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 4 ) pending against our subsidiaries, compared with 5 such cases on February 3, 2020, and 7 such case on February 4, 2019.

As of December 31, 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 December 31, 2020, and 5 such cases on December 31, 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 February 5, 2021, there were 2 public civil actions pending against our subsidiaries in Argentina ( 1 ) and Venezuela ( 1 ), compared with 2 such cases on February 3, 2020, and 2 such cases on February 4, 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.

The case is currently awaiting a court decision on the merits.

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

As of December 31, 2021, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 2 such cases on December 31, 2020, and 2 such cases on December 31, 2019.

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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The amended complaint modifies the relief sought on behalf of the named plaintiff and on behalf of a single class (all consumers of Platform 1 products in Colombia who seek damages for the product purchase price and personal injuries related to the use of an allegedly harmful product).

In June 2021, our subsidiaries answered the amended complaint.

Other Litigation

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Trial in the case began in November 2017 and concluded in September 2019.

In November 2019, the trial court found our subsidiary guilty of under-declaration of the prices

and imposed a fine of approximately THB 1.2 billion (approximately $ 39.9 million).

In November 2019, the trial court found our subsidiary guilty of under-declaration of the prices and imposed a fine of approximately THB 1.2 billion (approximately $ 36 million).

The trial court dismissed all charges against the individual defendants.

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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 June 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 April 2020, as required by Thai law, our subsidiary paid the fine.

Our subsidiary will appeal the trial court's decision.

This payment is included in other assets on the condensed consolidated balance sheets and negatively impacted net cash provided by operating activities in the condensed consolidated statements of cash flows in the period of payment.

Our subsidiary filed an appeal of the trial court's decision.

In addition, the Public Prosecutor filed an appeal of the trial court's decision challenging the dismissal of charges against the individual defendant and the amount of the fine imposed.

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

The government agencies may appeal.

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.

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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 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 (one former and one current) to pay additional customs duties in an 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 during the period of 2014 through 2018.

In order to challenge these assessments, the distributors posted bank guarantees equaling the amount of the above assessments.

To enable the distributors' challenge, our subsidiary agreed with the banks to bear 80 percent of the amount the authority may draw on the bank guarantees.

In September and October 2020, respectively, the distributors lost their

challenges of the assessments;

both distributors appealed.

Our subsidiary and our distributors believe that customs duties paid in Saudi Arabia were in compliance with the applicable law and the WTO Customs Valuation Agreement.

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.

In order to challenge these assessments, the distributors posted bank guarantees.

To enable the distributors' challenge, our subsidiary agreed with the banks to bear a portion of the amount the authority may draw on the bank guarantees.

In September and October 2020, respectively, the distributors lost their challenges of the assessments.

Both distributors appealed, and in June 2021, the Customs Appeal Committee in Riyadh notified the distributors of its decisions to largely reject their appeals.

On the basis of the above-mentioned decisions, in June 2021, PMI recorded a pre-tax charge of $ 246 million in relation to the period of 2014 through 2020 in line with existing and contemplated arrangements with the distributors.

The estimated amounts for 2021 are immaterial.

In accordance with U.S.

GAAP, the charge was recorded as a reduction in net revenues on the consolidated statements of earnings for the three months and six months ended June 30, 2021.

Despite the unfavorable decisions, our subsidiary believes that customs duties paid in Saudi Arabia were in compliance with the applicable law and the WTO Customs Valuation Agreement.

A putative shareholder class action lawsuit, In re Philip Morris International Inc.

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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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The ITC evidentiary hearing closed on February 1, 2021.

The administrative law judge has scheduled an initial determination date of May 14, 2021 and the target date for the final determination of the ITC is September 15, 2021.

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

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 the commercialization of these products by BAT.

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 ("FD").

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

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

Tariff Act and issued (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.

Following the Presidential Review period, the orders became effective and Defendants filed a petition for review of the FD with the U.S.

Court of Appeals for the Federal Circuit.

Defendants also filed motions in the ITC and Federal Circuit for a stay of the orders pending disposition of the appeal;

the ITC denied the motion on January 20, 2022 and the Federal Circuit denied the motion on January 25, 2022.

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 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 beginning the week of June 6, 2022.

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.

