What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-04-26 · 482 added, 249 removed, 1274 unchanged (36% of the section changed)

4 unchanged sentences

(in millions of dollars, except per share data)

For the Three Months Ended March 31,

Revenues including excise taxes (includes $ 1,845 in 2023 and $ 1,629 in 2022 from related parties)

For the Six Months Ended June 30,

Net revenues 1 & 2 (Note 14)

16,986 15,578

Excise taxes on products 11,299 11,595

Net revenues (includes $ 873 in 2023 and $ 678 in 2022 from related parties) (Note 14)

Cost of sales (Note 3) 6,266 5,256

13 unchanged sentences

Diluted earnings per share $ 2.29 $ 2.93

(1) Includes net revenues from related parties of $ 1,774 million and $ 1,547 million for the six months ended June 30, 2023 and 2022, respectively

(2) Net of excise tax on products of $ 24,048 million and $ 24,172 million for the six months ended June 30, 2023 and 2022, respectively

(3) Includes an impairment charge for goodwill and other intangibles of $ 680 million and a charge of $ 204 million for the South Korea indirect tax charge for the six months ended June 30, 2023, respectively.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net and Note 10.

Contingencies.

See notes to condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

For the Three Months Ended June 30,

Net revenues 1 & 2 (Note 14)

Cost of sales (Note 3) 3,228 2,648

Gross profit 5,739 5,184

Marketing, administration and research costs 3 (Notes 3, 6 & 10)

Operating income 2,566 3,056

Interest expense, net 297 126

Pension and other employee benefit costs (Note 5) 6 5

Earnings before income taxes 2,263 2,925

Provision for income taxes 560 594

Equity investments and securities (income)/loss, net 21 ( 15 )

Net earnings 1,682 2,346

Net earnings attributable to noncontrolling interests 114 113

Net earnings attributable to PMI $ 1,568 $ 2,233

Per share data (Note 8):

Basic earnings per share $ 1.01 $ 1.44

Diluted earnings per share $ 1.01 $ 1.43

(1) Includes net revenues from related parties of $ 901 million and $ 869 million for the three months ended June 30, 2023 and 2022, respectively

(2) Net of excise taxes of $ 12,749 million and $ 12,577 million for the three months ended June 30, 2023 and 2022, respectively

(3) Includes an impairment charge for goodwill and other intangibles of $ 680 million and a charge of $ 204 million for the South Korea indirect tax charge for the three months ended June 30, 2023, respectively.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net and Note 10.

Contingencies.

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Net earnings $ 3,784 $ 4,811

2 unchanged sentences

Unrealized gains (losses), net of income taxes of $ 83 in 2023 and $( 182 ) in 2022

(Gains)/losses transferred to earnings, net of income taxes of $ 0 in 2023 and 2022

Change in net loss and prior service cost:

Net gains (losses) and prior service costs, net of income taxes of $ 0 in 2023 and $ 36 in 2022

Amortization of net losses, prior service costs and net transition costs, net of income taxes of $( 14 ) in 2023 and $( 22 ) in 2022

Change in fair value of derivatives accounted for as hedges:

Gains (losses) recognized, net of income taxes of $( 48 ) in 2023 and $( 54 ) in 2022

(Gains) losses transferred to earnings, net of income taxes of $ 22 in 2023 and $ 9 in 2022

( 104 ) ( 55 )

Total other comprehensive earnings (losses) ( 642 ) 611

Total comprehensive earnings 3,142 5,422

Less comprehensive earnings (losses) attributable to:

Noncontrolling interests 65 324

Comprehensive earnings attributable to PMI $ 3,077 $ 5,098

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

For the Three Months Ended June 30,

Net earnings $ 1,682 $ 2,346

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

Change in currency translation adjustments:

Unrealized gains (losses), net of income taxes of $ 31 in 2023 and $( 151 ) in 2022

(Gains)/losses transferred to earnings, net of income taxes of $ 0 in 2023 and 2022

Change in net loss and prior service cost:

4 unchanged sentences

(Gains) losses transferred to earnings, net of income taxes of $ 16 in 2023 and $ 7 in 2022

( 75 ) ( 46 )

Total other comprehensive earnings (losses) ( 444 ) 649

25 unchanged sentences

TOTAL ASSETS $ 61,868 $ 61,681

(1) Includes trade receivables from related parties of $ 708 million and $ 688 million as of March 31, 2023, and December 31, 2022, respectively (less allowances of $ 17 million as of March 31, 2023 and $ 7 million as of December 31, 2022).

(1) Includes trade receivables from related parties of $ 709 million and $ 688 million as of June 30, 2023, and December 31, 2022, respectively (less allowances of $ 29 million as of June 30, 2023 and $ 7 million as of December 31, 2022).

For further details, see Note 14.

42 unchanged sentences

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

1 unchanged sentence

Adjustments to reconcile net earnings to operating cash flows:

Depreciation, amortization and impairment of intangibles 299 253

Depreciation, amortization and impairment of goodwill and other intangibles 1,280 540

Deferred income tax (benefit) provision ( 211 ) ( 88 )

2 unchanged sentences

Receivables, net (1)

( 292 ) ( 627 )

Inventories ( 74 ) 867

2 unchanged sentences

Income taxes ( 509 ) ( 424 )

Pension plan contributions (Note 5) ( 45 ) ( 34 )

Pension plan contributions, net of refunds (Note 5) ( 72 ) 63

Other 513 242

Net cash provided by (used in) operating activities ( 955 ) 1,118

Net cash provided by operating activities 2,487 4,642

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

4 unchanged sentences

Net cash used in investing activities ( 1,074 ) ( 55 )

(1) Includes amounts from related parties of $( 76 ) million and $( 202 ) million for March 31, 2023 and 2022, respectively

(1) Includes amounts from related parties of $( 134 ) million and $( 242 ) million for June 30, 2023 and 2022, respectively

See notes to condensed consolidated financial statements.

