What changed in this filing

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Item 1. Financial Statements

2022-07-29 compared with 2022-04-28 · 478 added, 295 removed, 1034 unchanged (43% of the section changed)

4 unchanged sentences

(in millions of dollars, except per share data)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Revenues including excise taxes $ 39,750 $ 39,776

Excise taxes on products 24,172 24,597

Net revenues 7,746 7,585

Net revenues (Note 10) 15,578 15,179

Cost of sales (Note 3) 5,256 4,627

17 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

For the Three Months Ended June 30,

Revenues including excise taxes $ 20,409 $ 20,421

Excise taxes on products 12,577 12,827

Net revenues (Note 10) 7,832 7,594

Cost of sales (Note 3) 2,648 2,353

Gross profit 5,184 5,241

Marketing, administration and research costs (Notes 3 & 17) 2,092 2,093

Amortization of intangibles 36 19

Operating income 3,056 3,129

Interest expense, net 126 161

Pension and other employee benefit costs (Note 5) 5 27

Earnings before income taxes 2,925 2,941

Provision for income taxes 594 646

Equity investments and securities (income)/loss, net ( 15 ) ( 3 )

Net earnings 2,346 2,298

Net earnings attributable to noncontrolling interests 113 126

Net earnings attributable to PMI $ 2,233 $ 2,172

Per share data (Note 8):

Basic earnings per share $ 1.44 $ 1.39

Diluted earnings per share $ 1.43 $ 1.39

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Net earnings $ 4,811 $ 4,893

3 unchanged sentences

Change in net loss and prior service cost:

Net gains (losses) and prior service costs, net of income taxes of $ 36 in 2022 and $( 5 ) in 2021

Amortization of net losses, prior service costs and net transition costs, net of income taxes of $( 22 ) in 2022 and $( 36 ) in 2021

10 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

For the Three Months Ended June 30,

Net earnings $ 2,346 $ 2,298

Other comprehensive earnings (losses), net of income taxes:

Change in currency translation adjustments:

Unrealized gains (losses), net of income taxes of $( 151 ) in 2022 and $ 60 in 2021

Change in net loss and prior service cost:

Net gains (losses) and prior service costs, net of income taxes of $ 36 in 2022 and $( 5 ) in 2021

Amortization of net losses, prior service costs and net transition costs, net of income taxes of $( 9 ) in 2022 and $( 18 ) in 2021

Change in fair value of derivatives accounted for as hedges:

Gains (losses) recognized, net of income taxes of $( 34 ) in 2022 and $ 2 in 2021

(Gains) losses transferred to earnings, net of income taxes of $ 7 in 2022 and $ 0 in 2021

( 46 ) ( 19 )

Total other comprehensive earnings (losses) 649 87

Total comprehensive earnings

Less comprehensive earnings attributable to:

Noncontrolling interests 45 132

Comprehensive earnings attributable to PMI $ 2,950 $ 2,253

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets

59 unchanged sentences

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

10 unchanged sentences

Income taxes ( 424 ) ( 459 )

Pension plan contributions ( 34 ) ( 30 )

Pension plan contributions, net of refunds (Note 5) 63 ( 197 )

Other 242 184

Net cash provided by operating activities 4,642 4,065

1 unchanged sentence

Capital expenditures ( 478 ) ( 307 )

Acquisitions, net of acquired cash (Note 2) — ( 27 )

Equity investments ( 20 ) —

Net investment hedges 121 199

Net investment hedges and other derivatives (Note 7) 514 147

Other ( 71 ) 59

Net cash provided by (used in) investing activities ( 196 ) 55

Net cash used in investing activities ( 55 ) ( 128 )

See notes to condensed consolidated financial statements.

3 unchanged sentences

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

2 unchanged sentences

Issuances - maturities longer than 90 days 795 —

Repayments - maturities longer than 90 days ( 15 ) —

Long-term debt repaid ( 497 ) ( 1,979 )

9 unchanged sentences

Balance at end of period $ 5,043 $ 4,920

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 4 million and $ 4 million as of March 31, 2022 and 2021, respectively, and $ 4 million and $ 5 million as of December 31, 2021 and 2020, respectively, which were included in other current assets in the condensed consolidated balance sheets.

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 7 million and $ 5 million as of June 30, 2022 and 2021, respectively, and $ 4 million and $ 5 million as of December 31, 2021 and 2020, respectively, which were included in other current assets in the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended March 31, 2022 and 2021

For the Six Months Ended June 30, 2022 and 2021

(in millions of dollars, except per share amounts)

14 unchanged sentences

Payments to noncontrolling interests ( 298 ) ( 298 )

Balances, March 31, 2021 $ — $ 2,080 $ 32,178 $ ( 10,746 ) $ ( 35,060 ) $ 1,974 $ ( 9,574 )

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

Balances, January 1, 2022 $ — $ 2,225 $ 33,082 $ ( 9,577 ) $ ( 35,836 ) $ 1,898 $ ( 8,208 )

7 unchanged sentences

Other (Note 2) ( 30 ) ( 171 ) ( 10 ) ( 211 )

Balances, March 31, 2022 $ — $ 2,118 $ 33,468 $ ( 9,760 ) $ ( 35,924 ) $ 1,895 $ ( 8,203 )

Balances, June 30, 2022 $ — $ 2,165 $ 33,755 $ ( 9,043 ) $ ( 35,921 ) $ 1,784 $ ( 7,260 )

See notes to condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2022 and 2021

(in millions of dollars, except per share amounts)

PMI Stockholders’ (Deficit) Equity

Stock Additional

Capital Earnings

Reinvested in

Business Accumulated

Comprehensive Losses Cost of

Stock Noncontrolling

Interests Total

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

Net earnings 2,172 126 2,298

Other comprehensive earnings (losses), net of income taxes 81 6 87

Issuance of stock awards 63 4 67

Dividends declared ($ 1.20 per share)

( 1,885 ) ( 1,885 )

Payments to noncontrolling interests ( 193 ) ( 193 )

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

Balances, April 1, 2022 $ — $ 2,118 $ 33,468 $ ( 9,760 ) $ ( 35,924 ) $ 1,895 $ ( 8,203 )

Net earnings 2,233 113 2,346

Other comprehensive earnings (losses), net of income taxes 717 ( 68 ) 649

Issuance of stock awards 47 3 50

Dividends declared ($ 1.25 per share)

( 1,946 ) ( 1,946 )

Payments to noncontrolling interests ( 156 ) ( 156 )

Balances, June 30, 2022 $ — $ 2,165 $ 33,755 $ ( 9,043 ) $ ( 35,921 ) $ 1,784 $ ( 7,260 )

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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On March 31, 2022, PMI launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma.

