What changed in this filing

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Item 1. Financial Statements

2022-10-27 compared with 2022-07-29 · 288 added, 235 removed, 1277 unchanged (29% of the section changed)

4 unchanged sentences

(in millions of dollars, except per share data)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Revenues including excise taxes $ 60,638 $ 61,393

1 unchanged sentence

Net revenues (Note 10) 23,610 23,301

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

Cost of sales (Notes 3 & 6) 8,191 7,223

Gross profit 15,419 16,078

Marketing, administration and research costs (Notes 3 & 17) 6,097 6,050

Amortization of intangibles 74 37

Operating income 9,322 10,028

15 unchanged sentences

(in millions of dollars, except per share data)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Revenues including excise taxes $ 20,888 $ 21,617

Excise taxes on products 12,856 13,495

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

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

Net revenues 8,032 8,122

Cost of sales (Notes 3 & 6) 2,935 2,596

Gross profit 5,097 5,526

Marketing, administration and research costs (Notes 3 & 17) 2,129 2,071

Amortization of intangibles 36 19

Operating income 2,968 3,455

15 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net earnings $ 7,033 $ 7,481

8 unchanged sentences

(Gains) losses transferred to earnings, net of income taxes of $ 18 in 2022 and $ 3 in 2021

( 106 ) ( 4 )

Total other comprehensive earnings (losses) 292 594

8 unchanged sentences

(in millions of dollars)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Net earnings $ 2,222 $ 2,588

8 unchanged sentences

(Gains) losses transferred to earnings, net of income taxes of $ 9 in 2022 and $ 3 in 2021

( 46 ) ( 19 )

Total other comprehensive earnings (losses) ( 319 ) 106

8 unchanged sentences

(in millions of dollars)

September 30,

2022 December 31,

20 unchanged sentences

(in millions of dollars, except share data)

September 30,

2022 December 31,

35 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

1 unchanged sentence

Adjustments to reconcile net earnings to operating cash flows:

Depreciation and amortization 540 484

Depreciation, amortization and impairment of intangibles 898 719

Deferred income tax (benefit) provision ( 146 ) ( 18 )

21 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

14 unchanged sentences

Balance at end of period $ 5,374 $ 4,800

(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.

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 6 million and $ 309 million as of September 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.

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

For further details on the acquisition of Vectura, see Note 2.

Acquisitions .

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Six Months Ended June 30, 2022 and 2021

For the Nine Months Ended September 30, 2022 and 2021

(in millions of dollars, except per share amounts)

14 unchanged sentences

Payments to noncontrolling interests ( 459 ) ( 459 )

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

Common stock repurchased ( 94 ) ( 94 )

Acquisitions 44 44

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

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

Balances, September 30, 2022 $ — $ 2,204 $ 33,865 $ ( 9,288 ) $ ( 35,918 ) $ 1,734 $ ( 7,403 )

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2022 and 2021

For the Three Months Ended September 30, 2022 and 2021

(in millions of dollars, except per share amounts)

7 unchanged sentences

Interests Total

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

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

Net earnings 2,426 162 2,588

4 unchanged sentences

Payments to noncontrolling interests ( 161 ) ( 161 )

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

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

Common stock repurchased ( 94 ) ( 94 )

Acquisitions 44 44

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

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

Net earnings 2,087 135 2,222

4 unchanged sentences

Payments to noncontrolling interests ( 111 ) ( 111 )

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

Balances, September 30, 2022 $ — $ 2,204 $ 33,865 $ ( 9,288 ) $ ( 35,918 ) $ 1,734 $ ( 7,403 )

See notes to condensed consolidated financial statements.

51 unchanged sentences

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).

The purchase price of $ 821 million was 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.

1 unchanged sentence

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.

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

The final purchase price allocation was reflected in the condensed consolidated balance sheets as of September 30, 2022.

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.

2 unchanged sentences

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).