3 unchanged sentences

(in millions of dollars)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

10 unchanged sentences

Noncontrolling interests activity and Other (Note 2)

Net cash provided by (used in) financing activities 864 ( 701 )

( 149 ) ( 542 )

Net cash used in financing activities ( 920 ) ( 3,800 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 198 ) ( 244 )

3 unchanged sentences

Balance at end of period $ 3,512 $ 5,043

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 18 million and $ 4 million as of March 31, 2023 and 2022, respectively, and $ 10 million and $ 4 million as of December 31, 2022 and 2021, 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 $ 20 million and $ 7 million as of June 30, 2023 and 2022, respectively, and $ 10 million and $ 4 million as of December 31, 2022 and 2021, respectively, which were included in other current assets in the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended March 31, 2023 and 2022

For the Six Months Ended June 30, 2023 and 2022

(in millions of dollars, except per share amounts)

16 unchanged sentences

Purchase of subsidiary shares from noncontrolling interests (Note 2) ( 30 ) ( 171 ) ( 10 ) ( 211 )

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

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

Balances, January 1, 2023 $ — $ 2,230 $ 34,289 $ ( 9,559 ) $ ( 35,917 ) $ 2,646 $ ( 6,311 )

6 unchanged sentences

Sale (purchase) of subsidiary shares to/(from) noncontrolling interests (Note 2) 21 179 ( 829 ) ( 629 )

Balances, March 31, 2023 $ — $ 2,188 $ 34,303 $ ( 9,614 ) $ ( 35,801 ) $ 1,871 $ ( 7,053 )

Balances, June 30, 2023 $ — $ 2,240 $ 33,893 $ ( 10,045 ) $ ( 35,791 ) $ 1,743 $ ( 7,960 )

See notes to condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2023 and 2022

(in millions of dollars, except per share amounts)

PMI Stockholders’ (Deficit) Equity

Stock Additional

Capital Earnings

Reinvested in

Business Accumulated

Comprehensive Losses Cost of

Stock Noncontrolling

Interests Total

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

Net earnings 2,233 113 2,346

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

Issuance of stock awards 47 3 50

Dividends declared ($ 1.25 per share)

( 1,946 ) ( 1,946 )

Dividends paid to noncontrolling interests ( 156 ) ( 156 )

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

Balances, April 1, 2023 $ — $ 2,188 $ 34,303 $ ( 9,614 ) $ ( 35,801 ) $ 1,871 $ ( 7,053 )

Net earnings 1,568 114 1,682

Other comprehensive earnings (losses), net of income taxes ( 431 ) ( 13 ) ( 444 )

Issuance of stock awards 52 10 62

Dividends declared ($ 1.27 per share)

( 1,978 ) ( 1,978 )

Dividends paid to noncontrolling interests ( 225 ) ( 225 )

Sale (purchase) of subsidiary shares to/(from) noncontrolling interests ( 4 ) ( 4 )

Balances, June 30, 2023 $ — $ 2,240 $ 33,893 $ ( 10,045 ) $ ( 35,791 ) $ 1,743 $ ( 7,960 )

See notes to condensed consolidated financial statements.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

66 unchanged sentences

In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100 % of the shares in Swedish Match on February 17, 2023.

Cash paid in connection with such legal title, together with an immaterial amount attributable to open market purchases that were executed in December 2022 but settled in January 2023, amounted to $ 883 million and was included in financing activities in the condensed consolidated statements of cash flows for the three months ended March 31, 2023.

While we have paid the referenced amounts and have acquired legal title to the shares, the redemption process will not be complete under the Swedish Companies Act until a final redemption price is determined by an arbitral tribunal.

6 unchanged sentences

Due to the timing of the acquisition, and limited access to detailed and disaggregated financial information of Swedish Match, the purchase price allocation is preliminary and it is likely subject to change, including the valuation of property, plant and equipment, intangible assets, income taxes and legal contingencies among other items.

During the first quarter of 2023, PMI did not record any measurement period adjustments to the preliminary purchase price allocation.

During the second quarter of 2023, 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 in goodwill of $ 109 million.

The increase was due to a decrease in other current assets of $ 109 million.

PMI is still assessing information received, as of the acquisition date, and expects to complete this process by the end of the measurement period in November 2023.

The following table summarizes the preliminary purchase price allocation for the fair value of assets acquired and liabilities assumed as of the acquisition date:

31 unchanged sentences

Total identifiable intangible assets $ 4,512

The significant assumptions used in determining the preliminary fair values of the identifiable intangible assets included royalty rates, revenue growth rates, profit margins, customer attrition rate and discount rates.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Trademarks primarily relate to $ 2,077 million for the ZYN trademark, which has been determined to have an indefinite life due to the fast growth and the leading position of the brand in the market.

Trademarks primarily relate to $ 2,077 million for the ZYN trademark, which has been determined to have an indefinite life due to the fast growth and the leading position of the brand in the U.S.

All other trademarks have been preliminarily determined to have a 20 years useful life.

11 unchanged sentences

The fair value of the noncontrolling interest was based on the tender offer as of the acquisition date.

PMI’s approval of the acquisition by the European Commission, under the EU Merger Regulation, was subject to PMHH’s divestiture of Swedish Match’s subsidiary, SMD Logistics AB, following the completion of the offer to tender all shares in Swedish Match to PMHH.

As a result, these assets have been accounted for as assets held for sale and included within other current assets and other accrued liabilities in PMI’s condensed consolidated balance sheets at March 31, 2023 and December 31, 2022.

Under the EU Merger Regulation, approval by the European Commission of PMI's acquisition of Swedish Match was conditional on PMHH's divestiture of Swedish Match's subsidiary, SMD Logistics AB ("SMDL"), following the completion of the offer to tender all shares in Swedish Match to PMHH.

As a result, these assets were accounted for as assets held for sale and included within other current assets and other accrued liabilities in PMI’s condensed consolidated balance sheets at March 31, 2023 and December 31, 2022.

PMI subsequently sold SMDL on June 30, 2023 and the transaction did not have a material impact on the condensed consolidated statements of earnings for the six months and three months ended June 30, 2023.

The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of PMI and Swedish Match.

19 unchanged sentences

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

to end the companies' relationship regarding the IQOS commercialization rights in the U.S.

("Altria") to end the companies' relationship regarding the IQOS commercialization rights in the U.S.

as of April 30, 2024.

1 unchanged sentence

As part of the agreement, PMI agreed to pay a total cash consideration of $ 2.7 billion, with $ 1.0 billion paid at the inception of the agreement and the remaining $ 1.7 billion (plus interest, at a per annum rate equal to six percent ( 6 %)), to be paid by July 2023 at the latest.

The cash consideration paid at the inception of the agreement of $ 1.0 billion has been accounted for within other assets in PMI’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

As of May 2024, when PMI can exercise its ability to commercialize IQOS in the U.S., PMI will finalize the accounting for this transaction by assigning the consideration to the respective assets.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

The cash consideration paid at the inception of the agreement of $ 1.0 billion has been accounted for within other assets in PMI’s condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

The remaining consideration of $ 1.7 billion plus interest was paid to Altria on July 14, 2023 and will be accounted for within other assets in PMI's condensed consolidated balance sheets as of September 30, 2023.

PMI will finalize the accounting for this transaction by assigning the consideration to the respective assets in May 2024, when PMI can exercise its ability to commercialize IQOS in the U.S.

War in Ukraine:

3 unchanged sentences

Production at the factory in Kharkiv remains suspended.

While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of March 31, 2023, 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 June 30, 2023, 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 March 31, 2023, PMI’s Ukrainian operations had approximately $ 485 million in total assets, excluding intercompany balances.

As of June 30, 2023, PMI’s Ukrainian operations had approximately $ 497 million in total assets, excluding intercompany balances.

These total assets included $ 75 million, $ 305 million and $ 29 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.