The operating results of this new business is reported in an Other category.

The operating results of this business are reported in the Wellness and Healthcare segment (formerly the Other category).

For further details, see Note 2.

Segment Reporting and Note 17.

Acquisitions .

Acquisitions and Note 9.

Segment Reporting .

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

During the first quarter of 2022, one of Fertin Pharma's product lines was moved from the Other category to the European Union segment (reduced-risk product category).

During the first quarter of 2022, one of Fertin Pharma's product lines was moved from the Wellness and Healthcare segment to the European Union segment (reduced-risk product category).

For further details, see Note 6.

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Notes to Condensed Consolidated Financial Statements

Acquisitions:

Purchase of Noncontrolling Interests

Turkey – In the first quarter of 2022, PMI acquired the remaining 25 % stake of its holding in Philip Morris Tütün Mamulleri Sanayi ve Ticaret A.Ş.

(formerly Philsa Philip Morris Sabancı Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.) and 24.75 % stake in Philip Morris Pazarlama ve Satış A.Ş.

(formerly Philip Morris SA, Philip Morris Sabancı Pazarlama ve Satış A.Ş.) from its Turkish partners, Sabanci Holding for a total acquisition price including transaction costs and remaining dividend entitlements of approximately $ 223 million.

As a result of this acquisition, PMI now owns 100 % of these Turkish subsidiaries.

The purchase of the remaining stakes in these holdings resulted in a decrease to PMI's additional paid-in capital of $ 30 million and an increase to accumulated other comprehensive losses of $ 171 million primarily following the reclassification of accumulated currency translation losses from noncontrolling interests to PMI’s accumulated other comprehensive losses during the first quarter of 2022.

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 goodwill is not deductible for income tax purposes.

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

During the six months ended June 30, 2022, PMI did not record any measurement period adjustments to the preliminary purchase price allocation.

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

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 goodwill is not deductible for income tax purposes.

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

During the six months ended June 30, 2022, PMI did not record any measurement period adjustments to the preliminary purchase price allocation.

PMI is still assessing information received, as of the acquisition date

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

and through the period ended June 30, 2022, relating to the valuation assumptions utilized for certain intangible assets of Vectura and expects to complete this process prior to the end of the measurement period in September 2022.

This assessment may result in a measurement period reduction and/or impairment of these intangible assets.

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.

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 third quarter of 2021.

As previously discussed in Note 1.

Background and Basis of Presentation on March 31, 2022, PMI launched a new Wellness and Healthcare business, Vectura Fertin Pharma, which consolidates Fertin Pharma, Vectura and OtiTopic, Inc.

into one operating segment.

War in Ukraine:

In February 2022, the Russian Federation launched a military action against Ukraine.

Since the onset of the war in Ukraine, PMI's main priority has been the safety and security of its more than 1,300 employees and their families in the country.

PMI temporarily suspended its operations in Ukraine, including the closing of its factory in Kharkiv at the end of February 2022.

While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of June 30, 2022, PMI is unable to estimate the information required to perform impairment analyses (i.e., forecast of revenues, manufacturing and commercial plans).

PMI is not aware of any major damage to its production facilities, inventories or other assets in Ukraine.

As a result, PMI has not recorded an impairment of long-lived assets.

As of June 30, 2022, PMI’s Ukrainian operations had approximately $ 456 million in total assets, excluding intercompany balances.

These total assets included $ 70 million, $ 304 million and $ 41 million in receivables, inventories and property, plant and equipment, respectively.

PMI has suspended its planned investments in the Russian Federation including all new product launches and commercial, innovation, and manufacturing investments.

PMI has also taken steps to scale down its manufacturing operations in Russia amid ongoing supply chain disruptions and the evolving regulatory environment and is working on options to exit the Russian market in an orderly manner.

As a result of PMI continuing operations within Russia as of June 30, 2022, it has not recorded an impairment of long-lived and other assets.

However, PMI recorded specific asset write downs as referred to in the table below.

PMI’s Russian operations as of June 30, 2022 had approximately $ 2.5 billion in total assets, excluding intercompany balances.

These total assets included $ 730 million, $ 679 million, $ 501 million and $ 161 million in receivables, inventories, property, plant and equipment and goodwill respectively.

In addition, there was approximately $ 317 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of June 30, 2022.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of June 30, 2022, PMI recorded in its condensed consolidated statements of earnings pre-tax charges related to circumstances driven by the war as follows:

(in millions) For the Six Months Ended June 30, 2022 For the Three Months Ended June 30, 2022

Cost of sales Marketing, administration and research costs Total Cost of sales Marketing, administration and research costs Total

$ 25 $ 26 $ 51 $ 14 $ 10 $ 24

21 50 71 6 50 56

Total $ 46 $ 76 $ 122 $ 20 $ 60 $ 80

1 The charges were primarily due to an inventory write down, additional allowance for receivables and the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees.

2 The charges were primarily due to machinery and inventory write downs related to the commercial decisions noted above.

PMI will continue to monitor the situation as it evolves and will determine if further charges are needed.

In May 2022, PMI’s shareholders approved the Philip Morris International Inc.

2022 Performance Incentive Plan (the “2022 Plan”).

The 2022 Plan replaced the 2017 Performance Incentive Plan, and there will be no additional grants under the replaced plan.

Under the 2022 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive awards and performance-based equity awards.

Up to 25 million shares of PMI’s common stock may be issued under the 2022 Plan.

At March 31, 2022, shares available for grant under the 2017 Plan were 12,644,751 .

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

At June 30, 2022, shares available for grant under the 2022 Plan were 24,980,480 .

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

2017 Stock Compensation Plan for Non-Employee Directors (the “2017 Non-Employee Directors Plan”).

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

At March 31, 2022, shares available for grant under the plan were 914,413 .

At June 30, 2022, shares available for grant under the plan were 894,346 .