On January 11, 2022, PTAB issued its final decision on one of the two patents underlying the ITC's FD, invalidating all challenged claims of BAT's patent.

We expect PTAB's final decision on the second of the two BAT patents underlying the ITC's FD to arrive on or before April 2, 2022;

the parties may appeal PTAB results 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.

In June 2021, the court stayed the proceeding in respect of one of the two patents asserted by BAT’s Affiliate.

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

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Plaintiffs seek damages, as well as injunctive relief against the manufacture in Italy of the Platform 1 heated tobacco units allegedly infringing the asserted patents and the commercialization of the Platform 1 products in Italy.

As part of this proceeding, in October 2020, BAT’s affiliates filed a request based on one of the two asserted patents seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 products in Italy.

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

Philip Morris CR a.s., et al.

, against PMI's Czech subsidiary, Philip Morris CR a.s., and Philip Morris Products S.A., in the Town Court of Prague, Czech Republic, seeking preliminary injunctive relief against the commercialization of the Platform 1 products in the Czech Republic.

In October 2020, the court dismissed plaintiff’s request for preliminary injunction in its entirety.

In October 2020, plaintiff appealed.

In February 2021, the appellate court denied plaintiffs’ appeal, confirming the dismissal of plaintiffs’ request.

In October 2020, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc.

Philip Morris Polska Distribution sp.

, against PMI’s Polish subsidiary, Philip Morris Polska Distribution Sp.

z o.o., in the Regional Court in Warsaw, IP Division.

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

In November 2020, the court dismissed plaintiff’s request for preliminary injunction in its entirety.

Plaintiff may appeal.

As part of this proceeding, in October 2020, BAT’s affiliates filed a

request based on one of the two asserted patents seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 products in Italy.

In October 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

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

In November 2020, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

Philip Morris Bulgaria EOOD , against PMI’s Bulgarian subsidiary, Philip Morris Bulgaria EOOD, in the Sofia City Court, Bulgaria, seeking preliminary injunctive relief against the commercialization of the Platform 1 products in Bulgaria.

In November 2020, the court dismissed plaintiffs’ request for preliminary injunction in its entirety.

Plaintiffs have appealed.

In January 2021, the appellate court denied plaintiffs’ appeal, confirming the dismissal of plaintiffs’ request.

In November 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

Philip Morris Romania SRL , et al., against PMI’s Romanian subsidiaries, Philip Morris Romania S.R.L.

Philip Morris Romania SRL, et al.

, against PMI’s Romanian subsidiaries, Philip Morris Romania S.R.L.

and Philip Morris Trading S.R.L., and a third-party distributor in the Court of Law of Bucharest, Civil Registry.

Plaintiffs seek damages and preliminary and permanent injunctive relief against the manufacture and commercialization of the Platform 1 products in Romania.

In December 2020, BAT’s affiliate commenced proceedings, Nicoventures Trading Limited v.

Philip Morris Products S.A., et al.

, against PMI’s German subsidiaries, Philip Morris GmbH and f6 Cigarettenfabrik GmbH & Co.KG, and Philip Morris Products S.A., in the Hamburg Regional Court, for the alleged infringement of a patent utility model, seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 products in Germany.

In February 2021, the court dismissed plaintiffs’ request for a preliminary injunction.

In April 2021, the appellate court denied plaintiffs' appeal, confirming the dismissal of plaintiffs' request for preliminary injunction.

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

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.

Philip Morris Korea, Co., Ltd., against PM Korea in the Seoul Central District Court.

Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 heated tobacco units in South Korea.

Other patent challenges by both parties are pending in various jurisdictions.

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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 December 31, 2020 was approximately 32 %.

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

During 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 from approximately 32 % to approximately 23 % as of December 31, 2021.

The guarantees are in effect through March 31, 2026.

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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 not material for the years ended December 31, 2020 and 2019.

The amounts associated with the servicing liability were not material for the

years ended December 31, 2021 and 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.

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Asset Impairment and Exit Costs:

For the years ended December 31, 2021, 2020 and 2019, PMI recorded total pre-tax asset impairment and exit costs of $ 216 million, $ 149 million and $ 422 million, respectively.

The total pre-tax asset impairment and exit costs were included in marketing, administration and research costs on the 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 $ 57 million in the year ended December 31, 2021, related to contract terminations and restructuring with certain distributors.