PMI is continuously assessing the evolving situation in Russia, including:

recent regulatory constraints in the market that entail very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities;

and restrictions resulting from international regulations.

As a result of PMI continuing operations within Russia as of March 31, 2023, it has not recorded an impairment of long-lived and other assets.

PMI is continuously assessing the evolving situation in Russia, including recent regulatory constraints in the market that entail very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities, and restrictions resulting from international regulations.

As a result of PMI continuing operations within Russia as of June 30, 2023, 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 March 31, 2023 had approximately $ 2.4 billion in total assets, excluding intercompany balances.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Russian operations as of June 30, 2023 had approximately $ 2.4 billion in total assets, excluding intercompany balances.

These total assets included $ 561 million, $ 465 million, $ 932 million, $ 272 million and $ 164 million in cash (primarily held in local currency), receivables, inventories, property, plant and equipment and goodwill, respectively.

In addition, there was approximately $ 928 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of March 31, 2023.

During the three months ended March 31, 2023, PMI did not record any material charges related to the war in Ukraine.

During the three months ended March 31, 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 Three Months Ended March 31, 2022

Cost of sales Marketing, administration and research costs Total

In addition, there was approximately $ 1,132 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, 2023.

During the six months and three months ended June 30, 2023, PMI did not record any material charges related to the war in Ukraine.

During the six months and three months ended June 30, 2022, PMI recorded in its condensed consolidated statements of earnings pre-tax charges related to circumstances driven by the war as follows:

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

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

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

21 50 71 6 50 56

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

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

2 The pre-tax charges were primarily due to inventory write downs related to the commercial decisions noted above.

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

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

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

2 unchanged sentences

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

At March 31, 2023, shares available for grant under the 2022 Plan were 22,158,790 .

At June 30, 2023, shares available for grant under the 2022 Plan were 22,146,010 .

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 March 31, 2023, shares available for grant under the plan were 894,346 .

At June 30, 2023, shares available for grant under the plan were 876,226 .

Restricted share unit (RSU) awards

During the three months ended March 31, 2023 and 2022, shares granted to eligible employees, the weighted-average grant date fair value per share and the recorded compensation expense related to RSU awards were as follows:

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

(in millions)

During the six months ended June 30, 2023 and 2022, 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

2023 1,752,050 $ 101.98

2022 1,575,500 $ 104.99

As of March 31, 2023, PMI had $ 277 million of total unrecognized compensation cost related to non-vested RSU awards.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Compensation expense related to RSU awards was as follows:

Compensation Expense Related to RSU Awards

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

2023 $ 86 $ 36

2022 $ 74 $ 35

As of June 30, 2023, PMI had $ 240 million of total unrecognized compensation cost related to non-vested RSU awards.

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

During the three months ended March 31, 2023, 1,274,379 RSU awards vested.

During the six months ended June 30, 2023, 1,346,307 RSU awards vested.

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

The total fair value of RSU awards that vested during the three months ended March 31, 2023 was approximately $ 128 million.

The total fair value of RSU awards that vested during the six months ended June 30, 2023 was approximately $ 135 million.

Performance share unit (PSU) awards

During the three months ended March 31, 2023 and 2022, PMI granted PSU awards to certain executives.

During the six months ended June 30, 2023 and 2022, PMI granted PSU awards to certain executives.

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

The performance metrics for such PSU's granted during the three months ended March 31, 2023 and 2022 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis ( 40 % weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate ( 30 % weight), and a Sustainability Index, which consists of two drivers:

The performance metrics for such PSU's granted during the six months ended June 30, 2023 and 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;

2 unchanged sentences

The minimum percentage of such PSUs that can vest is zero , with a target percentage of 100 and a maximum percentage of 200 .

Each such vested PSU entitles the participant to one share

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

of common stock.

Each such vested PSU entitles the participant to one share of common stock.

An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested.

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

During the three months ended March 31, 2023 and 2022, shares granted to eligible employees, the grant date fair value per share and the recorded compensation expense related to PSU awards were as follows:

During the six months ended June 30, 2023 and 2022, shares granted to eligible employees and the grant date fair value per share related to PSU awards were as follows:

Number of Shares Granted Weighted-

2 unchanged sentences

Average PSU Grant Date

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

Fair Value Subject to TSR Performance Factors

(Per Share) (Per Share)

2 unchanged sentences

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

The grant date fair value of the PSU market-based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model.

The grant date fair value of the PSU market-based awards subject to the TSR

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

performance factor was determined by using the Monte Carlo simulation model.

The following assumptions were used to determine the grant date fair value of the PSU awards subject to the TSR performance factor:

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(b) Determined using the observed historical volatility.

As of March 31, 2023, PMI had $ 62 million of total unrecognized compensation cost related to non-vested PSU awards.

Compensation expense related to PSU awards was as follows:

Compensation Expense Related to PSU Awards

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

2023 $ 45 $ 18

2022 $ 31 $ 10

As of June 30, 2023, PMI had $ 60 million of total unrecognized compensation cost related to non-vested PSU awards.

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

During the three months ended March 31, 2023, 902,232 PSU awards vested.

During the six months ended June 30, 2023, 902,232 PSU awards vested.

The grant date fair value of all the vested awards was approximately $ 83 million.

The total fair value of PSU awards that vested during the three months ended March 31, 2023 was approximately $ 91 million.

The total fair value of PSU awards that vested during the six months ended June 30, 2023 was approximately $ 91 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 Three Months Ended March 31,

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

(in millions) 2023 2022 2023 2022

9 unchanged sentences

Net periodic pension cost consisted of the following:

For the Three Months Ended March 31,

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

(in millions) 2023 2022 2023 2022

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 $ 45 million were made to the pension plans during the three months ended March 31, 2023.

Employer contributions of $ 72 million were made to the pension plans during the six months ended June 30, 2023.

Currently, PMI anticipates making additional contributions during the remainder of 2023 of approximately $ 56 million to its pension plans, based on current tax and benefit laws.

However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest and currency rates.

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

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

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Goodwill and Other Intangible Assets, net:

Annual impairment review of goodwill and non-amortizable intangible assets

During the second quarter of 2023, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment.

Based on this review, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value.

Consequently, PMI recorded a goodwill impairment charge of $ 665 million, reflecting the impact of reduced estimated future cash flows, which were primarily attributable to clinical trial results that became available in June 2023 for an inhalable aspirin product being developed by the Wellness and Healthcare business.

While it was observed that the experimental product had a rapid onset of effect, which is the key medical advantage sought, there was significant variability in inhaled dose among subjects.

The study was therefore deemed unsuccessful and, as a result, product design improvements are required.

PMI had planned to file a new drug application for this product with the U.S.

Food and Drug Administration later this year.

However, additional time is now required to evaluate design improvements and the corresponding less certain outcome.

The cash flow estimates were also adversely impacted by slower-than-anticipated development of the contract development and manufacturing organization ("CDMO") business, including challenges associated with increased cost related to certain key products.