Restricted share unit (RSU) awards

During the three months ended March 31, 2022 and 2021, shares granted to eligible employees, the weighted-average grant date fair value per share and the recorded compensation expense related to RSU awards were as follows:

Granted Weighted-Average Grant Date Fair Value Per RSU Award Granted Compensation Expense Related to RSU Awards

(in millions)

During the six months ended June 30, 2022 and 2021, shares granted to eligible employees and the weighted-average grant date fair value per share related to RSU awards were as follows:

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

2022 1,575,500 $ 104.99

2021 1,981,480 $ 81.91

As of March 31, 2022, PMI had $ 259 million of total unrecognized compensation cost related to non-vested RSU awards.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Compensation expense related to RSU awards was as follows:

Compensation Expense Related to RSU Awards

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

2022 $ 74 $ 35

2021 $ 73 $ 33

As of June 30, 2022, PMI had $ 224 million of total unrecognized compensation cost related to non-vested RSU awards.

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

During the three months ended March 31, 2022, 1,447,664 RSU awards vested.

During the six months ended June 30, 2022, 1,508,880 RSU awards vested.

The grant date fair value of all the vested awards was approximately $ 118 million.

The total fair value of RSU awards that vested during the three months ended March 31, 2022 was approximately $ 159 million.

The total fair value of RSU awards that vested during the six months ended June 30, 2022 was approximately $ 165 million.

Performance share unit (PSU) awards

During the three months ended March 31, 2022 and 2021, PMI granted PSU awards to certain executives.

During the six months ended June 30, 2022 and 2021, PMI granted PSU awards to certain executives.

The PSU awards require the achievement of certain performance metrics, 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 three months ended March 31, 2022 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 a Sustainability Index, which consists of two drivers:

The performance metrics for such PSU's granted during the six months ended June 30, 2022 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 a Sustainability Index, which consists of two drivers:

• Product Sustainability ( 20 % weight) measuring progress on PMI's efforts to maximize the benefits of smoke-free products, purposefully phase out cigarettes, seek net positive impact in wellness and healthcare, and reduce post-consumer waste;

• Operational Sustainability ( 10 % weight) measuring progress on PMI's efforts to tackle climate change, preserve nature, improve the quality of life of people in its supply chain, and foster an empowered, and inclusive workplace.

The performance metrics for such PSU's granted during the three months ended March 31, 2021 consisted of PMI's 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).

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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

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

During the three months ended March 31, 2022 and 2021, shares granted to eligible employee, the grant date fair value per share and the recorded compensation expense related to PSU awards were as follows:

During the six months ended June 30, 2022 and 2021, shares granted to eligible employee and the grant date fair value per share related to PSU awards were as follows:

Number of Shares Granted Grant Date

Fair Value Subject to Other Performance Metrics Grant Date

Fair Value Subject to TSR Performance Metric Compensation Expense Related to PSU Awards (in millions)

Fair Value Subject to TSR Performance Metric

(Per Share) (Per Share)

1 unchanged sentence

2021 574,410 $ 81.86 $ 106.93

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

The grant date fair value of the PSU awards subject to the other performance metrics was determined by using the market price of PMI’s stock on the date of the grant.

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(b) Determined using the observed historical volatility.

As of March 31, 2022, PMI had $ 76 million of total unrecognized compensation cost related to non-vested PSU awards.

Compensation expense related to PSU awards was as follows:

Compensation Expense Related to PSU Awards

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

2022 $ 31 $ 10

2021 $ 46 $ 34

As of June 30, 2022, PMI had $ 67 million of total unrecognized compensation cost related to non-vested PSU awards.

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

During the three months ended March 31, 2022, 669,960 PSU awards vested.

During the six months ended June 30, 2022, 669,960 PSU awards vested.

The grant date fair value of all the vested awards was approximately $ 54 million.

The total fair value of PSU awards that vested during the three months ended March 31, 2022 was approximately $ 74 million.

The total fair value of PSU awards that vested during the six months ended June 30, 2022 was approximately $ 74 million.

Benefit Plans:

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

For the Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

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Net periodic pension cost consisted of the following:

For the Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

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

Employer contributions of $ 34 million were made to the pension plans during the three months ended March 31, 2022.

Employer contributions of $ 60 million, excluding refunds, were made to the pension plans during the six months ended June 30, 2022.

During the second quarter of 2022, PMI received a cash refund of $ 123 million from one of its pension plans due to a change in discount rate and value of assets that resulted in the overfunding of the plan.

Currently, PMI anticipates making additional contributions during the remainder of 2022 of approximately $ 53 million to its pension plans, based on current tax and benefit laws.

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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 Americas Other Total

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

Balances, December 31, 2021 $ 1,397 $ 295 $ 79 $ 2,828 $ 539 $ 611 $ 931 $ 6,680

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Currency ( 98 ) ( 17 ) ( 1 ) ( 141 ) ( 31 ) 8 ( 82 ) ( 362 )

Balances, March 31, 2022 $ 1,378 $ 287 $ 87 $ 2,799 $ 532 $ 638 $ 911 $ 6,632

At March 31, 2022, 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.

Balances, June 30, 2022 $ 1,299 $ 278 $ 78 $ 2,687 $ 508 $ 619 $ 849 $ 6,318

At June 30, 2022, 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.

As discussed in Note 1.

Background and Basis of Presentation , during the first quarter of 2022, one of Fertin Pharma's product lines was moved from the Other category to the European Union segment.

As a result, the December 31, 2021 opening goodwill balance in the table above included a reclassification of $ 24 million from the Other category to the European Union segment.

Background and Basis of Presentation , during the first quarter of 2022, one of Fertin Pharma's product lines was moved from the Wellness and Healthcare segment to the European Union segment.

As a result, the December 31, 2021 opening goodwill balance in the table above included a reclassification of $ 24 million from the Wellness and Healthcare segment to the European Union segment.

Philip Morris International Inc.

2 unchanged sentences

Details of other intangible assets were as follows:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

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Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico, as well as the preliminary purchase price allocation associated with PMI's business combinations in 2021 (primarily in-process research and development).

The increase since December 31, 2021 was due to currency movements of $ 9 million.

The change in the accumulated amortization from December 31, 2021, was mainly due to the 2022 amortization of $ 38 million, and currency movements of $ 3 million.

The decrease since December 31, 2021 was due to currency movements of ($ 23 million).

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2021, was mainly due to currency movements of ($ 94 million).

The change in the accumulated amortization from December 31, 2021, was mainly due to the 2022 amortization of $ 74 million, partially offset by currency movements of ($ 28 million).

Amortization expense for each of the next five years is estimated to be $ 145 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

During the second quarter of 2022, 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.

However, there are still risks related to PMI’s Russian reporting unit’s assets as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions.

For more information see Note 3.

War in Ukraine .