The total purchase price of $ 1,384 million (GBP 1.0 billion) for 100 % of the Vectura shares was allocated to cash ($ 136 million), current assets including receivables and inventories ($ 89 million), non-current assets including property, plant and equipment ($ 67 million), goodwill ($ 780 million), and other intangible assets ($ 486 million, which primarily consisted of developed technology, and IPR&D), partially offset by current liabilities ($ 100 million, primarily accrued liabilities), and non-current liabilities ($ 74 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.

1 unchanged sentence

The amortizable intangible assets are being amortized over their estimated useful lives of 3 to 13 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

During the third quarter of 2022, PMI made certain measurement period adjustments to the purchase price allocation to reflect facts and circumstances in existence as of the acquisition date, which resulted in an increase to goodwill of $ 190 million.

The increase was primarily due to a decrease in other intangible assets ($ 233 million), and a decrease in deferred

Philip Morris International Inc.

1 unchanged sentence

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.

income tax liabilities ($ 43 million).

The final purchase price allocation was reflected in the condensed consolidated balance sheets as of September 30, 2022.

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.

11 unchanged sentences

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.

Since the onset of the war in Ukraine in February 2022, 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).

While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of September 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.

As of September 30, 2022, PMI’s Ukrainian operations had approximately $ 471 million in total assets, excluding intercompany balances.

These total assets included $ 75 million, $ 342 million and $ 32 million in receivables, inventories and property, plant and equipment, respectively.

1 unchanged sentence

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.

As a result of PMI continuing operations within Russia as of September 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.

PMI’s Russian operations as of September 30, 2022 had approximately $ 2.6 billion in total assets, excluding intercompany balances.

These total assets included $ 635 million, $ 683 million, $ 424 million and $ 150 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.

In addition, there was approximately $ 440 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of September 30, 2022.

Philip Morris International Inc.

1 unchanged sentence

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

As of September 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 Nine Months Ended September 30, 2022 For the Three Months Ended September 30, 2022

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

10 unchanged sentences

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

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

At September 30, 2022, shares available for grant under the 2022 Plan were 24,976,300 .

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

2 unchanged sentences

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

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

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

Restricted share unit (RSU) awards

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:

During the nine months ended September 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

6 unchanged sentences

Compensation Expense Related to RSU Awards

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

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

2022 $ 109 $ 35

2021 $ 106 $ 33

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

As of September 30, 2022, PMI had $ 187 million of total unrecognized compensation cost related to non-vested RSU awards.

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

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

During the nine months ended September 30, 2022, 1,570,131 RSU awards vested.

The grant date fair value of all the vested awards was approximately $ 123 million.

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

The total fair value of RSU awards that vested during the nine months ended September 30, 2022 was approximately $ 171 million.

Performance share unit (PSU) awards

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

During the nine months ended September 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 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:

The performance metrics for such PSU's granted during the nine months ended September 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 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 performance metrics for such PSU's granted during the nine months ended September 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.

3 unchanged sentences

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

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

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

Number of Shares Granted Grant Date

18 unchanged sentences

Compensation Expense Related to PSU Awards

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

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

2022 $ 44 $ 13

2021 $ 58 $ 12

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

As of September 30, 2022, PMI had $ 54 million of total unrecognized compensation cost related to non-vested PSU awards.

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

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

During the nine months ended September 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 six months ended June 30, 2022 was approximately $ 74 million.

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

Benefit Plans:

6 unchanged sentences

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

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

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

(in millions) 2022 2021 2022 2021

9 unchanged sentences

Net periodic pension cost consisted of the following:

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

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

(in millions) 2022 2021 2022 2021

10 unchanged sentences

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

Employer contributions of $ 85 million, excluding refunds, were made to the pension plans during the nine months ended September 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.

7 unchanged sentences

Currency ( 200 ) ( 36 ) ( 8 ) ( 238 ) ( 49 ) ( 6 ) ( 206 ) ( 743 )

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 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.