Additionally, as a result of the impairment test of non-amortizable intangible assets, PMI recorded a pre-tax impairment charge of $ 15 million for an in-process research and development project related to one of PMI's 2021 acquisitions.

These impairment charges were recorded within marketing, administration and research costs in the consolidated statements of earnings for the six months and three months ended June 30, 2023.

The goodwill impairment charge is not deductible for income tax purposes.

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 and estimates, unfavorable clinical trial results, failure to obtain regulatory approvals or other market factors could result in additional future goodwill and other intangible asset impairments.

Certain Wellness and Healthcare products include components or gases which may be subject to enhanced climate change regulations that could impact the related product development and market strategies.

This may also lead to supply disruptions that could result in additional future impairments.

While PMI’s remaining reporting units have fair values substantially in excess of their carrying values, there are still risks related to PMI’s Russian reporting unit’s assets as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions.

For more information see Note 3.

War in Ukraine .

PMI has performed a quantitative impairment assessment for all of its reporting units and non-amortizable intangible assets with the exception of the Swedish Match segment.

As the purchase price allocation for the acquisition of Swedish Match is preliminary, PMI has performed a qualitative impairment assessment and concluded that it was not more likely than not that the fair value of the Swedish Match reporting units and its non-amortizable intangible assets were less than the respective carrying amounts.

The movements in goodwill were as follows:

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Changes due to:

Impairment — — — — — ( 665 ) ( 665 )

Currency 48 68 6 71 ( 94 ) 38 137

Balances, March 31, 2023 $ 1,405 $ 2,944 $ 504 $ 647 $ 13,329 $ 1,037 $ 19,866

Other — — — — 109 — 109

Balances, June 30, 2023 $ 1,418 $ 2,937 $ 499 $ 686 $ 13,311 $ 385 $ 19,236

As discussed in Note 1.

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As a result, the December 31, 2022 goodwill balance in the table above included the reclassifications from the former six geographical segments to the four geographical segments under the new structure.

At March 31, 2023, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and Serbia, as well as the goodwill from the 2021 acquisitions of Fertin Pharma A/S and Vectura Group plc.

and the preliminary purchase price allocation of Swedish Match AB, which was acquired in the fourth quarter of 2022.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

The decrease in goodwill was primarily due to the impairment discussed above, partially offset by currency movements and the measurement period adjustment to the Swedish Match preliminary purchase price allocation.

For further details on the Swedish Match acquisition, see Note 2, Acquisitions .

At June 30, 2023, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and Serbia, as well as the goodwill from the 2021 acquisitions of Fertin Pharma A/S and Vectura Group plc.

and the preliminary purchase price allocation of Swedish Match AB, which was acquired in the fourth quarter of 2022.

Other Intangible Assets

Details of other intangible assets were as follows:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

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Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico, as well as the preliminary purchase price allocation associated with the Swedish Match acquisition in 2022, and PMI's business combinations in 2021 (primarily in-process research and development).

The increase since December 31, 2022 was due to currency movements of $ 59 million.

The increase in the gross carrying amount of amortizable intangible assets from December 31, 2022, was due to currency movements of $ 23 million.

The increase since December 31, 2022 was due to currency movements of $ 87 million, partially offset by an impairment for an in-process research and development project related to one of PMI's 2021 acquisitions discussed above.

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2022, was due to currency movements of $ 9 million.

The change in the accumulated amortization from December 31, 2022, was mainly due to the 2023 amortization of $ 163 million, combined with currency movements of $ 2 million.

The amortization of intangibles for the three months ended March 31, 2023 was recorded in cost of sales ($ 22 million) and in marketing, administration and research costs ($ 59 million) on PMI's condensed consolidated statements of earnings.

The amortization of intangibles for the six months ended June 30, 2023 was recorded in cost of sales ($ 44 million) and in marketing, administration and research costs ($ 119 million) on PMI's condensed consolidated statements of earnings.

Amortization expense for each of the next five years is estimated to be $ 322 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

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Financial Instruments:

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

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

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

PMI operates in markets primarily outside of the United States of America, with manufacturing and sales facilities in various locations around the world and is exposed to risks such as changes in foreign currency exchange rates and interest rates.

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

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

Additionally, certain materials that PMI uses in the manufacturing of its products are exposed to market price risks.

PMI uses commodity derivative contracts (“commodity contracts") to manage its exposure to the market price volatility of certain commodity components of these materials.

These foreign exchange contracts, interest rate contracts and commodity contracts are collectively referred to as "derivative contracts".

PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes.

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

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

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

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

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

(in millions) At March 31, 2023 At December 31, 2022

(in millions) At June 30, 2023 At December 31, 2022

Derivative contracts designated as hedging instruments:

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Interest rate contracts 1,000 1,019

Commodity contracts 26 —

Derivative contracts not designated as hedging instruments:

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Notes to Condensed Consolidated Financial Statements

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, were as follows:

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, were as follows:

Derivative Assets Derivative Liabilities

Fair Value Fair Value

(in millions) Balance Sheet Classification March 31, 2023 December 31, 2022 Balance Sheet Classification March 31, 2023 December 31, 2022

(in millions) Balance Sheet Classification June 30, 2023 December 31, 2022 Balance Sheet Classification June 30, 2023 December 31, 2022

Derivative contracts designated as hedging instruments:

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Other assets — — Income taxes and other liabilities 43 56

Commodity contracts Other current assets — — Other accrued liabilities 1 —

Derivative contracts not designated as hedging instruments:

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Net amount $ 171 $ 186 $ 324 $ 143

PMI assesses the fair value of its foreign exchange contracts and interest rate contracts using standard valuation models that use, as their basis, readily observable market inputs.

PMI assesses the fair value of its derivative contracts using standard valuation models that use, as their basis, readily observable market inputs.

The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments.

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

PMI’s derivative contracts have been classified within Level 2 at March 31, 2023 and December 31, 2022.

The fair value of PMI’s commodity contracts is determined by using the prevailing market spot and futures prices and the respective maturity dates of the instruments.

PMI’s derivative contracts have been classified within Level 2 at June 30, 2023 and December 31, 2022.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

For the three months ended March 31, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

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

For the six months ended June 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

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

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

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Interest rate contracts 72 107 Interest expense, net 22 ( 4 )

Commodity contracts ( 1 ) — Cost of sales — —

Fair value hedges:

Interest rate contracts Interest expense, net (a)

$ ( 14 ) $ ( 57 )

Net investment hedges (b) :

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(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.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

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

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

Classification of Gain/(Loss)

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

2023 2022 2023 2022 2023 2022

Derivative contracts designated as hedging instruments:

Cash flow hedges:

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

Foreign exchange contracts $ 213 $ 169 Net revenues $ 27 $ 64

Cost of sales — —

Marketing, administration and research costs 55 ( 7 )

Interest expense, net ( 3 ) ( 2 )

Interest rate contracts 7 56 Interest expense, net 12 ( 2 )

Commodity contracts ( 1 ) — Cost of sales — —

Fair value hedges:

Interest rate contracts Interest expense, net (a)

$ ( 17 ) $ ( 20 )

Net investment hedges (b) :

Foreign exchange contracts ( 181 ) 425 Interest expense, net (c)

Derivative contracts not designated as hedging instruments:

Foreign exchange contracts Interest expense, net 62 35

Marketing, administration and research costs (d)

Total $ 38 $ 650 $ 91 $ 53 $ 21 $ 116

(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

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

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

As of March 31, 2023, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028.