Each of PMI’s reporting units had fair values substantially in excess of its carrying value with the exception of the Wellness and Healthcare reporting unit, which had less than 20 % excess of fair value over its carrying value.

The Wellness and Healthcare reporting unit's fair value was determined using the discounted cash flow model.

PMI will continue to monitor this reporting unit as any changes in assumptions, estimates or market factors could result in a future impairment.

For information regarding PMI’s developed technology definite-lived intangible assets see Note 2.

Acquisitions .

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Financial Instruments:

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If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings.

PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps and foreign currency options, collectively referred to as foreign exchange contracts ("foreign exchange contracts"), and interest rate contracts to mitigate its exposure to changes in exchange and interest rates from third-party and intercompany actual and forecasted transactions.

Both foreign exchange contracts and interest rate contracts are collectively referred to as derivative contracts ("derivative contracts").

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

At June 30, 2022, PMI had contracts with aggregate notional amounts of $ 29.1 billion of which $ 5.0 billion related to cash flow hedges, $ 6.7 billion related to hedges of net investments in foreign operations, $ 1.0 billion related to fair value hedges and $ 16.4 billion related to other derivatives that primarily offset currency exposures on intercompany financing and anticipated acquisition related transactions.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

mitigate its exposure to changes in exchange and interest rates from third-party and intercompany actual and forecasted transactions.

Both foreign exchange contracts and interest rate contracts are collectively referred to as derivative contracts ("derivative contracts").

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

At March 31, 2022, PMI had contracts with aggregate notional amounts of $ 25.8 billion of which $ 4.9 billion related to cash flow hedges, $ 7.9 billion related to hedges of net investments in foreign operations, $ 1.0 billion related to fair value hedges and $ 12.0 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, were as follows:

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, were as follows:

Derivative Assets Derivative Liabilities

Fair Value Fair Value

(in millions) Balance Sheet Classification March 31, 2022 December 31, 2021 Balance Sheet Classification March 31, 2022 December 31, 2021

(in millions) Balance Sheet Classification June 30, 2022 December 31, 2021 Balance Sheet Classification June 30, 2022 December 31, 2021

Derivative contracts designated as hedging instruments Other current assets $ 388 $ 173 Other accrued liabilities $ 8 $ 34

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

PMI’s derivative contracts have been classified within Level 2 at March 31, 2022 and December 31, 2021.

PMI’s derivative contracts have been classified within Level 2 at June 30, 2022 and December 31, 2021.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the three months ended March 31, 2022 and 2021, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Three Months Ended March 31,

For the six months ended June 30, 2022 and 2021, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

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

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

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(b) Represent the gains for amounts excluded from the effectiveness testing

(c) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates substantially offset the (losses) and gains generated by the underlying intercompany and third-party loans being hedged

(c) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates are primarily offset by the (losses) and gains generated by the underlying intercompany and third-party loans being hedged

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2022 and 2021, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

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

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

Classification of Gain/(Loss)

on Derivatives Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into Earnings Amount of Gain/(Loss) Recognized in Earnings

2022 2021 2022 2021 2022 2021

Derivative contracts designated as hedging instruments:

Cash flow hedges $ 225 $ ( 1 )

Net revenues $ 64 $ 17

Cost of sales — —

Marketing, administration and research costs ( 7 ) 6

Interest expense, net ( 4 ) ( 4 )

Fair value hedges Interest expense, net $ ( 20 ) $ —

Net investment hedges (a)

425 ( 126 ) Interest expense, net (b)

Derivative contracts not designated as hedging instruments:

Interest expense, net 35 14

Marketing, administration and research costs (c)

Total $ 650 $ ( 127 ) $ 53 $ 19 $ 116 $ ( 37 )

(a) Amount of gains (losses) on hedges of net investments principally related to changes in exchange and interest rates between the Euro and U.S.

(b) Represent the gains for amounts excluded from the effectiveness testing

Cash Flow Hedges

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to certain forecasted transactions.

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

As of March 31, 2022, PMI has hedged forecasted transactions for periods not exceeding the next twenty-one months with the exception of one derivative contract that expires in May 2024.

As of June 30, 2022, 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.

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

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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 March 31, 2022 was $ 957 million, and is recorded in long-term debt in the condensed consolidated balance sheets.

The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $( 36 ) million as of March 31, 2022.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of June 30, 2022 was $ 938 million, and is recorded in long-term debt in the condensed consolidated balance sheets.

The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $ 56 million as of June 30, 2022.

Hedges of Net Investments in Foreign Operations

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

For the three months ended March 31, 2022 and 2021, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 66 million and $ 181 million, respectively.

For the six months ended June 30, 2022 and 2021, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 258 million and $ 110 million, respectively.

For the three months ended June 30, 2022 and 2021, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 192 million and $( 71 ) million, respectively.

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

Other Derivatives

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany loans between certain subsidiaries, and third-party loans.

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany loans between certain subsidiaries, third-party loans and anticipated acquisition related transactions.

While effective as economic hedges, no hedge accounting is applied for these contracts;

therefore, the gains (losses) relating to these contracts are reported in PMI’s condensed consolidated statements of earnings.

Acquisition related transactions are included in investing cash flows on PMI’s condensed consolidated statements of cash flows.

Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

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

(in millions) For the Three Months Ended March 31,

Gain/(loss) as of January 1, $ 4 $ ( 85 )

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

2022 2021 2022 2021

Gain/(loss) as of beginning of period $ 4 $ ( 85 ) $ 105 $ 12

Derivative (gains)/losses transferred to earnings ( 55 ) 2 ( 46 ) ( 19 )

Change in fair value 301 77 191 1

Gain/(loss) as of March 31, $ 105 $ 12

At March 31, 2022, PMI expects $ 76 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

Gain/(loss) as of June 30, $ 250 $ ( 6 ) $ 250 $ ( 6 )

At June 30, 2022, PMI expects $ 141 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

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

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While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments less any cash collateral received or pledged.

PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limits and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

actively monitors its exposure to credit risk through the use of credit approvals and credit limits and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.

Other Investments

A PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 82 million at March 31, 2022.

For the three months ended March 31, 2022 the unrealized pre-tax gains on these investments were immaterial.

A PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 94 million at June 30, 2022.

For the six months and three months ended June 30, 2022, the unrealized pre-tax gains on these investments were immaterial.

Earnings Per Share:

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

(in millions) For the Three Months Ended March 31,

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

2022 2021 2022 2021

Net earnings attributable to PMI $ 4,564 $ 4,590 $ 2,233 $ 2,172

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and Americas;

as well as an Other category.