Organizational Design Optimization

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PMI initiated the employee consultation procedures, as required under Swiss law, for the impacted employees.

In 2020, the consultation procedures for two phases were completed.

The third phase commenced in January 2021 and is expected to impact approximately 230 positions.

Until the consultation process for the third phase is concluded, such phase is not considered probable (under U.S.

GAAP), and the total potential costs cannot be determined.

As a result, no related costs were recorded for the year ended December 31, 2020 related to the third phase of the restructuring project.

Additionally, PMI launched a voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in the United States and Poland.

These activities are expected to impact approximately 600 positions in total, excluding the third phase of the project in Switzerland, that will be either eliminated, relocated or outsourced.

For the year ended December 31, 2020, PMI recorded pre-tax asset impairment and exit costs of $ 149 million related to the organizational design optimization.

The amounts related to the potential pension settlement accounting impact of the restructuring, which could be significant, have not been reflected in 2020 as the thresholds for accounting were not exceeded by December 31, 2020.

The consultation procedures for the first two phases were completed in 2020 with the final phases initiated and completed in 2021.

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 was completed in the fourth quarter of 2021.

For the years ended December 31, 2021 and 2020, PMI recorded pre-tax charges of $ 159 million and $ 149 million, respectively, related to the organizational design optimization.

Since inception of this multi-phase restructuring project in January 2020 through December 31, 2021, approximately 1,020 positions in total were impacted, resulting in cumulative pre-tax charges of $ 308 million related to the organizational design optimization program.

Of this cumulative pre-tax amount, $ 300 million related to separation program charges and $ 8 million related to asset impairment charges.

Global Manufacturing Infrastructure Optimization

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As a result of this agreement, during 2019, PMI recorded pre-tax asset impairment and exit costs of $ 342 million in the European Union segment.

This amount included pension and employee separation costs of $ 251 million, which will be paid in cash, and asset impairment costs of $ 91 million, primarily related to machinery and equipment, which are non-cash charges.

This amount included pension and employee separation costs of $ 251 million, which are paid in cash, and asset impairment costs of $ 91 million, primarily related to machinery and equipment, which were non-cash charges.

During 2019, PMI also recorded pre-tax asset impairment and exit costs of $ 80 million as part of its global manufacturing infrastructure optimization.

These costs were related to cigarette plant closures in Argentina ($ 15 million), Colombia ($ 45 million) and Pakistan ($ 20 million).

The charges were reflected in the Latin America & Canada segment (Argentina and Colombia) and the South & Southeast Asia segment (Pakistan).

The charges were reflected in the Americas segment (Argentina and Colombia) and the South & Southeast Asia segment (Pakistan).

Asset Impairment and Exit Costs by Segment

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(in millions)

2021 2020 2019

Separation programs:

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East Asia & Australia 31 25 —

Latin America & Canada 9 49

Americas 8 9 49

Total separation programs 159 141 303

Contract termination charges:

East Asia & Australia 57 — —

Total contract termination charges 57 — —

Asset impairment charges (1)

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East Asia & Australia — 1 —

Latin America & Canada — 11

Americas — — 11

Total asset impairment charges — 8 119

Asset impairment and exit costs $ 216 149 422

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

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

During 2018, PMI did not incur asset impairment and exit costs.

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

Movement in Exit Cost Liabilities

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Liability balance, December 31, 2021 $ 142

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2022, with approximately $ 150 million expected to be paid in 2021.

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023.

Deconsolidation of RBH:

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Contingencies , could result in a material change in the fair value of PMI’s continuing investment in RBH.

PMI’s operating leases are principally for real estate (office space, warehouses and retail store space) and vehicles.

PMI has operating and finance leases that are principally for real estate (office space, warehouses and retail store space), machinery and equipment, and vehicles.

Lease terms range from 1 year to 72 years, some of which include options to renew, which are reasonably certain to be renewed.

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The exercise of a lease renewal or termination option is at PMI’s discretion.