As of June 30, 2023, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028.

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

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

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of March 31, 2023 was $ 916 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 $ 80 million as of March 31, 2023.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of June 30, 2023 was $ 915 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 $ 81 million as of June 30, 2023.

Hedges of Net Investments in Foreign Operations

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

For the three months ended March 31, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 1 million and $ 66 million, respectively.

For the six months ended June 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 24 million and $ 258 million, respectively.

For the three months ended June 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 23 million and $ 192 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 Three Months Ended March 31,

Gain/(loss) as of January 1, $ 266 $ 4

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

2023 2022 2023 2022

Gain/(loss) as of beginning of period, $ 266 $ 4 $ 296 $ 105

Derivative (gains)/losses transferred to earnings ( 104 ) ( 55 ) ( 75 ) ( 46 )

Change in fair value 246 301 187 191

Gain/(loss) as of March 31, $ 296 $ 105

At March 31, 2023, PMI expects $ 77 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

Gain/(loss) as of June 30, $ 408 $ 250 $ 408 $ 250

At June 30, 2023, PMI expects $ 174 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

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

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

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

Other Investments

A certain PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 173 million at March 31, 2023.

For the three months ended March 31, 2023, the unrealized pre-tax gains on these investments were immaterial.

A certain PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 184 million at June 30, 2023.

For the six months and three months ended June 30, 2023, the unrealized pre-tax gains (losses) on these investments were immaterial.

Earnings Per Share:

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

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

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

2023 2022 2023 2022

Net earnings attributable to PMI $ 3,563 $ 4,564 $ 1,568 $ 2,233

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Segment data were as follows:

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

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

2023 2022 2023 2022

Net revenues:

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SSEA, CIS & MEA

5,145 4,959 2,668 2,514

EA, AU & PMI DF

3,200 3,051 1,680 1,464

Americas 921 893 476 469

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SSEA, CIS & MEA

1,570 1,923 858 958

EA, AU & PMI DF

1,167 1,213 544 528

Americas 136 251 70 130

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

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

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

2023 2022 2023 2022

Net revenues:

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SSEA, CIS & MEA

4,504 4,398 2,350 2,203

EA, AU & PMI DF

1,412 1,523 724 754

Americas 889 846 459 444

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SSEA, CIS & MEA

641 561 318 311

EA, AU & PMI DF

1,788 1,528 956 710

Americas 32 47 17 25

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

• Impairment of goodwill and other intangibles – See Note 6.

Goodwill and Other Intangible Assets, ne t for the details of the $ 680 million goodwill and non-amortizable intangible assets impairment charges included in the Wellness and Healthcare segment for the six months and three months ended June 30, 2023.

• South Korea indirect tax charge – See Note 10.

Contingencies for details of the $ 204 million pre-tax charge included in the EA, AU & PMI DF segment results for the six months and three months ended June 30, 2023.

• Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $ 80 million following the termination of a distribution arrangement in the Middle East.

This pre-tax charge was recorded as a reduction of net revenues in the condensed consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the three months ended March 31, 2023.

• Charges related to the war in Ukraine - In the first quarter of 2022, PMI recorded a pre-tax charge of $ 42 million related to the war in Ukraine.

This pre-tax charge was included in the Europe segment for the three months ended March 31, 2022.

For further details, see Note 3.

War in Ukraine.

• 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 Europe segment for the six months and three months ended June 30, 2022, respectively.

• Swedish Match AB acquisition accounting related item – See Note 2 .

Acquisitions for details of the $ 18 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish Match segment for the three months ended March 31, 2023.

• Asset impairment and exit costs – See Note 17.

Asset Impairment and Exit Costs for details of the $ 109 million pre-tax charges for the three months ended March 31, 2023, as well as a breakdown of these costs by segment.

Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products.

This reclassification did not impact PMI’s consolidated financial position, results of operations or cash flows in any of the periods presented.

Asset Impairment and Exit Costs for details of the $ 109 million pre-tax charge for the six months ended June 30, 2023, as well as a breakdown of these costs by segment.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

This reclassification did not impact PMI’s consolidated financial position, results of operations or cash flows in any of the periods presented.

Net revenues related to combustible tobacco 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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However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.

CCAA Proceedings and Stay of Tobacco-Related Cases Pending in Canada

As a result of the Court of Appeal of Quebec’s decision in both the Létourneau and Blais cases described below, our subsidiary, Rothmans, Benson & Hedges Inc.

(“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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

(“CCAA”) on March 22, March 8, and March 12, 2019, respectively.

CCAA Proceedings and Stay of Tobacco-Related Cases Pending in Canada

As a result of the Court of Appeal of Quebec’s decision in both the Létourneau and Blais cases described below, our subsidiary, Rothmans, Benson & Hedges Inc.

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

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Stayed Litigation — Canada

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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.

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Notes to Condensed Consolidated Financial Statements

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

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(i) defendants had no obligation to warn class members who knew, or should have known, of the risks of smoking;

(ii) defendants cannot be liable to class members who would have smoked regardless of what warnings were given;

(ii) defendants cannot be liable to class members who

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

would have smoked regardless of what warnings were given;

and (iii) defendants cannot be liable to all class members given the individual differences among class members.

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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.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

In the eighth class action pending in Canada, Bourassa v.

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

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Health Care Cost Recovery Litigation — Canada

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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

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

The 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.

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Notes to Condensed Consolidated Financial Statements

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

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The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of March 31, 2023, and March 31, 2022:¹

Type of Case Number of Cases Pending as of March 31, 2023 Number of Cases Pending as of March 31, 2022

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, 2023, and June 30, 2022:

Type of Case 1

Number of Cases Pending as of June 30, 2023 Number of Cases Pending as of June 30, 2022

Individual Smoking and Health Cases 50 40

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Public Civil Actions 1 1

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 529 Smoking and Health, Label-Related, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor.

Fourteen cases have had decisions in favor of plaintiffs.

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

¹ Includes cases pending in Canada.

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 532 Smoking and Health, Label-Related, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor.

Fifteen cases have had decisions in favor of plaintiffs.