Other consists of the operating results of PMI's new Wellness and Healthcare business, Vectura Fertin Pharma.

For further details on these acquisitions, see Note 17.

as well as the Wellness and Healthcare segment.

The Wellness and Healthcare segment consists of the operating results of PMI's new business, Vectura Fertin Pharma.

For further details, see Note 2.

Acquisitions .

1 unchanged sentence

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.

Business operations in the Wellness and Healthcare segment are managed and evaluated separately.

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

For the new Wellness and Healthcare business discussed above, net revenues from contracts with customers are included in the Other category.

For the new Wellness and Healthcare business, Vectura Fertin Pharma discussed above, net revenues from contracts with customers are included in the Wellness and Healthcare segment.

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

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Segment data were as follows:

(in millions) For the Three Months Ended March 31,

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

2022 2021 2022 2021

Net revenues:

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Americas 893 864 469 430

Wellness and Healthcare 142 — 76 —

Net revenues $ 15,578 $ 15,179 $ 7,832 $ 7,594

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Americas 251 246 130 112

Other ( 31 ) —

Wellness and Healthcare ( 65 ) — ( 34 ) —

Operating income $ 6,354 $ 6,573 $ 3,056 $ 3,129

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

• Asset impairment and exit costs - See Note 16.

Asset Impairment and Exit Costs for details of the $ 48 million pre-tax charge and a breakdown of these costs by segment for the three months ended March 31, 2021.

• Charges related to the war in Ukraine - See Note 18.

War in Ukraine for details of the $ 42 million pre-tax charges in the Eastern Europe segment for the three months ended March 31, 2022.

Philip Morris International Inc.

2 unchanged sentences

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

(in millions) For the Three Months Ended March 31,

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

2022 2021 2022 2021

Net revenues:

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Total reduced-risk products $ 4,617 $ 4,398 $ 2,267 $ 2,276

Other $ 66 $ —

Wellness and Healthcare:

Wellness and Healthcare $ 142 $ — $ 76 $ —

Total PMI net revenues $ 15,578 $ 15,179 $ 7,832 $ 7,594

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

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

• Charges related to the war in Ukraine - See Note 3.

War in Ukraine for details of the $ 122 million and $ 80 million pre-tax charges in the Eastern Europe segment for the six months and three months ended June 30, 2022, respectively.

• Saudi Arabia customs assessments - See Note 10.

Contingencies for the details of the $ 246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the six months and three months ended June 30, 2021.

• Asset impairment and exit costs - See Note 17.

Asset Impairment and Exit Costs for details of the $ 127 million and $ 79 million pre-tax charge and a breakdown of these costs by segment for the six months and three months ended June 30, 2021, respectively.

Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

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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 and oral nicotine products.

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 that are included in the operating results of PMI's new Wellness and Healthcare business, Vectura Fertin Pharma.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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 and oral nicotine products.

Net revenues related to wellness and healthcare products primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's new Wellness and Healthcare business, Vectura Fertin Pharma.

Contingencies:

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As part of the CCAA proceedings, there is currently a comprehensive stay up to and including September 30, 2022 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions.

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

has been appointed as monitor of RBH in the CCAA proceedings.

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

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

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

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

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

has been appointed as monitor of RBH in the CCAA proceedings.

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

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

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The trial court found RBH and two other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $ 101 million) in punitive damages, allocating CAD 46 million (approximately $ 35.6 million) to RBH.

The trial court estimated the size of the addiction class at 918,000 members but declined to award compensatory damages to the addiction class because the evidence did not establish the claims with sufficient accuracy.

The trial court estimated the size of the addiction class at 918,000

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

members but declined to award compensatory damages to the addiction class because the evidence did not establish the claims with sufficient accuracy.

The trial court found that a claims process to allocate the awarded punitive damages to individual class members would be too expensive and difficult to administer.

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Deconsolidation of RBH in PMI's Annual Report on Form 10-K for the year ended December 31, 2021 for further detail concerning the security order pertaining to both Létourneau and Blais cases and the impact of the decision on PMI’s financial statements.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed.

She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed.

In December 2014, plaintiff filed an amended statement of claim.

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

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

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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

Health Care Cost Recovery Litigation — Canada

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Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada , filed May 31, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants.

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

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

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

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

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

The claim was filed by the

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

government of the province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces.

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

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

In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v.

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The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of March 31, 2022, and March 31, 2021:¹

Type of Case Number of Cases Pending as of March 31, 2022 Number of Cases Pending as of March 31, 2021

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 June 30, 2022, and June 30, 2021:¹

Type of Case Number of Cases Pending as of June 30, 2022 Number of Cases Pending as of June 30, 2021

Individual Smoking and Health Cases 40 44

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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.

The Civil and Commercial Court of Appeals of Mar del Plata 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 $ 6,890 ) was returned to our subsidiary.

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

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

On May 31, 2022, the Civil and Commercial Court of Appeals of Mar del Plata ruled that the statute of limitations barred plaintiff's claim and reversed the trial court's decision.

On June 15, 2022, plaintiff filed an extraordinary appeal.

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 March 31, 2022, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 41 cases brought by individual plaintiffs in Argentina ( 30 ), Brazil ( 2 ), Canada ( 2 ), Chile ( 3 ), 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 (See information regarding the provisions of the 2008 Share Distribution Agreement between PMI and Altria that provide for indemnities to PMI for certain liabilities concerning tobacco products under the caption " Tobacco-Related Litigation " described above), compared with 43 such cases on March 31, 2021;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on March 31, 2021.

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

Health Care Cost Recovery Litigation:

These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products.

Plaintiffs' allegations of liability in these cases are based on various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing

As of June 30, 2022, 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 ( 1 ), Canada ( 2 ), Chile ( 2 ), 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 (See information regarding the provisions of the 2008 Share Distribution Agreement between PMI and Altria that provide for indemnities to PMI for certain liabilities concerning tobacco

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

competition and deceptive trade practices.

products under the caption " Tobacco-Related Litigation " described above), compared with 44 such cases on June 30, 2021;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on June 30, 2021.

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

Health Care Cost Recovery Litigation:

These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products.

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 March 31, 2022, 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 March 31, 2021.

As of June 30, 2022, 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 June 30, 2021.

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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We have not yet been re-served.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

In the fifth health care cost recovery case in Nigeria, The Attorney General of Ogun State v.