Other — — — — — — 190 190

Balances, September 30, 2022 $ 1,197 $ 259 $ 71 $ 2,590 $ 490 $ 605 $ 915 $ 6,127

The decrease in goodwill was due primarily to currency movements, partially offset by the final purchase price allocation associated with Vectura Group plc acquisition in 2021.

For further details on these business combinations, see Note 2.

Acquisitions .

At September 30, 2022, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and Serbia, as well as the final purchase price allocation of Fertin Pharma A/S and Vectura Group plc., which were acquired in September 2021.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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 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.

Details of other intangible assets were as follows:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

6 unchanged sentences

(1) Primarily includes distribution networks and customer relationships.

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 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).

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

The decrease since December 31, 2021 was due to the final purchase price allocation associated with Vectura Group plc acquisition in 2021 in the amount of $ 3 million and currency movements of $ 42 million.

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2021, was due to the final purchase price allocation associated with PMI's business combinations in 2021 and other movements in the amount of $ 225 million and currency movements of $ 173 million.

For further details on these business combinations, see Note 2.

Acquisitions .

The change in the accumulated amortization from December 31, 2021, was mainly due to the 2022 amortization of $ 101 million and impairment charge of $ 112 million, partially offset by currency movements of ($ 62 million).

The amortization of intangibles for the nine months ended September 30, 2022 was recorded in cost of sales ($ 41 million) and in marketing, administration and research costs ($ 60 million) on PMI's condensed consolidated statements of earnings.

Amortization expense for each of the next five years is estimated to be $ 127 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

3 unchanged sentences

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 .

PMI recorded a pre-tax impairment charge of $ 112 million as of September 30, 2022, reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Healthcare segment.

The impairment reduces the carrying values of developed technology definite-lived intangible assets in the Wellness and Healthcare segment to $ 308 million.

The fair value of these intangible assets was primarily determined using the multi-period excess earnings method.

This impairment charge was recorded within cost of sales in the condensed consolidated statements of earnings for the three months and nine months ended September 30, 2022.

Financial Instruments:

13 unchanged sentences

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

At June 30, 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.

The gross notional amounts for outstanding derivatives at the end of each period were as follows:

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

Derivative contracts designated as hedging instruments:

Foreign exchange contracts $ 13,034 $ 9,501

Interest rate contracts 5,000 900

Derivative contracts not designated as hedging instruments:

Foreign exchange contracts 20,067 10,337

Total $ 38,101 $ 20,738

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

Derivative Assets Derivative Liabilities

Fair Value Fair Value

(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

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

Derivative contracts designated as hedging instruments:

Foreign exchange contracts Other current assets $ 587 $ 166 Other accrued liabilities $ 7 $ 31

Other assets 751 22 Income taxes and other liabilities 19 187

Derivative contracts not designated as hedging instruments Other current assets

Interest rate contracts Other current assets 192 7 Other accrued liabilities 4 3

Other assets — — Income taxes and other liabilities 80 3

Derivative contracts not designated as hedging instruments:

Foreign exchange contracts Other current assets

158 37 Other accrued liabilities 180 75

8 unchanged sentences

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

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

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

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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,

For the nine months ended September 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 Nine Months Ended September 30,

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

4 unchanged sentences

Cash flow hedges:

Net revenues $ 81 $ 17

Foreign exchange contracts $ 325 $ 93 Net revenues $ 151 $ 30

Cost of sales — —

1 unchanged sentence

Interest expense, net ( 5 ) ( 5 )

Fair value hedges Interest expense, net $ ( 57 ) $ —

Net investment hedges (a)

530 192 Interest expense, net (b)

Interest rate contracts 304 7 Interest expense, net ( 5 ) ( 4 )

Fair value hedges:

Interest rate contracts Interest expense, net (a)

Net investment hedges (b) :

Foreign exchange contracts 1,088 325 Interest expense, net (c)

Derivative contracts not designated as hedging instruments:

Interest expense, net 43 25

Marketing, administration and research costs (c)

Foreign exchange contracts Interest expense, net 56 39

Marketing, administration and research costs (d)

Total $ 1,717 $ 425 $ 124 $ 7 $ ( 69 ) $ 454

(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

(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

(a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item

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

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

Philip Morris International Inc.