Ten of these cases have subsequently reached final resolution in our favor and five remain on appeal, or are subject to an appeal, or our subsidiary may file an appeal.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

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

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

Date Location of

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

Date Location of

Court/Name of

Plaintiff Type of

Case Verdict Post-Trial

June 23, 2023 Turkey/ Senem Yilmazel Individual Action On June 23, 2023, the Ankara Consumer Court published its decision in favor of plaintiff, the daughter of an individual smoker, against our subsidiary and a BAT subsidiary, awarding her TRY 10,000 (approximately $ 370 ) in damages.

The trial court found that the plaintiff’s father died as a result of lung cancer and COPD caused by his cigarette consumption.

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Notes to Condensed Consolidated Financial Statements

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

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

As of March 31, 2023, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 46 cases brought by individual plaintiffs in Argentina ( 32 ), Canada ( 2 ), Chile ( 9 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), compared with 41 such cases on March 31, 2022;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on March 31, 2022.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

As of June 30, 2023, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 50 cases brought by individual plaintiffs in Argentina ( 31 ), Australia ( 1 ), Canada ( 2 ), Chile ( 13 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), compared with 40 such cases on June 30, 2022;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on June 30, 2022.

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 March 31, 2023, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil ( 1 ), Canada ( 10 ), Korea ( 1 ) and Nigeria ( 5 ), compared with 17 such cases on March 31, 2022.

As of June 30, 2023, 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, 2022.

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

British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed October 17, 2008, we and other members of the industry are defendants .

British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed October 17, 2008, we and other members of the

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Notes to Condensed Consolidated Financial Statements

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.

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

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Notes to Condensed Consolidated Financial Statements

We have appealed.

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

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

As of March 31, 2023, there were 6 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 5 ) pending against our subsidiaries, compared with 5 such cases on March 31, 2022.

As of June 30, 2023, there were 5 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 4 ) pending against our subsidiaries, compared with 5 such cases on June 30, 2022.

Public Civil Actions:

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

As of March 31, 2023, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 1 such case on March 31, 2022.

As of June 30, 2023, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 1 such case on June 30, 2022.

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

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The claim asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products.

In addition, the plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their “sales or benefits” to establish a fund to pay for the health care costs of treating smoking-related diseases.

In addition, the plaintiffs ask the court to order companies involved in the tobacco

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industry to allocate a percentage of their “sales or benefits” to establish a fund to pay for the health care costs of treating smoking-related diseases.

In October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements.

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

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June 2021, our subsidiaries answered the amended complaint.

In June 2021, our subsidiaries answered the amended complaint.

The court conducted an evidentiary hearing on February 23, 2023.

On May 12, 2023, the court entered an order denying the plaintiff’s claims and granting our subsidiaries’ defenses.

The plaintiff did not appeal, and the matter is now closed.

Other Litigation

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The new act, which took effect in November 2017, substantially limits the amount of fines that Thailand could seek in these proceedings.

PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law, and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court.

PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of

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the World Trade Organization and Thai law, and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court.

Trial in the case began in November 2018 and concluded in December 2019.

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The appellate court affirmed the acquittal of the individual defendant.

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

The Public Prosecutor has filed an appeal to the Supreme Court of Thailand challenging the dismissal of charges against the individual defendant and the amount of the fine.

Our subsidiary may file an appeal to the Supreme Court of Thailand, and its deadline to do so has been extended.

Thailand is required to refund any payment made by our subsidiary in excess of any fine assessed by the courts.

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("PM Korea"), our South Korean subsidiary, were in compliance with South Korean tax laws.

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

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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 $ 204 million), of which KRW 100 billion (approximately $ 75 million) was paid in 2016 and KRW 172 billion (approximately $ 129 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.

These paid amounts 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.

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The tax authorities have appealed to the Supreme Court of South Korea.

On July 13, 2023, the Supreme Court reversed the appellate court's decision and remanded the appeals back to the appellate court.

Based on the decision issued by the Supreme Court of South Korea on July 13, 2023, management has concluded that an adverse outcome is probable.

In June 2020, another trial court ruled that PM Korea did not underpay approximately KRW 54 billion (approximately $ 41 million) of alleged underpayments.

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

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

Based on the decision issued by the Supreme Court of South Korea on July 13, 2023, management has concluded that an adverse outcome is probable.

Consequently, PMI recorded a non-cash pre-tax charge of $ 204 million in marketing, administration and research costs in the condensed consolidated statements of earnings for the three months and six months ended June 30, 2023, reflecting the full amount previously paid by PM Korea.

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

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

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

On September 10, 2021, the court granted defendant's motion to dismiss plaintiffs'

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amended complaint in its entirety.

Plaintiffs have filed an appeal with the U.S.

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Altria Client Services LLC, et al.

, in the federal court in the Eastern District of Virginia, where PMI's subsidiary, Philip Morris Products S.A., as well as Altria Group, Inc.'s subsidiaries, are defendants.

, in the federal court in the Eastern District of Virginia, where PMI's subsidiary, Philip Morris Products S.A.

("PMPSA"), as well as Altria Group, Inc.'s subsidiaries, are defendants.

Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in the United States.

In April 2020, BAT affiliates filed a complaint against PMI, Philip Morris Products S.A., Altria Group, Inc., and its subsidiaries before the International Trade Commission ("ITC").

In April 2020, BAT affiliates filed a complaint against PMI, PMPSA, Altria Group, Inc., and its subsidiaries before the International Trade Commission ("ITC").

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

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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;

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

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

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

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

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

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

Tariff Act and issued (a) a limited exclusion order against PMPSA, 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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Defendants also filed motions in the ITC and Federal Circuit for a stay of the orders pending disposition of the appeal;

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

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January 25, 2022.

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, on March 31, 2023, the Federal Circuit affirmed the FD.

We are evaluating options to further appeal this Federal Circuit decision, but 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.

This adverse ruling impacts our ability to import the products and components impacted by the ITC's FD but has an immaterial financial impact.

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

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e-vapor products.

The parties may appeal the jury verdict and court decisions.

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

On May 1, 2023, the court entered partial final judgment under Rule 54(b) on PMPSA's claim against BAT's affiliate.

That same day, BAT's affiliate filed a notice of appeal to the U.S.

Court of Appeals for the Federal Circuit.

On May 10, 2023, PMPSA filed a notice of cross-appeal.

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

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

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Court of Appeals for the Federal Circuit.

Oral argument was held on July 13, 2023.

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;

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

PM GmbH, et al., against PMI’s German subsidiary, Philip Morris GmbH, and Philip Morris Products S.A., in the Regional Court in Munich, Germany.

PM GmbH, et al., against PMI’s German subsidiary, Philip Morris GmbH, and PMPSA, in the Regional Court in Munich, Germany.

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

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the stayed action based on the second patent remains pending and is stayed pending a possible appeal by BAT of the revocation of that second patent by the European Patent Office.

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

Philip Morris Products S.A., et al.

, against Philip Morris Products S.A.

, against PMPSA.

and PMI’s Italian subsidiaries, Philip Morris Manufacturing & Technology Bologna S.p.A.