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

The National Health Insurance Service seeks to recover

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

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

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

Plaintiff appealed.

The Appellate court granted the Plaintiff a de novo appeal in 2021 and determined that the appellate proceedings will take place in stages:

wrongful conduct/product defect allegations first, then causation and finally issues such as standing/direct action.

Label-Related Cases:

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

As of March 31, 2022, 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 March 31, 2021.

As of June 30, 2022, there were 5 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 4 ) pending against our subsidiaries, compared with 4 such cases on June 30, 2021.

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 March 31, 2022, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 2 such cases on March 31, 2021.

As of June 30, 2022, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 2 such cases on June 30, 2021.

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

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Plaintiff alleged that our subsidiaries advertise the product in contravention of law and in a manner that misleads consumers by portraying the product in a positive light, and further asserts that the Platform 1 vapor contains many toxic compounds, creates a high level of dependence, and has damaging second-hand effects.

Plaintiff sought injunctive relief and damages on her behalf and on a behalf of two classes (class 1 - all Platform 1 consumers in Colombia who seek damages for the purchase price of the product and personal injuries related to the alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for exposure to the alleged illegal advertising).

Our subsidiaries answered the complaint in January 2020, and in February 2020, plaintiff filed an amended complaint.

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.

Plaintiff sought injunctive relief and damages on her behalf and on a behalf of two classes (class 1 - all Platform 1 consumers in Colombia who seek damages for the purchase price of the product

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

and personal injuries related to the alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for exposure to the alleged illegal advertising).

Our subsidiaries answered the complaint in January 2020, and in February 2020, plaintiff filed an amended complaint.

In June 2021, our subsidiaries answered the amended complaint.

Other Litigation

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On January 18, 2016, the Public Prosecutor filed charges against our subsidiary and seven former and current employees in the Bangkok Criminal Court alleging that PM Thailand and the individual defendants jointly and with the intention to defraud the Thai government, under-declared import prices of cigarettes to avoid full payment of taxes and duties in connection with import entries of cigarettes from the Philippines during the period of July 2003 to June 2006.

The government is seeking a fine of approximately THB 80.8 billion (approximately $ 2.4 billion).

The government sought a fine of approximately THB 80.8 billion (approximately $ 2.2 billion).

In May 2017, Thailand enacted a new customs act.

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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 appellate court issued its decision on the appeals on June 1, 2022.

The appellate court affirmed the findings of under-declaration of import prices of cigarettes but reduced the fine to approximately THB 122 million (approximately $ 3.3 million) finding the trial court erred in its calculation of the under-declaration and fine.

The appellate court affirmed the acquittals of the individual defendants.

Both the Public Prosecutor and our subsidiary may appeal the decision to the Supreme Court of Thailand.

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 November 2016, the tax authorities completed their audit and assessed allegedly underpaid taxes and penalties.

In order to avoid nonpayment financial costs, PM Korea paid approximately KRW 272 billion (approximately $ 219 million), of which KRW 100 billion (approximately $ 80 million) was paid in 2016 and KRW 172 billion (approximately $ 138 million) was paid in the first quarter of 2017.

In order to avoid nonpayment financial costs, PM Korea paid approximately KRW 272 billion (approximately $ 207

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

million), of which KRW 100 billion (approximately $ 76 million) was paid in 2016 and KRW 172 billion (approximately $ 131 million) was paid in the first quarter of 2017.

These paid amounts are included in other assets in 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.

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

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The ITC evidentiary hearing closed on February 1, 2021.

On May 14, 2021, the administrative law judge issued an Initial and Recommended Determination ("ID/RD") finding that the Platform 1 blade products infringe 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").

Philip Morris International Inc.

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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;

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Court of Appeals for the Federal Circuit.

Defendants also filed motions in the ITC and Federal Circuit for a stay of the orders

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

pending disposition of the appeal;

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.

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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.

The trial of Defendant PMPSA’s counterclaims took place from June 8-14, 2022 and, on June 15, 2022, the jury returned a verdict for PMPSA awarding approximately $ 10.8 million in damages for infringement up to December 31, 2021 of two PMPSA patents by BAT’s affiliate and two of BAT’s e-vapor products;

the jury also found BAT’s affiliate did not infringe one of the two PMPSA patents and that the BAT affiliates had failed to prove one of the two PMPSA patents was invalid.

PMPSA's motion for an injunction or, in the alternative, an ongoing royalty is due by August 12, 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.

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On March 30, 2022, PTAB issued its final decision on the second of the two patents underlying the ITC's FD, finding the challenged claims patentable.

The parties may appeal PTAB results to the U.S.

The parties have filed appeals of these PTAB results to the U.S.

Court of Appeals for the Federal Circuit.

On July 21, 2022, PMPSA filed a Request for Rehearing of PTAB's November 2020 decision not to institute review of certain claims in the second of the two patents underlying the ITC's FD.

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

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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 blade products in Italy.

In July 2022, the court dismissed plaintiffs’ request for preliminary injunction in its entirety.

Plaintiffs may appeal.

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

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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 blade heated tobacco units in South Korea.

Plaintiffs seek damages and injunctive relief

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

against the commercialization of the Platform 1 blade heated tobacco units in South Korea.

On May 30, 2022, the Korean Patent Office issued a decision that all of the challenged claims in the patent asserted by Plaintiffs are invalid;

Plaintiffs may appeal this decision.

In July, 2021, Philip Morris Products, S.A.

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In January 2022, the court ordered that the trial of the action will be in September 2022, and the trial has subsequently been set to start on September 20, 2022.

In March, the BAT affiliates stated that they would consent to revocation of one of the patents and filed an application with the court to bring a counterclaim against Philip Morris Products S.A.

In March, the BAT affiliates stated that they would consent to revocation of one of the patents and filed a counterclaim against Philip Morris Products S.A.

and Philip Morris Limited seeking from the court a declaration that the remaining BAT affiliate patent is infringed by Platform 1 induction products, as well as damages and injunctive relief against the commercialization of the Platform 1 induction products in the U.K.

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While the outcomes of these proceedings are uncertain, management does not expect that the ultimate outcomes of other litigation, including any reasonably possible losses in excess of current accruals, will have a material adverse effect on our consolidated results of operations, cash flows or financial position.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Third-Party Guarantees

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

As of March 31, 2022, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

As of June 30, 2022, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

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

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

was reduced from approximately 23 % as of December 31, 2021 to approximately 21 % as of March 31, 2022.

was reduced from approximately 23 % as of December 31, 2021 to approximately 21 % as of June 30, 2022.