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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,

For the three months ended September 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 September 30,

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

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Cash flow hedges:

Net revenues $ 64 $ 17

Foreign exchange contracts $ 77 $ 2 Net revenues $ 70 $ 13

Cost of sales — —

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Interest expense, net ( 1 ) ( 1 )

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

Net investment hedges (a)

425 ( 126 ) Interest expense, net (b)

Interest rate contracts 197 9 Interest expense, net ( 2 ) ( 1 )

Fair value hedges:

Interest rate contracts Interest expense, net (a)

Net investment hedges (b) :

Foreign exchange contracts 558 133 Interest expense, net (c)

Derivative contracts not designated as hedging instruments:

Interest expense, net 35 14

Marketing, administration and research costs (c)

Foreign exchange contracts Interest expense, net 13 14

Marketing, administration and research costs (d)

Total $ 832 $ 144 $ 60 $ 9 $ ( 188 ) $ 151

(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

(a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item

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

Cash Flow Hedges

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

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.

As of September 30, 2022, PMI has hedged forecasted transactions for periods not exceeding the next fifteen months with the exception of one derivative contract that expires in May 2024.

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

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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 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.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of September 30, 2022 was $ 911 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 $ 84 million as of September 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 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.

For the nine months ended September 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 $ 525 million and $ 181 million, respectively.

For the three months ended September 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 $ 267 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.

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

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

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

2022 2021 2022 2021

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Change in fair value 523 85 222 8

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.

Gain/(loss) as of September 30, $ 421 $ ( 4 ) $ 421 $ ( 4 )

At September 30, 2022, PMI expects $ 189 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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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 $ 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.

A PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 118 million at September 30, 2022.

For the nine months and three months ended September 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 Six Months Ended June 30, For the Three Months Ended June 30,

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

2022 2021 2022 2021

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Segment data were as follows:

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

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

2022 2021 2022 2021

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

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

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

2022 2021 2022 2021

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• 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.

War in Ukraine for details of the $ 128 million and $ 6 million pre-tax charges in the Eastern Europe segment for the nine months and three months ended September 30, 2022, respectively.

• Impairment of intangibles - See Note 6.

Goodwill and Other Intangible Assets, net for the details of the $ 112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the nine months and three months ended September 30, 2022.

• 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.

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

• Asset 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.

Asset Impairment and Exit Costs for details of the $ 170 million and $ 43 million pre-tax charges and a breakdown of these costs by segment for the nine months and three months ended September 30, 2021, respectively.

• Asset acquisition cost - See Note 2.

Acquisitions for the details of the $ 51 million pre-tax charge associated with the 2021 asset acquisition of OtiTopic, Inc.

included in the Wellness and Healthcare segment within the operating income table above for the nine months and three months ended September 30, 2021.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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.

Philip Morris International Inc.

and Subsidiaries

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.

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 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.

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(“RBH”), and the other defendants, JTI Macdonald Corp., and Imperial Tobacco Canada Limited, sought protection in the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (“CCAA”) on March 22, March 8, and March 12, 2019, respectively.

CCAA is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course.

The initial CCAA order made by the Ontario Superior Court on March 22, 2019 authorizes RBH to pay all expenses incurred in carrying on its business in the ordinary course after the CCAA filing, including obligations to employees, vendors, and suppliers.

As further described in Item 8, Note 20.

Deconsolidation of RBH of PMI's Annual Report on Form 10-K for the year ended December 31, 2021, RBH's financial results have been deconsolidated from our consolidated financial statements since March 22, 2019.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including September 30, 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.

CCAA is a Canadian federal law that permits a Canadian

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

business to restructure its affairs while carrying on its business in the ordinary course.

As further described in Item 8, Note 20.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including March 31, 2023 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.