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

The merits proceeding remains pending;

the next hearing is currently scheduled to occur in the first quarter of 2024.

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

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BAT filed an appeal of this dismissal.

BAT's claim with respect to the second patent remains pending;

the next procedural hearing is currently scheduled to occur in the third quarter of 2023.

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

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

On May 30, 2022, the Korean

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Patent Office issued a decision that all of the challenged claims in the patent asserted by Plaintiffs are invalid;

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.

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 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 court postponed the next hearing in the infringement proceeding pending developments at the Korean Patent Office.

In July, 2021, PMPSA 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 March, the BAT affiliates stated that they would consent to revocation of one of the patents and filed a counterclaim against PMPSA 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.

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(“PMIBV”), a PMI subsidiary.

On October 17, 2020, Medicago had 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, 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”).

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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 for the Second Stage.

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On February 3, 2023, PMI learned through a public announcement that a decision has been taken to cease all operations at Medicago and to proceed with an orderly wind up of Medicago’s business and operations.

As of March 31, 2023, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

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As of June 30, 2023, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

Income Taxes:

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

PMI’s effective tax rates for the three months ended March 31, 2023 and 2022 were 17.3 % and 19.7 %, respectively.

The effective tax rate for the three months ended March 31, 2023, was favorably impacted by a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($ 79 million), while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in its condensed consolidated statements of stockholders' (deficit) equity.

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

PMI’s effective tax rates for the six months and three months ended June 30, 2023 were 20.8 % and 24.7 %, respectively.

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

The effective tax rate for the six months ended June 30, 2023, was unfavorably impacted by the non-deductible Wellness and Healthcare goodwill impairment charge, partially offset by a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($ 96 million), while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in its condensed consolidated statements of stockholders' (deficit) equity.

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.

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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 March 31, 2023 and December 31, 2022, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

The amount paid was included in other assets in PMI’s condensed consolidated balance sheets at June 30, 2023 and December 31, 2022, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

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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:

At March 31, 2023 and December 31, 2022, PMI’s short-term borrowings and related average interest rates consisted of the following:

March 31, 2023 December 31, 2022

At June 30, 2023 and December 31, 2022, PMI’s short-term borrowings and related average interest rates consisted of the following:

June 30, 2023 December 31, 2022

(in millions) Amount Outstanding Average Rate Amount Outstanding Average Rate

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Given the mix of PMI's legal entities and their respective local economic environments, the average interest rate for bank loans above can vary significantly from day to day and country to country.

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

Long-term Debt:

At March 31, 2023 and December 31, 2022, PMI’s long-term debt consisted of the following:

(in millions) March 31, 2023 December 31, 2022

At June 30, 2023 and December 31, 2022, PMI’s long-term debt consisted of the following:

(in millions) June 30, 2023 December 31, 2022

dollar notes, 0.875 % to 6.375 % (average interest rate 4.347 %), due through 2044

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Euro notes, 0.125 % to 3.125 % (average interest rate 1.877 %), due through 2039

Swiss franc notes, 1.625 % to 2.125 % (average interest rate 1.768 %), due through 2024

Swiss franc note, 1.625 %, due 2024

Euro credit facility borrowings related to Swedish Match AB acquisition, (average interest rate 3.866 %), due through 2027

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$ 41,400 $ 34,875

(a) Includes mortgage debt in Switzerland as well as $ 31 million and $ 54 million in finance leases at March 31, 2023 and December 31, 2022, respectively.

(a) Includes long-term bank loans at subsidiaries, as well as $ 29 million and $ 54 million in finance leases at June 30, 2023 and December 31, 2022, respectively.

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

At March 31, 2023, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

At June 30, 2023, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

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(in millions)

March 31, 2023

June 30, 2023

Level 1 $ 35,139

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PMI borrowed $ 8.4 billion under the bridge facility by delivering notices of borrowing for advances of $ 7.9 billion and $ 0.5 billion on November 7, 2022 and November 10, 2022, respectively.

All amounts borrowed under the bridge facility would

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become due on November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility.

All amounts borrowed under the bridge facility would become due on November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility.

On November 7, 2022, PMI also delivered notices of borrowing for advances totaling € 5.5 billion under the term loan facility, of which € 3.0 billion will become due on November 9, 2025 and € 2.5 billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit agreement.

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Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.

As of March 31, 2023 and December 31, 2022, the € 5.5 billion (approximately $ 6.0 billion) term loan facility was fully drawn and remained outstanding.

As of June 30, 2023 and December 31, 2022, the € 5.5 billion (approximately $ 6 billion) term loan facility was fully drawn and remained outstanding.

The proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the payment of related fees and expenses.

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Acquisitions .

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Debt Issuances

PMI's debt issuances in the first three months of 2023 were as follows:

PMI's debt issuances in the first six months of 2023 were as follows:

(in millions)

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$ 1,500 5.375 % February 2023 February 2033

dollar notes (a) (b) $ 450 4.875 % May 2023 February 2026

dollar notes (a) (c) $ 550 4.875 % May 2023 February 2028

dollar notes (a) (d) $ 700 5.125 % May 2023 February 2030

dollar notes (a) (e) $ 750 5.375 % May 2023 February 2033

(a) Interest is payable semi-annually, commencing in August 2023

(b) These notes are a further issuance of the 4.875 % notes issued in February 2023

(d) These notes are a further issuance of the 5.125 % notes issued in February 2023

(e) These notes are a further issuance of the 5.375 % notes issued in February 2023

On February 17, 2023, PMI applied a portion of the net proceeds of the debt issuances to prepay $ 4.4 billion under its bridge facility, which represented all borrowings outstanding under the bridge facility.

The remaining net proceeds of the offering have been or will be used for general corporate purposes.

PMI used a portion of the May 2023 net proceeds to pay the remaining cash consideration due in accordance with the terms of its agreement with Altria.

For further details on PMI's agreement with Altria, see Note 2.

Acquisitions .

The remaining net proceeds of the February and May 2023 offerings have been or will be used for general corporate purposes.

Revolving Credit Facilities:

At March 31, 2023, PMI's total committed revolving credit facilities were as follows:

At June 30, 2023, PMI's total committed revolving credit facilities were as follows:

(in billions)

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(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 March 31, 2023, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

At June 30, 2023, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Philip Morris International Inc.

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In addition to the committed revolving credit facilities discussed above, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs.

These credit arrangements amounted to approximately $ 3.1 billion at March 31, 2023, and approximately $ 1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $ 708 million at March 31, 2023, and $ 295 million at December 31, 2022.

These credit arrangements amounted to approximately $ 2.7 billion at June 30, 2023, and approximately $ 1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $ 146 million at June 30, 2023, and $ 295 million at December 31, 2022.

Accumulated Other Comprehensive Losses:

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(Losses) Earnings At At At

(in millions) March 31, 2023 December 31, 2022 March 31, 2022

(in millions) June 30, 2023 December 31, 2022 June 30, 2022

Currency translation adjustments $ ( 8,678 ) $ ( 8,003 ) $ ( 6,558 )

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Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the three months ended March 31, 2023 and 2022.