The guarantees are in effect through March 31, 2026.

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Income tax provisions for jurisdictions outside the United States of America, as well as state and local income tax provisions, were determined on a separate company basis, and the related assets and liabilities were recorded in PMI’s condensed consolidated balance sheets.

PMI’s effective tax rates for the three months ended March 31, 2022 and 2021 were 19.7 % and 21.5 %, respectively.

The effective tax rate for the three months ended March 31, 2022, was favorably impacted by changes in earnings mix by taxing jurisdiction, as well as a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($ 13 million).

PMI’s effective tax rates for the six months and three months ended June 30, 2022 were 20.0 % and 20.3 %, respectively.

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

The effective tax rate for the six months ended June 30, 2022, was favorably impacted by a reduction in deferred tax liabilities related to pension plan assets ($ 40 million), as well as a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($ 13 million).

For further details, see Note 14.

Related Parties - Equity Investments and Other .

The effective tax rate for the three months ended March 31, 2021, was favorably impacted by the corporate income tax rate reduction in Indonesia (enacted in the second quarter of 2020) and the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by taxing jurisdiction.

PMI estimates that its full-year 2022 effective tax rate will be 21 % to 22 %, excluding discrete tax events.

Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates, which PMI monitors each quarter.

Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

rates, which PMI monitors each quarter.

Significant judgment is required in determining income tax provisions and in evaluating tax positions.

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state jurisdictions have statutes of limitations generally ranging from 3 to 5 years.

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

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 in the period of payment) 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 condensed consolidated balance sheets at March 31, 2022 and December 31, 2021, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

The amount paid was included in other assets in PMI’s condensed consolidated balance sheets at June 30, 2022 and 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.

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Indebtedness:

Short-term Borrowings:

PMI's short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries at March 31, 2022, and bank loans to certain PMI subsidiaries at December 31, 2021, had a carrying value of $ 2,441 million and $ 225 million, respectively.

PMI's short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries at June 30, 2022, and bank loans to certain PMI subsidiaries at December 31, 2021, had a carrying value of $ 1,558 million and $ 225 million, respectively.

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

Long-term Debt:

At March 31, 2022 and December 31, 2021, PMI’s long-term debt consisted of the following:

(in millions) March 31, 2022 December 31, 2021

At June 30, 2022 and December 31, 2021, PMI’s long-term debt consisted of the following:

(in millions) June 30, 2022 December 31, 2021

dollar notes, 0.875 % to 6.375 % (average interest rate 3.261 %), due through 2044

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

Swiss franc notes, 1.625 %, due 2024

Swiss franc note, 1.625 %, due 2024

Other (average interest rate 3.496 %), due through 2029 (a)

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$ 22,345 $ 24,783

(a) Includes mortgage debt in Switzerland as well as $ 68 million and $ 71 million in finance leases at March 31, 2022 and December 31, 2021, respectively.

Philip Morris International Inc.

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(a) Includes mortgage debt in Switzerland as well as $ 82 million and $ 71 million in finance leases at June 30, 2022 and December 31, 2021, respectively.

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

At March 31, 2022, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

At June 30, 2022, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

(in millions)

March 31, 2022

June 30, 2022

Level 1 $ 23,930

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Item 8, Note 2.

Summary of Significant Accounting Policies of PMI's Annual Report on Form 10-K for the year ended December 31, 2021.

Credit Facilities:

At March 31, 2022, PMI's total committed credit facilities were as follows:

Revolving Credit Facilities:

At June 30, 2022, PMI's total committed revolving credit facilities were as follows:

(in billions)

Revolving Credit

364-day revolving credit, expiring January 31, 2023

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(2) 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 March 31, 2022, there were no borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.

At June 30, 2022, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Financing of the Swedish Match Offer

In connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match AB ("Swedish Match"), a public limited liability company organized under the laws of Sweden, for all the outstanding shares of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364 -day senior unsecured bridge facility.

The facility provided for borrowings up to an aggregate principal amount of $ 17 billion, expiring 364 days after the occurrence of certain events unless extended.

On June 23, 2022, PMI entered into a new € 5.5 billion (approximately $ 5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a € 3.0 billion (approximately $ 3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a € 2.5 billion (approximately $ 2.6 billion at the date of signing) tranche expiring on June 23, 2027.

In connection with the term loan facility, the aggregate principal amount of commitments under the 364 -day senior unsecured bridge facility was reduced from $ 17 billion to $ 11 billion.

As of June 30, 2022, there were no borrowings under these two facilities.

If drawn upon, the proceeds under the bridge facility and the term loan facility will be used, directly or indirectly, to finance the offer, including, the payment of related fees and expenses.

Accumulated Other Comprehensive Losses:

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(Losses) Earnings At At At

(in millions) March 31, 2022 December 31, 2021 March 31, 2021

(in millions) June 30, 2022 December 31, 2021 June 30, 2021

Currency translation adjustments $ ( 6,558 ) $ ( 6,701 ) $ ( 6,586 )

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Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the three months ended March 31, 2022 and 2021.

For additional information, see Note 2.

Benefit Plans for disclosures related to PMI's pension and other benefits, Note 5.

Financial Instruments for disclosures related to derivative financial instruments and Note 17.

Acquisitions .

Acquisitions (Purchase of Noncontrolling Interests) for disclosures related to currency translation adjustments , Note 5.

Benefit Plans for disclosures related to PMI's pension and other benefits and Note 7.

Financial Instruments for disclosures related to derivative financial instruments.

Related Parties - Equity Investments and Other:

Equity Method Investments:

At March 31, 2022 and December 31, 2021, PMI had total equity method investments of $ 844 million and $ 879 million, respectively.

At June 30, 2022 and December 31, 2021, PMI had total equity method investments of $ 1,036 million and $ 879 million, respectively.

Equity method investments are initially recorded at cost.

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

The carrying value of our equity method investments at March 31, 2022 and December 31, 2021, exceeded our share of the investees' book value by $ 724 million and $ 764 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 684 million and $ 728 million attributable to goodwill as of March 31, 2022 and December 31, 2021, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis.

At March 31, 2022 and December 31, 2021, PMI received year-to-date dividends from equity method investees of $ 8 million and $ 176 million, respectively.

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

The carrying value of our equity method investments at June 30, 2022 and December 31, 2021, exceeded our share of the investees' book value by $ 902 million and $ 764 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 862 million and $ 728 million attributable to goodwill as of June 30, 2022 and December 31, 2021, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis.