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The charge reflects PMI’s assessment of the portion of the judgment that represents probable and estimable loss prior to the deconsolidation of RBH and corresponds to the trust account deposit required by the judgment.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

In the second class action pending in Canada, Cecilia Létourneau v.

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The trial court found RBH and two other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $ 96 million) in punitive damages, allocating CAD 46 million (approximately $ 33.7 million) to RBH.

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 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 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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He 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 heart disease 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 the eighth class action pending in Canada, Bourassa v.

Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada , filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants.

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

Philip Morris International Inc.

1 unchanged sentence

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 the eighth class action pending in Canada, Bourassa v.

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.

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

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The claim was filed by the government of the province of Alberta 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 seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v.

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

The legislation authorizes the

Philip Morris International Inc.

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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.

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 seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v.

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.

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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 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

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 September 30, 2022, and September 30, 2021:¹

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

Individual Smoking and Health Cases 38 41

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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 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

As of September 30, 2022, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 38 cases brought by individual plaintiffs in Argentina ( 30 ), 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 products under the caption " Tobacco-Related Litigation " described above), compared with 41 such cases on September 30, 2021;

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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.

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

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

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

As of 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.

As of September 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 September 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.

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

British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria , filed February 26, 2008, we and other members of the industry are defendants.

Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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

British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria , filed February 26, 2008, we and other members of the industry are defendants.

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

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

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

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

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.

As of September 30, 2022, there were 6 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 5 ) pending against our subsidiaries, compared with 3 such cases on September 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 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.

As of September 30, 2022, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 1 such case on September 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

Plaintiff sought injunctive relief and damages on her behalf and on 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

Philip Morris International Inc.

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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.

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).

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.

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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 August 30, 2022.

The appellate court is scheduled to issue its decision on the appeals on January 31, 2023.

The South Korean Board of Audit and Inspection (“BAI”) conducted an audit of certain Korean government agencies and the tobacco industry into whether inventory movements ahead of the January 1, 2015 increase of cigarette-related taxes by tobacco companies, including Philip Morris Korea Inc.

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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 $ 207

In order to avoid nonpayment financial costs, PM Korea paid approximately KRW 272 billion (approximately $ 190 million), of which KRW 100 billion (approximately $ 70 million) was paid in 2016 and KRW 172 billion (approximately $ 120 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.

PM Korea appealed the assessments.

In January 2020, a trial court ruled that PM Korea

Philip Morris International Inc.

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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.

PM Korea appealed the assessments.

In January 2020, a trial court ruled that PM Korea did not underpay taxes in the amount of approximately KRW 218 billion (approximately $ 166 million).

did not underpay taxes in the amount of approximately KRW 218 billion (approximately $ 153 million).

The tax authorities appealed this decision to the appellate court.

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The ITC evidentiary hearing closed on February 1, 2021.

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Notes to Condensed Consolidated Financial Statements

recommending against a cease-and-desist, as well as recommending against a bond pending Presidential review of the ITC's Final Determination ("FD").

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").

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

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

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

Tariff Act and issued (a) a limited exclusion order

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

against Philip Morris Products S.A., prohibiting, inter alia, the importation of Platform 1 product and infringing components;

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

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

The Federal Circuit heard oral argument on defendants' appeal of the FD on October 3, 2022 and a decision is awaited.

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

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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.

PMPSA filed a motion for an injunction or, in the alternative, an ongoing royalty on August 12, 2022 which remains pending.

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 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;

PTAB denied the Request on October 13, 2022.

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 July 2022, the court dismissed plaintiffs’ request for preliminary injunction in its entirety and plaintiffs did not appeal this ruling.

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

Plaintiffs seek damages and injunctive relief 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 filed an appeal of this decision.

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.

filed a claim at the High Court of Justice of England and Wales against BAT affiliates Nicoventures Trading Limited and British American Tobacco (Investments) Limited seeking revocation of the UK parts of two BAT European patents.

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 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.

The trial took place from September 21-28, 2022, and a decision is awaited.