For additional information, see Note 2.

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Equity Method Investments:

At March 31, 2023 and December 31, 2022, PMI had total equity method investments of $ 997 million and $ 1,000 million, respectively.

At June 30, 2023 and December 31, 2022, PMI had total equity method investments of $ 1,247 million and $ 1,000 million, respectively.

Equity method investments are initially recorded at cost.

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

The carrying value of our equity method investments at March 31, 2023 and December 31, 2022, exceeded our share of the investees' book value by $ 724 million and $ 750 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $ 693 million and $ 715 million attributable to goodwill as of March 31, 2023 and December 31, 2022, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis.

At March 31, 2023 PMI received no year-to-date dividends from equity method investees.

At December 31, 2022, PMI received year-to-date dividends from equity method investees of $ 9 million.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of March 31, 2023 had a carrying value of $ 440 million.

While as of March 31, 2023, 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 June 30, 2023 and December 31, 2022, exceeded our share of the investees' book value by $ 902 million and $ 750 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets is mainly attributable to equity method goodwill, convertible debt instruments, and definite-lived intangible assets and other assets.

The difference related to the definite-lived intangibles and other assets at June 30, 2023 and December 31, 2022 of $ 34 million and $ 35 million, respectively, is amortized on a straight-line basis and is included in Equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings.

At June 30, 2023 and December 31, 2022, PMI received year-to-date dividends from equity method investees of $ 50 million and $ 9 million, respectively.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of June 30, 2023 had a carrying value of $ 377 million.

While as of June 30, 2023, 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 $ 499 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 March 31, 2023.

Additionally, there was approximately $ 548 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, 2023.

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

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Holding ("MADAR Holding"), which manufactures and distributes under license some of PMI’s brands (SSEA, CIS & MEA segment).

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

In April 2023, PMI increased its equity ownership and acquired 66.73 % of Egyptian Investment Holding (“EIH”), a United Arab Emirates based company and as a result, acquired an approximate economic interest of 25 % in United Tobacco Company ("UTC").

UTC is an entity incorporated in Egypt, which is 38 % owned by EIH and manufactures products under license for Philip Morris Misr LCC (“PMM”), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the SSEA, CIS & MEA segment.

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

Transactions between these equity method investees and PMI subsidiaries are considered to be related-party transactions and are included in the tables below.

Equity securities:

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

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 332 million at March 31, 2023.

Unrealized pre-tax gain (loss) of $ 6 million ($ 5 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 three months ended March 31, 2023.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 313 million at June 30, 2023.

Unrealized pre-tax gain (loss) of $( 13 ) million ($( 10 ) 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 six months ended June 30, 2023.

Other related parties:

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

Additionally, TTI holds a 32.9 % non-controlling interest in United Tobacco Company (“UTC”), an entity incorporated in Egypt which manufactures products for PMM under license.

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

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

For the Three Months Ended March 31,

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

(in millions) 2023 2022 2023 2022

3 unchanged sentences

Net revenues (a)

$ 1,774 $ 1,547 $ 901 $ 869

Other $ 113 $ 29 $ 63 $ 17

5 unchanged sentences

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

(in millions) At March 31, 2023 At December 31, 2022

(in millions) At June 30, 2023 At December 31, 2022

Megapolis Group $ 441 $ 478

12 unchanged sentences

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

The amounts associated with the servicing liability were no t material as of March 31, 2023 and March 31, 2022.

The amounts associated with the servicing liability were no t material as of June 30, 2023 and June 30, 2022.

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

Cumulative trade receivables sold, including excise taxes, for the three months ended March 31, 2023 and 2022, were $ 2.9 billion and $ 2.8 billion, respectively.

Cumulative trade receivables sold, including excise taxes, for the six months ended June 30, 2023 and 2022, were $ 6.1 billion and $ 5.6 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 March 31, 2023 and March 31, 2022, were $ 970 million, and $ 598 million, respectively.

The trade receivables sold that remained outstanding under these arrangements as of June 30, 2023 and June 30, 2022, were $ 683 million, and $ 656 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 three months ended March 31, 2023 and 2022, the loss on sale of trade receivables was $ 10 million and $ 3 million, respectively.

The loss on sale of trade receivables was as follows:

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

2023 $ 24 $ 14

Philip Morris International Inc.

7 unchanged sentences

PMI accounts for its product warranties within other accrued liabilities.

At March 31, 2023 and December 31, 2022, these amounts were as follows:

(in millions) As of and For the Three Months Ended March 31, 2023 As of and For the Year Ended December 31, 2022

At June 30, 2023 and December 31, 2022, these amounts were as follows:

(in millions) As of and For the Six Months Ended June 30, 2023 As of and For the Year Ended December 31, 2022

Balance at beginning of period $ 104 $ 113

5 unchanged sentences

Asset Impairment and Exit Costs:

For the three months ended March 31, 2023, PMI recorded total pre-tax asset impairment and exit costs of $ 109 million.

This pre-tax charge was included in marketing, administration and research costs in the condensed consolidated statements of earnings for the three months ended March 31, 2023.

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

For the six months ended June 30, 2023, PMI recorded total pre-tax asset impairment and exit costs of $ 109 million related to restructuring activities.

For the three months ended June 30, 2023, PMI did no t record such charges related to restructuring activities.

These pre-tax charges were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the six months ended June 30, 2023.

For the six months and three months ended June 30, 2022, PMI did no t record any charges for asset impairment and exit costs related to restructuring activities.

During the six months and three months ended June 30, 2023, PMI recorded a pre-tax impairment charge on goodwill and other intangibles of $ 680 million within the Wellness and Healthcare segment.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

e-Vapor Products Manufacturing Optimization

8 unchanged sentences

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

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

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

Contract termination charges:

8 unchanged sentences

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the three months ended March 31, 2023 was as follows:

The movement in exit cost liabilities for the six months ended June 30, 2023 was as follows:

(in millions)

3 unchanged sentences

Currency/other 2

Liability balance, March 31, 2023 $ 112

Liability balance, June 30, 2023 $ 96

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

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

The components of PMI’s lease cost were as follows for the three months ended March 31, 2023 and 2022:

For the Three Months Ended March 31,

The components of PMI’s lease cost were as follows for the six months and three months ended June 30, 2023 and 2022:

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

(in millions) 2023 2022 2023 2022

15 unchanged sentences

The associated payments are included in cash flows from operating activities within PMI's condensed consolidated statement of cash flows.

As of March 31, 2023 and December 31, 2022, the total amount due to suppliers participating in the SCF program was approximately $ 1.1 billion.

As of June 30, 2023 and December 31, 2022, the total amount due to suppliers participating in the SCF program was approximately $ 0.9 billion and $ 1.1 billion, respectively.

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