At June 30, 2022 and December 31, 2021, PMI received year-to-date dividends from equity method investees of $ 8 million and $ 176 million, respectively.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment), which as of June 30, 2022 had a carrying value of $ 530 million.

While as of June 30, 2022, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions.

For more information see Note 3.

War in Ukraine .

Additionally, there was approximately $ 321 million of cumulative foreign currency translation losses associated with Megapolis Distribution BV reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of June 30, 2022.

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

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Equity securities:

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

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 221 million at March 31, 2022.

Unrealized pre-tax loss of $( 60 ) million ($( 47 ) million net of tax) on these equity securities was recorded in the condensed consolidated statement of earnings for the three months ended March 31, 2022.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 215 million at June 30, 2022.

Unrealized pre-tax loss of $ 60 million ($ 47 million net of tax) on these equity securities was recorded in equity investments and securities (income)/loss, net on the condensed consolidated statement of earnings for the six months ended June 30, 2022.

During the three months ended June 30, 2022, PMI did not record any unrealized gains or losses on equity securities in the condensed consolidated statements of earnings.

Other related parties:

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PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Godfrey Phillips India Ltd ("GPI") is one of the non-controlling interest holders in IPM India, which is a 56.3 % owned PMI consolidated subsidiary in the South & Southeast Asia segment.

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

For the Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

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Net revenues (a)

$ 1,547 $ 1,598 $ 869 $ 835

Other $ 29 $ 33 $ 17 $ 16

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(a) Net revenues exclude excise taxes and VAT billed to customers.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

(in millions) At March 31, 2022 At December 31, 2021

(in millions) At June 30, 2022 At December 31, 2021

Megapolis Group $ 725 $ 319

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

The amounts associated with the servicing liability were no t material as of March 31, 2022 and March 31, 2021.

The amounts associated with the servicing liability were no t material as of June 30, 2022 and June 30, 2021.

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

Cumulative trade receivables sold, including excise taxes, for the three months ended March 31, 2022 and 2021, were $ 2.8 billion and $ 2.5 billion, respectively.

PMI’s operating cash flows were positively impacted by the amount of the trade

Cumulative trade receivables sold, including excise taxes, for the six months ended June 30, 2022 and 2021, were $ 5.6 billion and $ 5.5 billion, respectively.

PMI’s operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions.

The trade receivables sold that remained outstanding under these arrangements as of June 30, 2022 and June 30, 2021, were $ 656 million, and $ 701 million, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

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

For the six months and three months ended June 30, 2022 and 2021, the loss on sale of trade receivables was immaterial.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions.

The trade receivables sold that remained outstanding under these arrangements as of March 31, 2022 and March 31, 2021, were $ 598 million, and $ 625 million, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

For the three months ended March 31, 2022 and 2021, the loss on sale of trade receivables was immaterial.

Product Warranty:

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PMI accounts for its product warranties within other accrued liabilities.

At March 31, 2022 and December 31, 2021, these amounts were as follows:

(in millions) As of and For the Three Months Ended March 31, 2022 As of and For the Year Ended December 31, 2021

At June 30, 2022 and December 31, 2021, these amounts were as follows:

(in millions) As of and For the Six Months Ended June 30, 2022 As of and For the Year Ended December 31, 2021

Balance at beginning of period $ 113 $ 137

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Balance at end of period $ 122 $ 113

The components of PMI’s lease cost were as follows for the three months ended March 31, 2022 and 2021:

For the Three Months Ended March 31,

(in millions) 2022 2021

Operating lease cost $ 62 $ 60

Finance lease cost:

Amortization of right-of-use assets 16 8

Interest on lease liabilities

Short-term lease cost 14 10

Variable lease cost 6 7

Total lease cost $ 98 $ 85

Asset Impairment and Exit Costs:

For the three months ended March 31, 2022, PMI did not record any pre-tax charges for asset impairment and exit costs.

For the three months ended March 31, 2021, PMI recorded total pre-tax asset impairment and exit costs of $ 48 million.

These pre-tax charges for the three months ended March 31, 2021 were included in marketing, administration and research costs in the condensed consolidated statements of earnings.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

As a result, PMI recorded exit costs of $ 26 million in the three months ended March 31, 2021, related to contract terminations and restructuring with certain distributors.

For the six months and three months ended June 30, 2022, PMI did not record any charges for asset impairment and exit costs.

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

These pre-tax charges for the six months and three months ended June 30, 2021 were included in marketing, administration and research costs in the condensed consolidated statements of earnings.

In 2021 PM Korea implemented a new business operating model, which required the restructuring of its current distribution agreements.

As a result, PMI recorded exit costs of $ 26 million as of June 30, 2021, related to contract terminations and restructuring with certain distributors.

The full cost of the program, which was recorded as exit costs during the year ended December 31, 2021, was $ 57 million.

Organizational Design Optimization

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This multi-phase restructuring project was completed in the fourth quarter of 2021.

For the three months ended March 31, 2021, PMI recorded pre-tax charges of $ 22 million, related to the organizational design optimization.

For the six months and three months ended June 30, 2021, PMI recorded pre-tax charges of $ 101 million and $ 79 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.

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Notes to Condensed Consolidated Financial Statements

Asset Impairment and Exit Costs by Segment

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

(in millions) For the Three Months Ended March 31,

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

Separation programs:

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

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Notes to Condensed Consolidated Financial Statements

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the three months ended March 31, 2022 was as follows:

The movement in exit cost liabilities for the six months ended June 30, 2022 was as follows:

(in millions)

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Currency/other ( 5 )

Liability balance, March 31, 2022 $ 113

Liability balance, June 30, 2022 $ 90

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023, with approximately $ 49 million expected to be paid in the remainder of 2022.

Acquisitions:

Purchase of Noncontrolling Interests

Turkey – In the first quarter of 2022, PMI acquired the remaining 25 % stake of its holding in Philip Morris Tütün Mamulleri Sanayi ve Ticaret A.Ş.

(formerly Philsa Philip Morris Sabancı Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.) and 24.75 % stake in Philip Morris Pazarlama ve Satış A.Ş.

As a result of this acquisition, PMI now owns 100 % of these Turkish subsidiaries.

Business Combinations

snus) and modern oral (i.e.

nicotine pouches) product categories.

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.

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.

During the first quarter of 2022, PMI did not record any measurement period adjustments to the preliminary purchase price allocation.

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

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