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

4 unchanged sentences

On October 17, 2020, Medicago Inc., an equity method investee of Philip Morris Investments B.V.

(“PMIBV”), a PMI subsidiary, entered into a contribution agreement with the Canadian government (the “Contribution Agreement”) whereby the Canadian government agreed to contribute up to CAD 173 million (approximately $ 131 million on the date of signing) to Medicago Inc., to support its on-going COVID-19 vaccine development and clinical trials, and for the construction of its Quebec City manufacturing facility (the “Project”).

(“PMIBV”), a PMI subsidiary, entered into a contribution agreement with the Canadian government (the “Contribution Agreement”) whereby the Canadian government agreed to contribute up to CAD 173 million (approximately $ 131 million on the date of signing) to Medicago Inc., to support its on-going COVID-19 vaccine development and clinical trials ("First Stage"), and for the construction of its Quebec City manufacturing facility ("Second Stage", and together with the First Stage, the “Project”).

On March 31, 2022, the Contribution Agreement was amended (the “Contribution Agreement Amendment”) to reflect an additional contribution from the Canadian government up to CAD 27 million (approximately $ 22 million on the date of signing) to Medicago Inc.

for the construction of its Quebec City manufacturing facility.

for the Second Stage.

PMIBV and the majority shareholder of Medicago Inc.

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The Co-Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago Inc.

fails to do so, and could be responsible for the costs of other Medicago’s obligations (such as the achievement of specific milestones of the Project).

fails to do so (the "Repayment Obligations"), and could be responsible for the costs of other Medicago’s obligations (such as the achievement of specific milestones of the Project).

It is reasonably possible that PMI will be responsible for its portion of these costs and obligations.

In August 2022, Medicago received the final tranche of the contribution from the Canadian government in relation to the First Stage, confirming thereby the completion of such first stage and consequently reducing by approximately CAD 123 million (approximately $ 93 million on the date of signing) the Repayment Obligations.

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

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.

As of September 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 and the Contribution Agreement Amendment, PMIBV and the majority shareholder of Medicago Inc.

entered into a guarantors’ agreement that apportions Co-Guarantors’ obligations and limits those of PMIBV to its share of holdings in 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 June 30, 2022.

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

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

On August 16, 2022, the Inflation Reduction Act ("the Act") was signed into law in the U.S.

The Act includes a new corporate alternative minimum tax and an excise tax on stock buybacks effective after December 31, 2022.

As of September 30, 2022, PMI has determined that the Act had no significant tax impacts on its consolidated financial statements.

PMI’s effective tax rates for the nine months and three months ended September 30, 2022 were 20.6 % and 22.0 %, respectively.

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

The effective tax rate for the nine months ended September 30, 2022, was favorably impacted by changes in earnings mix by

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

rates, which PMI monitors each quarter.

taxing jurisdiction and 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 .

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.

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

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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 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.

The amount paid was included in other assets in PMI’s condensed consolidated balance sheets at September 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.

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Short-term Borrowings:

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.

PMI's short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries at September 30, 2022, and bank loans to certain PMI subsidiaries at December 31, 2021, had a carrying value of $ 2,818 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 June 30, 2022 and December 31, 2021, PMI’s long-term debt consisted of the following:

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

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

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

dollar notes, 0.875 % to 6.375 % (average interest rate 3.332 %), due through 2044

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$ 21,762 $ 24,783

(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.

(a) Includes mortgage debt in Switzerland as well as $ 69 million and $ 71 million in finance leases at September 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 June 30, 2022, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

(in millions)

June 30, 2022

Level 1 $ 23,930

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

(in millions)

September 30, 2022

Level 1 $ 20,913

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

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Revolving Credit Facilities:

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

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

(in billions)

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

(3) On September 20, 2022, PMI entered into an agreement, effective September 29, 2022, to amend and extend the term of its $ 2.5 billion multi-year revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $ 2.3 billion.

At September 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

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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.