PMI’s operating leases at December 31, 2020 and 2019, were as follows:

PMI’s operating and finance leases at December 31, 2021 and 2020, were as follows:

At December 31,

(in millions) 2021 2020

Operating Leases Finance Leases Operating Leases Finance Leases

Machinery and equipment $ — $ 108 $ — $ 12

Other assets 526 — 697 64

Total lease assets $ 526 $ 108 $ 697 $ 76

Current portion of long-term debt $ — $ 48 $ — $ 13

Accrued liabilities - Other 192 — 190 —

Long-term debt — 23 — 24

Income taxes and other liabilities 344 — 517 —

Total lease liabilities $ 536 $ 71 $ 707 $ 37

For information regarding PMI’s immaterial finance leases, see Note 7.

Indebtedness .

The components of PMI’s lease cost were as follows for the years ended December 31, 2021, 2020 and 2019:

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Operating lease cost $ 259 $ 237 $ 242

Finance lease cost:

Amortization of right-of-use assets 54 31 18

Interest on lease liabilities 1 1 1

Short-term lease cost 55 49 61

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Total lease cost $ 394 $ 349 $ 351

Maturity of PMI’s operating lease liabilities, on an undiscounted basis, as of December 31, 2020, was as follows:

(in millions) Total

Maturity of PMI’s lease liabilities, on an undiscounted basis, as of December 31, 2021, were as follows:

(in millions) Operating Leases Finance Leases

2022 $ 215 $ 49

Thereafter 140 1

Total lease payments 648 72

Interest 112 1

Present value of lease liabilities $ 536 $ 71

Other information related to PMI’s operating leases was as follows for the year ended December 31, 2020 and 2019:

Other information related to PMI’s leases was as follows for the year ended December 31, 2021, 2020 and 2019:

(in millions) 2021 2020 2019

Operating Leases Finance Leases Operating Leases Finance Leases Operating Leases Finance Leases

Cash paid for amounts included in the measurement of lease liabilities in operating cash flows (1)

Leased assets obtained in exchange for new operating lease liabilities $ 149 $ 221

$ 259 $ — $ 238 $ — $ 240 $ —

Cash paid for amounts included in the measurement of lease liabilities in financing cash flows $ — $ 26 $ — $ 19 $ — $ 15

Leased assets obtained in exchange for new lease liabilities $ 64 $ 89 $ 149 $ 32 $ 221 $ 38

Weighted-average remaining lease term (years) 8.3 1.7 10.1 1.6 9.6 2.4

Weighted-average discount rate (2) (3)

(1) PMI’s weighted-average discount rate is based on its estimated pre-tax cost of debt adjusted for country-specific risk.

Quarterly Financial Data (Unaudited):

2020 Quarters

(in millions, except per share data)

1st 2nd 3rd 4th

3.6 % 5.3 % 4.3 % 6.7 % 4.4 % 7.1 %

$ 4,751 $ 4,472 $ 5,030 $ 4,872

Net earnings attributable to PMI

$ 1,826 $ 1,947 $ 2,307 $ 1,976

Per share data:

$ 1.17 $ 1.25 $ 1.48 $ 1.27

Dividends declared

$ 1.17 $ 1.17 $ 1.20 $ 1.20

2019 Quarters

(in millions, except per share data)

1st 2nd 3rd 4th

$ 6,751 $ 7,699 $ 7,642 $ 7,713

$ 4,286 $ 5,034 $ 5,037 $ 4,935

Net earnings attributable to PMI

$ 1,354 $ 2,319 $ 1,896 $ 1,616

Per share data:

$ 0.87 $ 1.49 $ 1.22 $ 1.04

Dividends declared

$ 1.14 $ 1.14 $ 1.17 $ 1.17

Basic and diluted EPS are computed independently for each of the periods presented.

Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.

(1) Cash paid included in the operating cash flows of finance leases is not material.

(2) PMI’s weighted-average discount rate for operating leases is based on its estimated pre-tax cost of debt adjusted for country-specific risk.

(3) PMI’s weighted-average discount rate for finance leases, excluding embedded leases, is based on its estimated pre-tax cost of debt adjusted for country-specific risk and where applicable the interest rate explicit to lease contracts.

Report of Independent Registered Public Accounting Firm

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PricewaterhouseCoopers SA

/S/ CHAD MUELLER

/S/ TRAVIS RANDOLPH

Chad Mueller Travis Randolph

Lausanne, Switzerland

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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-K

Item 8. Financial Statements and Supplementary Data