As of September 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.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Accumulated Other Comprehensive Losses:

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(Losses) Earnings At At At

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

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

Currency translation adjustments $ ( 7,055 ) $ ( 6,701 ) $ ( 6,529 )

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Total accumulated other comprehensive losses $ ( 9,288 ) $ ( 9,577 ) $ ( 10,520 )

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the six months and three months ended June 30, 2022 and 2021.

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the nine months and three months ended September 30, 2022 and 2021.

For additional information, see Note 2.

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Equity Method Investments:

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

At September 30, 2022 and December 31, 2021, PMI had total equity method investments of $ 1,033 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 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.

The carrying value of our equity method investments at September 30, 2022 and December 31, 2021, exceeded our share of the investees' book value by $ 859 million and $ 764 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 822 million and $ 728 million attributable to goodwill as of September 30, 2022 and December 31, 2021, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis.

At September 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 September 30, 2022 had a carrying value of $ 521 million.

While as of September 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.

Additionally, there was approximately $ 361 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 September 30, 2022.

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

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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 $ 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.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 211 million at September 30, 2022.

Unrealized pre-tax loss of $ 65 million ($ 52 million net of tax) on these equity securities was recorded in equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings for the nine months ended September 30, 2022, of which $ 5 million was recorded during the three months ended September 30, 2022.

Other related parties:

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

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

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

(in millions) 2022 2021 2022 2021

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

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

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

Megapolis Group $ 627 $ 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 June 30, 2022 and June 30, 2021.

The amounts associated with the servicing liability were no t material as of September 30, 2022 and September 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 six months ended June 30, 2022 and 2021, were $ 5.6 billion and $ 5.5 billion, respectively.

Cumulative trade receivables sold, including excise taxes, for the nine months ended September 30, 2022 and 2021, were $ 8.4 billion and $ 8.6 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 trade receivables sold that remained outstanding under these arrangements as of September 30, 2022 and September 30, 2021, were $ 512 million, and $ 652 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.

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

Philip Morris International Inc.

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PMI accounts for its product warranties within other accrued liabilities.

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

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

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

Balance at beginning of period $ 113 $ 137

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Asset Impairment and Exit Costs:

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.

For the nine months and three months ended September 30, 2022, PMI did not record any charges for asset impairment and exit costs related to restructuring activities.

As previously discussed, PMI recorded a pre-tax impairment charge on intangibles of $ 112 million for the nine months and three months ended September 30, 2022 within the Wellness and Healthcare segment.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

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

These pre-tax charges for the nine months and three months ended September 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.

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

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

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.

For the nine months and three months ended September 30, 2021, PMI recorded pre-tax charges of $ 128 million and $ 27 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.

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Asset Impairment and Exit Costs by Segment

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

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

PMI recorded the following pre-tax asset impairment and exit costs by segment related to restructuring activities:

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

Separation programs:

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Movement in Exit Cost Liabilities

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

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

(in millions)

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Currency/other ( 9 )

Liability balance, June 30, 2022 $ 90

Liability balance, September 30, 2022 $ 54

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023, with approximately $ 17 million expected to be paid in the remainder of 2022.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

The components of PMI’s lease cost were as follows for the six months and three months ended June 30, 2022 and 2021:

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

The components of PMI’s lease cost were as follows for the nine months and three months ended September 30, 2022 and 2021:

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

(in millions) 2022 2021 2022 2021

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Total lease cost $ 309 $ 279 $ 95 $ 97

Subsequent Event:

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' commercial relationship covering IQOS in the U.S.

as of April 30, 2024.

Thereafter, PMI will have the full rights to commercialize IQOS in the U.S.

As part of the agreement, effective October 19, 2022, PMI will pay a total cash consideration of $ 2.7 billion, of which $ 1.0 billion was paid at the inception of the agreement using available cash.

The remaining $ 1.7 billion, plus interest, at a per annum rate equal to six percent ( 6 %), will be paid by July 2023 at the latest.

PMI is currently evaluating the impact of this agreement on its consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements